SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 5
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 60523
(630) 990-6600
(Address and telephone number of registrant's principal executive offices)
David W. League
Vice President, General Counsel and Secretary
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60523
(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 Outside Front Cover Page
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages
3. Summary Information, Risk Factors Factors To Be Considered;
and Ratio of Earnings to Fixed Summary
Charges
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 The Company's Business;
Registrant Properties; Index to
Financial Statements; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Management.
12. Incorporation of Certain Information Documents Incorporated by
by Reference Reference
13. Disclosure of Commission Position Indemnification Obligations of
on Indemnification for Securities Act Company and S.E.C. Position on
Liabilities Securities Act Indemnification
PROSPECTUS
ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60523
(630) 990-6600
1,249 Shares Class A (Voting) Stock, $1,000 par value
35,780 Shares Class C (Nonvoting) Stock, $100 par value
We only offer Class A Voting Stock together with Class C Nonvoting Stock to
hardware retailers for their initial membership in our cooperative. We offer
Class C Nonvoting Stock without any Class A Voting Stock to our existing
members when they have additional store locations that also become members of
our cooperative.
(See "Distribution Plan and Offering Terms")
There is no existing market for the Capital Stock that is being offered in this
Prospectus, and we do not expect any market to 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(4) Company
-------- -------------- -----------
Class A Stock
Per share(1)(2) $ 1,000 None $ 1,000
Total $1,249,000 None $1,249,000
Class C Stock
Per Share(1)(3)(4) $ 100 None $ 100
Total $3,578,000 None $3,578,000
(1) The shares are offered in a unit of $5,000 to each hardware retailer. Class
A Stock is included only if the hardware retailer does not have a store
location that is already a member of our cooperative.
(2) 1 share of Class A Stock and 40 shares of Class C Stock are offered to each
hardware retailer for the first store location that becomes a member of our
cooperative.
(3) 50 shares of Class C Stock are offered to each existing member who has
another store location that also becomes a member of our cooperative.
(4) There are no underwriters. We sell this stock directly to our members. An
applicant must pay a $1,500 fee to have a membership application processed.
If all of the stock in this offering is sold, the total proceeds will be
the amount shown above before deducting estimated expenses of approximately
$28,000.
(5) All of the shares of Class C Stock included in this offering can be
purchased for cash, but the purchaser can also choose to pay for the stock
in bi-weekly installments. We also plan to issue additional shares of Class
C Stock to our members as a part of their patronage dividends for business
that they do with our cooperative.
This offering is exempt from the registration provisions of the New York
Franchise/Disclosure Statute. Our agent for service of process in New York is
C T Corporation, 111 Eighth Avenue, New York, New York 10011. (See back cover
page regarding the special revocation rights that Florida purchasers have.) No
state securities commission has passed upon the accuracy of this Prospectus.
PLEASE REFER TO THE "FACTORS TO BE CONSIDERED" ON PAGE 2 OF THIS PROSPECTUS.
This is a continuous offering that terminates no later than April 30, 2001.
The date of this Prospectus is _______________, 2000
AVAILABLE INFORMATION
The terms "Ace," "Company," "cooperative," "we," "us," "our" and similar
words refer to Ace Hardware Corporation. The terms "member," "retailer,"
"dealer," "you," "your" and similar words refer to someone who purchases our
stock.
We are subject to the informational requirements of Section 15(d) of the
Securities Exchange Act of 1934. Therefore, we file annual reports, quarterly
reports, and other information with the Securities and Exchange Commission. You
may read and copy these materials at the SEC's Public Reference Room at 450 5th
Street, N.W., Washington, D. C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC has an Internet site that contains reports, proxy and information
statements and other information about issuers that file electronically with
the SEC. The address of that Internet site is http://www.sec.gov. We also have
an Internet site whose address is http://www.acehardware.com.
REPORTS TO SECURITY HOLDERS
After the end of each fiscal year, we furnish our stockholders with an
annual report. This report contains financial information that has been
examined and reported upon by a certified public accounting firm, which issues
a formal opinion on it.
DOCUMENTS INCORPORATED BY REFERENCE
We file an Annual Report on Form 10-K for our 1999 fiscal year ending
January 1, 2000 under Section 15(d) of the Exchange Act. That Form 10-K Annual
Report is incorporated by reference into this Registration Statement. Someone
to whom we deliver a Prospectus can request (in writing or verbally) a free
copy of the documents that we have incorporated by reference into this
Registration Statement. If those documents also have exhibits, we will not
include copies of the exhibits unless they are also expressly incorporated by
reference into the documents being copied. To request these copies, please
contact David League, Vice President-General Counsel and Secretary, Ace
Hardware Corporation,2200 Kensington Court, Oak Brook, Illinois 60523,
(630) 990-6600.
FACTORS TO BE CONSIDERED
Limitations on Value and Marketability of Stock
Although we pay "patronage dividends" or "patronage rebates" to our
stockholders on the basis of the quantity or value of business that we do with
them, our corporate charter prohibits us from declaring dividends on shares of
our capital stock. Your ability to transfer these shares is limited and there
is no trading market for them. If you have a store location that is a member of
our cooperative and it closes down or if your Ace membership is terminated, you
can only sell your shares to another hardware dealer whom we approve as a
member for a particular store location. If you do not sell the shares in this
way, then we must repurchase them. (See the heading "Description of Capital
Stock".) We do not expressly set aside any funds to repurchase these shares,
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".) Therefore, except for the voting rights which the Class A Stock
has, our stock has value to you only if your membership terminates or if our
Company is liquidated.
Income Tax Liability Incidental to Patronage Dividends
If you purchase shares, you must report the total amount of your patronage
dividends from us as gross income on your federal income tax return. Therefore,
your gross income will include any shares of Class C Stock that we distribute
to you as patronage dividends, as well as patronage refund certificates that
you may receive in the form of written notices of allocation along with the
fair market value of other qualified property. These patronage refund
certificates are non-negotiable. They have a maturity date and pay annual
interest at a rate that is determined by our Board of Directors before the
certificates are issued. A minimum of 20% of your total annual patronage
dividends must be paid in cash, unless this cash portion has been applied
against your indebtedness to us. The cash portion would be applied against your
indebtedness if your membership had terminated and you had not requested
payment of the 20% minimum in cash. Depending on your income tax bracket,
this cash portion may not be enough to pay all of your federal income tax
liability on your patronage dividend distributions. (See the heading "The
Company's Business", subheading "Federal Income Tax Treatment of Patronage
Dividends".)
Sale of All Shares Offered Not Assured
Since only hardware retailers for particular store locations that have
memberships approved can purchase our stock, it is not certain that all of the
shares of stock in this offering will be sold.
Company's First Lien Rights on Shares
All of your shares of our stock, including any Class C shares that we
distribute to you as patronage dividends and any patronage refund certificates,
are subject to our first lien rights to ensure that you pay your debts to us.
(See the heading "Description of Capital Stock", subheading "Other Restrictions
and Rights" and the heading "The Company's Business", subheading "Forms of
Patronage Dividend Distributions".)
Full Payment Required for Issuance of Shares
You may pay for your shares of stock in full in advance, or you may pay for
them over time by having charges billed to your regular bi-weekly statement
from us. You will not receive your stock certificate(s) until the purchase
price for the share(s) of a particular class has been paid in full. (See the
heading "Distribution Plan and Offering Terms".)
By-law Provisions Constitute a Legal Contract with the Company
Our By-laws state that they are a legal contract between the Company and its
stockholders. (See Article XXVI of the By-laws.) A full copy of these By-laws,
amended as of January 25, 2000, is printed in this Prospectus as Appendix A.)
We particularly encourage you to review: 1)Article XVI, Sections 5 through 12,
which limit transfers of our stock and govern our repurchase of shares;
2) Article XXIV titled "Members' Patronage Dividends"; and 3) Article XXV,
which addresses a member's rights and obligations.
Documents Accompanying Prospectus
Our most recent annual report to shareholders and the current standard form
of our 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 our main executive offices are:
2200 Kensington Court, Oak Brook, Illinois 60523, (630) 990-6600.
We are a wholesaler of hardware and related products. We also manufacture
paint products. We sell products mainly to retail hardware dealers who have
Membership Agreements with us. These Membership Agreements entitle our dealers
to purchase merchandise and services from us and grant a license to use some
of our trademarks. (See the heading "The Company's Business," subheading
"Membership Agreement.") Our dealers are subject to "Member Operational
Requirements" and other important requirements. The number of hardware store
locations that had Membership Agreements with us as of the end of our 1999
fiscal year on January 1, 2000 were 5,082. (See the heading "The Company's
Business.")
Basic Distinctions Between Classes of Stock
Our capital stock is divided into three classes, Class A, Class B, and Class
C. Class A Stock is the only class of stock that has voting rights for the
election of directors and most other matters. Class B Stock was previously
offered for memberships that we granted on or before February 20, 1974, but
Class B Stock has not been offered since March 31, 1979. Our Board of Directors
has the right to redeem some or all of the outstanding shares of Class B Stock.
The Board can also redeem any outstanding shares of Class C Stock that we
issued for patronage dividends distributions. If our Company is ever
liquidated, 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
our net assets. This priority only extends up to the amount we would have to
pay to purchase or redeem all of our outstanding shares of Class B Stock and
Class C Stock. If our net assets exceeded the total amount which we would have
been required to pay for that redemption, then the excess would be distributed
in equal portions to the Class A Stockholders (up to the $1,000 par value of
the Class A Stock). After that, any net assets left over would be
proportionately distributed among the stockholders of all three classes of our
stock. A Class A Stockholder would participate in this distribution based on
the proportion which the par value of his share of Class A Stock bears to the
sum of the total par value of all outstanding shares of Class A Stock and the
total amount which we would have been required to pay to purchase or redeem all
of the outstanding shares of Class B Stock and Class C Stock. Each share of
Class B Stock and Class C Stock would participate in the distribution in the
proportion which the applicable purchase or redemption prices of these types of
stock would bear to the same sum. (See the heading "Description of Capital
Stock", subheadings "Voting Rights," "Liquidation Rights," and "Redemption
Provisions.")
The declaring of dividends on any shares of our stock in any class is
expressly prohibited by our Certificate of Incorporation and By-laws (See the
heading "Description of Capital Stock", subheading "Dividend Rights.")
Basic Features of Offering
This offering is being made only to approved retailers of hardware and
related products who apply for membership in Ace Hardware Corporation. 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.
Our Company operates as a retailer-owned cooperative. This offering enables
retailers to obtain membership in our Company. Membership entitles our dealers
to use certain trademarks that we own, to purchase merchandise from us, and
also to receive patronage dividends on an equitable basis.
For an initial membership, you must subscribe for 1 share of Class A Stock
plus 40 shares of Class C Stock. If you apply for membership for an additional
store location that you own or control, then you must subscribe for 50 shares
of Class C Stock for that location. You must also pay us a $1,500 charge for
processing your application.
If you do not pay for your shares in advance, then we bill you for them on
the bi-weekly billing statement that we send you for your purchases of
merchandise and services from us. You can prepay the purchase price of your
shares at any time. For a more detailed explanation of this offering, please
see the information under the heading "Distribution Plan and Offering Terms".
Repurchase of Shares by Company
If your membership for a store location terminates, then all of your shares
for that location must be sold back to us unless the shares are transferred to
another party whom we agree to accept as a member for that location. If we
repurchase your shares, we must do so at the following prices: 1) $1,000 par
value for Class A Stock, 2) not less than twice the $1,000 par value for Class
B Stock, and 3) not less than the $100 par value for Class C Stock. [(See the
heading "Description of Capital Stock", subheading "Other Restrictions and
Rights", paragraph (g).)] We pay some of the repurchase price by issuing you an
interest-bearing 4-year installment note if your membership terminates in
either of two basic types of situations. (See the heading "Description of
Capital Stock", subheading "Other Restrictions and Rights", paragraph (h), of
this Prospectus and Section 12 of Article XVI of the By-laws, in Appendix A of
this Prospectus, for further details concerning those situations.)
As of the end of our 1999 fiscal year on January 1, 2000, the number of
outstanding shares of our stock was as follows: Class A Stock 3,856 shares,
Class B Stock 2,432 shares, and Class C Stock 2,412,255 shares. At the
completion of this offering, assuming that all Class A Stock is sold, the
number of outstanding shares of our stock would be as follows: Class A Stock
5,081 shares, Class B Stock 2,408 shares, and Class C Stock 2,431,186 shares.
Under Delaware corporate law, we are not allowed to repurchase any of our
shares if our assets are less than the amount of our aggregate outstanding
shares of capital stock or if our assets would be reduced below that amount
because of the repurchase.
The number of shares of stock that we repurchased and the price per share
that we paid during each of our past three fiscal years is summarized in the
table below.
<TABLE>
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>
1999 Fiscal Year ended January 1, 2000 228 $1,000 160 $2,000 119,614 $100 $12,509,400
1998 Fiscal Year ended January 2, 1999 243 $1,000 124 $2,000 105,639 $100 $11,054,900
1997 Fiscal Year ended December 31, 1997 299 $1,000 180 $2,000 123,964 $100 $13,055,400
</TABLE>
Patronage Dividends and Income Tax Treatment
We operate on a cooperative basis for purchases of merchandise that our
shareholders and subscribers for shares make from us. We distribute annual
patronage dividends to these shareholders and subscribers on an equitable
basis. Please see the table under the heading "The Company's Business,"
subheading "Distribution of Patronage Dividends" for information about the
percentages of sales of merchandise we made during the fiscal years 1997
through 1999 that we distributed as patronage dividends. Under our current
plan, a portion of patronage dividends (which can never be less than 20% nor
more than 45% of the total annual patronage dividends we distribute to each
dealer) are paid in cash except to terminated dealers. The cash portion of any
patronage dividends which would have been paid to a terminated dealer is
applied against that dealer's indebtedness to us unless the terminated dealer
makes a timely request for the payment of the minimum 20% in cash. Other
qualified property, shares of Class C Stock or non-negotiable patronage refund
certificates, or a combination of them are used to pay the entire remaining
portion of patronage dividends. Dealers whose volume of purchases entitles them
to larger total annual patronage dividend distributions 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 shown in Note (B) to Selected Financial Data.
The cash payments and dollar amounts of Class C Stock and patronage refund
certificates along with the fair market value of other qualified property that
we distribute as patronage dividends must be taken into your gross income for
federal income tax purposes. (See the heading "The Company's Business",
subheading "Federal Income Tax Treatment of Patronage Dividends.")
Members whose businesses are located in foreign countries or Puerto Rico
(except for unincorporated Puerto Rico dealers owned by individuals with U.S.
citizenship) can be subject to a 30% U.S. withholding tax imposed on
nonresident alien individuals and foreign corporations (except for some Guam,
American Samoa, Northern Mariana Islands, or U.S. Virgin Islands corporations).
These dealers have a minimum 30% portion of their annual patronage dividends
distributed in cash, and we withhold that amount for the payment of U.S.
income tax. (See the heading "The Company's Business", subheadings "Forms of
Patronage Dividend Distributions", and "Federal Income Tax Treatment of
Patronage Dividends.")
USE OF PROCEEDS
We use the proceeds that we receive from this stock offering mainly for
general working capital purposes (including purchasing the merchandise that we
resell and maintaining adequate inventories of this merchandise) and also for
the capital expenditures that we make in order to serve our business. We
currently have no other specific plan for these proceeds. We also have no plan
if less than all the shares in this offering are sold as the main reason for
the offering is to enable us to accept new members in accordance with our
By-laws. (See the heading "The Company's Business," subheadings "Patronage
Dividend Determinations and Allocations" and "Forms of Patronage Dividend
Distributions", for a discussion of how we plan to obtain most of the balance
of our 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
Our officers make all of the sales of stock under this offering. We employ
approximately 230 field sales personnel including retail consultants,
management and retail development personnel. Their duties include contacting
retail dealers and promoting our business and programs. Among these field sales
personnel are Market Development Managers, New Business Sales Managers and
Retail Sales Managers whose duties include initial contact with potential
members. Our field sales personnel, however, are not allowed to accept new
members, and they are not authorized to make sales of any shares of our stock.
Also, we do not pay any commission, bonus or other separate compensation to any
officers, field sales personnel, or other employees in connection with the sale
of our stock.
Limitation of Offering to Applicants for Ace Dealer Memberships
This offering is limited to dealers in hardware or similar merchandise who
submit membership applications to us for designated retail outlets that we
choose to accept. Applicants for membership must submit the following for each
store location that desires to become a member:
1. A signed Membership Agreement in acceptable form;
2. A check for the $1,500 application processing fee; and
3. A signed Subscription Agreement for the purchase of shares of our stock.
Offering Price and Terms of Payment
Each applicant for membership must subscribe for shares of our stock having
a total purchase price of $5,000 per member store. If a dealer does not already
have a Membership Agreement with us for any store location, the subscription
for shares for the first store location includes 1 share of Class A voting
stock at a price of $1,000 per share plus 40 shares of Class C nonvoting stock
at a price of $100 per share. The subscription for shares for each additional
store location owned or controlled by the same dealer consists entirely of 50
shares of Class C nonvoting stock at a price of $100 per share.
Unless you prepay your stock subscription, you pay for your shares through a
series of charges that we add to your bi-weekly billing statement from us. The
amount of each of these charges is the larger of $40 or 2% of the purchase
price of the merchandise and services you purchase from us during each
bi-weekly period. These charges continue until the stock subscription for your
store location is paid for in full. We do not add any interest or other finance
charges to the unpaid balance of your stock subscription so long as all of your
payments are made by the due date of the billing statement. If we accept the
Membership Agreement and Stock Subscription Agreement for your store location,
you are entitled to participate in our patronage dividend distributions even
though you have not finished paying the full purchase price for that store's
shares of stock.
Right of Prepayment
If you subscribe for shares of our stock, you have the right at any time to
prepay some or the entire purchase price as discussed in the section above.
Time of Issuance of Stock Certificates
Immediately upon your full payment of the $1,000 purchase price for your 1
share of Class A voting stock, we issue you a certificate for that share. If
your stock subscription includes a share of Class A Stock, all of your payments
are first applied to the purchase price for this share. You do not have any
voting rights until you are issued a share of Class A voting stock. We issue
certificates for your shares of Class C nonvoting stock only when you have paid
the full purchase price for all of your Class C shares for your particular
store location. If the membership for your store location terminates before its
shares have been fully paid for and issued, then we give you a refund for the
amount that you previously paid toward the purchase of these shares.
Termination of Membership Upon Transfer or Repurchase of Shares
Unless we expressly consent to the continuation of your membership, it will
automatically terminate when any of your shares of our stock (whether you
purchased them or whether you received them as patronage dividends) are
transferred to another eligible shareholder or we repurchase them.
Federal Income Tax Status of Class A and Class C Shares (See the Heading
"Opinions of Experts").
If your membership terminates for all of your member store locations and we
repurchase your shares of Ace stock, that repurchase would include your one
share of Class A voting stock. Since we must repurchase the share of Class A
Stock at its $1,000 par value, you would not realize taxable income from our
repurchase of that share.
If we repurchase your shares of Class C stock, you could realize taxable
income under the U.S. Internal Revenue Code if the price we had to pay for the
shares to redeem them exceeded the $100 par value that you originally paid for
them under this offering. This could occur if our Board of Directors set a
higher offering price for Class C shares at some future date. In this example,
unless you still owned our stock for other store locations that remained
members, the taxable income you realized at the time of our repurchase of your
Class C shares might qualify for capital gains treatment.
If you still continued to own shares of our stock for other store locations
after we repurchased your shares for one or more of your locations, then the
entire amount we would pay you for the repurchased shares might be treated
under the Internal Revenue Code as a dividend and be taxed to you as ordinary
income. In that case, the income tax basis of the shares of our stock that you
still held might be increased by an amount equal to the original basis of the
shares you purchased from us.
Section 483 of the U.S. Internal Revenue Code may apply if you pay for your
shares in periodic installments extending for more than 1 year from the date of
the sale. In that case, all payments that are due more than 6 months after the
date of the sale may be deemed to include "unstated interest." Although you
might deduct this interest, it could also reduce the cost basis of your shares.
"Unstated interest" that is taxable income to you can also occur under
Section 483 of the U.S. Internal Revenue Code if your membership is terminated
and you receive a 4-year installment note from us in partial payment for your
stock. [(See the heading "Description of Capital Stock," subheading "Other
Restrictions and Rights," subparagraph (h))]. This could happen if the sum of
the total payments to be made to you for the repurchase of stock exceeded the
sum of the present values of those payments plus the present values of any
interest payments due under the note. The present value of a payment is figured
using a discount rate that is equal to the applicable Federal rate in effect as
of the date of the note, compounded twice a year.
DESCRIPTION OF CAPITAL STOCK
Dividend Rights
Our Certificate of Incorporation and By-laws prohibit us from declaring
dividends on any shares of any class of our stock. However, we may distribute
shares of Class C Stock to you as a part of your annual patronage dividends.
(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
Our Class A Stock is voting stock, but Class B Stock and Class C Stock can
vote separately by class upon any increase or decrease in the number of
authorized shares of their classes, any change in the par value of those
shares, or anything that would change the power, preferences or special rights
of one of those classes so as to adversely affect its shares. Any class of
stock that has the right to vote has one vote per share. Cumulative voting of
shares for the election of directors or other reasons is not allowed.
Liquidation Rights
If our Company voluntarily or involuntarily liquidates or goes out of
business, our net assets will be distributed among the shareholders of all
classes of our issued and outstanding stock. In that case, our Class B and
Class C shareholders would first receive the total amounts which we would have
had to pay them to repurchase all of their outstanding shares of those classes
at the prices previously set by our Board of Directors. However, if we did not
have enough net assets to pay that amount, then each outstanding share of Class
B Stock and each outstanding share of Class C Stock would share in the
distribution of our net assets in the proportion which its purchase or
redemption price would bear to the total available for payment. (See the
subheading "Redemption Provisions" below). If our net assets were more than
that, the excess would be distributed equally to each Class A stockholder up to
the Class A Stock par value of $1,000 per share. Any net assets that were left
would be distributed among the shareholders of all classes of stock as follows:
(a) first, we would take the amount of the total $1,000 par value for
all of the outstanding shares of Class A Stock and we would add
this to the total amount we would have been required to pay to
purchase or redeem all of our outstanding shares of Class B Stock
and Class C Stock at the prices previously set by our Board of
Directors. The sum of these two figures would be used in the steps
below;
(b) next, each outstanding share of Class A Stock would receive part of
the remaining net assets in the proportion which its $1,000 par
value bears to the sum determined in (a) above; and
(c) each outstanding share of Class B Stock and each outstanding share
of Class C Stock would share in the remaining net assets in the
proportion which its price, as previously set by our Board of
Directors, bears to the sum determined in (a) above.
Preemptive Rights
No stockholder has any special right or preference to purchase any present
or future shares of our stock, notes, debentures, bonds or other securities,
including any convertible stock, options or warrants.
Redemption Provisions
Redemption provisions do not apply to any shares of Class A Stock, and they
only apply to the shares of our Class B Stock and our Class C Stock that have
been issued as annual patronage dividends. These redemptions may be made at any
time as determined by our Board of Directors. The redemption price would also
be determined by our Board of Directors, but the redemption price to be paid
for Class C Stock cannot be less than its $100 par value per share and the
redemption price to be paid for Class B Stock cannot be less than twice its
$1,000 par value per share. (The redemption price for Class B Stock, has to be
equal to twenty times the per share price that our Board of Directors
establishes for purchases or redemptions of our Class C Stock.) If we decided
to redeem our stock as discussed above, we would have to mail notice to each
stockholder of that class at least 30 days before the redemption date. If not
all of the outstanding Class B or C shares were being redeemed, then the number
of shares and the method of redemption, whether by lot or prorata or some other
way, would be determined by our Board of Directors.
Other Restrictions and Rights
(a) We do not have any conversion rights, sinking fund provisions, or
liability to further calls or assessments for any shares of our
stock.
(b) As security for your indebtedness to us, we retain a first lien
upon all your shares of Ace stock and all amounts that you pay us under
your Stock Subscription Agreement before your shares are issued. Your
interest in your Ace stock and the amounts you pay us under your Stock
Subscription Agreement are always offset by the amount of any indebtedness
that you owe us. We will not transfer any of your shares or any funds in
your stock subscription account unless you are free from all indebtedness
to us. If we would issue an installment note to partially pay for the
stock that we are buying back from a terminated dealer in one of the
situations described in section (h) below, then the cash portion we would
normally pay toward those shares would first be applied toward any
indebtedness which that terminated member owed to us. The portion of the
purchase price of those shares that we would normally pay with an
installment note would then be applied toward any indebtedness that still
remained.
(c) Since we first issued shares of our stock to members and continuing
to the present time, the ownership of all classes of our stock has been
limited to approved dealers in hardware and related products who have
Membership Agreements with us. Ownership of Class B Stock has been limited
to dealers whose Membership Agreements with us began on February 20, 1974
or earlier. You are not allowed to transfer your shares of our stock or to
sell, assign or pledge them, or to post them as collateral or give lien
rights in them to anyone other than Ace without the prior consent of our
Board of Directors. If our Board of Directors refuses to consent to a
transfer or assignment of your stock certificates to another retail
hardware dealer, then we have to purchase that stock back from you as
described in section (g) below. You are not entitled to make a transfer or
assignment to anyone who is ineligible to become a member of our Company.
In other words, approved transfers can only be made to other dealers who
either have Membership Agreements with us or whom we are willing to accept
as members. Where you propose to transfer the ownership of your member
store location to another member, (or to someone whom we are willing to
accept as a member), then you have the option of either (i) selling or
transferring to that person the same number of shares that we would have
been required to offer him as a member for that store location, or (ii)
selling those shares back to us. However, there are certain types of
transfers of your business where you do not have the option of selling
those shares back to us. These situations involve (i) any transfer which
is not complete, unconditional and irrevocable; (ii) any transfer to an
entity in which you retain an ownership interest; or (iii) any transfer to
your spouse.
(d) If your membership terminates for your store location, then we must
repurchase your shares of Ace stock. Our repurchase obligation is subject
to our first lien and our right to set off your indebtedness to us as
described in section (b) above. (If your stock has not yet been paid for
and your shares have not yet been issued, we would instead refund the
amounts that you paid under your Stock Subscription Agreement, again
subject to our first lien and offset rights described in section (b)
above). Your membership can be terminated by a formal notice of
termination, and it can also be terminated automatically under our By-laws
in each of the following three situations without a formal notice:
(i) If your store closes down or ceases business unless your store
is moved, with our consent and approval, to another location, or
unless your store is being acquired by another dealer whom we are
willing to accept as a member for operation under the same membership
at another location;
(ii) If an individual holder of our shares or a member of a
partnership that is a holder of our shares dies, except where the
store location having the Ace membership continues, with our approval
(which we will not unreasonably refuse to give), to be operated by the
deceased person's estate, heirs or partnership successors. Changes in
the legal form of ownership of the member store from an individual
proprietorship or partnership to a corporation or from a partnership
to an individual proprietorship are not considered significant in
these cases;
(iii)If a court or other official body rules that a member is
insolvent, or the member assigns the business to be operated for the
benefit of creditors, or a voluntary or involuntary bankruptcy or
similar petition is filed under the U.S. Bankruptcy Code regarding the
dealer or the store or business unit for which our shares of stock are
held.
(e) Our Board of Directors does not need to consent to a transfer of
shares of Ace stock that occurs when the shares are held jointly with
others and the ownership of the shares automatically passes under law to
the survivor(s), nor are we obligated to repurchase the shares in that
case unless the store location either (i) closes down, or (ii) stops being
operated as a member of our Company.
(f) If you hold your Ace membership in the form of a corporation (the
"member corporation"), you must give us written notice of any proposal
where the holders of 50% or more of the voting stock of the member
corporation proposes to sell or transfer all of their shares of capital
stock (both voting and non-voting) of that member corporation. If there is
a member corporation but another corporation (the "controlling company")
holds 80% or more of the voting stock of the member corporation, then you
must also give us written notice if the holders of 50% or more of the
voting stock of the controlling company propose to sell or transfer all of
their shares of capital stock (both voting and non-voting) in the
controlling company. In these cases, when the sale or transfer occurs, the
corporation whose shares were sold or transferred can either keep all the
shares of Ace stock that it owns for the member corporation or sell all of
those shares of Ace stock back to us. If it chooses to sell all of the
shares of Ace stock back to us, then the memberships for all of the store
locations represented by that stock are considered terminated by the
member's voluntary action. Once terminated in this way, any store location
that wishes to continue being a member must submit a new application for
our acceptance. However, there are certain types of transfers of their own
company stock by the shareholders of member corporations that do not
result in the option of selling any Ace shares back to us. These
situations involve (i) any transfer which is not complete, unconditional
and irrevocable; (ii) any transfer to an entity in which the person making
the transfer retains an ownership interest; or (iii) any transfer to the
spouse of the person making the transfer.
(g) The price that we pay when we repurchase shares of Ace stock is as
follows:
(i) For Class A Stock, the $1,000 par value of the shares;
(ii) For Class B Stock, the per share price last set by our Board of
Directors, currently $2,000 per share. This price cannot be less than
twice the $1,000 par value of the Class B Stock and must be equal to
twenty times the per share repurchase price set by our Board of
Directors for repurchases of our Class C Stock;
(iii)For Class C Stock, the per share price last set by our Board of
Directors, currently $100 per share. This price may not be less than
the $100 par value of each of these shares.
There is no market for the sale or trading of our stock, and the redemption
prices last established by our Board of Directors have not been adjusted since
1974 when the Company first became a cooperative.
(h) When we repurchase our stock from a terminated member in either of
the two situations described below, we issue an installment note for part
of the purchase price. That note is payable in four equal annual
installments plus accrued interest. The situations where we use an
installment note are where:
(i) the dealer voluntarily terminates his Ace membership, but
continues basically the same business at the store location, and the
store continues being controlled (more than 50%) by the same person,
partnership or corporation; or
(ii) we terminate the dealer's Ace membership for being delinquent
in payment to us or because of some other default under the Membership
Agreement.
Even in the above situations, though, the amount originally paid in by the
dealer under the Stock Subscription Agreement is subject to being refunded in
cash. We also pay cash when the entire remaining portion of the purchase price
is less than $5,000. Where the remaining portion is $5,000 or more in these
cases, however, we only pay cash for the amount originally paid in by the
dealer under the Stock Subscription Agreement, and we pay the rest by an
installment note as described above. The interest rate on this installment note
is the rate established by our Board of Directors at the time the note is
issued. This interest rate is a minimum of 6% per annum, and is at least as
high as the interest rate that applies to the patronage refund certificates
that are issued as a part of our annual patronage dividends. Our Board of
Directors may authorize higher levels of cash payments for dealer hardship
situations, but this depends on our financial condition and requirements at the
time.
(i) There is no restriction on our repurchase or redemption of any
shares of our stock if we fall behind in making any sinking fund
installment payments which we may become obliged to make in the
future. Since we are prohibited from declaring dividends on any shares
of our stock, there can be no past due situation in the payment of
dividends that could impose any restriction on our repurchase or
redemption of our stock. Under the General Corporation Law of
Delaware, we are not allowed to repurchase any of our shares if our
assets are less than the amount of the aggregate outstanding shares of
our capital stock or would be reduced below that amount after the
repurchase.
(j) We have established a LBM Retailer Incentive Pool Plan for our
members who purchase LBM products through Builder's Mart of America,
Inc. ("BMA") and are participants in the Ace Contractor Center
program. Under the plan, we calculate an annual estimate of the amount
by which our stock in BMA has increased or decreased in value from our
initial investment, net of certain expenses. We allocate this estimate
to eligible members annually based on their qualifying purchases of
LBM products. A member's pool allocation only becomes vested and can
only be redeemed upon the termination of the member's Ace membership
which results in the sale or redemption of Ace stock held for that
location, Ace's termination of the LBM Retailer Incentive Pool Plan,
or Ace's liquidation, whichever comes first. Negative pool balances
are not charged to members.
OPINIONS OF EXPERTS
The shares of our stock in this offering are valid shares in the opinion of
our Vice President, General Counsel and Secretary, David W. League. He has also
issued his opinion to the effect that if our Company had an involuntary
liquidation, the shares of our Class B Stock would have a preference greater
than their par value in the distribution of our net assets. 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.
The consolidated financial statements of Ace Hardware Corporation and
subsidiaries as of January 1, 2000 and January 2, 1999 and for each of the
years in the three-year period ended January 1, 2000, have been included herein
and in the Registration Statement in reliance upon the report of KPMG 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, as the result of a corporate merger, it became the successor
of Ace Hardware Corporation, an Illinois corporation that was organized in
1928. Until 1973, the Illinois corporation conducted the business now being
engaged in by our Company. Our main executive offices are located at 2200
Kensington Court, Oak Brook, Illinois 60523. Our main telephone number is
(630) 990-6600.
We operate primarily as a wholesaler of hardware and related products, and
we also manufacture paint products. We mainly sell our products to hardware
dealers who have Membership Agreements with us. These Membership Agreements
allow the hardware dealers to purchase merchandise and services from us and to
license some of our marks, such as "Ace" and "Ace Hardware." (See the heading
"Factors To Be Considered," subheading "Documents Accompanying Prospectus,"
and the heading "The Company's Business" subheading "Membership Agreement").
We operate on a cooperative basis and distribute patronage dividends to our
eligible member dealers each year on the basis of quantity or value of business
that we do with them. (See the subheading "Distribution of Patronage
Dividends").
As of the end of our 1999 fiscal year on January 1, 2000, there
were 5,082 stores having Membership Agreements with us. The States with the
largest concentration of members are California (approximately 10%), Texas and
Illinois (approximately 6% each), Florida (approximately 5%), and Michigan and
Georgia (approximately 4% each). The States where we shipped the largest
percentages of merchandise in fiscal year 1999 are California (approximately
11%), Illinois (approximately 8%), Florida (approximately 6%), Texas
(approximately 5%), and Michigan and Georgia (approximately 4% each).
Approximately 6.5% of our sales are made to locations outside of the United
States and its territories.
The number of member locations that we had during each of our past three
fiscal years is summarized in the following table:
1999 1998 1997
------ ------ ------
Member outlets at beginning of period 5,039 5,032 5,067
New member outlets 264 231 208
Member outlets terminated 221 224 243
------ ------ ------
Member outlets at end of period 5,082 5,039 5,032
Dealers having one or more member ====== ====== ======
outlets at end of period 3,932 3,963 4,022
We service our dealers by buying merchandise in quantity lots, mainly from
manufacturers. We then warehouse large quantities of this merchandise and sell
it in smaller lots to our dealers. Most of the products that we distribute to
our members from our warehouses are sold at a price that we establish ("dealer
cost"), to which a 10% adder ("handling charge") is generally added. In fiscal
year 1999, warehouse sales were 63% of our total sales and bulletin sales were
3% of our total sales with the balance of 34% being direct shipment sales,
including lumber and building materials.
The following is a breakdown of our total warehouse sales among various
general classes of merchandise for each of the past three fiscal years:
Class of Merchandise 1999 1998 1997
------ ------ ------
Paint, cleaning and related supplies 20% 20% 21%
Plumbing and heating supplies 15% 15% 15%
Hand and power tools 14% 14% 14%
Garden, rural equipment and related supplies 13% 13% 13%
Electrical supplies 13% 13% 12%
General hardware 12% 12% 12%
Sundry 7% 7% 7%
Housewares and appliances 6% 6% 6%
We sponsor two major hardware conventions each year at various locations. We
invite dealers and vendors to attend, and dealers generally place orders that
are delivered before the next convention. During the convention, there are
exhibits of regular merchandise, new merchandise and seasonal merchandise. Lawn
and garden supplies, building materials and exterior paints are seasonal
merchandise in many parts of the country. Some types of goods such as holiday
decorations are also seasonal.
Warehouse sales involve the sale of merchandise that we inventory at our
warehouses. Direct shipment sales involve sales where the merchandise is
shipped directly to dealers by vendors. Bulletin sales involve our special
bulletin offers where we order specific merchandise after dealers sign up to
buy particular quantities of it.
Dealers place direct shipment orders with our vendors using special purchase
orders. The vendors then bill us for these orders, which are shipped directly
to dealers. We, in turn, bill the ordering dealers with an adder ("handling
charge") that varies according to the following schedule:
Invoice Amount Adder (Handling Charge)
-------------- -----------------------
$ 0.00 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00 to $1,999.99 1.75%
$2,000.00 to $2,999.99 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%
We make bulletin sales based upon notices from dealers that they wish to
participate in one of the special bulletins offers. Generally, we notify
dealers of our intention to purchase certain products for bulletin shipment.
We then purchase these products in the quantities that the dealers order. When
the bulletin shipment arrives, we do not place it into warehouse inventory.
Rather, we break it up into smaller quantities and deliver it to the dealers
who ordered it. We generally apply a 6% adder ("handling charge") to this
category of sales.
We typically apply an additional adder of 3% to merchandise that is exported
outside of the United States, its territories and possessions. Ace dealers
located outside of the United States, its territories and possessions who are
not subject to the additional 3% adder are assessed a flat 2% adder on all
direct shipment sales. We maintain inventories to meet only normal resupply
orders. Resupply orders help keep our inventories at normal levels. Usually
these resupply orders are filled within one day of receipt. Bulletin orders are
somewhat similar to resupply orders, but can be for future delivery. We do not
backlog normal resupply orders and therefore, no significant backlog exists at
any point in time.
We have also created special sales programs for lumber and building
materials products, for products that we periodically assign to an "extreme
competitive price sales" classification, and for products from specified
vendors for delivery to our dealers on a direct shipment basis (LTL Plus
Program). Under our previous lumber and building materials ("LBM") program, we
did not impose any adder or national advertising assessment on direct shipment
orders for these products. Our LBM program enabled our dealers to realize
important savings from our closely monitored lumber and building materials
purchasing procedures. Also, our LBM program offered our 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 we had with certain major vendors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," for a
description of our LBM Division.
Our Store Traffic Opportunity Program ("STOP") is a program where we offer
our dealers specific products that we assign to a "competitive price sales"
classification. These products are delivered from our warehouses without the
addition of freight charges and with an adder (if any) of up to 5%, determined
on an item by item basis. Our officers have the authority to add and withdraw
items from the STOP program, and to establish reasonable minimum or multiple
item purchase requirements for this program. We do not make any patronage
dividend distributions for purchases under the STOP program. We do, however,
consider STOP purchases to be either warehouse purchases or bulletin purchases,
as applicable, in determining the forms of patronage dividend distributions.
(See the heading "The Company's Business" subheading, "Forms of Patronage
Dividend Distributions.")
Our LTL Plus Program allows dealers to purchase full or partial truckloads
of products from specific vendors for direct shipment delivery. No adder or
national advertising assessment applies to these purchases. The current
maximum amount of patronage dividends for products in the LTL Plus category is
.5% of these sales. (See heading "The Company's Business," subheading
"Patronage Dividend Determinations and Allocations.")
In addition to hosting conventions as well as other shows and product
exhibits for our dealers, we also provide many special services. We offer these
services at established charges. These services include inventory control
systems, as well as price and bin ticketing. We also provide dealers with a
checklist service so that they can have current information about the
merchandise that we offer. We also provide a choice of ongoing educational and
training programs for dealers. (See the heading "The Company's Business,"
subheading "Special Charges and Assessments.")
Our wholly owned subsidiary, Ace Insurance Agency, Inc., offers a Group
Dealer Insurance Program so that dealers can purchase different types of
insurance coverage. This program offers "all risk" property insurance and
business interruption, crime, liability and workers' compensation insurance,
in addition to medical insurance for store employees. AHC Realty Corporation,
another wholly owned subsidiary, offers broker services to dealers who want to
buy or sell stores. Loss Prevention Services, Inc., another wholly owned
subsidiary, offers security training and other loss prevention services to
dealers.
During 1996, our wholly owned subsidiary, Ace Hardware Canada, Limited,
began operations as a wholesaler of hardware and related merchandise in Canada.
It has two distribution facilities located in Calgary, Alberta and Brantford,
Ontario. Ace Hardware Canada, Limited generated less than three percent (3%) of
our consolidated revenue during fiscal year 1999.
We operate our Company-owned retail hardware stores through our wholly owned
subsidiaries A.H.C. Store Development Corp. and Ace Corporate Stores, Inc. For
further information about these stores, please see the heading "Properties,
which appears later in this Prospectus."
We manufacture paint and similar coating products at our factories in
Matteson and Chicago Heights, Illinois. These factories are the main source of
the paint products that we offer for sale. We operate our paint manufacturing
business as a separate Division of our Company for accounting purposes. We
purchase all our raw materials for paint manufacturing from outside sources. We
have had adequate sources of raw materials in the past, and we do not currently
expect any shortages of raw materials that would have a major impact on our
paint operations. Paint manufacturing is seasonal in the sense that greater
paint sales occur from April through September. Historically, our need to
comply with environmental laws and regulations has not had a major effect on
our ability to conduct our paint manufacturing operations.
Our business, both hardware wholesaling and paint manufacturing, is not
dependent on any major suppliers and we feel that any seasonal fluctuations do
not have a major effect on our operations. For more discussion of our business,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which appears after the "Notes to Financial Statements."
We also offer services to members that relate to the operation of their
retail businesses. We provide these services (such as advertising,
merchandising and training programs) to assist our members and in some cases,
to maximize our centralized buying power.
Strategic Planning
We have a strategic planning process that results in goals, objectives and
programs that we want to develop in the future for our Company and our members.
Because strategic plans deal with the future, this discussion of them contains
"forward looking statements," which are based on our current expectations. The
actual results of our efforts can differ greatly from the results that we might
desire. We believe that we have the facilities, the employees and the resources
for ongoing success as we implement our plans and programs, but the future is
difficult to forecast, especially things like revenues, costs, margins and
profits which are influenced by many factors. Some of these factors are
discussed below.
The effects of future growth in the hardware and hardlines-related
industries, are uncertain. By "hardlines-related industries" we mean
lumber/building materials, home center, do-it-yourself, rental and
commercial/industrial categories. The future condition of the economy is also
uncertain, when viewed domestically, internationally or in specific
geographical regions. Some other uncertainties that could affect our plans
include possible future changes in merchandise and inventory prices, and the
effect of increasingly intense competition. There could be potential shifts in
market demand for some products. Future lawsuits and laws, especially laws
dealing with franchising, licensing and environmental matters could affect our
business. We cannot predict whether these uncertainties might cause future
costs or liabilities or have some other effect on our future ability to achieve
our plans.
Through our ongoing strategic planning process we have focused our plans
around four cornerstones for future growth and success in our competitive
industry. These four cornerstones are: Retail Success (store operations),
Wholesale Success (distribution), International growth and new member growth.
Retail success for our dealers is a primary objective because, in our opinion,
it drives both their retail performance and our wholesale growth. We have
therefore increased our efforts to assist members in our "retail success
initiatives," which are designed to improve their retail performance and
competitiveness. These retail success initiatives include retail goals that we
urge dealers to strive for within their stores and in locally competitive
markets. These goals do not, however, impose major restrictions or requirements
on members. Our minimum requirements for the acceptance of new members are
outlined in the current Membership Agreement and in the Member Operational
Requirements that apply under that Agreement. The Operational Requirements do
require that, within one year the member must make us the primary source of
supply and terminate any previous participation in the program of any other
major hardware wholesaler. There are currently no general requirements (apart
from special voluntary programs) where members have to make particular
percentages of purchases from us or have to achieve minimum retail performance
levels, such as sales dollars per square foot.
Our latest strategic initiative, which we call Vision 21, focuses on
encouraging dealers to adopt certain merchandising, marketing and operational
practices that are supported by some of our most successful dealers to improve
the Company's and the dealers' overall competitiveness and efficiency. Vision
21 goals include minimizing disparities between retail and wholesale,
developing dealer-friendly procedures that take duplication and costs out of
dealers' operations, achieving consistent implementation of programs more
rapidly and improving the dealers' financial performance and their ability to
pursue new stores and store expansions.
Special Charges and Assessments
We sponsor a national advertising program. To pay for this program, we
assess dealers an amount equal to 1.365% of their purchases (except purchases
of LTL Plus and certain computer systems), with minimum and maximum yearly
assessments for each store location. Effective January 1, 2000, the minimum
assessment is $1,916.46 and the maximum assessment is $6,500.00 for each store
location. We grant exemptions from these assessments and make various
adjustments to them for stores located outside the continental United States.
These exemptions and adjustments are based on our management's evaluation of
the number and types of television broadcasts that are received in these areas.
The amount of our national advertising assessment can be changed from time to
time by our Board of Directors. We can also impose assessments at a flat
monthly rate or based on a percentage of sales for regional advertising not to
exceed 2% of a dealer's annual purchases. Regional advertising assessments are
subject to the same minimum and maximum amounts as the National Advertising
assessment.
Every two weeks, we bill your member store for a special low volume account
service charge of $75 if your annual purchases from us are less than $50,000.
Effective January 1, 2000, every two weeks, we will bill your store for a
special low volume account service charge of $60 if your annual purchases from
us are between $50,000 and $140,400. The low volume service charges that we
bill to your store in a specific year are automatically refunded if that
store's total purchases increase to over $140,400 during the year. Your store
is excused from this low volume account service charge during the first 12
months that it is a member. There are some exceptions to our low volume account
service charges that are described below:
1. If you purchase $140,400 of merchandise from us during the year, we give
you credit on your next billing statement for any low volume charges
which we billed to you earlier in the year. We then stop billing you for
low volume account service charges for the rest of the year, even if
your current purchases on a billing statement are less than $5,400; and
2. We do not bill low volume account service charges every two weeks if your
store's sales volume with us the year before was at our minimum
($140,400), but we will bill these charges in a lump sum to your last
statement of the year if you do not reach our applicable minimum by that
time.
An Ace store that falls below our minimum purchase levels can also be
subject to termination.
We add a late payment service charge on any past due balance that you owe us
for merchandise, services, or your stock subscription. The current rate for the
late payment service charge is .77% per biweekly statement period, except in
Texas where the charge is .384% and Georgia where the charge is .692%. We
consider a past due balance to exist whenever we do not receive payment of the
amount shown as due on your billing statement within 10 days after the date of
that statement. We can change the rate of our late payment service charge from
time to time.
Our retail training program called the "Ace Training Network" is required
for all member stores in the United States and U.S. Territories. Under the
"Ace Training Network," we will bill you a monthly fee which we call a "monthly
training assessment." This assessment is $16 per month for each single store
or parent store and $11 for each branch store. A single store or parent store
is one that has a share of our Class A voting stock (or one that involves a
stock subscription for a share of our Class A Stock.) A branch store is one
whose membership involves only shares (or a subscription for shares) of our
nonvoting Class C Stock. (See Article XXV, Section 2 of our By-laws, which are
reprinted in Appendix A.) Branch stores can request an exemption from the
monthly training assessment.
With the Ace Training Network, you have the option of choosing how your
monthly training assessment dollars will be spent. Under this program, you are
initially issued 200 points, and one point equals one dollar in your training
account. We credit you with another point for each dollar you pay for your
monthly training assessment. Thus, a single store or parent store can earn 16
points per month and a branch store can earn 11 points per month. You may use
your points at any time to buy one of the training programs that we offer. If
you do not have enough points for the program that you want, you can use the
points that you have and we will bill you for the difference. Multiple stores
and member groups can pool their points together to purchase our training
programs.
We also have a mandatory subscription service for Material Safety Data Sheet
information for all member stores located in the United States. As of the date
of this filing, the initial yearly assessment for these 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 members and
ourselves in the promotion, advertising and marketing of products and
services that we sell. We have had the following Trademark and Service Mark
Registrations issued by the U.S. Patent and Trademark Office for our marks:
Registration
Description of Mark Type of 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 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
Registration
Description of Mark Type of Mark Number Expiration Date
------------------- ------------ ------------ ---------------
"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(1)
"ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000
"LUBE" 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
"ENVIROCHOICE" 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
"WOODROYAL" Trademark 2,065,927 May 27, 2007
"ROYAL SHIELD" Trademark 2,070,848 June 10, 2007
"ROYAL TOUCH" Trademark 2,070,849 June 10, 2007
"QUALITY SHIELD" Trademark 2,102,305 September 30, 2007
"QUALITY TOUCH" Trademark 2,102,306 September 30, 2007
"STAINHALT" Trademark 2,122,418 December 16, 2007
"ACE CONTRACTOR CENTER" Service Mark 2,158,681 May 19, 2008
"NHS NATIONAL HARDLINES
SUPPLY" Service Mark 2,171,775 July 7, 2008
"ACE COMMERCIAL & INDUSTRIAL
SUPPLY" Service Mark 2,186,394 September 1, 2008
Registration
Description of Mark Type of Mark Number Expiration Date
------------------- ------------ ------------ ---------------
"THE OAKBROOK COLLECTION" Trademark 2,187,586 September 8, 2008
"ACE GARDEN PLACE" Service Mark 2,227,729 March 2, 2009
"ACE ROYAL" Trademark 2,237,981 April 13, 2009
"HELPFUL HARDWARE CLUB" Service Mark 2,239,400 April 13, 2009
"THE FOLKS IN THE RED VEST" Service Mark 2,261,946 July 20, 2009
"ACE CONTRACTOR PRO" Trademark 2,273,483 August 31, 2009
(1) Application for renewal of registration filed January 28, 2000.
As of the date of this filing, we also have the following applications for
new registrations pending in the U.S. Patent and Trademark Office:
Mark Type of goods/services
---- ----------------------
"ACE SOLUTIONS PLACE" retail store services in the field
of hardware and related goods
"YOUR NEIGHBORHOOD SOLUTIONS PLACE" retail store services in the field
of hardware and related goods
"ACE" with accent design retail store services in the field
of hardware and related goods
"ILLUMINATIONS" paint color chip display rack kits,
consisting primarily of display
racks, paint color charts, architect
kits and decals for use in
determining color schemes
"STORE-IT-RIGHT" hardware products, namely, hooks,
brackets, knobs, hangers and
extensions for support or hanging
Competition
Competitive conditions in the wholesale hardware industry are intense and
increasing. Independent hardware retailers must remain competitive with
discount stores and chain stores, such as WalMart, Home Depot, Menard's, Sears,
and Lowe's, and with other mass merchandisers. Retail hardware stores have been
slowly shifting their locations to high rent shopping centers. There has also
been a trend toward longer store hours. There is intense pressure on hardware
retailers to obtain low cost wholesale supply sources. In several markets in
the United States, we also compete directly with other dealer-owned wholesalers
such as TruServ Corporation, Do it Best Corporation and United Hardware
Distributing Co.
Employees
We have 5,180 full-time employees, of which 1,610 are salaried employees. We
also have union contracts covering one (1) truck drivers' bargaining unit and
three (3) warehouse bargaining unit(s). We consider our employee relations with
both union and non-union employees to be good, and we have had no strikes in
the past five years. In general, our employees are covered by either
negotiated or nonnegotiated benefit plans that include hospitalization, death
benefits and, with few exceptions, retirement benefits.
Limitations on Ownership of Stock
Our members own all of our outstanding shares of capital stock. Membership
in our Company is limited to approved dealers in hardware and related products
who have Membership Agreements with us. These are the only ones eligible to own
or purchase shares of any class of our stock.
No dealer is allowed to own more than 1 share of our Class A voting stock,
no matter how many store locations that dealer owns or controls. This
ensures that each stockholder in our cooperative has equal voting power no
matter how many member store locations the stockholder owns or controls. We
treat an unincorporated member or a partnership member as being controlled by
someone else if 50% or more of the assets or profit shares of that member are
owned by (i) another person, partnership or corporation; or (ii) the owner(s)
of 50% or more of the assets or profit shares of another unincorporated
business firm or (iii) the owner(s) of at least 50% of the capital stock of a
corporation. We treat a member that is a corporation as being controlled by
someone else if at least 50% of the capital stock of that member is owned by
(i) another person, partnership or corporation; or (ii) the owner(s) of at
least 50% of the capital stock of another corporation; or (iii) the owner(s) of
at least 50% of the assets or profit shares of another unincorporated business.
Distribution of Patronage Dividends
We operate on a cooperative basis for purchases of merchandise from us that
are made by dealers who have become members of our Company. We also operate on
a cooperative basis with dealers who have subscribed for shares of our stock
but who have not yet actually become "members" because they have not yet fully
paid for their $1,000 par value shares of our Class A voting stock. The dealers
in either of these two categories are entitled to receive patronage dividends
once a year on an equitable basis.
We made patronage dividend distributions at the following percentages of our
sales in the warehouse, bulletin and direct shipment categories and on the
total sales of products manufactured by our Paint Division during the past
three fiscal years:
1999 1998 1997
---- ---- ----
Warehouse Sales 4.98172% 4.78251% 4.32753%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 7.8827% 9.1653% 10.3088%
There are other patronage dividends that are calculated separately for
distribution on sales of lumber products, building material and millwork
products and less-than-truckload (LTL) sales of lumber and building material
products. We distributed patronage dividends equal to .4595%, .4668% and
.4593% of the total sales of these categories (calculated separately by
category) to our members who purchased these products in fiscal years 1999,
1998 and 1997. The 1999 dividend pertains to the activity of the LBM Division
through August 2, 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for a description of our LBM Division.
Under our LTL Plus Program, we also calculate patronage dividends separately
on sales of full or partial truckloads of products purchased by eligible
dealers from certain vendors (see discussion of LTL Plus Program under the
heading "The Company's Business.") The amount of patronage dividends that we
currently allocate to LTL Plus sales is .5% of these sales. The LTL Plus
Program patronage dividend was .5% of these sales for fiscal year 1999, 1998
and 1997.
Patronage Dividend Determinations and Allocations
The amounts that we distribute as patronage dividends consist of our gross
profits on business that we do with dealers who qualify for patronage dividend
distributions, less a proportionate share of our expenses for administration
and operations. Our gross profits consist of the difference between our selling
price for the merchandise that these dealers buy from us and our purchase price
for that merchandise. Our computation of patronage dividends excludes all of
our income and expenses from activities that are not directly related to
patronage transactions. The excluded items primarily consist of profits on
business that we do with dealers or other customers who do not qualify for
patronage dividend distributions and any income or loss that we realize from
the disposition of property and equipment. If that occurred, then the income we
would derive from this type of recapture would be included in computing
patronage dividends.
Our By-laws provide that, by virtue of dealers being "members" of our
Company (that is, by owning shares of our Class A voting stock), they consent
to include in their gross income for federal income tax purposes all patronage
dividends that we distribute to them. These distributions must be included in
gross income for the taxable year in which the dealer receives them. Dealers
who have not yet fully paid the $1,000 purchase price for their shares of our
Class A voting stock are also required to include all patronage dividends we
distribute to them in their gross income as explained above. Under our Stock
Subscription Agreement, dealers must expressly consent to take these patronage
dividend distributions into their gross incomes.
The amount of the patronage dividends which dealers must include in their
gross incomes includes both the cash portion of patronage dividends and any
portion of patronage dividends that we apply against any indebtedness the
dealer owes to us in accordance with Section 7 of Article XXIV of our By-laws.
It also includes any portion of patronage dividends that they receive in shares
of our Class C nonvoting stock, other property and patronage refund
certificates. The Company also has the authority to issue a portion of the
patronage dividend in the form of other property.
Under our present program, patronage dividends on each of our three basic
categories of sales (warehouse sales, bulletin sales and direct shipment sales)
are allocated separately, as are patronage dividends under our LTL Plus
Program. Dividend percentage calculations are made with reference to the net
earnings derived from each of the respective categories. The 1999 patronage
dividend rate for the LTL Plus Program is .5% of our LTL Plus sales. The 1999
dividend rates for direct shipment and bulletin sales are 1% and 2%,
respectively, while the current 1999 warehouse dividend rate is 4.98%.
We do not include sales of lumber and building materials products as part of
warehouse sales, bulletin sales or direct shipment sales for patronage
dividend purposes. Patronage dividends for lumber and building materials are
calculated separately for 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 materials products.
Patronage dividends are also calculated separately for full and partial
truckloads of products purchased under the LTL Plus Program. (See the heading
"Business", discussion of LTL Plus Program and the subheading "Forms of
Patronage Dividend Distributions", subparagraphs 2(a)-(b) below.) See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," for a description of our LBM Division.
Patronage dividends are also calculated separately 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.)
We have established a LBM Retailer Incentive Pool Plan for our members who
purchase LBM products through Builder Marts of America, Inc. ("BMA") and are
participants in the Ace Contractor Center program. Under the plan, we calculate
an annual estimate of the amount by which our stock in BMA has increased or
deceased in value from our initial investment, net of certain expenses. We
allocate this estimate to eligible members annually based on their qualifying
purchases of LBM products. A member's pool allocation only becomes vested and
can only be redeemed upon the termination of the member's Ace membership which
results in the sale or redemption of Ace stock held for that location, Ace's
termination of the LBM Retailer Incentive Pool Plan, or Ace's liquidation,
whichever occurs first. Negative pool balances are not charged to members.
Any manufacturing profit realized on intracompany sales of products
manufactured by our Paint Division is allocated and distributed as patronage
dividends to eligible dealers in proportion to their respective annual dollar
purchases of paint and related products from that division. The earnings we
realize on wholesale sales of the Paint Division's products to our eligible
dealers are currently distributed as patronage dividends to them as part of the
patronage dividends which they receive each year in the basic patronage
dividend categories of warehouse sales, bulletin sales and direct shipment
sales. Under Section 8 of Article XXIV of our By-laws, if the Paint Division's
manufacturing operations for any year result in a net loss instead of a profit
to the Paint Division, this loss would be netted against the earnings we
realized from our other activities during the year, so that the earnings
available for distribution as patronage dividends from these other activities
would be reduced for the year.
Forms of Patronage Dividend Distributions
We make patronage dividend distributions to our eligible dealers in cash,
shares of our Class C Stock and patronage refund certificates according to a
specific plan that has been adopted by our Board of Directors. This plan can be
changed from time to time by the Board as they deem fit depending on business
conditions and our Company's needs.
This plan is summarized below for the purchases that our eligible dealers
make from us on or after January 1, 1999.
1. For each of your eligible stores, we initially calculate the minimum cash
patronage dividend distribution as follows:
(a) 20% of the first $5,000 of the total patronage dividends allocated
for distribution each year to you based on the purchases made for the
eligible store;
(b) 25% of the portion of the total patronage dividends allocated for
that store which exceed $5,000 but do not exceed $7,500;
(c) 30% of the portion of the total patronage dividends allocated for
that store which exceed $7,500 but do not exceed $10,000;
(d) 35% of the portion of the total patronage dividends allocated for
that store which exceed $10,000 but do not exceed $12,500;
(e) 40% of the portion of the total patronage dividends allocated for
that store which exceed $12,500.
1A. 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
minimum cash distribution shall be distributed to him for the year 1999
payable in the year 2000 as follows:
(a) To the extent there is an excess amount over a store's minimum cash
distribution, each such eligible store shall receive stock options of
OurHouse, Inc. (valued at $3.40 each) rounded to the nearest multiple
of 50 but not to exceed 150 stock options.
(b) Next, to the extent there is an excess over a store's minimum cash
distribution and allocation under (a) above, each such eligible store
shall receive its prorata share of 3,000,000 stock options less the
number of stock options allocated under (a) above. Allocation to
each eligible store shall be based on each store's total patronage
dividend as a percentage of the Company's total patronage dividend
rounded to nearest multiple of 50.
(c) The eligible stores include change of ownership stores, but exclude
canceled stores.
2. We distribute the portion of patronage dividends in excess of the cash or
property amounts above in the form of shares of our Class C nonvoting
stock (par value $100 per share) until the total par value of all shares
of all classes of our capital stock that you hold for the eligible store
equals the greater of:
(a) $20,000; or
(b) the sum of purchases in the following categories that you made for
the eligible store during the most recent calendar year:
(i) 15% of the volume of Ace manufactured paint and related products
purchases, plus
(ii) 3% of the volume of drop-shipment or direct purchases (excluding
Ace manufactured paint and related products), plus
(iii)15% of the volume of warehouse and bulletin purchases (including
STOP and excluding Ace manufactured paint and related products),
plus
(iv) 4% of the volume of LTL Plus purchases.
Please note, however, that we do not issue fractional shares of Class C
Stock. We take any amount that would result in a fractional share of
stock and distribute it in cash or patronage refund certificates instead.
3. The portion of your total patronage dividends for each of your eligible
stores which exceeds the sum of:
(a) the cash amount determined under Paragraph 1 above and
(b) the amount to be distributed to you in property under Paragraph 1A
above and
(c) the amount of Class C Stock determined under Paragraph 2 above is
distributed to you in cash up to certain limits. The total amount
that you receive in cash for an eligible store cannot exceed 45% of
that store's total patronage dividends for the year. If a store's
total cash distribution would exceed this 45% limit, then the
distribution over that amount is made instead in the form of a
non-negotiable patronage refund certificate. Our Board of Directors
determines the maturity dates and interest rates of these patronage
refund certificates before they are issued. These certificates
include provisions that give us a first lien on the amount of any
indebtedness that you owe us. The certificates also contain language
subordinating them to all the rights and claims of our secured
creditors, general creditors and our bank creditors. Historically,
these patronage refund certificates have matured within five years
from the date we issued them.
With some modifications, the plan described above is applied separately in
determining patronage dividends on our sales of lumber and building materials.
The combined patronage dividends allocated annually to a store from:
- sales of lumber products (other than LTL sales),
- sales of building materials (other than LTL sales),
- sales of millwork product and
- LTL sales to the store
are used to calculate the minimum cash distribution percentages that we apply
under Paragraph 1 above. A store's patronage dividends from any other sales
category are not taken into account in determining either the minimum portion
or any additional portion of the store's patronage dividends from its purchases
of lumber and building materials products that are distributed in cash.
Article XXIV, Section 7 of our By-laws requires the cash portion of any
patronage dividends to be applied against any indebtedness a member owes us
where the membership for his store is terminated before the distribution of
patronage dividends. Despite this, however, 20% of a terminated store's total
annual patronage dividends will be paid in cash if we receive a timely request
for this form of payment.
Because of the requirement of the U. S. Internal Revenue Code that we
withhold 30% of the annual patronage dividends distributed to eligible dealers
whose places of business are located in foreign countries or Puerto Rico, the
cash portion of patronage dividends to these dealers is a minimum of 30%. There
are exceptions to this 30% cash payment in the case of 1) unincorporated Puerto
Rico dealers owned by individuals who are U.S. citizens, and 2) certain dealers
incorporated in Guam, American Samoa, the Northern Mariana Islands or the U.S.
Virgin Islands. These exceptions apply if less than 25% of the stock of these
dealers is owned by foreign persons, and at least 65% of their gross income for
the last three years has been sufficiently connected with a trade or business
in one of these locations or in the United States.
We also have certain loan programs that allow dealers to pay us back with
part of their patronage dividend distributions. For example, to help members
buy standardized exterior signs identifying their stores, our Board of
Directors has authorized a loan program. Under this program, a dealer may apply
to borrow between $100 to $20,000 per location from us for this purpose. If you
obtain a loan under this program, you may either repay it in twelve payments
billed on your regular bi-weekly billing statement, or you may apply the
non-cash portion of your annual patronage dividends (for up to the next three
annual patronage dividend distributions) toward payment of your loan.
Our Board of Directors has also authorized finance programs to help
qualified dealers buy certain computer systems from us and to finance capital
improvements with patronage dividends. The amount financed cannot exceed 80% of
the cost of any system. For PAINTMAKER computers, members have applied to
borrow between $1,000 to $15,000 per location repayable over a period of three
(3) years. For PACE computers, members have applied to borrow between $5,000 to
$50,000 per location repayable over a period of five (5) years. Under these
programs, members have directed us to first apply the patronage refund
certificate portion of their patronage dividend distributions toward the
balance owed on these financed items and next to apply patronage dividends
which would otherwise be payable for the same year in the form of our Class C
Stock. These signage, computer financing and store retrofit programs may be
revised or discontinued by our Board at any time. Members also have the ability
to apply for a Capital Stock loan which is designed to provide them with access
to their future patronage dividends to assist them in opening new retail stores
or to assist in significant store expansions. These loans are repaid by the
first seven rebate distributions of the non-cash portion of the annual rebate
on the respective store.
Federal Income Tax Treatment of Patronage Dividends (See Previous Heading
"Opinions of Experts"
Both the shares of Class C nonvoting stock and the patronage refund
certificates that we use to pay patronage dividends are "qualified written
notices of allocation" within the meaning of Sections 1381 through 1388 of the
U.S. Internal Revenue Code. The Company may pay a portion of its dividend in
the form of other qualified property pursuant to Section 1382 of the U.S.
Internal Revenue Code. These Sections of the Internal Revenue Code deal with
the income tax treatment of cooperatives and their patrons and have been in
effect since 1963. The dollar amount stated on a qualified written notice of
allocation and fair market value of other qualified property must be taken into
the gross income of the person to whom the notice is issued, even though this
dollar amount may not actually be paid to the person in the same year that it
is taxed.
In order for us to receive a deduction from our gross income for federal
income tax purposes for the amount of any patronage dividends that we pay to a
patron (that is, to one of our eligible and qualifying dealers) in the form of
qualified written notices of allocation or other qualified property, we have to
pay (or apply against any indebtedness that the patron owes us in accordance
with Section 7 of Article XXIV of our By-laws) not less than 20% of each
patron's total patronage dividend distribution in cash and the patron also has
to consent to having the written notices of allocation at their stated dollar
amounts, and other qualified property at the fair market value, included in his
gross income for the taxable year in which he receives them. The Internal
Revenue Code also requires that any patronage dividend distributions that we
deduct on our federal income tax return for business we do with patrons must be
paid to those patrons within 8 months after the end of that taxable year.
If you become one of our "members" by owning 1 share of Class A voting
stock, you are deemed under the U.S. Internal Revenue Code to have consented
to take the written notices of allocation and other qualified property that
we distribute to you into your gross income. Your consent is deemed because of
1) your act of obtaining or retaining membership in our Company, and 2) because
our By-laws provide that your membership constitutes this consent, and we give
you written notification of that By-law provision. Under another provision of
the Internal Revenue Code, dealers who have subscribed for shares of our stock
are also deemed to have consented to take the dollar amounts of their written
notices of allocation and other qualified property into their gross incomes.
This occurs because of the consent provisions included in the Subscription
Agreement for our stock.
If you receive a patronage refund certificate as part of your patronage
dividends (see the subheading "Forms of Patronage Dividend Distributions"), you
may be deemed to have received interest income. This interest would arise in
the form of an original issue discount to the extent that the face amount of
the certificate exceeds the present value of the stated principal and interest
payments that we have to pay you under the terms of the certificate. This
interest income would be taxable to you "ratably" over the term of the
certificate under Section 7872(b) (2) of the U.S. Internal Revenue Code.
Present value for this purpose is determined by using a discount rate equal to
the applicable Federal rate in effect as of the day of issuance of the
certificate, compounded twice a year.
We are required to withhold for federal income tax on the total patronage
dividend distribution we make to anyone who has not furnished us with a correct
taxpayer identification number. We can also be required to withhold federal
taxes on the cash portion of each patronage dividend distribution made to
someone who fails to certify to us that he is not subject to backup
withholding. This withholding obligation based on a failure to certify may not
be applicable, however, unless 50% or more of the total distribution is made in
cash. Since we distribute all of our patronage dividends for a given year at
the same time and since our current patronage dividend plan (see the subheading
"Forms of Patronage Dividend Distributions") does not permit any member store
to receive more than 45% of its patronage dividends for the year in cash, we
believe that a certification failure like this should not ordinarily have any
effect on our Company or any of its dealers.
Patronage dividends that we distribute to patrons who are located in foreign
countries or certain U. S. possessions (including those who are incorporated in
Puerto Rico or who reside in Puerto Rico but have not become citizens of the
United States) have been held to be "fixed or determinable annual or periodic
income." Patrons who receive this type of income are currently required to pay
a tax of 30% of the amount received under Sections 871(a)(1)(A) and 881(a)(1)
of the Internal Revenue Code. When dealers are subject to this 30% tax, we must
withhold it from their patronage dividends and pay it over to the U.S. Internal
Revenue Service. The above does 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 that location or in the United States.
The 20% minimum portion of the patronage dividends that must be paid in cash
to patrons other than those discussed above may not be enough, depending upon
the patron's income tax bracket, to pay all of the patron's federal income tax
on his annual patronage dividend distributions. In our management's opinion,
the payment of a minimum of 20% of total patronage dividends in cash each year
will not have a material adverse affect on our operations or on our ability to
obtain sufficient working capital for the normal requirements of our business.
Membership Agreement
If you apply to become an Ace member, you must sign a Subscription Agreement
to purchase our stock. You must also sign our customary Membership Agreement.
You must submit a payment of $1,500 with your signed Membership Agreement. We
use the $1,500 fee toward our estimated costs of processing your membership
application. If you submit a membership application and we accept it, we sign
both your Membership Agreement and Stock Subscription Agreement and send them
back to you for your records. Your membership may generally be terminated upon
various notice periods and for various reasons (including voluntary termination
by either of us). The details of these reasons and notice periods are in the
Membership Agreement. These reasons for termination and notice periods apply
except where special laws or regulations in certain locations limit our right
to terminate memberships, or require longer notice periods.
Non-Shareholder Programs
In 1989, our Board of Directors first authorized us to affiliate
non-shareholder international dealers who operate retail businesses outside
the United States, its territories and possessions. These international dealers
sign agreements that differ from our regular Membership Agreement. They may be
granted a license to use certain of our trademarks and service marks, but they
do not sign stock subscription agreements or become shareholders, nor do they
receive patronage dividends.
In 1995, our Board of Directors first authorized us to affiliate
non-shareholder retail accounts other than international dealers. These
accounts, which are generally served through our subsidiary National Hardlines
Supply, Inc. ("NHS"), are not granted an ongoing license to use our trademarks
and service marks. They can purchase selected types of products from us for
resale. They are not members of our cooperative, and therefore do not own our
stock or receive patronage dividends.
In 1996, we established a license program for international non-shareholder
dealers. These international licensees typically receive the exclusive right to
use our trademarks and service marks, as well as exclusive rights to distribute
the merchandise they purchase from us in their home countries. International
licensees pay us a negotiated license fee and ongoing royalties on their retail
sales in exchange for these rights, and for our ongoing training and support.
In 1996, we also began operations through our subsidiary Ace Hardware
Canada, Limited ("Ace Canada"). Ace Canada's customers are non-shareholders
who do not receive patronage dividends from us. Only customers signed under the
Ace Canada Franchise Agreement are licensed to use our trademarks and service
marks.
In 1998, we also established a domestic franchise program whose franchisees
will not be shareholders of our cooperative, and will not therefore receive
patronage dividends. These franchisees will pay us a franchise fee and ongoing
royalties on their retail sales. In turn, they receive exclusive rights to a
designated area, a license to use our trademarks and service marks, and various
initial and ongoing training and support.
In October, 1998, we entered into a joint venture with one of our dealers.
The joint venture operates 11 leased stores in Massachusetts, New Hampshire and
Rhode Island. In January, 1999, we entered into another joint venture with
another Ace dealer. This joint venture operates 2 leased stores in southwest
Florida. In January, 2000, we entered into a third joint venture with another
Ace dealer. This joint venture plans to open 3 stores in Oregon over the next 2
years. In the future, we will explore other joint venture opportunities with
our dealers; however, we consider each situation unique and we evaluate each
opportunity on its own merits.
As of the end of fiscal years 1999, 1998 and 1997 sales to international
non-shareholder dealers accounted for approximately 6.5% of our total sales for
fiscal year 1999, 1998 and 1997. As of the end of fiscal years 1999, 1998 and
1997, sales to domestic non-shareholder locations accounted for less than 1.5%
of our total sales in 1999 and less than 1% in 1998 and 1997. (See Appendix A,
Article XXV, Sections 3 and 4 of our By-laws regarding International Retail
Merchants and non-member accounts.)
Year 2000
The Company established a detailed plan to identify and track progress on
the identification of systems, changing of non-compliant systems and testing
of those systems for Year 2000 compliance. In addition, a plan was also
implemented for all devices (time clocks, power systems, etc.) within the
Company. The Company successfully completed its Year 2000 rollover without any
mission-critical information technology or non-information technology system
disruptions. The Company is not aware of any Year 2000 related problems with
third-party vendors of mission-cricital information technology systems.
However, it will continue to maintain contingency plans with respect to its
third-party vendor relationships. Although the Year 2000 event has occurred,
there can be no assurance that there will be no problems related to the Year
2000 for a period of time after January 1, 2000.
The Company incurred internal staff costs as well as incremental consulting
and other expenses related to infrastructure and facilities enhancements
necessary to prepare the systems for the Year 2000. A significant portion of
these costs represented the re-deployment of existing information technology
resources. The Company has expended approximately $5.1 million through
January 1, 2000, for Year 2000 compliance. To date, the Company's systems have
experienced no material disruption related to Year 2000 compliance issues.
PROPERTIES
Our general offices are located at 2200 Kensington Court, Oak Brook,
Illinois 60523.
Information about our main properties appears below:
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
Downers Grove, Illinois 23,962 Leased June 30, 2004
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
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
Chicago, Illinois (2) 18,168 Leased May 31, 2001
Hanover, Maryland (2) 57,500 Leased June 26, 2003
Colorado Springs, Colorado 493,000 Owned
Wilton, New York 795,000 Leased September 1, 2007
Loxley, Alabama (3) 103.6 acres Leased May 27, 2009
Brantford, Ontario, Canada (4) 434,000 Leased March 31, 2006
Calgary, Alberta, Canada (4) 240,000 Leased December 31, 2001
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased April 30, 2002
Paint Manufacturing Facilities:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois 194,000 Owned
Other Property:
Aurora, Illinois 72 acres Owned
LaCrosse, Wisconsin (5) 3 acres Owned
(1) This property is leased by our subsidiary Ace Hardware Canada, Limited for
its corporate office.
(2) This property is leased for use as a freight consolidation center.
(3) This property was purchased by the Company in May, 1999 then sold and
leased back from the Industrial Development Board of the town of Loxley. A
distribution warehouse of approximately 800,000 square feet is under
construction and expected to be in operation during the third quarter of
2000.
(4) Our subsidiary, Ace Hardware Canada, Limited leases this property for a
distribution warehouse. The Brantford property includes 80,000 square feet
leased for a two-year period from January 1, 1998-December 31, 2000.
(5) This land is adjacent to our LaCrosse, Wisconsin warehouse.
In addition to the above, we or our subsidiaries, A.H.C. Store Development
Corp. and Ace Corporate Stores, Inc. lease other property for retail hardware
stores ranging from approximately 13,000 to 20,000 square feet in size. The
numbers and locations of these leased retail stores as of the date of this
filing are summarized in the table below:
Number of
State Retail Store Leases
----- -------------------
Colorado 1
Georgia 6
Illinois 6
New Jersey 1
Washington 8
Wisconsin 1
We also lease a fleet of trucks and equipment for the main purpose of
delivering merchandise from our warehouses to our dealers.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 30
Consolidated Balance Sheets as of January 1, 2000 and January 2, 1999 31
Consolidated Statements of Earnings and Consolidated Statements of
Comprehensive Income for each of the years in the three-year
period ended January 1, 2000 33
Consolidated Statements of Member Dealers' Equity for each of the
years in the three-year period ended January 1, 2000 34
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended January 1, 2000 35
Notes to Consolidated Financial Statements 36
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 January 1, 2000 and January 2, 1999 and the
related consolidated statements of earnings, comprehensive income, member
dealers' equity and cash flows for each of the years in the three-year period
ended January 1, 2000. 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 January 1, 2000 and
January 2, 1999, and the results of their operations and their cash flows for
each of the years in the three-year period ended January 1, 2000 in conformity
with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
January 26, 2000
ACE HARDWARE CORPORATION
----------
CONSOLIDATED BALANCE SHEETS
January 1, 2000 and January 2, 1999
ASSETS
January 1, January 2,
2000 1999
---------- ----------
(000's omitted)
Current assets:
Cash and cash equivalents $ 35,422 $ 53,901
Receivables:
Trade 319,722 345,182
Other 53,782 54,517
----------- -----------
$ 373,504 $ 399,699
Less allowance for doubtful receivables (2,625) (2,725)
----------- -----------
Net receivables $ 370,879 $ 396,974
Inventories (Note 2) 373,090 334,405
Prepaid expenses and other current assets 13,341 15,146
----------- -----------
Total current assets $ 792,732 $ 800,426
----------- -----------
Property and equipment (Note 10):
Land 18,210 16,952
Buildings and improvements 187,709 180,854
Warehouse equipment 79,573 70,315
Office equipment 82,373 74,567
Manufacturing equipment 15,446 13,817
Transportation equipment 16,426 16,076
Leasehold improvements 17,400 18,049
Construction in progress 14,456 --
----------- -----------
$ 431,593 $ 390,630
Less accumulated depreciation and
amortization (184,419) (163,176)
----------- -----------
Net property and equipment $ 247,174 $ 227,454
Other assets 41,578 19,700
----------- -----------
$1,081,484 $1,047,580
=========== ===========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
----------
CONSOLIDATED BALANCE SHEETS
January 1, 2000 and January 2, 1999
LIABILITIES AND MEMBER DEALERS' EQUITY
January 1, January 2,
2000 1999
----------- -----------
(000's omitted)
Current liabilities:
Current installments of long-term debt
(Note 4) $ 4,067 $ 7,433
Short-term borrowings (Note 3) 49,869 25,000
Accounts payable 449,497 465,862
Patronage dividends payable in cash (Note 5) 38,173 34,826
Patronage refund certificates payable (Note 5) 373 20,655
Accrued expenses 69,990 54,724
----------- -----------
Total current liabilities $ 611,969 $ 608,500
Long-term debt (Note 4) 111,895 115,421
Patronage refund certificates payable (Note 5) 55,257 43,465
Other long-term liabilities 22,400 18,682
----------- -----------
Total liabilities $ 801,521 $786,068
----------- -----------
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value $ 3,856 $ 3,846
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 241,226 226,571
Class C Stock of $100 par value, issuable
to dealers for patronage dividends 21,648 26,170
Additional stock subscribed, net 498 471
Retained earnings 594 3,292
Contributed capital 13,485 3,295
Accumulated other comprehensive income 291 (818)
----------- -----------
$ 288,097 $ 269,326
Less: Treasury stock, at cost (8,134) (7,814)
----------- -----------
Total member dealers' equity $ 279,963 $ 261,512
Commitments (Notes 6 and 10) ----------- -----------
$1,081,484 $1,047,580
=========== ===========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
---------
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended
--------------------------------------------
January 1, January 2, December 31,
2000 1999 1997
------------- ------------- ----------------
(000's omitted)
Net sales $3,181,802 $3,120,380 $2,907,259
Cost of sales 2,892,287 2,863,156 2,677,537
----------- ----------- -----------
Gross profit $ 289,515 $ 257,224 $ 229,722
----------- ----------- -----------
Operating expenses:
Warehouse and distribution 40,232 38,980 39,364
Selling, general and administrative 90,513 85,504 77,917
Retail success and development 57,149 32,907 25,573
----------- ----------- -----------
Total operating expenses 187,894 157,391 142,854
----------- ----------- -----------
Operating income 101,621 99,833 86,868
Interest expense (Note 12) (16,651) (17,350) (14,816)
Other income, net 9,425 7,213 6,245
Income taxes (Note 7) (1,833) (1,736) (1,910)
----------- ----------- -----------
Net earnings $ 92,562 $ 87,960 $ 76,387
=========== =========== ===========
Retained earnings at beginning
of year $ 3,292 $ 3,354 $ 3,120
Net earnings 92,562 87,960 76,387
Patronage dividends (Notes 5 and 8) (95,260) (88,022) (76,153)
----------- ----------- -----------
Retained earnings at end of year $ 594 $ 3,292 $ 3,354
=========== =========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
-------------------------------------------
January 1, January 2, December 31,
2000 1999 1997
-------------------------------------------
(000's omitted)
Net earnings $ 92,562 $ 87,960 $ 76,387
Foreign currency translation, net 1,109 (483) (285)
----------- ----------- -----------
Comprehensive income $ 93,671 $ 87,477 $ 76,102
=========== =========== ===========
See accompanying notes to consolidated financial statements.
<TABLE>
ACE HARDWARE CORPORATION
----------
CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended January 1, 2000 (000's omitted)
Class C Stock
Issuable to Accumulated
Dealers for Additional Other
Class A Class B Class C Patronage Stock Retained Contributed Comprehensive Treasury
Stock Stock Stock Dividends Subscribed* Earnings Capital Income Stock Total
----- ----- ----- --------- ----------- -------- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 $3,937 $6,499 $196,742 $26,474 $ 502 $ 3,120 $ 3,295 $ (50) $(7,206) $233,313
Net earnings -- -- -- -- -- 76,387 -- -- -- 76,387
Net payments on
subscriptions -- -- -- -- 2,906 -- -- -- -- 2,906
Patronage financing
deductions -- -- -- (119) -- -- -- -- -- (119)
Stock issued 236 -- 29,263 (26,355) (3,025) -- -- -- -- 119
Stock repurchased -- -- -- -- -- -- -- -- (13,055) (13,055)
Stock retired (299) -- (12,396 -- -- -- -- -- 12,695 --
Patronage dividends issuable -- -- -- 22,366 -- -- -- -- -- 22,366
Patronage dividends payable -- -- -- -- -- (76,153) -- -- -- (76,153)
Accumulated other
comprehensive income -- -- -- -- -- -- -- (285) -- (285)
------- ------- -------- --------- ------- --------- -------- ------ -------- ---------
Balance at December 31,
1997 $3,874 $6,499 $213,609 $22,366 $ 383 $ 3,354 $ 3,295 $(335) $(7,566) $245,479
Net earnings -- -- -- -- -- 87,960 -- -- -- 87,960
Net payments on
subscriptions -- -- -- -- 1,463 -- -- -- -- 1,463
Patronage financing
deductions -- -- -- (485) -- -- -- -- -- (485)
Stock issued 215 -- 23,526 (21,881) (1,375) -- -- -- -- 485
Stock repurchased -- -- -- -- -- -- -- -- (11,055) (11,055)
Stock retired (243) -- (10,564) -- -- -- -- -- 10,807 --
Patronage dividends issuable -- -- -- 26,170 -- -- -- -- -- 26,170
Patronage dividends payable -- -- -- -- -- (88,022) -- -- -- (88,022)
Accumulated other
comprehensive income -- -- -- -- -- -- -- (483) -- (483)
------- ------- --------- -------- ------- --------- -------- ------ -------- ---------
Balance at January 2,
1999 $3,846 $6,499 $226,571 $26,170 $ 471 $ 3,292 $ 3,295 $(818) $(7,814) $261,512
Net earnings -- -- -- -- -- 92,562 -- -- -- 92,562
Net payments on
subscriptions -- -- -- -- 711 -- -- -- -- 711
Patronage financing
deductions -- -- -- (847) -- -- -- -- -- (847)
Stock issued 238 -- 26,616 (25,323) (684) -- -- -- -- 847
Stock repurchased -- -- -- -- -- -- -- -- (12,509) (12,509)
Stock retired (228) -- (11,961) -- -- -- -- -- 12,189 --
Patronage dividends issuable -- -- -- 21,648 -- -- 10,190 -- -- 31,838
Patronage dividends payable -- -- -- -- -- (95,260) -- -- -- (95,260)
Accumulated other
comprehensive income -- -- -- -- -- -- -- 1,109 -- 1,109
------- ------- --------- -------- ------- --------- -------- ------ -------- ---------
Balance at January 1, 2000 $3,856 $6,499 $241,226 $21,648 $ 498 $ 594 $13,485 $ 291 $(8,134) $279,963
======= ======= ========= ======== ======= ========= ======== ====== ======== =========
*Additional stock subscribed is comprised of the following amounts at December 31, 1997, January 2,
1999 and January 1, 2000:
</TABLE>
1997 1998 1999
------ ------ ------
Class A Stock $ 86 $ 60 $ 118
Class B Stock -- -- --
Class C Stock 1,085 955 1,452
------ ------ ------
1,171 1,015 1,570
Less unpaid portion 788 544 1,072
------ ------ ------
$ 383 $ 471 $ 498
====== ====== ======
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
----------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
--------------------------------------------
January 1, January 2, December 31,
2000 1999 1997
---------- ---------- ------------
(000's omitted)
Operating Activities:
Net earnings $ 92,562 $ 87,960 $ 76,387
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 23,396 21,536 19,494
Loss on sale of property and
equipment 28 425 285
Decrease (Increase) in
accounts receivable, net 26,174 (32,061) (15,835)
Decrease (Increase) in
inventories (37,549) 2,689 (12,067)
Decrease (Increase) in
prepaid expenses and other
current assets 1,805 (1,531) (1,735)
Increase (Decrease) in
accounts payable and accrued
expenses (1,203) 42,082 46,000
Increase in other long-term
liabilities 3,718 3,960 5,205
----------- ----------- -------------
Net Cash Provided by
Operating Activities 108,931 125,060 117,734
----------- ----------- ------------
Investing Activities:
Purchase of property and
equipment (43,497) (21,036) (42,921)
Proceeds from sale of property
and equipment 349 8,148 149
Increase in other assets (21,878) (8,843) (6,946)
----------- ----------- -------------
Net Cash Used in Investing
Activities (65,026) (21,731) (49,718)
----------- ----------- -------------
Financing Activities:
Proceeds (payments) of
short-term borrowings 24,869 (17,000) (29,000)
Proceeds from notes payable -- 26,117 32,994
Payments on long-term debt (6,892) (7,593) (7,228)
Payment of cash portion of
patronage dividend (34,826) (29,943) (28,178)
Payments of patronage refund
certificates and patronage
financing deductions (34,557) (25,588) (24,941)
Proceeds from sale of common
stock 1,531 1,463 2,906
Repurchase of common stock (12,509) (11,055) (13,055)
----------- ----------- -------------
Net Cash Used in Financing
Activities (62,384) (63,599) (66,502)
----------- ----------- -------------
Increase (Decrease) in Cash and
Cash Equivalents (18,479) 39,730 1,514
Cash and Cash Equivalents at
beginning of year 53,901 14,171 12,657
----------- ----------- -------------
Cash and Cash Equivalents at
end of year $ 35,422 $ 53,901 $ 14,171
=========== =========== =============
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, and manufactures paint products. As a dealer-owned
cooperative, the Company distributes substantially all of its patronage
sourced earnings in the form of patronage dividends to member dealers based
on their volume of merchandise purchases.
(b) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(c) Consolidations
The accompanying consolidated financial statements include the accounts of
the Company and subsidiaries. All significant intercompany transactions
have been eliminated. The equity method of accounting is used for the
Company's 50% or less owned affiliates over which the Company has the
ability to exercise significant influence. The Company has other
investments that are accounted for at cost.
(d) 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. The Company recognizes revenue from product sales
upon the shipment to customers.
(e) Inventories
Inventories are valued at the lower of cost or net realizable value. Cost
is determined primarily using the last-in, first-out method.
(f) 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.
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(g) 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. Gains and losses in these
foreign hedges are included in the basis of the underlying hedged investment.
During 1999 the Company settled all outstanding foreign currency contracts that
resulted in a gain of approximately $2.0 million reflected within accumulated
other comprehensive income at January 1, 2000. Foreign currency translation
adjustments, net of gains on foreign exchange contracts, are reflected in the
accompanying Consolidated Statement of Comprehensive Income for 1999, 1998 and
1997. The Company does not have any outstanding foreign exchange forward
contracts at January 1, 2000.
(h) Financial Instruments
The carrying value of assets and liabilities that meet the definition of a
financial instrument included in the accompanying Consolidated Balance Sheets
approximate fair value.
(i) 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.
(j) 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.
(k) Fiscal Year
Effective January 1, 1998 the Company changed its fiscal year from December
31st to the Saturday nearest December 31st. Accordingly, 1999 and 1998 ended on
January 1, 2000 and January 2, 1999, respectively.
(l) Reclassifications
Certain financial statement reclassifications have been made to prior year
amounts to conform to comparable classifications followed in 1999.
(2) Inventories
Inventories consist primarily of merchandise inventories. Substantially
all of the Company's domestic inventories are valued on the last-in, first-out
(LIFO) method; the excess of replacement cost over the LIFO value of inventory
was approximately $61,483,000 and $62,093,000 at January 1, 2000 and January 2,
1999, respectively. Indirect costs, consisting primarily of warehousing costs,
are absorbed as inventory costs rather than period costs.
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Short-Term Borrowings
Short-term borrowings were utilized during 1999 and 1998. The maximum
amount outstanding at any month-end during the period was $108.0 million in
1999 and $67.0 million in 1998. The weighted average interest rate effective as
of January 1, 2000 and January 2, 1999 was 6.84% and 5.03%, respectively.
Short-term borrowings outstanding as of January 1, 2000 and January 2, 1999
were $49.9 million and $25.0 million, respectively. At January 1, 2000 the
Company has available a revolving credit facility with a group of banks
providing for $125 million in committed lines and also has available $85
million in uncommitted lines. The aggregate unused line of credit available at
January 1, 2000 and January 2, 1999 was $160.1 million and $185.0 million,
respectively. At January 1, 2000 the Company had no compensating balance
requirements.
(4) Long-Term Debt
Long-term debt is comprised of the following:
January 1, January 2,
2000 1999
---------- ----------
(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% $ 8,108 $ 10,270
$20,000,000 due in quarterly
installments of $952,400 with
interest payable quarterly at a
fixed rate of 6.89% 952 4,762
$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 $714,300
commencing September 15, 2004
with interest payable quarterly
at a fixed rate of 7.49% 20,000 20,000
$30,000,000 due in annual
installments of $6,000,000
commencing March 25, 2005 with
interest payable quarterly at a
fixed rate of 7.55% 30,000 30,000
$25,000,000 due in annual
installments of $5,000,000
commencing February 9, 2006 with
interest payable quarterly at a
fixed rate of 6.61% 25,000 25,000
Liability under capitalized leases
(see Note 10) 510 1,370
Installment notes with maturities
through 2003 with various interest
rates 1,392 1,452
---------- ----------
115,962 122,854
Less current installments 4,067 7,433
---------- ----------
$ 111,895 $ 115,421
========== ==========
Aggregate maturities of long-term debt are $4,067,000, $6,678,000,
$6,467,000, $5,750,000 and $5,429,000 in 2000 through 2004, respectively, and
$87,571,000 thereafter.
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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. In 1999,
amounts exceeding the cash portion will be distributed in the form of options
(i.e. other property) excercisable by the dealers at a future date to acquire
shares of the Company's ownership in a minority-owned investment. Amounts
exceeding the cash and option 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 patronage financing programs.
The patronage dividend composition for 1999, 1998 and 1997 follows:
Subordinated Class Patronage Total
Cash Refund C Other Financing Patronage
Portion Certificates Stock Property Deductions Dividend
------- ------------ ----- -------- ---------- --------
(000's omitted)
1999 $38,173 $12,249 $21,648 $10,190 $13,000 $95,260
1998 34,826 15,720 26,170 -- 11,306 88,022
1997 29,943 13,726 22,366 -- 10,118 76,153
Patronage dividends are allocated on a fiscal year basis with issuance in
the following year.
The patronage refund certificates outstanding or issuable at January 1,
2000 are payable as follows:
Interest
January 1, Amount Rate
---------- ------ --------
(000's omitted)
2000 $ 373 7.00%
2001 4,838 6.00
2002 9,202 6.25
2003 13,484 6.00
2004 15,484 6.00
2005 12,249 6.25
A portion of the patronage refund certificates payable on January 1, 2000
were prepaid. Patronage refund certificates due on January 1, 2001 are
classified as non-current liabilities as the due date extends beyond fiscal
year ending December 30, 2000.
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Retirement Plans
The Company has defined benefit pension plans covering substantially all
non-union employees. Benefits are based on years of service, highest average
compensation (as defined) and the related profit sharing and primary social
security benefit. Contributions to the plan are based on the Entry Age Normal,
Frozen Initial Liability actuarial funding method and are limited to amounts
that are currently deductible for tax reporting purposes. As of January 1, 2000
plan assets were held primarily in equities, mutual funds and group annuity
contracts.
Pension expense for the years included the following components:
January 1, January 2, December 31,
2000 1999 1997
----------- ----------- -----------
(000's omitted)
Service cost - benefits earned
during the period $ 309 $ 293 $ 358
Interest cost on projected
benefit obligation 399 428 351
Actual return on plan assets (733) (710) (630)
Net amortization and deferral 125 87 53
----------- ----------- -----------
Net periodic pension expense $ 100 $ 98 $ 132
=========== =========== ===========
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheets at January 1, 2000 and
January 2, 1999:
January 1, January 2,
2000 1999
----------- -----------
(000's omitted)
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,341 $ 5,041
Service cost 309 293
Interest cost 399 428
Actuarial losses (gains) (213) 325
Benefits paid (424) (746)
----------- -----------
Benefit obligation at end of year 5,412 5,341
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning
of year 9,448 9,122
Actual return on plan assets 1,198 1,001
Employer contribution 71 71
Benefits paid (424) (746)
----------- -----------
Fair value of plan assets at end of year 10,293 9,448
----------- -----------
Funded status 4,881 4,107
Unrecognized transition asset (78) (91)
Unamortized prior service cost (583) (631)
Unrecognized net actuarial gains (3,634) (2,776)
----------- -----------
Prepaid pension cost included in other
assets $ 586 $ 609
=========== ===========
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% in 1999 and 7.0% in 1998.
The related expected long-term rate of return was 8.0% in 1999 and 1998. The
rate of increase in future compensation was projected using actuarial salary
tables plus 1.0% in 1999 and 1998. The Company will terminate the Employees'
Pension Plan and Trust effective April 30, 2000. The Company does not believe
that the termination will have a material adverse effect upon the financial
condition or results of operations of the Company.
The Company also participates in several multi-employer plans covering union
employees. Amounts charged to expense and contributed to the plans totaled
approximately $233,000, $216,000 and $225,000 in 1999, 1998 and 1997,
respectively.
The Company's profit sharing plan contribution for the years ended 1999,
1998 and 1997 was approximately $15,071,000, $13,746,000 and $12,240,000,
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 1999, 1998 and 1997 provisions for federal income taxes were $1,000,000,
$1,105,000 and $1,501,000, respectively, and for state income taxes were
$833,000, $631,000 and $409,000, respectively.
The Company made tax payments of $2,755,000, $1,374,000 and $2,807,000
during 1999, 1998 and 1997, respectively.
(8)Member Dealers' Equity
The Company's classes of stock are described below:
Number of Shares at
-------------------
January 1, January 2,
2000 1999
------------ ------------
Class A Stock, voting, redeemable at
par value -
Authorized 10,000 10,000
Issued and outstanding 3,856 3,846
Class B Stock, nonvoting, redeemable
at not less than twice par value-
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 2,432 2,592
Treasury stock 4,067 3,907
Class C Stock, nonvoting, redeemable at
not less than par value -
Authorized 4,000,000 4,000,000
Issued and outstanding 2,412,255 2,265,718
Issuable as patronage dividends 216,480 261,700
Additional stock subscribed:
Class A Stock 118 60
Class B Stock -- --
Class C Stock 14,520 9,550
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At January 1, 2000 and January 2, 1999 there were no common shares reserved
for options, warrants, conversions or other rights; nor were any options
granted or exercised during the two years then ended.
Member dealers may subscribe for the Company's stock in various prescribed
combinations. Only one share of Class A Stock may be owned by a dealer with
respect to the first member retail outlet controlled by such dealer. Only four
shares of Class B Stock may be owned by a dealer with respect to each retail
outlet controlled by such dealer, but only if such outlet was a member of the
Company on or before February 20, 1974. An appropriate number of shares of
Class C Stock must be included in any subscription by a dealer in an amount to
provide that such dealer has a par value of all shares subscribed for equal to
$5,000 for each retail outlet. Unregistered shares of Class C Stock are also
issued to dealers in connection with patronage dividends. No dividends can be
declared on any shares of any class of the Company's Stock.
Upon termination of the Company's membership agreement with any retail
outlet, all shares of stock of the Company, held by the dealer owning or
controlling such outlet, must be sold back to the Company, unless a transfer
of such shares is made to another party accepted by the Company as a member
dealer with respect to the same outlet.
A Class A share is issued to a member dealer only when the share subscribed
has been fully paid. Class B and Class C shares are only issued when all such
shares subscribed with respect to a retail outlet have been fully paid.
Additional stock subscribed in the accompanying statements represents the par
value of shares subscribed, reduced by the unpaid portion.
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 1997, 1998 and 1999 affecting treasury shares follow:
Shares Held in Treasury
-----------------------
Class A Class B Class C
-------- -------- ---------
Balance at December 31, 1996 -- 3,603 --
Stock issued -- -- --
Stock repurchased 299 180 123,964
Stock retired (299) -- (123,964)
-------- -------- ---------
Balance at December 31, 1997 -- 3,783 --
Stock issued -- -- --
Stock repurchased 243 124 105,639
Stock retired (243) -- (105,639)
-------- -------- ---------
Balance at January 2, 1999 -- 3,907 --
Stock issued -- -- --
Stock repurchased 228 160 119,614
Stock retired (228) -- (119,614)
-------- -------- ---------
Balance at January 1, 2000 -- 4,067 --
======== ======== =========
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(9)Segments
The Company is principally engaged as a wholesaler of hardware and related
products and manufacturer of paint products. The Company identifies segments
based on management responsibility and the nature of the business activities
of each component of the Company. The Company measures segment earnings as
operating earnings including an allocation for interest expense and income
taxes. Information regarding the identified segments and the related
reconciliation to consolidated information are as follows:
January 1, 2000
---------------
(000's omitted)
<TABLE>
Elimination of
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
--------- ------------- ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $3,128,269 $ 27,268 $26,265 -- $3,181,802
Intersegment sales 22,647 100,758 -- (123,405) --
Interest expense 16,651 1,383 590 (1,973) 16,651
Depreciation 21,022 1,589 785 -- 23,396
Segment earnings (loss) 85,574 9,475 (1,819) (668) 92,562
Identifiable segment assets 1,010,754 42,921 40,235 (12,426) 1,081,484
Expenditures for long-lived assets 35,446 2,846 5,201 -- 43,493
</TABLE>
January 2, 1999
---------------
(000's omitted)
<TABLE> Elimination of
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
--------- ------------- ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $3,086,913 $ 20,798 $12,669 -- $3,120,380
Intersegment sales 13,701 93,536 -- (107,237) --
Interest expense 17,350 1,464 244 (1,708) 17,350
Depreciation 19,808 1,392 336 -- 21,536
Segment earnings (loss) 78,442 10,364 (382) (464) 87,960
Identifiable segment assets 983,354 34,215 39,030 (9,019) 1,047,580
Expenditures for long-lived assets 16,331 937 3,768 -- 21,036
</TABLE>
December 31, 1997
-----------------
(000's omitted)
<TABLE> Elimination of
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
--------- ------------- ----- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $2,882,457 $ 18,788 $ 6,014 -- $2,907,259
Intersegment sales 4,377 89,490 -- (93,867) --
Interest expense 14,816 1,005 88 (1,093) 14,816
Depreciation 17,977 1,371 146 -- 19,494
Segment earnings (loss) 64,844 11,306 432 (195) 76,387
Identifiable segment assets 928,401 28,957 24,206 (4,086) 977,478
Expenditures for long-lived assets 40,860 806 1,255 -- 42,921
</TABLE>
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Net sales and long-lived assets by geographic region based upon customer
location for 1999, 1998 and 1997 were as follows:
January 1, 2000 January 2, 1999 December 31, 1997
--------------- --------------- -----------------
(000's omitted)
Net sales:
United States $2,975,567 $2,903,906 $2,717,881
Foreign countries 206,235 216,474 189,378
--------------- --------------- -----------------
Total $3,181,802 $3,120,380 $2,907,259
Long-lived assets,
net:
United States $ 242,743 $ 222,148 $ 230,036
Foreign countries 4,431 5,306 6,491
--------------- --------------- -----------------
Total $ 247,174 $ 227,454 $ 236,527
=============== =============== =================
(10)Commitments
Leased property under capital leases is included as "Property and Equipment"
in the Consolidated Balance Sheets as follows:
January 1, January 2,
2000 1999
---------- ----------
(000's omitted)
Data processing equipment $3,598 $3,600
Less: accumulated depreciation and
amortization (2,711) (1,905)
---------- ----------
$ 887 $1,695
========== ==========
The Company rents buildings and warehouse, office and certain other
equipment under capital and operating leases. At January 1, 2000 annual minimum
rental commitments under leases that have initial or remaining noncancelable
terms in excess of one year are as follows:
Year Ending, Capital Operating
------- ---------
(000's omitted)
2000 $ 454 $17,313
2001 93 15,407
2002 -- 10,454
2003 -- 7,429
2004 -- 6,352
Thereafter -- 18,073
------- ---------
Total minimum lease payments 547 $75,028
=========
Less amount representing interest 37
-------
Present value of total minimum lease payments $ 510
=======
ACE HARDWARE CORPORATION
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
All leases expire prior to 2014. 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
$39,149,000, $37,023,000 and $33,343,000 in 1999, 1998 and 1997, respectively.
Rent expense includes $7,352,000, $6,004,000 and $5,956,000 in contingent
rentals paid in 1999, 1998 and 1997, respectively, primarily for transportation
equipment mileage.
(11)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 $79,639,000, $70,254,000 and $65,013,000 was charged to operations
in 1999, 1998 and 1997, respectively.
(12)Interest Expense
Interest paid was $16,326,000, $16,553,000 and $15,281,000 in 1999, 1998 and
1997, respectively, net of capitalized interest of $234,000 and $1,022,000 in
1999 and 1997.
ACE HARDWARE CORPORATION
<TABLE> ----------
SELECTED FINANCIAL DATA
Income Statement Data:
January 1, January 2, December 31, December 31, December 31,
2000 1999 1997 1996 1995
---------- ---------- ------------ ------------ ------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
Net sales $3,181,802 $3,120,380 $2,907,259 $2,742,451 $2,436,012
Cost of sales 2,892,287 2,863,156 2,677,537 2,528,767 2,247,354
---------- ---------- ---------- ---------- ------------
Gross profit 289,515 257,224 229,722 213,684 188,658
Total expenses 196,953 169,264 153,335 141,377 124,916
---------- ---------- ---------- ---------- ------------
Net earnings $ 92,562 $ 87,960 $ 76,387 $ 72,307 $ 63,742
========== ========== ========== ========== ============
Patronage dividends
(Notes A, B, 5 and 8) $ 95,260 $ 88,022 $ 76,153 $ 73,837 $ 64,716
========== ========== ========== ========== ============
Balance Sheet Data:
January 1, January 2, December 31, December 31, December 31,
2000 1999 1997 1996 1995
---------- ---------- ------------ ------------ ------------
(000's omitted)
Total assets $1,081,484 $1,047,580 $ 977,478 $ 916,375 $ 759,133
Working capital 180,763 191,926 158,676 146,862 139,805
Long-term debt 111,895 115,421 96,815 71,837 57,795
Patronage refund certificates
payable, long-term 55,257 43,465 49,044 49,639 54,741
Member dealers' equity 279,963 261,512 245,479 233,313 217,245
(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. Patronage dividends were payable as
follows:
January 1, January 2, December 31, December 31, December 31,
2000 1999 1997 1996 1995
---------- ---------- ------------ ------------ ------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
In cash $ 38,173 $ 34,826 $ 29,943 $ 28,178 $ 23,522
In patronage refund certificates
payable 12,249 15,720 13,726 9,500 5,032
In Class C Stock 21,648 26,170 22,366 26,474 27,506
In other property 10,190 -- -- -- --
In patronage financing deductions 13,000 11,306 10,118 9,685 8,656
---------- ---------- ------------ ------------ ------------
Total patronage dividends $ 95,260 $ 88,022 $ 76,153 $ 73,837 $ 64,716
========== ========== ============ ============ ============
(C) Numbered notes refer to Notes to Consolidated Financial Statements, beginning on page 36.
(5) & (8) Refers to Notes 5 and 8 of the Consolidated Financial Statements beginning on page 36 of this Form S-2.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 financing.
The Company has an established, unsecured revolving credit facility with a
group of banks. The Company has unsecured lines of credit of $210.0 million of
which $160.1 million was available at January 1, 2000. Any borrowings under
these lines of credit would bear interest at the prime rate or less. Long-term
financing is arranged as determined necessary to meet the Company's capital or
other requirements, with principal amount, timing and form dependent on
prevailing debt markets and general economic conditions.
Capital expenditures for new and improved facilities were $43.5, $21.0 and
$42.9 million in 1999, 1998 and 1997, respectively. During 1999, the Company
financed the $43.5 million of capital expenditures out of current and
accumulated internally generated funds and short-term borrowings. Capital
expenditures for 2000 are anticipated to be approximately $60.3 million
primarily for a new distribution facility, improvements to existing facilities
and technology investments.
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.
The Company expects that existing and new internally generated funds, along
with established lines of credit and long-term financing, will continue to be
sufficient to finance the Company's working capital requirements and patronage
dividend and capital expenditures programs.
Operations 1999 Compared to 1998
On June 30, 1999 the Company entered into a business combination agreement
with Builder Marts of America, Inc. (BMA) to combine the LBM Division of the
Company with BMA. Under this agreement, the Company contributed defined
business assets (primarily vendor rebate receivables, fixed assets and
inventories) for a non-controlling interest in the combined entity. The
investment in the combined entity is accounted for under the equity method of
accounting. The accompanying consolidated financial statements include the
financial results of the LBM Division through the closing date of
August 2, 1999.
The total sales increase of 2.0% was effected by the business combination of
Ace LBM with BMA. As a result of this transaction, LBM sales are not reported
within the Company's sales results after August 2, 1999. Sales of basic
hardware and paint merchandise (including warehouse, bulletin and direct
shipments) increased 7.8% in 1999 primarily due to increased existing retailer
volume, targeted efforts on new store development within our retailer base and
conversions to the Ace program. Excluding international, domestic basic
business sales are up 8.6%. Sales were negatively impacted by a decline in
international sales. Net dealer outlets increased in 1999 due to targeted sales
efforts on new store development and conversions to the Ace program and
continued emphasis on retail success.
Gross profit increased $32.3 million or 12.6% and increased as a percent of
sales to 9.10% vs. 8.24% in 1998. This increase as a percent of sales results
partially from the loss of lower margin LBM volume. Higher cash discounts and
vendor rebates and increased margin from import products and retail operations
resulted in the gross profit increase.
Warehouse and distribution expenses increased $1.3 million and increased as
a percent of sales from 1.25% to 1.26%. Increased warehouse and distribution
costs required to support higher handled sales are partially offset by
increased logistics income. Higher logistics income combined with improvements
in productivity drove expenses as a percent of basic business sales down to
1.43% in 1999 from 1.49% in 1998.
Selling, general and administrative expenses increased by $5.0 million or
5.9% and increased as a percent to sales due to increased information
technology costs to support our Year 2000 efforts.
Retail success and development expenses increased $24.2 million or 73.7%
due to increased new business development costs, costs associated with
additional company-owned stores and costs to support retail initiatives.
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.
Operations 1998 Compared to 1997
Net sales increased 7.3% due to increases in existing retailer volume,
targeted efforts on new store development and conversions and increased sales
from company-owned retail locations. Sales of basic hardware and paint
merchandise (including warehouse, bulletin and direct shipments) increased 8.1%
while lumber and building materials sales increased 4.2%. Lumber sales were
negatively impacted by price deflation. Excluding Canada, international sales
increased 22.2% primarily due to new international store development. Net
dealer outlets increased in 1998 due to targeted sales efforts on new store
development and conversions to the Ace program and continued emphasis on retail
success.
Gross profit increased $27.5 million or 12.0% and increased as a percent of
sales to 8.24% vs. 7.90% in 1997. Domestic gross profit increased as a percent
of sales due to increased handling charges from sales mix shifts, increased
vendor rebates and lower warehouse costs absorbed into inventory. Gross profit
from additional company-owned stores also contributed to the increase.
Warehouse and distribution expenses decreased $384,000 and decreased as a
percent of sales from 1.35% to 1.25%. The decrease was due to increased traffic
and cross dock revenues and non-recurring start-up facility costs.
Selling, general and administrative expenses increased $7.6 million or 9.7%
and increased slightly as a percent to sales due to increased information
technology costs to support our Year 2000 efforts and lower costs absorbed into
inventory.
Retail success and development expenses increased $7.3 million or 28.7% due
to increased new business development costs and costs associated with
additional company-owned stores. 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.
Interest expense increased $2.5 million or 17.1% due to increased dealer
dating programs and long-term debt issued during 1998 to fund the replacement
of a facility.
Impact of New Accounting Standards
In June, 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting for derivative
instruments and hedging activities. In June, 1999 the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -Deferral of the
Effective Date of SFAS No. 133 - An Amendment of FASB Statement 133." This
statement delays the effective date for this standard until fiscal years
beginning after June 15, 2000. The Company is required to comply with SFAS No.
133 and SFAS No. 137 in fiscal year 2001. The Company has not evaluated the
impact of SFAS No. 133 or SFAS No. 137 on the consolidated financial
statements.
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
Our directors and executive officers are:
Position(s) Currently Held
Name Age and Business Experience (for the past 5 years)
---- --- ----------------------------------------------
Jennifer C. Anderson 49 Director since June 6, 1994; term expires
2000; President of Davis Lumber and Ace
Hardware, Inc., Davis, California since
November, 1985.
Richard F. Baalmann, Jr. 40 Director since June 7, 1999; term expires
2002; President of Homart, Inc., Centralia,
Illinois since May, 1988.
Eric R. Bibens II 43 Director since June 2, 1997; term expires
2000; President of Bibens Home Center, Inc.,
Springfield, Vermont since 1983.
Michael C. Bodzewski 50 Vice President, Marketing, Advertising and
Retail Operations East effective October,
1999; Vice President - Sales and Marketing
effective October, 1998; Vice President -
Merchandising effective June, 1990.
Lori L. Bossmann 39 Vice President - Finance effective October,
1999; Vice President-Controller effective
September, 1997; Controller effective
January, 1994.
Lawrence R. Bowman 53 Director since February 4, 1991; term expires
2001; President of Owenhouse Hardware
Co., Inc., Bozeman, Montana since February,
1996 and Vice President of that company
from March, 1988 until February, 1996.
James T. Glenn 40 Director since June 3, 1996; term expires
2002; President of Ace Hardware of
Chattanooga, Chattanooga, Tennessee since
January, 1990.
Ray A. Griffith 46 Vice President, Merchandising effective
October, 1998; Vice President - Retail
Development and Marketing effective
September, 1997; Director - Retail
Operations, Western Division effective
September, 1994; from July, 1993-April,
1994, President and Chief Executive Officer
of Servistar/Coast to Coast Corporation.
Daniel L. Gust 50 Director since June, 1998; term expires
2001; President of Garden Acres Ace
Hardware, Longmont, Colorado since
January, 1991.
D. William Hagan 42 Director since June 2, 1997; term expires
2000; President of Hagan Ace Hardware,
Orange Park, Florida since February, 1980.
Position(s) Currently Held
Name Age and Business Experience (for the past 5 years)
---- --- ----------------------------------------------
David F. Hodnik 52 President and Chief Executive Officer
effective January 1, 1996; President and
Chief Operating Officer effective January 1,
1995; Executive Vice President and Chief
Operating Officer effective January, 1994.
Paul M. Ingevaldson 54 Senior Vice President - International and
Technology effective September, 1997; Vice
President - Corporate Strategy and
International Business effective September,
1992.
Mark Jeronimus 51 Director since June 3, 1991; term expires
2000; President of Duluth Hardware, Inc.,
Duluth, Minnesota since February, 1984.
Howard J. Jung 52 Chairman of the Board and Director since
June, 1998; term expires 2001; Vice President
of Ace Hardware Stores, Inc., Raleigh, North
Carolina since June, 1997.
Rita D. Kahle 43 Senior Vice President - Wholesale effective
September, 1997; Vice President - Finance
effective January, 1994.
David W. League 60 Vice President-General Counsel and Secretary
effective June, 1990.
David F. Myer 54 Vice President-Retail Support effective
September, 1997; Vice President - Retail
Support and New Business effective October,
1994; Vice President - Retail Support
effective August, 1992.
Mario R. Nathusius 56 Director since June, 1998; term expires
2001; President of Cemaco S.A. Guatemala
City, Guatemala since March, 1978.
Fred J. Neer 60 Vice President - Human Resources effective
April, 1989.
Ken L. Nichols 51 Vice President, Retail Operations West
effective October, 1999; Vice President, New
Business effective October, 1998; Director,
Retail Operations, Eastern Division effective
October, 1994.
Roger E. Peterson 62 Director since June 5, 1995; term expires
2001; Chief Executive Officer effective
January 1, 1995 through May 31, 1995.
Richard W. Stine 54 Director since June 7, 1999; term expires
2002; Vice President of Stine, Inc., Sulphur,
Louisiana since September, 1976.
Our By-laws provide that our Board shall have between 9 and 12 directors. A
minimum of 9 directors must be dealer directors. A maximum of two directors may
be non-dealer directors. Non-dealer directors cannot exceed 25% of the total
number of directors in office at any one time. Non-dealer directors may (but do
not have to be) shareholders of ours who are in the retail hardware business.
Our By-laws provide for three classes of directors who are to be elected for
staggered 3-year terms.
Our By-laws also provide that no one can serve as a dealer director unless
that person is an owner, executive officer, general partner or general manager
of a retail business organization that is a shareholder of ours. Regional
dealer directors are elected from geographic regions of the United States. The
Board under Article IV, Section 1 of our By-laws, determines these regions. If
the Board finds that regional dealer directors represent all regions, then
dealer directors at large may be elected, so long as the maximum number of
directors allowed under our By-laws is not exceeded.
A geographic breakdown of our current regions for the election of directors
at our 2000 annual stockholders meeting to be held on June 5, 2000 appears
below:
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, Ohio;
Region 3- Alabama, Mississippi, Georgia, Florida;
Region 4- Indiana, Illinois, Michigan, Wisconsin;
Region 5- Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana,
Nebraska, North Dakota, South Dakota, Utah, Wyoming;
Region 6- Arkansas, Louisiana, Oklahoma, Texas, New Mexico, Arizona;
Region 7- Hawaii, California, Nevada, Oregon, Washington, Alaska
Under the procedure required by our By-laws, the following directors have
been selected as nominees for reelection as dealer directors at the 2000 annual
stockholders meeting:
Nominee Age Class Region Term
- ------- --- ----- ------ ----
Eric R. Bibens II 43 First 1 3 years
D. William Hagan 42 First 3 3 years
Jennifer C. Anderson 49 First 7 3 years
Mark Jeronimus is not eligible for reelection as a director beginning in 2000.
The person named below has been selected as a nominee for election to the Board
for the first time at the 2000 annual meeting as a dealer director of the
class, from the region and for the term indicated:
Nominee Age Class Region Term
- ------- --- ----- ------ ----
Richard A. Karp 48 First N/A* 3 years
*Non-dealer directors and dealer directors at large are not elected from
particular geographic regions.
Article IV of our By-laws has information about the qualifications for
membership on the Board of Directors, the terms of directors, the limitations
on the total period of time that a director may hold office, the procedure for
Nominating Committees to select candidates and nominees for election to the
Board of Directors and the procedure for filling vacancies on the Board if one
occurs during an unexpired term.
INDEMNIFICATION OBLIGATIONS OF COMPANY AND S.E.C. POSITION ON
SECURITIES ACT INDEMNIFICATION
Under Article EIGHTH (b) of our restated Certificate of Incorporation, and
Article XV, Section 1 of our By-laws, we must indemnify people who serve as our
directors, officers, employees or agents 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] that they reasonably incur or suffer in
connection with any action, suit or proceeding (whether civil, criminal,
administrative or investigative) that is brought or threatened against them
because of their service in any of these capacities on our behalf or at our
request. The same section of our restated Certificate of Incorporation also
permits litigation expenses to be advanced to these people without the specific
approval of the Board of Directors under certain circumstances.
Also, Article EIGHTH (a) of our restated Certificate of Incorporation
provides that a person who serves as our director will not be personally liable
either to us or to our stockholders for money damages arising solely out of
that person'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.
This indemnification would cover proceedings under the federal Securities
Act of 1933. However, we have been advised that in the opinion of the
Securities and Exchange Commission this type of indemnification is against
public policy as expressed in the federal Securities Act of 1933 and is
therefore unenforceable. If a claim for indemnification (other than for our
payment of expenses of a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is made by a director,
officer or controlling person in connection with the securities being offered
by this Prospectus, (unless in the opinion of our legal counsel the matter
has been settled by controlling precedent), we will submit the question of
whether our indemnification would be against public policy under the Act to an
appropriate court so that the issue can be finally determined.
We have not authorized any dealer,
salesman, or any other person to give any
information or make any representations
other than those contained in this
ACE HARDWARE CORPORATION Prospectus in connection with this
offering. This Prospectus is not an
offer to sell, or a solicitation of an
offer to buy, to any person in any state
where it is unlawful to make that type of
1,249 Shares of Class A solicitation. The delivery of this
(Voting) Stock Prospectus at any time does not imply
$1,000 par value that there has been no change in our
Company's affairs afterward.
35,780 Shares of Class C
(Nonvoting) Stock In Florida the securities covered by
$100 par value this Prospectus are being offered under a
limited offering exemption which allows
Florida purchasers to cancel their
purchases of this stock 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 6
Description of Capital Stock 8
Opinions of Experts 12
PROSPECTUS The Company's Business 12
Properties 27
Index to Consolidated Financial
Statements 29
------------------ Independent Auditors' Report 30
Consolidated Financial Statements 31
Notes To Consolidated Financial
Statements 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 47
Dated:_____________, 2000 Management 49
Indemnification Obligations of
Company and S.E.C. Position on
Securities Act Indemnification 52
Appendix A-By-laws of Ace Hardware
Corporation A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an estimate of expenses in connection with the issuance and
distribution of the capital stock being offered:
Printing of Registration Statement and Prospectus $10,000
Accounting Fees and Expenses 12,000
Legal Fees 2,000
Fees and Expenses under "Blue Sky" Laws of Various States 3,500
Miscellaneous Expenses 500
-------
Total $28,000
=======
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the General Corporation Law of the State of Delaware,
where we are incorporated, Article XV of our By-Laws (see Appendix A to the
Prospectus which is a part of this Registration Statement and is included by
reference) provides for us to indemnify our directors, officers, employees or
agents. The main provisions of this By-law obligate us to indemnify these
persons against expenses (including attorneys' fees) that they actually and
reasonably incur in connection with their successful defense of certain
proceedings. These proceedings include any action, suit or proceeding (whether
civil, criminal, administrative or investigative) that are instituted against
them because they are (or were) one of our officers, directors, employees or
agents. This By-law also authorizes us to indemnify these people for the amount
of any judgment, fine or settlement payments they incur, along with expenses
and attorneys' fees, in connection the proceedings described above if certain
circumstances occur. These circumstances are that a majority of disinterested
directors on our Board of Directors must vote to find that the person being
indemnified acted in good faith and in a manner he reasonably believed to be
in our best interest.
Richard Kaup, the late Virgil Poss, and Antone Salel, were the Trustees of
the Ace Dealers' Perpetuation Fund. This fund was terminated on November 30,
1976. As of that date, all of the assets of that fund were transferred to us
and we then became responsible for all obligations and liabilities of the
Trustees of that fund. We also agreed to indemnify the Trustees named above
for any of their activities as Trustees under the terms stated below. These
terms were included in the following resolution adopted by the unanimous vote
of our Board of Directors 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".
However, we have been advised that in the opinion of the Securities and
Exchange Commission this type of indemnification is against public policy as
expressed in the federal Securities Act of 1933 and is, therefore,
unenforceable. If a claim for indemnification (other than for our payment of
expenses of a director, officer or controlling person in the successful defense
of any action, suit or proceeding) is made by a director, officer or
controlling person in connection with the securities being offered by this
Prospectus, (unless in the opinion of our legal counsel the matter has been
settled by controlling precedent), we will submit the question of whether our
indemnification would be against public policy under the Act to an appropriate
court so that the issue can be finally determined.
We also maintain Directors and Officers Liability coverage for limits which
we believe are reasonable and appropriate for our exposure. Coverage is placed
with insurers who are rated "A" by A.M. Best's rating service. The coverage is
periodically reviewed by our broker regarding the adequacy of our limits and
coverage.
Item 16. Exhibits.
Exhibit
No. Exhibit
- ------------ -------
1 No Exhibit.
2 No Exhibit.
3-A Copy of 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.
3-B By-laws of the Registrant as amended through January 25, 2000
(included as Appendix A to the Prospectus constituting a part
of the Post-Effective Amendment No. 5 to the Registrant's Form
S-2 Registration Statement).
3-C Copy of 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.
3-D Copy of 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.
3-E Copy of 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.
3-F Copy of Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 5, 1987 filed as
Exhibit 3-F to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and incorporated
herein by reference.
3-G Copy of Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 16, 1989 filed as
Exhibit 4-G to Post-Effective Amendment No. 1 to the Registrant's
S-2 Registration Statement (Registration No. 33-27790) on
March 20, 1990 and incorporated herein by reference.
3-H Copy of Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 3, 1996 filed as
Exhibit 4-H to Post-Effective Amendment No. 2 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) filed
on or about March 12, 1997 and incorporated herein by reference.
4-A 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-B 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-C 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-D 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-E 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 or about March 23, 1994
and incorporated herein by reference.
4-F Copy of plan for the distribution of patronage dividends with
respect to purchases of merchandise made from the Registrant on
and after January 1, 1999 adopted by the Board of Directors of the
Registrant.
4-G Copy of LBM Retailer Incentive Pool Plan adopted on December 8,
1999 by the Board of Directors of the Registrant.
5 Opinions of David W. League, Vice President and General Counsel
of the Registrant, as to the legality of securities being
registered.
6 No Exhibit.
7 No Exhibit.
8 Exhibit 5(a) 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 sub-heading
"Federal Income Tax Status of Class A and Class C Shares" and
sub-heading "Federal Income Tax Treatment of Patronage Dividends"
in the Prospectus constituting a part of this Post-Effective
Amendment No.5 to the Registrant's Form S-2 Registration
Statement.
10-A Copy of Ace Hardware Corporation Retirement Benefits Replacement
Plan Restated and Adopted December 7, 1993 filed as Exhibit 10-A
to Post-Effective Amendment No. 3 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 18, 1998 and incorporated herein by reference.
10-B Copy of First Amendment to Restated Ace Hardware Corporation
Retirement Benefits Replacement Plan adopted on August 19, 1997
filed as Exhibit 10-B to Post-Effective Amendment No. 3 to the
Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 18, 1998 and incorporated herein by
reference.
10-C Copy of First Amendment to Ace Hardware Corporation Deferred
Compensation Plan adopted on August 19, 1997 filed as Exhibit
10-C to Post-Effective Amendment No. 3 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-58191) on or about
March 18, 1998 and incorporated herein by reference.
10-D Copy of Restated PREP Plan (formerly known as Executive
Supplemental Benefit Plans) adopted August 19, 1997 filed as
Exhibit 10-D to Post-Effective Amendment No. 3 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 18, 1998 and incorporated herein by reference.
10-E Copy of the Ace Hardware Corporation Restated Officer Incentive
Plan effective January 1, 1999 filed as Exhibit 10-E to
Post-Effective Amendment No. 4 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1999 and incorporated herein by reference.
10-F Copy of Second Modification of Amended and Restated Note Purchase
and Private Shelf Agreement dated as of August 23, 1996 as
amended by the First Modification of Amended and Restated Purchase
and Private Shelf Agreement dated as of April 2, 1997 with The
Prudential Insurance Company of America filed as Exhibit 10-F to
Post-Effective Amendment No. 3 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 18, 1998 and incorporated herein by reference.
10-G Copy of Participation Agreement with PNC Commercial Corp. dated
December 17, 1997 establishing a $10,000,000 discretionary leasing
facility for the purchase of land and construction of retail
hardware stores filed as Exhibit 10-G to Post-Effective Amendment
No. 3 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 18, 1998 and
incorporated herein by reference.
10-H 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-I Copy of Note Purchase and Private Shelf Agreement with The
Prudential Insurance Company of America dated September 27, 1991
securing 8.74% Senior Series A Notes in the principal sum of
$20,000,000 with a maturity date of July 1, 2003 filed as Exhibit
10-A-q to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 23, 1992 and incorporated
herein by reference.
10-J Copy of current standard form of Ace Hardware Corporation
International Franchise Agreement filed as Exhibit 10-J to
Post-Effective Amendment No. 4 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1999 and incorporated herein by reference.
10-K 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-L 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-M 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-N Copy of Lease dated March 24, 1997 for print shop facility of
Registrant in Downers Grove, Illinois filed as Exhibit 10-N to
Post-Effective Amendment No. 3 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 18, 1998 and incorporated herein by reference.
10-O 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-P Copy of Deed of Lease with Arundel II L.L.C. dated as of
January 30, 1998 for the Registrant's redistribution center in
Hanover, Maryland filed as Exhibit 10-P to Post-Effective
Amendment No. 4 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-58191) on or about March 15, 1999
and incorporated herein by reference.
10-Q 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-R 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-S 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-T 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-U Copy of Ace Hardware Corporation Directors' Deferral Option Plan
Amended and Restated as of January 1, 1997 filed as Exhibit 10-U
to Post-Effective Amendment No. 4 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1999 and incorporated herein by reference.
10-V 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-W 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-X 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-12 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-Y 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-Z Copy of Executive Healthcare Plan adopted by the Board of
Directors of the Registrant on August 25, 1998 filed as Exhibit
10-Z to Post-Effective Amendment No. 4 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-58191) on or about
March 15, 1999 and incorporated herein by reference.
10-a-1 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-2 Copy 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-3 Copy of current standard form License Agreement for International
Retail Merchants adopted in 1996 filed as Exhibit 10-a-12 to
Post-Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 12, 1997 and incorporated herein by reference.
10-a-4 Copy of Lease Agreement dated as of September 1, 1996 for the
Registrant's project facility in Wilton, New York filed as Exhibit
10-a-13 to Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-58191) on or about
March 12, 1997 and incorporated herein by reference.
10-a-5 Copy 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 filed
as Exhibit 10-a-14 to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 12, 1997 and incorporated herein by
reference.
10-a-6 Copy of Second Amendment to the Restated Ace Hardware Corporation
Retirement Benefits Replacement Plan adopted on December 8, 1998
and effective January 1, 1999 filed as Exhibit 10-a-6 to
Post-Effective Amendment No. 4 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1999 and incorporated herein by reference.
10-a-7 Copy of Second Amendment to the Ace Hardware Corporation Long-Term
Incentive Compensation Deferral Option Plan adopted and effective
March 23, 1999.
10-a-8 Copy of First Amendment to Ace Hardware Corporation Directors'
Deferral Option Plan adopted and effective March 23, 1999.
10-a-9 Copy of Lease Agreement dated May 27, 1999 for the Registrant's
project facility in Loxley, Alabama.
10-a-10 Copy of Agreement dated October 29, 1999 between Registrant and
William A. Loftus.
10-a-11 Copy of Third Amendment to Restated Ace Hardware Corporation
Retirement Benefits Replacement Plan adopted December 8, 1999 and
effective January 1, 2000.
10-a-12 Copy of First Amendment to Ace Hardware Corporation Restated
Officer Incentive Plan adopted on December 8, 1999 and effective
January 1, 2000.
10-a-13 Copy of Ace Hardware Corporation Long-Term Incentive Compensation
Deferral Option Plan adopted December 8, 1999 and effective
January 1, 2000.
11 No Exhibit.
12 No Exhibit.
13 No Exhibit.
15 No Exhibit.
16 No Exhibit.
23 (a) Consent of KPMG LLP dated March 13, 2000.
(b) Consent of Counsel, Legal Opinion Exhibit 5(a).
24 Powers of Attorney.
25 No Exhibit.
26 No Exhibit.
27 Financial Data Schedule.
28 No Exhibit.
99 No Exhibit.
Item 17. Undertakings.
As the Registrant signing below, we undertake:
(a) Subject to Section 15(d) of the Securities Exchange Act of 1934, to
file with the Securities and Exchange Commission any supplementary or
periodic information, documents and reports as any rule or regulation of the
Commission that is adopted under the authority conferred in that section
requires.
(b) To file with the Securities and Exchange Commission, during any
period in which offers or sales are being made under this registration, a
post-effective amendment to this 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 its most recent
post-effective amendment) which, individually or together, represent a
fundamental change in the information set forth in the Registration
Statement;
(iii)to include any material information about the plan of
distribution that was not previously disclosed in the Registration
Statement or any material change to this information in the Registration
Statement, including, for example, any addition or deletion of a managing
underwriter.
(c) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment to this Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities being offered in it, and the offering of those securities at that
time shall be deemed to be the initial bonafide offering of them;
(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 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. 5 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 this day of March 15, 2000.
ACE HARDWARE CORPORATION
By HOWARD J. JUNG
-------------------------
Howard J. Jung
Chairman of the Board and Director
Pursuant to the Securities 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
HOWARD J. JUNG Chairman of the Board March 15, 2000
------------------------
Howard J. Jung and Director
DAVID F. HODNIK President and Chief March 15, 2000
------------------------
David F. Hodnik Executive Officer
LORI L. BOSSMANN Vice President-Finance March 15, 2000
------------------------
Lori L. Bossmann (Principal Financial and
Accounting Officer)
Jennifer C. Anderson, Richard F. Baalmann, Jr., Directors
Eric R. Bibens II, Lawrence R. Bowman,
James T. Glenn, Daniel L. Gust, D. William
Hagan, Mark Jeronimus, Mario R. Nathusius,
Roger E. Peterson and Richard W. Stine.
*By DAVID F. HODNIK
------------------------
David F. Hodnik
*By LORI L. BOSSMANN
------------------------
Lori L. Bossmann March 15, 2000
*Attorneys-in-fact
INDEX TO EXHIBITS FILED TO
THE REGISTRATION STATEMENT
ON FORM S-2 OF ACE HARDWARE CORPORATION
Exhibit
No. Exhibit
- ----------- -------
3-B By-laws of the Registrant as amended through January 25, 2000
(included as Appendix A to the Prospectus constituting a part of
this Post-Effective Amendment No. 5 to the Registrant's Form S-2
Registration Statement).
4-F Copy of plan for the distribution of patronage dividends with
respect to purchases of merchandise made from the Registrant from
January 1, 1999 adopted by the Board of Directors of the
Registrant.
4-G Copy of LBM Retailer Incentive Pool Plan adopted on December 8,
1999 by the Board of Directors of the Registrant.
5 (a) Opinion of David W. League, Vice President and General
Counsel of the Registrant as to legality of securities being
registered.
10-a-7 Copy of Second Amendment to the Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan adopted on
and effective March 23, 1999.
10-a-8 Copy of First Amendment to Ace Hardware Corporation Directors'
Deferral Option Plan adopted on and effective March 23, 1999.
10-a-9 Copy of Lease Agreement dated May 27, 1999 for the Registrant's
project facility in Loxley, Alabama.
10-a-10 Copy of Agreement dated October 29, 1999 between Registrant and
William A. Loftus.
10-a-11 Copy of Third Amendment to Restated Ace Hardware Corporation
Retirement Benefits Replacement Plan adopted on December 8, 1999
and effective January 1, 2000.
10-a-12 Copy of First Amendment to Ace Hardware Corporation Restated
Officer Incentive Plan adopted on December 8, 1999 and effective
January 1, 2000.
10-a-13 Copy of Ace Hardware Corporation Long-Term Incentive Compensation
Deferral Option Plan adopted on December 8, 1999 and effective
January 1, 2000.
23 (a) Consent of KPMG LLP dated March 13, 2000.
(b) Consent of Counsel, Legal Opinion Exhibit 5(a).
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. 5 to the Form S-2 Registration Statement of Ace
Hardware Corporation.
APPENDIX A
BY-LAWS
OF
ACE HARDWARE CORPORATION
(As Amended through January 25, 2000)
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 thereat not less than thirty
(30) nor more than sixty (60) days prior to the date of the meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail in a sealed envelope addressed to the stockholder at his
address as it appears on the records of the corporation, with postage prepaid
thereon. Notice of any special meeting shall state in general terms the
purposes for which the meeting is to be held.
SECTION 7. The holders of a majority of the stock outstanding and
entitled to vote at any meeting of the stockholders, represented in person or
by proxy, shall constitute a quorum for the transaction of business at such
meeting. In the absence of a quorum, the stockholders attending or
represented at the time and place for such meeting may adjourn the meeting
from time to time, without notice other than announcement of the time and
place of the adjourned meeting at the meeting at which the adjournment is
taken, until a quorum shall be present. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally scheduled.
ARTICLE IV
DIRECTORS
SECTION 1. The property and business of the corporation shall be
managed and controlled by 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 and one non-dealer director elected for 3-year
terms at the annual meeting of stockholders held in 1995, plus one non-dealer
director position for a three-year term to be filled at the 1998 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. However, notwithstanding
the foregoing provisions one director and one former director who would not
otherwise be eligible for election in 1998 may be elected at the annual
meeting of stockholders to be held in 1998, each for one additional three-year
term. 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
the time by the Board of Directors.
SECTION 2. Any Senior Vice President elected by the Board of Directors
shall possess the power and may perform the duties herein authorized to be
performed by an Executive Vice President in the event that there is no person
holding the office of Executive Vice President at the time, or in the event
of the absence or disability of all persons then holding the office of
Executive Vice President. Each officer having the title of Senior Vice
President shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
SECTION 3. Any Vice President elected by the Board of Directors shall
possess the power and may perform the duties herein authorized to be
performed by a Senior Vice President in the event that there is no person
holding the office of Senior Vice President at the time, or in the event of
the absence or disability of all persons then holding the office of Senior
Vice President. Each officer having the title of Vice President shall 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 anycase
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. Notwithstanding any of the provisions of this
Article XXIV, the remaining portion shall be distibuted in cash, written
notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue
Code) or other property 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) or other property and which
are received by such member from this corporation will be taken into account by
him at their stated dollar amounts (representing the fair market value at date
of distribution) in the manner provided in Section 1385(a) of said Code in the
taxable year in which such notices of allocation or other property 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. Ace Hardware Corporation may make or approve sales of
merchandise for delivery to any customers either directly, or under the terms
of a written agreement entered into with it by a person, partnership or
corporation operating one or more businesses, whether located within or outside
the United States of America, its territories and possessions, 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 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.
ACE HARDWARE CORPORATION
PATRONAGE DIVIDEND DISTRIBUTION PLAN ADOPTED BY THE
BOARD OF DIRECTORS FOR THE YEAR 1999 AND SUBSEQUENT YEARS
---------------------------------------------------------
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 exceeds $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 nonvoting 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 Ace manufactured paint and related products
purchases, plus
(ii) 3% of the volume of drop-shipment or direct purchases (excluding
Ace manufactured paint and related products), plus
(iii)15% of the volume of warehouse (including STOP and excluding Ace
manufactured paint and related products) and bulletin purchases,
plus
(iv) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C nonvoting 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 nonvoting 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.
LBM Retailer Incentive Pool Plan
Plan Description
Who is eligible?
Plan is only available to stockholders of Ace Hardware Corporation.
Eligible retailers are limited to member-shareholders of Ace who purchase LBM
through BMA and are a participant in the Ace Contractor Center program.
How does the plan work?
Ace will calculate an annual estimate of the amount by which it's stock in
BMA has increased or decreased in value from the amount of Ace's initial
investment net of taxes and administrative expenses, including the cost of the
Ace Contractor center program. The resulting amount is the LBM pool available
for allocation to eligible members.
The LBM pool will be allocated proportionately to each Participating
Members's interest based on cumulative "qualifying purchases". Qualifying
purchases are defined as the cumulative amount of purchases by category
(lumber, building materials and millwork). Member LTL purchases will not be
eligible for allocation.
Ace will furnish each participating member with an annual statement of the
current dollar amount of his or her payout of the pool. This will be done in
conjunction with the annual patronage dividend statement although this
allocation is not a patronage dividend. Estimates of the potential payout will
be provided in the same fashion as the patronage rebate estimates.
How is the incentive paid?
The pool amount is not paid in cash and is not a vested sum. The pool can
only be redeemed based on the following:
The termination of the shareholder's Ace membership which results in the
sale or redemption of all shares of Ace stock held at that location.
Ace's termination of the LBM Incentive Pool Plan.
Ace's liquidation.
The pool will be allocated annually. If a member's LBM pool balance is
eligible for redemption due to termination of the shareholder's membership,
then the most recent fiscal year end LBM pool balance will be redeemed.
Any redemption will be paid by Ace in the same manner as is applicable to
Ace's payment for the participating member's Ace stock, subject to first lien
rights on any sums due from the member to offset any other indebtedness owed by
the member-shareholder to Ace. If the balance is a negative number, the member
will not be charged.
What happens if the Ace retailer leaves the Ace Contractor Center?
The retailers balance will continue to vary based on the actual results of
the BMA investment. The cumulative amount of qualifying purchases will remain
at the cumulative amount purchased through BMA while the member was an Ace
Contractor Center. Over time, the retailers' interest in cumulative BMA/LBM
profits will decrease. The pool is not be eligible for redemption until the
member terminates his Ace shareholder membership.
What is the tax treatment for the Ace retailer upon redemption of their
interest?
All retailers will be afforded capital gain treatment on the incentive
payment.
What is the estimated annual LBM incentive percentage?
Based on our projections of BMA income and ACC retailer purchases, the
incentive percentage ranges from .20% to .31% of ACC purchases through BMA.
March 15, 2000
To the Board of Directors
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60523
Re: Total Shares Offered By Prospectus
1,249 Class A
35,780 Class C
Gentlemen:
This opinion relates to the legality of the 1,249 shares of Class A voting
stock (par value $1,000 per share) and 35,780 shares of Class C nonvoting
stock (par value $100 per share) of Ace Hardware Corporation (the "Company"),
a Delaware corporation, to be registered with the Securities and Exchange
Commission, all of which were previously registered under Registration
Statement No. 33-58191. 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 this Post-Effective Amendment No. 5 to the Form S-2 Registration Statement
of Ace Hardware Corporation 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 Alabama, Arizona, Arkansas, California, Colorado,
Connecticut, Florida, Georgia, Idaho, Illinois, Kentucky, Maryland,
Mississippi, Missouri, Nebraska, New York, North Carolina, Ohio, Oregon,
South Carolina, 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.
5 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 6,500 shares are presently issued and outstanding.
I have examined the restated Certificate of Incorporation, as amended, 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 an 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),
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. 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 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 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 prices 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 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.
Since Article Fourth (g) and Article Fourth (h) of the restated Certificate of
Incorporation of the Company provide (i) that the purchase or redemption price
to be paid by the Company for shares of its Class B Stock must at all times be
equal to 20 times the per share purchase or redemption price last established
by the Board of Directors with respect to purchases or redemptions by the
Company of its Class C Stock, (ii) that the purchase or redemption price to be
paid by the Company for its Class C Stock cannot be less than the par value
thereof, and (iii) that the purchase or redemption price to be paid by the
Company for its Class B Stock shall in no event be less than 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 which provides,
"The holders of the preferred or special stock of any class or of any series
thereof shall be entitled to such rights upon the dissolution of, or upon the
distribution of any assets of, the corporation as shall be stated in the
Certificate of Incorporation or in the resolution or resolutions providing for
the issue of such stock adopted by the Board of Directors as hereinabove
provided."
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 no holders of any securities 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. 7-8 and "Federal Income Tax Treatment of Patronage
Dividends," pp. 24-25 of the Prospectus that is part of the aforesaid
Post-Effective Amendment No. 5 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. 5 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
above-referenced S-2 Registration Statement and which also represents my
opinion concerning said matters.
Sincerely,
David W. League
Vice President-General Counsel
Ace Hardware Corporation
SECOND
AMENDMENT
---------
Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan
Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term Incentive
Compensation Deferral Option Plan (the "Plan"), effective March 23, 1999, the
Company hereby amends and restates Section 4.6 of the Plan to read as follows:
4.6 Form of Benefit Payment. Upon the happening of an event described in
Section 4.2, 4.4 or 4.5, the Company shall pay to the Participant or
his/her Beneficiary, monthly installments payable in substantially equal
amounts over the number of years elected by the Participant in
accordance with his/her initial Agreement, except as otherwise provided
in this Section 4.6. The number of years installment payments may be
paid shall not be fewer than five (5) years, nor greater then twenty
(20) years. Interest on the unpaid principal balance equal to the
applicable Retirement Interest Yield in the event of a benefit payable
pursuant to Section 4.2 or 4.5 or the Death Interest Yield in the event
of a benefit payable pursuant to Section 4.4 will be added to the
Deferred Benefit Account on each Determination Date.
Upon the written request by a Participant, filed with the Committee at
least three hundred sixty-seven (367) days prior to his/her Retirement
Date, the Committee may, in its sole discretion, allow a Participant to
change the number of years installment payments are paid. Any change in
the number of years installment payments are to be paid shall apply to
all installment payments due a Participant and still must be paid over
no fewer than five (5) years and no greater than twenty (20) years.
During the period a Participant is receiving installment payments, the
amount of the installment payments shall be based on the prevailing
Interest Yield applicable at the commencement of payments, projected
into the future. The amount of the installment payments shall be
recomputed every three (3) years and the installment payments shall be
increased or decreased to reflect any changes in the applicable Interest
Yield. Upon the death of a Participant after the commencement of
benefits pursuant to Section 4.4, the remaining installment payments
payable to the Beneficiary shall be fixed. The Interest Yield used to
determine the installment payment amounts shall be the Death Interest
Yield.
The Company may, in its sole discretion, elect to pay, at any time, a
Participant's or Beneficiary's Deferred Benefit Account in a lump sum
payment.
Section 4.6 is the only Section affected by this Amendment.
Ace Hardware Corporation
By:________________
Its:_______________
FIRST
AMENDMENT
---------
Ace Hardware Corporation
Directors' Deferral Option Plan
Pursuant to Section 7.1 of the Ace Hardware Corporation Directors' Deferral
Option Plan (the "Plan"), effective March 23, 1999, the Company hereby amends
and inserts the following paragraph as the third paragraph in Section 4.5 a)
and Section 4.5 b).
4.5 a) Upon the written request by a Participant, filed with the Committee at
least and three hundred sixty-seven (367) days prior to his/her
Retirement Date, the
4.5 b) Committee may, in its sole discretion, allow a Participant to change
the Third Paragraph number of years installment payments are paid. Any
change in the number of years installment payments are to be paid shall
apply to all installment payments due a Participant and still must be
paid over no fewer than five (5) years and no greater than twenty (20)
years.
Section 4.5 is the only Section affected by this Amendment.
Ace Hardware Corporation
By: ______________________________________
Its: ______________________________________
STATE OF ALABAMA
COUNTY OF BALDWIN
LEASE AGREEMENT WITH OPTION TO PURCHASE
---------------------------------------
This LEASE AGREEMENT between the INDUSTRIAL DEVELOPMENT BOARD OF THE
TOWN OF LOXLEY, ALABAMA, a public corporation organized and existing under the
laws of the State of Alabama, party of the first part (herein called the
"Board"), and ACE HARDWARE CORPORATION, party of the second part (herein called
the "LESSEE").
WITNESSETH
That in consideration of the respective representations and agreements
hereinafter contained, the Board and the Lessee agree as follows (provided that
in the performance of the agreements of the Board herein contained, any
obligation it may thereby incur for the payment of money shall not be a general
debt on its part but shall be payable solely by Lessee):
ARTICLE I
DEFINITIONS AND USE OF PHRASES
------------------------------
Section 1.1 Definitions. The following words and phrases and others
evidently intended as the equivalent thereof shall, in the absence of clear
implication herein otherwise, be given the following respective interpretations
in this Lease Agreement.
"Act" means the statutes codified as Code of Alabama 1975, Title II,
Sections 11-54-80, ct seq., as amended and supplemented and at the time in
force and effect.
"Authorized Board Representative" means the person or persons at the
time designated as such by written certificate furnished to the Lessee
containing the specimen signature or signatures of such person or persons and
signed on behalf of the Board by the Chairman or the Vice Chairman of its Board
of Directors.
"Authorized Lessee Representative" means the person or persons at the
time designated as such by written certificate furnished to the Board
containing the specimen signature or signatures of such person or persons and
signed on behalf of the Lessee.
"Board" means (i) the party of the first part hereto and its successors
and assigns, and (ii) any public corporation resulting from or surviving any
consolidation or merger to which it or its successor may be a party.
"Building" or "Buildings" means the building or buildings and all
related improvements to such building or buildings that are now or hereinafter
located on the Project Site, as such may at any time exist.
"Eminent Domain", when used herein with reference to any taking of
property, means the power (actual or claimed) of any governmental authority or
any person, firm or corporation acting under governmental authority (actual or
claimed) to take such property, and for purposes of this Lease Agreement, a
taking of property under the exercise of the power of Eminent Domain shall
include a conveyance made, or a use granted or taken, under either the threat
or the fact of the exercise of governmental authority.
"Event of Default" means an "Event of Default" as specified in Section
9.1. provisions of any applicable mortgage and that the lien of such mortgage
has been canceled, satisfied and discharged in accordance with the applicable
provisions thereof.
"Lease" or "this Lease Agreement" means this Lease Agreement as it now
exists and as it may from time to time be modified, supplemented or amended.
"Lease Term" means the duration of the leasehold estate granted in
Section 4.1 hereof.
"Net Condemnation Award" means the total amount received as
compensation for any part of the Project taken under the exercise of the power
of Eminent Domain plus damages to any part of the Project not taken.
"Permitted Encumbrances" means, as of any particular time, (i) liens
for ad valorem taxes and general and special assessments not then delinquent,
(ii) the Lease and the lien of any applicable mortgage, (iii) utility, access,
drainage and other easements and rights of way, mineral rights, restrictions
and exceptions none of the foregoing of which, individually or in the
aggregate, materially interfere with or impair the use of the Project for the
purpose for which it was acquired or is held by the Board, (iv) any inchoate
mechanic's, materialmen's, supplier's or vendor's lien or other right to a
purchase money security interest if payment is not yet due and payable under
the contract giving rise to such lien or right, (v) such other minor defects,
irregularities, encumbrances, easements, rights of way and clouds on title
(including zoning and other similar restrictions and regulations) as in the
written opinion of Independent Alabama Counsel delivered to the Board
customarily exist with respect to properties similar in character to the
Project and do not in the aggregate materially impair the title of the Board
to the Project or the use of the Project for the purpose for which it was
acquired or is held by the Board, and (vi) all exceptions contained in the
title policy issued to the Industrial Development Board of the Town of Loxley,
Alabama.
"Project" means the Project Site and the Building as they may at any
time exist, and all other property and right of every kind that are or become
subject to the demise of the Lease.
"Project Site" means the parcel of land specifically described on
Exhibit "A" hereto.
Section 1.2 Use of Phrases. "Herein", "hereby", "hereunder",
"hereof," "hereinbefore", "hereinafter" and other equivalent words refer to
this Lease Agreement as an entirety and not solely to the particular portion in
which any such word is used. The definitions set forth in Section 1.1 hereof
include both singular and plural. Whenever used herein, any pronoun shall be
deemed to include both singular and plural and to cover all genders.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Representation by the Board. The Board makes the following
representations as the basis for the undertakings on its part herein contained:
(a) The Board is duly incorporated under the provisions of the Act,
as now existing, by Certificate of Incorporation duly filed for record in the
Office of the Judge of Probate of Baldwin County, Alabama, the said Certificate
of Incorporation has not been revoked and is in full force and effect; and the
Board is not in default under any of the provisions contained in said
Certificate of Incorporation or in its Bylaws or in the laws of the State of
Alabama.
(b) The Board has good and marketable fee simple title in and to
the Project Site, subject only to Permitted encumbrances.
(c) The Board was induced to enter this undertaking by the promise
of the Lessee to acquire, construct and install the Project in Baldwin County,
Alabama. The Project constitutes a "project" within the meaning of the Act.
(d) The Board is not subject to any charter, by-law or contractual
limitation or provision of any nature whatsoever which in any way limits,
restricts or prevents the Board from entering into this Lease or performing any
of its obligation hereunder.
(e) The Project Site is located wholly within the now-existing
police jurisdiction of the Town.
Section 2.2 Representations and Warranties by the Lessee. The
Lessee makes the following representations and warranties:
(a) The Lessee has power to enter into, and to perform and observe
the agreements and covenants on its part contained in this Lease Agreement.
(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 terms and conditions hereof, conflicts or will conflict
with, or results or will result in a breach of, any of the terms, conditions or
provisions of any agreement, instrument or court or other governmental order to
which the Lessee is now a party or by which it is bound, or constitutes or will
constitute a default under any of the foregoing.
(c) The Project will constitute a "Project" within the meaning of
the Act, as now existing.
ARTICLE III
DEMISING CLAUSES
----------------
Section 3.1 Demising Clauses. For and during the Term hereof, the
Board hereby demises and leases to the Lessee, subject to Permitted
Encumbrances, and the Lessee hereby rents from the Board, subject to Permitted
Encumbrances, the following described properties and related rights:
I
The real property identified on Exhibit "A", which is attached hereto
and made a part hereof as though fully set out herein.
II
Also, any and all other buildings, structures and other improvements
constituting real property now or hereafter situated on the Project Site, all
permits, easements, licenses, rights of way, contracts, leases, privileges,
immunities and hereditaments pertaining or applicable to the Project Site and
all fixtures now or hereafter owned by the Board and installed on the Project
Site or in the Building or in any of such other buildings, structures and
improvements now or hereafter located on the Project Site, it being the
intention hereof that all property, rights and privileges hereafter acquired
for use as a part of or in connection with or as an improvement to the Project
Site shall be as fully covered hereby as if such property, rights and
privileges were now owned by the Board and were specifically described herein.
ARTICLE IV
DURATION OF TERM AND RENTAL PROVISIONS
--------------------------------------
Section 4.1 Duration of Term. The term of the Lease shall begin on
the date of delivery of this Lease Agreement, and subject to the provisions
hereof, shall continue until May 27, 2009.
Section 4.2 Rental Provisions. Lessee shall, simultaneously with
the execution of this Lease Agreement, pay unto the Board the sum of $1,000.00,
said sum to be regarded as prepaid rental, in full, for the term of this Lease
as set forth in Section 4.1 above. Said amount of prepaid rental shall
constitute all of the rental payments otherwise due from Lessee unto the Board
during the term of this Lease.
ARTICLE V
PROVISIONS CONCERNING MAINTENANCE, ADDITIONS,
REMOVAL OF PROJECT EQUIPMENT, INSURANCE AND TAXES
-------------------------------------------------
Section 5.1 Maintenance, Additions, Alterations, Improvements and
Modifications. The Lessee will, at its own expense, (i) keep the Project in
reasonably safe condition and (ii) keep all buildings and other facilities at
any time forming part of the Project in good repair and operating condition
(reasonable wear and tear excepted).
The Lessee may, at its own cost and expense, make, or cause to
be made, any additions, alterations, improvements or modifications to the
Project that it may deem desirable for its business purposes, provided that
such additions, alterations, improvements or modifications do not change the
character of the Project to such extent that it no longer constitutes a
"project" under the Act.
In the event the Lessee determines to make, or to cause to be made, any
additions, alterations, improvements or modifications to the Project pursuant
to the second paragraph of this Section 5.1, then the Board will, at the
request of Lessee, execute and deliver, or cause to be executed and delivered,
all contracts, orders, requisitions, instructions and other written instruments
and do, or cause to be done, all other acts that may be necessary or proper in
making such additions, alterations, improvements or modifications. In no event,
however, will the Board hereafter enter into any contract with respect to any
such additions, alterations, improvements or modification unless there is
endorsed thereon a legend indicating that the Lessee has approved both the form
and substance of such contract and such legend is signed on behalf of the
Lessee by an Authorized Lessee Representative. Any obligation for the payment
of money incurred or assumed by the Board in connection with such additions,
alterations, improvements or modifications shall be payable solely by the
Lessee, and any funds so advanced by the Board shall be deemed only an
accommodation for the benefit of Lessee.
The Lessee will not permit any mechanics' or other liens to stand
against the Project for labor, materials, equipment or supplies furnished in
connection with the original acquisition and construction of the Project or in
connection with any additions, alterations, improvements, modifications,
repairs or renewals that may subsequently be made thereto. The Lessee may,
however, at its own expense and in good faith, contest any such mechanics' or
other liens and in the event of any such contest may permit any such liens to
remain unsatisfied and undischarged during the period of such contest and any
appeal therefrom unless by such action the lien of the Indenture to any part of
the Project shall be materially endangered or impaired or any part of the
Project shall be subject to material loss or forfeiture, in either of which
events such mechanics' or other liens shall (unless they are bonded or
superseded) be promptly satisfied.
At any time and from time to time, the Lessee may, at its own cost and
expense, install in the Building or elsewhere on the Project Site any equipment
or other personal property which does not constitute part of the Project and
which in the Lessee's judgment is necessary or convenient for its use and
occupancy of the Project. Any such equipment or personal property owned (or
leased pursuant to any lease contract other than the Lease) by the Lessee may
be removed by the Lessee at any time and from time to time without
responsibility or accountability to the Board.
Section 5.2 Taxes, Other Governmental Charges and Utility Charges.
The Lessee agrees to pay, as the same becomes due, the following:
(i) all taxes and governmental charges of any kind including all
penalties, interests and statutory assessments whatsoever that may
lawfully be assessed or levied against or with respect to the Project;
and
(ii)all assessments and charges lawfully made by any governmental body
for public improvements that may be secured by a lien on the Project;
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 to pay only such installments as
are required to be paid during any period which the Lease shall be in
effect.
The Board will promptly forward to the Lessee any bills, statements,
assessments, notices or other instruments asserting or otherwise relating to
any such taxes, assessments or charges.
The Lessee may, at its own expense and in its own name and behalf or in
the name and behalf of the Board, in good faith contest any such taxes,
assessments and utility and other charges and, in the event of such contest,
may permit the taxes, assessments or other charges so contested to remain
unpaid during the period of such contest and appeal therefrom unless by such
action the title of the Board to any portion of the Project shall be materially
endangered or impaired or the Project or any part thereof shall become subject
to material loss or forfeiture, in which event such taxes, assessments, or
charges shall be paid prior to their becoming delinquent. The Board will
cooperate fully with the Lessee in any such contest.
The Lessee will also pay, as the same respectively becomes due, all
utility and other similar charges incurred in the operation, maintenance, use
and upkeep of the Project.
Section 5.3 Insurance with Respect to the Project. The Lessee will,
no later than the date of delivery of this Lease, take out and thereafter
continuously maintain in effect or cause to be taken out and thereafter
continuously maintained in effect, insurance with respect to the Project
against such risks as are customarily insured against by business of like size
and type as the Lessee, as may be determined by the Lessee, paying as the same
become due all premiums with respect thereto. All policies evidencing the
insurance required by the terms of the preceding paragraph shall be taken out
and maintained with responsible insurance companies licensed to conduct the
business of insurance in the State of Alabama. All such insurance policies
shall name the Board as an additional insured thereunder where permitted.
Insurance against liability for injury to persons or property provided
by Lessee pursuant to this Section shall cover the liability, in the several
aspects of the coverage provided, of both of the Board and the Lessee, with the
Board named as an additional insured. Such policy shall provide that it will
not be canceled or amended without at least thirty (30) days notice to Lessee
and the Board. The Lessee shall provide, not later than thirty (30) days prior
to any policy expiration, evidence of renewal or placement coverage, and such
evidence shall be furnished to the Board, in writing.
Section 5.4 Effect of Mortgages. The provisions and requirements of
this Article shall be in addition to the provisions and requirements of any
mortgage covering the property described on Exhibit "A", and not in
substitution therefore. So long as any such mortgage shall remain in force and
effect, the requirements of those mortgages shall govern the obligations of the
parties with respect to the Project to the extent the same are inconsistent
with the provisions of this Article. All rights conferred upon the Board
pursuant to this Lease shall be secondary and subordinate to the rights granted
to any mortgagee of Lessee, provided, however, no mortgage or security
agreement will impose any liability or responsibility of any kind or nature
upon the Board, the Town, or any of its various officers, members, directors,
employees or agents.
ARTICLE VI
PROVISIONS RESPECTING DAMAGE,
DESTRUCTION AND CONDEMNATION
-----------------------------
Section 6.1 Damage and Destruction Provisions. It shall be the
responsibility of Lessee to fully insure the demised premises, and all
improvements situated thereon, in an amount not less than the full replacement
value thereof. In the event any portion of the demised premises is damaged, in
whole or in part, such risk of loss shall rest on Lessee, and the Board assumes
no responsibility for any such damage which may occur. Any insurance proceeds
payable with respect to such damage shall be paid unto Lessee.
If the Building is destroyed, in whole or in part, or is damaged,
neither the Lessee nor the Board shall be obligated to repair, replace or
restore the property damaged or destroyed, and any Net Insurance Proceeds
referable to such damage or destruction shall be paid to the Lessee; provided,
however, that the Board will, to the extent and in the manner provided herein,
cooperate fully with the Lessee in carrying out such repair, replacement and
restoration as the Lessee may, in its sole discretion, decide to undertake.
All property acquired in connection with the repair, replacement or
restoration of any part of the Project pursuant to the provisions of this
Section shall be and become part of the Project subject to the demise hereof
and the lien of any Mortgage applicable to the demised premises and shall be
held by the Lessee on the same terms and conditions as the property originally
constituting the Project.
Section 6.2 Condemnation Provision. In the event of any
condemnation of the demised premises during the term of this Lease or any
extension or renewal hereof, any such condemnation award payable as a result
thereof shall be paid in accordance with any Mortgage covering the demised
premises. In the event no such Mortgage exists, or in the event such Mortgage
has been fully satisfied, all such condemnation proceeds shall be payable unto
Lessee.
Section 6.3 Cooperation of the Board in the Conduct of Condemnation
Proceedings. The Board will cooperate fully with the Lessee in the handling and
conduct of any prospective or pending condemnation proceeding with respect to
the Project or any part thereof and will follow all reasonable directions given
to it by the Lessee in connection with such proceeding. In no event will the
Board settle, or consent to the settlement of, any prospective or pending
condemnation proceeding with respect to the Project or any part thereof without
the prior written consent of the Lessee. Any expenses incurred by the Board in
assisting Lessee with condemnation proceedings, including the Board's
reasonable attorney's fees, shall be paid by Lessee.
ARTICLE VII
PARTICULAR CONVENANTS OF THE LESSEE
-----------------------------------
Section 7.1 General Covenants. The Lessee will, in the use of the
Project and the public ways abutting the Project Site, comply in all material
respects with all valid and applicable laws, ordinances, regulations or orders
of all governmental authorities or agencies, provided, however, that the Lessee
may in good faith contest the validity of any such laws, ordinances,
regulations or orders or the application thereto to the Project and in the
event of any such contest defer compliance therewith during the period of such
contest and any appeal from any appealable decision in such contest, unless by
such action the rights or interest of the Board with respect to the Project or
any part thereof shall be materially endangered or impaired. The Lessee shall
give prompt notice of any such contest to the Board. Except for warranties of
title and quiet enjoyment, and except for the breach of any term or covenant of
this Lease by the Board, Lessee does hereby release and hold the Board and its
agents, servants, employees and directors harmless from and against any
liability which Lessee may incur in and about the operation of the Project.
Section 7.2 Release and Indemnification Covenants. The Lessee
releases the Board (and each director, officer, employee, attorney, consultant
and agent thereof) from, and will indemnify and hold the Board (and each
director, officer, employee, attorney, consultant and agent thereof), harmless
against any and all claims and liabilities of any character or nature
whatsoever regardless of by whom asserted or imposed, and losses of every
conceivable kind, character and nature whatsoever claimed by or on behalf of
any person, firm, corporation or governmental authority, arising out of, result
from, or in any way connected with the Project, including, without limiting the
generality of the foregoing, (i) liability for loss or damage to property or
any injury to or death of any and all persons that may be occasioned by any
cause whatsoever pertaining to the Project or arising by reason of or in
connection with the occupation or use thereof or the presence on, in or about
the premises of the Project; (ii) liability for loss or damage to property or
any injury to or death of any and all persons that may be occasioned by the
violation of any clean air, clean water or other environmental law or
regulation including, without limitation, any provision of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
the "Federal Superfund Act") as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Sections 9601-9605, or
hazardous waste as defined, regulated and/or prohibited by the Resource
Conservation and Recovery Act ("RCRA"), the Clean Water Act, 33 U.S.C. Section
1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Toxic
Substances Control Act ("TSCA"), 42 U.S.C. Section 2601 et seq., all as the
same may be from time to time amended and any other federal, state, county,
municipal, local or other statute, law ordinance or regulation which may relate
to or deal with human health or the environment including without limitation
all regulations promulgated by a regulatory body pursuant to any such statute,
law or ordinance.
Section 7.3 Inspection of Project. The Lessee will permit the Board
and its duly authorized agents at all reasonable times to examine and inspect
the Project or any part thereof.
Section 7.4 Agreement to Maintain Corporate Existence. The Lessee
will maintain its corporate existence, will not dissolve or otherwise dispose
of all or substantially all of its assets (either in a single transaction or in
a series of related transactions) and will not consolidate with or merge into
another corporation, partnership, limited liability partnership or limited
liability company, or permit one or more legal entities to consolidate with or
merge into it; provided that the Lessee may, without violating the agreements
contained in this section, do or perform any of the following:
(a) it may consolidate with or merge into another United States
corporation, partnership, limited liability partnership or limited
liability company, or permit one or more such United States legal
entities to consolidate with or merge into it, if such legal entity
surviving such merger or resulting from such consolidation, shall be
one other than the Lessee, and shall expressly assume in writing all
the obligations of the Lessee contained in this Lease Agreement and
other Financing Documents;
(b) it may transfer to another United States corporation, partnership,
limited liability partnership or limited liability company, all or
substantially all of its assets as an entirety, and (if it so elects)
thereafter dissolve, if the such legal entity to which such transfers
shall be made expressly assumes in writing all the obligations of the
Lessee contained in this Lease Agreement and the other Financing
Documents.
The Lessee will, promptly following any merger, consolidation or
transfer permitted under the provisions of this Lease, furnish to the Board
fully executed or appropriately certified copies of the writing by which the
Lessee's successor or transferring legal entity expressly assumes the
obligations of the Lessee contained herein,
If, after a transfer by the Lessee of all or substantially all of its
assets to another United States legal entity under the circumstances, described
in the preceding clause (b) of this section, the Lessee does not thereafter
dissolve, it shall not have any further rights or obligations hereunder.
Section 7.5 Qualification in Alabama. The Lessee warrants and
represents that it is now duly qualified as a corporation to do business in
Alabama and covenants that it, or any successor legal entity permitted under
the preceding section hereof will remain qualified to do business in Alabama
during the term of this Lease Agreement.
Section 7.6 Covenant to Operate. The Lessee covenants to
continuously operate the Project as a "Project" within the meaning of the Act;
provided, however, Lessee may interrupt to discontinue operations in the
Project for a period of up to twelve (12) months for the purpose of effecting a
transition to another permitted use of the Project under the Act.
ARTICLE VIII
CERTAIN PROVISIONS RELATING TO
ASSIGNMENT AND SUBLEASING
-------------------------
Section 8.1 Provisions Relating to Conveyance, Assignment and
Subleasing. The Board may not convey the Project or any portion thereof or
assign the Lease or any rights hereunder to any third party during the Lease
Term without the prior written consent of Lessee, which consent shall not be
unreasonably withheld; provided, however, that no such conveyance or assignment
shall prejudice Lessee's rights hereunder, including but not limited to, the
right to acquire unencumbered title to the Project at the end of the Lease Term
in accordance with the terms and conditions of this Lease. The Lessee may
assign this Lease and the leasehold interest created hereby, or sublease the
Project or any portion thereof upon giving at least thirty (30) days prior
written notice to the Board; provided, however, that no such assignment or
sublease will disqualify the Project under the provisions of the Tax Incentive
Reform Act of 1992 or relieve the Lessee of any liability hereunder.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1 Events of Default Defined. The following shall be
"Events of Default" under the Lease, and the term "Event of Default" shall
mean, whenever it is used in the Lease, any one or more of the following
conditions or events:
(a) failure by the Lessee to make any payment required under the terms
hereof on the date that such installment of such payment shall become
due and payable by the terms of this Lease;
(b) failure by the Lessee to perform or observe any agreement or
covenant on its part contained in this Lease which failure shall have
continued for a period of ninety (90) days after written notice,
specifying, in reasonable detail, the nature of such failure and
requiring the Lessee to perform or observe the agreement or covenant
with respect to which it is delinquent.
(c) there shall occur and shall be continuing any event of default, as
therein defined, under any Mortgage made by Lessee during the term of
this Lease.
Section 9.2 Remedies on Default. Whenever any Event of Default
shall have happened and be continuing, the Board shall have, in addition to
those rights otherwise provided by law, and when not in conflict with any
rights given to a Mortgagee under any Mortgage covering the property described
on Exhibit "A", the right to take whatever legal proceedings may appear
necessary or desirable to enforce any obligation, covenant or agreement of the
Lessee under this Lease or any obligation of the Lessee imposed by any
applicable law.
Section 9.3 No Remedy Exclusive. No right, power or remedy herein
conferred upon or reserved to the Board is intended to be exclusive of any
other available right, power or remedy, but each and every such right, power or
remedy shall be cumulative and shall be in addition to every other right, power
or remedy given under the Lease as now or hereafter existing at law or in
equity or by statute. No delay or omission to exercise any right, power or
remedy accruing upon any Event of Default shall impair any such right, power or
remedy or shall be construed to be a waiver thereof but any such right, power
or remedy may be exercised from time to time and as often as may be deemed
expedient.
Section 9.4 Agreement to Pay Attorney's Fees. In the event that, as
a result of any Event of Default or a threatened Event of Default by the
Lessee, the Board should employ attorneys at law or incur other expenses in the
enforcement of any other obligation, covenant, agreement, term or condition of
this Lease, the Lessee will pay unto the Board reasonable attorney's fees and
other reasonable expenses so incurred.
ARTICLE X
OPTIONS
-------
Section 10.1 Option to Purchase. Provided that Lessee is not in
default under any provision of this Lease, the Lessee shall have the right and
option, hereby granted by the Board, at any time after May 27, 2009, to
purchase the Project from the Board at and for a purchase price equal to the
sum of One Hundred Dollars ($100.00). To exercise any such purchase option, the
Lessee shall notify the Board in writing no less than sixty (60) days prior to
the expiration of the term of its intent to exercise its option to purchase,
and, on the date of such purchase, shall pay the aforesaid purchase price to
the Board in cash or bankable funds, whereupon the Board will, by statutory or
special warranty deed transfer or convey to Lessee unencumbered title to all
real property described in Exhibit "A". In the event the Board takes title to
any personal property pursuant to the terms of the Lease, the Board will
execute any documents necessary to transfer title to such personal property to
Lessee.
Section 10.2 Notification of Term Expiration. If Lessee has not
notified the Board in writing no less than sixty (60) days prior to the
termination of the term of the Lease of its intention to exercise its option
to purchase, the Board shall give written notice to Lessee of the expiration
of the term of the Lease and Lessee shall have an additional thirty (30) days
from the date of such notice to exercise said option to purchase.
Section 10.3 Non-Qualification of Project. If the Project property
should cease to qualify as a "Project" within the meaning of the Act, as now
existing, at any time during the term of the Lease, Lessee shall exercise its
option to purchase as herein provided.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1 Covenant of Quiet Enjoyment. Surrender. So long as the
Lessee performs and observes all the covenants and agreements on its part
contained in the Lease, it shall peaceably and quietly have, hold and enjoy the
Project during the Term subject to all the terms and provisions hereof.
Section 11.2 Notice. All notices, demands, requests and other
communications hereunder shall be deemed sufficient and properly delivered and
received (i) the same day when personally delivered; or (ii) one (1) day after
deposit with Federal Express or other commercial overnight courier; or (iii)
the same day when sent by confirmed facsimile, or (iv) three (3) business days
after deposit in the United States Mail, by certified mail, return receipt
requested, postage prepaid, to the following addresses:
I. If to the Board:
The Industrial Development Board of the Town of Loxley, Alabama
Post Office Box 9
Loxley, Alabama 36551
Copy to: Fred K. Granade, Esquire
Stone, Granade & Crosby, P.C.
P.O. Drawer 1509
Bay Minette, Alabama 36507
I. If to the Lessee:
Ace Hardware Corporation
ATTN: President
2200 Kensington Court
Oak Brook, Illinois 60523-2100
Copy to: John J. Van Zeyl, Esq.
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, IL 60523-2100
Any of the above mentioned parties may, by like notice, designate any
further or different addresses to which subsequent notices shall be sent. Any
notice hereunder signed on behalf of the notifying party by a duly authorized
attorney at law shall be valid and effective to the same extent as if signed
on behalf of such party by a duly authorized officer or employee.
Whenever, under the provisions hereof, any request, consent or approval
of the Board or the Lessee is required or authorized, such request, consent or
approval shall (unless otherwise expressly provided herein) be signed on behalf
of the Board by an Authorized Board Representative and, on behalf of the Lessee
by an Authorized Lessee Representative; and each of the parties are authorized
to act and rely upon any such requests, consents or approvals so signed.
Section 11.3 Limited Liability of Board. The Board is entering into
this Lease Agreement pursuant to the authority conferred upon it by the Act. No
provision hereof shall be construed to impose a charge against the general
credit of the Board, its agents, servants or employees, or any personal or
pecuniary liability upon the Board, its agents, servants or employees. Further,
none of the directors, officers, employees or agents of the Board shall have
any personal or pecuniary liability whatsoever hereunder or any liability for
the breach by the Board of any agreement on its part herein contained. Nothing
contained in this section, however, shall relieve the Board from the observance
and performance of the several covenants and agreements on its part herein
contained or relieve any director, officer, employee or agent of the Board from
performing all duties of their respective offices that may be necessary to
enable the Board to perform the covenants and agreements on its part herein
contained.
Section 11.4 Binding Effect. The Lease shall inure to the benefit
of, and shall be binding upon, the Board, the Lessee and their respective
successors and assigns.
Section 11.5 Severability. In the event any provision of the Lease
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
Section 11.6 Governing Law. The Lease shall in all respects by
governed by and construed in accordance with the laws of the State of Alabama.
Section 11.7 Article and Section Captions. The article and section
headings and captions contained herein are included for convenience only and
shall not be considered a part hereof or affect in any manner the construction
or interpretation hereof.
Section 11.8 Recording and Filing. On the date of delivery of this
Lease, this Lease (or a memorandum thereof) shall be recorded by the Board at
the expense of the Lessee, in the Office of the Judge of Probate of Baldwin
County, Alabama, or in such other office as may at the time be provided by law
as a proper place for recordation or filing thereof.
IN WITNESS WHEREOF, the Board and the Lessee have caused this Lease
Agreement to be executed in their respective names and their respective seals
to be hereunto affixed, and have caused this Lease Agreement to be attested on
this the 27th day of May, 1999.
LESSOR:
INDUSTRIAL DEVELOPMENT BOARD
OF THE TOWN OF LOXLEY, ALABAMA
BY: ___________________________________
As Its_____________________________
LESSEE:
ACE HARDWARE CORPORATION
BY: ___________________________________
As Its_____________________________
STATE OF ALABAMA
COUNTY OF BALDWIN
I, _________________________________, a Notary Public, in and for
said County in said State, hereby certify that _________________________ whose
name as ________________________ of the INDUSTRIAL DEVELOPMENT BOARD
OF THE TOWN OF LOXLEY, ALABAMA, is signed to the foregoing instrument and who
is known to me, acknowledged before me on this day that, being informed of the
contents of the instrument, __he in _______ capacity as such _________________
and with full authority, executed the same voluntarily on the day the same
bears date.
Given under my hand and seal this _______ day of ____________, 1999.
____________________________________
Notary Public
My Commission Expires ________________
STATE OF ILLINOIS
COUNTY OF DU PAGE
I, John J. Van Zeyl, a Notary Public, in and for said
County in said State, hereby certify that David F. Myer, whose name as
Vice President of ACE HARDWARE CORPORATION, is signed to the foregoing
instrument and who is known to me, acknowledged before me on this day that,
being informed of the contents of the instrument, he, as such officer and with
full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and seal this _______ day of ____________, 1999.
____________________________________
Notary Public
My Commission Expires ________________
EXHIBIT A TO LEASE AGREEMENT BETWEEN
THE INDUSTRIAL DEVELOPMENT BOARD
OF THE TOWN OF LOXLEY, ALABAMA AND
ACE HARDWARE CORPORATION
Begin at the Northwest corner of Section 34, Township 4 South, Range 3 East,
Baldwin County, Alabama; thence run North 89 50' 21" East, 1541.01 feet to a
point lying on the West right-of-way of Alabama Highway 59 (right-of-way
varies); thence run along said West right-of-way South 08 38' 28" East,
1009.58 feet to a point; thence run South 06 41' 49" East, 1343.46 feet to a
point; thence run South 08 10' 54" East 257.45 feet to a point lying at the
intersection of the West right-of-way of Alabama Highway 59 and the North
right-of-way of an existing unpaved county road (40.00 foot right-of-way);
thence run along said North right-of-way 89 53' 06" West, 1936.33 feet to a
point; thence leaving said North right-of-way run North 01 07' 04" East,
2579.53 feet to the point of beginning.
Said described property lying and being situated in the Northwest Quarter of
Section 34, Township 4 South, Range 3 East, Baldwin County, Alabama and
contains 103.558 acres more or less.
SUBJECT, HOWEVER, TO THE FOLLOWING:
1. Any future adjustments made by either the Tax Assessor's Office or the
Board of Equalization.
2. Any limited access to Highway 59 located along the Eastern property
line pursuant to instruments recorded in Deed Book 345, Page 488 and Real
Property Book 769, Page 1407.
3. That certain easement granted to BellSouth Telecommunications, Inc. a
Georgia corporation, dated the 25th day of May,1999, and of record in the
Probate Court of Baldwin, County, Alabama.
4. Terms, conditions, provisions and restrictions of all permits and
licenses of Federal, State and local government, including applicable
agencies and departments and private and quasi governmental agencies, including
but not limited to the Corps of Engineers, having jurisdiction over the real
property, including but not limited to restrictions on construction of any
areas delineated by governmental agencies as wetlands and to areas shown as
wetland areas on survey dated January 20, 1999, as revised, by Roy Jones
(AL Reg. No. 17267).
5. Thirty-six inch CMP located along the North property line of the
above-referenced property as shown on survey dated January 20, 1999, as
revised, by Roy Jones (AL Reg. No. 17267).
6. Existing underground telephone line located in the Southeast corner and
along the South line of property described above as shown on survey dated
January 20, 1999, as revised, by Roy Jones (AL Reg. No. 17267).
7. Existing water line located in the Southeast corner of property
described herein as shown on survey dated January 20, 1999, as revised, by Roy
Jones (AL Reg. No. 17267).
8. Existing telephone pedestal located in the Southeast corner and along
the South line of the property described herein as shown on survey dated
January 20, 1999, as revised, by Roy Jones (AL Reg. No. 17267).
9. Existing power line and power poles as located along the South line of
the property described herein as shown on survey dated January 20, 1999, as
revised, by Roy Jones (AL Reg. No. 17267).
10. Existing light poles as located along the South line of the property
described herein as shown on survey dated January 20, 1999, as revised, by Roy
Jones (AL Reg. No. 17267).
11. Existing fire hydrant as located in the Southeast corner of the
property described herein as shown on survey dated January 20, 1999, as
revised, by Roy Jones (AL Reg. No. 17267).
12. Existing dirt road, and rights of other parties thereto, as located
along the Southwest corner of the property described herein as shown on survey
dated January 20, 1999, as revised, by Roy Jones (AL Reg. No. 17267).
13. Any potential current use rollback taxes, reappraisal, assessed value
adjustment, and/or escape taxes which may become due by virtue of any future
action of the Office of the Tax Collector and/or the Board of Equalization of
Baldwin County.
14. 1999 ad valorem property taxes which are a lien upon the subject
property, but are not due and payable until October 1, 1999, and subsequent
years.
15. Terms and conditions, rights and easements granted the State of
Alabama, in Case CV-97-000504 and recorded in Real Property Book 822, page 1610
and at Instrument #481142.
All recording references are to the records in the Office of the Judge of
Probate, Baldwin County, Alabama.
AGREEMENT
---------
This agreement made and entered into on October 29, 1999, by and
between Ace Hardware Corporation, a Delaware corporation, with its principal
office located at 2200 Kensington Court, Oak Brook, Illinois 60523-2100 (the
"Company"), and William A. Loftus residing at 27W690 Brookside, Winfield,
Illinois 60190 ("Loftus").
W I T N E S S E T H :
WHEREAS Loftus has served the Company continuously during the past
twenty three years and currently holds the position of Executive Vice
President, Retail with the Company; and
WHEREAS Loftus desires to voluntarily retire as an employee of the
Company as of December 31, 1999 and, in order to continue to benefit from
Loftus's experience and expertise as an executive in the hardlines wholesale
industry the Company desires to enter into this Agreement providing for the
retention by the Company from such retirement date of the services of Loftus
is an advisory and consulting capacity until December 31, 2000, renewable upon
mutual written consent, (the "Advisory Period"); and
WHEREAS the Company further desires to prevent any other competitive
business from utilizing the experience and know-how of Loftus with regard to
the Company's business;
NOW, THEREFORE, in consideration of the foregoing and of the past
services rendered by Loftus to the Company and his undertakings hereinafter
referred to, IT IS HEREBY AGREED by and between the Company and Loftus as
follows:
1. Loftus shall continue in the employ of the Company until and
including December 31, 1999 and will voluntarily retire from the employment of
the Company as of January 1, 2000. During the remaining period of his
employment, the compensation and all of the terms and conditions of Loftus's
employment shall be the same as are applicable in his separate employment
contract, which shall terminate on December 31, 1999 at the time Loftus
commences retirement.
2. During the Advisory Period Loftus shall furnish to the Company such
advisory and consulting services as the President or his designee shall
reasonably require from time to time. The scheduling of such services shall be
arranged in such a manner as not to conflict with any prior commitments which
Loftus may have made which make him unavailable to perform services for the
Company at certain intervals of reasonable duration's. Such services are
anticipated to involve new business opportunities (including conversions, joint
ventures, and key NHS accounts) and not to exceed one week per month. In
addition to the above provision, Loftus shall attend the Spring and Fall Shows
in 2000. It is expected that he will be in attendance for not less than 4 days
at each Show.
3. The Company agrees, subject to the conditions herein set forth, to
pay to Loftus (in addition to all pension and other similar payments and other
benefits to which he may be entitled on account of his service to the Company
prior to his retirement) the aggregate sum of Ninety Six Thousand Dollars
($96,000). Such sum shall be in monthly installments at month end, commencing
January 31, 2000.
4. During the Advisory Period, Loftus shall perform his services
hereunder for the Company as an independent contractor and will be permitted to
engage in any business and perform services for his own account except as
prohibited in Paragraph 6 herein. Any services performed by Loftus for his
own account shall be scheduled by him in such a manner as not to interfere with
his availability upon reasonable notice to perform such services as the Company
shall reasonably require of him hereunder. In the event that Loftus shall be
requested to perform services in excess of one (1) week per month plus
attendance at two (2) Ace conventions within the year during the Advisory
Period, he shall be paid an additional sum for such services performed based
upon the value of the services as determined by the parties prior to
performance. Any such additional payments shall not reduce the aggregate
amount to be paid to Loftus as set forth in Paragraph 3.
5. For the purposes of this Agreement, the term "Confidential
Information" shall mean, but shall not be limited to, any technical or
non-technical data, programs, procedures, models, manuals, financial data,
lists of actual or potential customers, dealers or suppliers of the Company,
and any information regarding the Company's marketing, sales or dealer network
or plans, which is not generally known to the public through legitimate
origins. The Company and Loftus acknowledge and agree that such Confidential
Information is extremely valuable to the Company and shall be deemed to be a
"Trade Secret" pursuant to the Illinois Trade Secrets Act.
Loftus will not during, or after termination of, this Agreement, in any
form or manner, directly or indirectly, divulge, disclose or communicate to any
person, entity, firm, corporation or any other third party, or utilize for
Loftus's personal benefit or for the benefit of any competitor of the Company,
any Confidential Information.
Upon termination of this Agreement with the Company for any reason,
Loftus will promptly deliver to the Company all documents concerning the
Company's customers, dealers, dealer network, marketing strategies, plans,
products or processes and/or which contain Confidential Information.
Loftus agrees that during the Advisory Period and during any further
period for which monthly payments to Loftus are provided for hereunder, he
shall not, directly or indirectly, render any services of an advisory nature to
or otherwise become employed by or participate or engage in any competing
business, without the prior written consent of the Company.
Any notice to be given by Loftus under this Agreement shall be sent by
certified mail to the Company at its office at 2200 Kensington Court,
Oak Brook, Illinois, marked to the attention of the Company's President, and
any notice from Company to Loftus shall be sent by registered mail to Loftus
at 27W690 Brookside, Winfield, Illinois. Either party may change the address
to which notices are to be addressed by notice in writing given to the other in
accordance with the above terms.
In the event that Loftus breaches any of the terms of Paragraph 5 of
this Agreement, Loftus stipulates that said breach will result in immediate and
irreparable harm to the business and goodwill of the Company and that damages,
if any, and remedies at law for such breach would be inadequate. The Company
shall therefore be entitled to apply for and receive from any court of
competent jurisdiction an injunction to retrain any violation of Paragraph 5 of
this Agreement and for such further relief as the court may deem just and
proper.
6. In the event of any violation by Loftus of any of the provisions of
Paragraph 5 which could or does result in material detriment to the Company,
the Company's obligation to pay to Loftus the then-remaining unpaid portion of
the aggregate sum set forth in Paragraph 3, if any, shall thereupon cease, and
all payment theretofore made by the Company to Loftus under this Agreement
shall constitute payment in full for all services performed by him during the
Advisory Period.
7. In the event that, during any month within the Advisory Period,
Loftus refuses to perform, or refrains from performing, any service which the
Company feels has been reasonably requested of him and he persists and
continues in such course of action for more than three (3) days from the date
of mailing of written notice to him of the Company's determination that such
refusal to perform or such act of refraining from performing constitutes an
unreasonable breach of his obligations to the Company hereunder, a portion of
the aggregate sum set forth in Paragraph 3 equal to the monthly installment
next payable shall be deemed to have been forfeited by Loftus, and the Company
shall have no obligation to make payment of such amount at any time to Loftus
or his surviving heirs, distributees or personal representative.
8. In the event that, during any month within the Advisory Period,
Loftus is unable to perform due to death or disability, this Agreement shall
terminate; and the Company shall pay to Loftus or his surviving heirs,
distributees or legal representative a pro-rata share of the monthly
installment from the beginning of the month to death or disability, and the
Company shall; have no further obligation to make payments.
9. It is recognized that during the Advisory Period, Loftus may have
to incur certain reasonable out-of-pocket expenses incident to his performance
of advisory and consulting services hereunder. The Company agrees to reimburse
Loftus for all such expenses which are incurred by him pursuant to directions
given to him by the Company or which are approved by the Company in advance of
their incurrence. This would include, but would not be limited to travel,
lodging and meal expense to the Spring and Fall Shows as would be appropriate
for a high level executive.
10. This Agreement is not intended to and shall not be deemed to be in
lieu of any rights, benefits and privileges to which Loftus may be entitled as
an employee of the Company by reason of his employment through December 31,
1999.
11. Loftus shall not have the right to assign, transfer or encumber any
of the rights or interests under or pursuant to this Agreement.
12. This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns (including, without limitation, any
entity which may acquire substantially all of the Company's assets or business
or merge or combine with it), and shall also be binding upon and inure to the
benefit of Loftus, his heirs, distributees and personal representatives.
13. The failure of either party hereto to insist in any one or more
instances upon performance of any terms or conditions of this Agreement shall
not be construed as a waiver of future performance of any such term or
condition, but the obligations of either party with respect thereto shall
continue in full force and effect.
14. This Agreement and the construction, interpretation and enforcement
of each of the provisions hereof shall be governed in all respects by the laws
of the state of Illinois. IN WITNESS HEREOF, all on the day and year first
above written, Ace Hardware Corporation, a Delaware corporation, has caused
this Agreement to be executed by its President and CEO, and attested by its
Secretary, with its corporate seal affixed, and Loftus has hereunto affixed his
hand and seal.
ACE HARDWARE CORPORATION
a Delaware corporation
ATTEST:
____________________________ By: ________________________________
Secretary President and CEO
_______________________________(Seal)
William A. Loftus
THIRD AMENDMENT
TO
RESTATED ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN
(Adopted on December 8, 1999)
THIS THIRD AMENDMENT to the RESTATED ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN is hereby entered on this 8th day of
December, 1999 and effective as set forth herein:
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company adopted a Retirement Benefits Replacement Plan on
October 1, 1985 and restated the Plan on December 7, 1993; and
WHEREAS, Effective January 1, 1997 the profit sharing component was
divided into two plans, Employees' Profit Sharing Plan and the Employees' Money
Purchase Plan; and
WHEREAS, the Company has amended this Plan to provide for participation
by certain officers and key employees of the corporation specifically named in
the Plan as Participants therein;
NOW, THEREFORE, the Ace Hardware Corporation Retirement Benefits
Replacement Plan is amended to combine the Employees' Profit Sharing Plan and
the Employees' Money Purchase Plan within the term Profit Sharing Plan, and to
add certain named officers and key employees of the corporation as Participants
in the Plan and to restate Article III, Plan Participation, as follows:
1. Effective January 1, 1997, the first sentence of Article I shall be amended
to read as follows:
I
-
PURPOSE
-------
The purpose of this Retirement Benefits Replacement Plan is to continue
to provide on an un-funded basis for certain participants in the Ace Hardware
Corporation Employees' Profit Sharing Plan and the Employees' Money Purchase
Plan collectively called the ("Profit Sharing Plan") and the Ace Hardware
Corporation Employees' Pension Plan ("Pension Plan") retirement benefits equal
to the amounts by which the benefits they would have been entitled to receive
under the Profit Sharing Plan and Pension Plan are reduced by reason of the
limitations on contributions and benefits imposed by Section 415 of the
Internal Revenue Code of 1986 ("Code"), the limitations on compensation imposed
by Section 401 (a) (17) of the Code, or by any future federal legislation which
limits compensation or benefits (the "Limitations").
2. Effective January 1, 2000, Article III shall be amended to read as follows:
III
---
PLAN PARTICIPATION
------------------
Participation in this Plan shall be exclusively limited to any officer
or key employee who is designated as a Participant by the Board of Directors of
Ace Hardware Corporation ("Board") and whose benefits under any of the Profit
Sharing Plan, Money Purchase Plan and the Pension Plan are reduced by reason of
the Limitations. Effective as of January 1, 2000, the following individuals
shall become or continue to be Participants hereunder:
David F. Hodnik David W. League
Paul M. Ingevaldson David F. Myer
Rita D. Kahle Fred J. Neer
Michael C. Bodzewski William J. Bauman
Lori L. Bossmann Kenneth L. Nichols
Ray A. Griffith Daniel C. Prochaska
FIRST AMENDMENT
TO
ACE HARDWARE CORPORATION
RESTATED OFFICER INCENTIVE PLAN
Pursuant to Section 5 of the Ace Hardware Corporation Restated Officer
Incentive Plan ("The Plan"), effective January 1, 2000, the Company hereby
amends the Plan as follows:
1. Section 6 shall be amended by deleting paragraph 3 thereof and substituting
the following:
Award Opportunities: The maximum award opportunity for any given
Participant will be as set forth on Exhibit A. Exhibit B sets forth
the multiplier matrix for the team portion of the short term goal.
Exhibit BB sets forth the method of calculation for the retail portion
of the short term goal.
2. Section 7 shall be amended by deleting the third and fourth paragraph of
Subsection Performance Measure and substituting the following:
Following is a presentation of ratios in effect as of January 1, 2000
pertaining to the VA Plan. These ratios may be adjusted from time to
time by the Board (as set forth on Exhibit A).
Gross Patronage Dividend Threshold for actual RSC sales is 5.4 percent.
Permanent Sharing Ratio is 4.88 percent.
A financial model which supports the VA Plan is presented in Exhibit C.
3. Section 9 shall be amended by deleting paragraph 3 thereof and substituting
the following:
Tier B Participants are immediately vested in their entire award which
will, at the employee's option, be deferred or paid in cash within the
first quarter of the subsequent Fiscal Year.
4. The Exhibits to the Plan shall be amended by deleting Exhibits A, B and C
and substituting Exhibits A, B and C attached hereto. Exhibit BB setting
forth the method of calculation for the retail portion shall be added
during 2000.
5. This First Amendment is effective January 1, 2000.
Except as specifically amended herein, the Plan shall remain in full force and
effect as prior to this First Amendment.
Dated: December 8, 1999 Ace Hardware Corporation
a Delaware corporation
By:_____________________________________
Chairman of the Board of Directors
and
By:_____________________________________
President and CEO
EXHIBIT A
PARTICIPANTS
FOR PLAN YEARS COMMENCING JANUARY 1, 2000
-----------------------------------------
Tier A: David F. Hodnik
Paul M. Ingevaldson
Rita D. Kahle
Michael C. Bodzewski
Lori L. Bossmann
Ray A. Griffith
David W. League
David F. Myer
Fred J. Neer
Kenneth L. Nichols
_____________________________________________________________________________
Tier B: William J. Bauman (The VA Plan Only)
Daniel C. Prochaska (The VA Plan Only)
EXECUTIVE SHORT-TERM INCENTIVE PLAN
MULTIPLIER MATRIX - APPLIES TO TEAM PORTION OF SHORT TERM GOAL
RETURN ON SALES * * *
3.08% 3.13% 3.18% 3.23% 3.28% 3.33% 3.38%
===== ===== ===== ===== ===== ===== =====
LT 4% 50% 60% 70% 100% 140% 170% 175%
Wholesale 6% 40% 70% 80% 110% 130% 160% 175%
8% 30% 60% 100% 120% 130% 160% 175%
Sales 10% 25% 50% 100% 125% 130% 150% 160%
12% 25% 40% 100% 130% 140% 150% 160%
Increase 14% 25% 30% 100% 140% 150% 150% 160%
GT 15% 25% 25% 100% 150% 150% 150% 160%
* For 2000, the target goal will be at 3.18%. The goal was adjusted
upward for the loss of the lower margin LBM business. For 2000, BLP
will be calculated before the E-Commerce and Las Vegas Vision 21
Retailer meeting.
** For return on sales component only - prorate between each goal based on
actual results. No proration based on sales growth. (Proration occurs
only if > 3.18% and payout would be higher with proration.) The matrix
is capped at +/- a 75% payout.
MULTIPLIER MATRIX CHART THAT WILL BE USED IN 2000
RETAIL SALES MATRIX
-------------------
January 1, 2000 - December 31, 2000
Ace Same Store Sales
Increase Compared to % of Base
Weighted Average Increase Compensation
------------------------- ------------
-1.0% 8.0%
-.5 9.0
Weighted Average Target 10.0
.5 12.0
1.0 14.0
1.5 16.0
2.0 18.0
2.5 20.0
etc. etc.
*Weighted Average 96-97 97-98 98-99*
----- ----- ------
Home Depot 7.0% 7.0% 10.0%
Lowes 4.0% 6.0% 6.0%
*through 3rd quarter
Ace Growth
ACE 6.0% 8.5% 6.5%
ACE HARDWARE CORPORATION
LONG-TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN
Effective January 1, 2000
-------------------------
I. PURPOSE
The purpose of this Ace Hardware Corporation Long-Term Incentive Compensation
Deferral Option Plan (the "Plan") is to provide a further means whereby Ace
Hardware Corporation (the "Company") may afford wealth accumulation to certain
officers of the Company who have rendered and continue to render valuable
service to the Company. By providing a means whereby income may be deferred
into the future, the Plan will aid in attracting and retaining executives of
exceptional ability.
Compensation reductions made pursuant to the Plan will be credited with
interest for the benefit of each Participant. The intent of the Plan is to
credit Participants' compensation deferrals with a specified rate of interest
and to provide the Participants a means to accumulate supplemental funds for
retirement, special needs prior to retirement or death.
II. DEFINITIONS AND CERTAIN PROVISIONS
2.1 "Agreement" means the Ace Hardware Corporation's Long-Term
Incentive Compensation Deferral Option Agreement executed between
a Participant and the Company, whereby a Participant agrees to
defer a portion of his/her Bonus pursuant to the provisions of
the Plan, and the Company agrees to make benefit payments in
accordance with the provisions of the Plan.
2.2 "Beneficiary" means the person or persons who under this Plan
becomes entitled to receive a Participant's interest in the event
of the Participant's death.
2.3 "Board of Directors" means the Board of Directors of Ace Hardware
Corporation or any committee thereof acting within the scope of
its authority.
2.4 "Bonus" means the amount(s) paid during a calendar year to a
Participant under the Ace Hardware Corporation Long-Term
Incentive Compensation Plan.
2.5 "Committee" means the committee appointed to manage and
administer the Plan.
2.6 "Company" means Ace Hardware Corporation, a Delaware corporation
and its subsidiaries and any successor in interest.
2.7 "Deferral Year" means any calendar year, 2000 through 2004.
2.8 "Deferred Benefit Account" means the account(s) maintained on the
books of the Company for a Participant under this Plan. A
separate Deferred Benefit Account shall be maintained for each
Participant. A Participant's Deferred Benefit Account shall not
constitute or be treated as a trust fund of any kind.
2.9 "Determination Date" means the date on which the amount of a
Participant's Deferred Benefit Account is determined as provided
in Article III hereof. The last day of a calendar year or the
date of a Participant's Termination of Service shall be a
Determination Date.
2.10 "Disability" means a condition, as determined by the Company,
that totally and continuously prevents the Participant, for at
least six consecutive months, from engaging in an "occupation"
for compensation or profit. During the first twenty-four (24)
months of total disability, "occupation" means the Participant's
occupation at the time the disability began. After that period,
"occupation" means any occupation for which the Participant is or
becomes reasonably fitted by education, training or experience.
Notwithstanding the foregoing, a Disability shall not exist for
purposes of this Plan if the Participant fails to qualify for
disability benefits under the Social Security Act, unless the
Company determines, in its sole discretion, that a Disability
exists.
2.11 "Effective Date" means January 1, 2000.
2.12 "Hour of Service" shall mean (1) each hour for which an employee
is directly or indirectly compensated or entitled to compensation
by the Company for the performance of duties during the
applicable computation period; (2) each hour for which an
employee is directly or indirectly compensated or entitled to
compensation by the Company (irrespective of whether the
employment relationship has terminated) for reasons other than
performance of duties (such as vacation, holidays, sickness, jury
duty, disability, lay-off, military duty or leave of absence)
during the applicable computation period; (3) each hour for which
back pay is awarded or agreed to by the Company without regard to
mitigation of damages.
2.13 "Interest Yield" means either the Retirement Interest Yield, the
Termination Interest Yield, or the Death Interest Yield, as
defined below:
(a) "Retirement Interest Yield" means a rate of interest
equal to 120 percent of Prime.
(b) "Termination Interest Yield" means a rate of interest
equal to 100 percent of Prime.
(c) "Death Interest Yield" means a rate of interest equal to
120 percent of Prime. This rate of interest shall be
fixed at the time of the Participant's death.
2.14 "Participant" means an officer of the Company who is eligible to
participate in the Plan pursuant to Article III, has executed an
Agreement with the Company, and who has commenced Bonus
reductions pursuant to such Agreement.
2.15 "Plan" means the Ace Hardware Corporation Long-Term Incentive
Compensation Deferral Option Plan as amended from time-to-time.
2.16 "Prime" means the Prime Rate as of December 31st of the
preceding year as reported in the Wall Street Journal.
2.17 "Retirement Date" means the date of Termination of Service of the
Participant other than by reason of death or Disability on or
after he/she attains either age 55 with 10 Years of Service or
age 60 with 5 Years of Service or age 65.
2.18 "Termination of Service" means the Participant's cessation of
his/her service with the Company for any reason whatsoever,
whether voluntarily or involuntarily, including by reason of
retirement, death or Disability.
2.19 "Year of Service" means any calendar year during which a
Participant completes at least 1000 Hours of Service with the
Company.
III. PARTICIPATION AND COMPENSATION REDUCTION
3.1 Participation. Participation in the Plan shall be limited to
officers of the Company, who are eligible to participate in the
Ace Hardware Corporation Long-Term Incentive Compensation Plan
and who elect to participate in this Plan by filing an Agreement
with the Company prior to the first day of the deferral period
in which a Participant's participation commences in the Plan. The
election to participate shall be effective upon receipt by the
Committee of the Agreement that is properly completed and
executed in conformity with the Plan.
3.2 Minimum and Maximum Deferral and Length of Participation. A
Participant may elect to defer any amount of his/her Bonus
including the non-vested portion, the immediate award portion and
the PREP portion of the Long-Term Incentive Compensation Plan
award. The amount of each portion of the Bonus award which may
be deferred shall be equal to 20% to 100% (in 20% increments) of
the award granted. If a Bonus award is subject to a one year
vesting provision under the Long-Term Incentive Compensation
Plan, the same vesting requirements shall apply to Bonus awards
deferred to this Plan.
A Participant shall make an annual election for the upcoming
Deferral Year by December 15th of the year preceding the Deferral
Year for which the election is being made.
3.3 Timing of Deferral Credits. The amount of Bonus that a
Participant elects to defer in the Agreement shall cause an
equivalent reduction in his/her Bonus. Bonus deferrals shall be
credited to the Participant's Deferred Benefit Account at such
time as the Participant would have otherwise received or been
eligible to receive the Bonus deferred pursuant to the Plan.
3.4 New Participants. A Participant who first attains such status
subsequent to January 1, 2000, shall be entitled to participate
in the Plan after satisfying the requirements of Section 3.1 and
shall be bound by all terms and conditions of the Plan, provided,
however, that this Agreement must be filed no later than thirty
(30) days following his/her eligibility to participate.
3.5 Emergency Benefit; Waiver of Deferral. In the event that the
Committee, upon written petition of the Participant or his/her
Beneficiary, determines in its sole discretion, that the
Participant or his/her Beneficiary has suffered an unforeseeable
financial emergency, the Company shall pay to the Participant or
his/her Beneficiary, as soon as possible following such
determination, an amount, not in excess of the Participant's
Deferred Benefit Account, necessary to satisfy the emergency.
For purposes of this Plan, an unforeseeable financial emergency
is an unanticipated emergency that is caused by an event beyond
the control of the Participant or Beneficiary and that would
result in severe financial hardship to the individual if the
emergency distribution were not permitted. Cash needs arising
from foreseeable events, such as the purchase of a residence or
education expenses for children shall not be considered the
result of an unforeseeable financial emergency. The Committee may
also grant a waiver of the Participant's agreement to defer a
stated amount of Bonus upon finding that the Participant has
suffered an unforeseeable financial emergency. The waiver shall
be for such period of time as the Committee deems necessary under
the circumstances to relieve the hardship.
3.6 Determination of Account. Each Participant's Deferred Benefit
Account as of each Determination Date shall consist of the
balance of the Participant's Deferred Benefit Account as of the
immediately preceding Determination Date, plus the Participant's
elective deferred Bonus pursuant to Section 3.2 since the
immediately preceding Determination Date. The Deferred Benefit
Account of each Participant shall be reduced by the amount of all
distributions, if any, made from such Deferred Benefit Account
since the preceding Determination Date. The appropriate Interest
Yield shall be credited on the average daily balance of the
Deferred Benefit Account as of the Determination Date and since
the last preceding Determination Date, but after the Deferred
Benefit Account has been adjusted for any additions (including
interest earnings) or distributions to be credited or deducted
for each such day.
3.7 Vesting of Deferred Benefit Account. Except as provided in
Section 3.2, a Participant shall be one hundred (100) percent
vested in his/her Deferred Benefit Account. Notwithstanding any
other provision of this Plan, a Participant shall be one hundred
(100) percent vested in his/her Deferred Benefit Account at the
time of retirement, death or Disability.
IV. BENEFITS
4.1 Inservice Distribution. At the time a Participant executes the
Agreement, he/she may elect to receive a return of up to 50%, in
5% increments, of the annual deferrals originally made pursuant
to the Plan. The return of deferral election applies solely to
the Participant's deferral and not to interest credited to the
Participant's Deferred Benefit Account. Each return of deferral
shall be paid in a lump-sum on December 1 of the year which is
five (5) years after the year in which the deferral is made. A
return of deferral shall only be paid prior to a Participant's
Termination of Service. Any return of deferral paid shall be
deemed a distribution, and shall be deducted from the
Participant's Deferred Benefit Account. A separate return of
deferral selection shall be made for each Deferral Year.
4.2 Retirement Benefit. Subject to Section 4.6 below, upon a
Participant's Retirement Date, he/she shall be entitled to
receive the amount of his/her Deferred Benefit Account determined
under Section 3.6 using the Retirement Interest Yield. The form
of benefit payment shall be as provided in Section 4.6.
4.3 Termination Benefit. Upon the Termination of Service of a
Participant prior to his/her Retirement Date for reasons other
than death or Disability, the Company shall pay to the
Participant a benefit equal to the amount of his/her Deferred
Benefit Account, determined under Section 3.6 hereof using the
Termination Interest Yield. In calculating a Participant's
Deferred Benefit Account pursuant to this Section, the
Termination Interest Yield shall be utilized retroactive to the
beginning of the Participant's initial deferral into this Plan.
Unless otherwise directed by the Committee, the termination
benefit shall be payable in a lump-sum within sixty (60) days
following such Termination of Service. Upon a Termination of
Service, the Participant shall immediately cease to be eligible
for any other benefit provided under this Plan. In the event of a
Participant's Termination of Service, interest shall be credited
to his/her Deferred Benefit Account through the last day of the
month during which the Termination of Service occurred.
4.4 Death Benefits. Upon the death of a Participant or a retired
Participant, the Beneficiary of such Participant shall receive
the Participant's remaining Deferred Benefit Account. Payment of
a Participant's remaining Deferred Benefit Account shall be in
accordance with Section 4.6.
4.5 Disability. In the event of a Termination of Service due to
Disability, which first manifests itself after the Effective Date
of the Plan and prior to his/her Retirement Date, a disabled
Participant may receive a benefit equal to the remaining balance,
if any, of his/her Deferred Benefit Account. Such benefit shall
be paid until the earliest of the following events: (i) there is
no longer any balance in the Participant's Deferred Benefit
Account; (ii) the Participant ceases to be disabled and resumes
employment with the Company; (iii) the Participant dies. Payment
of a Participant's remaining Deferred Benefit Account shall be in
accordance with Section 4.6 over the number of years elected by
the Participant. Disability benefits shall be treated as
distributions from a Participant's Deferred Benefit Account.
4.6 Form of Benefit Payment. Upon the happening of an event
described in Section 4.2, 4.4, or 4.5, the Company shall pay to
the Participant or his/her Beneficiary, monthly installments
payable in substantially equal amounts over the number of years
elected by the Participant in accordance with his/her initial
Agreement, except as otherwise provided in this Section 4.6. The
number of years installment payments may be paid shall not be
fewer than five (5) years, nor greater than twenty (20) years.
Interest on the unpaid principal balance equal to the applicable
Retirement Interest Yield in the event of a benefit payable
pursuant to Section 4.2 or 4.5 or the Death Interest Yield in the
event of a benefit payable pursuant to Section 4.4 will be added
to the Deferred Benefit Account on each Determination Date.
Upon the written request by a Participant, filed with the
Committee at least three hundred sixty-seven (367) days prior to
his/her Retirement Date, the Committee may, in its sole
discretion, allow a Participant to change the number of years
installment payments are paid. Any change in the number of years
installment payments are to be paid shall apply to all
installment payments due a Participant and still must be paid
over no fewer than five (5) years and no greater than twenty
(20) years.
During the period a Participant is receiving installment
payments, the amount of the installment payments shall be based
on the prevailing Interest Yield applicable at the commencement
of payments, projected into the future. The amount of the
installment payments shall be recomputed every three (3) years
and the installment payments shall be increased or decreased to
reflect any changes in the applicable Interest Yield. Upon the
death of a Participant after the commencement of benefits
pursuant to Section 4.4, the remaining installment payments
payable to the Beneficiary shall be fixed. The Interest Yield
used to determine the installment payment amounts shall be the
Death Interest Yield.
The Company may, in its sole discretion, elect to pay, at any
time, a Participant's or Beneficiary's Deferred Benefit Account
in a lump-sum payment.
4.7 Lump-Sum Settlement Option. Notwithstanding any other provision
of this Plan, any Participant, retired Participant or Beneficiary
who has a Deferred Benefit Account hereunder may elect to receive
an immediate lump-sum payment of the balance of his/her Deferred
Benefit Account, reduced by a penalty equal to six percent (6%)
of the Participant's, retired Participant's or Beneficiary's
remaining Deferred Benefit Account. The six percent (6%) penalty
shall be permanently forfeited and shall not be paid to the
Participant, retired Participant, or Beneficiary. A Participant
who elects to receive a lump-sum payment pursuant to this Section
4.7 must forego further participation in the Plan for eighteen
(18) months.
In determining the amount to be paid as a lump-sum payment
pursuant to this Section 4.7, the Termination Interest Yield
shall be utilized. In the event that the Participant, prior to
the election to receive a lump-sum payment pursuant to this
Section 4.7, has attained either age 55 with 10 Years of Service
or age 60 with 5 Years of Service or age 65; and within one year
following the election to receive the lump-sum has not acted in
competition with the Company either individually or as an
employee of a competitor, the difference between the Deferred
Benefit Account using the Retirement Interest Yield or the Death
Interest Yield, if applicable and the Termination Interest Yield
shall be paid to the Participant, retired Participant or
Beneficiary.
4.8 Withholding; Employment Taxes. To the extent required by law in
effect at the time payments are made, the Company shall withhold
any taxes required to be withheld by any Federal, State or local
government.
4.9 Commencement of Payments. Unless otherwise provided,
commencement of payments under this Plan shall be within sixty
(60) days following receipt of notice by the Committee of an
event which entitles a Participant or a Beneficiary to payments
under this Plan, or at such earlier date as may be determined by
the Committee. All payments shall be made as of the first day of
the month.
4.10 Full Payment of Benefits. Notwithstanding any other provision of
this Plan, all benefits shall be paid no later than the
Participant's eightieth (80th) birthday.
4.11 Recipients of Payments: Designation of Beneficiary. All payments
to be made by the Company under the Plan shall be made to the
Participant during his/her lifetime, provided that if the
Participant dies prior to the completion of such payments, then
all subsequent payments under the Plan shall be made by the
Company to the Beneficiary determined in accordance with this
Section 4.11. The Participant may designate a Beneficiary by
filing a written notice of such designation with the Committee in
such form as the Company requires and may include contingent
Beneficiaries. The Participant may from time-to-time change the
designated Beneficiary without the consent of such Beneficiary by
filing a new designation in writing with the Committee. If no
designation is in effect at the time when any benefits payable
under this Plan shall become due, the Beneficiary shall be the
spouse of the Participant, or if no spouse is then living, the
representatives of the Participant's estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan shall
be made in writing to any member of the Committee. If such claim
for benefits is wholly or partially denied by the Committee, the
Committee shall, within a reasonable period of time, but not
later than sixty (60) days after receipt of the claim, notify
the claimant of the denial of the claim. Such notice of denial
shall be in writing and shall contain:
(a) The specific reason or reasons for denial of the claim;
(b) A reference to the relevant Plan provisions upon which
the denial is based;
(c) A description of any additional material or information
necessary for the claimant to perfect the claim, together
with an explanation of why such material or information is
necessary; and
(d) An explanation of the Plan's claim review procedure. If no
such notice is provided, the claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits. Upon the
receipt by the claimant of written notice of denial of the claim,
the claimant may within ninety (90) days file a written request
to the Committee, requesting a review of the denial of the claim,
which review shall include a hearing if deemed necessary by the
Committee. In connection with the claimant's appeal of the denial
of his/her claim, he/she may review relevant documents and may
submit issues and comments in writing.
5.3 Decision Upon Review of Denial of Claim for Benefits. The
Committee shall render a decision on the claim review promptly,
but no more than sixty (60) days after the receipt of the
claimant's request for review, unless special circumstances (such
as the need to hold a hearing) require an extension of time, in
which case the sixty (60) day period shall be extended to 120
days. Such decision shall:
(a) Include specific reasons for the decision;
(b) Be written in a manner calculated to be understood by the
claimant; and
(c) Contain specific references to the relevant Plan provisions
upon which the decision is based.
The decision of the Committee shall be final and binding in all
respects on both the Company and the claimant.
VI. ADMINISTRATION
6.1 Committee. The Plan shall be administered by the Committee.
Members of the Committee or agents of the Committee may be
Participants under the Plan. No member of the Committee who is
also a Participant shall be involved in the decisions of the
Committee regarding any determination of any claim for benefit
with respect to himself or herself.
6.2 General Rights, Powers, and Duties of Committee. The Committee
shall be responsible for the management, operation, and
administration of the Plan. The Committee may designate a
Committee member or an officer of the Company as Plan
Administrator. Absent such delegation, the Committee shall be the
Plan Administrator. The Plan Administrator shall perform duties
as designated by the Committee. In addition to any powers, rights
and duties set forth elsewhere in the Plan, it shall have the
following powers and duties:
(a) To adopt such rules and regulations consistent with the
provisions of the Plan as it deems necessary for the proper
and efficient administration of the Plan;
(b) To administer the Plan in accordance with its terms and any
rules and regulations it establishes;
(c) To maintain records concerning the Plan sufficient to
prepare reports, returns and other information required by
the Plan or by law;
(d) To construe and interpret the Plan and resolve all questions
arising under the Plan;
(e) To direct the Company to pay benefits under the Plan, and to
give such other directions and instructions as may be
necessary for the proper administration of the Plan;
(f) To employ or retain agents, attorneys, actuaries,
accountants or other persons, who may also be Participants
in the Plan or be employed by or represent the Company, as
it deems necessary for the effective exercise of its duties,
and may delegate to such agents any power and duties, both
ministerial and discretionary, as it may deem necessary and
appropriate; and
(g) To be responsible for the preparation, filing and disclosure
on behalf of the Plan of such documents and reports as are
required by any applicable Federal or State law.
6.3 Information to be Furnished to Committee. The Company shall
furnish the Committee such data and information as it may
require. The records of the Company shall be determinative of
each Participant's period of employment, termination of
employment and the reason therefor, leave of absence,
reemployment, Years of Service, personal data, and Bonus
deferrals. Participants and their Beneficiaries shall furnish to
the Committee such evidence, data, or information, and execute
such documents as the Committee requests.
6.4 Responsibility. No member of the Committee of the Company shall
be liable to any person for any action taken or omitted in
connection with the administration of this Plan unless
attributable to his/her own fraud or willful misconduct. The
Company agrees to defend, indemnify and hold each Committee
member harmless from any and all damages, losses or costs
(including reasonable attorney's fees) which occur by reason of,
arise out of, or are incidental to the implementation or
administration of the Plan unless attributable to his/her own
willful fraud or willful misconduct.
6.5 Committee Review. Any action on matters within the discretion of
the Committee shall be final and conclusive as to all
Participants, retired Participants, Beneficiaries and other
persons claiming rights under the Plan. The Committee shall
exercise all of the powers, duties and responsibilities set forth
hereunder in its sole discretion.
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by the
Board of Directors at any time. Notice of any such amendment
shall be given in writing to the Committee and to each
Participant and each Beneficiary. No amendment shall decrease the
value of a Participant's Deferred Benefit Account.
7.2 Company's Right to Terminate. The Board of Directors may
terminate the Plan and/or the Agreements pertaining to the
Participant at any time after the Effective Date of the Plan. In
the event of any such termination, the Participant or Beneficiary
shall be entitled to the amount of his/her Deferred Benefit
Account determined under Section 3.6, using the Retirement
Interest Yield as of the date of termination of the Plan and/or
his/her Agreement. Such benefit shall be paid to the Participant
in monthly installments over a period of no more than fifteen
(15) years, except that the Company, in its sole discretion, may
pay out such benefit in a lump-sum or in installments over a
period shorter than fifteen (15) years.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service. Neither the
establishment of the Plan nor any amendment thereof shall be
construed as giving any Participant, retired Participant,
Beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan
or conferred by specific action of the Company in accordance with
the terms and provisions of the Plan. Except as expressly
provided in this Plan, the Company shall not be required or be
liable to make any payment under the Plan.
8.2 No Right to Company Assets. Neither the Participant nor any other
person shall acquire by reason of the Plan any right in or title
to any assets, funds or property of the Company whatsoever
including, without limiting the generality of the foregoing, any
specific funds, assets, or other property which the Company, in
its sole discretion, may set aside in anticipation of a liability
hereunder. Any benefits which become payable hereunder shall be
payable from the general assets of the Company. The Participant
shall have only a contractual right to the amounts, if any,
payable hereunder unsecured by any asset of the Company. Nothing
contained in the Plan constitutes a guarantee by the Company that
the assets of the Company shall be sufficient to pay any benefit
to any person.
8.3 No Employment Rights. Nothing herein shall constitute a contract
of employment or of continuing service or in any manner obligate
the Company to continue the services of the Participant, or
obligate the Participant to continue in the service of the
Company, or as a limitation of the right of the Company to
discharge any of its employees, with or without cause. Nothing
herein shall be construed as fixing or regulating the Bonus
payable to the Participant.
8.4 Offset. If, at the time payments or installments of payments are
to be made hereunder, the Participant, retired Participant or the
Beneficiary are indebted or obligated to the Company, then the
payments remaining to be made to the Participant, retired
Participant, or the Beneficiary may, at the discretion of the
Company, be reduced by the amount of such indebtedness or
obligation, provided, however, that an election by the Company
not to reduce any such payment or payments shall not constitute a
waiver of its claim for such indebtedness or obligation.
8.5 Non-assignability. Neither the Participant nor any other person
shall have any voluntary or involuntary right to commute, sell,
assign, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which
are expressly declared to be unassignable and non-transferable.
No part of the amounts payable shall be, prior to actual payment,
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by the
Participant or any other person, or be transferable by operation
of law in the event of the Participant's or any other person's
bankruptcy or insolvency.
8.6 Gender and Number. Wherever appropriate herein, the masculine
may mean the feminine and the singular may mean the plural or
vice versa.
8.7 Notice. Any notice required or permitted to be given under the
Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail, and if given to the
Company, delivered to the principal office of the Company,
directed to the attention of the Committee. Such notice shall be
deemed given as of the date of delivery or, if delivery is made
by mail, as of the date shown on the postmark or the receipt for
registration or certification.
8.8 Governing Laws. The Plan shall be construed and administered
according to the laws of the State of Illinois.
IN WITNESS WHEREOF, the Company has adopted the Ace Hardware Long-Term
Incentive Compensation Deferral Option Plan effective January 1, 2000.
ACE HARDWARE CORPORATION
By:_________________________
Its:________________________
AUDITORS' CONSENT
The Board of Directors
Ace Hardware Corporation:
We consent to the use of our report included herein and the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Chicago, Illinois
March 13, 2000
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 LORI L. BOSSMANN, 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. 5
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 15th day of March, 2000.
__________________________________ _______________________________
Jennifer C. Anderson D. William Hagan
__________________________________ _______________________________
Richard F. Baalmann, Jr. Mark Jeronimus
__________________________________ ______________________________
Eric R. Bibens II Howard J. Jung
__________________________________ ______________________________
Lawrence R. Bowman Mario R. Nathusius
__________________________________ ______________________________
James T. Glenn Roger E. Peterson
__________________________________ ______________________________
Daniel L. Gust Richard W. Stine
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