Registration NO. 33-58191
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 2
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
(630) 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
(630) 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 and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front and Outside
Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges Factors To Be Considered;
Summary
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution Plan and
Offering Terms
9. Description of Securities to be Registered Outside Front Cover Page;
Description of Capital
Stock
10. Interests of Named Experts and Counsel Opinions of Experts
11. Information with Respect to the
Registrant The Company's Business;
Properties; Index to
Financial Statements;
Selected Financial
Data; Management's
Discussion and Analysis
of Financial Condition
and Results of
Operations; Management.
12. Incorporation of Certain Information by
Reference Documents Incorporated by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Indemnification
Obligations of Company
and S.E.C. Position on
Securities Act
Indemnification
PROSPECTUS
ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60521
(630) 990-6600
1,558 Shares Class A (Voting) Stock, $1,000 par value
62,509 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 $ 1,558,000 None $ 1,558,000
Class C Stock
Per Share(1)(3)(4)(6) $ 100 None $ 100
Total $62,509,000 None $62,509,000
(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 1996 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. No state securities commission has
passed upon the accuracy of this prospectus.
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, 1998.
The date of this Prospectus is _________, 1997
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,
1996 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, (630) 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 15, 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,
(630) 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, 1996 were 5,067. (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 bi-weekly 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, 1996 the number of outstanding shares of the
Company's stock is Class A stock - 3,937 shares, Class B stock - 2,896
shares and Class C stock - 1,967,420 shares. As of the completion of this
offering, assuming that all Class A stock is sold, the number of
outstanding shares of the CompanyOs stock will be Class A stock - 5,487
shares, Class B stock - 2,852 shares and Class C stock - 2,018,350 shares.
Under the applicable provisions of the General Corporation Law of
Delaware, however, the Company would be prohibited from repurchasing any of
its shares at any time when its assets are less than the amount represented
by the aggregate outstanding shares of its capital stock or would be
reduced below said amount as a result of a repurchase of its shares.
The number of shares of stock repurchased by the Company and the price
per share paid by it during each of the past three calendar years were as
follows:
<TABLE>
<CAPTION>
Class of Stock
A B C
No.of Purchase No.of Purchase No.of Purchase Aggregate
Shares Price Shares Price Shares Price Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996 236 $1,000 132 $2,000 99,290 $100 $10,429,000
Year ended December 31, 1995 256 $1,000 220 $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
</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 1994 through
1996 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
215 field sales personnel including retail consultants, management and retail
development personnel whose duties include contact with retail dealer outlets
and promotion of the Company's business and the dealer services offered by it.
Among these field sales personnel are Market Development Managers, New Business
Sales Managers, and Retail Sales Managers whose duties include initial contact
with potential retail dealer outlets. The Company's field sales personnel,
however, do not and are not empowered to accept new dealer outlets on behalf
of the Company, not 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 outstanding 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 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 and Secretary, 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 consolidated financial statements of Ace Hardware Corporation as of
December 31, 1996 and 1995 and for each of the years in the three-year
period ended December 31, 1996, 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 (630) 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 entitling them to
purchase merchandise and services from the Company and to use the Company's
marks as provided therein. (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, 1996 there were 5067 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 and Texas (approximately 6% each), Florida
(approximately 5%) and Michigan and Georgia (approximately 4% each). States
into which were shipped the largest percentages of the merchandise sold by
the Company in 1996 are California (approximately 11%), Illinois
(approximately 7%), Florida and Texas (approximately 6% each), Michigan
(approximately 5%) and Georgia (approximately 4%). Approximately 4% 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:
1996 1995 1994
---- ---- ----
Member outlets at beginning of period 5,007 4,940 4,921
New member outlets 281 285 198
Member outlets terminated 221 218 179
----- ----- -----
Member outlets at end of period 5,067 5,007 4,940
===== ===== =====
Dealers having one or more member
outlets at end of period 4,084 4,055 4,054
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 dealer price established by the Company
("dealer cost"), to which a 10% adder ("handling charge") is generally
added. In 1996 warehouse sales accounted for 61% of total sales and
bulletin sales accounted for 2% of total sales with the balance of 37%
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:
Class of Merchandise 1996 1995 1994
-------------------- ---- ---- ----
Paint, cleaning and related supplies 20% 19% 19%
Plumbing and heating supplies 16% 16% 16%
Hand and power tools 14% 14% 14%
Garden, rural equipment and related supplies 13% 13% 11%
General hardware 12% 13% 13%
Electrical supplies 12% 13% 12%
Sundry 7% 7% 9%
Housewares and appliances 6% 5% 6%
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 with an adder ("handling charge") that varies in
accordance with the following schedule and is exclusive of sales under the
LTL Plus program discussed below.
Invoice Amount Adder (Handling Charge)
-------------- -----------------------
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 delivered to members who placed orders. A 6% adder
("handling charge") is generally applied to this category of sales.
An additional adder 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% adder are assessed a flat 2% adder 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 adder (handling
charge) or national advertising assessment on direct shipment orders for
such products. The LBM program enables the Company's dealers to realize
important 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 "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 adder ("handling charge"), 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 forms 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 adder ("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 an established cost), such as
inventory control systems, as well as price and bin ticketing. 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 accelerated 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
generally applicable 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. As of the date hereof, the
Company operates two company-owned stores through its wholly-owned
subsidiary, AHC Store Development, Inc.
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".
During 1996 the Company commenced operations through Ace Hardware
Canada, Limited, a wholly-owned subsidiary as a wholesaler of hardware and
related merchandise through two distribution facilities located in Calgary,
Alberta and Brantford, Ontario. Ace Hardware Canada, Limited generated less
than two percent of the Company's consolidated revenue during 1996.
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 "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 businesses. 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 pay the Company the established
charges for such services.
Special Charges and Assessments
The Company sponsors a national advertising program for which its
dealers are assessed an amount equal to 1.25% (1.3% effective January 1,
1997) of their purchases (exclusive of purchases of lumber, LTL, LTL Plus,
building materials products and PACE hardware and software computer
systems), with the minimum annual assessment for each dealer location being
established at $1,560.00 for the year ending December 31, 1996 and
$1,622.40 effective January 1, 1997 (or such greater amount as would be
required to maintain the foregoing minimum applicable assessments at 1.25%
and 1.3%, respectively) 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 ($5,500.00 for 1997); 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 for 1996 and $5,500.00 for 1997 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 $50.00 per bi-weekly
billing statement period is imposed on all stores whose annual purchases
(exclusive of lumber and LTL purchases) are less than $50,000.00 and $30.00
per bi-weekly billing for annual purchases between $50,000 and $124,800.
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 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 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 $5,000.00; 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 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 for
each single store or parent store and $11 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 $20 for
each single store or parent store and $10 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:
Type of Registration
Description of Mark Mark Number Expiration Date
--------------------- ------- ------------ ---------------
"ACE HARDWARE" with winged
emblem design Service Mark 840,176 December 5, 2007
"ACE HARDWARE" with winged
emblem design Trademark 898,070 September 8, 2000
"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*
"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 stylized
lettering 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 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
"HELPFUL HARDWARE FOLKS" Service Mark 1,970,828 April 30, 2006
"ACE HOME CENTER" Service Mark 1,982,130 June 25, 2006
"SEALTECH" Trademark 2,007,132 October 8, 2006
"GREAT FINISHES" Trademark 2,019,696 November 26, 2006
*The Company has amendments pending before the U.S. Patent and
Trademark Office to change the word "MAN" to "FOLKS".
Currently, the Company has applications pending before the U.S. Patent
and Trademark Office for Registration of "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, "ACE ROYAL" for exterior and interior paint, "QUALITY SHIELD"
for exterior and interior paints, primers, stains, lacquers and varnishes,
"QUALITY TOUCH" for exterior and interior paints, primers, stains, lacquers
and varnishes, "STAIN HALT" for paint primers and sealers, and "ACE DRY GUARD"
for waterproofing paint. In addition, the Company also has service mark
applications pending for "ACE COMMERCIAL & INDUSTRIAL SUPPLY" for retail store
services in the field of hardware and related goods, "NHS NATIONAL
HARDLINES SUPPLY" for hardware wholesaling and related goods and "HELPFUL
HARDWARE CLUB" for club services, namely providing benefits to preferred
customers (consumers).
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,
and Servistar Corporation (which announced the signing of a merger
agreement in December, 1996), as well as with 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 4,352 full-time employees, of which 1,282 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 CompanyOs 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:
1996 1995 1996
---- ---- ----
Warehouse Sales 4.53912% 4.42965% 4.64117%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0 1.0% 1.0%
Paint Sales 7.9773% 6.8725% 8.2205%
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 .4328%,
.3560% and .4073% 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 1996, 1995 and 1994,
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 1996, 1995
and 1994.
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)below.)
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.
With certain modifications, the above Plan is 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 Plan.
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 Plan is applied separately to patronage
dividends on lumber and building materials sales and the requirements of
Paragraph 2 of the Plan 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 Plan, 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 cash portion of
the annual patronage dividends of such dealers shall in no event be less
than 30%.
It is anticipated that the terms of any patronage refund certificates
issued pursuant to Paragraph 3. of the foregoing Plan 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 and to finance
capital improvements, 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, 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 and in the case of capital
improvements, up to $2.00 per square foot of retail space repayable over a
period of three (3) 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, computer financing and store retrofit
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, non-member 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 plan 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 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 as a member-shareholder. 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, 1996, 1995
and 1994, 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
patronage dividends. (See Appendix A, Article XXV, Sections 3 and 4 of the
By-laws regarding International Retail Merchants and non-member accounts.)
In 1996, the Company commenced operations through Ace Cananda, Limited. Ace
Canada merchants are not shareholders of the Company, nor do they receive
distribution of patronage dividends.
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:
Square Feet Owned Lease
of Facility or Expiration
Location (Land in Acres) Leased Date
-------- --------------- ------ ----------
General Offices:
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois 70,508 Owned
Markham, Ontario, Canada (1) 15,372 Leased February 28, 2006
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 2006
Arlington, Texas 313,000 Leased July 31, 2002
Perrysburg, Ohio 396,000 Leased November 1, 2004
Tampa, Florida 391,760 Owned
Harmans, Maryland 277,000 Owned
Yakima, Washington 502,400 Owned
Maumelle, Arkansas 585,500 Owned
LaCrosse, Wisconsin 363,000 Owned
Bloomfield, Connecticut 449,820 Owned
Huntersville, North Carolina 354,000 Owned
Rocklin, California 470,000 Owned
Gainesville, Georgia 478,000 Owned
Prescott Valley, Arizona 633,000 Owned
Princeton, Illinois 1,080,000 Owned
Carol Stream, Illinois (2) 250,000 Leased September 30, 1999
Chicago, Illinois (3) 18,168 Leased May 31, 1998
Brantford, Ontario, Canada (4) 354,000 Leased March 31, 2006
Baltimore, Maryland (5) 158,485 Leased March 31, 1998
Colorado Springs, Colorado 493,000 Owned
Wilton, New York (8) 130 acres Leased September 1, 2007
Calgary, Alberta, Canada (4) 240,000 Leased December 31, 2001
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
LaCrosse, Wisconsin (6) 3 acres Owned
Yorkville, Illinois (7) 12,500 Leased July 31, 2005
Arlington Heights, Illinois (7) 22,095 Leased December 31, 2001
Pleasant Prairie, Wisconsin (7) 14,914 Leased February 28, 2006
------------
(1) This facility is leased by the Company's wholly owned subsidiary, Ace
Hardware Canada, Limited for use as its corporate office.
(2) This facility was leased by the Company in October, 1994, for use as a
bulk merchandise redistribution center.
(3) This facility was leased by the Company in June, 1994, for use as a
freight consolidation center.
(4) This facility is leased by the Company's wholly owned subsidiary, Ace
Hardware Canada, Limited for use as a distribution warehouse.
(5) This facility was leased by the Company in February, 1995 for use as a
redistribution center.
(6) This land is adjacent to the Company's LaCrosse, Wisconsin warehouse.
(7) These facilities are retail hardware stores leased by the Company's
wholly owned subsidiary, A.H.C. Store Development Corp. The Pleasant
Prairie, Wisconsin property is being remodeled. Its lease term is 10
years from the time the remodeling is substantially completed,
estimated to occur during the first quarter of 1997.
(8) This property was purchased by the Company in October, 1996, then sold
to and leased back from the County of Saratoga Industrial Development
Agency. A distribution warehouse containing approximately 792,000
square feet is currently under construction and expected to be in
operation during the third quarter of 1997.
The Company also leases a fleet of transportation equipment for the primary
purpose of delivering merchandise from the Company's warehouses to its
dealers.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 32
Consolidated Balance Sheets as of December 31, 1996 and 1995 33
Consolidated Statements of Earnings for the years in the
three-year period ended December 31, 1996 35
Consolidated Statements of Member Dealers' Equity for the
years in the three-year period ended December 31, 1996 36
Consolidated Statements of Cash Flows for the years in the
three-year period ended December 31, 1996 37
Notes to Consolidated Financial Statements 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the accompanying consolidated balance sheets of Ace
Hardware Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of earnings, member dealers' equity and
cash flows for each of the years in the three-year period ended December
31, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ace
Hardware Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 30, 1997
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
---- ----
(000's omitted)
Current assets:
Cash and cash equivalents $ 12,657 $ 12,853
Receivables:
Trade 305,742 248,572
Other 43,206 39,916
---------- ----------
348,948 288,488
Less allowance for doubtful receivables (1,700) (1,410)
---------- ----------
Net receivables 347,248 287,078
Inventories (Note 2) 327,145 254,451
Prepaid expenses and other current assets 11,880 9,324
---------- ----------
Total current assets 698,930 563,706
Property and equipment (Note 9):
Land 17,464 16,063
Buildings and improvements 162,100 145,359
Warehouse equipment 57,246 51,457
Office equipment 71,689 61,568
Manufacturing equipment 13,132 12,636
Transportation equipment 14,609 14,763
Leasehold improvements 15,654 13,498
Construction in progress 12,501 12,449
---------- ----------
364,395 327,793
Less accumulated depreciation and
amortization (150,861) (136,289)
---------- ----------
Net property and equipment 213,534 191,504
Other assets 3,911 3,923
---------- ----------
$ 916,375 $ 759,133
========== ==========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
LIABILITIES AND MEMBER DEALERS' EQUITY
1996 1995
---- ----
(000's omitted)
Current liabilities:
Current installments of long-term
debt (Note 4) $ 6,727 $ 7,378
Short-term borrowings (Note 3) 71,000 13,000
Accounts payable 394,070 338,577
Patronage dividends payable in
cash (Note 5) 28,178 23,522
Patronage refund certificates
payable (Note 5) 14,138 12,641
Accrued expenses 36,349 28,783
---------- ----------
Total current liabilities 550,462 423,901
Long-term debt (Note 4) 71,837 57,795
Patronage refund certificates
payable (Note 5) 49,639 54,741
Other long-term liabilities 11,074 5,451
---------- ----------
Total liabilities 683,012 541,888
---------- ----------
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,937 3,905
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 196,742 177,817
Class C Stock of $100 par value,
issuable to dealers for patronage
dividends 26,474 27,506
Additional stock subscribed, net 502 515
Retained earnings 3,120 4,650
Contributed capital 3,295 3,295
----------- -----------
240,569 224,187
Less: Treasury stock, at cost (7,206) (6,942)
----------- -----------
Total member dealers' equity 233,363 217,245
Commitments (Notes 6 and 9)
---------- ----------
$ 916,375 $ 759,133
========== ==========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
(000's omitted)
Net sales $2,742,451 $2,436,012 $2,326,115
Cost of sales 2,535,014 2,253,430 2,152,322
------------ ------------ ------------
Gross profit 207,437 182,582 173,793
------------ ------------ ------------
Operating expenses:
Warehouse and distribution 36,442 29,849 28,874
Selling, general and administrative 68,323 59,929 54,357
Retail success and development 21,198 18,439 14,798
------------ ----------- -----------
Total operating expenses 125,963 108,217 98,029
------------ ----------- -----------
Operating income 81,474 74,365 75,764
Interest expense (Note 11) (11,855) (13,137) (13,474)
Other income, net 3,806 3,715 3,361
Income taxes (Note 7) (1,118) (1,201) (1,129)
------------ ------------ ------------
Net earnings $ 72,307 $ 63,742 $ 64,522
============ ============ ============
Retained earnings at
beginning of year $ 4,650 $ 5,624 $ 5,622
Net earnings 72,307 63,742 64,522
Patronage dividends (Notes 5 and 8) (73,837) (64,716) (64,520)
------------ ------------ ------------
Retained earnings at end of year $ 3,120 $ 4,650 $ 5,624
============ ============ ============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1996
(000's omitted)
Class C Stock
Issuable to
Dealers for Additional
Class A Class B Class C Patronage Stock
Stock Stock Stock Dividends Subscribed*
------- ------- -------- --------- -----------
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
Net earnings - - - - -
Net payments on subscriptions - - - - 1,603
Patronage financing deductions - - - (43) -
Stock issued 268 - 28,854 (27,463) (1,616)
Stock repurchased - - - - -
Stock retired (236) - (9,929) - -
Stock issuable as patronage
dividends - - - 26,474 -
Patronage dividends payable - - - - -
------- ------- --------- -------- -------
Balance at December 31, 1996 $3,937 $6,499 $196,742 $26,474 $ 502
======= ======= ========= ======== =======
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1996
(000's omitted)
Retained Contributed Treasury C
Earnings Capital Stock Total
-------- ----------- ---------- -----
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
Net earnings 72,307 - - 72,307
Net payments on subscriptions - - - 1,603
Patronage financing deductions - - - (43)
Stock issued - - - 43
Stock repurchased - - (10,429) (10,429)
Stock retired - - 10,165 -
Stock issuable as patronage
dividends - - - 26,474
Patronage dividends payable (73,837) - - (73,837)
-------- ------- --------- ---------
Balance at December 31, 1996 $ 3,120 $3,295 $ (7,206) $233,363
======== ======= ========= =========
*Additional stock subscribed is comprised of the following amounts at December
31, 1994, 1995 and 1996:
1994 1995 1996
---- ---- ----
Class A Stock $ 291 $ 332 $ 337
Class B Stock - - -
Class C Stock 2,180 2,332 2,450
------ ------ ------
2,471 2,664 2,787
Less unpaid portion 1,916 2,149 2,285
------ ------ ------
$ 555 $ 515 $ 502
====== ====== ======
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(000's omitted)
Operating Activities:
Net Earnings $ 72,307 $ 63,742 $ 64,522
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 17,517 16,837 16,963
Loss on sale of property
and equipment 712 3 175
Increase in accounts
receivable, net (60,170) (27,526) (46,950)
Decrease (increase) in inventories (72,694) 15,940 (6,815)
Decrease (increase) in prepaids and
other current assets (2,556) (2,135) 153
Increase in accounts payable and
accrued expenses 63,059 41,860 62,521
Increase in other long-term
liabilities 5,623 1,107 916
----------- ----------- -----------
Net Cash Provided by Operating
Activities 23,798 109,828 91,485
----------- ----------- -----------
Investing Activities:
Purchase of property
and equipment (40,379) (31,263) (28,285)
Proceeds from sale of property
and equipment 120 27 187
Decrease in other assets 12 579 7,711
----------- ----------- -----------
Net Cash Used in
Investing Activities (40,247) (30,657) (20,387)
----------- ----------- -----------
Financing Activities:
Proceeds (payments) of short-term
borrowings 58,000 (17,000) (8,500)
Proceeds from notes payable 20,000 - -
Payments on long-term debt (6,609) (6,483) (10,337)
Payment of cash portion of
patronage dividend (23,522) (27,302) (25,766)
Payments of patronage refund
certificates and patronage
financing deductions (22,790) (11,287) (18,886)
Proceeds from sale of common stock 1,603 1,580 1,394
Repurchase of common stock (10,429) (10,694) (8,277)
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 16,253 (71,186) (70,372)
----------- ----------- -----------
Increase (Decrease) in
Cash and Cash Equivalents (196) 7,985 726
Cash and Cash Equivalents at
beginning of year 12,853 4,868 4,142
----------- ----------- -----------
Cash and Cash Equivalents at
end of year $ 12,657 $ 12,853 $ 4,868
=========== =========== ===========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) The Company and Its Business
Ace Hardware Corporation (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. The accompanying consolidated financial statements
include the accounts of the Company and subsidiaries, all of which are
wholly-owned. All significant intercompany transactions have been eliminated.
(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 lease.
(f) Foreign Currency Translation
Substantially all assets and liabilities of foreign operations are
translated at the rate of exchange in effect at the balance sheet date
while revenues and expenses are translated at the average monthly exchange
rates prevailing during the year. The Company has utilized foreign
exchange forward contracts to hedge non-U.S. equity investments. Foreign
currency translation adjustments were insignificant for 1996. The fair
market value of the forward contracts approximates carrying cost at
December 31, 1996.
(g) 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.
(h) 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.
(i) Reclassifications
Certain financial statement reclassifications have been made to prior
year amounts to conform to comparable classifications followed in 1996.
(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 $69,867,000 and $66,319,000 at December 31, 1996 and 1995,
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 1996 and 1995. The maximum
amount outstanding at any month-end during the period was $97,500,000 in
1996 and $95,000,000 in 1995. The weighted average interest rate effective
as of December 31, 1996 and 1995 was 7.13% and 6.13%, respectively. Short-
term borrowings outstanding as of December 31, 1996 and 1995 were
$71,000,000 and $13,000,000, respectively. At December 31, 1996 the Company
has available a revolving credit facility with a group of banks providing
for $75 million in committed lines and also has available $105 million in
uncommitted lines. The aggregate unused line of credit available at
December 31, 1996 and 1995 was $109 million and $172 million, respectively.
At December 31, 1996 the Company had no compensating balance requirements.
(4) Long-Term Debt
Long-term debt is comprised of the following:
December 31,
----------------------
1996 1995
---- ----
(000's omitted)
Notes Payable:
$20,000,000 due in quarterly installments
of $540,500 with interest payable quarterly
at a fixed rate of 8.74% $14,595 $16,757
$20,000,000 due in quarterly installments
of $952,400 with interest payable quarterly
at a fixed rate of 6.89% 12,381 16,190
$30,000,000 due in semi-annual installments
of $2,000,000 commencing June 22, 2001
with interest payable quarterly
at a fixed rate of 6.47% 30,000 30,000
$20,000,000 due in quarterly installments
of $714,285 commencing September 15, 2004 with
interest payable quarterly beginning
December 15, 1996 at a fixed rate of 7.49% 20,000 -
Industrial Development Revenue Bond -
$125,000 payable quarterly through
December 1, 1996 with interest at 65%
of the prime rate - 500
Liability under capitalized leases (see Note 9) 664 816
Installment notes with maturities through 1999
with various interest rates 924 910
------- -------
78,564 65,173
Less current installments 6,727 7,378
------- -------
$71,837 $57,795
======= =======
Aggregate maturities of long-term debt are $6,727,000, $6,507,000,
6,161,000, $3,216,000 and $6,162,000 in 1997 through 2001, respectively,
and $49,791,000 thereafter.
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, 1996 and 1995.
(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, computer equipment and
store retrofit financing.
The patronage dividend composition for 1996, 1995 and 1994 follows:
Subordinated Class Patronage Total
Cash Refund C Financing Patronage
Portion Certificates Stock Deductions Dividend
------- ------------ ----- ---------- ---------
(000's omitted)
1996 $28,178 $ 9,500 $26,474 $9,685 $73,837
1995 23,522 5,032 27,506 8,656 64,716
1994 27,302 9,920 21,766 5,532 64,520
Patronage dividends are allocated on a calendar year basis with issuance
in the following year.
The patronage refund certificates outstanding or issuable at December 31,
1996 are payable as follows:
Interest
January 1, Amount Rate
---------- ------ --------
(000's omitted)
1997 $14,138 6.25%
1998 13,782 6.0
1999 11,690 6.0
2000 9,518 7.0
2001 5,149 6.0
2002 9,500 6.25
(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, 1996 plan assets were held primarily in
equities, mutual funds and group annuity contracts.
Pension expense for the years 1996, 1995 and 1994 included the following
components:
1996 1995 1994
---- ---- ----
(000's omitted)
Service cost - benefits earned during
the period $ 72 $ 355 $ 323
Interest cost on projected benefit
obligation 486 845 805
Actual return on plan assets (786) (2,288) (121)
Net amortization and deferral 292 1,257 (1,073)
-------- ------- --------
Net periodic pension expense (income) $ 64 $ 169 $ (66)
======== ======= ========
In 1995 and 1996, 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, the Company recognized a net loss of $475,000
and $1,380,000 in 1996 and 1995, respectively, related to this settlement.
The following table sets forth the funded status of the plans and
amounts recognized in the Company's Consolidated Balance Sheet at December
31, 1996 and 1995 (December 31st measurement date):
December 31,
1996 1995
---- ----
(000's omitted)
Accumulated benefit obligation,
including vested benefits of
$6,185,000 and $7,383,000 $ 6,196 $ 7,613
========= =========
Plan assets at fair value $ 7,965 $ 9,932
Projected benefit obligation for
service rendered to date 6,487 8,832
--------- ---------
Plan assets in excess of
projected benefit obligation $ 1,478 $ 1,100
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions 107 1,775
Remaining unrecognized net asset being
amortized over participants average
remaining service period (845) (1,672)
--------- ---------
Prepaid pension cost included in other assets $ 1,740 $ 1,203
========= =========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% in 1996 and 7.0%
in 1995. The related expected long-term rate of return was 8.0% in 1996 and
1995. The rate of increase in future compensation was projected using
actuarial salary tables plus 1.0% in 1996 and 1995.
The Company also participates in several multi-employer plans covering
union employees. Amounts charged to expense and contributed to the plans
totaled approximately $265,000, $275,000 and $282,000, in 1996, 1995 and
1994, respectively.
The Company's profit sharing plan contribution for the years ended 1996,
1995 and 1994 was approximately $11,357,000, $9,902,000 and $9,381,000,
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 1996, 1995 and 1994 provisions for federal income taxes were
$860,000, $939,000 and $924,000, respectively, and for state income taxes
were $258,000, $262,000 and $205,000, respectively.
The Company made tax payments of $1,524,000, $1,625,000 and $1,222,000
during 1996, 1995 and 1994, respectively.
(8) Member Dealers' Equity
The Company's classes of stock are described below:
Number of Shares
at December 31,
--------------------
1996 1995
---- ----
Class A Stock, voting, redeemable at par value -
Authorized 10,000 10,000
Issued and outstanding 3,937 3,905
Class B Stock, nonvoting, redeemable at not less
than twice par value-
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 2,896 3,028
Treasury stock 3,603 3,471
Class C Stock, nonvoting, redeemable at not less
than par value -
Authorized 4,000,000 2,000,000
Issued and outstanding 1,967,420 1,778,173
Issuable as patronage dividends 264,740 275,059
Additional Stock Subscribed:
Class A Stock 337 332
Class B Stock - -
Class C Stock 24,500 23,320
At December 31, 1996 and 1995 there were no common shares reserved for
options, warrants, conversions or other rights; nor were any options
granted or exercised during the two years then ended.
Member dealers may subscribe for the Company's stock in various
prescribed combinations. Only one share of Class A Stock may be owned by a
dealer with respect to the first member retail outlet controlled by such
dealer. Only four shares of Class B Stock may be owned by a dealer with
respect to each retail outlet controlled by such dealer, but only if such
outlet was a member of the Company on or before February 20, 1974. An
appropriate number of shares of Class C Stock must be included in any
subscription by a dealer in an amount to provide that such dealer has a par
value of all shares subscribed for equal to $5,000 for each retail outlet.
Unregistered shares of Class C Stock are also issued to dealers in
connection with patronage dividends. No dividends can be declared on any
shares of any class of the Company's Stock.
Upon termination of the Company's membership agreement with any retail
outlet, all shares of stock of the Company, held by the dealer owning or
controlling such outlet, must be sold back to the Company, unless a
transfer of such shares is made to another party accepted by the Company as
a member dealer with respect to the same outlet.
A Class A share is issued to a member dealer only when the share
subscribed has been fully paid. Class B and Class C shares are only issued
when all such shares subscribed with respect to a retail outlet have been
fully paid. 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 1994, 1995 and 1996 affecting treasury shares
follow:
Shares Held in Treasury
------------------------
Class A Class B Class C
------- ------- -------
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 -
Stock issued - - -
Stock repurchased 236 132 99,290
Stock retired (236) - (99,290)
-------- -------- ---------
Balance at December 31, 1996 - 3,603 -
======== ======== ========
(9) Commitments
Leased property under capital leases is included as "Property and
Equipment" in the consolidated balance sheets as follows:
December 31,
------------
1996 1995
---- ----
(000's omitted)
Buildings and improvements $3,422 $3,422
Data processing equipment 1,783 1,441
Less: Accumulated depreciation
and amortization (4,678) (4,106)
------- -------
$ 527 $ 757
======= =======
The Company rents buildings and warehouse, office and certain other
equipment under capital and operating leases. At December 31, 1996 annual
minimum rental commitments under leases that have initial or remaining
noncancelable terms in excess of one year are as follows:
Year Ending
December 31, Capital Operating
- ------------- ------- ---------
(000's omitted)
1997 $ 437 $16,185
1998 257 14,570
1999 - 11,915
2000 - 10,020
2001 - 8,811
Thereafter - 28,449
------- -------
Total minimum lease payments 694 $89,950
Less amount representing interest 30 =======
-------
Present value of total minimum lease payments $ 664
=======
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 $29,747,000, $25,024,000 and $21,814,000 in 1996, 1995 and
1994, respectively. Rent expense includes $5,503,000, $4,724,000 and
$4,382,000 in contingent rentals paid in 1996, 1995 and 1994, 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 $64,333,000, $58,765,000 and $52,185,000 was
charged to operations in 1996, 1995 and 1994, respectively.
(11) Interest Expense
Capitalized interest totaled $523,000, $497,000 and $213,000 in 1996,
1995 and 1994, respectively. Interest paid was $12,452,000, $13,574,000 and
$13,518,000 in 1996, 1995 and 1994, respectively.
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
SELECTED FINANCIAL DATA
Income Statement Data:
For The Years Ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(000's omitted)
Net sales $2,742,451 $2,436,012 $2,326,115 $2,017,763 $1,870,625
Cost of sales 2,535,014 2,253,430 2,152,322 1,866,768 1,722,493
---------- ---------- ---------- ---------- ----------
Gross profit 207,437 182,582 173,793 150,995 148,132
Total expenses 135,130 118,840 109,271 93,903 87,365
---------- ---------- ---------- ---------- ----------
Net earnings $ 72,307 $ 63,742 $ 64,522 $ 57,092 $ 60,767
========== ========== ========== ========== ==========
Patronage dividends
(Notes A,B,5 and 8) $ 73,837 $ 64,716 $ 64,520 $ 59,023 $ 63,207
========== ========== ========== ========== ==========
Balance Sheet Data:
Year Ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(000's omitted)
Total assets $916,375 $759,133 $723,610 $666,022 $593,399
Working capital 148,468 139,805 150,514 138,652 108,794
Long-term debt 71,837 57,795 64,287 71,286 51,696
Patronage refund
certificates payable,
long-term 49,639 54,741 63,666 56,270 55,389
Member dealers' equity 233,363 217,245 199,827 186,028 175,681
(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, 1996,
patronage dividends were payable as follows:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(000's omitted)
In cash $28,178 $23,522 $27,302 $25,766 $27,538
In patronage refund
certificates payable 9,500 5,032 9,920 12,728 14,598
In Class C Stock 26,474 27,506 21,766 19,064 20,301
In patronage financing
deductions 9,685 8,656 5,532 1,465 770
------- ------- ------- ------- -------
Total patronage dividends $73,837 $64,716 $64,520 $59,023 $63,207
======= ======= ======= ======= =======
(C)Numbered notes refer to Notes to Consolidated Financial Statements,
beginning on page 38.
(5) & (8) Refers to Notes 5 and 8 of the consolidated financial statements
beginning on page 38 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." 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. The Company has unsecured lines of credit of $180.0
million of which $109.0 million was available at December 31, 1996. 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 $40.4, $31.3
and $28.3 million in 1996, 1995 and 1994, respectively. During 1996, the
Company financed the $40.4 million of capital expenditures out of current
and accumulated internally generated funds, short-term borrowings and long-
term borrowings. 1997 capital expenditures are anticipated to be
approximately $57.3 million primarily for a new distribution facility and
improvements to existing facilities.
As a cooperative, the Company distributes substantially all of its
patronage source earnings to its members in the form of patronage
dividends, which are deductible for income tax purposes (see headings
"Patronage Dividend Determinations and Allocations" and "Federal Tax
Treatment of Patronage Dividends"). 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.
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-1996 Compared to 1995
Net sales increased 12.6% due to increases in existing retailer volume,
targeted efforts on new store development and conversions, and the start-up
of Canadian operations. 1996 domestic same store sales increased 9.8% due
to retailer store upgrades and continued emphasis on retail success. Sales
of basic hardware and paint merchandise (including warehouse, bulletin and
direct shipments) increased 11.6%. Lumber and building material sales
experienced slightly higher percentage increases in 1996 due to accelerated
sales efforts and industry-wide lumber price increases. Net dealer outlets
increased in 1996 due to targeted sales efforts on new store development
and conversions to the Ace program and continued emphasis on retail
success.
Gross profit increased $24.9 million or 13.6% and increased as a percent
of sales to 7.56% vs 7.50% in 1995 due primarily to gross profit from
Canadian operations. Domestic gross profit as a percent of sales is
comparable to 1995 as higher merchandise discounts and allowances were
completely offset by lower levels of dealer price increases in 1996.
Emphasis on low upfront pricing continued with total upfront rebates
increasing 16.9% in 1996.
Warehouse and distribution expenses increased $6.6 million or 22.1% due
to start-up costs for the opening of one domestic and two Canadian
facilities in 1996. Excluding Canadian operations, warehouse and
distribution expenses increased 13.5% and increased slightly as a percent
of sales due to wage increases to support the sales growth and start-up
costs for the new facility.
Selling, general and administrative expenses increased by $8.4 million
or 14% due to personnel costs for the start-up operations and increased
data processing expenses. Excluding Canadian operations, selling, general
and administrative expenses increased 8.3% and declined as a percent of sales
due to reduced corporate administrative expenses resulting from 1996 re-
engineering efforts.
Retail success and development expenses increased $2.8 million or 15%
due to increased new business development costs, increased retail training
expenses and reduced retail systems income. Increases in this category are
directly related to retail support of the Ace retailer as the Company
continues to make retail investments in our dealer base.
Paint Division sales increased 16.5% to $103.3 million. As a separate
division of the Company, the Paint Division produced net manufacturing
profits of $8.0 million in 1996 vs. $5.8 million in 1995. The increased net
manufacturing profit results from the 16.5% sales increase and resulting
gross margin and improved utilization of the Company's second facility
partially offset by increased 1996 advertising expenses. Paint is the only
product manufactured by the Company. As discussed on page 22, patronage
dividends are calculated separately for paint sales and increased to 7.98%
in 1996 vs. 6.87% in 1995.
Interest expense decreased $1.3 million or 9.8% due to lower inventory
levels resulting from improved inventory turnover in 1996. Additional
dealer dating programs and long-term debt to fund 1996 capital investments
partially offset the interest expense decline.
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 $8.8 million or 5.1% and increased as a percent
of sales to 7.50% from 7.47% 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 $975,000 or 3.4%
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 $5.6 million
or 10.3% and as a percent of sales due to increased data processing and
personnel costs.
Retail success and development expenses increased by $3.6 million or
24.6% 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. Other income increased
$354,000 or 10.5% due primarily to the growth in dealer financing programs.
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 46 Director
Michael C. Bodzewski 47 Vice President-Merchandising
Lawrence R. Bowman 50 Director
James T. Glenn 37 Director
David F. Hodnik 49 President and Chief Executive Officer
Paul M. Ingevaldson 51 Vice President-Corporate Strategy and
International Business
Mark Jeronimus 48 Director
Rita D. Kahle 40 Vice President-Finance
John E. Kingrey 53 Director
Richard E. Laskowski 55 Chairman of the Board and Director
David W. League 57 Vice President-General Counsel and Secretary
William A. Loftus 58 Senior Vice President-Retail Operations
and Marketing
David F. Myer 51 Vice President-Retail Support and New Business
Fred J. Neer 57 Vice President-Human Resources
Ray W. Osborne 60 Director
Roger E. Peterson 59 Director
Donald L. Schuman 58 Vice President-Information Systems
Jon R. Weiss 61 Director
Don S. Williams 55 Director
James R. Williams, Jr. 49 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 2, 1997 as directors of
the classes, from the regions, and for terms as indicated below:
Nominee Class Region Term
- ------- ----- ------ ----
Jennifer C. Anderson 1 8 3 years
Mark Jeronimus 1 9 3 years
Mr. Ray Osborne and Mr. Don Williams are not eligible for re-election as
a director commencing in 1997. The person(s) named below has been selected
as the nominee for election to the Board for the first time at the 1997
annual meeting as a dealer director of the class, and for the term
indicated:
Nominee Age Class Region Term
- ------- --- ----- ------ ----
Eric R. Bibens II 40 1 1 3 years
D. William Hagan 39 1 3 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
1,558 Shares of Class A
(Voting) Stock
$1,000 par value
62,509 Shares of Class C
(Non-voting) Stock
$100 par value
PROSPECTUS
Dated: ________, 1997
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 28
Index to Consolidated Financial Statements 31
Independent Auditors' Report 32
Consolidated Financial Statements 33
Notes To Consolidated Financial Statements 38
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 52
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.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an estimate of expenses in connection with the issuance
and distribution of the capital stock being offered:
Printing of Registration Statement and Prospectus $10,000
Accounting Fees and Expenses 12,000
Legal Fees 2,000
Fees and Expenses under "Blue Sky" Laws of Various States 3,500
Miscellaneous Expenses 500
-------
Total $28,000
=======
Item 15. Indemnification of Directors and Officers.
In accordance with the authority granted by Section 145 of the General
Corporation Law of the State of Delaware, under which the Registrant is
incorporated, Article XV of the Registrant's By-Laws (which Article is
included in the copy of the By-laws designated as Appendix A to the
Prospectus constituting a part of this Registration Statement and is
incorporated herein by reference) provides for indemnification by the
Registrant of its directors, officers, employees or agents. The principal
provisions of said By-law obligate the Registrant to indemnify any such
person against expenses (including attorneys' fees) actually and reasonably
incurred by any such person in connection with his successful defense of
any action, suit or proceeding (whether civil, criminal, administrative or
investigative) instituted against him by reason of the fact that he is or
was an officer, director, employee or agent of the Registrant and further
authorize the Registrant, in any situation where the Board of Directors of
the Registrant, by a majority vote of disinterested directors, determines
that any such person acted in good faith and in a manner he reasonably
believed to be in the best interest of the Registrant, to indemnify him for
the amount of any judgment or fine or settlement payment incurred by him,
together with his expenses and attorneys' fees, in connection with any such
action, suit or proceeding.
Richard Kaup, the late Virgil Poss, and Antone Salel, who constitute the
Trustees of the Ace Dealers' Perpetuation Fund prior to its termination on
November 30, 1976 (as of which date all of the assets of said Fund were
assigned and transferred to the Registrant and the Registrant then assumed
and became responsible for any and all obligations and liabilities,
contingent or otherwise, of the Trustees of said Fund), would also be
afforded indemnification by the Registrant with respect to any of their
activities while acting as such Trustees under the following terms included
in a resolution adopted by unanimous vote of the Board of Directors of the
Registrant on April 24, 1974: "... that the corporation indemnify and hold
harmless each of said Trustees with respect to any claims made against any
of them and any expenses thereby incurred by any of them in connection with
any of their activities as such Trustees".
Insofar as indemnification for liabilities arising under the federal
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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. 2 to the
Registrant's Form S-2 Registration Statement).
4-C Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 19, 1976 filed as
Exhibit 3-D to Amendment No. 1 to the Registrant's Form S-1
Registration Statement (Registration No. 2-55860) on June 10,
1976 and incorporated herein by reference.
4-D Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 21, 1979 filed as
Exhibit 3-F to Amendment No. 1 to the Registrant's Form S-1
Registration Statement (Registration No. 2-63880) on May 23,
1979 and incorporated herein by reference.
4-E Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 7, 1982 filed as
Exhibit 3-G to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 16, 1983 and
incorporated herein by reference.
4-F Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 5, 1987 filed as
Exhibit 3-F to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on March 29, 1988 and
incorporated by reference.
4-G Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant dated June 16, 1989 filed as
Exhibit 4-G to the Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-27790) on March 20, 1990 and incorporated herein by
reference.
4-H Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant dated June 3, 1996.
4-I 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-J 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-K 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-L 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-M 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-N 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).
5 Opinion of David W. League, Vice President, General Counsel
of the Registrant, as to legality of securities being
registered.
6 No exhibit.
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
and Secretary 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 Supplement Benefit
Plans of the Registrant adopted by its Board of Directors on
December 11, 1990, filed as exhibit 10-G to Post-Effective
Amendment No. 2 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-27790) on March 20, 1991 and
incorporated herein by reference.
10-C Copy of amendment to the Executive Supplemental Benefits Plan
of the Registrant adopted by its Board of Directors on July
30, 1991 filed as Exhibit 10-E to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on March
23, 1992 and incorporated herein by reference.
10-D Copy of amendment to the Executive Supplemental Benefits Plan
of the Registrant adopted by its Board of Directors on
December 9, 1991 filed as Exhibit 10-F to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-E Copy of the "Ace Hardware Corporation Officer's (sic)
Incentive Compensation Plan" as amended and restated
effective January 1, 1994 filed as Exhibit 10-G to Post-
Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on March
23, 1994 and incorporated herein by reference.
10-F Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and Paul Ingevaldson 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.
10-I 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-J 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-K 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-L Copy of Form of Executive Officer Employment Agreement
effective January 1, 1996, filed as Exhibit 10-a-17 to Post-
Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or
about March 11, 1996 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 RegistrantOs 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 Pre-Effective Amendment
No. 2 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about April 26, 1995 and
incorporated herein by reference.
10-Q Copy of 6.89% Senior Series B notes in the aggregate
principal sum of $20,000,000 issued July 29, 1992 with a
maturity date of January 1, 2000 pursuant to Note Purchase
and Private Shelf Agreement with the Prudential Insurance
Company of America dated September 27, 1991 filed as Exhibit
10-Q to Post-Effective Amendment No. 2 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1994 and incorporated herein by reference.
10-R Copy of 6.47% Senior Series A notes in the aggregate
principal sum of $30,000,000 issued September 22, 1993 with a
maturity date of June 22, 2008, and $20,000,000 Private Shelf
Facility, pursuant to Note Purchase and Private Shelf
Agreement with the Prudential Insurance Company of America
dated as of September 22, 1993 filed as Exhibit 10-R
to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 23, 1994 and
incorporated herein by reference.
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 (Regis-tration
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.
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 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-4 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-5 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, filed as
Exhibit 10-a-11 to Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-58191) on or about March 11, 1996 and incorporated
herein by reference.
10-a-6 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, filed as
Exhibit 10-a-6 to Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-58191) on or about March 11, 1996 and incorporated
herein by reference.
10-a-7 Copy of Lease dated November 27, 1995 between 674573 Ontario
Limited and Ace Hardware Canada Limited for general office
space in Markham, Ontario, Canada, filed as Exhibit 10-a-13
to Post-Effective Amendment No. 1 to the Registrant's Form S-
2 Registration Statement (Registration No. 33-58191) on or
about March 11, 1996 and incorporated herein by reference.
10-a-8 Copy of Lease dated February 9, 1995 between Leroy M. Merritt
and the Registrant for its Baltimore, Maryland
redistribution center, filed as Exhibit 10-a-14 to Post-
Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or
about March 11, 1996 and incorporated herein by reference.
10-a-9 Copy of First Amendment to the Ace Hardware Corporation Long-
Term Incentive Compensation Deferral Option Plan effective
December 5, 1995, filed as Exhibit 10-a-15 to Post-Effective
Amendment No. 1 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-58191) on or about March 11,
1996 and incorporated herein by reference.
10-a-10Copy of First Amendment to the Ace Hardware Corporation
Directors' Deferral Option Plan effective December 5, 1995,
filed as Exhibit 10-a-16 to Post-Effective Amendment No. 1 to
the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 11, 1996 and
incorporated herein by reference.
10-a-11Copy of Ace Hardware Corporation Executive Benefit Security
Trust Agreement effective July 19, 1995, filed as Exhibit 10-
a-18 to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191)
on or about March 11, 1996 and incorporated herein by
reference.
10-a-12Copy of current standard form License Agreement for
International Retail Merchants adopted in 1996.
10-a-13Copy of Lease Agreement dated as of September 1, 1996 for the
Registrant's project facility in Wilton, New York.
10-a-14Copy of 6.47% Series A Senior Notes in the aggregate
principal amount of $30,000,000 issued August 23, 1996 with a
maturity date of June 22, 2008, and $70,000,000 Private Shelf
Facility, pursuant to Amended and Restated Note Purchase and
Private Shelf Agreement with the Prudential Insurance Company
dated August 23, 1996.
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) Consent of KPMG Peat Marwick LLP, dated March 10, 1997.
(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
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. 2 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 12, 1997.
ACE HARDWARE CORPORATION
By 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 12, 1997
(Richard E. Laskowski) and Director
DAVID F. HODNIK President and Chief March 12, 1997
(David F. Hodnik) Executive Officer
Rita D. Kahle Vice President-Finance March 12, 1997
(Rita D. Kahle) (Principal Financial and
Accounting Officer)
Jennifer C. Anderson, Lawrence R. Bowman, Directors
James T. Glenn, Mark Jeronimus,
John E. Kingrey, Ray W. Osborne,
Roger E. Peterson, Jon R. Weiss,
Don S. Williams and James R. Williams, Jr.
*By DAVID F. HODNIK
David F. Hodnik
*By RITA D. KAHLE March 12, 1997
Rita D. Kahle
*Attorneys-in-fact
INDEX TO EXHIBITS FILED TO
THE POST-EFFECTIVE AMENDMENT NO. 2 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-H Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant dated June 3, 1996.
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, 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. 2 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-12Copy of current standard form License Agreement for
International Retail Merchants adopted in 1996.
10-a-13Copy of Lease Agreement dated as of September 1, 1996 for the
Registrant's project facility in Wilton, NY.
10-a-14Copy of 6.47% Series A Senior Notes in the aggregate
principal amount of $30,000,000 issued August 23, 1996 with a
maturity date of June 22, 2008, and $70,000,000 Private Shelf
Facility, pursuant to Amended and Restated Note Purchase and
Private Shelf Agreement with the Prudential Insurance Company
dated August 23, 1996.
23 (a) Consent of KPMG Peat Marwick LLP, dated March 10, 1997.
(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. 2 to the Form S-2 Registration Statement
of Ace Hardware Corporation.
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ACE HARDWARE CORPORATION
The undersigned corporation, Ace Hardware Corporation, for the
purpose of amending its restated Certificate of Incorporation
pursuant to the provisions of Section 242 of the General
Corporation Law of Delaware, hereby executes the following
Certificate of Amendment, under which Article FOURTH (a) of the
restated Certificate of Incorporation of this corporation is
hereby amended to read as follows:
"FOURTH: (a) The total number of shares of stock which this
corporation is authorized to issue is 4,016,500 shares, of which
10,000 shares, of the par value of $1,000.00 each, amounting to
$10,000,000.00, are Class `A' voting stock; of which 6,500
shares, of the par value of $1,000.00 each, amounting to
$6,500,000.00, are Class `B' nonvoting stock; and of which
4,000,000 shares, of the par value of $100.00 each, amounting to
$400,000,000.00 are Class `C' nonvoting stock."
The undersigned corporation hereby certifies that the amendment
set forth above was duly proposed by a resolution adopted by the
Board of Directors of the undersigned declaring its advisability
and that, in accordance with Section 242 of the General
Corporation Law of Delaware, said amendment was voted upon at the
annual meeting of the stockholders of the undersigned held on
June 3, 1996, that voting upon said amendment was conducted at
said meeting by the holders of shares of the corporation's Class
"A" stock and Class "C" stock, and further certifies that said
amendment was duly adopted upon receiving the affirmative vote of
a majority of the total of the outstanding shares of Class "A"
stock and Class "C" stock which were entitled to vote at said
meeting and by the separate affirmative vote of a majority of the
outstanding shares of Class "C" stock which were entitled to vote
at said meeting.
IN WITNESS WHEREOF, the undersigned corporation has caused this
Certificate of Amendment to be executed in its name by its
President and its corporate seal to be hereunto affixed, attested
by its Secretary, this 3rd day of June, 1996.
ACE HARDWARE CORPORATION
Attest:
By: DAVID W. LEAGUE By: DAVID F. HODNIK
Secretary David F. Hodnik, President
March 12, 1997
To the Board of Directors
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521
Re: Total Shares Offered By Prospectus
1,558 Class A
62,509 Class C
Gentlemen:
This opinion relates to the legality of the 1,558 shares of Class A
voting stock (par value $1,000 per share) and 62,509 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 58 unsold shares of Class A stock and 22,509 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, are being offered by the
Prospectus filed as a part of the Post-Effective Amendment No. 2 to
Registration Statement No. 33-58191, with respect to which said
opinion is furnished.
As General Counsel in the Legal Department of the Company since
January 1, 1989 and as a partner in the firm of Gatenbey, Law &
League which acted as general counsel to the Company and its Illinois
predecessor corporation for many years prior to that date, I have
examined the Company's restated Certificate of Incorporation (as
amended to date), 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,
Kentucky, 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 4,000,000 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. 2 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 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 2.896 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 of 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. 26-28 of the Prospectus that is part of the
aforesaid Post-Effective Amendment No. 2 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. 2 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 13-14 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
David W. League
Vice President-General Counsel
Ace Hardware Corporation
ACE HARDWARE CORPORATION
LICENSE AGREEMENT FOR
_______________________
TABLE OF CONTENTS
PARAGRAPH PAGE
I. APPOINTMENT 2
II. FEES 2
III. TERM & RENEWAL 3
IV. PROPRIETARY MARKS 4
V. CONFIDENTIAL INFORMATION 6
VI. COMPANY'S OBLIGATIONS 7
VII. LICENSEE'S OBLIGATIONS 8
VIII. CONFIDENTIAL OPERATIONS MANUAL 15
IX. COVENANTS NOT TO COMPETE 15
X. DEFAULT AND TERMINATION 16
XI. EXPIRATION OR TERMINATION 18
XII. TRANSFERABILITY OF INTEREST 20
XIII. NO AGENCY 21
XIV. MISCELLANEOUS 21
EXHIBITS
A. ACE STORE LOCATIONS
ACE HARDWARE CORPORATION
LICENSE AGREEMENT
This License Agreement ("Agreement"), by and between ACE HARDWARE
CORPORATION, a Delaware corporation having its principal place of business
at 2200 Kensington Court, Oak Brook, Illinois, 60521 ("Company") and
____________________________________, a corporation incorporated under the
laws of having its general offices at
____________________________________________________________ ("Licensee") .
WITNESSETH:
1. Company is in the business of selling home improvement products,
tools, hardware, paint and related merchandise and products, including
private labelled merchandise containing the name "ACE" or "ACE Hardware"
(collectively referred to as the "Merchandise") at wholesale; and
2. Company is also in the business of granting the rights to operate
businesses selling Merchandise from retail locations ("ACE Stores") under
the trade names and service marks "ACE", "ACE Hardware", and "ACE Home
Center" and associated logos and commercial symbols, and such other trade
names, trademarks and service marks ("ACE Marks") as are now designated
(and may hereinafter be designated in writing by Company) as an integral
part of the ACE Stores; and
3. Licensee desires to establish and operate ACE Stores outside the
United States of America in the country of ___________________ (the
"Territory") as a licensee of Company and to sublicense others the right
to establish and operate ACE Stores in the Territory, using procedures and
standards developed and prescribed by Company; and
4. Company expressly disclaims the making of, and Licensee
acknowledges that it has not received nor relied upon, any warranty or
guaranty, express or implied, as to the revenues, profits or success of the
business venture contemplated by this Agreement.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth in this Agreement, agree
as follows:
PARAGRAPH I
APPOINTMENT
1.01. Subject to the terms and conditions herein and during
the term of this Agreement, Company grants to Licensee the exclusive right
throughout the Territory to use the ACE Marks and Licensee undertakes the
obligation to establish and operate ACE Stores solely in compliance with
operational procedures and standards prescribed by Company from time to
time. Company will not, so long as this Agreement is in force and effect
and Licensee is not in default under any of the material terms hereof,
license another to operate, or itself operate, any other ACE Stores within
the Territory.
1.02 Company further grants to Licensee, upon and subject to the
terms and conditions set forth in Section 7.03 below, the right to
sublicense others to establish and operate ACE Stores in the Territory
solely in compliance with operational procedures and standards prescribed
by Company from time to time, and to supervise the operations of such
sublicensed ACE Stores.
1.03 Company further grants to Licensee, upon and subject to the
terms and conditions set forth herein, the right to purchase Merchandise
from Company for resale at the ACE Stores in the Territory.
1.04 In connection with the above rights, Company grants to
Licensee the exclusive right and license to use certain ACE Marks , as well
as exclusive access to Company's proprietary systems, operations manuals
("Operations Manuals"), standard forms and formats, and operational
knowledge within the Territory.
PARAGRAPH II
FEES
2.01. Licensee shall pay to Company a Royalty Fee (" Royalty
Fee") in an amount equal to ____ percent (__%) of the Gross Retail Revenues
generated from the sale of home improvement products, tools, hardware,
paint and related merchandise and products, from whatever source, provided
to customers of the ACE Stores operated by Licensee and its Sublicensees in
the Territory ("Gross Retail Revenues"). For the purposes of this
paragraph, the term "Gross Retail Revenues" shall exclude all sales and
value added taxes actually collected by Licensee and its Sublicensees from
customers and paid to any government authority in the Territory, which
shall be the sole responsibility of Licensee and its Sublicensees, and any
customer refund and credits. All Royalty Fees shall be due and payable to
Company, in United States Dollars, thirty (30) days after the end of each
calendar quarter for the calendar quarter just ended. In the event that
payment of the above fees in United States Dollars is not possible by
application of law, Licensee shall be entitled to make payment in
______________ currency (______) at the currency exchange rate reported in
the Wall Street Journal, on the date the payment is transmitted, provided,
however, that if the payment is transmitted after the date on which payment
is due, the currency exchange rate used shall be the rate as of the day
payment is transmitted or the date payment was due, whichever rate produces
the larger amount in United States Dollars.
2.03. Licensee shall also pay to Company a sum equal to
________________ percent (___%) of any sublicense fee or similar fee
charged by Licensee to its Sublicensees hereunder.
2.04. In connection with the purchase of Merchandise for
resale from ACE Stores in the Territory, Licensee agrees to pay Company as
follows:
a. for Merchandise purchased from Company's warehouses, the
cost of such merchandise, plus a _________ percent (__%) handling charge;
b. for Merchandise purchased directly from Company's vendors
in the United States and billed through Company, the cost of such
merchandise, plus a _____ percent (__%) handling charge;
c. for Merchandise purchased through Company's bulletin program
(pooled merchandise), the cost of such merchandise, plus a ____
percent (__%) handling charge; and
d. for Merchandise purchased directly from vendor's outside
the United Sates and billed through Company, the cost of such merchandise
plus a handling charge to be determined on a per purchase basis.
It is mutually understood that the Company's handling charge may be
changed by Company upon sixty (60) days prior written notice to Licensee.
2.05. Licensee shall pay all amounts shown as currently due
on Company's billing statements for purchases of merchandise, supplies and
services made by Licensee with such promptness as shall enable Company to
receive payment no later than the tenth (10th) day following the date of
the statement (it being understood that all invoices for merchandise
purchased on extended payment terms become currently due when other items
billed are not paid when due), and pay a service charge, currently .77% per
bi-weekly billing statement on any past due balance in such amount as
Company may from time to time impose on its dealers generally. All amounts
becoming payable by Licensee pursuant to Company's billing statements shall
be payable in United States currency.
PARAGRAPH III
TERM & RENEWAL
3.01. This Agreement shall be effective and binding from the
date of its execution for an initial term equal to __________ (__) years
from the date of this Agreement (the "Initial Term").
3.02. Licensee shall have the right to renew this license at
the expiration of the initial term of the license for additional terms of
____ (__) years each ("Renewal Terms"), provided that all of the following
conditions have been fulfilled:
a. Licensee has, during the entire term of this Agreement,
complied with all the provisions hereof;
b. Licensee has given Company written notice of its intent
to renew the license not less than six (6) months nor more than twelve (12)
months prior to expiration of the then current term;
c. Licensee has satisfied all monetary obligations owed by
it to Company and has paid these obligations in a timely manner as required
herein throughout the term of this Agreement;
d. Licensee has satisfied the performance requirements for
number of square feet of retail space and dollar volume of merchandise
purchases established in Paragraph 7.05 of this Agreement; and
e. Prior to each Renewal Term, if any, the parties shall
agree in writing upon the amount of the Royalty Fee applicable during such
Renewal Term, provided, however, that in no event will the Royalty Fee be
less than the Royalty Fee in effect during the Initial Term, nor shall the
Royalty Fee during any Renewal Term increase by more than _____ percent
(__%) from the prior term.
PARAGRAPH IV
PROPRIETARY MARKS
4.01. Company grants Licensee exclusive license to use the
ACE Marks in connection with the retail hardware services offered and
performed by Licensee at the location(s) within the Territory, and in
connection with the Merchandise purchased from Company for resale from the
said location(s). Licensee shall display an exterior store identification
sign that shall comply with the identity standards and requirements set
forth in the Operations Manual or the ACE Identity Standards Manual.
4.02. Company does not guarantee, warrant or offer any patent
or trademark protection to Licensee on any of the products purchased by
Licensee from Company, and Company shall not be obligated or liable in any
way to indemnify Licensee for any actual or alleged violations of patent or
patent rights, or trademark, service mark, trade name or other intellectual
property rights arising from or in connection with the sale or use of any
products, programs or services purchased from Company by Licensee or the
exercise of any rights granted hereunder.
4.03. Licensee agrees to use the ACE Marks only in the form,
manner, and logotype previously approved by Company in writing and to
comply with all guidelines and instructions from time to time issued by
Company with respect thereto. All use of the ACE Marks shall clearly and
conspicuously disclose that the ACE Marks are owned by, or used under
license from Company.
4.04. All services provided in connection with which the ACE
Marks are used shall be of high quality as determined by Company, and
otherwise in accordance with such specifications as Company may, from time
to time, prescribe.
4.05. In no event shall the license herein granted be
construed as authorizing Licensee to use any marks, trade names, slogans or
logos of Company other than as specifically licensed hereunder. Licensee
agrees that it shall not place or cause to be placed the names "ACE" or
"ACE Hardware" on any merchandise without the Company's prior written
consent.
4.06. Licensee agrees not to adapt or vary the ACE Marks or
create or use any trademark, service marks, trade names, symbols or logos
that are confusingly similar to those owned by Company, whether or not
licensed hereunder. Licensee also agrees to at no time use the ACE Marks
in association or conjunction with any trade name, trademark or service
mark owned or registered by a competitor of Company.
4.07. Company expressly disclaims any and all liability to
Licensee or to any third party with respect to any actual or alleged
invalidity of the Mark or in connection with Licensee's use of the ACE
Marks, or the use of the services furnished by Licensee in connection
therewith.
4.08. Licensee acknowledges Company's ownership of the ACE
Marks, and agrees that it will not do or permit any act to be done which
may impair such ownership. Licensee agrees that all use of the ACE Marks
by it shall inure to the benefit of, and be on behalf of, Company.
Licensee agrees that it will never in any manner represent that it has an
ownership interest in the ACE Marks, or contest the ownership of the ACE
Marks by Company, or attack the validity of the license herein granted.
Licensee agrees to execute, upon request, such documents as Company may
deem necessary or desirable to acknowledge Company's ownership of the ACE
Marks, or to register, retain, enforce or defend the ACE Marks.
4.09. Licensee agrees to notify Company of any unauthorized
use of the ACE Marks by others, as promptly as such use may come to
Licensee's attention. Not later than 60 days after receipt of notification
from Licensee, Company shall take all practicable action deemed necessary
to defend the ACE Marks in the Territory.
4.10. Licensee agrees at no time to adopt or use, or
authorize, permit or condone the use by any other person or firm, of any
name, word or mark which is similar to or likely to be confused with, any
trade name, trademark or service mark belonging to or registered by
Company, whether or not licensed hereunder, (it being understood and agreed
that all variations or adaptations of any trademarks or service marks owned
or registered by Company shall be the exclusive property of Company and
that Company shall have the exclusive right to register the same and to
license the use thereof).
4.11. In order to preserve the validity and integrity of the
ACE Marks and copyrighted materials licensed herein and to assure that
Licensee is properly employing the same in the operation of its ACE
Stores, Company or its agents shall have the right of entry and inspection
of Licensee's premises upon 10 days prior notice to Licensee and,
additionally, shall have the right to observe the manner in which Licensee
is conducting its operations and activities, to confer with Licensee's
customers and employees and to inspect merchandise, products, reports,
forms and documents and related data for test of content and evaluation
purposes to make certain that the operations and activities are
satisfactory and meet the Company's Ace 2000 and other performance
standards.
4.12. Licensee shall not use the Marks in any advertising or
any other form of promotion without appropriate registration symbols, or
other designation of ownership and rights required by law in the country in
which the ACE Stores is operated.
PARAGRAPH V
CONFIDENTIAL INFORMATION
5.01. Licensee acknowledges that its entire knowledge of the
operation of an ACE Stores including the knowledge or know-how regarding
the specifications, standards and operating procedures of the Company
services, is derived from information disclosed to Licensee by Company and
that certain of such information is proprietary, confidential and a trade
secret of Company. Licensee shall maintain the absolute confidentiality of
all such proprietary information during and after the term of this
Agreement and shall not use any such information in any other business or
in any manner not specifically authorized or approved in writing by
Company.
5.02. Licensee agrees to keep in strict confidence all
Operations Manuals, warehouse checklists, microfiche films, videograms,
bulletins, catalogs, price lists, order forms and other documents and
information furnished by Company with respect to the merchandise, programs
and services which are available from Company, and at no time to divulge or
display any of the foregoing, other than in connection with Licensee's
transactions with Company or for the purpose of promoting Licensee's
business. Licensee agrees to comply with all policy statements and
guidelines communicated from time to time by Company with respect to any
confidential information belonging to Company and at no time to authorize,
permit or condone the use of any of the foregoing by any other person or
firm.
5.03. Licensee shall divulge such confidential information
only to the extent and only to such of its employees as must have access to
it in order to operate the ACE Stores. Any and all information, knowledge
and know-how including, but not limited to, specifications and standards
concerning the operation of the ACE Stores and other data which Company
designates as confidential shall be deemed confidential for purposes of
this Agreement, except information which Licensee can demonstrate lawfully
came to its attention prior to disclosure thereof by Company; or which, at
the time of disclosure by Company to Licensee, had lawfully become a part
of the public domain, through publication or communication by others;
which, after disclosure to Licensee by Company, lawfully becomes a part of
the public domain through publication or communication by others, or which
Licensee is required to be furnished to any government or public authority
pursuant to any law or judicial order applicable to Licensee.
5.04. Licensee acknowledges and agrees that Company owns or
is the licensee of the owner of the Copyrighted Works and shall further
create, acquire or obtain licenses for certain copyrights in various works
of authorship used in connection with the operation of the ACE Stores
including, but not limited to, all categories of works eligible for
protection under the United States copyright law, all of which shall be
deemed to be Copyrighted Works under this Agreement. Such Copyrighted
Works include, but are not limited to, the Manual, advertisements,
promotional materials, posters and signs, and may include all or part of
the Marks, the ACE International Computer System (as defined in Paragraph
6.14. of this Agreement), trade dress and other portions of the System.
Company intends that all works of authorship related to the operation of
ACE Stores which are created by Company in the future shall be owned by
Company.
5.05. If Licensee develops any new program, project, work of
art or other material in the course of operating the ACE Stores which
incorporates the ACE marks or the ACE name and Company approves the use and
sale of this service in the ACE Stores, this new program, project, work of
art or other material shall automatically become the property of Company as
though Company had developed the program, project, work of art or other
material itself ("Work for Hire") .
PARAGRAPH VI
COMPANY'S OBLIGATIONS
Company agrees, as part of the Licensee Fee, to provide to Licensee
the following:
6.01. Numerous proprietary Operations Manuals covering the
functional areas within the ACE Hardware business system.
6.02. The use of Company's pre-developed formats for
promotional materials, annual surveys and other operations functions.
6.03. The use of Company's extensive promotional and
educational videotapes and new videotape titles as produced and developed.
6.04. The use of Company's consultants in connection with
the operation of distribution centers and retail stores.
6.05. Assistance in developing a business plan detailing how
to develop ACE Stores in the Territory including analysis of human
resources needs, marketing strategies, cash flow requirements, and other
operational needs.
6.06. Assistance in developing a marketing plan discussing
the actual tactics that should be used in lead generation and follow-up for
licensees.
6.07. Periodic on-going consultation and follow-up to ensure
that Company's systems are being properly implemented.
6.08. On-going research and development into new suppliers,
product lines, merchandising techniques and operational techniques, from a
worldwide perspective.
6.09. Access to Company's existing and on-going advertising
and promotional support.
6.10. Exclusive access to Company's on-going private label
product lines in the Territory.
6.11. Exclusive access to Company's proprietary systems,
standard forms and formats, and operational knowledge for use within the
Territory.
6.12. Use of Company's numerous proprietary software systems,
including customized systems for inventory control and ordering ("ACE
International Computer System"),expected to be available the fourth quarter
of 1996, at a cost to be determined by Company. All hardware and software
adaptations compatible with and necessary to operate the ACE International
Computer System shall be provided by Licensee at its expense.
6.13. An annual review of operations and a written report
outlining operational deficiencies or defaults identified by such review
together with a timetable for correcting such defaults which cure period in
no event shall exceed six (6) months from receipt of Company's notice of
such default.
PARAGRAPH VII
LICENSEE'S OBLIGATIONS
7.01. Licensee shall comply with all requirements set forth
in this Agreement, the Operations Manual, the plans and reports set forth
in sections 6.05, 6.06 and 6.13, and other written policies provided to
Licensee by Company and as developed by the parties. Mandatory
specifications, standards, operating procedures and rules prescribed from
time to time by Company in the Manual or otherwise communicated to Licensee
in writing, shall constitute provisions of this Agreement as if fully set
forth herein.
7.02. Licensee shall comply with any and all laws,
regulations and governmental orders of the United States of America, the
several states, or the country or Territory in which Licensee's ACE Stores
is located, which may be applicable to the sale and distribution of the
products purchased by Licensee from Company or to the conduct of Licensee's
business operations, as the case may be. Licensee agrees to order only
such merchandise as may lawfully be resold without alterations in labeling
or otherwise in the country or Territory in which Licensee's business is
located and agrees to indemnify Company and hold it harmless from and
against any and all claims, suits, proceedings, demands, actions,
judgments, orders, fines or penalties arising in connection with the actual
or alleged failure of such merchandise to comply with any laws, regulations
or governmental requirements applicable to the sale or resale thereof.
Licensee shall provide Company with copies of all licenses, permits and
certificates required by applicable law for the operation of a business.
7.03. Licensee shall have the right, beginning in
_____________ year following execution of this Agreement, to sublicense the
ACE Marks: "ACE", "ACE Hardware", "ACE Home Center", "ACE Paint" and "ACE
Rental Place" Stores within the Territory, provided that Licensee satisfies
the following obligations during the first _______ (__) years following
execution of this Agreement :
a. Licensee personally operates ____ (__) ACE Stores in
the Territory which shall total at least ___________________ square feet in
the aggregate.
b. Licensee satisfies the minimum annual purchase
requirements set forth in Section 7.05 below.
Licensee shall advise Company of the address, telephone number and
size of each ACE Store opened by Licensee and its sublicensees during the
term of this Agreement, a list of which shall be attached hereto as Exhibit
A. Exhibit A shall be modified as each new ACE Store is opened in the
Territory.
7.04. Licensee shall, at its expense, provide the following
services to sublicensed ACE Stores within the Territory:
a. Licensee shall develop individual license agreements
for use with individual sublicensees in the Territory. Licensee shall
submit a draft of such license agreement to Company for Company's prior
approval. Licensee shall enter into individual license agreements with
individual sublicensees for the operation of individual ACE Stores within
the Territory.
b. Licensee shall train all individual sublicensees with a
training program supplied by or approved by Company. At a minimum,
Licensee shall provide individual sublicensees and their managers or
employees with a minimum six (6) week retail training program prior to
commencement of operations.
c. Licensee shall make periodic visits to all individual
sublicensed businesses located within the Territory, for the purposes of
consultation, assistance and guidance of individual sublicensees in all
aspects of the operation and management of the individual ACE Stores.
Licensee's representatives who visit at the individual sublicensed
businesses will prepare, for the benefit of individual sublicensees,
Licensee and Company, written reports with respect to such visits outlining
any suggested changes or improvements in the operations and detailing any
defaults in such operations which become evident as a result of any such
visit. A copy of each such written report shall be provided to both the
individual sublicensees and Company. Licensee's agreements with its
sublicensees shall also provide that the Company may make periodic visits
to sublicensed ACE Stores to ensure that they are operating in accordance
with the Company's standards.
d. Licensee shall advise individual sublicensees within
the Territory of problems arising out of the operation of the individual
ACE Stores as disclosed by reports submitted to Licensee, or to Licensee's
representative, by individual sublicensees or pursuant to inspections of
the individual ACE Stores conducted by Licensee or Licensee's representative.
e. Licensee shall take all necessary steps to enforce the
terms of each individual sublicensee's Individual License Agreement and the
provisions of the Manual.
f. Licensee shall coordinate, administer, supervise and
otherwise monitor advertising and promotional activities of individual
sublicensees within the Territory.
All expenses incurred by Licensee in performing its obligations
under this Agreement shall be the sole responsibility of Licensee.
Licensee agrees to expend such sums for office administration, travel,
promotions, and advertising as may be reasonably required to develop and
supervise the Territory.
7.05. Licensee shall meet the minimum annual performance
requirements for number of square feet of retail space and total annual
dollar volume purchases in United States currency during the Initial Term,
as follows:
Total Annual Volume of
Minimum Number of Purchases In United
Year Total Square Feet States Dollars
---- ----------------- ----------------------
The minimum annual performance requirements for the Renewal Terms, if
any, shall be mutually agreed upon by the Company and Licensee prior to the
end of the then current term.
7.06 Licensee shall purchase products from Company as follows:
a. Licensee shall refrain from making any representation that a
product purchased from Company can be used for a purpose or in a manner not
intended by its manufacturer, and Licensee assumes full responsibility for,
and hereby indemnifies Company and holds it harmless from and against any
and all claims asserted against Company (a) which are based upon or arise
out of any such representation or (b) which are based upon or arise out of
any act performed by Licensee or its sublicensees to assist Licensee's
customer in using a product purchased from Company, or to alter, install,
repair or service any product purchased by Licensee from Company.
b. Licensee shall indemnify Company and hold it harmless from
and against any and all claims for (a) charges asserted against Company by
another party for services provided by such party to Licensee or its
sublicensees or for merchandise shipped by another party at Licensee's or
its sublicensee's request and (b) damages demanded from Company in
connection with any occurrence concerning which it is alleged that Licensee
functioned as an agent of the Company.
c. Licensee shall indemnify Company and hold it harmless for
the amount of all attorneys' fees and expenses reasonably incurred by it
in:
(i) enforcing compliance by Licensee with the provisions of
this Agreement or enforcing collection of any past due balances owing by
Licensee on Company's billing statements,
(ii) defending any claims asserted against Company which are
based upon or arise out of any occurrence of the types described in
Paragraphs IV, V, VII and XIII hereof or in attempting to avoid or mitigate
any losses to Company in connection therewith, and
(iii) in protecting any security interest of Company
granted in any property of Licensee in the event that Licensee becomes a
debtor in bankruptcy or insolvency proceedings.
d. Licensee shall furnish Company with annual financial
statements of their year end and financial statements, books and records
and related information including purchase and sales figures, concerning
Licensee's business on a quarterly basis or as shall reasonably be
requested from time to time by Company in order to confirm Licensees
compliance with the terms of this Agreement.
e. Licensee shall provide Company with a standby irrevocable
letter of credit, issued or confirmed by a United States bank approved by
Company or with such other instruments or collateral as Company shall deem
to be appropriate in order to secure the prompt payment of the indebtedness
to it incurred by Licensee from time to time. Company agrees to, as long
as Licensee is not in breach of this Agreement, extend credit to Licensee,
in such amount as Company and its credit insurance company shall, in their
sole discretion, deem reasonable for sales of Merchandise and services to
Licensee. Company reserves the right to change the amount of credit
extended to Licensee from time to time.
f. All orders for merchandise, supplies and services placed by
Licensee shall be subject to acceptance or nonacceptance by Company at its
corporate headquarters, now located in Oak Brook, Illinois, United States
of America. Company shall cause all items ordered by Licensee to be
shipped to Licensee's designated receiving terminal in the United States
for shipment by Licensee only to Licensee's location listed hereinabove.
Title to all such merchandise and supplies shipped to Licensee shall pass
to Licensee upon delivery to such receiving terminal. Licensee shall be
responsible for and agrees to pay to Company all costs and charges related
to the delivery of such items to said terminal, except in the case of
prepaid shipments from Company's vendors.
g. Licensee shall be solely responsible for and shall pay when
due all import or export permit fees, customs duties and taxes of any
nature imposed upon the sales made by Company to Licensee by the United
States Government or the government of the country in which Licensee's
place of business is located. Licensee shall fully indemnify Company for
the amount of any such fees, duties and taxes, together with any interest
or penalties thereon, which Company may be required to pay as a result of
Licensee's failure to do so.
h. At its sole discretion and notwithstanding any other
provisions of this Agreement to the contrary, Company may limit or restrict
the quantities or types of merchandise sold to Licensee hereunder.
i. Nothing herein shall be deemed in any way to limit the right
of Licensee to determine the prices or terms at which products purchased
through Company shall be resold by Licensee. It is expressly understood
that Licensee may resell such products at any prices determined by
Licensee, whether greater or lesser than any prices listed or suggested by
Company.
j. Company shall supply Licensee with such quantities of sales
aids as Company, in its sole discretion, deems necessary or desirable. All
such sales aids shall be in the English language. All copyrights which may
be issued or applied for with respect to such sales aids or any
translations thereof shall be issued or applied for in the name of Company,
and shall be the sole property of Company.
k. Licensee agrees to return no merchandise to Company without
the written consent of Company first being obtained.
l. Licensee agrees to use the Ace International Redistribution
Center, expected to open on the West Coast of the United States in 1996, in
connection with the export by Licensee of all merchandise purchased from
Company by Licensee for itself and for resale to its sublicensees .
7.07. If requested at any time by Company, and if reasonably
available to Licensee in the Territory, Licensee shall maintain at
Licensee's sole expense, with a reputable insurance carrier or carriers, a
policy or policies of liability insurance with commercially reasonable
coverage limits as agreed upon by Company and Licensee with respect to any
claims for damages to property, personal injuries or wrongful death which
are based upon or arise out of any occurrence concerning which it is
alleged that Licensee functioned as an agent of Company, or that Licensee,
Company, or either of them is otherwise liable therefor, except for claims
based on or arising out of the sole negligence of Company. Company shall
be named as an additional insured party in each such policy and Company
shall be furnished with a certificate of insurance evidencing such
coverages as are required herein.
7.08. Licensee and its sublicensees shall participate in the
following advertising and marketing programs:
a. Each calendar month Licensee shall spend an amount equal to
______ percent (__%) of Licensee's Gross Retail Revenues on local
marketing and advertising of Licensee's ACE Stores. Company shall provide
guidelines for conducting such marketing and advertising. Licensee shall
provide to Company an accounting as to its expenditures for local
marketing,advertising and promotion.
b. Licensee shall require each of its sublicensees to spend
an amount equal to ___ percent (__%) of such sublicensee's Gross Retail
Revenues on advertising in the Territory. ___ percent (__%) of such amount
shall be spent directly by the sublicensee on local advertising of its ACE
Store(s). The other ___ percent (__%) shall be paid by the sublicensee to
Licensee and shall be spent by Licensee on institutional advertising of the
ACE Stores in the Territory.
c. Licensee shall submit all advertising and promotional
materials promoting the ACE Stores to Company for review and approval
prior to use. Company shall notify Licensee in writing of its disapproval
of any such advertising or promotional materials within thirty (30)
business days of receipt of such materials, or fifteen (15) business days
if received via telefax, from Licensee. If Company does not notify
Licensee of its disapproval of any such advertising or promotional
materials within said thirty (30) business day period, such advertising or
promotional materials shall be deemed approved. All advertising conducted
by the ACE Stores shall be conducted in a dignified manner and shall
display the ACE Marks in the manner prescribed by Company.
7.09. Licensee shall not engage in the wholesale distribution
of ACE branded products throughout the Territory to non-ACE Stores, home
centers and other channels of distribution.
7.10. Licensee shall operate additional Ace Stores only if
(i) Licensee is in compliance with all requirements and obligations of this
Agreement and all other agreements between Company and Licensee, and (ii)
Licensee is in compliance with all of its performance obligations of
Paragraph 7.05. of this Agreement.
7.11. Licensee shall notify Company in writing within fifteen
(15) days after it becomes aware of the commencement of any action, suit or
proceeding and of the issuance of any order, writ, injunction, award or
decree of any court, agency or other governmental instrumentality which may
adversely affect the operation or financial condition of the ACE Stores.
7.12. Licensee may, with Company's prior written consent,
develop additional ACE Stores within the Territory upon the same terms and
conditions set forth in this Agreement including satisfaction of the
performance schedule set forth in Paragraph 7.05 of this Agreement and,
provided that Licensee has made application to Company and has timely
fulfilled its obligations arising hereunder and under any other agreement
between the parties and is in compliance with the terms of this Agreement
for each ACE Stores Licensee owns and operates.
PARAGRAPH VIII
CONFIDENTIAL OPERATIONS MANUAL
8.01. Company shall provide to Licensee one (1) or more
manuals containing specifications, standards, operating procedures and
rules prescribed from time to time by Company relative to the operation of
the ACE Stores. Licensee shall, at its expense, have the Manual
translated into the primary language used in the Territory. The Manual, as
used herein, shall refer to the entire series of manuals detailing the
operation of the ACE Stores. Company shall have the right to add to and
otherwise modify the Manual from time to time to reflect changes in the
specifications, standards, operating procedures and rules prescribed by
Company for the ACE Stores, provided that no such addition or modification
shall alter Licensee's fundamental status and rights under this Agreement.
8.02. The Manual shall at all times remain the sole property
of Company and shall promptly be returned upon the expiration or other
termination of this Agreement. Licensee agrees and covenants that it shall
not disclose, duplicate or otherwise use in an unauthorized manner any
portion of the Manual.
8.03. The Manual contains proprietary information of Company
and shall be kept confidential by Licensee both during the term of this
Agreement and for a period of five (5) years subsequent to the expiration
or termination of this Agreement. Licensee shall at all times ensure that
its copy of the Manual be available at the ACE Stores premises in a current
and up-to-date manner.
PARAGRAPH IX
COVENANTS NOT TO COMPETE
9.01. Licensee covenants that during the term of this
Agreement and any renewal thereof, except as otherwise approved in writing
by Company, Licensee shall not, whether alone, as a partner, officer,
director, employee, consultant or holder of any beneficial interest in any
such business or activity or any person or entity engaged in any such
activity, either directly or indirectly, for itself or through, on behalf
of or in conjunction with any person, persons, partnership, corporation or
other legal entity:
a. Divert or attempt to divert any business or customer of
the business licensed hereunder to any competitor, by direct or indirect
inducement or otherwise, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with
Company's ACE Marks and the ACE Stores.
b. Employ or seek to employ any person who is at that time
employed by Company or by any other licensee of Company or otherwise,
directly or indirectly, induce or seek to induce such person to leave his
or her employment with Company or its licensee, without first obtaining the
Company's or its licensee's written consent.
c. Own, maintain, engage in, or have any interest in any
retail hardware business utilizing a similar format as the ACE Stores
licensed hereunder.
9.02. Licensee shall not for a period of two (2) years
following the expiration or termination of this Agreement (or the maximum
period allowable by law, if less than two [2] years), either directly or
indirectly, on behalf of itself or through any other entity, engage in
offering or selling home improvement products, tools, hardware and
merchandise and related products pursuant to a franchise, license, or
similar agreement with any U.S. competitor of the Company.
PARAGRAPH X
DEFAULT AND TERMINATION
10.01. Either party may terminate this Agreement upon written
notice to the other for any of the following events:
a. the discovery of a material misrepresentation or
omission made by a party which, if known to the other party at the time of
execution of this Agreement, would cause such party to elect not to enter
into this Agreement;
b. the liquidation, bankruptcy or insolvency of one of the
parties;
c. the appointment of a trustee, receiver or liquidator
for all or substantially all of the assets or the business of one of the
parties;
d. the attachment, sequestration, execution or seizure of
all or substantially all of the assets of the parties, provided that such
attachment, sequestration, execution or seizure is not
discharged within thirty (30) days from the institution thereof; or
e. subject to section 10.02 below, a breach by one of the
parties of any terms or conditions of this Agreement, such breach not being
rectified (assuming it is capable of being rectified within a reasonable
period of time, not to exceed sixty (60) days, following the receipt of
written notice from the non-breaching party.
10.02. This Agreement shall, at the option of Company, terminate
automatically upon delivery of notice of termination to Licensee, if
Licensee:
a. Is convicted of or pleads no contest to a felony or
other crime or offense that is likely to adversely affect the reputation of
Company, Licensee or the ACE Stores.
b. Makes any unauthorized use, disclosure or duplication
of any portion of the Operations Manual or duplicates or discloses or makes
any unauthorized use of any trade secret or confidential information
provided to Licensee by Company.
c. Abandons, fails or refuses to actively operate any of
the ACE Stores for ten (10) business days in any twelve (12) month period
provided (excluding the closing of the ACE Stores for holidays recognized
in the Territory, or for reasons beyond the control of Licensee, such as
natural disasters), or if any of the ACE Stores are not being operated for
a purpose approved by Company or fails to relocate the premises of the ACE
Stores to approved premises within an approved period of time following
expiration or termination of the lease for the premises of the ACE Store.
d. Surrenders or transfers control of the operation of the
ACE Stores, makes or attempts to make an unauthorized direct or indirect
assignment of the license or an ownership interest in Licensee or fails or
refuses to assign the license or the interest in Licensee of a deceased or
incapacitated controlling owner thereof as herein required.
e. Submits to Company on two (2) or more separate
occasions at any time during the term of this Agreement any reports or
other data, information or supporting records which understate by more than
two percent (2%) the Royalty Fees, amounts due for merchandise purchased by
Company or any fees owed to Company for any period and Licensee is unable
to demonstrate that such understatements resulted from inadvertent error.
f. Materially misuses or makes any unauthorized use of any
of the Marks or commits any other act which can reasonably be expected to
materially impair the goodwill associated with any of the Marks. A
"material misuse" shall mean any use of the Marks not previously approved
in this Agreement or otherwise in writing by Company, or any use other than
for the promotion of the ACE Stores.
g. Materially misuses or makes any unauthorized use of the
ACE International Computer System. A "material misuse" shall mean any use
of the ACE International Computer System not previously approved in this
Agreement or otherwise in writing by Company, or any use other than for the
promotion of the ACE Stores.
h. Fails on two (2) or more separate occasions within any
period of twelve (12) consecutive months to submit when due reports or
other information or supporting records, to pay when due the Royalty Fees,
amounts due for purchases from Company or other payments due to Company, or
otherwise fails to comply with this Agreement, whether or not such failures
to comply are corrected after notice thereof is delivered to Licensee.
i. Fails to make expenditures for advertising as
prescribed in Paragraph 7.08. of this Agreement.
j. Fails to comply with the performance requirements in
accordance with the Schedule agreed upon by the parties as prescribed in
Paragraph 7.05 of this Agreement.
k. Fails or refuses to make payments of any amounts due
Company for Royalty Fees, purchases from Company or any other amounts due
to Company, and does not correct such failure or refusal within fifteen
(15) days after written notice of such failure is delivered to Licensee; or
l. Fails or refuses to comply with any other provision of
this Agreement, or any mandatory specification, standard or operating
procedure prescribed in the Manual as developed by the parties or as
otherwise agreed to by the parties in writing, and does not correct such
failure within six (6) months or provide proof acceptable to Company that
Licensee has made all efforts as agreed upon by the parties to correct such
failure and will continue to make efforts to cure until a cure is effected
as agreed upon by the parties, if such failure cannot be corrected within
ninety (90) days after written notice of such failure to comply is
delivered to Licensee.
10.03. If Licensee is a corporation, unless Licensee first
obtain's Company's prior written approval, this Agreement shall
automatically terminate upon the consummation of any sale or transfer of
all of the shares of capital stock (both voting and non-voting) of such
corporation held by the holder or holders of fifty percent (50%) or more of
its outstanding voting stock.
PARAGRAPH XI
RIGHTS AND DUTIES OF THE PARTIES UPON EXPIRATION OR TERMINATION
11.01. Upon termination or expiration, this Agreement and all
rights granted hereunder to Licensee shall forthwith terminate, and:
a. Licensee shall immediately cease to operate the ACE
Stores under this Agreement and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a present or
former licensee of Company.
b. Licensee shall immediately and permanently cease to
use, by advertising or in any other manner whatsoever, any confidential
methods, procedures and techniques associated with the Marks and any
distinctive forms, slogans, signs, symbols, logos or devices associated
with the Marks. In particular, Licensee shall cease to use, without
limitation, all signs, advertising materials, stationery, forms and any
other article which displays the ACE Marks, except that Licensee may
continue its internal use of personalized items such as coffee mugs,
drinking glasses or notebooks .
c. Licensee shall take such action as may be necessary to
cancel or assign to Company or Company's designee, at Company's option, any
assumed name or equivalent registration filed with governmental authorities
which contains the name "ACE" or any of the ACE Marks and Licensee shall
furnish Company with evidence satisfactory to Company of compliance with
this obligation within thirty (30) days after termination or expiration of
this Agreement.
d. In the event Licensee continues to operate or
subsequently begins to operate any other business, Licensee shall not use
any reproduction, counterfeit, copy or colorable imitation of the ACE Marks
either in connection with such other business or the promotion thereof,
which is likely to cause confusion, mistake or deception, or which is
likely to dilute Company's exclusive rights in and to the ACE Marks. This
Paragraph XI. is not intended as an approval of Licensee's right to operate
other businesses and in no way is it intended to contradict Paragraph IX.
of this Agreement. Licensee shall not utilize any designation of origin or
description or representation which falsely suggests or represents an
association or connection with Company so as to constitute unfair
competition. Licensee shall make such modifications or alterations to the
premises of the ACE Stores immediately upon termination or expiration of
this Agreement as may be necessary to prevent any association between
Company and any business thereon subsequently operated by Licensee or
others, and shall make such specific additional changes thereto as Company
may reasonably request for that purpose. In the event Licensee fails or
refuses to comply with the requirements of this Paragraph XI., Company
shall have the right to enter upon the premises where Licensee's ACE Stores
were located, without incurring any liability to Licensee, for the purpose
of making or causing to be made such changes as may be required at the
expense of Licensee, which expense Licensee shall pay upon demand.
e. Licensee shall promptly pay all sums owing to Company
as agreed upon by the parties. In the event of termination for any default
of Licensee, such sums shall include but not be limited to, all damages,
costs, expenses, including reasonable attorneys' fees, and lost future
royalties incurred by Company as a result of the default.
f. The losing party shall pay to the prevailing party all
damages, costs and expenses, including reasonable attorneys' fees, incurred
subsequent to the termination or expiration of the license herein granted
in obtaining injunctive or other relief for the enforcement of any
provisions of this Paragraph XI. or Paragraph IX.
g. Licensee shall immediately turn over to Company all
Manuals, customer lists, records, files, instructions, brochures,
agreements, disclosure statements and any and all other materials provided
by Company to Licensee relating to the operation of the ACE Stores (all of
which are acknowledged to be Company's property).
h. Company shall acquire all right, title and interest in
and to any sign or sign faces bearing the Marks. Licensee acknowledges
Company's right to have access to the premises of the ACE Stores should
Company elect to take possession of any said sign or sign faces bearing the
ACE Marks. Removal shall be at Licensee's expense.
i. Licensee shall comply with the covenants contained in
Paragraph IX. of this Agreement.
11.02. All obligations of Company and Licensee which expressly
or by their nature survive the expiration or termination of this Agreement
shall continue in full force and effect subsequent to and notwithstanding
its expiration or termination and until they are satisfied or by their
nature expire.
PARAGRAPH XII
TRANSFERABILITY OF INTEREST
12.01. This Agreement and all rights hereunder may be assigned
and transferred by Company and, if so, shall be binding upon and inure to
the benefit of Company's successors and assigns.
12.02. Licensee agrees to notify Company in writing:
a. prior to or concurrently with the effective date
thereof, as to any change in the legal form of ownership of Licensee (such
as, for example, a change from individual or partnership form to corporate
form, or vice versa), it being understood that no such change will operate
to release from liability to Company any party previously responsible for
Licensee's obligations hereunder without the written consent of Company,
b. as promptly as feasible, as to the death of any partner
having an interest in any partnership by which Licensee is owned or the
death of any stockholder owning 50% or more of the voting stock of Licensee
if Licensee is incorporated, or
c. not less than thirty (30) days prior to the closing of
the transaction, as to the name and address of each proposed buyer or
transferee in any proposed sale, assignment or transfer of fifty (50%) or
more of the ownership interest(s) of Licensee or of the business operated
at the location of Licensee's business indicated hereinabove or of all of
the capital stock (both voting and non-voting) owned by the holder(s) in a
corporation owning the business operated at such location if fifty percent
(50%) or more of the outstanding voting stock of such corporation is owned
by such holder(s).
12.03. Licensee shall not transfer or assign this Agreement or
any part hereof without Company's written consent. Licensee shall promptly
advise Company in writing of any relocation of its place of business or the
closing of any existing place of business.
PARAGRAPH XIII
NO AGENCY
13.01. Licensee shall not have authority to represent Company
in Licensee's country, the Territory or elsewhere as an agent, nor to bind
Company to any contract, representation, understanding, act or deed
concerning Company or any products sold by it. Neither the making of this
Agreement nor the performance of any part of the provisions hereof shall be
construed to constitute Licensee as an agent or representative of Company
for any purpose nor shall this Agreement be deemed to establish a joint
venture or partnership between the parties. All sales of merchandise by
Licensee shall be for its own account, it being understood that Licensee is
an independent business reselling products which are purchased from
Company.
13.02. Company shall not, by virtue of any approvals, advice
or services, provide to Licensee, assume responsibility or liability to
Licensee or any third parties to which Company would not otherwise be
subject.
PARAGRAPH XIV
MISCELLANEOUS
14.01. The prevailing party shall be entitled to recover
reasonable attorneys' fees, experts' fees, court costs and all other
expenses of litigation in any action instituted against the other party in
order to secure or protect its rights under this Agreement or to enforce
terms hereof.
14.02. This Agreement, any Exhibit attached hereto and the
documents referred to herein, shall be construed together and constitute
the entire, full and complete agreement between Company and Licensee
concerning the subject matter hereof, and supersede all prior agreements.
This Paragraph XIV shall not be orally modified. No other representation
has induced Licensee to execute this Agreement and there are no
representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein, which are of any force or effect
with reference to this Agreement or otherwise. No amendment, change or
variance from this Agreement shall be binding on either party unless
executed in writing by both parties.
14.03. The Recitals set forth in this Agreement are
specifically incorporated into the terms of this Agreement and constitute a
part of this Agreement.
14.04. The signing of this Agreement by Licensee constitutes
an application only and this Agreement shall not be effective unless and
until it has been duly accepted and countersigned by Company at its
principal office in Illinois, United States of America not later than
thirty (30) days after the date of signing by Licensee. All orders for
merchandise, supplies and services placed by Licensee pursuant to this
Agreement shall be transmitted to Company at said office and Licensee shall
be deemed to have consented and agreed that:
a. all provisions of this Agreement shall be interpreted
and construed in accordance with the substantive laws of the State of
Illinois, United States of America; and
b. all controversies, disputes or claims arising between
Company and Licensee arising out of or related to the relationship of the
parties hereto, this Agreement or any provision hereof, or any related
agreement, shall be submitted for arbitration to be administered by the
office
of the American Arbitration Association ("AAA") in Chicago, Illinois,
U.S.A. on demand of either party. Such arbitration proceedings shall be
conducted in Chicago as herein provided before a panel of three (3) neutral
arbitrators and, except as otherwise provided in this Agreement, shall be
conducted in accordance with the then current commercial arbitration rules
of the AAA for international arbitrations. The arbitrators shall have the
right to award or include in their award any relief which they deem proper
in the circumstances, including without limitation, money damages (with
interest on unpaid amounts from date due), specific performance, injunctive
relief, legal fees and costs, but shall not have the authority to award
exemplary, punitive or special damages. The award and decision of the
arbitrators shall be conclusive and binding upon all parties hereto and
judgment upon the award may be entered in any court of competent juris
diction, including courts in the United States of America and the
Territory. The parties further agree to be bound by the provisions of any
applicable limitation on the period of time in which claims must be brought
under applicable law or this Agreement, whichever is less. The parties
further agree that in connection with any such arbitration proceeding, each
shall submit or file any claim which would constitute a compulsory
counterclaim (as defined by Rule 13 of the United States Federal Rules of
Civil Procedure) within the same proceeding as the claim to which it
relates. Any such claim which is not submitted or filed as described above
shall be barred.
14.05. Except as otherwise specifically provided, all notices
required or permitted to be given hereunder by one party to the other party
shall be effective if personally delivered, airmailed or sent by telex or
facsimile to the addresses set forth hereinabove or to such other address
as either party designates to the other in writing for the receipt of
notices hereunder, with receipt deemed within fourteen (14) days after
airmailing or within two (2) days after sending by telex or facsimile.
14.06. The English version of this Agreement shall govern in
the event of any variations between the English version and any translation
hereof and shall be used exclusively in any arbitration, legal proceeding
or suit hereunder.
14.07. The failure of either party to enforce its rights under
any provision hereof shall not be deemed a waiver of such rights for
purposes of future enforcement. No modification of this Agreement or any
waiver of rights hereunder shall be of any force and effect unless in
writing and signed by the party against whom enforcement of such waiver or
modification is sought.
14.08. The terms and conditions set forth in any purchase
order or other document shall be effective only to the extent that the same
shall not be inconsistent with the terms and conditions hereof.
14.09. Any provision or provisions hereof which contravene the
law of any state or country in which this Agreement is effective shall, in
such state or country, to the extent of such contravention of law, be
deemed separable and shall not impair the validity of any other term,
condition or provision hereof.
14.10. a. Company represents and warrants that:
(i) it is a corporation duly incorporated and existing
under the laws of the State of Delaware, the United States of America;
(ii) it has all necessary licenses to carry out its
business in the United Sates of America; and
(iii) this Agreement constitutes legally valid and
binding obligations of Company, enforceable against Company in accordance
with its terms, and the person or persons signing this agreement on behalf
of Company are duly authorized to do so.
b. Licensee represents and warrants that:
(i) it is a corporation duly incorporated and existing
under the laws of ___________________;
(ii) it has all necessary licenses to carry out its
business in the Territory; and
(iii) this Agreement constitutes legally valid and
binding obligations of Licensee, enforceable against Licensee in accordance
with its terms, and the person or persons signing this agreement on behalf
of Licensee are duly authorized to do so.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on this
_________ day of _________________________, 199__.
COMPANY: LICENSEE:
ACE HARDWARE CORPORATION ________________________________________
By: By:
Title: Title:
EXHIBIT A TO THE LICENSE AGREEMENT
STORE LOCATIONS
Address: Address:
Telephone No.: Telephone No.:
Commencement Date Commencement Date
Of Operations: Of Operations:
Number of Square Number of Square
Feet: Feet:
Address: Address:
Telephone No.: Telephone No.:
Commencement Date Commencement Date
Of Operations: Of Operations:
Number of Square Number of Square
Feet: Feet:
Address: Address:
Telephone No.: Telephone No.:
Commencement Date Commencement Date
Of Operations: Of Operations:
Number of Square Number of Square
Feet: Feet:
Address: Address:
Telephone No.: Telephone No.:
Commencement Date Commencement Date
Of Operations: Of Operations:
Number of Square Number of Square
Feet: Feet:
Address: Address:
Telephone No.: Telephone No.:
Commencement Date Commencement Date
Of Operations: Of Operations:
Number of Square Number of Square
Feet: Feet:
COUNTY OF SARATOGA INDUSTRIAL DEVELOPMENT
AND
ACE HARDWARE CORPORATION
LEASE AGREEMENT
DATED AS OF SEPTEMBER 1, 1996
TABLE OF CONTENTS
(This Table of Contents is not part of the Lease
Agreement and is for convenience of reference only)
SECTION PAGE
ARTICLE I 2
DEFINITIONS 2
SECTION 1.1. DEFINITIONS 2
SECTION 1.2. INTERPRETATION 4
ARTICLE II 6
REPRESENTATIONS, WARRANTIES AND COVENANTS 6
SECTION 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE LESSOR 6
SECTION 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE LESSEE 6
ARTICLE III 9
CONVEYANCE AND USE OF PROJECT FACILITY 9
SECTION 3.1. CONVEYANCE TO THE LESSOR 9
SECTION 3.2. USE OF PROJECT FACILITY 9
ARTICLE IV 10
ACQUISITION OF LAND; CONSTRUCTION OF FACILITY;
ACQUISITION AND INSTALLATION OF EQUIPMENT 10
SECTION 4.1. ACQUISITION OF LAND; CONSTRUCTION
OF FACILITY; ACQUISITION AND INSTALLATION OF EQUIPMENT 10
SECTION 4.2. COMPLETION OF PROJECT FACILITY 11
SECTION 4.3. REMEDIES TO BE PURSUED AGAINST CONTRACTORS,
SUBCONTRACTORS, MATERIALMEN AND THEIR SURETIES 11
ARTICLE V 12
LEASE OF PROJECT FACILITY; RENT; CONVEYANCE OF PROJECT
FACILITY 12
SECTION 5.1. LEASE OF THE PROJECT FACILITY 12
SECTION 5.2. DURATION OF TERM. 12
SECTION 5.3. QUIET ENJOYMENT 12
SECTION 5.4. RENT AND OTHER AMOUNTS PAYABLE 12
SECTION 5.5. NATURE OF OBLIGATIONS OF THE LESSEE HEREUNDER 13
ARTICLE VI 14
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE 14
SECTION 6.1. MAINTENANCE AND MODIFICATIONS OF PROJECT
FACILITY 14
SECTION 6.2. TAXES, ASSESSMENTS AND UTILITY CHARGES 14
SECTION 6.3. INSURANCE REQUIRED 14
SECTION 6.4. ADDITIONAL PROVISIONS RESPECTING INSURANCE 15
SECTION 6.5. APPLICATION OF NET PROCEEDS OF INSURANCE 16
SECTION 6.6. PAYMENTS IN LIEU OF TAXES 16
ARTICLE VII 18
DAMAGE, DESTRUCTION AND CONDEMNATION 18
SECTION 7.1. DAMAGE OR DESTRUCTION 18
SECTION 7.2. CONDEMNATION 18
ARTICLE VIII 19
SPECIAL COVENANTS 19
SECTION 8.1. NO WARRANTY OF CONDITION OR SUITABILITY
BY LESSOR; ACCEPTANCE 19
SECTION 8.2. HOLD HARMLESS PROVISIONS 19
SECTION 8.3. RIGHT OF ACCESS TO PROJECT FACILITY 20
SECTION 8.4. THE LESSEE NOT TO TERMINATE EXISTENCE
OR DISPOSE OF ASSETS 20
SECTION 8.5. AGREEMENT TO PROVIDE INFORMATION 20
SECTION 8.6. COMPLIANCE WITH ORDERS, ORDINANCES, ETC 20
SECTION 8.7. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS 21
SECTION 8.8. DEPRECIATION DEDUCTIONS AND TAX CREDITS 21
ARTICLE IX 22
ASSIGNMENTS; MERGER OF LESSOR 22
SECTION 9.1. RESTRICTION ON TRANSFER OF LESSOR'S INTEREST
HEREUNDER 22
SECTION 9.2. ASSIGNMENT OF THIS LEASE AGREEMENT 22
SECTION 9.3. MERGER OF THE LESSOR 22
SECTION 9.4. SALE OR LEASE OF PROJECT FACILITY 22
ARTICLE X 24
EVENTS OF DEFAULT AND REMEDIES 24
SECTION 10.1. EVENTS OF DEFAULT DEFINED 24
SECTION 10.2. REMEDIES ON DEFAULT 25
SECTION 10.3. REMEDIES CUMULATIVE 25
SECTION 10.4. AGREEMENT TO PAY ATTORNEYS' FEES
AND EXPENSES 26
SECTION 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER 26
ARTICLE XI 27
EARLY TERMINATION OF LEASE AGREEMENT 27
SECTION 11.1. OPTION TO TERMINATE LEASE AGREEMENT 27
SECTION 11.2. OBLIGATION TO SELL AND PURCHASE THE PROJECT
FACILITY 27
SECTION 11.3. CONVEYANCE OF PROJECT FACILITY UPON PURCHASE 27
ARTICLE XII 28
MISCELLANEOUS 28
SECTION 12.1. NOTICES 28
SECTION 12.2. BINDING EFFECT 29
SECTION 12.3. SEVERABILITY 29
SECTION 12.4. AMENDMENTS, CHANGES AND MODIFICATIONS 29
SECTION 12.5. EXECUTION OF COUNTERPARTS 29
SECTION 12.6. APPLICABLE LAW 29
SECTION 12.7. RECORDING AND FILING 29
SECTION 12.8. SURVIVAL OF OBLIGATIONS 29
SECTION 12.9. TABLE OF CONTENTS AND SECTION HEADINGS NOT
CONTROLLING 29
SECTION 12.10. NO RECOURSE; SPECIAL OBLIGATION 29
SECTION 12.11. SUBMISSION TO JURISDICTION 30
EXHIBIT A A-1
DESCRIPTION OF LAND A-1
EXHIBIT B B-1
FORM OF DEED TO LESSEE B-1
EXHIBIT C C-1
FORM OF BILL OF SALE TO LESSEE C-1
LEASE AGREEMENT
THIS LEASE AGREEMENT dated as of September 1, 1996 ("Lease
Agreement") by and between the COUNTY OF SARATOGA INDUSTRIAL
DEVELOPMENT AGENCY, a public benefit corporation of the State of
New York having its office at Saratoga County Municipal Center,
40 McMaster Street, Ballston Spa, New York 12020 (the "Lessor")
and ACE HARDWARE CORPORATION, a Delaware corporation having an
address of 2200 Kensington Court, Oak Brook, Illinois 60521-2134
(the "Lessee");
W I T N E S S E T H:
WHEREAS, the Lessor, by resolution adopted September 16,
1996 (the "Resolution"), resolved to undertake a project (the
"Project") consisting of (A) (1) the acquisition of a certain
parcel or parcels of land comprising approximately 130 acres
located at Ballard Road and Northern Pines Road in the Town of
Wilton, Saratoga County, New York (the "Land"), (2) the
construction on the Land of an approximately 792,000 square foot
Facility (the "Facility") for use as a regional warehouse and
distribution facility and (3) the acquisition and installation in
the Facility of certain machinery and equipment (the "Equipment"
and together with the Land and the Facility, collectively the
"Project Facility"); and (B) The lease of the Project Facility to
the Lessee; and
WHEREAS, the Lessor proposes to lease the Project Facility
to the Lessee and the Lessee desires to lease the Project
Facility from the Lessor pursuant to the terms and conditions
hereinafter set forth; and
WHEREAS, the providing of the Project Facility and the lease
of the Project Facility to the Lessee pursuant to this Lease
Agreement is for a proper purpose, to wit, to advance the job
opportunities, health, general prosperity and economic welfare of
the inhabitants of the State of New York, pursuant to the
provisions of the Act (as hereinafter defined); and
WHEREAS, all things necessary to constitute this Lease
Agreement a valid and binding agreement by and between the
parties hereto in accordance with the terms hereof have been done
and performed, and the creation, execution and delivery of this
Lease Agreement have in all respects been duly authorized;
NOW, THEREFORE, THE LESSOR AND THE LESSEE HEREBY AGREE AS
FOLLOWS:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the
context otherwise requires) for all purposes of this Lease
Agreement and of any agreement supplemental hereto shall have the
respective meanings specified in this Section 1.1.
"Act" means Title 1 of Article 18-A of the General Municipal
Law of the State, as amended from time to time, together with
Chapter 855 of the Laws of 1971 of the State.
"Bill of Sale to Lessee" means the bill of sale from the
Lessor to the Lessee (substantially in the form shown in Exhibit
"C" hereto) to be delivered to the Lessee upon satisfaction of
the conditions set forth herein.
"Bill of Sale to Lessor" means the bill of sale from the
Lessee to the Lessor conveying the Lessee's interest in the
Equipment.
"Bond Counsel" means any attorney or firm of attorneys whose
experience in matters relating to the issuance of obligations by
states and their political subdivisions is nationally recognized
and reasonably acceptable to the Lessor.
"Business Day" means a day on which banks located in New
York City are not required or authorized to remain closed and on
which the New York Stock Exchange is not closed.
"Closing Date" means the date of the execution and delivery
by the Lessee of the Deed to Lessor.
"Code" means the Internal Revenue Code of 1986, as amended
and regulations of the Department of Treasury promulgated
thereunder and under the Internal Revenue Code of 1954, as
amended.
"Completion Date" means the date which is certified as the
date of completion of the construction of the Facility and
installation of the Equipment pursuant to Section 4.2 of the
Lease Agreement.
"Construction Period" means the period (A) beginning on the
date of commencement of construction of the Facility, and (B)
ending on the Completion Date.
"Deed to the Lessee" means the deed from the Lessor to the
Lessee (substantially in the form shown in Exhibit "B" to the
Lease Agreement) to be delivered to the Lessee upon satisfaction
of the conditions set forth in the Lease Agreement.
"Deed to the Lessor" means the deed from the Lessee to the
Lessor conveying the Lessee's fee interest in the Land and the
Facility.
"Equipment" means all items of machinery, equipment,
fixtures and/or furnishings installed into the Facility during
the Construction Period.
"Event of Default" means any of those events defined as
Events of Default by the terms of any of the Leasing Documents.
"Facility" means, all those buildings, improvements,
structures and other related facilities affixed or attached to or
to be affixed or attached to the Land, all as they may exist from
time to time.
"Governmental Authority" means the United States, the State
and any political subdivision thereof, and any agency,
department, commission, board, bureau or instrumentality of any
of them.
"Land" means the real property described in Exhibit "A" to
the Lease Agreement.
"Lease Agreement" means the lease agreement dated as of
September 1, 1996 by and between the Lessor and the Lessee, as
said lease agreement may be amended or supplemented from time to
time
"Lease" or "Leases" means any agreements of lease or
sublease with respect to all or portions of the Project Facility,
as said agreements of lease or sublease may have been or may from
time to time be hereinafter modified, extended and revised
including but not limited to, the Lease Agreement, and any future
lease or sublease affecting any portion of the Project Facility.
"Leasing Documents" means this Lease Agreement, the PILOT
Agreement and any other document now or hereafter executed by the
Lessor and the Lessee in connection with the Project Facility.
"Lessor" means (A) the County of Saratoga Industrial
Development Agency and its successors and assigns, and (B) any
public benefit corporation or other public corporation resulting
from or surviving any consolidation or merger to which the County
of Saratoga Industrial Development Agency or its successors or
assigns may be a party.
"Lessee" means Ace Hardware Corporation, a Delaware
corporation having an address of 2200 Kensington Court, Oak
Brook, Illinois 60521-2134, and its successors and permitted
assigns.
"Lien" means any interest in Property securing an obligation
owed to a Person whether such interest is based on the common
law, statute or contract, and including but not limited to a
security interest arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term "Lien" includes
reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases and other
similar title exceptions and encumbrances, including but not
limited to mechanics', materialmen's warehousemen's and carriers'
liens and other similar encumbrances, affecting real property.
For the purposes hereof, a Person shall be deemed to be the owner
of Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some
other Person for security purposes.
"Lien Law" means the Lien Law of the State.
"Local Authority" means any Governmental Authority which
exercises jurisdiction over the Project Facility.
"Local Requirement" means any law, ordinance, order, rule or
regulation of a Governmental Authority or a Local Authority,
respectively.
"Permitted Encumbrances" means and includes with respect to
the Lessee and its Subsidiaries (if any): (i) in the case of real
properties, easements, restrictions, exceptions, reservations or
defects which, in the aggregate, do not interfere with the
continued use of such properties for the purposes for which they
are used and do not affect the value thereof; (ii) liens, if
contested in good faith by appropriate proceedings as allowed
pursuant to Section 8.6 of the Lease Agreement; (iii) pledges or
deposits to secure obligations under worker's compensation laws
or similar legislation or to secure performance in connection
with bids, tenders and contracts in the ordinary course of the
Lessee's business (other than contracts for the payment of
borrowed money) to which the Lessee or any Subsidiary of the
Lessee is a party; (iv) deposits to secure public or statutory
obligations of the Lessee and any Subsidiary of the Lessee; (v)
carriers' or other like liens arising in the ordinary course of
business, or deposits of cash or United States obligations to
obtain the release of such liens or of mechanics' or worker's
liens; (vi) deposits to secure surety or appeal bonds in
proceedings to which the Lessee or any Subsidiary of the Lessee
is a party; (vii) existing leases by the Lessee of real and
personal property; (viii) liens arising out of or created by the
Leasing Documents; and (ix) such other encumbrances as may be
consented to, from time to time, by the Lessor and the Lessee.
"Person" shall mean any legal entity, including without
limitation an individual, a corporation, a company, a voluntary
association, a partnership, a trust, an unincorporated
organization or a government, or any agency, instrumentality or
political subdivision thereof.
"PILOT Agreement" means the payment in lieu of tax agreement
dated as of September 1, 1996 by and between the Lessor and the
Lessee, as said payment in lieu of tax agreement may be amended
or supplemented from time to time.
"Project" means that project undertaken by the Lessor
consisting of (A) the acquisition of the Land, (B) the
construction of the Facility and (C) the acquisition and
installation of the Equipment.
"Project Facility" means, collectively, the Land, the
Facility and the Equipment.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or
intangible.
"Requirement" means any law, ordinance, order, rule or
regulation of a Governmental Authority or a Local Authority,
respectively.
"Resolution" means the resolution duly adopted by the Lessor
on September 16, 1996 authorizing the execution and delivery of
the Leasing Documents to which the Lessor is a party.
"State" means the State of New York.
SECTION 1.2. INTERPRETATION. In this Lease Agreement, unless
the context otherwise requires:
(A) the terms "hereby", "hereof", "herein", "hereunder" and
any similar terms as used in this Lease Agreement refer to this
Lease Agreement, and the term "heretofore" shall mean before, and
the term "hereafter" shall mean after, the date of this Lease
Agreement;
(B) words of masculine gender shall mean and include
correlative words of feminine and neuter genders and words
importing the singular number shall mean and include the plural
number and vice versa; and
(C) any certificates, letters or opinions required to be
given pursuant to this Lease Agreement shall mean a signed
document attesting to or acknowledging the circumstances,
representations, opinions of law or other matters therein stated
or set forth or setting forth matters to be determined pursuant
to this Lease Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES
AND COVENANTS
SECTION 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
LESSOR. The Lessor makes the following representations,
warranties and covenants as the basis for the undertakings on its
part herein contained:
(A) The Lessor is duly established under the provisions of
the Act and has the power to enter into this Lease Agreement and
to carry out its obligations hereunder. Based upon the
representations of the Lessee as to the utilization of the
Project Facility, the Project Facility constitutes and will
constitute a "project" as such quoted term is defined in the Act.
By proper official action the Lessor has been duly authorized to
execute, deliver and perform this Lease Agreement and the other
Leasing Documents to which it is a party.
(B) Neither the execution and delivery of this Lease
Agreement, the consummation of the transactions contemplated
hereby nor the fulfillment of or compliance with the provisions
of the other Leasing Documents by the Lessor will conflict with
or result in a breach by the Lessor of any of the terms,
conditions or provisions of the Act, the by-laws of the Lessor or
any order, judgment, restriction, agreement or instrument to
which the Lessor is a party or by which it is bound, or will
constitute a default by the Lessor under any of the foregoing.
(C) The Lessor will cause the Project Facility to be
constructed and will lease the Project Facility to the Lessee
pursuant to this Lease Agreement, all for the purpose of
advancing the job opportunities, health, general prosperity and
economic welfare of the people of the State and improving their
standard of living.
(D) Except as provided herein and in Article IX and Article
X hereof, the Lessor, to the extent of its interest therein,
shall not sell, assign, transfer, encumber or pledge as security
the Project Facility or any part thereof.
SECTION 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE LESSEE. The Lessee makes the following representations,
warranties and covenants as the basis for the undertakings on its
part herein contained:
(A) The Lessee is a corporation organized, existing and in
good standing under the laws of the State of Delaware, is
qualified to do business within the State, has power to enter
into this Lease Agreement and the other Leasing Documents to
which it is a party and to carry out its obligations hereunder
and thereunder, has been duly authorized to execute this Lease
Agreement and the other Leasing Documents to which the Lessee is
a party. This Lease Agreement and the other Leasing Documents to
which the Lessee is a party and the transactions contemplated
hereby and thereby have been duly authorized by all necessary
corporate action.
(B) Neither the execution and delivery of this Lease
Agreement or the other Leasing Documents to which the Lessee is a
party, the consummation of the transactions contemplated hereby
or thereby, nor the fulfillment of or compliance with the
provisions of this Lease Agreement or the other Leasing Documents
to which the Lessee is a party will (1) result in a breach of or
conflict with any of the terms, conditions or provisions of the
Lessee's certificate of incorporation or by-laws or any
agreement, instrument, order or judgment to which the Lessee is a
party or by which the Lessee is bound, or will constitute a
default under any of the foregoing, or result in the creation or
imposition of any Lien of any nature upon the Project Facility
under the terms of any such instrument or agreement, other than
the Permitted Encumbrances, (2) require consent under (which has
not been heretofore received) or result in a breach of or default
under any credit agreement, indenture, purchase agreement,
mortgage, deed of trust, commitment, guaranty or other agreement
or instrument to which the Lessee is a party or by which it or
any of its Property may be bound or affected, or (3) conflict
with or violate any existing law, rule, regulation, judgment,
order, writ, injunction or decree of any government, governmental
instrumentality or court (domestic or foreign), having
jurisdiction over the Lessee or any of the Property of the
Lessee.
(C) The acquisition and construction of the Project
Facility will not result in the removal of a facility or plant of
the Lessee or any contemplated occupant of the Project Facility
from one area of the State to another area of the State or in the
abandonment of one or more plants or facilities of the Lessee or
any contemplated occupant of the Project Facility located within
the State, except to the extent to which such relocation or
abandonment is reasonably necessary to discourage the Lessee or
any Project occupant from removing a facility or plant of the
Lessee or any Project occupant to a location outside the State of
New York or is reasonably necessary to preserve the competitive
position of the Lessee or any Project occupant in its respective
industry.
(D) The Leasing Documents to which it is a party
constitute, or upon their execution and delivery in accordance
with the terms thereof will constitute, valid and legally binding
obligations of the Lessee, enforceable in accordance with their
respective terms.
(E) So long as the PILOT Agreement shall be outstanding,
the Project Facility is and will continue to be a "project" as
such quoted term is defined in the Act, and the Lessee will not
take any action (or omit to take any action required by the
Leasing Documents or which the Lessor, advises the Lessee in
writing should be taken), or allow any action to be taken, which
action (or omission) would in any way (1) cause the Project
Facility not to constitute a "project" as such quoted term is
defined in the Act.
(F) The Lessee shall cause all notices required by law to
be given, and shall comply or cause compliance with all laws,
ordinances, municipal rules and regulations and requirements of
all Governmental Authorities applying to or affecting the conduct
of work on the Project Facility, and the Lessee will defend and
save the Lessor and its officers, members, agents and employees
harmless from all fines and penalties due to failure to comply
therewith.
(G) The acquisition and construction of the Project
Facility will not have a significant impact on the environment
within the terms of SEQRA and the statewide and local regulations
thereunder. The Lessee hereby covenants to comply with all
mitigation measures, requirements and conditions, if any,
enumerated in the negative declaration issued by the Wilton
Planning Board under SEQRA with respect to the Project Facility
and in any other approvals issued by any other Governmental
Authority.
(H) The Project Facility and the operation thereof complies
and will comply with all applicable building, zoning,
environmental, planning and subdivision laws, ordinances, rules
and regulations of Governmental Authorities having jurisdiction
over the Project Facility.
(I) The Lessee shall (1) cause any new employment
opportunities created in connection with the Project to be listed
with (i) the Regional Office of the New York State Department of
Economic Development serving Wilton, New York, (ii) the New York
State Department of Labor Jobs Service Division, and (iii) the
local service delivery area administrative entity created
pursuant to the United States Job Training Partnership Act (P.L.
97-300) serving Wilton, New York, (2) the Lessee shall file with
the Lessor on or before January 1 of each year during which the
Lease Agreement remains in effect the status of its employment
plan with respect to the Project, including the number of
employment opportunities created, the number of employment
openings listed in accordance with (i) above and the number of
employment positions filled, and (3) the Lessee agrees, subject
to the terms of any existing collective bargaining agreement(s),
to first consider for such new employment persons eligible under
the United States Job Training Partnership Act.
(J) The Lessee shall deliver to the Lessor a notice, within
five (5) days of its occurrence, or as soon thereafter as the
Lessee becomes aware of, or should have become aware of, the
same, any Event of Default, material litigation or failure to
observe any covenant in the Financing Documents.
(K) Not more than one-third of the total Cost of the
Project shall be used to provide facilities primarily used in
making Retail Sales (as such term is defined in Section 862 of
the General Municipal Law of the State) to customers who
personally visit such facilities.
ARTICLE III
CONVEYANCE AND USE OF
PROJECT FACILITY
SECTION 3.1. CONVEYANCE TO THE LESSOR. The Lessee has conveyed
or will convey, or will cause to be conveyed, all of its right,
title and interest in and to the Project Facility to the Lessor
pursuant to the Deed to Lessor. The Lessee hereby represents and
warrants that it has good and marketable title to the Project
Facility, free and clear of all Liens except for Permitted
Encumbrances and agrees that it will defend, indemnify and hold
the Lessor harmless from any expense or liability due to any
defect in title thereto. The Lessee shall pay all (i) costs,
expenses, taxes and charges incurred in connection with such
conveyance and transfer, including, without limitation, the cost
of recording of the warranty deed in the Saratoga County Clerk's
Office and (ii) taxes, assessments and other charges and
impositions of the Project Facility attributable to periods prior
to the date of this Lease Agreement.
SECTION 3.2. USE OF PROJECT FACILITY. Subsequent to the Closing
Date, the Lessee shall be entitled to use the Project Facility in
any manner not otherwise prohibited by the Leasing Documents,
provided that such use (1) causes the Project Facility to qualify
or continue to qualify as a "project" under the Act and (2) does
not tend, in the reasonable judgment of the Lessor, to bring the
Project Facility into disrepute as a public project.
ARTICLE IV
ACQUISITION OF LAND; CONSTRUCTION OF FACILITY;
ACQUISITION AND INSTALLATION OF EQUIPMENT
SECTION 4.1. ACQUISITION OF LAND; CONSTRUCTION OF FACILITY;
ACQUISITION AND INSTALLATION OF EQUIPMENT. (A) The Lessee shall,
on behalf of the Lessor, promptly (1) acquire the Land, (2)
construct the Facility or cause the Facility to be constructed
and (3) acquire and install the Equipment or cause the Equipment
to be acquired and installed.
(B) The Lessor shall enter into, and accept the assignment
of, such contracts as the Lessee may request in order to
effectuate the purposes of this Section 4.1; provided, however,
that the Lessor shall have no liability under such contracts.
(C) The Lessor hereby appoints the Lessee its true and
lawful agent during the Construction Period to perform under the
following authority in compliance with the terms, purposes and
intent of the Leasing Documents, and the Lessee hereby accepts
such agency: (1) to acquire the Land, construct the Facility and
acquire and install the Equipment, (2) to make, execute,
acknowledge and deliver any contracts, orders, receipts, writings
and instructions with any other Persons, and in general to do all
things which may be requisite or proper, all for the acquisition,
construction and installation of the Project Facility, with the
same powers and with the same validity as the Lessor could do if
acting in its own behalf, provided that the Lessor shall have no
liability under such contracts, orders, receipts, writings and
instructions, (3) to pay all fees, costs and expenses incurred in
the acquisition, construction and installation of the Project
Facility and (4) to ask, demand, sue for, levy, recover and
receive all such sums of money, debts, dues and other demands
whatsoever which may be due, owing and payable to the Lessor
under the terms of any contract, order, receipt or writing in
connection with the acquisition and construction of the Project
Facility and to enforce the provisions of any contract,
agreement, obligation, bond or other performance security in
connection with the same.
(D) The Lessee has given or will give or cause to be given
all notices and has complied or will comply or cause compliance
with all laws, ordinances, rules, regulations and requirements of
all Governmental Authorities applying to or affecting the conduct
of work on the Project Facility, and the Lessee will defend,
indemnify and save the Lessor and its officers, members, agents,
servants and employees harmless from all fines and penalties due
to failure to comply therewith. All permits and licenses
necessary for the prosecution of work on the Project Facility
shall be procured promptly by the Lessee.
(E) To the extent required by applicable law, the Lessee,
as agent for the Lessor, will cause (1) compliance with the
requirements of Article 8 of the Labor Law of the State, and (2)
any contractor, subcontractors and other Persons involved in the
acquisition, construction and installation of the Project
Facility to comply with Article 8 of the Labor Law of the State.
The covenant in this subsection is not intended as a
representation that Article 8 of the Labor Law of the State
applies.
(F) The Lessee agrees to file with the Department of
Taxation and Finance of the State in a manner and at the time
prescribed thereby, information relating to the extent of
exemption from sales and use tax claimed with respect to the
construction of the Project Facility all in compliance with
Section 874 of the General Municipal Law of the State. THE
LESSEE ACKNOWLEDGES THAT THE FAILURE TO COMPLY WITH THE
PROVISIONS OF SAID SECTION 874 SHALL RESULT IN A REVOCATION OF
THE AUTHORITY GRANTED PURSUANT TO SUBSECTION (C) OF THIS SECTION
4.1.
SECTION 4.2. COMPLETION OF PROJECT FACILITY. The Lessee will
proceed with due diligence to complete the acquisition of the
Land, the construction of the Facility and the installation of
the Equipment. Completion of the same shall be evidenced by a
certificate signed by an Authorized Representative of the Lessee
delivered to the Lessor stating (A) the date of such completion,
(B) that all labor, services, materials and supplies used
therefor and all costs and expenses in connection therewith have
been or will be paid, (C) that the acquisition of the Land, the
construction of the Facility and the installation of the
Equipment have been completed with the exception of ordinary
punchlist items and work awaiting seasonal opportunity, (D) that
the Lessee or the Lessor has good and valid title to all Property
constituting a portion of the Project Facility, and that the
Project Facility is subject to this Lease Agreement and (E) that
the Project Facility is ready for occupancy, use and operation
for its intended purposes. Notwithstanding the foregoing, such
certificate may state (1) that it is given without prejudice to
any rights of the Lessee against third parties which exist at the
date of such certificate or which may subsequently come into
being, (2) that it is given only for the purposes of this Section
4.2, and (3) that no Person other than the Lessor may benefit
therefrom. Such certificate shall be accompanied by a
certificate of occupancy, if required, any and all permissions,
licenses or consents required of Governmental Authorities for the
occupancy, operation and use of the Project Facility for its
intended purposes.
SECTION 4.3. REMEDIES TO BE PURSUED AGAINST CONTRACTORS,
SUBCONTRACTORS, MATERIALMEN AND THEIR SURETIES. In the event of
a material default by any contractor, subcontractor or
materialman under any contract made by it in connection with the
construction of the Facility or in the event of a breach of
warranty or other liability with respect to any materials,
workmanship or performance guaranty, the Lessee may proceed,
either separately or in conjunction with others, to exhaust the
remedies of the Lessee and the Lessor against the contractor,
subcontractor or materialman so in default and against each
surety for the performance of such contract. The Lessee may, in
its own name or, with the prior written consent of the Lessor, in
the name of the Lessor, prosecute or defend any action or
proceeding or take any other action involving any such
contractor, subcontractor, materialman or surety which the Lessee
deems reasonably necessary, and in such event the Lessor hereby
agrees, at the Lessee's sole expense, to cooperate fully with the
Lessee and to take all action necessary to effect the
substitution of the Lessee for the Lessor in any such action or
proceeding. The Lessee shall immediately advise the Lessor of
any actions or proceedings taken hereunder.
ARTICLE V
LEASE OF PROJECT FACILITY; RENT;
CONVEYANCE OF PROJECT FACILITY
SECTION 5.1. LEASE OF PROJECT FACILITY. The Lessor hereby
leases the Project Facility to the Lessee, and the Lessee hereby
leases the Project Facility from the Lessor, for and during the
term hereinafter provided and upon and subject to the terms and
conditions hereinafter set forth. The Lessee assumes and agrees
to perform and discharge all of the Lessor's obligations under
the Lease Documents during the Lease Term, and shall enforce all
claims arising under any representation, warranty, covenant,
indemnity, guarantee or agreement in the Lease Documents.
SECTION 5.2. DURATION OF TERM. The term of this Lease Agreement
shall become effective upon its delivery and shall expire on
September 1, 2007, or such earlier date as this Lease Agreement
may be terminated as hereinafter provided. The Lessor shall
deliver to the Lessee and the Lessee shall accept sole and
exclusive possession of the Project Facility simultaneously with
the execution of this Lease Agreement.
SECTION 5.3. QUIET ENJOYMENT. So long as no Event of Default
shall have occurred and be continuing, and except as otherwise
expressly provided herein or in the Leasing Documents, the Lessor
will not disturb the Lessee in its peaceful and quiet enjoyment
of the Project Facility, which shall be free from any
interference, repossession or disturbance by the Lessor.
SECTION 5.4. RENT AND OTHER AMOUNTS PAYABLE. (A) The Lessee
shall pay rent for the Project Facility as follows:
(A) On the Closing Date, the Lessee shall pay to the Lessor
the agreed upon administrative fee of the Lessor in an amount not
to exceed $161,125.00.
(B) Within seven (7) days after receipt of a demand
therefor from the Lessor, the Lessee shall pay to the Lessor the
sum of the reasonable expenses of the Lessor and the officers,
members, agents and employees thereof incurred by reason of the
Lessor's ownership or lease of the Project Facility or in
connection with the carrying out of the Lessor's duties and
obligations under this Lease Agreement or any of the other
Leasing Documents and any other fee or expense of the Lessor,
including reasonable attorneys' fees, with respect to the Project
Facility, the sale of the Project Facility to the Lessee, any of
the other Leasing Documents, the payment of which is not
otherwise provided for under this Lease Agreement.
(C) The Lessee agrees to make the above mentioned payments,
without any further notice, in lawful money of the United States
of America as, at the time of payment, shall be legal tender for
the payment of public and private debts. In the event the Lessee
shall fail to make any payment required by this Section 5.4 for a
period of more than thirty (30) days from the date such payment
is due, the Lessee shall pay the same together with interest
thereon at the Default Rate or the maximum permitted by law,
whichever is less, from the date on which such payment was due
until the date on which such payment is made.
SECTION 5.5. NATURE OF OBLIGATIONS OF THE LESSEE HEREUNDER. The
obligations of the Lessee to make the payments required by this
Lease Agreement and to perform and observe any and all of the
other covenants and agreements on its part contained herein shall
be general obligations of the Lessee and shall be absolute and
unconditional irrespective of any defense or any rights of set-
off, recoupment or counterclaim the Lessee may otherwise have
against the Lessor. The Lessee agrees that it will not suspend,
discontinue or abate any payment required by, or fail to observe
any of its other covenants or agreements contained in this Lease
Agreement, or terminate this Lease Agreement for any cause
whatsoever, including, without limiting the generality of the
foregoing, failure to complete the acquisition of the Land, the
construction of the Facility or the acquisition and installation
of the Equipment, any material defect in the title, design,
operation, merchantability, fitness or condition of the Project
Facility or any part thereof or in the suitability of the Project
Facility or any part thereof for the Lessee's purposes or needs,
failure of consideration for, destruction of or damage to,
Condemnation of title to or the use of all or any part of the
Project Facility, any change in the tax or other laws of the
United States of America or of the State or any political
subdivision thereof, or any failure of the Lessor to perform and
observe any agreement, whether expressed or implied, or any duty,
liability or obligation arising out of or in connection with this
Lease Agreement.
ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
SECTION 6.1. MAINTENANCE AND MODIFICATIONS OF PROJECT FACILITY.
The Lessee agrees that during the period that the Lease Agreement
is outstanding it will (1) keep the Project Facility in good
condition and repair and preserve the same against waste, loss,
damage and depreciation, ordinary wear and tear excepted, (2)
make all necessary repairs and replacements to the Project
Facility or any part thereof (whether ordinary or extraordinary,
structural or nonstructural, foreseen or unforeseen), and (3)
operate the Project Facility in a sound and economic manner.
SECTION 6.2. TAXES, ASSESSMENTS AND UTILITY CHARGES. The Lessee
shall pay or cause to be paid, as the same respectively become
due, (1) all taxes and governmental charges of any kind
whatsoever which may at any time be lawfully assessed or levied
against or with respect to the Project Facility, (2) all utility
and other charges, including "service charges", incurred or
imposed for the operation, maintenance, use, occupancy, upkeep
and improvement of the Project Facility, (3) all assessments and
charges of any kind whatsoever lawfully made by any Governmental
Authority for public improvements, and (4) all payments required
under Section 6.6 hereof; provided that, with respect to special
assessments or other governmental charges that may lawfully be
paid in installments over a period of years, the Lessee shall be
obligated hereunder to pay only such installments as are required
to be paid during all periods that sums payable by the Lessee
hereunder or under any of the other Leasing Documents are due
and owing.
SECTION 6.3. INSURANCE REQUIRED. At all times that the Lessor
is the owner of the Project Facility, the Lessee shall maintain
or, with respect to the insurance required by subsection (D) of
this Section 6.3, cause the general contractor to maintain
insurance with respect to the Project Facility against such risks
and for such amounts as are customarily insured against by
businesses of like size and type, paying, as the same become due
and payable, all premiums with respect thereto, including, but
not necessarily limited to:
(A) (1) Insurance protecting the interests of the Lessee
as insured against loss or damage to the Project Facility by
fire, lightning, vandalism, malicious mischief and other perils
and casualties normally insured against with a uniform extended
coverage endorsement, such insurance at all times to be in an
amount consistent with applicable commercial standards.
(B) To the extent applicable, workers' compensation
insurance, disability benefits insurance and such other forms of
insurance which the Lessee is required by law to provide,
covering loss resulting from injury, sickness, disability or
death of employees of the Lessee who are located at or assigned
to the Project Facility or who are responsible for the
construction of the Facility, including, but not limited to, all
contractors and subcontractors.
(C) Insurance protecting the Lessee and the Lessor against
loss or losses from liabilities imposed by law or assumed in any
written contract (including, without limitation, the contractual
liability assumed by the Lessee under Section 8.2 of this Lease
Agreement) and arising from personal injury or death or damage to
the property of others caused by any accident or occurrence, with
limits of not less than $1,000,000 per person per accident or
occurrence on account of personal injury, including death
resulting therefrom, and $1,000,000 per accident or occurrence on
account of damage to the property of others, excluding liability
imposed upon the Lessee by any applicable workers' compensation
law, and a separate commercial umbrella liability policy in
excess of the basic coverage stated above protecting the Lessee
and the Lessor with a limit of not less than $5,000,000.
(D) During any construction period, the general contractor
and any subcontractor constructing and equipping the Project
Facility shall be required to carry workers' compensation and
general comprehensive liability insurance containing coverages
for premises operations, products and completed operations,
explosion, collapse and underground damage hazard, contractor's
protective, owner's protective and coverage for all owned, non-
owned and hired vehicles with non-ownership protection from the
general contractor or subcontractor's employees providing the
following minimum limits:
(a) Workers' compensation and employer's liability - in
accordance with applicable law, covering loss resulting from
injury, sickness, disability and death of employees located at or
assigned to the Facility or who are responsible for the
construction of the Facility.
(b) Comprehensive general liability:
(i) Bodily injury liability in an amount not less than
$1,000,000 for each accident and not less than $5,000,000 for
injuries sustained by two or more persons in any one accident.
(ii) Property damage liability in an amount not less
than $1,000,000 for each accident and not less than $5,000,000 in
the aggregate for each year of the policy period.
(c) Comprehensive automobile liability:
(i) Bodily injury liability in an amount not less than
$1,000,000 for each accident and not less than $5,000,000 for
injuries sustained by two or more persons in any one accident.
(E) Other insurance coverage required by any Governmental
Authority in connection with any Requirement.
(F) THE LESSOR DOES NOT IN ANY WAY REPRESENT OR WARRANT
THAT THE INSURANCE SPECIFIED HEREIN, WHETHER IN SCOPE OR IN
LIMITS OF COVERAGE, IS ADEQUATE OR SUFFICIENT TO PROTECT THE
LESSEE'S BUSINESS OR INTERESTS.
SECTION 6.4. ADDITIONAL PROVISIONS RESPECTING INSURANCE. All
insurance required by Section 6.3 hereof shall be procured and
maintained in financially sound and generally recognized
responsible insurance companies selected by the Lessee and
authorized to write such insurance in the State and satisfactory
to the Lessor. The company or companies issuing the policies
required by Sections 6.3(C) shall be rated "A" or better by A.M.
Best Co., Inc. in the most recent edition of Best's Key Rating
Guide. Such insurance may be written with deductible amounts
comparable to those on similar policies carried by other
companies engaged in businesses similar in size, character and
other respects to those in which the Lessee is engaged. All
policies evidencing such insurance shall name the Lessee and the
Lessor as insureds, as their interests may appear, and provide
for at least thirty (30) days' written notice to the Lessee and
the Lessor prior to cancellation, lapse, reduction in policy
limits or material change in coverage thereof. The insurance
required by Sections 6.3(A), 6.3(C), 6.3(D) and 6.3(F) hereof
shall be fully paid for. All insurance required hereunder shall
be in form, content and coverage satisfactory to the Lessor.
Certificates satisfactory in form and substance to the Lessor to
evidence all insurance required hereby shall be delivered to the
Lessor on or before the Closing Date. The Lessee shall deliver
to the Lessor on or before the first Business Day of each
calendar year thereafter a certificate dated not earlier than the
immediately preceding December 1 reciting that there is in full
force and effect, with a term covering at least the next
succeeding calendar year, insurance in the amounts and of the
types required by Sections 6.3 and 6.4 hereof. At least thirty
(30) days prior to the expiration of any such policy, the Lessee
shall furnish to the Lessor evidence that the policy has been
renewed or replaced or is no longer required by this Lease
Agreement. In addition, in the event of a change of use,
operation or value of the Project Facility, or in the
availability of insurance in the area in which the Project
Facility is located, the Lessee shall, within five (5) days after
the Lessor's request, take out such additional insurance as the
Lessor may reasonably require.
(B) All premiums with respect to the insurance required by
Section 6.3 hereof shall be paid by the Lessee; provided,
however, that if the premiums are not timely paid, the Lessor may
pay such premiums and the Lessee shall pay immediately upon
demand all sums so expended by the Lessor, together with
interest, to the extent permitted by law, at the Default Rate
from the date on which such payment was due until the date on
which the payment is made.
(C) (1) The Lessee shall not take out separate insurance
concurrent in form or contributing in the event of loss with that
required to be maintained under Section 6.3 unless the Lessor is
included therein as a named insured. The Lessee shall
immediately notify the Lessor whenever any such separate
insurance is taken out and shall promptly deliver to the Lessor
the policy or policies of such insurance.
(2) Each of the policies required pursuant to Section 6.3
hereof shall waive any right of subrogation against any Person
insured under such policy, and shall waive any right of the
insurers to any set-off or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability
of any Person insured under such policy.
SECTION 6.5. APPLICATION OF NET PROCEEDS OF INSURANCE. The Net
Proceeds of the insurance carried pursuant to the provisions of
Section 6.3 hereof shall be applied as follows: (A) the Net
Proceeds of the insurance required by Section 6.3(A) hereof shall
be paid to the Lessee and applied as provided in Section 7.1
hereof, (B) the Net Proceeds of the insurance required by Section
6.3(B), 6.3(C), 6.3(D) and 6.3(E) hereof shall be applied toward
extinguishment or satisfaction of the liability with respect to
which such insurance proceeds may be paid.
SECTION 6.6. PAYMENTS IN LIEU OF TAXES. (A) It is recognized
that, under the provisions of the Act, the Lessor is required to
pay no taxes or assessments upon any of the property acquired by
it or under its jurisdiction, control or supervision or upon its
activities. It is not the intention, however, of the parties
hereto that the Project Facility be treated as exempt from real
property taxation. Accordingly, the parties acknowledge that a
Payment In Lieu of Tax Agreement (the "PILOT Agreement") has been
executed with respect to the Project Facility. Until the
expiration date of the PILOT Agreement, the Lessor and the Lessee
hereby agree that the Lessee (or any subsequent user of the
Project Facility under this Lease Agreement) shall be required to
make or cause to be made payments in lieu of real estate taxes in
the amounts and in the manner set forth in the PILOT Agreement.
(B) In the event that (1) the Project Facility would be
subject to real property taxation if owned by the Lessee but
shall be deemed exempt from real property taxation due to the
involvement of the Lessor therewith, and (2) the PILOT Agreement
shall not have been entered into by the Lessor and the Lessee,
or, if entered into, the PILOT Agreement shall for any reason no
longer be in effect, the Lessor and the Lessee hereby agree that
the Lessee, or any subsequent user of the Project Facility under
this Lease Agreement, shall in such event be required to make or
cause to be made payments in lieu of taxes to the school district
or school districts, city, town, county, village and other
political units wherein the Project Facility is located having
taxing powers (such political units are hereinafter collectively
referred to as the "Taxing Entities") in such amounts as would
result from taxes being levied on the Project Facility by the
Taxing Entities if the Project Facility were privately owned by
the Lessee and not deemed owned by or under the jurisdiction,
control or supervision of the Lessor, but with appropriate
reductions similar to the real property tax exemptions and
credits, if any, which would be afforded to the Lessee if it were
the owner of the Project Facility. It is agreed that the Lessee,
in cooperation with the Lessor, (a) shall cause the Project
Facility to be valued for purposes of determining the amounts due
hereunder as if owned by the Lessee as aforesaid by the
appropriate officer or officers of any of the Taxing Entities as
may from time to time be charged with responsibility for making
such valuations, (b) shall cause to be appropriately applied to
the valuation or valuations so determined the respective tax rate
or rates of the Taxing Entities that would be applicable to the
Project Facility if so privately owned, (c) shall cause the
appropriate officer or officers of the Taxing Entities charged
with the duty of levying and collecting such taxes to submit to
the Lessee, when the respective levies are made for purposes of
such taxes upon Property privately owned as aforesaid, statements
specifying the amounts and due dates of such taxes which the
Taxing Entities would receive if such Property were so privately
owned by the Lessee and not deemed owned by or under the
jurisdiction, control or supervision of the Lessor, and (d) shall
file with the appropriate officer or officers any accounts or tax
returns furnished to the Lessor by the Lessee for the purpose of
such filing.
(C) The Lessee shall pay or cause to be paid to the Taxing
Entities when due all such payments in lieu of taxes with respect
to the Project Facility required by Section 6.6(B) of this Lease
Agreement to be paid to the Taxing Entities, subject in each case
to the Lessee's right to (a) obtain exemptions and credits, if
any, which would be afforded to a private owner of the Project
Facility, including any available exemption under Section 485-b
of the New York Real Property Tax Law with respect to the Project
Facility, (b) contest valuations of the Project Facility made for
the purpose of determining such payments therefrom (provided,
however, no such contest shall entitle the Lessee to defer
payments in lieu of taxes by reason of any such contest), and (c)
seek to obtain a refund of any such payments made. In the event
the Lessee shall fail to make or cause to be made any such
payments in lieu of taxes, the amount or amounts so in default
shall continue as an obligation of the Lessee until fully paid,
and the Lessee hereby agrees to pay or cause to be paid the same,
together with late charges and interest thereon as provided for
in subsection (5) of Section 874 of the General Municipal Law of
the State (or any successor provision).
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
SECTION 7.1. DAMAGE OR DESTRUCTION. If the Project Facility
shall be damaged or destroyed, in whole or in part, the Lessee
shall give the Lessor prompt written notice thereof. As between
the Lessor and the Lessee, the Lessee shall have sole right to
and control over the use of the Net Proceeds of any insurance
settlement. The Lessee shall not be obligated to replace,
repair, rebuild or restore the Project Facility, and the Net
Proceeds of any insurance settlement shall not be applied to
replace, repair, rebuild or restore the Project Facility if the
Lessee shall notify the Lessor that, in the Lessee's sole
judgment, the Lessee does not deem it practical or desirable to
so replace, repair, rebuild or restore the Project Facility. The
Lessor shall have no obligation to rebuild or restore the Project
Facility, and upon payment of all payments due pursuant to
Section 5.4 hereof, the Lease Term shall end and the obligations
of the Lessee hereunder (other than any such obligations
expressed herein as surviving termination of this Lease
Agreement) shall terminate as of the date of such payment and the
Lessor shall transfer to the Lessee, without recourse or
warranty, all right, title and interest of the Lessor in and to
the Project Facility.
SECTION 7.2. CONDEMNATION. If title to, or the use of, the
Project Facility shall be taken by Condemnation, the Lessee shall
give the Lessor prompt written notice thereof. As between the
Lessor and the Lessee, the Lessee shall have sole right to and
control over the use of the Net Proceeds of any insurance
settlement. The Net Proceeds of any Condemnation award shall not
be applied to restore the Project Facility if the Lessee shall
notify the Lessor that, in the Lessee's sole judgment, the Lessee
does not deem it practical or desirable to restore the Project
Facility. The Lessor shall have no obligation to restore the
Project Facility, and upon payment of all payments due pursuant
to Section 5.4 hereof, the Lease Term shall end and the
obligations of the Lessee hereunder (other than any such
obligations expressed herein as surviving termination of this
Lease Agreement) shall terminate as of the date of such payment
and the Lessor shall transfer to the Lessee, without recourse or
warranty, all right, title and interest of the Lessor in and to
the Project Facility.
ARTICLE VIII
SPECIAL COVENANTS
SECTION 8.1. NO WARRANTY OF CONDITION OR SUITABILITY BY LESSOR;
ACCEPTANCE "AS IS". THE LESSOR MAKES NO WARRANTY, EITHER EXPRESS
OR IMPLIED, AS TO THE CONDITION, TITLE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS OF THE PROJECT FACILITY OR ANY PART
THEREOF OR AS TO THE SUITABILITY OF THE PROJECT FACILITY OR ANY
PART THEREOF FOR THE LESSEE'S PURPOSES OR NEEDS. THE LESSEE
SHALL ACCEPT TITLE TO THE PROJECT FACILITY "AS IS", WITHOUT
RECOURSE OF ANY NATURE AGAINST THE LESSOR FOR ANY CONDITION NOW,
HERETOFORE OR HEREAFTER EXISTING. NO WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE OR MERCHANTABILITY ARE MADE. IN THE EVENT OF
ANY DEFECT OR DEFICIENCY OF ANY NATURE, WHETHER PATENT OR LATENT,
THE LESSOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT
THERETO.
SECTION 8.2. HOLD HARMLESS PROVISIONS. (A) The Lessee hereby
(i) releases the Lessor and its members, officers, agents (other
than the Lessee) and employees from, (ii) agrees that the Lessor
and its members, officers, agents (other than the Lessee) and
employees shall not be liable for, and (iii) agrees to indemnify,
defend and hold the Lessor and its members, officers, agents
(other than the Lessee) and employees harmless from and against:
any and all claims, causes of action, judgments, liabilities,
damages, losses, costs and expenses arising as a result of the
Lessor's undertaking the Project, including, but not limited to,
(1) liability for loss or damage to Property or bodily injury to
or death of any and all Persons that may be occasioned, directly
or indirectly, by any cause whatsoever pertaining to the Project
Facility or arising by reason of or in connection with the
occupation or the use thereof or the presence of any Person or
Property on, in or about the Project Facility, (2) liability
arising from or expense incurred by the Lessor's acquiring,
constructing, reconstructing, installing, owning or selling the
Project Facility, including, without limiting the generality of
the foregoing, any sales or use taxes which may be payable with
respect to goods supplied or services rendered with respect to
the Project Facility and any and all claims for brokerage,
leasing, finders or similar fees which may be made relating to
the Project Facility, all liabilities or claims arising as a
result of the Lessor's obligations under this Lease Agreement or
any of the other Leasing Documents or the enforcement of or
defense of validity of any provision of any Leasing Documents,
and any and all liability arising out of environmental matters
with respect to the Project Facility, and (3) all causes of
action and reasonable attorneys' fees and other expenses incurred
in connection with any suits or actions which may arise as a
result of any of the foregoing; provided that any such claims,
causes of action, judgments, liabilities, damages, losses, costs
or expenses of the Lessor are not incurred or do not result from
the intentional wrongdoing of the Lessor or any of its members,
officers, agents (other than the Lessee) or employees. The
foregoing indemnities shall apply notwithstanding the fault or
negligence in part of the Lessor or any of its officers, members,
agents or employees and notwithstanding the breach of any
statutory obligation or any rule of comparative or apportioned
liability.
(B) In the event of any claim against the Lessor or its
members, officers, agents (other than the Lessee) or employees by
any employee of the Lessee or any contractor of the Lessee or
anyone directly or indirectly employed by any of them or anyone
for whose acts any of them may be liable, the obligations of the
Lessee hereunder shall not be limited in any way by any
limitation on the amount or type of damages, compensation or
benefits payable by or for the Lessee or such contractor under
workers' compensation laws, disability benefits laws or other
employee benefit laws.
(C) To effectuate the provisions of this Section 8.2, the
Lessee agrees to provide for and insure, in the liability
policies required by Section 6.3(C) of this Lease Agreement, its
liabilities assumed pursuant to this Section 8.2.
(D) Notwithstanding any other provisions of this Lease
Agreement, the obligations of the Lessee pursuant to this Section
8.2 shall remain in full force and effect after the termination
of this Lease Agreement until the expiration of the period stated
in the applicable statute of limitations during which a claim,
cause of action or prosecution relating to the matters herein
described may be brought and the payment in full or the
satisfaction of such claim, cause of action or prosecution and
the payment of all expenses, charges and costs incurred by the
Lessor, or its officers, members, agents (other than the Lessee)
or employees, relating thereto.
SECTION 8.3. RIGHT OF ACCESS TO PROJECT FACILITY. The Lessee
agrees that the Lessor and their duly authorized agents shall
have the right at all reasonable times to enter upon and to
examine and inspect the Project Facility.
SECTION 8.4. THE LESSEE NOT TO TERMINATE EXISTENCE OR DISPOSE OF
ASSETS. The Lessee agrees that, so long as the Lease Agreement
is in effect, it will maintain its existence and will not
dissolve or otherwise dispose of all or substantially all of its
assets absent the prior written consent of the Lessor, which
consent will not be unreasonably withheld or delayed.
SECTION 8.5. AGREEMENT TO PROVIDE INFORMATION. The Lessee
agrees, whenever requested by the Lessor, to provide and certify
or cause to be provided and certified such information concerning
the Lessee, its finances and other topics as the Lessor from time
to time reasonably consider necessary or appropriate, including,
but not limited to, such information as to enable the Lessor to
make any reports required by law or governmental regulation.
SECTION 8.6. COMPLIANCE WITH ORDERS, ORDINANCES, ETC. (A)
The Lessee agrees that it will, during any period in which the
Lease Agreement is in effect, promptly comply with all statutes,
codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all Governmental
Authorities, foreseen or unforeseen, ordinary or extraordinary,
which now or at any time hereafter may be applicable to the
Lessee or the Project Facility or any part thereof, or to any
use, manner of use or condition of the Project Facility or any
part thereof.
(B) Notwithstanding the provisions of subsection (A) of
this Section 8.6, the Lessee may in good faith actively contest
the validity or the applicability of any requirement of the
nature referred to in such subsection (A), provided that the
Lessee (1) first shall have notified the Lessor in writing of
such contest, (2) is not in default under any of the Leasing
Documents and (3) shall have set aside adequate reserves for any
such requirement. Otherwise, the Lessee shall promptly take such
action with respect thereto as shall be satisfactory to the
Lessor.
(C) Notwithstanding the provisions of subsection (B) of
this Section 8.6, if the Lessor or any of its members, officers,
agents, servants or employees may be liable for prosecution for
failure to comply therewith, the Lessee shall promptly take such
action with respect thereto as shall be satisfactory to the
Lessor.
SECTION 8.7. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS.
Should the Lessee fail to make any payment or to do any act as
herein provided, the Lessor may, but need not, without notice to
or demand on the Lessee and without releasing the Lessee from any
obligation herein, make or do the same, including, without
limitation, appearing in and defending any action purporting to
affect the rights or powers of the Lessee or the Lessor, and
paying all expenses, including, without limitation, reasonable
attorneys' fees; and the Lessee shall pay immediately upon demand
all sums so expended by the Lessor under the authority hereof,
together with interest thereon at the rate of two percent (2%)
per month or the maximum permitted by law, whichever is less.
SECTION 8.8. DEPRECIATION DEDUCTIONS AND TAX CREDITS. The
parties agree that as between them the Lessee shall be entitled
to all depreciation deductions and accelerated cost recovery
system deductions with respect to any portion of the Project
Facility pursuant to Sections 167 and 168 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to any investment
credit pursuant to Section 38 of the Code with respect to any
portion of the Project Facility which constitutes "Section 38
Property" and to all other state and/or federal income tax
deductions and credits which may be available with respect to the
Project Facility.
ARTICLE IX
ASSIGNMENTS; MERGER OF LESSOR
SECTION 9.1. RESTRICTION ON TRANSFER OF LESSOR'S INTEREST
HEREUNDER. Except as otherwise specifically provided in this
Article IX hereof and except for a conveyance by the Lessor in
accordance with the provisions of Section 10.2(A)(4) hereof,
neither the Lessor nor the Lessee shall sell, assign or otherwise
dispose of any of their rights under this Lease Agreement,
without the prior written consent of the Lessee or the Lessor, as
the case may be, which consents shall not be unreasonably
withheld or delayed.
SECTION 9.2. ASSIGNMENT OF THIS LEASE AGREEMENT. This Lease
Agreement may be assigned by the Lessee, in whole or in part, but
only with the prior written consent of the Lessor, which consent
shall not be unreasonably withheld or delayed, and provided that:
(1) no assignment shall relieve the Lessee from
primary liability for any of its obligations hereunder;
(2) the assignee shall be qualified to transact
business in the State of New York and shall assume the
obligations of the Lessee hereunder to the extent of the interest
assigned;
(3) the Lessee shall, within ten (10) days after the
delivery thereof, furnish or cause to be furnished to the Lessor
a true and complete copy of such assignment and the instrument of
assumption; and
(4) the Facility shall continue to constitute a
"project" as such quoted term is defined in the Act.
SECTION 9.3. MERGER OF THE LESSOR. (A) Nothing contained in
this Lease Agreement shall prevent the consolidation of the
Lessor with, or merger of the Lessor into, or assignment by the
Lessor of its rights and interests hereunder to, any other public
benefit corporation of the State or political subdivision thereof
which has the legal authority to perform the obligations of the
Lessor hereunder, provided that upon any such consolidation,
merger or assignment, the due and punctual performance and
observance of all of the agreements and conditions of this Lease
Agreement to be kept and performed by the Lessor shall be
expressly assumed in writing by the public benefit corporation or
political subdivision resulting from such consolidation or
surviving such merger or to which the Lessor's rights and
interests hereunder or under this Lease Agreement shall be
assigned.
(B) As of the date of any such consolidation, merger or
assignment, the Lessor shall give notice thereof in reasonable
detail to the Lessee. The Lessor shall promptly furnish to the
Lessee such additional information with respect to any such
consolidation, merger or assignment as the Lessee reasonably may
request.
SECTION 9.4. SALE OR LEASE OF PROJECT FACILITY. Except as
provided for below, the Lessee may not otherwise sell, lease,
transfer, convey or otherwise dispose of the Project Facility or
any part thereof without the prior written consent of the Lessor,
which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, the Lessee may sell or otherwise
dispose of any items of personal property constituting Equipment
without obtaining the prior consent of the Lessor. The Lessor
agrees to execute any documents and instruments as may be
reasonably required in order to effectuate any such sale or
disposal, upon written request of the Lessee and at no cost or
expense to the Lessor.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.1. EVENTS OF DEFAULT DEFINED. (A) The following
shall be "Events of Default" under this Lease Agreement, and the
terms "Event of Default" or "Default" shall mean, whenever they
are used in this Lease Agreement, any one or more of the
following events:
(1) A default by the Lessee in the due and punctual payment
of the amounts specified to be paid pursuant to Section 5.4 (A)
hereof, and the continuance thereof for a period of ten (10)
days.
(2) A default in the performance or observance of any other
of the covenants, conditions or agreements on the part of the
Lessee in this Lease Agreement and the continuance thereof for a
period of thirty (30) days after written notice is given by the
Lessor to the Lessee; provided, however, that if such default
cannot reasonably be cured within said thirty (30) day period and
the Lessor or the Lessee shall have commenced action to cure the
breach of covenant within said thirty (30) day period, and
thereafter diligently and expeditiously proceeds to cure the
same, such thirty (30) day period shall be extended for so long
as the Lessor or the Lessee shall require, in the exercise of due
diligence, to cure such default, it being agreed that no such
extension shall be for a period in excess of sixty (60) days. If
any conflict shall exist between the provisions of this
Subsection (2) and the immediately following Subsection (3) as to
when an Event of Default has occurred, the provisions of such
Subsection (3) shall govern.
(3) The occurrence of an Event of Default under any of the other
Leasing Documents.
(4) Any representation or warranty made by the Lessee herein or
in any other Leasing Document proves to have been false in any
material manner at the time it was made.
(5) (a) The filing by the Lessee (as debtor) of a voluntary
petition under Title 11 of the United States Code or any other
federal or state bankruptcy statute, (b) the failure by the
Lessee within ninety (90) days to lift any execution, garnishment
or attachment of such consequence as will impair the Lessee's
ability to carry out its obligations hereunder, (c) the
commencement of a case under Title 11 of the United States Code
against the Lessee as the debtor or commencement under any other
federal or state bankruptcy statute of a case, action or
proceeding against the Lessee and continuation of such case,
action or proceeding without dismissal for a period of ninety
(90) days, (d) the entry of an order for relief by a court of
competent jurisdiction under Title 11 of the United States Code
or any other federal or state bankruptcy statute with respect to
the debts of the Lessee, or (e) in connection with any insolvency
or bankruptcy case, action or proceeding, appointment by final
order, judgment or decree of a court of competent jurisdiction of
a receiver or trustee of the whole or a substantial portion of
the Property of the Lessee, unless such order, judgment or decree
is vacated, dismissed or dissolved within ninety (90) days of
such appointment.
(6) If by order of a court of competent jurisdiction,
a trustee, receiver or liquidator of the Lessee or the Project
Facility or any part thereof, shall be appointed and such order
shall not be discharged or dismissed within ninety (90) days
after such appointment.
(7) The dissolution of the Lessee.
(8) If a Lien for the performance of work or the
supply of materials is filed against the Project Facility and is
not satisfied or bonded within sixty (60) days after notice of
filing thereof is received by the Lessee or if the Project
Facility is encumbered by any other Lien or encumbrance not
approved by the Lessor for sixty (60) or more days after the
Lessee has actual knowledge or written notice of the existence of
such Lien or encumbrance.
(9) If at any time any insurance policy required to be
maintained pursuant to any of the Leasing Documents shall be
canceled, terminated or lapse and shall not have been replaced
prior to the effective date of such cancellation, termination or
lapse by a policy covering the same matters as the lapsed policy,
which new policy shall comply with all requirements in the
Leasing Documents relating to such type of insurance.
(10) If any real estate tax, payment in lieu of tax or
assessment payable with respect to the Project Facility is not
paid before any fine, penalty or interest shall be due with
respect thereto.
SECTION 10.2. REMEDIES ON DEFAULT. (A) Whenever any Event of
Default shall have occurred, the Lessor may, to the extent
permitted by law, take any one or more of the following remedial
steps:
(1) Declare, by written notice to the Lessee, to be
immediately due and payable, whereupon the same shall become
immediately due and payable, (a) all unpaid payments payable
pursuant to Section 5.4(A) hereof, and (b) all other payments due
under this Lease Agreement or any of the other Leasing Documents.
(2) Enforce or terminate this Lease Agreement.
(3) Take any other action at law or in equity which
may appear necessary or desirable to collect any amounts then due
or thereafter to become due hereunder and to enforce the
obligations, agreements or covenants of the Lessee under this
Lease Agreement.
(4) In the event of a default by the Lessee in the
payment of any amounts due and owing under the PILOT Agreement,
terminate this Lease Agreement and the PILOT Agreement and
reconvey the Project Facility to the Lessee. The Lessee hereby
consents to said reconveyance and appoints the Lessor its
attorney-in-fact, which appointment is coupled with an interest
and is irrevocable, to execute any and all instruments and
documents in its name as may be necessary, in the sole discretion
of the Lessor, to effectuate such transfer.
(B) No action taken pursuant to this Section 10.2
shall relieve the Lessee from its obligations to make all
payments required by this Lease Agreement and the other Leasing
Documents.
SECTION 10.3. REMEDIES CUMULATIVE. No remedy herein conferred
upon or reserved to the Lessor is intended to be exclusive of any
other available remedy, but each and every such remedy shall be
cumulative and in addition to every other remedy given under this
Lease Agreement or now or hereafter existing at law or in equity.
No delay or omission to exercise any right or power accruing upon
any default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and power
may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Lessor to exercise any remedy
reserved to it in this Article X, it shall not be necessary to
give any notice, other than such notice as may be herein
expressly required.
SECTION 10.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In
the event the Lessee should default under any of the provisions
of this Lease Agreement and the Lessor should employ attorneys
or incur other expenses for the collection of amounts payable
hereunder or the enforcement of performance or observance of any
obligations or agreements on the part of the Lessee herein
contained, the Lessee shall, on demand therefor, pay to the
Lessor the reasonable fees of such attorneys and such other
expenses so incurred, whether an action is commenced or not.
SECTION 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In
the event any agreement contained herein should be breached by
either party and thereafter such breach be waived by the other
party, such waiver shall be limited to the particular breach so
waived and shall not be deemed to waive any other breach
hereunder.
ARTICLE XI
EARLY TERMINATION OF LEASE AGREEMENT
SECTION 11.1. OPTION TO TERMINATE LEASE AGREEMENT. The Lessee
shall have, if there exists no Event of Default hereunder, the
option to cancel or terminate this Lease Agreement, subject to
the survival of those obligations of the Lessee which are
intended to survive the term of this Lease Agreement, upon
payment of all payments currently due and owing pursuant to
Sections 5.4 and 6.6 hereof, and by giving the Lessor notice in
writing of such termination and thereupon such termination shall
forthwith become effective.
SECTION 11.2. OBLIGATION TO SELL AND PURCHASE THE PROJECT
FACILITY. Upon termination of this Lease Agreement in accordance
with Section 5.2 or 11.1 hereof, the Lessor shall be obligated to
sell the Project Facility to the Lessee, and the Lessee shall be
obligated to purchase the Project Facility from the Lessor for
the purchase price of One Dollar ($1.00) plus payment of all sums
due and payable to the Lessor hereunder.
SECTION 11.3. CONVEYANCE OF PROJECT FACILITY UPON PURCHASE. (A)
At the closing of any purchase of the Project Facility pursuant
to Section 11.2 hereof, the Project Facility shall be conveyed
from the Lessor to the Lessee subject only to Permitted
Encumbrances. The Lessee agrees to prepare the Deed to Lessee
together with all gains tax affidavits, equalization and
assessment forms and other necessary documentation and to forward
same to the Lessor at least thirty (30) days prior to the date
that the Project Facility is to be conveyed to the Lessee. The
Lessee will pay all expenses and taxes, if any, applicable to or
arising from such transfers of title.
(B) The sale and conveyance of the Lessor's right, title
and interest in and to the Land and the Facility shall be
effected by the execution, delivery and recording by the Lessor
of the Deed to Lessee (in substantially the form attached hereto
as Exhibit "B" and by this reference made a part hereof).
(C) The sale and conveyance of the Lessor's right, title
and interest in and to the Equipment shall be effected by the
execution and delivery by the Lessor of the Bill of Sale to
Lessee (in substantially the form attached hereto as Exhibit "C"
and by this reference made a part hereof.
(D) The Lessee hereby agrees to pay all expenses, filing
and recording fees and taxes, if any, and the reasonable
attorneys' fees of the Lessor applicable to or arising from the
transfers contemplated by this Section 11.3.
(E) If, upon conveyance of the Project Facility to the
Lessee pursuant to this Section 11.3, the Lessor has failed to
comply with the covenant set forth in Section 2.1(D) hereof, the
Lessee may, at its option, accept the conveyance subject to the
Lessee's right to seek redress as against the Lessor for such
failure to comply with Section 2.1(D).
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, certificates and other
communications hereunder shall be in writing and shall be
sufficiently given and shall be deemed given when (A) sent to the
applicable address stated below by registered or certified mail,
return receipt requested, or by such other means (including
overnight delivery) as shall provide the sender with documentary
evidence of such delivery, or (B) delivery is refused by the
addressee, as evidenced by the affidavit of the person who
attempted to effect such delivery. The addresses to which
notices, certificates and other communications hereunder shall be
delivered are as follows:
IF TO THE LESSEE:
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521-2134
Attention: George H. Harris
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521-2134
Attention: John J. Van Zeyl
IF TO THE LESSOR:
County of Saratoga Industrial
Development Agency
Saratoga County Municipal Center
40 McMaster Street
Ballston Spa, New York 12020
Attention: Chairman
WITH A COPY TO:
Snyder, Kiley, Toohey & Corbett
160 West Avenue
P.O. Box 4367
Saratoga Springs, New York 12866
Attention: Michael J. Toohey, Esq.
The Lessor and the Lessee may, by notice given hereunder,
designate any further or different addresses to which subsequent
notices, certificates and other communications shall be sent.
SECTION 12.2. BINDING EFFECT. This Lease Agreement shall inure
to the benefit of the Lessor and the Lessee, and shall be binding
upon the Lessor, the Lessee and, as permitted by this Lease
Agreement, their respective successors and assigns.
SECTION 12.3. SEVERABILITY. If any one or more of the covenants
or agreements provided herein on the part of the Lessor or the
Lessee to be performed shall, for any reason, be held or shall,
in fact, be inoperative, unenforceable or contrary to law in any
particular case, such circumstance shall not render the provision
in question inoperative or unenforceable in any other case or
circumstance. Further, if any one or more of the phrases,
sentences, clauses, paragraphs or sections herein shall be
contrary to law, then such covenant or covenants or agreement or
agreements shall be deemed separable from the remaining covenants
and agreements hereof and shall in no way affect the validity of
the other provisions of this Lease Agreement.
SECTION 12.4. AMENDMENTS, CHANGES AND MODIFICATIONS. This Lease
Agreement may not be amended, changed, modified, altered or
terminated, except by an instrument in writing signed by the
parties hereto.
SECTION 12.5. EXECUTION OF COUNTERPARTS. This Lease Agreement
may be executed in several counterparts, each of which shall be
an original and all of which shall constitute but one and the
same instrument.
SECTION 12.6. APPLICABLE LAW. This Lease Agreement shall be
governed exclusively by the applicable laws of the State.
SECTION 12.7. RECORDING AND FILING. The Deed to Lessor and this
Lease Agreement (or a Memorandum thereof) shall be recorded by
the Lessor at the expense of the Lessee in the office of the
Clerk of Saratoga County, New York, or in such other office as
may at the time be provided by law as the proper place for the
recordation or filing thereof.
SECTION 12.8. SURVIVAL OF OBLIGATIONS. The obligations of the
Lessee to make the payments required by Section 5.4(A) hereof and
to provide the indemnity required by Section 8.2 hereof shall
survive the termination of this Lease Agreement, and all such
payments after such termination shall be made upon demand of the
party to whom such payment is due.
SECTION 12.9. TABLE OF CONTENTS AND SECTION HEADINGS NOT
CONTROLLING. The table of contents and the headings of the
several sections in this Lease Agreement have been prepared for
convenience of reference only and shall not control, affect the
meaning of or be taken as an interpretation of any provision of
this Lease Agreement.
SECTION 12.10. NO RECOURSE; SPECIAL OBLIGATION. The obligations
and agreements of the Lessor contained herein and in the other
Leasing Documents and any other instruments or documents executed
in connection therewith or herewith, and any other instrument or
document supplemental thereto or hereto, shall be deemed the
obligations and agreements of the Lessor, and not of any member,
officer, agent (other than the Lessee) or employee of the Lessor
in his or her individual capacity, and the members, officers,
agents (other than the Lessee) and employees of the Lessor shall
not be liable personally hereon or thereon or be subject to any
personal liability or accountability based upon or in respect
hereof or thereof or of any transaction contemplated hereby or
thereby. The obligations and agreements of the Lessor contained
herein and therein shall not constitute or give rise to an
obligation of the State of New York or the County of Saratoga,
New York, and neither the State of New York nor the County of
Saratoga, New York shall be liable hereon or thereon, and,
further, such obligations and agreements shall not constitute or
give rise to a general obligation of the Lessor, but rather shall
constitute limited, special obligations of the Lessor payable
solely from the revenues of the Lessor derived and to be derived
from the sale or other disposition of the Project Facility
(except for revenues derived by the Lessor with respect to the
Unassigned Rights). No order or decree of specific performance
with respect to any of the obligations of the Lessor hereunder
shall be sought or enforced against the Lessor unless (A) the
party seeking such order or decree shall first have requested the
Lessor in writing to take the action sought in such order or
decree of specific performance, and ten (10) days shall have
elapsed from the date of receipt of such request, and the Lessor
shall have refused to comply with such request (or, if compliance
therewith would reasonably be expected to take longer than ten
[10] days, shall have failed to institute and diligently pursue
action to cause compliance with such request) or failed to
respond within such notice period, (B) if the Lessor refuses to
comply with such request and the Lessor's refusal to comply is
based on its reasonable expectation that it will incur fees and
expenses, the party seeking such order or decree shall have
placed in an account with the Lessor an amount or undertaking
sufficient to cover such reasonable fees and expenses, and (C) if
the Lessor refuses to comply with such request and the Lessor's
refusal to comply is based on its reasonable expectation that it
or any of its members, officers, agents (other than the Lessee)
or employees shall be subject to potential liability, the party
seeking such order or decree shall (1) agree to indemnify, hold
harmless and defend the Lessor and its members, officers, agents
(other than the Lessee) and employees against any liability
incurred as a result of its compliance with such demand, and (2)
if requested by the Lessor, furnish to the Lessor satisfactory
security to protect the Lessor and its members, officers, agents
(other than the Lessee) and employees against all liability
expected to be incurred as a result of compliance with such
request. Any failure to provide the indemnity required in this
Section 12.10 shall not affect the full force and effect of an
Event of Default under any of the Leasing Documents.
SECTION 12.11. SUBMISSION TO JURISDICTION. The Lessee hereby
irrevocably and unconditionally agrees that any suit, action or
proceeding arising out of or relating to this Lease Agreement
shall be brought in the state courts of the State of New York or
federal district court for the Northern District of New York and
waives any right to object to jurisdiction within either of the
foregoing forums by the Lessor. Nothing contained herein shall
prevent the Lessor from bringing any suit, action or proceeding
or exercising any rights against any security and against the
Lessee personally, and against any property of the Lessee, within
any other jurisdiction and the initiation of such suit, action or
proceeding or taking of such action in any such other
jurisdiction shall in no event constitute a waiver of the
agreements contained herein with respect to the laws of the State
of New York governing the rights and obligations of the parties
hereto or the agreement of the Lessee to submit to personal
jurisdiction within the State of New York.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused
this Lease Agreement to be executed in their respective names by
their respective Authorized Representatives, all as of the day
and year first above written.
COUNTY OF SARATOGA INDUSTRIAL
DEVELOPMENT AGENCY
By:______________________________________________
Floyd H. Rourke, Chairman
ACE HARDWARE CORPORATION
By:______________________________________________
Name:___________________________________________
Title:____________________________________________
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On the ____ day of ____________, 1996, before me personally
came FLOYD H. ROURKE, to me known, who being by me duly sworn,
did depose and say that he resides in Ballston Spa, New York,
that he is the CHAIRMAN of the COUNTY OF SARATOGA INDUSTRIAL
DEVELOPMENT AGENCY, the public benefit corporation of the State
of New York described in and which executed the foregoing
instrument, and that he signed his name thereto by authority of
said public benefit corporation.
_______________________________________
Notary Public
STATE OF ILLINOIS )
) SS.:
COUNTY OF DUPAGE )
On this __ day of ___________, 1996, before me personally
came ________________, to me known, who being by me duly sworn,
did depose and say that he resides in ________________________,
that he is the _________________ of ACE HARDWARE CORPORATION, the
corporation described in and which executed the foregoing
instrument, and that he signed his name thereto by order of the
Board of Directors of said corporation.
_______________________________________
Notary Public
EXHIBIT "A"
DESCRIPTION OF LAND
EXHIBIT "B"
FORM OF DEED TO LESSEE
THIS INDENTURE made __________________, ____, between COUNTY
OF SARATOGA INDUSTRIAL DEVELOPMENT AGENCY, a public benefit
corporation organized under the laws of the State of New York,
with offices at Saratoga County Municipal Center, 40 McMaster
Street, Ballston Spa, New York 12020, party of the first part,
and
ACE HARDWARE CORPORATION, a Delaware corporation and having
an address of 2200 Kensington Court, Oak Brook, Illinois 60521-
2134, party of the second part
WITNESSETH that the party of the first part, in
consideration of One and 00/100 dollars ($1.00), lawful money of
the United States, and other good and valuable consideration paid
by the party of the second part, does hereby grant and release
unto the party of the second part, its successors and assigns all
the following described premises:
[Insert description of Land from Deed to Lessor]
TOGETHER with the appurtenances and all the estate and
rights of the party of the first part in and to said premises,
TO HAVE AND TO HOLD the premises herein granted unto the
party of the second part, the heirs or successors and assigns of
the party of the second part forever.
The word "party" shall be construed as if it read "parties"
whenever the sense of this Indenture so requires.
IN WITNESS WHEREOF, the party of the first part has duly
executed this deed the day and year first above written.
COUNTY OF SARATOGA INDUSTRIAL
DEVELOPMENT AGENCY
By:______________________________________________
, Chairman
EXHIBIT "C"
FORM OF BILL OF SALE TO LESSEE
County of Saratoga Industrial Development Agency, a public
benefit corporation of the State of New York (the "State") having
its office at Saratoga County Municipal Center, 40 McMaster
Street, Ballston Spa, New York 12020 (the "Grantor"), for the
consideration of One Dollar ($1.00), cash in hand paid, and other
good and valuable consideration received by the Grantor from Ace
Hardware Corporation, a Delaware corporation having an address of
2200 Kensingston Court, Oak Brook, Illinois 60521-2134 (the
"Grantee"), the receipt of which is hereby acknowledged by the
Grantor, hereby sells, transfers and delivers unto the Grantee,
and its successors and assigns, all those machinery, equipment,
fixtures or furnishings installed into the Facility (as defined
in the lease agreement dated as of September 1, 1996, [the "Lease
Agreement"] by and between the Grantor and the Grantee) and such
additions thereto and substitutions therefor as may be made from
time to time.
TO HAVE AND TO HOLD the same unto the Grantee, and its
successors and assigns, forever.
THE GRANTOR MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS
TO THE CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR
FITNESS OF ANY OF THE EQUIPMENT DESCRIBED ABOVE. THE GRANTEE
ACCEPTS TITLE TO SUCH EQUIPMENT "AS IS", WITHOUT RECOURSE AGAINST
THE GRANTOR FOR ANY CONDITION NOW OR HEREAFTER EXISTING. IN THE
EVENT OF A DEFICIENCY OR DEFAULT OF ANY NATURE, WHETHER PATENT OR
LATENT, THE GRANTOR SHALL HAVE NO RESPONSIBILITY OR LIABILITY
WHATSOEVER WITH RESPECT THERETO.
IN WITNESS WHEREOF, the Grantor has caused this bill of sale
to be executed in its name by its duly authorized officer on the
date indicated beneath the signature of such officer and dated as
of the _____ day of __________, ____.
COUNTY OF SARATOGA INDUSTRIAL
DEVELOPMENT AGENCY
By:______________________________
, Chairman
ACE HARDWARE CORPORATION
$30,000,000
6.47% Series A Senior Notes Due June 22, 2008
$70,000,000
Private Shelf Facility
AMENDED AND RESTATED
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
Dated as of August 23, 1996
ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60521
As of August 23, 1996
The Prudential Insurance Company
of America ("Prudential")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential, the "Purchasers")
c/o Prudential Capital Group
Two Prudential Capital Group
Suite 5600
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned, Ace Hardware Corporation (herein called the
"Company"), is a party with you to that certain Note Agreement dated as of
September 22, 1993 (as amended, modified or supplemented from time to time, the
"Agreement").
The Company desires to amend and restate the Agreement as set forth below.
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. Authorization of Issue of Series A Notes. The Company
has authorized and issued its senior promissory notes (the "Series A
Notes") in the aggregate principal amount of $30,000,000, to be dated
September 22, 1993 issue thereof, to mature June 22, 2008, to bear interest
on the unpaid balance thereof from the date thereof until the principal
thereof shall have become due and payable at the rate of 6.47% per annum
and on overdue principal, Yield-Maintenance Amount and interest at the rate
specified therein, and are substantially in the form of Exhibit A-1
attached hereto. The terms "Series A Note" and "Series A Notes" as used
herein shall include each Series A Note delivered pursuant to any provision
of this Agreement and each Series A Note delivered in substitution or
exchange for any such Series A Note pursuant to any such provision.
1B. Authorization of Issue of Shelf Notes. The Company has
authorized the issue of (but, except as provided in paragraph 2(B)7 will
not be obligated to issue) its additional senior promissory notes (the
"Shelf Notes") in the aggregate principal amount of $70,000,000 (or the
Canadian Dollar Equivalent), to be dated the date of issue thereof, to
mature, in the case of each Shelf Note so issued, no more than 5 years
after
the date of original issuance thereof, to have an average life, in the case
of each Shelf Note so issued, of no more than 15 years after the date of
original issuance thereof, to bear interest on the unpaid balance thereof
from the date thereof at the rate per annum, and to have such other
particular terms, as shall be set forth, in the case of each Shelf Note so
issued, in the Confirmation of Acceptance with respect to such Shelf Note
delivered pursuant to paragraph 2B(5), and to be substantially in the form
of Exhibit A-2 attached hereto in the case of Notes denominated in American
Dollars and substantially in the form of Exhibit A-2 attached hereto in the
case of notes denominated in Canadian Dollars. The terms "Shelf Note" and
"Shelf Notes" as used herein shall include each Shelf Note delivered
pursuant to any provision of this Agreement and each Shelf Note delivered
in substitution or exchange for any such Shelf Note pursuant to any such
provision. The terms "Note" and "Notes" as used herein shall include each
Series A Note and each Shelf Note delivered pursuant to any provision of
this Agreement and each Note delivered in substitution or exchange for any
such Note pursuant to any such provision. Notes which have (i) the same
final maturity, (ii) the same principal prepayment dates, (iii) the same
principal prepayment amounts (as a percentage of the original principal
amount of each Note), (iv) the same interest rate, (v) the same interest
payment periods and (vi) the same date of issuance (which, in the case of a
Note issued in exchange for another Note, shall be deemed for these
purposes the date on which such Note's ultimate predecessor Note was
issued), are herein called a "Series" of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. Purchase and Sale of Series A Notes. The Company has sold to
you $30,000,000 aggregate principal amount of Series A Notes at 100% of
such aggregate principal amount. On September 22, 1993 (herein called the
"Series A Closing Day"), the Company delivered to Prudential at the offices
of Prudential Capital Group, Two Prudential Plaza, Suite 5600, Chicago,
Illinois 60601, one or more Series A Notes registered in your name,
evidencing the aggregate principal amount of Series A Notes purchased by
Prudential and in the denomination or denominations specified in the
Purchaser Schedule attached hereto as Annex 1, against payment of the
purchase price thereof, the receipt of which is hereby acknowledged, by
transfer of immediately available funds for credit to the Company's account
#94064 at The Northern Trust Company, Chicago, Illinois, ABA Routing Number
071000152. The purchase by Prudential of the Series A Notes pursuant to
the Agreement was subject to certain conditions which were either satisfied
or waived.
2B. Purchase and Sale of Shelf Notes.
2B(1). Facility. Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by
Prudential and Prudential Affiliates from time to time, the purchase of
Shelf Notes pursuant to this Agreement. The willingness of Prudential to
consider such purchase of Shelf Notes is herein called the "Facility". At
any time, the aggregate principal amount of Shelf Notes
- 2 -
stated in paragraph IB, minus the aggregate principal amount of Shelf Notes
purchased and sold pursuant to this Agreement prior to such time, minus the
aggregate principal amount of Accepted Notes (as hereinafter defined) which
have not yet been purchased and sold hereunder prior to such time, is
herein called the "Available Facility Amount" at such time. For purposes
of the preceding sentence, all aggregate principal amounts of Notes shall
be calculated in American Dollars (the aggregate principal amounts of any
Note denominated in Canadian Dollars being converted into American Dollars
at the rate of exchange used by Prudential to calculate the Canadian Dollar
Equivalent at the time the Company accepts the relevant Quotation pursuant
to paragraph 2D(3).
NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF
SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING
THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO
MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS
OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE
FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY
PRUDENTIAL AFFILIATE.
2B(2). Issuance Period. (a) Shelf Notes denominated in American
Dollars may be issued and sold pursuant to this Agreement until the
earlier of (i) August 23, 1999 and (ii) the thirtieth day after Prudential
shall have given to the Company, or the Company shall have given to
Prudential, a notice stating that it elects to terminate the issuance and
sale of Notes pursuant to this Agreement (or if such thirtieth day is not
a Business Day, the Business Day preceding such thirtieth day). The
period during which Notes denominated in American Dollars may be issued
and sold pursuant to this Agreement is herein called the "American Dollar
Issuance Period".
(b) Shelf Notes denominated in Canadian
Dollars may be issued and sold pursuant to this Agreement until the later
of (i) August 23, 1999 and (ii) if the Acceptance Day for such Notes is on
or before August 23, 1999, the Closing Day specified in the relevant
Request for Purchase (as such Closing Day may be rescheduled in accordance
with paragraph 2B(7) hereof. The period during which Notes denominated in
Canadian Dollars may be issued and sold pursuant to this Agreement is
herein called the "Canadian Dollar Issuance Period" (together with the
American Dollar Issuance Period, the "Issuance Period").
2B(3). Request for Purchase. The Company may from time to time
during the relevant Issuance Period make requests for purchases of Shelf
Notes (each such request being herein called a "Request for Purchase").
Each Request for Purchase shall be made to Prudential by telecopier or
overnight delivery service, and shall (i) specify the currency (which
shall be American Dollars or Canadian Dollars) of the Notes, (ii) specify
in American Dollars the aggregate principal amount of Shelf Notes (or the
American Dollar equivalent of Notes to be denominated in Canadian Dollars
covered thereby, which shall not be less than $5,000,000 and not be
greater than the Available Facility Amount at the time such Request for
Purchase is made, (iii) specify the principal amounts, final maturities
and principal 'payment dates and amounts of the Shelf Notes covered
thereby, (iv) specify the use of proceeds of such Shelf Notes, (v) specify
the
3 -
proposed day for the closing of the purchase and sale of such Shelf Notes,
which shall be a Business Day during the relevant Issuance Period not less
than 10 days and not more than 25 days after the making of such Request for
Purchase (the "Shelf Closing Day"), (vi) specify the number of the account
and the name and address of the depository institution to which the
purchase prices of such Shelf Notes are to be transferred on the Shelf
Closing Day for such purchase and sale, (vii) certify that the
representations and warranties contained in paragraph 8 are true on and as
of the date of such Request for Purchase and that there exists on the date
of such Request for Purchase no Event of Default or Default, (viii) specify
whether the fee to be due pursuant to paragraph 2B(8)(ii) should be
included in the rate quotes Prudential may provide pursuant to paragraph
2B(4) or will be paid separately by the Company on the Shelf Closing Day
for such purchase and sale, and (ix) be substantially in the form of
Exhibit B attached hereto. Each Request for Purchase shall be in writing
and shall be deemed made when received by Prudential.
2B(4). Rate Quotes. Not later than five Business Days after the
Company shall have given Prudential a Request for Purchase pursuant to
paragraph 2B(3), Prudential may, but shall be under no obligation to,
provide to the Company by telephone or telecopier, in each case between
9:30 A.M. and 1:00 P.M. New York City local time (or such later time as
Prudential may elect) interest rate quotes for the currencies, principal
amounts (or the approximate Canadian Dollar Equivalent in the case of Notes
to be denominated in Canadian Dollars as estimated by Prudential),
maturities, principal prepayment schedules, and interest payment periods of
Shelf Notes specified in such Request for Purchase. Each quote shall
represent the interest rate per annum payable on the outstanding principal
balance of such Shelf Notes at which Prudential or a Prudential Affiliate
would be willing to purchase such Shelf Notes at 100% of the principal
amount thereof.
2B(5). Acceptance. Within 30 minutes (or 15 minutes, in the case
of Notes denominated in Canadian Dollars) after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2B(4) or such
shorter period as Prudential may specify to the Company (such period herein
called the "Acceptance Window"), the Company may, subject to paragraph
2B(6), elect to accept such interest rate quotes as to not less than
$5,000,000 aggregate principal amount of the Shelf Notes specified in the
related Request for Purchase (or the Canadian Dollar Equivalent, as the
case may be). Such election shall be made by an Authorized Officer of the
Company notifying Prudential by telephone or telecopier within the
Acceptance Window (but not earlier than 9:30 A.M. or later than 2:00 P.M.,
New York City local time) that the Company elects to accept such interest
rate quotes, specifying the Shelf Notes (each such Shelf Note being herein
called an "Accepted Note") as to which such acceptance (herein called an
"Acceptance") relates. The day the Company notifies Prudential of an
Acceptance with respect to any Accepted Notes is herein called the
"Acceptance Day" for such Accepted Notes. Any interest rate quotes as to
which Prudential does not receive an Acceptance within the Acceptance
Window shall expire, and no purchase or sale of Shelf Notes hereunder shall
be made based on such expired interest rate quotes. Subject to paragraph
2B(6) and the other terms and conditions hereof, the Company agrees to sell
to Prudential or a Prudential Affiliate, and Prudential agrees to purchase,
or to cause the purchase by a
4 -
Prudential Affiliate of, the Accepted Notes at 100% of the principal amount
of such Notes. As soon as practicable following the Acceptance Day, the
Company, Prudential and each Prudential Affiliate which is to purchase any
such Accepted Notes will execute a confirmation of such Acceptance
substantially in the form of Exhibit C attached hereto (herein called a
"Confirmation of Acceptance"). If the Company should fail to execute and
return to Prudential within three Business Days following receipt thereof a
Confirmation of Acceptance with respect to any Accepted Notes, Prudential
may at its election at any time prior to its receipt thereof cancel the
closing with respect to such Accepted Notes by so notifying the Company in
writing,
2B(6). Market Disruption. Notwithstanding the provisions of
paragraph 2B(5), if Prudential shall have provided interest rate quotes
pursuant to paragraph 2B(4) and thereafter prior to the time an Acceptance
with respect to such quotes shall have been notified to Prudential in
accordance with paragraph 2B(5) the domestic market for US Treasury
securities or derivatives shall have closed or there shall have occurred a
general suspension, material limitation, or significant disruption of (i)
trading in securities generally on the New York Stock Exchange, (ii) in the
case of Notes to be denominated in American Dollars, in the domestic market
for US Treasury securities or derivatives, or (iii) in the case of Notes to
be denominated in Canadian Dollars, in the forward currency market or the
interest rate Swap Market, then such interest rate quotes, shall expire,
and no purchase or sale of Shelf Notes hereunder shall be made based on
such expired interest rate quotes. If the Company thereafter notifies
Prudential of the Acceptance of any such interest rate quotes, such
Acceptance shall be ineffective for all purposes of this Agreement, and
Prudential shall promptly notify the Company that the provisions of this
paragraph 2B(6) are applicable with respect to such Acceptance.
2B(7). Facility Closings. Not later than 11:30 A.M. (New York
City local time) on the Shelf Closing Day for any Accepted Notes, the
Company will deliver to each Purchaser listed in the Confirmation of
Acceptance relating thereto at the offices of the Prudential Capital Group,
Two Prudential Capital Group, Suite 5600, Chicago, Illinois 60601, the
Accepted Notes to be purchased by such Purchaser in the form of one or more
Notes in authorized denominations as such Purchaser may request for each
Series of Accepted Notes to be purchased on the Shelf Closing Day, dated
the Shelf Closing Day and registered in such Purchaser's name (or in the
name of its nominee), against payment of the purchase price thereof by
transfer of immediately available funds for credit to the Company's account
specified in the Request for Purchase of such Shelf Notes. If the Company
fails to tender to any Purchaser the Accepted Notes to be purchased by such
Purchaser on the scheduled Shelf Closing Day for such Accepted Notes as
provided above in this paragraph 2B(7), or any of the conditions specified
in paragraph 3 shall not have been fulfilled by the time required on such
scheduled Shelf Closing Day, the Company shall, prior to 1:00 P.M., New
York City local time, on such scheduled Shelf Closing Day notify Prudential
(which notification shall be deemed received by each Purchaser) in writing
whether (X) such closing is to be rescheduled (such rescheduled date to be
(i) in the case of a Note denominated in American Dollars, a Business Day
during the relevant Issuance Period not less than one Business Day and not
more than 30 Business Days after such scheduled Shelf Closing Day or (ii)
in the case of a Shelf Note denominated in Canadian Dollars, a Business Day not
less than 1 Business Days and not more than 30 Business Days after the
Acceptance Day (the "Rescheduled Closing Day"), and certify to Prudential
(which certification shall be for the benefit of each Purchaser) that the
Company reasonably believes that it will be able to comply with the
conditions set forth in paragraph 3 on such Rescheduled Shelf Closing Day
and that the Company will pay the Delayed Delivery Fee in accordance with
paragraph 2B(8)(ii) or (Y) such closing is to be canceled. For the
avoidance of doubt, in the event that a Rescheduled Closing Day is
established pursuant to the preceding sentence in respect of Shelf Notes
denominated in Canadian Dollars, the Shelf Notes to be issued on such
Rescheduled Closing Day shall have the same maturities, installment payment
schedules and interest payment dates as if such Shelf Notes had been issued
on the original Shelf Closing Day. In the event that the Company shall
fail to give such notice referred to in the preceding sentence, Prudential
(on behalf of each Purchaser) may at its election, at any time after 1:00
P.M., New York City local time, on such scheduled Shelf Closing Day, notify
the Company in writing that such closing is to be canceled.
Notwithstanding anything to the contrary appearing in this Agreement, the
Company may elect to reschedule a closing with respect to any given
Accepted Notes on not more than one occasion, unless Prudential shall have
otherwise consented in writing.
2B(8). Fees.
2B(8)(i). Issuance Fee. The Company will pay to Prudential in
immediately available funds a fee (herein called the 'Issuance Fee') on
each Shelf Closing Day in an amount equal to 0.15% of the aggregate
principal amount of Shelf Notes sold on such Shelf Closing Day, unless the
Company shall have requested pursuant to the applicable Request for
Purchase that such fee be included in the rate quotes Prudential may
provide pursuant to paragraph 2B(4).
2B(8)(ii). Delayed Delivery Fee. (a) If the closing of the purchase
and sale of any Accepted Note denominated in American Dollars is delayed
for any reason beyond the original Shelf Closing Day for such Accepted
Note, the Company will pay to Prudential on the last Business Day of each
calendar month, commencing with the first such day to occur more than 30
days after the Acceptance Day for such Accepted Note and ending with the
last such day to occur prior to the American Cancellation Date or the
actual date of such purchase and sale (if such American Cancellation Date
or closing date occurs more than 30 days after the Acceptance Day for such
Accepted Note), a fee (herein called the "American Delayed Delivery Fee")
calculated as follows:
(BEY - MMY) X DTS/360 X PA
where "BEY' means Bond Equivalent Yield, i.e., the bond equivalent yield
per annum of such Accepted Note, "MMY" means Money Market Yield, i.e., the
yield per annum on a an alternative investment selected by Prudential on
the date Prudential receives notice of the delay in the closing for such
Accepted Note having a maturity date or dates the same as, or closest to,
the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed
from and including the original Shelf Closing Day with respect to such Accepted
Note (in the case of the first such payment with respect to such Accepted Note)
or from and including the date of the next preceding payment (in the case
of any subsequent delayed delivery fee payment with respect to such
Accepted Note) to but excluding the date of such payment; and "PA" means
Principal Amount, i.e., the principal amount of the Accepted Note for which
such calculation is being made. (b) If the closing of the purchase and sale
of any Accepted Note denominated in Canadian Dollars is delayed for any
reason beyond the original Shelf Closing Day for such Accepted Note, the
Company will pay to Prudential on the Canadian Cancellation Date or actual
closing date of such purchase and sale, a fee denominated in Canadian
Dollars (herein called the "Canadian Delayed Delivery Fee", and together
with the American Delayed Delivery Fee, the "Delayed Delivery Fee") which
shall be (x) the amount equal to the product of (i) the difference between
the Rate of Interest and the Overnight Investment Rate on funds deposited
on each day from and including the Shelf Closing Day, (ii) the aggregate
principal amount of the Shelf Notes for which the coupon was fixed, and
(iii) a fraction the numerator of which is equal to the number of actual
days elapsed from and including the Shelf Closing Day but excluding the
date of such payment hereunder, and the denominator of which is 365, plus
(y) any cost or expense (if any) incurred by Prudential with respect to any
interest rate and/or currency exchange agreement entered into by the
Prudential in connection with a delayed closing in relation to the Shelf
Notes. In no case shall the Canadian Delayed Delivery Fee be less than
zero. Nothing contained herein shall obligate any Purchaser to purchase
any Accepted Note on any day other than the Shelf Closing Day for such
Accepted Note, as the same may be rescheduled from time to time in
compliance with paragraph 2B(7).
2B(8)(iii). Cancellation Fee. (a) If the Company at any time
notifies Prudential in writing that the Company is canceling the closing of
the purchase and sale of any Accepted Note denominated in American Dollars,
or if Prudential notifies the Company in writing under the circumstances
set forth in the last sentence of paragraph 2B(5) or the penultimate
sentence of paragraph 2B(7) that the closing of the purchase and sale of
such Accepted Note is to be canceled, or if the closing of the purchase and
sale of such Accepted Note is not consummated on or prior to the last day
of the American Dollar Issuance Period (the date of any such notification,
or the last day of the American Dollar Issuance Period, as the case may be,
being herein called the "American Cancellation Date"), the Company will pay
the Purchasers in immediately available funds an amount (the "American
Cancellation Fee") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (X) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the American Cancellation Date
over the bid price (as determined by Prudential) of the Hedge Treasury
Notes(s) on the Acceptance Day for such Accepted Note by (Y) such bid
price; and "PA" has the meaning ascribed to it in paragraph 2B(8)(ii). The
foregoing bid and ask prices shall be as reported by Telerate Systems, Inc.
(or, if such data for any reason ceases to be available through Telerate
Systems, Inc., any publicly available source of similar market data). Each
price shall be based on a US Treasury security having a par value of
$100.00 and shall be rounded to
7 -
the second decimal place. In no case shall the American Cancellation Fee
be less than zero.
(b) If the Company at any time notifies Prudential in
writing that the Company is canceling the closing of the purchase and sale
of any Accepted Note denominated in Canadian Dollars, or if Prudential
notifies the Company in writing under the circumstances set forth in the
last sentence of paragraph 2B(5) or the penultimate sentence of paragraph
2B(7). that the closing of the purchase and sale of such Accepted Note is
to be canceled, or if the closing of the purchase and sale of such
Accepted Note is not consummated on or prior to the last day of the
Canadian Dollar Issuance Period (the date of any such notification, or the
last day or the Canadian Dollar Issuance Period, as the case may be, being
herein called the "Canadian Cancellation Date" and together with the
American Cancellation Date, the "Cancellation Date"), the Company will pay
Prudential in immediately available funds, no later than the Business Day
immediately succeeding such Canadian Cancellation Date, an amount
denominated in American Dollars (the "Canadian Cancellation Fee", and
together with the American Cancellation Fee, the "Cancellation Fee") equal
to all unwinding costs incurred by Prudential on positions executed by or
on behalf of Prudential, in contemplation of the transactions to take
place on the Shelf Closing Day, in connection with fixing the coupon on
any Shelf Notes under the Pru-Shelf Facility denominated in Canadian
Dollars. Such positions include currency and interest rate swaps and
currency exchange contracts which are subject to substantial price
volatility. Such costs may also include losses (if any) incurred by
Prudential as a result of fluctuations in exchange rates. All unwinding
costs incurred by Prudential will be determined by Prudential in
accordance with generally accepted financial practice. In no case shall
the Canadian Cancellation Fee be less than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to
purchase and pay for any Shelf Notes, is subject on each case to the
satisfaction, on or before the applicable Shelf Closing Day for such Shelf
Notes, of the following conditions:
3A. Certain Documents. Such Purchaser shall have received the
following, each dated the date of the applicable Closing Day:
(i) The Shelf Note(s) to be purchased by such Purchaser.
(ii) Certified copies of the resolutions of the Board of
Directors of the Company authorizing the execution and delivery of
this Amended and Restated Agreement and the issuance of the Notes,
and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Amended and
Restated Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant
Secretary and one other officer of the Company certifying the names
and true signatures of the officers of the Company authorized to sign
this Amended and Restated Agreement and the Notes and the other
documents to be delivered hereunder.
8 -
(iv) Certified copies of the Certificate of Incorporation
and By-laws of the Company.
(v) On each Shelf Closing Day, such Purchaser shall have
received from David W. League, general counsel to the Company, or, at
the Company's election, other counsel designated by the Company and
acceptable to such Purchaser, a favorable opinion satisfactory to the
Purchaser and substantially in the form of Exhibit D-1 attached
hereto.
(vi) A good standing certificate for the Company from the
Secretary of State of Delaware dated of a recent date and such other
evidence of the status of the Company as such Purchaser may reasonably
request.
(vii) Additional documents or certificates with respect to
legal matters or corporate or other proceedings related to the
transactions contemplated hereby as may be reasonably requested by
such Purchaser.
3B. Representations and Warranties; No Default. The
representations and warranties contained in paragraph 8 shall be true on
and as of such Shelf Closing Day, except to the extent of changes caused by
the transactions herein contemplated; there shall exist on such Shelf
Closing Day no Event of Default or Default; and the Company shall have
delivered to such Purchaser an Officer's Certificate, dated such Shelf
Closing Day, to both such effects.
3C. Fees. On or before each Shelf Closing Day, the Company
shall have paid to the Purchasers any fee required by paragraphs 2B(g)(i)
and 2B(g)(ii).
3D. Proceedings. All corporate and other proceedings taken or to
be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form to
each Purchaser, and each Purchaser shall have received all such counterpart
originals or certified or other copies of such documents as it may
reasonably request.
3E. Purchase Permitted by Applicable Laws. The purchase of and
payment for the Notes to be purchased by such Purchaser on the terms and
conditions herein provided (including the use of the proceeds of such Notes
by the Company) shall not violate any applicable law or governmental
regulation (including, without limitation, Section 5 of the Securities Act
or Regulation G, T or X of the Board of Governors of the Federal Reserve
System) and shall not subject such Purchaser to any tax, penalty, liability
or other onerous condition under or pursuant to any applicable law or
governmental regulation, and such Purchaser shall have received such
certificates or other evidence as it may request to establish compliance
with this condition.
4. PREPAYMENTS. The Series A Notes and any Shelf Notes shall be
subject to required prepayment as and to the extent provided in paragraphs
4A and 4B, respectively. The Series A Notes and any Shelf Notes shall also
be subject to prepayment under the circumstances set forth in paragraph 4C.
Any prepayment made by the Company pursuant to any other provision of this
paragraph 4 shall not reduce or
- 9 -
otherwise affect its obligation to make any required prepayment as
specified in paragraph 4A or 4B.
4A. Required Prepayments of Series A Notes. Until the Series A
Notes shall be paid in full, the Company shall apply to the prepayment of
the Series A Notes, without Yield-Maintenance Amount, the sum of $2,000,000
on June 22 and December 22 of each year, commencing June 22, 2001 and to
and including December 22, 2007, and such principal amounts of the Series A
Notes, together with interest thereon to the payment dates, shall become
due on such payment dates. The remaining unpaid principal amount of the
Series A Notes, together with interest accrued thereon, shall become due on
June 22, 2008.
4B. Required Prepayments of Shelf Notes. Each Series of Shelf
Notes shall be subject to required prepayments, if any, set forth in the
Notes of such Series.
4C. Optional Prepayment With Yield-Maintenance Amount.
The Notes of each Series shall be subject to prepayment, in whole at any time
or from time to time in part (in integral multiples of $100,000 and in a
minimum amount of $1,000,000), at the option of the Company, at 100% of
the principal amount so prepaid plus interest thereon to the prepayment
date and the Yield-Maintenance Amount, if any, with respect to each such Note.
4D. Notice of Optional Prepayment. The Company shall give the
holder of each Note of a Series to be prepaid pursuant to paragraph 4C
irrevocable written notice of such prepayment not less than 30 Business
Days prior to the prepayment date, specifying such prepayment date, the
aggregate principal amount of the Notes of such Series to be prepaid on
such date, the principal amount of the Notes of such Series held by such
holder to be prepaid on that date and that such prepayment is to be made
pursuant to paragraph 4C. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice,
together with interest thereon to the prepayment date and together with the
Yield-Maintenance Amount, if any, herein provided, shall become due and
payable on such prepayment date and, as to principal, applied to required
payments thereon in the inverse order of maturity.
4E. Application of Prepayments. In the case of each prepayment
of less than the entire unpaid principal amount of all outstanding Notes of
any Series pursuant to paragraphs 4A, 4B or 4C, the amount to be prepaid
shall be applied pro rata to all outstanding Notes of such Series
(including, for the purpose of this paragraph 4E only, all Notes prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any
of its Subsidiaries or Affiliates other than by prepayment pursuant to
paragraph 4A, 4B or 4C) according to the respective unpaid principal
amounts thereof.
4F. Retirement of Notes. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire
in whole or in part prior to their stated final maturity (other than by
prepayment pursuant to paragraphs 4A, 4B or 4C or upon acceleration of such
final maturity pursuant to paragraph 7A), or purchase or otherwise acquire,
directly or indirectly, Notes of any Series held by any holder unless the
Company or such Subsidiary or Affiliate shall have offered to prepay
. 10 -
or otherwise retire or purchase or other-wise acquire, as the case may be,
the same proportion of the aggregate principal amount of Notes of such
Series held by each other holder of Notes of such Series at the time
outstanding upon the same terms and conditions. Any Notes so prepaid or
other-wise retired or purchased or otherwise acquired by the Company or any
of its Subsidiaries or Affiliates shall not be deemed to be outstanding for
any purpose under this Agreement, except as provided in paragraph 4E.
5. AFFIRMATIVE COVENANTS. During the Issuance Period and so
long thereafter as any Note is outstanding and unpaid, the Company
covenants as follows:
5A. Financial Statements; Notice of Defaults. The Company
covenants that it will deliver to each significant Holder in triplicate:
(i) as soon as practicable and in any event within 60 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of income and
cash flows of (a) the Company and its Subsidiaries and (b) for each
such subsidiary for quarterly period, and a consolidated balance
sheet of (y) the Company and its Subsidiaries and (z) each such
subsidiary as at the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding period in
the preceding fiscal year, all in reasonable detail and certified by
an authorized financial officer of the Company, subject to changes
resulting from year-end adjustments;
(ii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, consolidated statements of income
and cash flows of (a) the Company and its Subsidiaries and (b) each
such subsidiary for such year, and a consolidated balance sheet of
(y) the Company and its Subsidiaries and (z) each such subsidiary as
at the end of such year, setting forth in each case in comparative
form corresponding consolidated figures from the preceding annual
financial statements (which, in the case of the consolidated
statements of the Company and its Subsidiaries, shall be the
preceding annual audit, all in reasonable detail and satisfactory in
form to the Required Holder(s) and, as to the consolidated statements
of the Company and its Subsidiaries, certified to the Company, by
independent public accountants of recognized standing selected by the
Company whose certificate shall be in scope and substance reasonably
satisfactory to the Required Holder(s) and, as to the consolidated
statements of each Subsidiary, certified by an authorized financial
officer of the Company;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its public stockholders, if any, and copies of all
registration statements (without exhibits) and all reports which it
files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the
Securities and Exchange Commission); and
(iv) with reasonable promptness, such other financial data
as such significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses
(i) and (ii) above, the Company will deliver to each significant Holder an
Officer's Certificate (a) demonstrating (with computations in reasonable
detail) compliance by the Company and its Subsidiaries with the provisions
of paragraphs 6 hereof, (b) listing all Subsidiaries and (c) stating that
there exists no Event of Default or Default, or, if any Event of Default
or Default exists, specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
Together with each delivery of financial statements required by clause
(ii) above, the Company will deliver to each significant Holder (y) a
written statement of the Company's independent public accountants
acknowledging that the holders of the Notes are entitled to rely on such
auditor's certification of such suited financial statements and (z) a
certificate of such accountants stating that, in making the audit
necessary the certification of such financial statements, they have
obtained no knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying the
nature and period of existence thereof.
The Company also covenants that forthwith upon the chief
executive officer, principal financial officer or principal accounting
officer of the Company obtains knowledge of an Event of Default or Default,
it will deliver to each significant Holder an Officer's Certificate
specifying the nature and period of existence thereof and what action the
Company proposes to take with respect thereto.
5B. Information Required by Rule 144A. The Company covenants
that it will, upon the request of the holder of any Note, provide such
holder, and any qualified institutional buyer designated by such holder,
such financial and other information as such holder may reasonably
determine to be necessary in order to permit compliance with the
information requirements of Rule 144A under the Securities Act in
connection with the resale of Notes, except at such times as the Company is
subject to and in compliance with the reporting requirements of section 13
or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the
term "qualified institutional buyer" shall have the meaning specified in
Rule 144A under the Securities Act.
5C. Inspection of Property. The Company covenants that it will
permit any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any of the properties of
the Company and its Subsidiaries, to examine the corporate books and
financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and
accounts of any of such corporations with the chief executive officer,
principal financial officer or principal accounting officer of the Company
(or any other officer or employee designated by any of them) and its
independent public accountants, all at such reasonable times and as often
as such Significant Holder may reasonably request.
5D. Covenant to Secure Notes Equally. The Company covenants
that, if it or any Subsidiary shall create or assume any Lien upon any of
its property or assets, whether now owned or hereafter acquired, other than
Liens permitted by the provisions of paragraph 6B (unless prior
written consent to the creation or assumption thereof shall
have been obtained pursuant to paragraph 11C), it will make
or cause to be made effective provision whereby the Notes will be secured
by such Lien equally and ratably with any and all other Debt thereby
secured so long as any such other Debt shall be so secured.
5E. Maintenance of Insurance. The Company covenants that it and
each Subsidiary will maintain, with financially sound and reputable
insurers, insurance in such amounts and against such liabilities and
hazards as customarily is maintained by other companies operating similar
businesses. Together with each delivery of financial statements under
clause (ii) of paragraph 5A, the Company will, upon the request of any
Significant Holder, deliver an Officer's Certificate specifying the details
of such insurance in effect.
5F. Compliance with Environmental Laws. The Company covenants
that it will, and will cause each of its Subsidiaries to, comply in a
timely fashion with, or operate pursuant to valid waivers of the provisions
of, all Environmental Laws, except where noncompliance would not adversely
affect the business, condition (financial or otherwise) or operations of
the Company or its Subsidiaries.
5G. Cooperative Status. The Company covenants that it will at
all times maintain its status as a Cooperative for purposes of Subchapter T
of the Code.
6. NEGATIVE, COVENANTS. During the Issuance Period and so long
thereafter as any Note or other amount due hereunder is outstanding and
unpaid, the Company covenants as follows:
6A. Current Ratio; Fixed Charge Coverage. The Company will not
permit (i) consolidated current assets to be less than 110% of consolidated
current liabilities as of the last day of any fiscal quarter, or (ii) for
any rolling four fiscal quarter period, Adjusted Net Earnings for such
period to be less than 175% of the sum of interest expense, lease expense
and scheduled principal payments made by the Company and Subsidiaries on a
consolidated basis on all Debt and Patronage Indebtedness for such period.
6B. Lien,, Debt and Other Restrictions. The Company covenants
that it will not and will not permit any Subsidiary to:
6B(1). Liens. Create, assume or suffer to exist any Lien upon
any of its property or assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of the
Note in accordance with the provisions of paragraph 5C), except:
(i) Liens for taxes not yet due or which are being
actively contested in good faith by appropriate proceedings,
(ii) other Liens incidental to the conduct of its business
or the ownership of its property and assets which were not
incurred in connection
13 -
with the borrowing of money or the obtaining of advances or
credit, and which do not in the aggregate materially detract from
the value of its property or assets or materially impair the use
thereof in the operation of its business,
(iii) Liens on property or assets of a Subsidiary to
secure obligations of such Subsidiary to the Company or another
Subsidiary,
(iv) Liens consisting of capitalized leases if (a) the
Funded Debt represented by the related Capitalized Lease
Obligations is permitted by the provisions of paragraph 6B(2),
and (b) such Lien would be permitted by the provisions of clause
(v) of this paragraph 6B(1), and
(v) other Liens (including existing Liens), provided that
the aggregate amount of Debt secured by all such Liens and any
Liens permitted by clause (iv) above shall at no time exceed an
amount equal to 15% of Member Dealers' Equity, and further
provided that such Debt is permitted by the provisions of
paragraph 6B(2);
6B(2). Debt. Create, incur, assume or suffer to exist any Debt,
except:
(i) Funded Debt represented by the Notes and the 1991
Agreement Notes,
(ii) Debt of any Subsidiary to the Company or any other
Subsidiary,
(iii) additional Funded Debt of Subsidiaries, provided that
the
aggregate principal amount thereof shall at not time exceed
$3,000,000,
(iv) additional Funded Debt of the Company, provided that
Consolidated Funded Debt shall at not time exceed 40% of Total
Capitalization, and
(v) Current Debt of the Company, provided that commencing
on December 31, 1991, and at all times thereafter there shall
have been a period of at least 45 consecutive days during each
period of 12 consecutive calendar months on each day of which
either there shall be no Current Debt outstanding or the Company
could incur pursuant to clause (iv), above, additional Funded
Debt in an amount equal to the maximum amount of Current Debt of
the Company outstanding during such clean-down period;
6B(3). Sale of Stock and Debt of Subsidiaries. Sell or
otherwise dispose of, or part with control of, any shares of stock or Debt
of any Subsidiary, except to the Company or another Subsidiary, and except
that all shares of stock and Debt of any Subsidiary at the time owned by or
owed to the Company and all Subsidiaries may be sold as an entirety for
such consideration which represents the fair value (as
- 14 -
determined in good faith by the Board of Directors of the Company) at the
time of sale of the shares of stock and Debt so sold, provided that, the
assets of such Subsidiary, together with the assets of any other
Subsidiaries sold or otherwise disposed of during the most recent 36-month
rolling period, do not constitute a Substantial Part of the consolidated
assets of the Company and its Subsidiaries and that such Subsidiary,
together with any other Subsidiaries sold or otherwise disposed of during
the most recent 36-month period, shall not have contributed a Substantial
Part of Consolidated Net Earnings for any of the three fiscal years then
most recently ended, and further provided that, at the time of such sale,
such Subsidiary shall not own, directly or indirectly, any shares of stock
or Debt of any other Subsidiary (unless al of the shares of stock and Debt
of such other Subsidiary owned, directly or indirectly, by the Company and
its Subsidiary are simultaneously being sold as permitted by this
paragraph 6B(3));
6B(4). Merger and Sale of Assets. Merge or consolidate with
any other corporation or sell, lease or transfer or otherwise dispose of
all of the consolidated assets of the Company and its Subsidiaries, or
assets which, together with all assets of the Company and Subsidiaries
sold, leased or otherwise disposed of during the most recent 36-month
rolling period, constitute a Substantial Part of the consolidated assets
of the Company and its Subsidiaries or shall have contributed a
Substantial Part of Consolidated Net Earnings for any of the three fiscal
years then most recently ended, to any Person, except that:
(i) any Subsidiary may merge or consolidate with the
Company (provided that the Company shall be the continuing or
surviving corporation), or with any one or more other
Subsidiaries,
(ii) any Subsidiary may sell, lease, transfer or otherwise
dispose of any of its assets to the Company or another
Subsidiary,
(iii) any Subsidiary may sell or otherwise dispose of
all or substantially all of its assets subject tot he conditions
specified in paragraph 6B(3) with respect to a sale of the stock
of such Subsidiary, and
(iv) the Company may merge or consolidate with any other
corporation, provided that (a) the Company shall be the
continuing or surviving corporation, (b) after giving effect to
such merger or consolidation, no Default or Event of Default
shall exist under this Agreement and (c) assuming that the
effective date of such merger or consolidation was the last day
of a fiscal quarter, no Default or Event of Default would exist
under clause (i) of paragraph 6A:
6B(5). Restrictions on Transactions with Affiliates and
Stockholders. Directly or indirectly, purchase, acquire or lease any
property from, or sell, transfer or lease any property (other than shares
of stock of Company) to, or otherwise deal with, in the ordinary course of
business or otherwise (i) any Affiliate or Substantial Stockholder, or
(ii) any corporation in which an Affiliate, Substantial Stockholder or the
Company (either directly or through Subsidiaries) owns 5% or more of the
outstanding voting stock, except that (a) any such Affiliate or
Substantial
- 15 -
Stockholder may be a director, officer or employee of the Company or any
Subsidiary and may be paid reasonable compensation in connection therewith
and (b) such acts and transactions prohibited by this paragraph 6B(5) may be
performed or engaged in if (x) specifically authorized by the Company's
Board of Directors (exclusive of any Affiliate or Substantial Stockholder who
is a director and who may have a direct or indirect interest in such
transaction) and (y) upon terms not less favorable to the Company or a
Subsidiary (as the case may be) than if no such relationship described in
clauses (i) and (ii) above existed
6C. Issuance of Stock by Subsidiaries. the Company covenants that
it will not permit any Subsidiary (either directly, or indirectly by the
issuance of rights or options for, or securities convertible into, such
shares) to issue, sell or otherwise dispose of any shares of any class of
its stock (other than directors' qualifying shares) except to the Company
or another Subsidiary.
6D. Compliance with ERISA. The Company will not, and will not
permit any Subsidiary to, engage in any transaction in connection with
which the Company or any Subsidiary could be subject to either a civil
penalty assessed pursuant to section 502(i) of ERISA or a tax imposed by
section 4975 of the Code, terminate or with draw from any Plan (other than
a Multiemployer Plan) in a manner, or take any other action with respect to
any such Plan (including, without limitation, a substantial cessation of
operations within the meaning of section 4062(f) of ERISA), which could
result in any liability of the Company or any Subsidiary to the PBGC, to a
trust established pursuant to section 4041(c)(3)(B)(ii) or (iii) or 4042(i)
of ERISA, or to a trustee appointed under section 4042(b) or (c) of ERISA,
incur any liability to the PBGC on account of a termination of a Plan under
section 4064 of ERISA, fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Company or any Subsidiary is
required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency, whether or not waived, with respect to any
Plan (other than a Multiemployer Plan), if, in any such case, such penalty
or tax or such liability, or the failure to make such payment, or the
existence of such deficiency, as the case may be, could have a material
adverse effect on the Company and its Subsidiaries taken as a whole.
6E. No change in Subordination Terms, etc. The Company covenants
that (i) no certificate representing Patronage Indebtedness will be amended
or re-issued with the effect of eliminating or in any way altering the
subordination language appearing therein, (ii) no amendment shall be
adopted to its By-laws or any other governing document, and no agreement
shall be entered into with any of its stockholders, which would entitle a
stockholder, upon termination of his or its franchise in any of the
circumstances described in Section 12(a) of Article XVI of the By-laws of
the Company, as in effect on the date of this Agreement, to receive
consideration for his or its shares in a form other than a promissory note
of the Company with a term of, or in excess of, four years and providing
for payments in equal annual principal installments, except to the extent
specifically provided in clauses (7) and (8) of Section 12(b) of Article
XVI of the By-laws of the Company as in effect on the date of this
Agreement and (iii) notwithstanding the foregoing clause (ii), in no fiscal
year shall cash payments in excess of $5,000,000 be made under
circumstances described in clauses (7) and (8) of Section
16 -
12(b) of Article XVI of the By-laws of the Company as in effect on the date
of this Agreement.
6F. Nature of Business. The Company will not, and will not
permit any Subsidiary to, (i) engage in the business of underwriting risks
for insurance purposes, or in any other aspect of insurance related
business other than the sale of insurance on an agency or brokerage basis,
or (ii) purchase and sell real estate (other than on an agency basis) for
purposes other than those relating directly to its principal business.
7. EVENTS OF DEFAULT.
7A. Acceleration. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal of, or
Yield Maintenance Amount payable with respect to, any Note when the
same shall become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Company defaults in the payment of any
interest on any Note for
more than 5 days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as
primary obligor
or as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any
Capitalized Lease Obligation, any obligation under a conditional sale
or other title retention agreement, any obligation issued or assumed
as full or partial payment for property whether or not secured by a
purchase money mortgage or any obligation under notes payable or
drafts accepted representing extensions of credit) beyond any period
of grace provided with respect thereto, or the Company or any
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation
is created (or if any other event thereunder or under any such
agreement shall occur and be continuing) and the effect of such
failure or other event is to cause, or to permit the holder or holders
of such obligation (or a trustee on behalf of such holder or holders)
to cause, such obligation to become due (or to be repurchased by the
Company or any Subsidiary) prior to any stated maturity, provided that
the aggregate amount of all obligations as to which such a payment
default shall occur and be continuing or such a failure or other event
causing or permitting acceleration (or repurchase by the Company or
any Subsidiary) shall occur and be continuing exceeds $3,000,000; or
(iv) any representation or warranty made by or on behalf of the
Company herein or in any writing furnished by any Officer of the
Company on behalf of the Company in connection with or pursuant to
this Agreement shall be false in any material respect on the date as
of which made and, in the case of a misrepresentation in the second
sentence of paragraph 8A, such falsity shall result
- 17 -
in a liability of the Company under the Code in an amount in excess of
$10,000,000; or
(v) the Company fails to perform or observe any agreement contained
in paragraph 5F or paragraph 6 hereof; or
(vi) the Company fails to perform or observe any other agreement, term
or condition contained herein and such failure shall not be remedied within
30 days after any officer obtains actual knowledge thereof-, or
(vii) the Company or any Subsidiary makes an assignment for
the benefit
of creditors or is generally not paying its debts as such debts become due;
or
(viii) any decree or order for relief in respect of the
Company or any
Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (herein called the
"Bankruptcy Law'), of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any Substantial Part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings arc commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstated and in effect for more than
30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days: or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing a
Substantial Part, or the divestiture of the stock of a Subsidiary whose
assets represent a Substantial Part, of the consolidated assets of the
Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of
assets, or stock of a Subsidiary, which shall have contributed a
Substantial Part of the consolidated net income of the Company and its
- 18 -
Subsidiaries (determined in accordance with generally accepted
accounting principles) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed
and in effect for more than 60 days; or
(xiii) one or more final judgments in an aggregate amount in
excess of $10,000,000 is rendered against the Company or any
Subsidiary and, within 60 days after entry thereof, any such judgment
is not discharged or execution thereof stayed pending appeal, or
within 60 days after the expiration of any such stay, such judgment is
not discharged; or
then (a) if such event is an Event of Default specified in clause (viii),
(ix) or (x) of this paragraph 7A with respect to the Company, all of the
Notes at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (b) if such event is any other Event of Default,
the Required Holder(s) of the Notes of any Series may at its or their
option by notice in writing to the Company, declare all of the Notes of
such Series to be, and all of the Notes of such Series shall thereupon be
and become, immediately due and payable together with interest accrued
thereon and together with the Yield-Maintenance Amount, if any, with
respect to each Note of such Series, without presentment, demand, protest
or notice of any kind, all of which are hereby waived by the Company,
provided that the Yield-Maintenance Amount, if any, with respect to each
Note shall be due and payable upon such declaration only if (x) such event
is an Event of Default specified in any of clauses (i) to (vi), inclusive,
of this paragraph 7A, (y) the Required Holder(s) of the Notes of such
Series shall have given to the Company, at least 10 Business Days before
such declaration, written notice stating its or their intention so to
declare the Notes of such Series to be immediately due and payable and
identifying one or more such Events of Default whose occurrence on or
before the date of such notice permits such declaration and (z) one or more
of the Events of Default so identified shall be continuing at the time of
such declaration.
7B. Notice of Acceleration or Rescission. Whenever any Note
shall be declared immediately due and payable pursuant to paragraph 7A, the
Company shall forthwith give written notice thereof to the holder of each
Note of each Series at the time outstanding.
7C. Other Remedies. If any Event of Default or Default shall
occur and be continuing, the holder of any Note may proceed to protect and
enforce its rights under this Agreement and such Note by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any covenant or other agreement
contained in this Agreement or in aid of the exercise of any power granted
in this Agreement. No remedy conferred in this Agreement upon the holder
of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
- 19 -
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The
Company represents, covenants and warrants as follows):
8A. Organization and Cooperative Status. The Company is
a corporation duly organized and existing in good standing under the laws of
the State of Delaware and each Subsidiary is duly organized and existing
in good standing under the laws of the jurisdiction in which it is
incorporated. At all times since January 1, 1975, the Company has been a
cooperative for federal income tax purposes pursuant to Subchapter T of
the Code.
8B. Financial Statements. The Company has furnished each
Purchaser of Series A Notes and any Accepted Notes with the following
financial statements, identified by a principal financial officer of the
Company: (i) a consolidated balance sheet of the Company and its
Subsidiaries as at December 31 in each of the five fiscal years of the
Company most recently completed prior to the date as of which this
representation is made or repeated to such Purchaser (other than fiscal
years completed within 90 days prior to such date for which audited
financial statements have not been released) and a consolidated statement
of income and statement of cash flows of the Company and its Subsidiaries
for each such year, all certified by KPMG Peat Marwick and (ii)
consolidated balance sheets of the Company and its Subsidiaries as at the
end of the quarterly period (if any) most recently completed prior to such
date and after the end of such fiscal year (other than quarterly periods
completed within 45 days prior to such date for which financial statements
have not been released) and the comparable quarterly period in the
preceding fiscal year and consolidated statements of income and statements
of cash flows for the periods from the beginning of the fiscal years in
which such quarterly periods are included to the end of such quarterly
periods, prepared by the Company. Such financial statements (including
any related schedules and/or notes) are true and correct in all material
respects (subject, as to interim statements, to changes resulting from
audits and year-end adjustments), have been prepared in accordance with
generally accepted accounting principles consistently followed throughout
the periods involved and show all liabilities, direct and contingent, of
the Company and its Subsidiaries required to be shown in accordance with
such principles. The balance sheets fairly present the condition of the
Company and its Subsidiaries as at the dates thereof, and the statements
of income, and statements of cash flows fairly present the results of the
operations of the Company and its Subsidiaries for the periods indicated.
There has been no material adverse change in the business, condition or
operations (financial or otherwise) of the Company and its Subsidiaries
taken as a whole since the end of the most recent fiscal year for which
such audited financial statements have been furnished.
8C. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries, or any properties or rights of the
Company or any of its Subsidiaries, by or before any court, arbitrator or
administrative or governmental body which might result in any material
adverse change in the business, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken as a whole.
- 20 -
8D. Outstanding Debt. Neither the Company nor any of its
Subsidiaries has outstanding any Debt except as permitted by paragraph
6B(2). There exists no default under the provisions of any instrument
evidencing such Debt or of any agreement relating thereto.
8E. Environmental Compliance. The Company and its
Subsidiaries and all of their respective properties and facilities have
complied at all times and in all respects with all foreign, federal, state,
local and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to
comply would not result in a material adverse effect on the business,
condition (financial or otherwise) or operations of the Company and its
Subsidiaries taken as a whole.
8F. Taxes. The Company has and each of its Subsidiaries has
filed all federal, state and other income tax returns which, to the best
knowledge of the officers of the Company and its Subsidiaries, are required
to be filed, and each has paid all taxes as shown on such returns
and on all assessments received by it to the extent that such taxes
have become due, except such taxes as are being contested in good
faith by appropriate proceedings for which adequate reserves have
been established in accordance with generally accepted accounting principles.
8G. Conflicting Agreements and Other Matters. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
or subject to any charter or other corporate restriction which materially
and adversely affects its business, property or assets, or financial
condition. Neither the execution nor delivery of this Agreement or the
Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of
nor compliance with the terms and provisions hereof and of the Notes will
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in any violation of, or result
in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, the charter or by-laws of
the Company or any of its Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or
any of its Subsidiaries is subject. Neither the Company nor any of its
Subsidiaries is a party to, or otherwise subject to any provision contained
in, any instrument evidencing indebtedness of the Company or such
Subsidiary, any agreement relating thereto or any other contract or
agreement (including its charter) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Debt of the Company of the type
to be evidenced by the Notes except as set forth in the agreements listed
in Exhibit E attached hereto.
8H. Offering of Notes. Neither the Company nor any agent acting
on its behalf has, directly or indirectly, offered the Notes or any similar
security of the Company for sale to, or solicited any offers to buy the
Notes or any similar security of the Company from, or otherwise approached
or negotiated with respect thereto with, any Person other than
institutional investors, and neither the Company nor any agent acting on
its behalf has taken or will take any action which would subject the
issuance or sale of the Notes to the provisions of Section 5 of the
Securities Act or to the provisions of any securities or Blue Sky law of
any applicable jurisdiction.
21 -
8I. Regulation G, etc. Neither the Company nor any Subsidiary owns
or has any present intention of acquiring any "i-margin stock" as defined
in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal
Reserve System (herein called "margin stock"). The proceeds from the sale
of the Notes will be used to refinance bank debt and fund capital
expenditures and acquisitions. None of such proceeds will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any indebtedness which was originally
incurred to purchase or carry any stock that is then currently a margin
stock or for any other purpose which might constitute the purchase of such
Notes a "purpose credit" within the meaning of such Regulation G. Neither
the Company nor any agent acting on its behalf has taken or will take any
action which might cause this Agreement or the Notes to violate Regulation
G, Regulation T or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934,
as amended, in each case as in effect now or as the same may hereafter be
in effect.
8J. ERISA. No accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the Pension Benefit Guaranty Corporation has been or is
expected by the Company or any ERISA Affiliate to be incurred with respect
to any Plan (other than a Multiemployer Plan) by the Company, any
Subsidiary or any ERISA Affiliate which is or would be materially adverse
to the Company and its Subsidiaries taken as a whole. Neither the Company,
any Subsidiary nor any ERISA Affiliate has incurred or presently expects to
incur any withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan which is or would be materially adverse the Company and
its Subsidiaries taken as a whole. The execution and delivery of this
Agreement and the issuance and sale of the Notes will be exempt from or
will not involve any transaction which is subject to the prohibitions of
section 406 of ERISA and will not involve any transaction in connection
with which a penalty could be imposed under section 502(i) of ERISA or a
tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the next preceding sentence is made in
reliance upon and subject to the accuracy of the representation of each
Purchaser in paragraph 9B as to the source of funds to be used by it to
purchase any Notes.
8K. Governmental Consent. Neither the nature of the Company or
of any Subsidiary, nor any of their respective businesses or properties,
nor any relationship between the Company or any Subsidiary and any other
Person, nor any circumstance in connection with the offering, issuance,
sale or delivery of the Notes is such as to require any authorization,
consent, approval, exemption or any action by or notice to or filing with
any court or administrative or governmental body (other than with the
Securities and Exchange Commission and/or state Blue Sky authorities) in
connection with the execution and delivery of this Amended and Restated
Agreement, the offering, issuance, sale or delivery of the Notes or
fulfillment of or compliance with the terms and provisions hereof or of the
Notes. The representation by the company in this paragraph 8K is made in
reliance upon and subject to the representation in paragraph 9.
- 22 -
8L. Hostile Tender Offers. None of the proceeds of the sale of
any Notes will be used to finance a Hostile Tender Offer.
8M. Subordination. All indebtedness identified as "Patronage
refund certificates payable" on the Company's most recently furnished
balance sheet is effectively subordinated to the Notes pursuant to
subordination language identical to that set forth in Exhibit F hereto,
which language appears on all certificates evidencing such indebtedness.
The subordination language set forth in Exhibit F hereto effectively
subordinates to the Notes all indebtedness evidenced by instruments bearing
such language.
8N. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished by or on behalf of the Company in
connection herewith or in connection with the issuance of the Notes
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact peculiar to the Company or
any of its Subsidiaries which materially adversely affects or in the future
would (so far as the Company can now foresee) materially adversely affect
the business, property or assets or financial condition of the Company or
any of its Subsidiaries and which has not been set forth in this Agreement
or in other documents, certificates and statements furnished in connection
herewith by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. Nature of Purchase. Such Purchaser is not acquiring the
Notes purchased by it hereunder with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities Act,
provided that the disposition of such Purchaser's property shall at all
times be and remain within its control.
9B. Source of Funds. The source of funds being used by each
Purchaser to pay the purchase price of the Notes being purchased by each
Purchaser hereunder constitutes assets allocated to the "insurance company
general account" of each Purchaser (as such term is defined under Section V
of the United States Department of Labor's Prohibited Transaction Class
Exemption ("PTCE") 95-60), and as of the date of the purchase of the Notes
each Purchaser satisfies all of the applicable requirements for relief
under Sections I and IV of PTCE 95-60.
10. DEFINITIONS. For the purpose of this Agreement, the terms
defined in the text of any paragraph shall have the respective meanings
specified therein, and the following terms shall have the meanings
specified with respect thereto below:
10A. Yield-Maintenance Terms.
"American Cancellation Date" shall have the meaning specified in
paragraph 2B(8)(ii)(a).
23 -
"American Cancellation Fee" shall have the meaning specified in
paragraph 2B(8)(iii)(a)
"American Delayed Delivery Fee" shall have the meaning specified
in paragraph 2B(8)(ii)(a).
"American Dollars" or "$" shall mean and indicate the lawful
currency from time to time of United States of America.
"American Dollars Issuance Period" shall have the meaning
specified in paragraph 2B(2)(a).
"American Dollar Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note denominated in American Dollars, the yield
to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York
City time) on the Business Day preceding the Settlement Date with respect
to such Called Principal, on the display designated as "Page 678" on the
Telerate Service (or such other display as may replace page 678 on the
Telerate Service) for actively traded US Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or if such yields shall not be reported as of such
time or the yields reported as of such time shall not be ascertainable,
(ii) the Treasury Constant Maturity Series yields reported, for the latest
day for which such yields shall have been so reported as of the Business
Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded US Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting US Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between yields reported for various
maturities.
"Called Principal" shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4C (any
partial prepayment being applied in satisfaction of required payments of
principal in inverse order of their scheduled due dates) or is declared to
be immediately due and payable pursuant to paragraph 7A, as the context
requires.
"Canadian Cancellation Date" shall have the meaning specified in
paragraph 2(B)(8)(iii)(b).
"Canadian Cancellation Fee" shall have the meaning specified in
paragraph 2(B)(8)(iii)(b).
"Canadian Delayed Delivery Fee" shall have the meaning specified
in paragraph 2B(8)(ii)(b).
"Canadian Dollars" or "C$" shall mean and indicate the lawful
currency from time to time of Canada.
24 -
"Canadian Dollars Equivalent" shall mean the principal amount of Notes
specified by the Company in a Request for Purchase (expressed in American
Dollars), converted into Canadian Dollars at the rate of exchange
determined by Prudential at the time the Company accepts the relevant
Quotation pursuant to paragraph 2B(5).
"Canadian Dollars Issuance Period" shall have the meaning
specified in paragraph 2B(2)(b).
"Canadian Dollar Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note denominated in Canadian Dollars, (i) (a)
the rate (as reported on "Page 40950" of the Telerate Service) for actively
traded Canadian Government Bonds or (b) in the event that such Called
Principal is less than 1 year, the rate (as reported on "Page 3190" of the
Telerate Service) for Canadian Bankers Acceptances, in each case having an
interpolated final maturity approximating the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such rates shall
not be reported as of such time or the rates reported as of such time shall
not be ascertainable, (ii) the average of rates reported by three
Recognized Market Makers in such securities as of the Business Day next
preceding the Settlement Date with respect to such Called Principal, for
actively traded Canadian Government Bonds having a constant maturity equal
to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if necessary, by
interpolating linearly between yields reported for various maturities.
"Cancellation Date" shall have the meaning specified in paragraph
2B(8)(iii)(b).
"Cancellation Fee" shall have the meaning specified in paragraph
2B(8)(iii)(b).
"Delayed Delivery Fee" shall have the meaning specified in
paragraph 2B(8)(ii)(b).
"Discounted Value" shall mean, with respect to the Called
Principal of any Note denominated in American Dollars, the amount obtained
by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date
with respect to such Called Principal, in accordance with accepted
financial practice and at a discount factor applied on the same periodic
basis as that on which interest on such Note is payable equal to the
American Dollar Reinvestment Yield (in the case of Notes denominated in
American Dollars) or the Canadian Dollar Reinvestment Yield (in the case of
Notes denominated in Canadian Dollars) with respect to such Called
Principal.
"Issuance Fee" shall have the meaning specified in paragraph
2B(9)(i).
"Issuance Period" shall have the meaning specified in paragraph
2B(2).
"Overnight Investment Rate" shall mean the actual rate of
interest, if any, received by Prudential on the overnight deposit of the
Canadian Dollar funds designated
25 -
for the purchase of the Notes, it being agreed by Prudential that
reasonable efforts will be made by or on behalf of Prudential to make such
deposit in an interest bearing account.
"Rate of Interest" shall mean the Canadian Dollar rate of
interest as determined by Prudential based on the swap conversion of the US
dollar rate of interest applicable to the Notes as agreed to by Prudential
and the Company in connection with fixing the US coupon on the Notes.
"Recognized Market Makers" shall mean, two nationally recognized
dealers of United Kingdom gilt-edged securities, as determined by
Prudential.
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest one-
twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled
Payment of such Called Principal (but not of interest thereon) by (b) the
number of years (calculated to the nearest one-twelfth year) which will
elapse between the Settlement Date with respect to such Called Principal
and the scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due on or after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the Called
Principal of any Note, the date on which such Called Principal is to be
prepaid pursuant to paragraph 4C or is declared to be immediately due and
payable pursuant to paragraph 7A, as the context requires.
"Yield-Maintenance Amount" shall mean, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the
Called Principal of such Note over the sum of (i) such Called Principal
plus (ii) interest accrued thereon as of (including interest due on) the
Settlement Date with respect to such Called Principal. The Yield-
Maintenance Amount shall in no event be less than zero.
10B. Other Terms.
"Acceptance" shall have the meaning specified in paragraph
2B(5).
"Acceptance Day" shall have the meaning specified in paragraph
2B(5).
"Acceptance Window" shall have the meaning specified in
paragraph 2B(5).
"Accepted Note" shall have the meaning specified in paragraph
2B(5).
- 26 -
"Adjusted Net Earnings" shall mean Consolidated Net Earning plus
amounts deducted in the calculation thereof for depreciation, amortization,
interest expense, and lease expense.
"Affiliate" shall mean any Person directly or indirectly
controlling, controlled by, or under direct or indirect common control
with, the Company, except a Subsidiary. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
such corporation, whether through the ownership of voting securities, by
contract or otherwise.
"Authorized Officer" shall mean (i) in the case of the Company,
its chief executive officer, its chief financial officer, any vice
president of the Company designated as an "Authorized Officer" of the
Company in the Information Schedule attached hereto or any vice president
of the Company designated as an "Authorized Officer" of the Company for the
purpose of this Agreement in an Officer's Certificate executed by the
Company's chief executive officer or chief financial officer and delivered
to Prudential, and (ii) in the case of Prudential, any officer of
Prudential designated as its "Authorized Officer" in the Information
Schedule or any officer of Prudential designated as its "Authorized
Officer" for the purpose of this Agreement in a certificate executed by one
of its Authorized Officers. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the
Company at the time of such action shall be binding on the Company even
though such individual shall have ceased to be an Authorized Officer of the
Company, and any action taken under this Agreement on behalf of Prudential
by any individual who on or after the date of this Agreement shall have
been an Authorized Officer of Prudential and whom the Company in good faith
believes to be an Authorized Officer of Prudential at the time of such
action shall be binding on Prudential even though such individual shall
have ceased to be an Authorized Officer of Prudential.
"Available Facility Amount" shall have the meaning specified in
paragraph 2B(1).
"Bankruptcy Law" shall have the meaning specified in clause
(viii) of paragraph 7A-
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which commercial banks in New York City are required or
authorized to be closed.
'Capitalized Lease Obligation" shall mean any rental obligation
which, under generally accepted accounting principles, is or will be
required to be capitalized on the books of the Company or any Subsidiary,
taken at the amount thereof accounted for as indebtedness (net of interest
expenses) in accordance with such principles.
"Closing Day" shall mean, with respect to the Series A Notes, the
Series A Closing Day and, with respect to any Accepted Note, the Business
Day specified for the
- 27 -
closing of the purchase and sale of such Accepted Note in the Request for
Purchase of such Accepted Note, provided that (i) if the Company and the
Purchaser which is obligated to purchase such Accepted Note agree on an
earlier Business Day for such closing, the "Closing Day" for such Accepted
Note shall be such earlier Business Day, and (ii) if the closing of the
purchase and sale of such Accepted Note is rescheduled pursuant to
paragraph 2B(7), the Closing Day for such Accepted Note, for all purposes
of this Agreement except references to "original Closing Day" in paragraph
2B(8)(ii), shall mean the Rescheduled Closing Day with respect to such
Accepted Note.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning specified in the introductory
paragraph of this Agreement.
"Confidential Information" shall mean any written information
delivered or made available by or on behalf of the Company or any
Subsidiary to a Purchaser or a Transferee (as the case may be), including
without limitation any non-public information obtained pursuant to
paragraph 5A or 5B, in connection with or pursuant to this Agreement which
is proprietary in nature and clearly marked or labeled as being
confidential information, but in no event shall include information (i)
which was publicly known or otherwise known to such Purchaser or Transferee
(as the case may be) at the time of disclosure (except pursuant to
disclosure in connection with this Agreement), (ii) which subsequently
becomes publicly known through no act or omission by such Purchaser or
Transferee (as the case may be), or (iii) which otherwise becomes known to
such Purchaser or Transferee, other than through disclosure by the Company.
"Confirmation of Acceptance" shall have the meaning specified in
paragraph 2B(5).
"Consolidated Funded Debt" shall mean, as of the time of any
determination, the sum of (i) all Funded Debt of the Company and
Subsidiaries determined on a consolidated basis and (ii) all Funded Debt of
the Company owed to Subsidiaries.
"Consolidated Net Earnings" shall mean:
(i) consolidated gross revenues of the Company and its
Subsidiaries less
(ii) all operating and non-operating expenses of the
Company and its Subsidiaries including all charges of a proper
character (including current and deferred taxes on income,
provision for taxes on unremitted foreign earning which are
included in gross revenues, and current additions to reserves),
but not including in gross revenues:
28 -
(a) any gains (net of expenses and taxes applicable
thereto) in excess of losses resulting from the sale,
conversion or other disposition of capital assets (i.e.,
assets other than current assets);
(b) any gains resulting from
the write-up of assets;
(c) any equity of the Company or any Subsidiary in the
unremitted earnings of any corporation which is not a
Subsidiary;
(d) any earnings of any Person acquired by the Company
or any Subsidiary through purchase, merger or consolidation
or otherwise for any period prior to the date of
acquisition; or
(e) any deferred credit representing the excess of
equity in any Subsidiary at the date of acquisition over the
cost of the investment in such Subsidiary;
all determined in accordance with generally accepted accounting principles.
"Consolidated Net Worth" shall mean, as of the time of any
determination, the sum of (i) Patronage Indebtedness, and (ii) Member
Dealers' Equity.
"Current Debt' shall mean any obligation for borrowed money (and
any notes payable and drafts accepted representing extensions of credit
whether or not representing obligations of borrowed money) payable on
demand or within a period of one year from the date of the creation
thereof; provided that any obligation shall be treated as Funded Debt,
regardless of its term, if such obligation is renewable at the sole option
of the Company pursuant to the terms thereof or of a revolving credit or
similar agreement effective for more than one year after the date of the
creation of such obligation, or may be payable out of the proceeds of a
similar obligation pursuant to the terms of such obligation or of any such
agreement. Any obligation secured by a Lien on, or payable out of the
proceeds of production from, property of the Company or any Subsidiary
shall be deemed to be Funded or Current Debt, as the case may be, of the
Company or such Subsidiary even though such obligation shall not be assumed
by the Company or such Subsidiary.
"Debt" shall mean Current Debt and Funded Debt.
"Environmental Laws" shall mean all federal, state, local and
foreign laws relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment (including without
limitation ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any
and all regulations, codes, plans, orders,
- 29
decrees, judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any corporation which is a member of
the same controlled group of corporations as the Company within the meaning
of section 414(b) of the Code, or any trade or business which is under
common control with the Company within the meaning of section 414(c) of the
Code.
"Event of Default" shall mean any of the events specified in
paragraph 7A, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time,
or the happening of any further condition, event or act, and "Default"
shall mean any of such events, whether or not any such requirement has been
satisfied.
"Facility" shall have the meaning specified in paragraph 2B(l).
"Funded Debt" shall mean and include without duplication,
(i) any obligation payable more than one year from the
date of creation thereof, which under generally accepted
accounting principles is shown on the balance sheet as a
liability, including Capitalized Lease Obligations,
(ii) indebtedness payable more than one year form the date
of creation thereof which is secured by any Lien on property
owned by the Company or any Subsidiary, whether or not the
indebtedness secured thereby shall have been assumed by the
Company or such Subsidiary,
(iii) guarantees, endorsements (other than endorsements
of negotiable instruments for collection in the ordinary course
of business) and other contingent liabilities (whether direct or
indirect) in connection with the obligations, stock or dividends
of any Person,
(iv) obligations under any other contract which, in
economic effect, is substantially equivalent to a guarantee, and
(v) any obligation which, regardless of its term, is
renewable pursuant to the terms thereof or of a revolving credit
or similar agreement effective for more than one year after the
creation of such obligation, or may be payable out of the
proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement;
all as determined in accordance with generally accepted accounting
principles; provided, however, that Funded Debt shall not include Patronage
Indebtedness or up to $35,000,000 of contingent recourse obligations of the
Company incurred in connection with its sale from time to time of notes
receivable due from the Company's dealers.
- 30 -
"Hostile Tender Offer" shall mean, with respect to the use of
proceeds of any Note, any offer to purchase, or any purchase of, shares of
capital stock of any corporation or equity interests in any other entity,
or securities convertible into or representing the beneficial ownership of,
or rights to acquire, any such shares or equity interests, if such shares,
equity interests, securities or rights are of a class which is publicly
traded on any securities exchange or in any over-the-counter market, other
than purchases of such shares, equity interests, securities or rights
representing less than 5% of the equity interests or beneficial ownership
of such corporation or other entity for portfolio investment purposes, and
such offer or purchase has not been duly approved by the board of directors
of such corporation or the equivalent governing body of such other entity
prior to the date on which the Company makes the Request for Purchase of
such Note.
"Institutional Investor" shall mean any insurance company,
pension fund, mutual fund, investment company, bank, savings bank, savings
and loan association, investment banking company, trust company, or any
finance or credit company, any portfolio or any investment fund managed by
any of the foregoing, or any other institutional investor, and any nominee
of the foregoing.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including
any agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction) or any other type of preferential
arrangement for the purpose, or having the effect, of protecting a creditor
against loss or securing the payment or performance of an obligation.
"Member Dealers' Equity" shall mean, as of the time of any
determination, the total of (i) the par value (or stated value on the books
of the Company) of the capital stock of all classes of the Company, plus
(or minus in the case of a surplus deficit) (ii) the amount of the
consolidated surplus, whether capital or earned, of the Company and its
Subsidiaries; provided that in no event shall amounts attributable to
treasury stock be included in Member Dealers' Equity.
"Multiemployer Plan" shall mean any Plan which is a
"Multiemployer plan" (as such term is defined in section 4001(a)(3) of
ERISA.
"1991 Agreement Notes" shall mean the notes of the Company issued
pursuant to the Note Purchase and Private Shelf Agreement dated as of
September 27, 1991 between the Company and Prudential, as amended from time
to time.
"Note" and "Notes" shall have the meaning specified in paragraph
1B.
"Officer's Certificate" shall mean a certificate signed in the
name of the Company by an Authorized Officer of the Company.
"Patronage Indebtedness" shall mean subordinated indebtedness of
the Company issued to its members as all or part of a patronage dividend
and evidenced by
- 31 -
a certificate bearing subordination language identical to that set forth in
Exhibit F hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and
any entity succeeding to any of its functions under ERISA.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Plan" shall mean any employee pension benefit plan (as such term
is defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any ERISA Affiliate.
"Price Increase" shall have the meaning specified in paragraph
2B(8)(iii)(a).
"Prudential" shall mean The Prudential Insurance Company of
America.
"Prudential Affiliate" shall mean any corporation or other entity
all of the Voting Stock (or equivalent voting securities or interests) of
which is owned by Prudential either directly or through Prudential
Affiliates.
"Purchasers" shall mean Prudential with respect to the Series A
Notes and, with respect to any Accepted Notes, Prudential and/or the
Prudential Affiliate(s), which are purchasing such Accepted Notes.
"Request for Purchase" shall have the meaning specified in
paragraph 2B(3).
"Required Holder(s)" shall mean the holder or holders of at least
51% of the aggregate principal amount of the Notes or of a Series of Notes,
as the context may require, from time to time outstanding.
"Rescheduled Closing Day" shall have the meaning specified in
paragraph 2B(7).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series" shall have the meaning specified in paragraph 1B.
"Series A Closing Day" shall have the meaning specified in
paragraph 2A.
"Series A Note(s)" shall have the meaning specified in paragraph
1A.
"Significant Holder" shall mean (i) Prudential and any other
Purchaser, so long as Prudential, any Prudential Affiliate or such
Purchaser shall hold (or be committed under this Agreement to purchase) any
Note, or (ii) any other holder of at
- 32 -
least 5% of the aggregate principal amount of the Notes of any Series from
time to time outstanding.
"Subsidiary" shall mean any corporation shall, at the time as of
which any determination is being made, be owned by the Company either
directly or through Subsidiaries.
"Substantial Part" shall mean (i) in the context of the
consolidated assets of the Company and its Subsidiaries, assets which
constitute 10% or more thereof and (ii) in the context of assets'
contribution to Consolidated Net Earnings, assets which contributed 15% or
more thereof
"Substantial Stockholder" shall mean (i) any Person owning,
beneficially or of record, directly or indirectly, either individually or
together with all other Persons to whom such Person is related by blood,
adoption or marriage, stock of the Company (of any class having ordinary
voting power for the election of directors) aggregating 5% or more of such
voting power or (ii) any person related by blood, adoption or marriage to
any Person described or coming within the provisions of clause (i) of this
paragraph.
"Total Capitalization" shall mean, as of the time of any
determination, the sum of (i) Consolidated Net Worth and (ii) Consolidated
Funded Debt.
'Transferee" shall mean any direct or indirect transferee of all
or any part of any Note purchased by any Purchaser under this Agreement.
'Voting Stock" shall mean, with respect to any corporation, any
shares of stock of such corporation whose holders are entitled under
ordinary circumstances to vote for the election of directors of such
corporation (irrespective of whether at the time stock of any other class
or classes shall have or might have voting power by reason of the happening
of any contingency).
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of,
interest on, and any Yield-Maintenance Amount payable with respect to, such
Note, which comply with the terms of this Agreement, by wire transfer of
immediately available funds for credit (not later than 12:00 noon, New York
City local time, on the date due) to (i) the account or accounts of such
Purchaser specified in the Purchaser Schedule attached hereto in the case
of any Series A Note, (ii) the account or accounts of such Purchaser
specified in the Confirmation of Acceptance with respect to such Note in
the case of any Shelf Note or (iii) such other account or accounts in the
United States as such Purchaser may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect
to the place of payment. Each Purchaser agrees that, before disposing of
any Note, it will make a notation thereon (or on a schedule attached
thereto) of all principal payments previously made thereon and of the date
to which interest thereon has been paid. The Company agrees to afford the
benefits of this paragraph 11A to any
- 33 -
Transferee which shall have made the same agreement as the Purchasers have
made in this paragraph 11A.
11B. Expenses. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save
Prudential, each Purchaser and any Transferee harmless against liability
for the payment of, all out-of-pocket expenses arising in connection with
such transactions, including (i) all document production and duplication
charges and the fees and expenses of any special counsel engaged by the
Purchasers or any Transferee in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification
requested by the Company of, or proposed consent under, this Agreement,
whether or not such proposed modification shall be effected or proposed
consent granted, and (ii) the costs and expenses, including attorneys'
fees, incurred by any Purchaser or any Transferee in enforcing (or
determining whether or how to enforce) any rights under this Agreement or
the Notes or in responding to any subpoena or other legal process issued in
connection with this Agreement or the transactions contemplated hereby or
by reason of any Purchaser's or any Transferee's having acquired any Note,
including without limitation costs and expenses incurred in any bankruptcy
case. Notwithstanding the foregoing, the Company shall not be obligated to
reimburse a Purchaser or any transferee for expenses incurred in connection
with the sale or transfer of a Note. The obligations of the Company under
this paragraph 11B shall survive the transfer of any Note or portion
thereof or interest therein by any Purchaser or any Transferee and the
payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the
Required Holder(s) of the Notes of each Series except that, (i) with the
written consent of the holders of all Notes of a particular Series, and if
an Event of Default shall have occurred and be continuing, of the holders
of all Notes of all Series, at the time outstanding (and not without such
written consents), the Notes of such Series may be amended or the
provisions thereof waived to change the maturity thereof, to change or
affect the principal thereof, or to change or affect the rate or time of
payment of interest on or any Yield-Maintenance Amount payable with respect
to the Notes of such Series, (ii) without the written consent of the holder
or holders of all Notes at the time outstanding, no amendment to or waiver
of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes of any Series, or the
rights of any individual holder of Notes, required with respect to any
declaration of Notes to be due and payable or with respect to any consent,
amendment, waiver or declaration, (iii) with the written consent of
Prudential (and not without the written consent of Prudential) the
provisions of paragraph 2B may be amended or waived (except insofar as any
such amendment or waiver would affect any rights or obligations with
respect to the purchase and sale of Notes which shall have become Accepted
Notes prior to such amendment or waiver), and (iv) with the written consent
of all of the Purchasers which shall have become obligated to purchase
Accepted Notes of any Series (and not without the written consent of all
such Purchasers), any of the provisions of paragraphs 2 and 3 may be
amended or
- 34 -
waived insofar as such amendment or waiver would affect only rights or
obligations with respect to the purchase and sale of the Accepted Notes of
such Series or the terms and provisions of such Accepted Notes. Each
holder of any Note at the time or thereafter outstanding shall be bound by
any consent authorized by this paragraph 11C, whether or not such Note
shall have been marked to indicate such consent, but any Notes issued
thereafter may bear a notation referring to any such consent. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver
of any rights of any holder of such Note. As used herein and in the Notes,
the term "this Agreement" and references thereto shall mean this Agreement
as it may from time to time be amended Or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost
Notes. The Notes are issuable as registered notes without coupons in
denominations of at least $1,000,000, except as may be necessary to reflect
any principal amount not evenly divisible by $1,000,000. The Company shall
keep at its principal office a register in which the Company shall provide
for the registration of Notes and of transfers of Notes. Upon surrender
for registration of transfer of any Note at the principal office of the
Company, the Company shall, at its expense, execute and deliver one or more
new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. At the option of
the holder of any Note, such Note may be exchanged for other Notes of like
tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office
of the Company. Whenever any Notes are so surrendered for exchange, the
Company shall, at its expense, execute arid deliver the Notes which the
holder making the exchange is entitled to receive. Each installment of
principal payable on each installment date upon each new Note issued upon
any such transfer or exchange shall be in the same proportion to the unpaid
principal amount of such new Note as the installment of principal payable
on such date on the Note surrendered for registration of transfer or
exchange bore to the unpaid principal amount of such Note. No reference
need be made in any such new Note to any installment or installments of
principal previously due and paid upon the Note surrendered for
registration of transfer or exchange. Every Note surrendered for
registration of transfer or exchange shall be duly endorsed, or be
accompanied by a written instrument of transfer duly executed, by the
holder of such Note or such holder's attorney duly authorized in writing.
Any Note or Notes issued in exchange for any Note or upon transfer thereof
shall carry the rights to unpaid interest and interest to accrue which were
carried by the Note so exchanged or transferred, so that neither gain nor
loss of interest shall result from any such transfer or exchange. Upon
receipt of written notice from the holder of any Note of the loss, theft,
destruction or mutilation of such Note and, in the case of any such loss,
theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
Notwithstanding anything to the contrary herein, each Purchaser agrees, and
each Transferee by its acceptance of an interest in any Note agrees, that
no Note (or any interest therein) shall be transferred to any Person which
is not an Institutional Investor.
35 -
11E. Persons Deemed Owners; Participations. Prior to due presentment
for registration of transfer, the Company may treat the Person in whose name
any Note is registered as the owner and holder of such Note for the purpose
of receiving payment of principal of and interest on, and any Yield-
Maintenance Amount payable with respect to, such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Note may from time to time grant
participations in all or any part of such Note to any Person on such terms
and conditions as may be determined by such holder in its sole and absolute
discretion.
11F. Survival of Representations and Warranties; Entire
Agreement. All representations and warranties contained herein or made in
writing by or on behalf of the Company in connection herewith shall survive
the execution and delivery of this Agreement and the Notes, the transfer by
any Purchaser of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any Transferee, regardless
of any investigation made at any time by or on behalf of any Purchaser or
any Transferee. Subject to the preceding sentence, this Agreement and the
Notes embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.
11G. Successors and Assigns. All covenants and other agreements
in this Agreement contained by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto (including, without limitation, any
Transferee) whether so expressed or not; provided, however, that the
Company may not assign its rights or obligations hereunder to any Person.
11H. Disclosure to Other Persons. Each Purchaser agrees (and
each Transferee by its acceptance of an interest in any Note agrees) to use
its best efforts to hold in confidence and not disclose any Confidential
Information; provided that nothing herein shall prevent the holder of any
Note from delivering copies of any financial statements and other documents
delivered to such holder, and disclosing any other information disclosed to
such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors,
officers, employees, agents and professional consultants, (ii) any other
holder of any Note, (iii) any Person to which such holder offers to sell
such Note or any part thereof, (iv) any Person to which such holder sells
or offers to sell a participation in all or any part of such Note, (v) any
federal or state regulatory authority having jurisdiction over such holder,
(vi) the National Association of Insurance Commissioners or any similar
organization or (vii) any other Person to which such delivery or disclosure
may be necessary or appropriate (a) to effect compliance with any law,
rule, regulation or order applicable to such holder, (b) in response to any
subpoena or other legal process, (c) in connection with any litigation to
which such holder is a party or (d) in order to protect such holder's
investment in such Note.
11I. Notices. All written communications provided for hereunder
(other than communications provided for under paragraph 2) shall be sent by
first class mail or nationwide overnight delivery service (with charges
prepaid) and (i) if to any Purchaser,
- 36 -
addressed as specified for such communications in the Purchaser Schedule
attached hereto (in the case of the Series A Notes) or the Purchaser Schedule
attached to the applicable Confirmation of Acceptance (in the case of any
Shelf Notes) or at such other address as any such Purchaser shall have
specified to the Company in writing, (ii) if to
any other holder of any Note, addressed to it at such address as it shall
have specified in writing to the Company or, if any such holder shall not
have so specified an address, then addressed to such holder in care of the
last holder of such Note which shall have so specified an address to the
Company and (iii) if to the Company, addressed to it at Ace Hardware
Corporation, 2200 Kensington Court, Oak Brook, Illinois 60521, Attention:
Treasurer, provided, however, that any such communication to the Company
may also, at the option of the Person sending such communication, be
delivered by any other means either to the Company at its address specified
above or to any Authorized Officer of the Company. Any communication
pursuant to paragraph 2 shall be made by the method specified for such
communication in paragraph 2, and shall be effective to create any rights
or obligations under this Agreement only if, in the case of a telephone
communication, an Authorized Officer of the party conveying the information
and of the party receiving the information are parties to the telephone
call, and in the case of a telecopier communication, the communication is
signed by an Authorized Officer of the party conveying the information,
addressed to the attention of an Authorized Officer of the party receiving
the information, and in fact received at the telecopier terminal the number
of which is listed for the party receiving the communication in the
Information Schedule or at such other telecopier terminal as the party
receiving the information shall have specified in writing to the party
sending such information.
11J. Descriptive Headings, The descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
11K. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, to any holder of
Notes or to the Required Holder(s), the determination of such satisfaction
shall be made by such Purchaser, such holder or the Required Holder(s), as
the case may be, in the sole and exclusive judgment (exercised in good
faith) of the Person or Persons making such determination.
11L. Accounting Terms and Determinations. All references in this
Agreement to "generally accepted accounting principles" shall be deemed to
refer to generally accepted accounting principles in effect in the United
States at the time of application thereof, subject to the next sentence.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all determinations with respect to accounting matters
hereunder shall be made, and all financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles,
applied on a basis consistent with the audited consolidated financial
statements of the Company and its Subsidiaries delivered pursuant to clause
(ii) of paragraph 5A.
11M. Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or interest on,
- 37 -
or Yield-Maintenance Amount payable with respect to, any Note that is due
on a date other than a Business Day shall be made on the succeeding
Business Day. If the date for any payment is extended to the succeeding
Business Day by reason of the preceding sentence, the period of such
extension shall be included in the computation of the interest payable on
such Business Day.
11N. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE INTERNAL LAW OF THE STATE OF ILLINOIS.
11O. Counterparts. This Agreement may be executed in any
number of counter-parts, each of which shall be an original, but all of
which together shall constitute one instrument.
38 -
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same
to the Company, whereupon this letter shall become a binding agreement
between you and the Company.
Very truly yours,
ACE HARDWARE
CORPORATION
By:
Name: Gary A. Hunt
Title: Treasurer
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
Vice President
38 -
EXHIBIT A-1
[FORM OF SERIES A NOTE]
ACE HARDWARE CORPORATION
6.47% SENIOR SERIES A NOTE DUE JUNE 22, 2008
No. [Date]
$
FOR VALUE RECEIVED, the undersigned, ACE HARDWARE CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws
of the State of Delaware, hereby promises to pay to or registered assigns, the
principal sum of DOLLARS on June 22, 2008, with interest
(computed on the basis of a 360-day year--30-day month) (a) on the unpaid
balance thereof at the rate of % per annum from the date hereof, payable
quarterly on the day of February, May, August and November in each year,
commencing with the February, May, August or November next succeeding the
date hereof, until the principal hereof shall have become due and payable,
and (b) on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of Yield Maintenance Amount and any overdue
payment of interest, payable quarterly as aforesaid (or, at the option of
the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) -% or (ii) 2% over the rate of interest
publicly announced by Morgan Guaranty Trust Company of New York from time
to time in New York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Morgan Guaranty Trust Company of New
York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States
of America.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Note Purchase and Private Shelf Agreement,
dated as of September 22, 1993 (herein called the "Agreement"), between the
Company, on the one hand, and The Prudential Insurance Company of America
and each Prudential Affiliate which becomes party thereto, on the other
hand, and is entitled to the benefits thereof. As provided in the
Agreement, this Note is subject to prepayment, in whole or from time to
time in part, in certain cases without Yield Maintenance Amount and in
other cases with the Yield Maintenance Amount specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for the then outstanding principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person
in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
The Company agrees to make prepayments of principal of this Note on
the dates and in the amounts specified in the Agreement.
In case an Event of Default as defined in the Agreement, shall occur
and be continuing, the principal of this Note may be declared or otherwise
become due and payable in the manner and with the effect provided in the
Agreement.
This Note is intended to be performed in the State of Illinois and
shall be construed and enforced in accordance with the internal law of such
State.
ACE HARDWARE CORPORATION
By:
Title:
EXHIBIT A-2
[FORM OF SHELF NOTE]
ACE HARDWARE CORPORATION
SENIOR SERIES NOTE
No.
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES-
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, ACE HARDWARE CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws
of the State of Delaware, hereby promises to pay to , or registered
assigns, the principal sum of DOLLARS [on the Final Maturity
Datespecified above, payable on the Principal Prepayment Dates and
in the amounts specified above, and on the Final Maturity Date
specified above in an amount equal to the unpaid balance of
the principal hereof,] with interest (computed on the basis of a
360-day year--30-day month) (a) on the unpaid balance thereof at the
Interest Rate per annum specified above, payable on each Interest Payment
Date specified above and on the Final Maturity Date specified above,
commencing with the Interest Payment Date next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal, any
overdue payment of Yield Maintenance Amount and any overdue payment of
interest, payable on each Interest Payment Date as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 2% over the Interest Rate
specified above or (ii) the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York from time to time in New York City as
its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Morgan Guaranty Trust Company of New
York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States
of America.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Resated Note Purchase and
Private Shelf Agreement, dated as of August 23, 1996 (herein called the
"Agreement"), between the Company, on the one hand, and The Prudential
Insurance Company of America and each Prudential Affiliate (as defined in
the Agreement) which becomes party thereto, on the other hand, and is
entitled to the benefits thereof.
The Company agrees to make principal payments of this Note on the
Principal Installment Dates (if any) specified above. This Note is subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for the then outstanding principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person
in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable
in the manner and with the effect provided in the Agreement.
This Note is intended to be performed in the State of Illinois and
shall be construed and enforced in accordance with the internal law of such
State.
ACE HARDWARE CORPORATION
By:
Name:
Title:
EXHIBIT A-3
[FORM OF SHELF NOTE]
ACE HARDWARE CORPORATION
SENIOR SERIES NOTE
No.
ORIGINAL PRINCIPAL AMOUNT: C$
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, ACE HARDWARE CORPORATION (herein
called the "Company"), a corporation organized and existing under the laws
of the State of Delaware, hereby promises to pay to , or
registered assigns, the principal sum of CANADIAN DOLLARS
[on the Final Maturity Date specified above],[payable on
the Principal Prepayment Dates and in the amounts specified above, and on
the Final Maturity Date specified above in an amount equal to the unpaid
balance of the principal hereof,] with interest (computed on the basis of a
360-day year --30-day month) (a) on the unpaid balance thereof at the
Interest Rate per annum specified above, payable on each Interest Payment
Date specified above and on the Final Maturity Date specified above,
commencing with the Interest Payment Date next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) on
any overdue payment (including any overdue prepayment) of principal, any
overdue payment of Yield Maintenance Amount and any overdue payment of
interest, payable on each Interest Payment Date as aforesaid (or, at the
option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 2% over the Interest Rate
specified above or (ii) the rate.
Payments of principal, Yield Maintenance Amount, if any, and interest
are to be made at the main office of Morgan Guaranty Trust Company of New
York in [Toronto/New York City] or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of Canada.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to an Amended and Restated Note Purchase and
Private Shelf Agreement, dated as of August 23, 1996 (herein called the
"Agreement"), between the Company, on the one hand, and The Prudential
Insurance Company of America and each Prudential Affiliate (as defined in
the Agreement) which becomes party thereto, on the other hand, and is
entitled to the benefits thereof.
The Company agrees to make principal payments of this Note on the
Principal Installment Dates (if any) specified above. This Note is subject
to optional prepayment, in whole or from time to time in part, on the terms
specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for the then outstanding principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person
in whose name this Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the
principal of this Note may be declared or otherwise become due and payable
in the manner and with the effect provided in the Agreement.
This Note is intended to be performed in the State of Illinois and
shall be construed and enforced in accordance with the internal law of such
State.
ACE HARDWARE CORPORATION
By:
EXHIBIT C
[FORM OF CONFIRMATION OF ACCEPTANCE]
ACE HARDWARE CORPORATION
Reference is made to the Note Purchase and Private Shelf Agreement
(the "Agreement"), dated as of September 22, 1993, and as amended and
restated as of August 23,1996 between ACE HARDWARE CORPORATION (the
"Company"), on the one hand, and The Prudential Insurance Company of
America ("Prudential") and each Prudential Affiliate which becomes party
thereto, on the other hand. All terms used herein that are defined in the
Agreement have the respective meanings specified in the Agreement.
Prudential or the Prudential Affiliate which is named below as a
Purchaser of Notes hereby confirms the representations as to such Notes set
forth in paragraph 9 of the Agreement, and agrees to be bound by the
provisions of paragraphs 2B(5) and 2B(7) of the Agreement relating to the
purchase and sale of such Notes and by the provisions of the penultimate
sentence of paragraph I 1A of the Agreement.
Pursuant to paragraph 2B(5) of the Agreement, an Acceptance with
respect to the following Accepted Notes is hereby confirmed:
1. Accepted Notes: Aggregate principal
amount $ or C $
(A) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts-.
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on
attached
Purchaser Schedule
(B) (a) Name of Purchaser:
(b) Principal amount:
(c) Final maturity date:
(d) Principal prepayment dates and amounts:
(e) Interest rate:
(f) Interest payment period:
(g) Payment and notice instructions: As set forth on
attached Purchaser Schedule
(C), (D)..... same information as above.]
C - I
II. Closing Day:
111. Currency Exchange Rate
Dated: ACE HARDWARE CORPORATION
By:
Title:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
Vice President
[PRUDENTIAL AFFILIATE]
By:
Vice President
C - 2
EXHIBIT D-1
[FORM OF OPINION OF COMPANY'S COUNSEL]
[Date of Closing]
[Name(s) and addressees) of
purchaser(s)]
Ladies and Gentlemen:
I have acted as counsel for Ace Hardware Corporation (the "Company")
in connection (the "Company"), with the Note Purchase and Private Shelf
Agreement, dated as of September 22, 1993, as amended and restated as of
August 23, 1996 (the "Agreement") between the Company, on the one hand, and
The Prudential Insurance Company of America and each Prudential Affiliate
which becomes a party thereto, on the other hand, pursuant to which the
Company has issued to you today Senior Series
Notes of the Company in the aggregate principal amount of $
(the "Notes"). Capitalized terms used and not otherwise defined herein
shall have the meanings provided in the Agreement. This letter is being
delivered to you in satisfaction of the condition set forth in paragraph
3A(2) of the Agreement and with the understanding that you are purchasing
the Notes in reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public
officials, certificates of officers of the Company and copies certified to
my satisfaction of corporate documents and records of the Company and of
other papers, and have made such other investigations, as I have deemed
relevant and necessary as a basis for my opinion hereinafter set forth. I
have relied upon such certificates of public officials and of officers of
the Company with respect to the accuracy of material factual matters
contained therein which were not independently established. With respect
to the opinion expressed in paragraph 3 below, I have also relied upon the
representation made by you in paragraph 9A of the Agreement.
Based on the foregoing, it is my opinion that:
1. The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware. Each Subsidiary
is a corporation duly organized and validly existing in good standing under
the laws of its jurisdiction of incorporation. The Company and its
Subsidiaries have the corporate power to carry on their respective
businesses as now being conducted.
D - 2 - 1
2. The Agreement and the Notes have been duly authorized by all
requisite corporate action and duly executed and delivered by authorized
officers of the Company, and are valid obligations of the Company, legally
binding upon and enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and (b) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance,
sale and delivery of the Notes under the circumstances contemplated by the
Agreement to register the Notes under the Securities Act or to qualify an
indenture in respect of the Notes under the Trust Indenture Act of 1939, as
amended.
4. The extension, arranging and obtaining of the credit represented
by the Notes do not result in any violation of regulation G, T or X of the
Board of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the
offering, issuance and sale of the Notes and fulfillment of and compliance
with the respective provisions of the Agreement and the Notes do not
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in any violation of, or result
in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, or require any
authorization, consent, approval, exemption, or other action by or notice
to or filing with any court, administrative or governmental body or other
Person (other than routine filings after the date hereof with the
Securities and Exchange Commission and/or state Blue Sky authorities)
pursuant to, the charter or by-laws of the Company or any of its
Subsidiaries, any applicable law (including any securities or Blue Sky
law), statute, rule or regulation or (insofar as is known to me after
having made due inquiry with respect thereto) any agreement (including,
without limitation, any agreement listed in Exhibit E to the Agreement),
instrument, order, judgment or decree to which the Company or any of its
Subsidiaries is a party or otherwise subject.
6. The Note constitutes "other indebtedness" as that term is used in
the subordination language appearing in the Company's outstanding patronage
refund certificates (which subordination language is attached to the
Agreement as Exhibit F), and all indebtedness of the Company evidenced by
such certificates is subordinate to the Note as provided in such
certificates.
Very truly yours,
D - 2 - 2
EXHIBIT E
LIST OF AGREEMENTS LIMITING DEBT
AGREEMENT RESTRICTION
Bond Purchase Agreement, dated Not permit the ratio of Total Liabilities
December 22, 1981 between Anne to Net Worth to exceed 2.9 to 1.
ArundeL County, Maryland and Ace
Hardware Corporation and The Northern As of 8/31/93:
Trust Company Liabilities $462,245,000
Net Worth $182,257,000
Ratio 2.5 to 1.
Note Purchase and Private Shelf Consolidated Funded Debt shall at no
Agreement, dated September 27, 1991 time exceed 35% of Total Capitalization.
between Ace Hardware Corporation and
The Prudential Insurance Company of As of 8/31/93:
America Funded Debt $109,505,000
Total Capitalization $354,027,000
Percent 31%
D - 2 - 3
EXHIBIT F
This Certificate is subordinated to all the rights and claims of all
secured, general and bank creditors against Ace Hardware Corporation and no
payment hereon shall be made if, at the time of such proposed payment,
there exists a default in the payment of principal or interest on any
indebtedness secured by any mortgage now or hereafter made by Ace Hardware
Corporation or any other default under any such mortgage or any default in
payment of any other indebtedness now or hereafter incurred by Ace Hardware
Corporation until such default has been cured or waived, or if such
proposed payment would cause a default in any such mortgage or any other
indebtedness or result in the nonpayment thereof; and in the event of
foreclosure, if the property securing any such mortgage or other
indebtedness is sold pursuant to such proceedings or in lieu thereof, and a
lesser sum is realized than the amount due on such debt, this Certificate
is subordinate to any such deficiency and such deficiency on any such
mortgage or other indebtedness shall first be paid in full before any
payment hereon; and in the event of voluntary or involuntary liquidation of
Ace Hardware Corporation, or in any bankruptcy, reorganization, insolvency,
insolvency or receivership proceedings, such mortgage or such other
indebtedness shall first be paid in full before any payment hereon.
D - 2 - 4
PURCHASER SCHEDULE
Series B Notes
Ace Hardware Corporation
Aggregate
Principal
Amount of
Notes to be Note Denom-
Purchased ination(s)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA $20,000.000 $20,000,000
All payments on account of Notes held by such
purchaser shall be made by wire transfer of'
immediately available funds for credit to:
Account No. 050-54-526
Morgan Guaranty Trust Company of' New York
23 Wall Street
New York, New York 10015
(ABA No.: 021-000-238)
Each such wire transfer shall set forth the name
of the Company, a reference to "7.49% Series B
Senior Notes due June 15, 2011, Security No.
!INV4571!", and the due date and application
(as among principal, interest and Yield-Maintenance
Amount) of the payment being made.
2) Address for all notices relating to payments:
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
1OO Mulberry Street
Newark, New Jersey 07102
Attention: Investment Administration Unit
Telecopy: (201) 802-7551
Address for all other communications and notices:
The Prudential Insurance Company of American
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
Telecopy: (312) 540-4222
4) Recipient of telephonic repayment notices:
Manager, Asset Management Unit
Telephone: (201) 802-6429
Telecopy: (201) 802-7551
Recipient of telephonic prepayment notices:
Manager, Asset Management Unit
(201) 802-6429
6) Tax Identification No: 22-1211670
INFORMATION SCHEDULE
Authorized Officers for Prudential
Allen A. Weaver P. Scott von Fischer
Managing Director Senior Vice President
Prudential Capital Group Prudential Capital Group
Two Prudential Plaza Two Prudential Plaza
Suite 5600 Suite 5600
Chicago, Illinois 60601 Chicago, Illinois 60601
Telephone: (312) 540-4211 Telephone: (312) 540-4225
Facsimile: (312) 540-4222 Facsimile: (312) 540-4222
Mark A. Hoffmeister Marie I. Fioramonti
Senior Vice President Senior Vice President
Prudential Capital Group Prudential Capital Group
Two Prudential Plaza Two Prudential Plaza
Chicago, Illinois 60601 Chicago, Illinois 60601
Telephone: (312) 540-4215 Telephone: (312) 540-4216
Facsimile: (312) 540-4222 Facsimile: (312) 540-4222
Senior Vice President
Central Credit
Prudential Capital Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
Telephone: (201) 802-6429
Facsimile: (201) 624-6432
Authorized Officers for the Company
David F. Hodnik Rita D. Kahle David W. League
President & CEO Vice President, Finance Vice President, General
Ace Hardware Corporation Ace Hardware Corporation Counsel & Secretary
2200 Kensington Court 2200 Kensington Court Ace Hardware Corporation
Oak Brook, Illinois 60521 Oak Brook, Illinois 60521 2200 Kensington Court
Oak Brook, Illinois 60521
Telephone: (708) 990-6600
Facsimile: (708) 571-4512
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 "Opinion of
Experts".
KPMG Peat Marwick, LLP
Chicago, Illinois
March 10, 1997
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. 2 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 12th day of March, 1997.
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
JAMES T. GLENN DON S. WILLIAMS
James T. Glenn Don S. Williams
JOHN E. KINGERY 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 Post-Effective Amendment No. 2 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,657
<SECURITIES> 0
<RECEIVABLES> 348,948
<ALLOWANCES> 1,700
<INVENTORY> 327,145
<CURRENT-ASSETS> 698,930
<PP&E> 364,395
<DEPRECIATION> 150,861
<TOTAL-ASSETS> 916,375
<CURRENT-LIABILITIES> 550,462
<BONDS> 0
0
0
<COMMON> 233,652
<OTHER-SE> 502
<TOTAL-LIABILITY-AND-EQUITY> 916,375
<SALES> 2,742,451
<TOTAL-REVENUES> 2,742,451
<CGS> 2,535,014
<TOTAL-COSTS> 2,535,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,855
<INCOME-PRETAX> 73,425
<INCOME-TAX> 1,118
<INCOME-CONTINUING> 72,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,307
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
