<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
------------------------
COMMISSION FILE NUMBER 2-20910
TRUSERV CORPORATION
(PRIOR TO JULY 1, 1997 KNOWN AS COTTER & COMPANY)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2099896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
8600 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631-3505
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (773) 695-5000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X . NO __.
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SEC.229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
THERE IS NO PUBLIC MARKET FOR REGISTRANT'S CLASS A COMMON STOCK. SUCH
SHARES ARE OFFERED BY THE REGISTRANT IN SIXTY-SHARE UNITS, EXCLUSIVELY TO
RETAILERS OF HARDWARE AND RELATED MERCHANDISE, IN CONNECTION WITH BECOMING
MEMBERS OF THE COMPANY. SAID STOCK IS LIMITED AS TO TRANSFERABILITY BY ITS
TERMS.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS FEBRUARY 26, 2000
----- -----------------
<S> <C>
CLASS A COMMON STOCK, $100 PAR VALUE................ 399,600
CLASS B NONVOTING COMMON STOCK, $100 PAR VALUE...... 1,730,586
</TABLE>
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<PAGE> 2
PART I
THIS ANNUAL REPORT AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONTAIN FORWARD-LOOKING STATEMENTS ABOUT FUTURE RESULTS THAT ARE SUBJECT TO
RISKS AND UNCERTAINTIES. TRUSERV'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS.
TruServ Corporation ("TruServ" or the "Company") was organized as Cotter &
Company ("Cotter"), a Delaware corporation, in 1953. Upon its organization, it
succeeded to the business of Cotter & Company, an Illinois corporation organized
in 1948. On July 1, 1997 Cotter & Company merged with ServiStar Coast to Coast
Corporation ("SCC") (the "Merger"). SCC was a hardware wholesaler organized in
1935 with a strong presence in retail lumber and building materials. Following
the Merger, the Company was renamed TruServ Corporation. The Company's principal
executive offices are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois,
60631-3505. Its telephone number is (773) 695-5000.
The Company is a Member-owned wholesaler of hardware, lumber/building
materials and related merchandise. It is the largest wholesaler of hardware,
lumber/building materials and related merchandise in the United States. The
Company also manufactures paint and paint applicators. For reporting purposes,
the Company operates in a single industry as a Member-owned wholesaler
cooperative.
Membership, depending on the terms of the Member's Retail Member Agreement
with TruServ (the "Retail Member Agreement"), entitles TruServ Members to use
certain TruServ trademarks and trade names, including the federally registered
Coast to Coast(R), ServiStar(R) and True Value(R) trademarks, service marks and
collective membership marks. The True Value(R) collective membership mark has a
present expiration date of January 2, 2003; the ServiStar(R) mark has a present
expiration date of September 13, 2003; the Coast to Coast(R) mark expires on
November 3, 2004; the InduServe Supply(R) mark has a present expiration date of
January 23, 2006; the Grand Rental Station(R) mark has a present expiration date
of June 4, 2005; the Taylor Rental(R) mark has a present expiration date of
January 15, 2004; the Home & Garden Showplace(R) mark has a present expiration
date of February 13, 2009 and the Commercial Sales(R) mark has a present
expiration date of December 16, 2007. Members are continuing to conduct their
businesses under the same retail banners as before the Merger but, beginning in
year 2000, all Members with the retail banners of Coast to Coast(R) and
ServiStar(R) started to conduct their business under the single retail banner of
True Value(R). Membership entitles the Members to have access to all private
label product and entitles a Member to receive annual patronage dividends based
upon the Member's purchases from TruServ (See Distribution of Patronage
Dividend). In accordance with TruServ's By-Laws and the Retail Member
Agreements, the annual patronage dividend is paid to Members out of the gross
margins from operations and other patronage source income, after deduction for
expenses, reserves and provisions authorized by the Board of Directors.
The Company serves approximately 8,700 Coast to Coast(R), ServiStar(R) and
True Value(R) Hardware Stores throughout the United States. Primary
concentrations of Members exist in New York (approximately 9%), Pennsylvania
(approximately 8%), California, Florida, Illinois, Massachusetts, Michigan, Ohio
and Texas (approximately 4% each).
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The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Lumber and Building Materials.................. 33.2% 30.2% 24.5%
Hardware Goods................................. 16.1% 17.8% 19.5%
Farm and Garden................................ 15.9% 14.5% 13.1%
Electrical and Plumbing........................ 12.7% 13.4% 15.8%
Painting and Cleaning.......................... 10.0% 10.8% 12.0%
Appliances and Housewares...................... 8.6% 8.4% 9.4%
Sporting Goods and Toys........................ 3.5% 4.9% 5.7%
</TABLE>
The Company serves its Members by functioning as a low cost distributor of
goods and maximizing its volume purchasing abilities, primarily through vendor
rebates and discount programs, for the benefit of its Members. These benefits
are passed along to its Members in the form of lower prices and/or patronage
dividends. The Company has numerous individual agreements or commitments from
its suppliers, virtually all of which are terminable by such suppliers or the
Company without cause. Such provisions, either individually or in the aggregate,
have not had any material adverse effect on the Company's ability to conduct its
business. The goods and services purchased by the Company from these suppliers
are generally available from a wide variety of sources. The Company is not
dependent upon any one supplier or group of suppliers and has not experienced a
problem in obtaining necessary goods. The Company holds conventions and meetings
for its Members in order to keep them better informed as to industry trends and
the availability of new merchandise. The Company also provides each of its
Members with an illustrated price catalog showing the products available from
the Company. The Member can access this catalog through the newly developed
internet site for Members or a printed version can be sent to them. The
Company's sales to its Members are divided into three categories, as follows:
(1) warehouse shipment sales (approximately 37% of total sales); (2) direct
shipment sales (approximately 58% of total sales); and (3) relay sales
(approximately 5% of total sales). Warehouse shipment sales are sales of
products purchased, warehoused, and resold by the Company upon orders from the
Members. Direct shipment sales are sales of products purchased by the Company
but delivered directly to Members from manufacturers. Relay sales are sales of
products purchased by the Company in response to the requests of several Members
for a product which is (i) included in future promotions, (ii) not normally held
in inventory and (iii) is not susceptible to direct shipment. Generally, the
Company will give notice to all Members of its intention to purchase products
for relay shipment and then purchases only so many of such products as the
Members order. When the product shipment arrives at the Company, it is not
warehoused; rather, the Company breaks up the shipment and "relays" the
appropriate quantities to the Members who placed orders.
The Company also manufactures paint and paint applicators. The principal
raw materials used by the Company are chemicals. All raw materials are purchased
from outside sources. The Company has been able to obtain adequate sources of
raw materials and other items used in production and no shortages of such
materials which will materially impact operations are currently anticipated.
The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 2000, these markets will be held in Dallas, Texas and
New Orleans, Louisiana. Members are invited to the markets and generally place
substantial orders for delivery during the period prior to the next market.
During such markets, new merchandise and seasonal merchandise for the coming
season is displayed to attending Members.
As of February 26, 2000 and February 27, 1999, respectively, the Company
had a backlog of firm orders (including relay orders) of approximately
$21,514,000 and $18,700,000. It is anticipated that the entire backlog existing
at February 26, 2000 will be filled by April 30, 2000. The Company's backlog at
any given time is made up of two principal components: (i) normal resupply
orders and (ii) market orders for future delivery. Resupply orders are orders
from Members for merchandise to keep inventories at normal levels.
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Generally, such orders are filled the day following receipt, except that relay
orders for future delivery (which are in the nature of resupply orders) are not
intended to be filled for several months. Market orders for future delivery are
Member orders for new or seasonal merchandise given at the Company's two
markets, for delivery during the several months subsequent to the markets. Thus,
the Company will have a relatively high backlog at the end of each market which
will diminish in subsequent months until the next market.
The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses served by the Company continue to face
intense competition from chain stores, discount stores, home centers, and
warehouse operations. Increased operating expenses for the retail stores,
including increased costs due to longer open-store hours and higher rental costs
of retail space, have cut into operating margins and brought pressures for lower
merchandise costs, to which the Company has been responsive through a
retail-oriented competitive pricing strategy on high-turnover, price-sensitive
items. The trueAdvantage(R) program was introduced in 1995 and upgraded in 1997
to promote higher retail standards in order to build consumer goodwill and
create a positive image for all Member stores.
The Company competes with other Member-owned and non-member-owned
wholesalers as a source of supply and merchandising support for independent
retailers. Competitive factors considered by independent retailers in choosing a
source of supply include pricing, servicing capabilities, promotional support
and merchandise selection and quality. Increased operating expenses and
decreased margins have resulted in several non-member-owned wholesalers
withdrawing from business.
The Company, through a Canadian subsidiary, owns a majority equity interest
in TruServ Canada Cooperative, Inc., a Canadian wholesaler of hardware, variety
and related merchandise. This cooperative serves approximately 550 True Value(R)
and V&S(R) Stores, all located in Canada. The cooperative has approximately 335
employees and generated less than 5% of the Company's consolidated revenue in
fiscal year 1999.
The Company operates several other subsidiaries, most of which are engaged
in businesses providing additional services to the Company's Members. In the
aggregate, these subsidiaries are not significant to the Company's results of
operations.
The Company employs approximately 5,500 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of the
Company's operations, employee relations are governed by the practices
prevailing in the particular area and are generally dealt with locally.
Approximately 22% of the Company's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, the Company considers its relationship with its
employees to be good.
RETAIL MEMBER AGREEMENT; FRANCHISE AND LICENSE AGREEMENTS
The TruServ Retail Member Agreement provides, among other things, that each
Member:
(i) will be required to own 60 shares of Class A common stock of
TruServ for each store owned by such Member (up to a maximum of 300 shares
for five or more stores);
(ii) will conduct its businesses under the True Value(R), ServiStar(R)
or Coast to Coast(R) names (or other affiliated names or marks) subject to
the terms of the Retail Member Agreement;
(iii) will conduct a retail hardware, lumber, building materials, home
center, rental or industrial/ commercial operation at a designated
location;
(iv) will comply with TruServ's By-Laws as in effect from time to
time;
(v) will accept patronage dividends in a form complying with the
requirement of the Internal Revenue Code for deduction from gross income by
TruServ;
(vi) may receive different services and pay different charges based on
the volume of merchandise purchased by the Member;
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(vii) agrees to have its Retail Member Agreement terminated in certain
circumstances by unilateral action by TruServ's Board of Directors;
(viii) agrees to have its Retail Member Agreement automatically
modified upon notice to the Member by TruServ of any change in its
Certificate of Incorporation or By-Laws or any resolution of the Board of
Directors;
(ix) agrees to have its Retail Member Agreement governed by Illinois
law, and enforced or interpreted only in courts located in Cook County,
Illinois or any contiguous county; and
(x) may terminate the Retail Member Agreement upon 60 days written
notice to TruServ.
In view of current circumstances, the Company has initiated a moratorium on
the redemption of its stock. The Board of Directors will review this matter from
time to time in light of the then current financial circumstances of the
Company.
Some of the licenses and franchise agreements of former SCC Members have
been assigned by TruServ to a new wholly-owned limited liability company which
was created for the purpose of continuing to operate any license or franchise
activities, which have been continued in that format after July 1, 1997. TruServ
will review any retail activities which continue to be carried out as
franchises. It is anticipated that additional licenses may be entered into
periodically with respect to the Taylor Rental Centers and Grand Rental
Stations. It is less likely that any additional franchise or license agreements
will be entered into with respect to the other retail programs operated as
franchises by SCC prior to the Merger. Rather, it is contemplated that these
programs will initially be operated as part of the cooperative activities of
TruServ.
DISTRIBUTION OF PATRONAGE DIVIDENDS
TruServ operates on a cooperative basis with respect to business transacted
with or for Members. All Members are entitled to receive patronage dividend
distributions from TruServ on the basis of gross margins of merchandise and/or
services purchased by each Member. In accordance with TruServ's By-Laws and
Retail Member Agreement, the annual patronage dividend is paid to Members out of
the gross margins from operations and other patronage source income, after
deduction for expenses, reserves and provisions authorized by the Board of
Directors. No dividend will be distributed for 1999.
Patronage dividends are usually paid to Members within 90 days after the
close of TruServ's fiscal year; however, the Internal Revenue Code (the "Code")
permits distribution of patronage dividends as late as the 15th day of the ninth
month after the close of TruServ's fiscal year, and TruServ may elect to
distribute the annual patronage dividend at a later time than usual in
accordance with the provisions of the Code.
TruServ's By-Laws provide for the payment of year-end patronage dividends,
after payment of at least 20% of such patronage dividends in cash, in qualified
written notices of allocation including (i) Class B common stock based on par
value thereof, to a maximum of 2% of the Member's net purchases of merchandise
from TruServ for the year (except in unusual circumstances of individual
hardships, in which case the Board of Directors reserves the right to make
payments in cash), (ii) promissory (subordinated) notes, or (iii) other
property. Such promissory (subordinated) notes are for a five year term, bear
interest at a fixed rate based on a premium spread above comparable U.S.
Treasury notes as approved by the Board of Directors, and are subordinated to
all other debt of TruServ. TruServ may also issue nonqualified written notices
of allocation to its Members as part of its annual patronage dividend. See
"Payment of Patronage Dividends in Accordance with the Internal Revenue Code."
In determining the form of the annual patronage dividend, a Member's
required investment in Class B common stock of TruServ had historically been
limited by the Board of Directors to an amount, the cumulative value of which
will not exceed two percent (2%) of the Member's net purchases of merchandise
from the Company. Commencing in 1996, the Board established minimum Class B
ownership requirements (currently $25,000 for hardware stores and $15,000 for
lumber stores) which may be varied from time to time and is comprised of the
aggregate of a Member's various types of annual purchases multiplied by a
specific percentage, that varies from 1% to 14%, decreasing as total dollar
purchases by category increase. The amount of such required investment is
determined by majority vote of the Board of Directors, and may be increased or
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<PAGE> 6
decreased by such vote. The basis for determining the necessity of an increase
or decrease is through evaluation of the financial needs of TruServ, while
considering the needs of its membership. The consideration and method of payment
for such shares is by way of the required amount being calculated as part of the
annual patronage dividend distribution amount.
PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE
The Code specifically provides for the taxation of cooperatives (such as
TruServ) and their patrons (such as TruServ's Members) so as to ensure that the
business earnings of cooperatives are currently taxable either to the
cooperatives or to the patrons.
The shares of Class B nonvoting common stock and other written notices,
which disclose to the recipient the stated amount allocated to him by TruServ
and the portion thereof which is a patronage dividend, distributed by TruServ to
its Members are "written notices of allocation" within the meaning of that
phrase as used in the Code. For such written notices to be "qualified written
notices of allocation" within the meaning of the Code, it is necessary that
TruServ pay 20% or more of the annual patronage dividend in cash and that the
Members consent to having the allocations (at their stated dollar amount)
treated as being constructively received by them and includable in their gross
income. Such written notices that do not meet these requirements are
"nonqualified written notices of allocation" within the meaning of the Code.
Cash, qualified written notices, and other property (except nonqualified written
notices of allocation) are currently deducted from earnings in determining the
taxable income of TruServ and, accordingly such qualified written notices of
allocation are includable in gross income of the patron (Member). Section
1385(a) of the Code provides, in substance, that the amount of any patronage
dividend which is paid in cash, qualified written notices of allocation or other
property (except nonqualified written notices of allocation) shall be included
in the gross income of the patron (Member) for the taxable year in which it
receives such cash or such qualified written notices of allocation. In general,
with respect to nonqualified written notices of allocation, no amounts are
deductible by TruServ or includable in gross income of the patron (Member) until
redeemed by TruServ.
Thus, every year each Member may receive, as part of the Member's patronage
dividend, non-cash "qualified written notices of allocation", which may include
Class B nonvoting common stock, the stated dollar amount of which must be
recognized as gross income for the taxable year in which received. The portion
of the patronage dividend paid in cash (at least 20%) may be insufficient,
depending on the tax bracket in each Member's case, to provide funds for the
payment of income taxes for which the Member will be liable as a result of the
receipt of the entire patronage dividend, including cash and Class B nonvoting
common stock.
In response to the provisions of the Code, TruServ's By-Laws provide for
the treatment of the shares of Class B nonvoting common stock and such other
notices as the Board of Directors may determine, distributed in payment of
patronage dividends as "qualified written notices of allocation." The By-Laws
provide in effect:
(i) for payment of patronage dividends partly in cash, partly in
qualified written notices of allocation (including the Class B nonvoting
common stock as described above), other property or in nonqualified written
notices of allocation, and
(ii) that membership in the organization (i.e. the status of being a
Member of TruServ) shall constitute consent by the Member to take the
qualified written notices of allocation or other property into account in
the Member's gross income as provided in Section 1385(a) of the Code.
Under the provisions of the Code, persons who become or became Members of
TruServ or who retained their status as Members after adoption of the By-Laws
providing that membership in the organization constitutes consent, and after
receiving written notification and a copy of the By-Laws are deemed to have
consented to the tax treatment of the cash and the qualified written notices of
allocation in which the patronage dividends are paid, in accordance with Section
1385(a) of the Code. Written notification of the adoption of the By-Laws and its
significance, and a copy of the By-Laws, were sent to each then existing Member
and have been, and will continue to be, delivered to each party that became, or
becomes a Member thereafter. Such consent is then effective except as to
patronage occurring after the distributee ceases to be a Member of the
organization or after the By-Laws of the organization cease to contain the
provision with
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respect to the above described consent. Such consent may be revoked by the
Member only by terminating its membership in TruServ in the manner provided in
its Retail Member Agreement.
Each year since 1978, TruServ has paid its Members 30% of the annual
patronage dividend in cash in respect to patronage (excluding nonqualified
written notices of allocation) occurring in the preceding year. It is the
judgment of management that the payment of 30% or more of patronage dividends in
cash will not have a material adverse effect on the operations of TruServ or its
ability to maintain adequate working capital for the normal requirements of its
business. However, TruServ is obligated to distribute only 20% of the annual
patronage dividend (excluding nonqualified written notices of allocation) in
cash and it may distribute this lesser percentage in future years.
In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B nonvoting common stock to
each Member, TruServ deposits a bulk certificate with Harris Trust and Savings
Bank, Chicago, Illinois for safekeeping for and on behalf of its Members and
sends a written notice to each Member of these deposits and the allocation
thereof to such Member.
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ITEM 2. PROPERTIES.
The Company's national headquarters is located in Chicago, Illinois.
Information with respect to the Company's owned and leased warehousing and
office facilities is set forth below:
<TABLE>
<CAPTION>
SQUARE FEET OF LEASE
WAREHOUSE AND EXPIRATION
LOCATION OFFICE AREA INTEREST DATE
-------- -------------- -------- ----------
<S> <C> <C> <C>
Brookings, South Dakota....................... 518,000 Owned
Chicago, Illinois............................. 228,100 Leased December 31, 2010
Corsicana, Texas.............................. 775,000 Owned
Denver, Colorado.............................. 360,000 Leased June 30, 2004
East Butler, Pennsylvania..................... 476,200 Owned
Fogelsville (Allentown), Pennsylvania......... 600,000 Owned
Ft. Smith, Arkansas........................... 206,500 Leased November 30, 2002
Hagerstown, Maryland.......................... 840,000 Leased April 28, 2003
Harvard, Illinois............................. 1,310,000 Leased August 23, 2013
Harvard, Illinois............................. 160,000 Leased August 23, 2005
Henderson, North Carolina..................... 300,000 Leased November 11, 2001
Indianapolis, Indiana......................... 420,000 Owned
Jonesboro (Atlanta), Georgia.................. 670,000 Owned
Kansas City, Missouri......................... 415,000 Owned
Kingman, Arizona.............................. 375,000 Owned
Manchester, New Hampshire..................... 730,000 Owned
Mankato, Minnesota............................ 320,000 Owned
Peachtree City, Georgia....................... 60,500 Leased November 24, 2005
Schiller Park, Illinois....................... 42,500 Leased April 30, 2001
Springfield, Oregon........................... 504,000 Owned
Westfield, Massachusetts...................... 448,700 Owned
Westlake (Cleveland), Ohio.................... 405,000 Owned
Winnipeg, Manitoba............................ 432,000 Owned
Woodland, California.......................... 350,000 Owned
</TABLE>
No location owned by the Company is subject to a mortgage.
In December 1983, the Company completed construction of a 150,000 square
foot addition to its regional distribution center in Manchester, New Hampshire.
This addition was financed with the proceeds from the sale of $4,000,000 State
of New Hampshire Industrial Development Authority Revenue Bonds (TruServ
Corporation Project) Series 1982. On October 1, 1997, and every three-year
period thereafter, the interest rate on the 4.50% industrial revenue bonds will
be adjusted based on a bond index. These bonds may be redeemed at face value at
either the option of the Company or the bondholders at each interest reset date
through maturity in 2003.
The Ft. Smith, Arkansas and Peachtree City, Georgia properties, which were
closed in 1997, are under lease and are currently under a sublease. The Butler,
Pennsylvania office building was closed in 1997 and sold in 1999. The
Parkesburg, Pennsylvania; Piedmont, South Carolina and Portland, Oregon
properties were closed in 1998 and sold in 1999. In 1999, the Company announced
the closing of its Westfield, Massachusetts distribution center. The Henderson,
North Carolina distribution center was sold in 1999 and is currently being
leased back to the Company.
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<PAGE> 9
Information with respect to the Company's manufacturing facilities is set
forth below:
<TABLE>
<CAPTION>
SQUARE FEET OF
MANUFACTURING PRINCIPAL
LOCATION AREA PRODUCT INTEREST
-------- -------------- --------- --------
<S> <C> <C> <C>
Chicago, Illinois............................. 105,000 Paint Owned
Cary, Illinois................................ 580,000 Paint and Owned
Paint Applicators
</TABLE>
The Company's facilities are suitable for their respective uses and are, in
general, adequate for the Company's present needs.
The Company owns and leases transportation equipment for use at its
regional distribution centers for the primary purpose of delivering merchandise
from the Company's regional distribution centers to its Members. Additional
information concerning these leases can be found in note 5 to the consolidated
financial statements included elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no existing market for the common stock of the Company and there
is no expectation that any market will develop. The Company's Class A common
stock is owned exclusively by retailers of hardware, lumber/building materials
and related products each of whom is a Member of the Company and purchases sixty
shares of the Company's Class A common stock (the only class of voting stock)
upon becoming a Member. The Company is organized as a Delaware stock corporation
and operates as a Member-owned wholesaler cooperative corporation. The shares of
the Company's Class B nonvoting common stock now outstanding were issued to
Members in partial payment of the annual patronage dividend to which they became
entitled as a result of patronage business transacted by such Members with the
Company. In accordance with the Company's By-Laws, the annual patronage dividend
is paid to Members out of the gross margins from operations and other patronage
source income, after deduction for expenses, reserves and provisions authorized
by the Board of Directors.
The number of holders of record (as of February 26, 2000) of each class of
stock of the Company is as follows:
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS OF
RECORD
TITLE OF CLASS ----------
<S> <C>
Class A common stock, $100 Par Value........................ 7,540
Class B nonvoting common stock, $100 Par Value.............. 7,500
</TABLE>
Dividends (other than patronage dividends) on the Class A common stock and
Class B nonvoting common stock, subject to the provisions of the Company's
Certificate of Incorporation, may be declared out of gross margins of the
Company, other than gross margins from operations with or for Members and other
patronage source income, after deduction for expenses, reserves and provisions
authorized by the Board of Directors. Dividends may be paid in cash, in
property, or in shares of the common stock, subject to the
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provisions of the Certificate of Incorporation. Other than the payment of
patronage dividends, including the redemption of all nonqualified written
notices of allocation, the Company has not paid dividends on its Class A common
stock or Class B nonvoting common stock. The Board of Directors does not plan to
pay dividends on either class of stock. See the discussion of patronage
dividends under Item 1--Business.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $4,502,326 $4,328,238 $3,331,686 $2,441,707 $2,437,002
Gross margins...................... 181,465 298,135 241,020 196,636 202,068
Net margins(loss)(a)............... (131,143) 20,480 42,716 52,410 59,037
Patronage dividends(b)............. -- 35,024 43,782 53,320 60,140
Total assets....................... 1,348,147 1,600,764 1,438,913 853,985 819,576
Long-term debt..................... 309,796 316,959 169,209 80,145 79,213
Promissory (subordinated) and
installment notes payable........ 83,804 124,422 172,579 185,366 186,335
Redeemable Class A common stock.... 47,270 49,880 47,423 4,876 5,294
Redeemable Class B nonvoting common
stock............................ 177,779 195,643 187,259 114,053 113,062
</TABLE>
- ---------------
(a) The net margins (loss) for fiscal years 1999, 1998 and 1997 include
deductions of $26,196,000, $20,034,000 and $13,650,000, respectively, for
merger integration costs.
(b) No patronage dividend was issued in 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS COMBINATION
On July 1, 1997, TruServ Corporation (the "Company"), formerly Cotter &
Company ("Cotter") merged with Servistar Coast to Coast Corporation ("SCC") (the
"Merger"). The transaction was accounted for using the purchase accounting
method. Accordingly, the financial information for the years ended December 31,
1998 and 1999 reflect the results of the post-Merger Company and the financial
information for the year ended December 31,1997 reflects the results of the
pre-Merger Company for the twenty-six weeks ended June 28, 1997 and the results
of the post-Merger Company for the twenty-six weeks ended December 31, 1997. To
facilitate the comparison of results for 1999, 1998 and 1997, supplemental
comparisons have been provided using pro forma financial information. This pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of the results of operations that actually would have
resulted had the Merger been in effect on the dates indicated, or which may
result in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- --------------------------
ACTUAL ACTUAL ACTUAL PRO FORMA(1)
----------------- ----------------- ---------- ------------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Revenue.............................. $4,502,326 $4,328,238 $3,331,686 $4,224,215
Gross margin......................... 181,465 298,135 241,020 284,356
Warehouse, general and administrative
expense............................ 215,560 204,520 148,767 175,774
Interest expense..................... 60,702 55,100 36,965 43,459
Merger integration costs............. 26,196 20,034 13,650 --
Net margin (loss).................... (131,143) 20,480 42,716 67,357
</TABLE>
- ---------------
(1) Assumes the Merger was consummated at January 1, 1997.
9
<PAGE> 11
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
RESULTS OF OPERATIONS
Revenues for the fiscal year 1999 totaled $4,502,326,000. This represented
an increase of $174,088,000 or 4.0% compared to the comparable period last year.
The increase was due primarily to increases in direct shipment sales, which
increased 7.8% and lumber/building materials sales which increased 15.1%.
Gross margins decreased by $116,670,000 or 39.1%, and as a percentage of
revenues, decreased to 4.0% from 6.9% for the comparable period last year. The
decrease in gross margin percentage was due to a change in sales mix, which
consisted of an increase in direct shipment and lumber sales, which have lower
gross margin percentages compared to handled merchandise. Also, gross margin was
impacted by increased Member claims and other inventory adjustments that were
related to the closing of distribution centers caused by the finalization of the
distribution network strategy.
Warehouse, general and administrative expenses remained consistent as a
percent of revenue with the prior year at 4.8% and 4.7% respectively. The
reduction of expense that began in 1998 continued in 1999 with headcount
reductions and the elimination of fixed costs by closing and selling idle
distribution centers and was offset by a $15.6 million reduction in capitalized
warehouse, general and administrative expense due to inventory reduction.
Interest paid to Members decreased by $1,892,000 or 11.5% primarily due to
a lower average interest rate and lower principal balance. Other interest
expense increased $7,494,000 due to an increase in the Company's borrowing rate.
The gain on sale of properties totaled $11,724,000 for fiscal year 1999,
and is attributable to the sale of redundant distribution centers and associated
property.
Income tax expense increased by $16,423,000 because of the uncertainty of
the future realization of the tax benefit. The previously recorded tax asset
related to the merger was written off due to the extent of the net operating
loss that has occurred in 1999.
The cumulative effect on prior years of a change in accounting principle of
$6,484,000 reflects the start-up costs of converting the systems used by SCC
distribution centers prior to the merger to those systems currently used by the
Company. This reduction in net margins is in compliance with SOP 98-5, Reporting
the Costs of Start-up Activities.
Merger integration costs for the fiscal year 1999 were $26,196,000 compared
to $20,034,000 for the comparable period last year. Merger integration costs
consist of one time non-recurring expenses directly attributable to the Merger
including distribution center closings, severance pay, information systems costs
and general and administrative costs.
The combination of decreased gross margins, as well as increased borrowing
costs, increased income tax expense and the cumulative effect of a change in
accounting principle resulted in a net loss of $131,143,000 compared to a net
margin of $20,480,000 for the same period last year.
10
<PAGE> 12
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
RESULTS OF OPERATIONS
Revenues in fiscal year 1998 totaled $4,328,238,000. This represented an
increase of $996,552,000 or 29.9% compared to the comparable period last year.
The increase was primarily due to the addition of Servistar Coast to Coast
revenues that resulted from the July 1, 1997 merger of Cotter and SCC. The
departments with the largest increase are the lumber/building material
department, manufactured products, and the Canadian business. In the hardware
department the largest increase was reflected in the direct shipment categories
with TruServ Members responding to improved pricing programs.
Gross margins increased by $57,115,000 or 23.7% but as a percentage of
revenues decreased to 6.9% from 7.2% for the comparable period last year. This
is the seventh year in a row that the gross margin as a percentage of revenue
has decreased. The decrease in gross margin percentage resulted primarily from a
change in the sales mix. The change in sales mix consisted of large volume
increases in Lumber/Building Materials and Direct Shipments, which have lower
gross margins. Pricing improvements resulted in lower direct shipment markups
and a lower pricing on manufactured products.
Warehouse, general and administrative expenses as a percentage of revenues
increased to 4.7% from 4.5% compared with the prior year. The Company incurred
additional warehousing expenses in association with commonizing inventory
assortments, increased inventory levels, and the implementation of the
distribution network strategy. Many of the potential cost efficiencies related
to the Merger have not yet been realized and costs should be reduced as the
Merger strategy is further implemented.
Certain estimates of warehouse, general and administrative expenses are
recorded throughout the year including expenses related to capitalizable
inventory related costs and other expense items. During the fourth quarter of
fiscal 1998, the Company recorded approximately $60,000,000 of net reductions in
warehouse, general and administrative expenses relating to the refinement of
these estimates recorded in the prior three quarters.
Interest paid to Members decreased by $1,475,000 or 8.3% primarily due to a
lower average interest rate and lower principal balance. Other interest expense
increased $19,610,000 due to higher borrowings compared to the same period last
year. The higher borrowings were required because of the increased cash
requirement resulting from the merger and increased inventory levels. The
effective borrowing rate for 1998 was lowered due to the renegotiation of the
rates since the date of the Merger. The Company is required to meet certain
financial ratios and covenants pertaining to certain debt arrangements. The
Company's lenders have waived compliance with a covenant as of December 31, 1998
in lieu of amendments to the debt agreements, which were finalized by the
Company during the first quarter of 1999.
The combination of increased gross margins, offset by increased expenses
and increased borrowing costs, resulted in a net margin before Merger
integration costs of $40,514,000 in fiscal year 1998 compared to $56,366,000 in
fiscal year 1997. Merger integration costs consist of one time non-recurring
expenses directly attributable to the Merger including distribution center
closings, severance pay, information systems costs and general and
administrative costs. Merger integrations costs were $20,034,000 and $13,650,000
for fiscal years 1998 and 1997, respectively. The net margin after Merger
integration cost was $20,480,000 and $42,716,000 for fiscal year 1998 and 1997,
respectively.
ACTUAL FISCAL 1998 COMPARED TO PRO FORMA FISCAL 1997
RESULTS OF OPERATIONS
Revenues for the fiscal year totaled $4,328,238,000. This represented an
increase of $104,023,000 or 2.5% compared to the prior year on a pro forma
basis. The increase was attributable to revenue increases in lumber/ building
materials and direct shipments.
Gross margins increased by $13,779,000 or 4.8% and as a percentage of
revenues, increased to 6.9% from 6.7% for the prior year on a pro forma basis.
The increased gross margins came about primarily from the increase in revenue
along with a reduction in the estimated capitalizable inventory-related costs.
11
<PAGE> 13
Warehouse, general and administrative expenses increased by $28,746,000 or
16.4% and as a percentage of revenues increased to 4.7% from 4.2% for the prior
year on a pro forma basis. The Company incurred additional warehousing expenses
in association with commonizing inventory assortments, increased inventory
levels, and the implementation of the distribution network strategy. Many of the
potential cost efficiencies related to the Merger have not yet been realized and
costs should be reduced as the Merger strategy is further implemented.
Interest expense increased from $43,459,000 to $55,100,000 primarily due to
higher short-term borrowings because of the increased cash requirement resulting
from increased inventory levels.
Integration costs consist of costs associated with the implementation of
the Merger plan.
The combination of increased gross margin partially offset by higher
warehouse, general and administrative expense and higher interest expense,
resulted in a net margin of $20,480,000 compared to $67,357,000 for the prior
year on a pro forma basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the year end December 31, 1999
was $177,695,000 compared to cash used for operating activities of $102,092,000
for the year ended December 31, 1998. As of December 31, 1999, inventories
decreased by $112,703,000 as the Company completed its efforts to commonize
inventory assortment and implement the Company's distribution network strategic
plan. Accounts and notes receivable decreased by $63,059,000 due to improved
collection efforts. The accounts payable increase of $52,175,000 is associated
with improved terms with vendors and better inventory turns.
Cash flows used for investing activities were $10,532,000. Total capital
expenditures, including those made under capital leases, were $45,235,000 for
the fiscal year 1999 compared to $71,343,000 during the comparable period in
1998. These capital expenditures relate to additional equipment and
technological improvements at the regional distribution centers and at the
corporate headquarters. Additionally, the company has sold four redundant
distribution centers during fiscal 1999. Proceeds from the sale of these
properties were $39,714,000. The Parksburg, Pennsylvania; Piedmont, South
Carolina and Portland, Oregon distribution centers were sold in 1999. The
Henderson, North Carolina distribution center was sold in 1999 and is currently
being leased back to the Company.
The cash flows generated from operations was used to reduce the Company's
financing activities by $166,998,000. This decrease was in both long and
short-term debt.
At July 1, 1997, the Company had established a $300,000,000 five-year
revolving credit facility with a group of banks. These agreements were amended
during March 1999. The borrowings under these agreements were $135,000,000 and
$227,000,000 at December 31, 1999 and December 31, 1998, respectively.
Under the senior notes and revolving credit facility the Company is
required to meet certain financial ratios and covenants. The Company's lenders
have waived compliance with certain covenants as of December 31, 1999 and
amended and restated the debt agreements including increased interest rates, new
financial ratios and covenants and the securitization of the Company's assets,
which were finalized by the Company during April of 2000.
At December 31, 1999, net working capital decreased to $79,240,000 from
$241,533,000 at December 31, 1998. The current ratio decreased to 1.09 at
December 31, 1999 compared to 1.26 at December 31, 1998.
The Company's capital is primarily derived from Class A common stock and
retained earnings, together with promissory (subordinated) notes and nonvoting
Class B common stock issued in connection with the Company's annual patronage
dividend. The Company believes the funds derived from these capital resources,
as well as operations and the credit facilities noted above, will be sufficient
to satisfy capital needs.
12
<PAGE> 14
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $3,800,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are subject to certain market risks, primarily
interest rate risk and credit risk. Interest rate risk pertains to the Company's
variable rate debt which totals approximately $150 million at December 31, 1999.
A 50 basis point movement in the interest rates would result in an approximate
$750,000 annualized increase or decrease in interest expense and cash flows. For
the most part, interest rate risk is managed through a combination of variable
and fixed-rate debt instruments with varying maturities. Credit risk pertains
mostly to the Company's trade receivables. The Company extends credit to its
members as part of its day-to-day operations. The Company believes that as no
specific receivable or group of receivables comprises a significant percentage
of total trade accounts, its risk in respect to trade receivables is limited.
Additionally, the Company believes that its allowance for doubtful accounts is
adequate in respect to member credit risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements and report of independent
auditors are listed on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and senior and executive officers of the Company are:
<TABLE>
<CAPTION>
POSITION(S) HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- --------------------
<S> <C> <C>
Donald C. Belt..................... 53 Senior Vice President, Strategic and Business Initiatives
since July, 1997. Prior position was with SCC as Senior
Vice President, Marketing and Strategic Planning since
1985.
Joe W. Blagg....................... 50 Chairman since January, 2000. Director since April, 1996.
Term expires April, 2001.
James D. Burnett................... 64 Director since April, 1998. Term expires April, 2000.
Nominated by the Board of Directors for reelection to a
three-year term.
William M. Claypool, III........... 77 Director since March, 1970. Term expires April, 2000.
Jay B. Feinsod..................... 56 Director since July, 1997. Term expires April, 2001.
Formerly Director of SCC since October, 1986.
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
POSITION(S) HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- --------------------
<S> <C> <C>
Thomas J. Filipski................. 51 Senior Vice President of Sales, Advertising and Marketing
since August, 1999. Prior position was Vice President of
Business Development since 1997.
Neil A. Hastie..................... 51 Senior Vice President, Chief Information Officer since
December, 1999. Prior position was Director of E-Business
since 1998.
William H. Hood.................... 60 Director since July, 1997. Term expires April, 2000.
Formerly Director of SCC since July, 1996. Nominated by the
Board of Directors for reelection to a three-year term.
James D. Howenstine................ 56 Vice-Chairman since January, 2000. Director since July,
1997. Term expires April, 2002. Formerly Director of SCC
since October, 1995.
Donald J. Hoye..................... 51 President and Chief Executive Officer since July, 1999.
Director since January, 1999. Term expires April, 2002.
Chief Operating Officer since January, 1999. Executive Vice
President, Business Development since July, 1997. Prior
position was with SCC as Executive Vice President.
Jerrald T. Kabelin................. 62 Director since April, 1985. Term expires April, 2002.
Peter G. Kelly..................... 56 Director since July, 1997. Term expires April, 2002.
Formerly Director and Chairman of SCC since January, 1981.
Formerly Vice-Chairman of the Company.
Leonard G. Kuhr.................... 41 Senior Vice President, Finance and Chief Financial Officer
since January, 2000. Prior position was Vice President, and
Treasurer of a diversified health care distribution and
services company.
Robert J. Ladner................... 53 Director since April, 1994. Term expires April, 2002.
Formerly Chairman of Cotter & Company. Formerly
Vice-Chairman of the Company.
Robert Ostrov...................... 50 Chief Administrative Officer since April, 2000 and Senior
Vice President since February, 1997. Prior position was
Vice President of Human Resources for a retail company.
Brian T. Schnabel.................. 47 Chief Operating Officer since March, 2000. Executive Vice
President, Business Development since October, 1998. Prior
position was President, and Chief Executive Officer for a
manufacturing company.
John P. Semkus..................... 53 Senior Vice President, Operations since July, 1997. Prior
position was Vice President Distribution and Transporta-
tion.
George V. Sheffer.................. 47 Director since July, 1994. Term expires April, 2000.
Nominated by the Board of Directors for reelection to a
three-year term.
Dennis A. Swanson.................. 60 Director since April, 1995. Term expires April, 2001.
John B. Wake, Jr. ................ 44 Director since July, 1997. Term expires April, 2000.
Formerly Director of SCC since May, 1996. Nominated by the
Board of Directors for reelection to a three-year term.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
POSITION(S) HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- --------------------
<S> <C> <C>
John M. West, Jr. ................. 47 Director since October, 1991. Term expires April, 2001.
Barbara B. Wilkerson............... 52 Director since July, 1997. Term expires April, 2001.
Formerly Director of SCC since October, 1986.
</TABLE>
- ---------------
During the past five years, the principal occupation of each director of the
Company, other than Donald J. Hoye, was the operation of retail hardware stores
or lumber/building materials stores.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION COMMITTEE
The Human Resource Development Committee of the Board of Directors (the
"Committee") consists of four non-employee directors: Jay B. Feinsod, Jerrald T.
Kabelin, Peter G. Kelly and Robert J. Ladner. In addition, Joe W. Blagg, served
as an ex-officio member of the Committee. The Committee assists the Board of
Directors in fulfilling its responsibilities for setting and administering the
policies which govern annual compensation and monitoring the Company's pension
and certain other benefit plans. The Committee calls upon outside consultants
for assistance, as necessary.
The Committee meets at least annually. Primary responsibilities of the
Committee include:
- Establishing the Chairman and President's salary and annual and long-term
incentive opportunities.
- Approving other executive officer salaries recommended by the President.
- Setting performance goals for the annual and long-term incentive plans.
- Assessing performance achievement relative to goals and approving
incentive payments.
The Committee makes recommendations to the Board of Directors regarding
compensation of the Company's executive officers. The philosophy of the
Committee is to maintain an executive compensation program to help the Company
attract, retain and motivate the executive resources needed to maintain industry
leadership, provide high levels of service to Members, and achieve the financial
objectives as determined by the Board of Directors.
To achieve its stated goals, the Company has developed three executive
compensation policies.
- The Company provides levels of salaried compensation that are
competitive.
- The Company provides annual incentive compensation for executives that
vary in a consistent and predictable manner with the performance of the
Company.
- The Company provides an incentive program which enables selected
executives to achieve incentive awards based on the long-term (multiple
year) performance of the Company.
The combination of these three compensation policies is intended to provide
competitive earnings opportunities when performance reaches desired levels. Both
the annual and long-term incentive plans are cancelable by the Board of
Directors at any time.
The Company provides salary levels that are competitive with the median
(50th percentile) of the executive marketplace. The industry comparison groups
used to evaluate competitiveness include: member owned organizations, wholesale
distribution firms, mass merchandising firms and general industry and
manufacturing organizations. Competitiveness is measured using data from a
number of sources, including published information, proxies and surveys by
consulting firms.
The annual incentive plan is designed to ensure that executive compensation
varies in relation to achievement of annual performance goals. Each executive's
incentive award is determined by Company results and individual goals.
15
<PAGE> 17
The long-term incentive plan assures a continuing focus on the Company's
future. Goals are set for performance achievement over three-year intervals. A
new performance period starts each year and goals for each three-year cycle
currently underway are related to achievement of financial goals.
EXECUTIVE COMPENSATION
The following table sets forth the total annual compensation paid to the
Company's five most highly compensated executive officers during fiscal year
1999 and the total compensation paid to each such individual for the Company's
two previous fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND OTHER LONG-TERM
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) INCENTIVE(4)
------------------ ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel A. Cotter(5)..................... 1999 $687,500 $ -- $ 21,271 $ --
Chairman of the Board 1998 655,000 -- 29,786 --
Chief Executive Officer thru 6/30/99 1997 612,500 345,000 13,100 843,750
Donald J. Hoye.......................... 1999 500,000 -- 38,418 --
President and 1998 408,750 -- 58,395 --
Chief Executive Officer as of 7/1/99 1997 180,000 144,300 89,000 29,880
Brian T. Schnabel....................... 1999 304,400 195,000 37,372 --
Executive Vice President, 1998 75,800 72,000 230,729 --
Business Development 1997 -- -- -- --
Daniel T. Burns(5)...................... 1999 306,000 36,000 17,901 --
Executive Vice President, Secretary 1998 263,500 -- 26,085 --
and General Counsel 1997 252,800 188,020 11,125 139,040
Donald C. Belt.......................... 1999 274,100 24,000 28,421 --
Senior Vice President 1998 262,800 -- 59,520 --
Strategic and Business Initiatives 1997 130,000 97,300 82,220 17,420
Robert Ostrov........................... 1999 244,000 36,000 19,302 --
Senior Vice President, 1998 234,000 -- 15,020 --
Human Resources 1997 200,000 75,000 5,357 --
</TABLE>
- ---------------
(1) Fiscal 1997 salary for Donald J. Hoye and Donald C. Belt is for the period
from July 1, 1997 to December 31, 1997.
(2) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of each fiscal year. In 1997
special one-time bonuses were granted for the successful completion of the
merger.
(3) Other compensation consists of Company contributions to the TruServ
Corporation Employee's Savings and Compensation Deferral Plan (the "Savings
Plan") and automobile allowances. Under the Savings Plan, each participant
may elect to make a contribution in an amount of up to fifteen percent (15%)
of his annual compensation, not to exceed $30,000 (including Company
contributions) a year, of which $10,000 of the executive officer's salary in
fiscal year 1999 may be deferred. The Company's contribution to the Savings
Plan is equal to seventy-five percent (75%) of the participant's
contribution, but not to exceed four and one-half percent (4 1/2%) of the
participant's annual compensation.
In 1999 other compensation for Mr. Hoye and Mr. Belt consists primarily of a
transition bonus of $20,000 and $10,000, respectively. For Mr. Schnabel the
1999 other compensation consists primarily of relocation payments of
$23,380.
In 1998 other compensation for Mr. Hoye and Mr. Belt consists primarily of a
transition bonus of $40,000 and $20,000, respectively. For Mr. Schnabel the
1998 other compensation consists primarily of relocation payments of
$228,116.
16
<PAGE> 18
In 1997 other compensation for Mr. Hoye and Mr. Belt consists primarily of
$61,491 and $47,286, respectively for relocation payments.
(4) Long-term incentives for each open three year cycle were computed as of the
effective date of the merger and paid on a pro-rata basis during the fiscal
year.
(5) Daniel A. Cotter retired on December 31, 1999 and Daniel T. Burns retired on
February 29, 2000.
The Company has a severance policy providing termination benefits based
upon annual compensation and years of service. Officers of the Company are also
offered agreements providing for severance in the event of termination with the
imposition of certain restrictions regarding competition and confidentiality.
No loans were made by the Company to its executive officers or to its
directors during the last three fiscal years.
LONG-TERM PERFORMANCE CASH AWARDS
The Board of Directors adopted a long-term incentive plan for the officers
of the Company. Officers are eligible for cash payouts based on a percentage of
their annual salary if performance goals established for the plan are met.
Performance goals for the current plans relate to the achievement of financial
goals of sales growth, net earnings and cash flow. No awards were earned in
1999.
DEFINED BENEFIT RETIREMENT PLANS
The Company has a defined benefit pension plan, the TruServ Corporation
Defined Lump Sum Pension Plan (the "Plan"), which is qualified under the Code.
The Plan was amended and restated effective January 1, 1998. The amount of the
Company's annual contribution to the Plan is determined for the total of all
participants covered by the Plan, and the amount of payment with respect to a
specified person is not and cannot readily be separated or individually
calculated by the actuaries for the Plan. The Plan provides fully vested lump
sum benefits to eligible employees who have served a minimum of five years of
service. Annuities are also available and are the actuarial equivalent of the
lump sum payment. Each of the executive officers listed in the foregoing Summary
Compensation Table is a participant in the Plan.
For each year of service, a participant receives a percentage of his or her
"average compensation" in the form of a lump sum. The percentages range from two
percent of average compensation for years of service performed prior to age 26,
to twelve percent of average compensation for years of service performed at or
after age 61. Participants with average compensation in excess of two-thirds of
the Social Security Taxable Wage Base in the year of termination of employment
or retirement receive an additional benefit on this excess compensation equal to
half of the percentage applied to their full average compensation. Participants
who were age 50 with at least fifteen years of service as of January 1, 1996
receive an additional 25% of their average compensation. The benefits under the
Plan cannot be less than benefits already earned by the participant under the
Plan as it existed prior to its amendment.
The Plan was amended effective January 2, 1998 to include former employees
of SERVISTAR/Coast to Coast. These employees get credit under the Plan for all
years for which they received credit under the SERVISTAR/Coast to Coast
Retirement Income Plan ("the SERVISTAR Plan"). In addition, any of these
employees who had attained age 50 and completed 15 years of service as of
January 1, 1998 receive an additional 25% of their average compensation. Also,
the benefits under this Plan cannot be less than benefits already earned by the
participant under the SERVISTAR Plan as of December 31, 1997.
"Average compensation" means the average of the compensation paid to an
eligible employee during the three highest consecutive calendar years within the
ten consecutive calendar years immediately preceding the date of termination of
employment. Compensation considered in determining benefits includes salary,
overtime pay, commissions, bonuses, deferral contributions under the Savings
Plan, and pre-tax medical premiums.
The Company amended and restated effective July 24, 1998, a Supplemental
Retirement Plan (the "Supplemental Plan") for certain employees as designated by
the Company's President and Chief Executive Officer. The Plan was amended on
July 1, 1997 to include certain former SCC employees. For each year of
17
<PAGE> 19
service, participants receive a percentage of their "average compensation" in
the form of a lump sum. The percentages are 33 percent of average compensation
for years of service performed prior to age 55, to 42 percent of average
compensation for years of service performed at or after age 55. Service is
limited to 20 years, and the maximum aggregate percentage is 660%. This amount
is reduced by any benefits payable under the Plan and eight times the
participant's primary Social Security benefit. "Average Compensation" for the
Supplemental Plan is defined the same as for the Plan, as discussed above. The
benefits under the Supplemental Plan cannot be less than benefits already earned
by the participant under the Supplemental Plan as it existed prior to its
amendment.
The Supplemental Plan is not a qualified plan under the Code. Benefits
payable under the Supplemental Plan will be financed through internal
operations. The estimated annual retirement benefits which may be payable
pursuant to the Plan to the officers named in the Summary Compensation Table is
currently limited under Section 401(a)(17) of the Code, which outlines the
maximum earnings amounts which may be considered under the Plan in determining
retirement benefits. This limit was $160,000 for 1999. Section 415 of the Code
outlines the maximum annual benefit which may be payable from the Plan during
the year; the dollar limit is $135,000 for 2000 for a participant retiring at
age 65, with reduced amounts at younger ages. The actuarial equivalent of the
annual amount may be payable as a lump sum.
The following table reflects the combined estimated annual retirement
benefits which may be payable pursuant to the Plan and the Supplemental Plan to
the officers named in the Summary Compensation Table at retirement under various
assumed conditions, assuming retirement at age 65.
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE --------------------------------------------------------
COMPENSATION 10 15 20 25 30
- ------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,000,000................................ $392,152 $545,467 $613,260 $613,260 $613,260
900,000................................ 352,242 489,878 550,544 550,544 550,544
800,000................................ 312,331 434,288 487,827 487,827 487,827
700,000................................ 272,421 378,699 425,111 425,111 425,111
600,000................................ 232,511 323,110 362,395 362,395 362,395
500,000................................ 192,600 267,520 299,679 299,679 299,679
400,000................................ 152,690 211,931 236,962 236,962 236,962
300,000................................ 112,780 156,341 174,246 174,246 174,246
200,000................................ 72,869 100,752 111,530 111,530 111,530
100,000................................ 32,959 45,163 48,814 48,814 48,814
</TABLE>
The present credited years of service for the officers listed in the above
table are as follows: Daniel A. Cotter, 33 years; Donald J. Hoye, 29 years;
Daniel T. Burns, 19 years; Donald C. Belt, 15 years; Robert Ostrov, 3 years;
Brian T. Schnabel, 1 year.
There is no existing market for the Company's common stock and there is no
expectation that any market will develop. There are no broad market or peer
group indexes the Company believes would render meaningful comparisons.
Accordingly, a performance graph of the Company's cumulative total shareholder
return for the previous five years, with a performance indicator of the overall
stock market for the Company's peer group, has not been prepared.
In fiscal year 1999 directors of the Company were each paid $2,000 per
month and advisory board members received $1,000 per month. The two Vice
Chairmen of the Board are each paid to a maximum of $54,000 per year, when
serving in the capacity as Vice Chairmen.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of February 26, 2000, each of the directors of the Company, except for
Donald J. Hoye, was the beneficial owner of 60 shares of Class A common stock of
the Company comprising .3% of such shares issued and outstanding. No executive
officer owns any shares of Class A common stock.
The directors own in the aggregate approximately .5% of Class B nonvoting
common stock as of February 26, 2000. No executive officer owns any shares of
Class B nonvoting common stock.
18
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
[None]
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS
The consolidated financial statements listed in the accompanying
index (page F-1) to the consolidated financial statements are filed
as part of this annual report.
2. FINANCIAL STATEMENT SCHEDULES
No schedules have been filed because the required information is not
applicable or is not material or because the required information is
included in the consolidated financial statements or the notes
thereto.
3. EXHIBITS
The exhibits listed on the accompanying index to exhibits (pages E-1
and E-2) are filed as part of this annual report.
(B) REPORTS ON FORM 8-K
None.
19
<PAGE> 21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TRUSERV CORPORATION
By: /s/ LEONARD G. KUHR
--------------------------------------
Leonard G. Kuhr,
Senior Vice President and
Chief Financial Officer
DATED: April 14, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. HOYE President, Chief Executive April 14, 2000
- ----------------------------------------------------- Officer and Director
Donald J. Hoye
/s/ LEONARD G. KUHR Senior Vice President and Chief April 14, 2000
- ----------------------------------------------------- Financial Officer
Leonard G. Kuhr
/s/ JOE W. BLAGG Director April 14, 2000
- -----------------------------------------------------
Joe W. Blagg
/s/ JAMES D. BURNETT Director April 14, 2000
- -----------------------------------------------------
James D. Burnett
/s/ WILLIAM M. CLAYPOOL, III Director April 14, 2000
- -----------------------------------------------------
William M. Claypool, III
/s/ JAY B. FEINSOD Director April 14, 2000
- -----------------------------------------------------
Jay B. Feinsod
/s/ WILLIAM H. HOOD Director April 14, 2000
- -----------------------------------------------------
William H. Hood
/s/ JAMES D. HOWENSTINE Director April 14, 2000
- -----------------------------------------------------
James D. Howenstine
/s/ JERRALD T. KABELIN Director April 14, 2000
- -----------------------------------------------------
Jerrald T. Kabelin
/s/ PETER G. KELLY Director April 14, 2000
- -----------------------------------------------------
Peter G. Kelly
/s/ ROBERT J. LADNER Director April 14, 2000
- -----------------------------------------------------
Robert J. Ladner
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE V. SHEFFER Director April 14, 2000
- -----------------------------------------------------
George V. Sheffer
/s/ DENNIS A. SWANSON Director April 14, 2000
- -----------------------------------------------------
Dennis A. Swanson
/s/ JOHN B. WAKE, JR. Director April 14, 2000
- -----------------------------------------------------
John B. Wake, Jr.
/s/ JOHN M. WEST, JR. Director April 14, 2000
- -----------------------------------------------------
John M. West, Jr.
/s/ BARBARA B. WILKERSON Director April 14, 2000
- -----------------------------------------------------
Barbara B. Wilkerson
</TABLE>
21
<PAGE> 23
ITEM 14(A). INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet at December 31, 1999 and December
31, 1998.................................................. F-3
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1999............... F-4
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 1999............... F-5
Consolidated Statement of Capital Stock and Retained
Earnings (Deficit) for each of the three years in the
period ended December 31, 1999............................ F-6
Notes to Consolidated Financial Statements.................. F-7 to F-19
</TABLE>
F-1
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
To the Members and the Board of Directors
TruServ Corporation
We have audited the accompanying consolidated balance sheets of TruServ
Corporation (formerly Cotter & Company) as of December 31, 1999 and 1998, and
the related consolidated statements of operations, cash flows, and capital stock
and retained earnings (deficit) for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TruServ
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 1 to the financial statements, in 1999 the Company
changed its method of accounting for start-up costs.
/s/ Ernst & Young LLP
Chicago, Illinois
April 14, 2000
F-2
<PAGE> 25
TRUSERV CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,815 $ 1,650
Accounts and notes receivable, net........................ 460,419 537,811
Inventories............................................... 482,415 595,118
Other current assets...................................... 9,937 36,047
---------- ----------
Total current assets.............................. 954,586 1,170,626
Properties, less accumulated depreciation................... 244,845 255,405
Goodwill, net............................................... 114,537 117,468
Other assets................................................ 34,179 57,265
---------- ----------
Total assets...................................... $1,348,147 $1,600,764
========== ==========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable.......................................... $ 544,904 $ 492,729
Accrued expenses.......................................... 75,347 73,092
Short-term borrowings..................................... 167,007 258,147
Current maturities of notes, long-term debt and capital
lease obligations...................................... 88,088 90,618
Patronage dividend payable in cash........................ -- 14,507
---------- ----------
Total current liabilities......................... 875,346 929,093
Long-term debt, including capital lease obligations......... 309,796 316,959
Capitalization:
Promissory (subordinated) and installment notes........... 83,804 124,422
Class A common stock, net of subscriptions receivable;
authorized 750,000 shares; issued and fully paid
405,060 and 379,680 shares; issued 106,380 shares and
178,020 shares (net of receivable of $3,874,000 and
$5,890,000)............................................ 47,270 49,880
Class B nonvoting common stock and paid-in capital;
authorized 4,000,000 shares; issued and fully paid
1,764,797 and 1,748,326 shares; issuable as partial
payment of patronage dividends 195,118 shares at
December 31, 1998...................................... 177,779 195,643
Deferred patronage.......................................... (14,063) (14,438)
Retained Earnings (Deficit)................................. (130,939) 579
Accumulated other comprehensive loss........................ (846) (1,374)
---------- ----------
Total capitalization.............................. 163,005 354,712
---------- ----------
Total liabilities and capitalization.............. $1,348,147 $1,600,764
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 26
TRUSERV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Revenues................................................ $4,502,326 $4,328,238 $3,331,686
---------- ---------- ----------
Cost and expenses:
Cost of revenues...................................... 4,320,861 4,030,103 3,090,666
Warehouse, general and administrative................. 215,560 204,520 148,767
Interest paid to Members.............................. 14,498 16,390 17,865
Other interest expense................................ 46,204 38,710 19,100
Gain on sale of properties............................ (11,724) (954) (990)
Other income, net..................................... (1,630) (1,642) (1,688)
Income tax expense.................................... 17,020 597 1,600
---------- ---------- ----------
4,600,789 4,287,724 3,275,320
---------- ---------- ----------
Net margin (loss) before merger integration costs and
cumulative effect of a change in accounting
principle............................................. (98,463) 40,514 56,366
Merger integration costs................................ 26,196 20,034 13,650
---------- ---------- ----------
Net margin (loss) before cumulative effect of a change
in accounting principle............................... (124,659) 20,480 42,716
Cumulative effect on prior years of a change in
accounting principle.................................. 6,484 -- --
---------- ---------- ----------
Net margin (loss)....................................... $ (131,143) $ 20,480 $ 42,716
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 27
TRUSERV CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Operating activities:
Net margins (loss).................................... $(131,143) $ 20,480 $ 42,716
Adjustments to reconcile net margins (loss) to cash
and cash equivalents from operating activities:
Depreciation and amortization...................... 41,471 32,452 25,451
Provision for losses on accounts and notes
receivable....................................... 5,148 2,808 2,361
Changes in operating assets and liabilities -- net
of acquisition in 1997:
Accounts and notes receivable.................... 63,059 (69,585) 47,288
Inventories...................................... 112,703 (52,572) (33,953)
Accounts payable................................. 52,175 36,823 (28,464)
Other current assets............................. 26,110 (19,795) 1,277
Accrued expenses................................. 2,229 (50,498) (35,463)
Other adjustments, net............................. 5,943 (2,205) (1,442)
--------- --------- ---------
Net cash and cash equivalents provided by
(used for) operating activities............. 177,695 (102,092) 19,771
--------- --------- ---------
Investing activities:
Additions to properties owned......................... (44,930) (70,733) (38,493)
Proceeds from sale of properties owned................ 39,714 32,645 2,628
Changes in other assets............................... (5,316) (5,923) (8,494)
--------- --------- ---------
Net cash and cash equivalents used for
investing activities........................ (10,532) (44,011) (44,359)
--------- --------- ---------
Financing activities:
Payment of patronage dividend......................... (14,507) (12,142) (20,619)
Payment of notes, long-term debt and lease
obligations........................................ (57,340) (41,966) (179,363)
Proceeds from long-term borrowings.................... 731 158,821 102,897
Increase (decrease) in short-term borrowings.......... (91,140) 42,680 142,755
Purchase of common stock.............................. (5,359) (3,618) (24,585)
Proceeds from sale of Class A common stock............ 617 1,754 4,065
--------- --------- ---------
Net cash and cash equivalents provided by
(used for) financing activities............. (166,998) 145,529 25,150
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 165 (574) 562
Cash and cash equivalents at beginning of year.......... 1,650 2,224 1,662
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 1,815 $ 1,650 $ 2,224
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 28
TRUSERV CORPORATION
CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
$100 PAR VALUE RETAINED OTHER COMPREHENSIVE
------------------ DEFERRED EARNINGS COMPREHENSIVE INCOME
CLASS A CLASS B PATRONAGE (DEFICIT) LOSS (LOSS)
------- -------- --------- --------- ------------- -------------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 28,
1996......................... $ 4,876 $114,053 $ -- $ 1,751 $ (840)
Net margins.................... 42,716 $ 42,716
Foreign currency translation
adjustment................... (216) (216)
Patronage dividend............. 26,304 (43,782)
Stock issued for increase in
Class A requirements......... 23,100 (23,100)
Stock issued for paid-up
subscriptions................ 8,386
Stock issued due to
acquisition, net of stock
subscription receivable...... 13,608 117,067
Stock purchased and retired.... (2,547) (47,065)
------- -------- -------- --------- ------ ---------
Balances at December 31,
1997......................... 47,423 187,259 -- 685 (1,056) $ 42,500
=========
Net margins.................... 20,480 $ 20,480
Foreign currency translation
adjustment................... (318) (318)
Patronage dividend............. 19,512 (14,438) (20,586)
Stock issued for increase in
Class A requirements......... 781 (781)
Stock issued for paid-up
subscriptions................ 6,637
Stock purchased and retired.... (4,961) (10,347)
------- -------- -------- --------- ------ ---------
Balances at December 31,
1998......................... 49,880 195,643 (14,438) 579 (1,374) $ 20,162
=========
Net (loss)..................... (131,143) $(131,143)
Foreign currency translation
adjustment................... 528 528
Amortization of deferred
patronage.................... 375 (375)
Stock issued for paid-up
subscriptions................ 2,881
Stock purchased and retired.... (5,491) (17,864)
------- -------- -------- --------- ------ ---------
Balances at December 31,
1999......................... $47,270 $177,779 $(14,063) $(130,939) $ (846) $(130,615)
======= ======== ======== ========= ====== =========
</TABLE>
Class A common stock amounts are net of unpaid amounts of $3,874,000 relating to
106,380 issued shares at December 31, 1999; $5,890,000 relating to 178,020
issued shares at December 31, 1998; $6,289,000 relating to 149,875 issued shares
at December 31, 1997; and $1,000 for 290 subscribed shares at December 28, 1996.
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 29
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
TruServ Corporation ("TruServ" or the "Company") is a Member-owned
wholesaler of hardware, lumber/building materials and related merchandise. The
Company also manufactures paint and paint applicators. The Company's goods and
services are sold predominantly within the United States, primarily to retailers
of hardware, lumber/building materials and related lines, each of whom has
purchased 60 shares per store (up to a maximum of 5 stores) of the Company's
Class A common stock upon becoming a Member. The Company operates in a single
industry as a Member-owned wholesaler cooperative. All Members are entitled to
receive patronage dividend distributions from the Company on the basis of gross
margins of merchandise and/or services purchased by each Member. In accordance
with the Company's By-laws, the annual patronage dividend is paid to Members out
of gross margins from operations and other patronage source income, after
deduction for expenses and provisions authorized by the Board of Directors.
On July 1, 1997, TruServ Corporation, formerly Cotter & Company ("Cotter"),
merged with ServiStar Coast to Coast Corporation ("SCC") (the "Merger"). SCC was
a hardware wholesaler with a strong presence in retail lumber and building
materials. The transaction was accounted for using the purchase accounting
method. The Consolidated Balance Sheet at December 31, 1999 and December 31,
1998 reflect the post-Merger Company. The Consolidated Statements of Operations
and Cash Flows for the years ended December 31, 1999 and December 31, 1998
reflect the results of the post-Merger Company. The Consolidated Statements of
Operations and Cash Flows for the year ended December 31, 1997 reflect the
results of the post-Merger Company, which include the results of the former SCC
since July 1, 1997. The significant accounting policies of the Company are
summarized below:
Business Combination
On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December
9, 1996 between Cotter, a Delaware corporation, and SCC, SCC merged with and
into Cotter, with Cotter being the surviving corporation. Cotter was renamed
TruServ Corporation effective with the Merger. Each outstanding share of SCC
common stock and SCC Series A stock (excluding those shares canceled pursuant to
Article III of the Merger Agreement) were converted into the right to receive
one fully paid and nonassessable share of TruServ Class A common stock and each
two outstanding shares of SCC preferred stock were converted into the right to
receive one fully paid and non-assessable share of TruServ Class B common stock.
A total of 270,500 and 1,170,670 shares of TruServ Class A common stock and
Class B common stock, respectively, were issued in connection with the Merger.
Also 231,000 additional shares of TruServ Class A common stock were issued in
exchange for Class B common stock to pre-Merger stockholders of Cotter to
satisfy the Class A common stock ownership requirement of 60 shares per store
(up to a maximum of 5 stores) applicable to such Members as a result of the
Merger.
In connection with the purchase business combination, an estimated
liability of $38,200,000 was recognized for costs associated with the Merger
plan. During 1998, an adjustment was recorded reducing this liability and
goodwill by $2,500,000. The Merger plan specifies the elimination of certain
former SCC employment positions, approximately 1,500 in total, substantially
within one year. As of December 31, 1999, approximately 99% of these employees
have been terminated resulting in a $13,648,000 charge against the liability.
The Merger plan specifies the closure of four redundant former SCC distribution
centers substantially within a one-year period. Distribution center closing
costs include net occupancy and other costs after facilities are vacated. As of
December 31, 1999, four distribution centers have been closed and $3,569,000
relating to distribution center closing costs has been charged against the
liability. As of December 31, 1999, additional costs of $17,800,000 related to
moving and relocation and the closure of the former SCC headquarters have been
charged against the liability. The remaining liability balance at December 31,
1999 of $683,000 is for costs expected to be incurred in the first quarter of
2000 in connection with elimination of the remaining employment positions.
Merger integration costs of $26,196,000 and $20,034,000 for the years ended
F-7
<PAGE> 30
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999 and 1998, respectively, consist of one time non-recurring
expenses directly attributable to the Merger including former Cotter
distribution center closings, severance pay, information service costs and
general and administrative costs.
Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. The consolidated financial statements also
include the accounts of TruServ Canada Cooperative, Inc., a Canadian
Member-owned wholesaler of hardware, variety and related merchandise, in which
the Company has a majority equity interest.
Capitalization
The Company's capital (Capitalization) is derived from Class A voting
common stock and retained earnings, together with promissory (subordinated)
notes and Class B nonvoting common stock issued in connection with the Company's
annual patronage dividend. The By-laws provide for partially meeting the
Company's capital requirements by payment of the year-end patronage dividend.
Patronage Dividend
No Patronage dividends were declared for fiscal year ended December 31,
1999. Patronage dividends earned for fiscal year 1998 were declared and were
paid to TruServ Members in the first quarter of 1999 with at least thirty
percent of the patronage dividend paid in cash and the remainder paid through
the issuance of the Company's Class B nonvoting common stock. The Class B
nonvoting common stock for December 31, 1998 patronage dividend has been
designated as non-qualified notices of allocation and are not taxable to the
Member until redeemed at a future date. The non-qualified notices in addition to
not being taxable will be included as part of a Member's required investment in
Class B nonvoting common stock. Any further distributions after meeting the
Class B nonvoting common stock requirements agreed upon in the Merger Agreement
will be in cash rather than in promissory notes. TruServ follows the practice of
accounting for deferred patronage charges and credits as a separate component of
capitalization. Deferred patronage consists of net charges and expenses
primarily related to the merger integration process which are included in the
computation of net margin in different periods for financial statement purposes
than for patronage purposes.
Membership may be terminated without cause by either the Company or the
Member upon ninety days' written notice. In the event membership is terminated,
the Company undertakes to purchase, and the Member is required to sell to the
Company, all of the Member's Class A common stock and Class B nonvoting common
stock at par value. Payment for the Class A common stock will be in cash.
Payment for the qualified Class B nonvoting common stock will be a note payable
in five equal annual installments.
In view of current circumstances, the Company has initiated a moratorium on
the redemption of its stock. The Board of Directors will review this matter from
time to time in light of the then current financial circumstances of the
Company.
Cash equivalents
The Company classifies its temporary investments in highly liquid debt
instruments, with an original maturity of three months or less, as cash
equivalents.
Inventories
Inventories are stated at the lower of cost, determined on the 'first-in,
first-out' basis, or market.
F-8
<PAGE> 31
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Properties
Properties are recorded at cost. Depreciation and amortization are computed
by using the straight-line method over the following estimated useful lives:
buildings and improvements -- 10 to 40 years; machinery and warehouse, office
and computer equipment -- 5 to 10 years; transportation equipment -- 3 to 7
years; and leasehold improvements -- the life of the lease without regard to
options for renewal.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over 40 years.
Amortization of goodwill was approximately $2,931,000 and $2,738,000 for the
years ended December 31, 1999 and 1998, respectively.
Asset Impairment
For purposes of determining impairment, management groups long-lived assets
based on a geographic region or revenue producing activity as appropriate. Such
review includes, among other criteria, management's estimate of future cash
flows for the region or activity. If the estimated future cash flows
(undiscounted and without interest charges) were not sufficient to recover the
carrying value of the long-lived assets, including associated goodwill, of the
region or activity, such assets would be determined to be impaired and would be
written down to fair value. There was no asset impairment as of December 31,
1999.
Start-up Costs
In April 1998, the AICPA issued SOP 98-5, Reporting the Costs of Start-up
Activities. The SOP is effective beginning on January 1, 1999, and requires that
start-up costs capitalized prior to January 1, 1999 be written-off and any
future start-up costs to be expensed as incurred. The unamortized balance of
start-up costs were written off as a cumulative effect of an accounting change
as of January 1, 1999 and resulted in an increase of 1999 net loss of
approximately $6,500,000.
Revenue Recognition
The Company recognizes revenue when merchandise is shipped or services are
rendered.
Retirement plans
The Company sponsors two noncontributory defined benefit retirement plans
covering substantially all of its employees. Company contributions to
union-sponsored defined contribution plans are based on collectively bargained
rates times hours worked. The Company's policy is to fund annually all
tax-qualified plans to the extent deductible for income tax purposes.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reporting year
The Company's reporting year-end was changed to December 31 from the
Saturday closest to December 31 starting December 31, 1997.
F-9
<PAGE> 32
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Manufacturing inventories:
Raw materials............................................. $ 2,473 $ 4,331
Work-in-process and finished goods........................ 39,945 46,942
-------- --------
42,418 51,273
Merchandise inventories..................................... 439,997 543,845
-------- --------
$482,415 $595,118
======== ========
</TABLE>
3. PROPERTIES
Properties consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Buildings and improvements.................................. $193,676 $216,765
Machinery and warehouse equipment........................... 100,705 96,513
Office and computer equipment............................... 152,439 151,515
Transportation equipment.................................... 38,913 40,013
-------- --------
485,733 504,806
Less accumulated depreciation............................... 252,834 263,668
-------- --------
232,899 241,138
Land........................................................ 11,946 14,267
-------- --------
$244,845 $255,405
======== ========
</TABLE>
F-10
<PAGE> 33
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Senior Notes:
9.10%/8.60%............................................... $ 36,000 $ 40,000
7.88%/7.38%............................................... 50,000 50,000
7.41%/6.91%............................................... 25,000 25,000
7.35%/6.85%............................................... 105,000 105,000
7.29%/6.79%............................................... 50,000 50,000
7.23%/6.73%............................................... 25,000 25,000
Variable term loan (6.21%).................................. -- 6,200
Redeemable (subordinated) term notes:
Fixed interest rates ranging from 5.15% to 7.47%.......... 28,712 28,655
Industrial Revenue Bonds (4.50%)............................ 4,000 4,000
Other, including capital lease obligations.................. 5,000 9,456
-------- --------
328,712 343,311
Less amounts due within one year............................ 18,916 26,352
-------- --------
$309,796 $316,959
======== ========
</TABLE>
The principal payments for the 9.10/8.60% senior note are due quarterly in
incrementally increasing amounts through maturity in 2007, the 7.88%/7.38%
senior note are due annually in the amount of $4,545,000 starting in 2002
through maturity in 2012, the 7.41%/6.91% senior note are due annually in the
amount of $3,571,000 starting November 2001 until maturity in 2007, the
7.35%/6.85% senior note are due annually in the increasing amounts starting
January 2002 through maturity in July 2008, the 7.29%/6.79% senior note are due
annually in the amount of $10,000,000 starting June 2006 until June 2010, and
the 7.23%/6.73% senior note is due in full in November 2002. The variable term
loan was paid in 1999.
The redeemable (subordinated) term notes have two to four year terms and
are issued in exchange for promissory (subordinated) notes that were held by
promissory note holders, who do not own the Company's Class A common stock. They
are also available for purchase by investors that are affiliated with the
Company.
On October 1, 1997, and every three-year period thereafter, the interest
rate on the industrial revenue bonds will be adjusted based on a bond index.
These bonds may be redeemed at face value at the option of either the Company or
the bondholders at each interest reset date through maturity in 2003.
Total maturities of long-term debt for fiscal years 2000, 2001, 2002, 2003,
2004 and thereafter are $18,916,000 $18,948,000, $51,329,000, $34,871,000,
$28,217,000, and $176,431,000, respectively.
At July 1, 1997, the Company had established a $300,000,000 five-year
revolving credit facility with a group of banks. The borrowings under the
agreement were $135,000,000 and $227,000,000 at December 31, 1999 and 1998,
respectively. A commitment fee of .025% per annum is paid on the unused portion
of the commitments. Also, the Company has borrowings from a Commercial Paper
program of $19,000,000 and $25,000,000 at December 31, 1999 and 1998,
respectively. The weighted average interest rate on these borrowings was 7.3%
and 6.0%, respectively.
Under the senior notes and revolving credit facility the Company is
required to meet certain financial ratios and covenants. The Company's lenders
have waived compliance with certain covenants as of December 31, 1999 and
amended and restated the debt agreements including increased interest rates, new
F-11
<PAGE> 34
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial ratios and covenants and the securitization of the Company's assets,
which were finalized by the Company during April of 2000.
The Company provides guarantees for certain member loans, but is not
required to provide a compensating balance for the guarantees. The amount
guaranteed was approximately $6,443,000 and $9,224,000 as of December 31, 1999
and 1998, respectively.
See note 7 regarding the fair value of financial instruments.
5. LEASE COMMITMENTS
The Company rents buildings and warehouses, office, computer and
transportation equipment under operating and capital leases. The following is a
schedule of future minimum lease payments under capital and long-term
non-cancelable operating leases, together with the present value of the net
minimum lease payments as of December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(000'S OMITTED)
<S> <C> <C>
2000...................................................... $2,502 $ 23,002
2001...................................................... 1,076 21,844
2002...................................................... 748 18,988
2003...................................................... 392 14,787
2004...................................................... 378 11,775
Thereafter................................................ 370 67,114
------ --------
Net minimum lease payments.................................. $5,466 $157,510
========
Less amount representing interest........................... 466
------
Present value of net minimum lease payments................. 5,000
Less amount due within one year............................. 2,300
------
$2,700
======
</TABLE>
Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value which is related to lessor's book
value at expiration of the lease term. During 1999, the Company entered into an
agreement for the sale and leaseback of its Henderson facility, which resulted
in a recognized loss of $1,295,000. The 30 month Henderson lease commenced in
May, 1999 and has annual payments of approximately $612,000. During 1998, the
Company entered into an agreement for the sale and leaseback of its Harvard
facility. The $2,139,000 gain realized on the sale has been deferred and will be
amortized over the 15-year lease term. The lease commenced in November, 1998 and
has annual payments of approximately $2,700,000.
The Hagerstown, Maryland distribution center is subject to a synthetic
lease. The lease payment commitments are for three years with two one-year
renewal options. All obligations under this lease arrangement are guaranteed by
the Company.
Rent expense under operating leases was $31,702,000, $28,291,000 and
$19,890,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
F-12
<PAGE> 35
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITALIZATION
Promissory (subordinated) and installment notes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Promissory (subordinated) notes:
Due on December 31, 1999 -- 7.86%......................... $ -- $ 13,871
Due on December 31, 1999 -- 8.00%......................... -- 23,361
Due on December 31, 1999 -- 8.20%......................... -- 21,804
Due on December 31, 2000 -- 6.50%......................... 21,823 22,157
Due on December 31, 2000 -- 7.42%......................... 14,019 14,366
Due on December 31, 2000 -- 7.58%......................... 27,271 27,711
Due on December 31, 2001 -- 5.74%......................... 14,514 15,785
Due on December 31, 2001 -- 8.06%......................... 22,448 22,821
Due on December 31, 2002 -- 7.86%......................... 24,559 --
Term (subordinated) notes
Due on June 30, 2002 -- 8.06%............................. 12,513 13,001
Installment notes at interest rates of 4.75% to 8.20% with
maturities through 2003................................... 15,829 13,811
-------- --------
152,976 188,688
Less amounts due within one year............................ 69,172 64,266
-------- --------
$ 83,804 $124,422
======== ========
</TABLE>
Prior to 1997, promissory notes were issued for partial payment of the
annual patronage dividend. Promissory notes are subordinated to indebtedness to
banking institutions, trade creditors and other indebtedness of the Company as
specified by its Board of Directors. Prior experience indicates that the
maturities of a significant portion of the notes due within one year are
extended, for a three year period, at interest rates substantially equivalent to
competitive market rates of comparable instruments. The Company anticipates that
this practice of extending notes will continue.
Total maturities of promissory and installment notes for fiscal years 2000,
2001, 2002 and 2003 are $69,172,000, $41,818,000, $40,567,000, and $1,419,000
respectively.
Term notes were issued in connection with the redemption of excess B stock.
Term notes are subordinated to indebtedness to banking institutions, trade
creditors and other indebtedness of the Company as specified by its Board of
Directors.
See note 7 regarding the fair value of financial instruments.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate
fair value. Fair value was estimated using discounted cash flow analyses, based
on the Company's incremental borrowing rate for similar borrowings.
F-13
<PAGE> 36
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Current:
State......................................... $ 460 $ 710 $ 491
Foreign....................................... 281 290 343
------- ------ ------
Total current................................. 741 1,000 834
------- ------ ------
Deferred:
Federal....................................... 14,010 -- 703
State......................................... 2,472 -- 124
Foreign....................................... (203) (403) (61)
------- ------ ------
Total deferred................................ 16,279 (403) 766
------- ------ ------
$17,020 $ 597 $1,600
======= ====== ======
</TABLE>
The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as qualified patronage
dividend based on margins from business done with or for Members and for the
redemption of nonqualified notices of allocation. The reconciliation of income
tax expense to income tax computed at the U.S. federal statutory tax rate of 35%
in fiscal year 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Tax at U.S. statutory rate...................... $ -- $ 7,377 $ 15,511
Effects of:
Patronage dividend............................ -- (12,258) (15,324)
State income taxes, net of federal tax
benefit.................................... 1,906 462 400
Increase in valuation allowance............... 14,010 3,714 --
Other, net.................................... 1,104 1,302 1,013
------- -------- --------
$17,020 $ 597 $ 1,600
======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of net operating loss
carryforwards which expire in years through 2019; alternative minimum tax credit
carryforwards and nonqualified notices of allocations, which do not expire; and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. To
the extent tax benefits are subsequently recognized in excess of the net
deferred tax assets, approximately $28,800,000 of the reduction in the valuation
F-14
<PAGE> 37
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance for deferred tax assets will result in a reduction of goodwill.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 65,569 $ 15,868 $ 9,937
AMT credit carryforward............................... 553 911 911
Nonqualified notices of allocation.................... 13,830 16,697 6,890
Bad debt provision.................................... 2,129 2,049 3,305
Vacation pay.......................................... 3,460 3,122 3,225
Contributions to fund retirement plans................ 792 3,871 627
Rent expense.......................................... 2,289 2,072 1,819
Merger-related valuations and accruals................ 2,141 5,865 21,656
Inventory capitalization.............................. 2,808 -- --
Other................................................. 4,156 3,752 1,280
-------- -------- --------
Total deferred tax assets............................... 97,727 54,207 49,650
Valuation allowance for deferred tax assets............. (93,213) (33,067) (25,000)
-------- -------- --------
Net deferred tax assets................................. 4,514 21,140 24,650
Deferred tax liabilities:
Tax depreciation in excess of book.................... 3,383 1,450 5,102
Inventory capitalization.............................. -- 1,725 1,725
Other................................................. 1,131 1,475 1,333
-------- -------- --------
Total deferred tax liabilities.......................... 4,514 4,650 8,160
-------- -------- --------
Net deferred taxes $ -- $ 16,490 $ 16,490
======== ======== ========
</TABLE>
9. CASH FLOW
On July 1, 1997, the Company merged with SCC. The transaction was accounted
for using the purchase accounting method. The Merger was accomplished by
converting SCC shares into TruServ shares. See note 1 for additional comments.
The patronage dividend and promissory (subordinated) and redeemable
(subordinated) term note renewals relating to non-cash operating and financing
activities are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Patronage dividend payable in cash.............. $ -- $14,507 $ 12,142
Promissory (subordinated) notes................. (5,436) (3,252) 7,511
Class B nonvoting common stock.................. (15,974) 9,950 (21,592)
Installment notes............................... 9,722 5,532 11,742
Member indebtedness............................. 11,688 8,287 29,502
-------- ------- --------
$ -- $35,024 $ 39,305
======== ======= ========
Note renewals and interest rollover............. $ 36,385 $24,058 $ 22,240
======== ======= ========
</TABLE>
The Company's non-cash financing and investing activities in fiscal years
1999 and 1998 include, respectively, a $305,000 and $610,000 acquisition of
transportation equipment by entering into capital leases.
F-15
<PAGE> 38
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash paid for interest during fiscal years 1999, 1998, and 1997 totaled
$58,730,000, $52,722,000, and $34,693,000, respectively. Cash paid for income
taxes during fiscal years 1999, 1998, and 1997 totaled $848,000, $903,000, and
$1,148,000, respectively.
10. RETIREMENT PLANS
The change in the benefit obligation and plan assets for the Company
administered pension plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(000'S OMITTED)
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year......... $200,951 $189,838
Service cost.............................................. 8,377 7,418
Interest cost............................................. 12,312 13,259
Benefit payments.......................................... (7,382) (5,713)
Actuarial losses (gains).................................. (23,601) 25,503
Curtailments.............................................. 2,495 --
Settlements............................................... (34,022) (29,354)
Special Retirement Benefits............................... 1,597 --
-------- --------
Projected benefit obligation at end of year............... $160,727 $200,951
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year............ $196,953 $198,170
Actual return on assets................................... 16,891 31,454
Employer contributions.................................... 5,986 2,396
Benefit payments.......................................... (7,382) (5,713)
Settlements............................................... (34,022) (29,354)
-------- --------
Fair value of plan assets at end of year.................. $178,426 $196,953
-------- --------
Reconciliation of Funded Status:
Funded status............................................. $ 17,699 $ (3,998)
Unrecognized transition asset............................. (2,642) (3,883)
Unrecognized prior service cost........................... 6,743 7,840
Unrecognized actuarial gain............................... (23,781) (6,236)
-------- --------
Accrued benefit cost...................................... $ (1,981) $ (6,277)
======== ========
</TABLE>
F-16
<PAGE> 39
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net pension cost for the Company administered pension
plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost.................................. $ 8,377 $ 7,418 $ 6,511
Interest cost................................. 12,312 13,259 10,386
Expected return on assets..................... (15,951) (16,083) (12,677)
Amortization of transition assets............. (720) (835) (835)
Amortization of prior service cost............ 984 984 795
Amortization of actuarial loss................ 53 -- 79
Curtailment loss.............................. 112 -- --
Settlement gain............................... (5,075) (1,745) --
-------- -------- --------
Net pension cost...................... $ 92 $ 2,998 $ 4,259
======== ======== ========
</TABLE>
One of the Company's pension plans is the supplemental executive retirement
plan ("SERP"), which is an unfunded defined benefit plan. The funded status in
the table above is net of an accrued pension expense liability of $10,165,000
and $13,266,000 related to the SERP at December 31, 1999 and 1998, respectively.
The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $315,000, $861,000 and $654,000
for fiscal years 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
PENSION BENEFITS
FOR THE YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Weighted average assumptions:
Discount rate............................................. 8.00% 6.75%
Expected return on assets................................. 9.50% 9.50%
Rate of compensation increase............................. 4.50% 4.50%
</TABLE>
<TABLE>
<CAPTION>
OTHER BENEFITS
FOR THE YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Weighted average assumptions:
Discount rate............................................. 8.00% 6.75%
Medical trend rate........................................ 5.00% 5.00%
</TABLE>
The Company sponsors a defined benefit retirement medical plan for those
SCC employees and former employees that met certain age and service criteria as
of the Merger dated July 1, 1997. The plan was frozen effective with the Merger.
The components of the retiree medical plan costs for the Company
administered plan consist of interest cost of $335,000 with no curtailment gain
in 1999, compared to an interest cost of $351,000 and a curtailment gain
totaling $1,582,000 for a $1,231,000 benefit in 1998.
The accumulated post retirement benefit obligation ("APBO") of $6,646,000
on December 31, 1997 was reduced in 1998 by a curtailment gain of $1,582,000 and
claims paid of $500,000 offset by interest cost of $351,000 and an actuarial
loss of $274,000, for an APBO of $5,189,000 at December 31, 1998. Reductions to
the APBO in 1999 were an actuarial gain of $510,000 and claims paid of $460,000,
offset by interest cost of $335,000, for an APBO of $4,554,000 at December 31,
1999.
F-17
<PAGE> 40
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status at December 31, 1998 was a liability of $4,922,000, which
includes the APBO of $5,189,000 offset by an unrecognized actuarial loss of
$267,000. The funded status at December 31, 1999 was a liability of $4,797,000,
which includes the APBO of $4,554,000 plus an unrecognized actuarial gain of
$243,000.
The plan has no assets. During 1999 and 1998, the Company contributed to
the plan $460,000 and $500,000, respectively, and there were benefit payments of
$460,000 and $500,000, respectively.
The effect of a 1% increase in the medical trend rate would increase
service and interest cost components by $16,000 and postretirement benefit
obligation by $234,000. The effect of a 1% decrease in the medical trend rate
would decrease service and interest cost components by $13,000 and
postretirement benefit obligation by $189,000.
11. SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131 "Disclosure about
Segments of an Enterprise and Related Information," requires companies to report
financial and descriptive information about its reportable operating segments,
including segment profit or loss, certain specific revenue and expense items,
and segment assets, as well as information about the revenues derived from the
Company's products and services, information about geographic areas and
information about major customers. This statement requires the use of the
management approach to determine the information to be reported. The management
approach is based on the way management organizes the enterprise to assess
performance and make operating decisions regarding the allocation of resources.
It is management's opinion that, at this time, the Company has several operating
segments, however only one reportable segment. The following discussion sets
forth the required single segment information:
The Company operates as a single reportable segment as the
largest Member-owned wholesaler cooperative of hardware,
lumber/building materials and related merchandise in the United
States, operations outside the United States were immaterial, with
1999 net sales of $4.5 billion. The Company's sales to its Members are
divided into three categories, as follows: (1) warehouse shipment
sales (approximately 37% of total sales); (2) direct shipment sales
(approximately 58% of total sales); and (3) relay sales (approximately
5% of total sales). Warehouse shipment sales are sales of products
purchased, warehoused and resold by the Company upon orders from the
Members. Direct shipment sales are sales of products purchased by the
company but delivered directly to Members from manufacturers. Relay
sales are sales of products purchased by the Company in response to
the requests of several Members for a product which is (i) included in
future promotions, (ii) not normally held in inventory and (iii) is
not susceptible to direct shipment. Generally, the Company will give
notice to all Members of its intention to purchase products for relay
shipment and then purchase only so many of such products as the
Members order. When the product shipment arrives at the Company, it is
not warehoused; rather, the Company breaks up the shipment and
"relays" the appropriate quantities to the Members who placed orders.
F-18
<PAGE> 41
TRUSERV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's product offerings, comprised of more than 72,000 stockkeeping
units ("SKUs"), may be divided into seven classes of merchandises which are set
forth, with their corresponding percentage of total revenues in the following
table:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Lumber and Building Materials............................... 33.2% 30.2% 24.5%
Hardware Goods.............................................. 16.1% 17.8% 19.5%
Farm and Garden............................................. 15.9% 14.5% 13.1%
Electrical and Plumbing..................................... 12.7% 13.4% 15.8%
Painting and Cleaning....................................... 10.0% 10.8% 12.0%
Appliances and Housewares................................... 8.6% 8.4% 9.4%
Sporting Goods and Toys..................................... 3.5% 4.9% 5.7%
</TABLE>
F-19
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBITS NUMBERED
ENCLOSED DESCRIPTION PAGE
-------- ----------- ------------
<C> <S> <C>
4-K Third amendment to Credit Agreement dated July 1, 1997 for
$300,000,000 Revolving credit between TruServ Corporation,
various financial institutions, and Bank of America.
4-M Amendment dated May 12, 1999 to the Amended and Restated
Private Shelf Agreement between TruServ Corporation and
Prudential Insurance of America dated November 13, 1997 for
$150,000,000.
4-O Amendment No. 1 to credit agreement dated September 10, 1998
for $105,000,000 Note Purchase Agreement between TruServ
Corporation and various Purchasers.
10-C TruServ Corporation Defined Lump Sum Pension Plan as amended
and restated as of January 1, 1998.
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
INCORPORATED
BY REFERENCE
------------
<C> <S>
2-A Agreement and Plan of Merger dated as of December 9, 1996
between the Company and ServiStar Coast to Coast Corporation
("SCC"). Incorporated by reference -- Exhibit 2-A to
Registration Statement on Form S-4 (No. 333-18397).
4-A Amended and Restated Certificate of Incorporation of the
Company, effective July 1, 1997. Incorporated by
reference--Exhibit 2-A to Registration Statement on Form S-4
(No. 333-18397).
4-B By-laws of the Company, effective April 7, 1998.
Incorporated by reference--Exhibit 4-B to Post-Effective
Amendment No. 8 on Form S-2 to Registration Statement on
Form S-4 (No. 333-18397).
4-C Specimen certificate of Class A common stock. Incorporated
by reference--Exhibit 4-C to Post-Effective Amendment No. 8
on Form S-2 to Registration Statement on Form S-4 (No.
333-18397).
4-D Specimen certificate of Class B common stock. Incorporated
by reference--Exhibit 4-D to Post-Effective Amendment No. 8
on Form S-2 to Registration Statement on Form S-4 (No.
333-18397).
4-E Promissory (subordinated) note form effective for the
year-ending December 31, 1986 and thereafter. Incorporated
by reference--Exhibit 4-H to Registration Statement on Form
S-2 (No. 33-20960).
4-F Installment note form. Incorporated by reference--Exhibit
4-F to Registration Statement on Form S-2 (No. 2-82836).
4-G Copy of Note Agreement with Prudential Insurance Company of
America dated April 13, 1992 securing 8.60% Senior Notes in
the principal sum of $50,000,000 with a maturity date of
April 1, 2007. Incorporated by reference--Exhibit 4-J to
Post-Effective Amendment No. 2 to Registration Statement on
Form S-2 (No. 33-39477).
4-H Cotter & Company $50,000,000 Private Shelf Agreement with
Prudential Insurance Company of America dated December 29,
1995 incorporating amendment on existing Note Agreement with
Prudential Insurance Company of America dated April 13, 1992
securing 8.60% Senior Notes in the principal sum of
$50,000,000 with a maturity date of April 1, 2007.
Incorporated by reference--Exhibit 4-H to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 (No.
33-39477).
</TABLE>
* Filed herewith
E-1
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBITS
INCORPORATED
BY REFERENCE
------------
<C> <S>
4-I Trust Indenture between Cotter & Company and US Bancorp
(formerly First Trust of Illinois). Incorporated by
reference--Exhibit T3C to Cotter & Company Form T-3 (No.
22-26210).
4-J Credit Agreement dated July 1, 1997 for $300,000,000
Revolving credit between TruServ Corporation, various
financial institutions, and Bank of America. Incorporated by
reference--Exhibit 4-L to Post-Effective Amendment No. 5 to
Registration Statement on Form S-4 (H3-333-18397)
4-K* Third Amendment to Credit Agreement dated July 1, 1997 for
$300,000,000 Revolving credit between TruServ Corporation,
various financial institutions, and Bank of America.
4-L Amended and Restated Private Shelf Agreement between TruServ
Corporation and Prudential Insurance Company of America
dated November 13, 1997 for $150,000,000. Incorporated by
reference--Exhibit 4-M to Post-Effective Amendment No. 5 to
Registration Statement on Form S-4 (No. 333-18397)
4-M* Amendment dated May 12, 1999 to the Amended and Restated
Private Shelf Agreement between TruServ Corporation and
Prudential Insurance Company of America dated November 13,
1997 for $150,000,000.
4-N Credit Agreement dated September 10, 1998 for $105,000,000
Note Purchase Agreement between TruServ Corporation and
various Purchasers. Incorporated by reference--Exhibit 4-L
to Post-effective Amendment No. 6 to Registration Statement
on Form S-4 (No. 333-183997)
4-O* Amendment No. 1 to Credit Agreement dated September 10, 1998
for $105,000,000 Note Purchase Agreement between TruServ
Corporation and various Purchasers.
4-P Participation Agreement dated April 30, 1998 for $40,000,000
between TruServ Corporation, various financial institutions
and Bank of Montreal. Incorporated by reference--Exhibit 4-M
to Post-Effective Amendment No. 6 to Registration Statement
on Form S-4 (No. 333-18397)
10-A Current Form of "Retail Member Agreement with TruServ"
between the Company and its Members that offer primarily
hardware and related items. Incorporated by reference--
Exhibit 10-A to Registration Statement on Form S-4 (No.
333-18397).
10-B Current Form of "Subscription to Shares of TruServ".
Incorporated by reference--Exhibit 10-B to Registration
Statement on Form S-2 (No. 333-18397).
10-C* TruServ Corporation Defined Lump Sum Pension Plan (as
amended and restated as of January 1, 1998).
10-D Cotter & Company Employees' Savings and Compensation
Deferral Plan (As Amended and Restated Effective April 1,
1994). Incorporated by reference--Exhibit 10-D to
Post-Effective Amendment No. 4 to Registration Statement on
Form S-2 (No. 33-39477).
10-E Cotter & Company Supplemental Retirement Plan between Cotter
& Company and selected executives of the Company (As Amended
and Restated January 2, 1996 Effective As Of January 1,
1996). Incorporated by reference--Exhibit 10-E to
Post-Effective Amendment No. 5 to Registration Statement on
Form S-2 (No. 33-39477).
10-F Employment Agreement between the Company and Daniel A.
Cotter dated October 15, 1984. Incorporated by
reference--Exhibit 10-N to Post-Effective Amendment No. 2 to
Registration Statement on Form S-2 (No. 2-82836).
10-G Amendment No. 1 to Employment Agreement between the Company
and Daniel A. Cotter dated October 15, 1984 effective
January 1, 1991. Incorporated by reference--Exhibit 10-N to
Registration Statement on Form S-2 (No. 33-39477).
10-H Contract between Daniel T. Burns and the Company.
Incorporated by reference--Exhibit 10-J to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 (No.
33-39477).
</TABLE>
E-2
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBITS
INCORPORATED
BY REFERENCE
------------
<C> <S>
10-I Retail Conversion Funds Agreement dated as of December 9,
1996 between the Company and SCC. Incorporated by
reference--Exhibit 10-L to Registration Statement on Form
S-4 (No. 333-18397).
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
INFORMATION
- ------------
<S> <C> <C>
Supplemental Information to be Furnished with Reports Filed Pursuant
to Section 15(d) of the Act by Registrants which have not Registered
Securities Pursuant to Section 12 of the Act.
As of the date of the foregoing Report, no annual report for the
Registrant's year ended December 31, 1999 has been sent to security
holders. Copies of such Annual Report and proxy soliciting materials will
subsequently be sent to security holders and furnished to the Securities
and Exchange Commission.
</TABLE>
E-3
<PAGE> 1
EXHIBIT 4-K
THIRD AMENDMENT
THIS THIRD AMENDMENT dated as of March 25, 1999 (this "Amendment") amends
the Credit Agreement dated as of July 1, 1997 (as previously amended, the
"Credit Agreement") among TRUSERV CORPORATION (the "Company"), various financial
institutions (the "Lenders") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent (in such capacity, the "Agent"). Terms defined in the
Credit Agreement are, unless otherwise defined herein or the context otherwise
requires, used herein as defined therein.
WHEREAS, the Company, the Lenders and the Agent have entered into the
Credit Agreement; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as more
fully set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
I. Amendments. Effective on (and subject to the occurrence of) the
Amendment Effective Date (as defined below), the Credit Agreement shall be
amended as set forth below:
A. Addition of Definitions. The following definitions are added to Section
1.1 in appropriate alphabetical sequence:
Asset Sale means the sale, lease, assignment or other transfer for
value (each a "Disposition") by the Company or any Subsidiary to any Person
(other than the Company or a Subsidiary) of any fixed asset of the Company
or such Subsidiary.
Base Rate Margin means the percentage set forth under the heading
"Base Rate Margin" on Schedule 1.1 opposite the applicable Total Senior
Debt to EBITDA Ratio.
Borrowing Base means, as of the last day of any fiscal month, the
total of (i) 85% of the remainder of (A) the daily average for such month
of the amount of "Accounts and notes receivable, net" as would be shown on
the Company's consolidated balance sheet minus (B) all Debt payable to
Members plus (ii) 50% of the amount, based on the lower of cost or market
value, of "Inventories" as would be shown on the Company's consolidated
balance sheet as of the last day of such month plus (iii) the remainder of
(x) the Specified Percentage (as defined below) of the amount of
"Properties, less accumulated depreciation" as would be
<PAGE> 2
shown on the Company's consolidated balance sheet as of the last day of
such month minus (y) the then-outstanding amount of all Indebtedness
secured by a Lien on any such properties; provided that the amount
determined pursuant to clause (ii) (the "Inventory Amount") shall be
reduced by the amount (if any) necessary so that the Inventory Amount is
not more than 45% of the total of clauses (i), (ii) and (iii). For purposes
of the foregoing, "Specified Percentage" means (a) from April 3, 1999
through December 31, 1999, 50%, (b) from January 1, 2000 through December
31, 2000, 40%, (c) from January 1, 2001 through December 31, 2001, 30%, and
(d) thereafter, 20%.
Borrowing Base Elimination Date means the first date after April
3,1999 on which the Total Senior Debt to EBITDA Ratio has been below 3.0 to
1.0 as of the last day of two consecutive fiscal quarters.
EBITDA means, for any period, Consolidated Net Earnings for such
period plus, to the extent deducted in computing such Consolidated Net
Earnings, interest expense, taxes, depreciation and amortization.
Excess Net Cash Proceeds means Net Cash Proceeds from Assets Sales
which, together with all other Net Cash Proceeds from Asset Sales after
March 25, 1999 (excluding the amount of such Net Cash Proceeds, if any,
previously applied to reduce the Commitments pursuant to Section 2.8.2 or
to reduce the "Commitments" under the Short-Term Credit Agreement pursuant
to Section 2.5.2 thereof), exceed $20,000,000.
Net Cash Proceeds means, with respect to any Asset Sale, the aggregate
cash proceeds (including cash proceeds received by way of deferred payment
of principal pursuant to a note, installment receivable or otherwise, but
only as and when received) received by the Company or any Subsidiary
pursuant to such Asset Sale net of (i) the direct costs relating to such
Asset Sale (including sales commissions and legal, accounting and
investment banking fees), (ii) taxes paid or reasonably estimated by the
Company to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and
(iii) amounts required to be applied to the repayment of any Debt secured
by a Lien on any asset subject to such Asset Sale.
Offshore Rate Margin means the percentage set forth under the heading
"Offshore Rate Margin" on Schedule 1.1 opposite the applicable Total Senior
Debt to EBITDA Ratio.
Total Senior Debt means all Debt of the Company and its Subsidiaries
other than Subordinated Debt.
Total Senior Debt to EBITDA Ratio means, as of the last day of any
fiscal quarter, the ratio of (a) the remainder of (i) the daily average of
the amount of
<PAGE> 3
Total Senior Debt outstanding during the last fiscal month of such fiscal
quarter minus (ii) the daily average of cash and marketable securities
during the last fiscal month of such fiscal quarter to (b) EBITDA for the
period of four consecutive fiscal quarters then ending.
A. Amendment of Certain Definitions. The definitions of "Commitment Fee
Rate" and "Fixed Charge Coverage Ratio" set forth in Section 1.1 are amended in
their entirety to read as follows, respectively:
Commitment Fee Rate means the percentage set forth under the heading
"Commitment Fee Rate" on Schedule 1.1 opposite the applicable Total Senior
Debt to EBITDA Ratio.
Fixed Charge Coverage Ratio means, as of the last day of any fiscal
quarter, the ratio of
(a) the sum, for the period of four consecutive fiscal quarters
ending on such day, of (i) Consolidated Net Earnings plus (ii) to the
extent deducted in determining such Consolidated Net Earnings,
interest expense, operating lease expense, depreciation and
amortization,
to
(b) the sum for such period of (i) operating lease expense and
(ii) interest expense;
each as determined for the Company and its Subsidiaries on a consolidated
basis.
A. Amendment to Definition of Consolidated Net Earnings. The definition of
"Consolidated Net Earnings" set forth in Section 1.1 is amended as follows:
(a) the parenthetical clause at the end of clause (ii) of such definition
is amended by deleting the words "and current additions to reserves" at the end
thereof and substituting the following therefor: "current additions to reserves
and merger integration costs"; and
(b) the following language is added immediately before the period at the
end of such definition:
"; provided that, to the extent that amounts are deducted from
Consolidated Net Earnings during the Company's 1999 fiscal year as a
result of SOP 98-5, "Reporting the Costs of Start-up Activities",
issued by the American Institute of Certified Public Accountants ("SOP
98-5"), in excess of the amount that would have been deducted absent
SOP 98-5, such excess shall be added back to Consolidated Net
Earnings".
<PAGE> 4
A. Deletion of Definition. The definition of "Applicable Margin" is deleted
from Section 1.1.
A. Deletion of Bid Loan Option. Notwithstanding any provision of the Credit
Agreement to the contrary, the Company shall not have the option of borrowing
any Bid Loans. All borrowings under Section 2 of the Credit Agreement shall be
Committed Loans or Swing Line Loans.
A. Addition of Mandatory Commitment Reductions. Section 2.8 shall be
amended by (a) adding a new Section number and caption at the beginning thereof
as follows: "2.8 Termination or Reduction of Commitments."; (b) renumbering the
existing Section 2.8 as "2.8.1"; and (c) adding the following Section 2.8.2 at
the end thereof:
2.8.2 Mandatory Reduction of Commitments. If, at any time before
the Borrowing Base Elimination Date, the Company and its Subsidiaries
receive any Excess Net Cash Proceeds, the Commitments shall be reduced
by an amount equal to the product of (a) such Excess Net Cash Proceeds
multiplied by (b) 0.75 multiplied by (c) a fraction, the numerator of
which is the aggregate amount of the Commitments and the denominator
of which is the sum of the aggregate amount of the Commitments plus
the aggregate amount of the "Commitments" under and as defined in the
Short-Term Credit Agreement; provided that (x) no such reduction shall
be required unless the aggregate amount of Excess Net Cash Proceeds
(excluding Excess Net Cash Proceeds previously applied to reduce the
Commitments pursuant to this Section or to reduce the "Commitments"
under the Short-Term Credit Agreement pursuant to Section 2.5.2
thereof) equals or exceeds $400,000; and (y) the amount of Excess Net
Cash Proceeds to be applied on any single occasion shall be rounded
down to an integral multiple of $100,000 (it being understood that the
amount of Excess Net Cash Proceeds in excess of any such integral
multiple shall be applied on the next date on which Excess Net Cash
Proceeds are applied).
A. Addition of Section 2.9.2. Section 2.9 shall be amended by (a) adding a
new Section number and caption at the beginning thereof as follows: "2.9
Prepayments."; (b) renumbering the existing Section 2.9 as "2.9.1"; and (c)
adding the following Section 2.9.2 at the end thereof:
2.9.2 Mandatory Prepayments. If on any date on which the
Commitments are reduced pursuant to Section 2.8.2, the Total
Outstandings exceed the aggregate amount of the Commitments as so
reduced, the Company shall immediately prepay Loans in an amount equal
to such excess.
<PAGE> 5
A. Amendment to Section 2.12(a). Section 2.12(a) is amended in its entirety
to read as follows:
2.12 Interest. (a) Each Committed Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing
Date at a rate per annum equal to (i) at all times such Committed Loan
is a Base Rate Loan, the sum of the Base Rate as in effect from time
to time plus the Base Rate Margin as in effect from time to time and
(ii) at all times such Committed Loan is an Offshore Rate Loan, the
sum of the Offshore Rate for the applicable Interest Period plus the
Offshore Rate Margin as in effect from time to time. Each Swing Line
Loan shall bear interest on the outstanding principal amount thereof
from the applicable Borrowing Date at a rate per annum equal to the
sum of (i) the Federal Funds Rate as in effect from time to time plus
(ii) the applicable Offshore Rate Margin as in effect from time to
time plus (iii) 0.10%.
A. Deletion of Facility Fee and Change to Calculation of the Commitment
Fee. Section 2.13 is amended by (a) deleting the existing subsection (b); (b)
designating the existing subsection (c) as subsection (b); and (c) adding the
following sentence at the end thereof: "For purposes of calculating commitment
fees, Swing Line Loans shall not be deemed to constitute usage of the
Commitments."
A. Borrowing Base Reporting Requirement. Section 6.2 is amended by (a)
deleting the word "and" at the end of subsection (d); (b) relettering the
existing subsection (e) as subsection (f); and (c) inserting the following new
subsection (e) in appropriate sequence:
"(e) within 30 days after the end of each fiscal month (beginning
with the month ending April 3, 1999) so long as the Borrowing Base
Elimination Date has not occurred, a calculation in reasonable detail
of the Borrowing Base as of the last day of such month, substantially
in the form of Exhibit K; and"
A. Amendment to Section 7.1. Section 7.1 is amended in its entirety to read
as follows:
7.1 Fixed Charge Coverage Ratio. The Company will not permit the Fixed
Charge Coverage Ratio as of the end of any fiscal quarter to be less than the
applicable ratio set forth below:
Fiscal Quarter Ending Ratio
-----------------------------------------------
4/3/99 1.30 to 1.00
7/3/99 1.35 to 1.00
10/2/99 1.50 to 1.00
12/31/99 1.85 to 1.00
4/1/00 2.00 to 1.00
7/1/00 2.15 to 1.00
9/30/00 and thereafter 2.25 to 1.00.
<PAGE> 6
A. Amendment to Section 7.2(f). Clause (ii) of the proviso to Section
7.2(f) is amended in its entirety to read as follows:
(ii) the aggregate outstanding principal amount of all such
Indebtedness (other than Indebtedness listed on Schedule 7.2(f)) does not
at any time exceed (A) prior to the Borrowing Base Elimination Date,
$25,000,000 and (B) on and after the Borrowing Base Elimination Date, an
amount equal to 10% of the consolidated total assets of the Company.
A. Amendment to Section 7.3. Section 7.3 is amended by (a) amending clause
(x)(ii) contained in the proviso in its entirety to read as follows:
"(ii) an amount equal to (A) the remainder of the lowest daily average
amount of Short Term Debt outstanding for any period of 30 consecutive
days during the 12-month period ending on the most recently completed
month minus (B) the daily average of cash and marketable securities
for such 30-day period to";
(b) amending the table therein in its entirety to read as follows:
Specified
Period Percentage
-------------------------------------------------
Through 12/31/99 60%
1/1/00 through 7/1/00 58%
7/2/00 through 6/30/01 55%
7/1/01 and thereafter 50%
; and (c) by adding the following paragraph at the end thereof:
Without limiting the foregoing provisions of this Section, the Company
will not permit the aggregate principal amount of all Debt of the
Company and its Subsidiaries (other than (i) Debt hereunder, (ii) Debt
under the Short-Term Credit Agreement, (iii) Debt referred to on
Schedule 5.7 which was outstanding on March 25, 1999 and (iv)
Subordinated Debt owed to Members) to exceed $35,000,000 at any time
prior to the Borrowing Base Elimination Date.
A. Amendment to Section 7.5. Section 7.5 is amended by inserting the
following language after the words "the Company may merge" in the fourth line
thereof: ", after the Borrowing Base Elimination Date,".
<PAGE> 7
A. Amendment to Section 7.11. Subsection 7.11(b) is amended by inserting
the following language at the beginning thereof: "after the Borrowing Base
Elimination Date,".
A. Amendment to Section 7.14. Section 7.14 is amended in its entirety to
read as follows:
7.14 Ratio of Borrowing Base to Debt. Not permit, at any time prior to
the Borrowing Base Elimination Date, the ratio of (a) the Borrowing Base as
of the last day of any fiscal month to (b) the remainder of (i) the daily
average of the amount of Total Senior Debt outstanding during the fiscal
month ending on such date minus (ii) the daily average of cash and
marketable securities during the fiscal month ending on such date to be
equal to or less than the applicable ratio set forth below:
Fiscal Month(s) Ending Ratio
---------------------------------------------------
04/3/99 through 05/29/99 1.10 to 1
7/3/99 through 10/2/99 1.15 to 1
10/30/99 through 12/31/99 1.20 to 1
01/29/00 1.10 to 1
2/26/00 through 12/31/00 1.20 to 1
01/27/01 1.10 to 1
2/24/01 through 12/31/01 1.20 to 1
01/26/02 1.10 to 1
2/23/02 and thereafter 1.20 to 1.
A. Amendment to Schedule 1.1. Schedule 1.1 is amended in its entirety to
read as set forth on Schedule 1.1 hereto.
A. Addition of Schedule 7.2(f). The Schedule 7.2(f) attached hereto is
added to the Credit Agreement as Schedule 7.2(f) thereto.
A. Amendment to Exhibit E. Exhibit E is amended in its entirety to read as
set forth on Exhibit E hereto.
A. Addition of Exhibit K. The Exhibit K attached hereto is added to the
Credit Agreement as Exhibit K thereto.
I. Waiver. Effective on the Amendment Effective Date, the Required Lenders
waive any Event of Default or Unmatured Event of Default under the Credit
Agreement resulting from the Company's failure to be in compliance with Section
7.1 of the Credit Agreement as of December 31, 1998.
<PAGE> 8
I. Representations and Warranties. The Company represents and warrants to
the Agent and the Lenders that, after giving effect hereto, (a) each
representation and warranty set forth in Article V of the Credit Agreement is
true and correct as of the date of the execution and delivery of this Amendment
by the Company with the same effect as if made on such date (except to the
extent such representations and warranties expressly refer to an earlier date,
in which case they were true and correct as of such earlier date) and (b) no
Event of Default or Unmatured Event of Default exists.
I. Effectiveness. The amendments set forth in Section 1 above and the
waiver set forth in Section 2 above shall become effective on the date (the
"Amendment Effective Date") when the Agent shall have received (a) the fees
referred to in Section 5 and, to the extent then billed, all costs and expenses
of the Agent in connection with this Amendment (including reasonable attorneys'
fees and charges and all costs, expenses and charges for a field examination)
and (b) each of the following documents, each in form and substance satisfactory
to the Agent:
(a) counterparts of this Amendment executed by the Company and the
Required Lenders;
(b) a certificate of the secretary or an assistant secretary of the
Company as to:
(i) resolutions of the Board of Directors authorizing the
execution and delivery of this Amendment and the performance by
the Company of its obligations under the Credit Agreement, as
amended hereby, and
(ii) the incumbency and signatures of those of its officers
authorized to execute and deliver this Amendment;
(c) an opinion of counsel for the Company, in form and substance
satisfactory to the Agent; and
(d) such other documents as the Agent or any Lender may reasonably
request.
I. Fees. In consideration of the Lenders and the Agent entering into this
Amendment, the Company agrees to pay, on or before the Amendment Effective Date,
(a) to the Agent for the account of each Lender which has executed and delivered
to the Agent a counterpart of this Amendment prior to 12:00 noon, Chicago time,
on March 25, 1999, an amendment fee in an amount equal to 0.25% of such Lender's
Commitment; and (b) to NationsBanc Montgomery Securities LLC ("NMS") and/or the
Agent certain fees agreed to among the Company, NMS and the Agent.
<PAGE> 9
I. Miscellaneous.
A. Continuing Effectiveness, etc. As herein amended, the Credit Agreement
shall remain in full force and effect and is hereby ratified and confirmed in
all respects. After the Amendment Effective Date, all references in the Credit
Agreement and the other Loan Documents to "Credit Agreement" or similar terms
shall refer to the Credit Agreement as amended hereby.
A. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
A. Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of Illinois applicable to contracts made and
to be performed entirely within such state.
A. Successors and Assigns. This Amendment shall be binding upon the
Company, the Lenders and the gent and their respective successors and assigns,
and shall inure to the benefit of the Company, the Lenders and the Agent and the
respective successors and assigns of the Lenders and the Agent.
Delivered at Chicago, Illinois, as of the day and year first above written.
TRUSERV CORPORATION
By:
-------------------------------------
Title:
----------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 10
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender
By:
-------------------------------------
Title:
----------------------------------
BANK OF MONTREAL
By:
-------------------------------------
Title:
----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
-------------------------------------
Title:
----------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-------------------------------------
Title:
----------------------------------
WACHOVIA BANK, N.A.
By:
-------------------------------------
Title:
----------------------------------
THE NORTHERN TRUST COMPANY
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 11
ABN AMRO BANK N.V.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 12
UMB BANK
By:
-------------------------------------
Title:
----------------------------------
NATIONAL CONSUMER COOPERATIVE
BANK
By:
-------------------------------------
Title:
----------------------------------
<PAGE> 13
SCHEDULE 1.1
PRICING SCHEDULE
Beginning March 26, 1999, the Offshore Rate Margin, the Base Rate Margin,
the BA Commission and the Commitment Fee Rate shall be 1.50%, 0.50%, 1.50% and
0.45%, respectively. Each of the foregoing shall be adjusted, to the extent
applicable, 60 days (or, in the case of the last fiscal quarter of any fiscal
year, 120 days) after the end of each fiscal quarter based on the applicable
Total Senior Debt to EBITDA Ratio, determined pursuant to the table below, as of
the last day of such fiscal quarter; provided that none of the foregoing shall
be adjusted prior to December 1, 1999; and provided, further, that if the
Company fails to deliver the financial statements required by Section 6.1 and
the related Compliance Certificate by the 60th day (or, if applicable, the 120th
day) after any fiscal quarter, the Offshore Rate Margin, the Base Rate Margin,
the BA Commission and the Commitment Fee Rate that would apply if the Total
Senior Debt to EBITDA Ratio were greater than 3.75 to 1 shall apply until such
financial statements are delivered.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Total Senior Debt Offshore Rate Base Rate BA Commitment
to EBITDA Ratio Margin Margin Commission Fee Rate
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equal to or greater than 3.75 to 1 1.50% 0.50% 1.50% 0.45%
- ------------------------------------------------------------------------------------
Equal to or greater than 3.00 to 1 but
less than 3.75 to 1 1.25% 0.25% 1.25% 0.40%
- ------------------------------------------------------------------------------------
Less than 3.00 to 1 1.00% 0% 1.00% 0.35%
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 4-M
May 12, 1999
TruServ Corporation
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631
Attention: Chief Financial Officer
Controller
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Note Purchase and
Private Shelf Agreement dated as of November 13, 1997 (as amended from time to
time, the "NOTE AGREEMENT") between TruServ Corporation, a Delaware corporation
formerly known as Cotter & Company (the "COMPANY"), and The Prudential Insurance
Company of America and each Prudential Affiliate which pursuant to the terms
thereof becomes bound thereby ("PRUDENTIAL"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Note Agreement.
Pursuant to the request of the Company and in accordance with the
provisions of paragraph 11C of the Note Agreement, the parties hereto agree as
follows:
SECTION 1. Amendment. From and after the date this letter becomes effective
in accordance with its terms, the Note Agreement is amended as follows:
1.1. Paragraph 10B of the Note Agreement is amended to delete the terms
"Consolidated Net Earnings" and "Current Debt" presently appearing therein and
to add the following defined terms thereto in appropriate alphabetical order:
"ASSET BASE" shall mean, as of the last day of any fiscal month, the
total of (i) 85% of the remainder of (A) the daily average for such month
of the amount of "Accounts and notes receivable, net" as would be shown on
the Company's consolidated balance sheet minus (B) all Debt payable to
members of the Company plus (ii) 50% of the amount, based on the lower of
cost or market value, of "Inventories" as would be shown on the Company's
consolidated balance sheet as of the last day of such month plus (iii) the
remainder of (x) the Specified Percentage (as defined below) of the amount
of "Properties, less accumulated depreciation" as would be shown on the
Company's consolidated balance sheet as of the last day of such month minus
(y) the then outstanding amount of all Indebtedness secured by a Lien on
any such properties; provided that the amount determined pursuant to clause
(ii) (the "INVENTORY AMOUNT") shall be reduced by the amount (if any)
necessary so that the Inventory Amount is not more than 45% of the total of
clauses (i), (ii) and (iii). For purposes of the foregoing, "SPECIFIED
PERCENTAGE" means (a) from April 3, 1999 through December 31, 1999, 50%,
(b) from January 1, 2000 through December 31, 2000, 40%, (c) from January
1, 2001 through December 31, 2001, 30%, and (d) thereafter, 20%.
<PAGE> 2
TruServ Corporation
May 12, 1999
Page 2
"BA CREDIT AGREEMENTS" shall mean (i) the Credit Agreement dated as of
July 1, 1997 among the Company, Bank of America National Trust and Savings
Association, as agent, and the various financial institutions party
thereto, as amended from time to time, (ii) the 364-Day Credit agreement
dated as of September 30, 1998 among the Company, Bank of America National
Trust and Savings Association, as agent, and the various financial
institutions party thereto, as amended from time to time, and (iii) any
refinancings, renewals or replacements of either of the credit agreements
referred to in clauses (i) and (ii) above.
"CONSOLIDATED NET EARNINGS" shall mean with respect to any period:
(i) consolidated gross revenues of the Company and its Subsidiaries
minus
(ii) all operating and non-operating expenses of the Company and its
Subsidiaries including all charges of a proper character (including current
and deferred taxes on income, provision for taxes on unremitted foreign
earnings which are included in gross revenues, and current additions to
reserves and merger integration costs),
provided that it is agreed and understood that the following shall not be
included in the calculation of consolidated gross revenues of the Company
and its Subsidiaries:
(a) any gains (net of expenses and taxes applicable thereto) in excess
of losses resulting from the sale, conversion or other disposition of
capital assets (i.e., assets other than current assets);
(b) any gains resulting from the appraised write-up of assets;
(c) any equity of the Company or any subsidiary in the unremitted
earnings of any corporation which is not a Subsidiary;
(d) any earnings of any Person acquired by the Company or any
subsidiary through purchase, merger or consolidation or otherwise for
any year prior to the year of acquisition; or
(e) any deferred credit representing the excess of equity in any
Subsidiary at the date of acquisition over the cost of the investment
in the Subsidiary,
all determined in accordance with generally accepted accounting principles
provided that, to the extent that amounts are deducted from Consolidated
Net Earnings during the Company's 1999 fiscal year as a result of SOP 98-5,
"Reporting the Costs of Start-up Activities", issued by the American
Institute of Certified Public Accountants ("SOP 98-5"), in excess of the
amount that would have been deducted absent SOP 98-5, such excess shall be
added back to Consolidated Net Earnings.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, and provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument, document
or agreement to which such
<PAGE> 3
TruServ Corporation
May 12, 1999
Page 3
Person is a party or by which it or any of its property is bound.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly
or indirectly renewable or extendible at the option of the debtor to a date
more than one year from the date of the creation thereof, provided that (i)
borrowings under any revolving credit facility (including, without
limitation, the BA Credit Agreements) shall constitute Current Debt and
(ii) guarantees of Indebtedness of Company members in an aggregate amount
not to exceed $20,000,000 shall not constitute Current Debt, so long as no
event has occurred the result of which would be to cause or permit such
Indebtedness to become due prior to any stated maturity.
"EBITDA" shall mean, for any period, Consolidated Net Earnings for
such period plus, to the extent deducted in computing such Consolidated Net
Earnings, interest expense, taxes, depreciation and amortization.
"FIXED CHARGE COVERAGE RATIO" shall mean, as of the last day of any
fiscal quarter, the ratio of:
(a) the sum, for the period of four consecutive fiscal quarters ending
on such day, of (i) Consolidated Net Earnings plus (ii) to the extent
deducted in determining such Consolidated Net Earnings, interest
expense, operating lease expense, depreciation and amortization,
to
(b) the sum for such period of (i) operating lease expense and (ii)
interest expense;
each as determined for the Company and its Subsidiaries on a
consolidated basis.
"GOVERNMENT AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the business, operations, affairs, condition (financial or otherwise),
assets, properties or prospects of the Company and its Subsidiaries taken
as a whole, or (b) the ability of the Company to perform its obligations
under this Agreement and the Notes, or (c) the validity or enforceability
of this Agreement or the Notes.
"PRIVATE PLACEMENT AGREEMENTS" means the several Note Purchase
Agreements dated as of September 10, 1998 among the Company and the
purchasers listed in Schedule 1 thereto, pursuant to which the Company
issued its 6.85% Senior
<PAGE> 4
TruServ Corporation
May 12, 1999
Page 4
Notes due July 1, 2008 in the original aggregate principal amount of
$105,000,000, as such agreements may be amended from time to time.
"RATIO COMPLIANCE DATE" shall mean the first date to occur after April
3, 1999 on which financial statements of the Company have been delivered
pursuant to Section 5A showing that for each of the two most recent fiscal
quarters of the Company, as reported in such financial statements, the
Total Senior Debt to EBITDA Ratio has been below 3.0 to 1.0 as of the last
day of such fiscal quarters.
"SUPPLEMENTAL COUPON ELIMINATION DATE" shall mean the first January
1st or July 1st to occur after the Ratio Compliance Date.
"TOTAL SENIOR DEBT" shall mean all Debt of the Company and its
Subsidiaries other than Subordinated Debt.
"TOTAL SENIOR DEBT TO EBITDA RATIO" shall mean, as of the last day of
any fiscal quarter, the ratio of (a) the remainder of (i) the daily average
of the amount of Total Senior Debt outstanding during the last fiscal month
of such fiscal quarter minus (ii) the daily average of cash and marketable
securities during the last fiscal month of such fiscal quarter to (b)
EBITDA for the period of four consecutive fiscal quarters then ending.
"YEAR 2000 PROBLEM" shall mean the risk that computer applications and
embedded microchips in non-computing devices may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999.
1.2 Paragraph 1 of the Note Agreement is amended to add at the end thereof
the following paragraph:
For the period from (and including) April 1, 1999 to (but excluding)
the Supplemental Coupon Elimination Date, the Company shall pay to each
holder of Notes supplemental interest on the unpaid balance of the
aggregate principal amount of the Notes held by it at the rate of 0.50% per
annum. Such supplemental interest shall be computed on the basis of a 360
day year of twelve 30 day months and shall be payable on the interest
payment due dates for the applicable Notes to which such supplemental
interest relates, commencing with the first such interest payment due date
on or after the date hereof. To the extent permitted by law, any overdue
payment of supplemental interest shall bear interest (payable on demand) at
a rate per annum from time to time equal to the greater of (i) 9.60% or
(ii) 2% over the rate of interest publicly announced by Morgan Guaranty
Trust Company of New York from time to time as its "base" or "prime" rate.
For the avoidance of doubt, all references in this Agreement to interest
shall be deemed to include the supplemental interest payable pursuant to
this paragraph (including, without limitation, the references to interest
in Paragraphs 4, 7A(ii), and 10A).
1.3 Paragraph 5A of the Note Agreement is amended by (a) deleting the word
"and" immediately after clause 5A(iii), (b) renumbering clause (iv) as clause
(vii), and (c) inserting the following new clauses (iv), (v) and (vi):
<PAGE> 5
TruServ Corporation
May 12, 1999
Page 5
(iv) promptly, such information or documentation as any such holder of
Notes may request from time to time regarding the efforts of the
Company and its Subsidiaries to address the Year 2000 Problem;
(v) promptly, and in any event within five Business Days after a
Responsible Officer becoming aware of any of the following, a written
notice to you setting forth the nature of any of the following matters
that has resulted or may reasonably be expected to result in a
Material Adverse Effect: (a) any breach or non-performance of, or any
default under, a Contractual Obligation of the Company or any
Subsidiary; (b) any dispute, litigation, investigation, proceeding or
suspension between the Company or any Subsidiary and any Governmental
Authority; or (c) the commencement of, or any material development in,
any litigation or proceeding affecting the Company or any Subsidiary
including pursuant to any applicable Environmental Laws;
(vi) together with each delivery on or prior to the Ratio Compliance
Date of financial statements required by clauses (i) and (ii) above
relating to each of the periods covered by the projections attached
hereto as Schedule 8B, the Company will deliver to each such holder of
Notes a management's discussion and analysis (x) discussing the
results of such period and (y) showing all the variances from such
projections that occurred in such period and explaining in reasonable
detail the reasons therefor and
1.4 Paragraph 6B(1)(x) of the Note Agreement is amended to read as follows:
(x) other Liens securing Funded Debt (other than Funded Debt that
constitutes Subordinated Debt); provided, however, that (a) such Funded
Debt is permitted by the provisions of paragraph 6B(2) and (b) the
aggregate amount of all Secured Funded Debt outstanding together with all
Funded Debt of any Subsidiary (other than as permitted by clause (i) of
paragraph 6B(2)) does not at any time exceed (A) prior to the Ratio
Compliance Date, $25,000,000 and (B) on and after the Ratio Compliance
Date, an amount equal to ten percent (10%) of Consolidated Total Assets.
1.5 Paragraph 6B(2) of the Note Agreement is amended by (a) amending
Paragraph 6B(2)(iii) in its entirety to read as follows:
(iii) Senior Funded Debt of the Company and its Subsidiaries, so long
as (a) the aggregate principal amount of consolidated Senior Funded Debt
does not exceed at any time (I) through (and including) December 31, 1999
an amount equal to sixty per cent (60%) of Consolidated Capitalization,
(II) from (and including) January 1, 2000 through (and including) July 1,
2000 an amount equal to fifty-eight per cent (58%) of Consolidated
Capitalization, (III) from (and including) July 2, 2000 through (and
including) June 30, 2001 an amount equal to fifty-five per cent (55%) of
Consolidated Capitalization and (IV) after June 30, 2001 an amount equal to
fifty per cent (50%) of Consolidated Capitalization; and (b) the aggregate
amount of all Funded Debt of Subsidiaries (excluding that permitted by
clause (I) of this paragraph 6B(2)), together with all Secured Funded Debt
does not exceed 10% of Consolidated Total Assets (it being understood that
for purposes of this clause (iii) Consolidated Capitalization and
Consolidated Total Assets shall be measured as of the later of (x) the end
of the Company's most recent quarterly period and (y) any other date as of
which the Company has prepared and delivered to each holder of the
<PAGE> 6
TruServ Corporation
May 12, 1999
Page 6
Notes that is an Institutional Investor a consolidated balance sheet of the
Company and its Subsidiaries).
and (b) by adding the following paragraph at the end of Paragraph 6B(2):
Without limiting the foregoing provisions of this paragraph 6B(2), the
Company shall not permit the aggregate principal amount of all Debt of the
Company and its Subsidiaries (other than (i) Debt hereunder, (ii) Debt
under the BA Credit Agreements referred to in clauses (i) and (ii) of the
definition thereof (without giving effect to any amendments thereto that
would increase the amounts that may be borrowed thereunder), (iii) Debt
referred to on Schedule 6A2 which was outstanding on March 25, 1999 and
(iv) Subordinated Debt owed to members of the Company) to exceed
$35,000,000 at any time prior to the Ratio Compliance Date.
1.6 Paragraph 6C of the Note Agreement is amended in its entirety to
read as follows:
6C. RATIO OF ASSET BASE TO DEBT. The Company will not permit, at any
time prior to the Ratio Compliance Date, the ratio of (a) the Asset
Base as of the last day of any fiscal month to (b) the remainder of
(i) the daily average of the amount of Total Senior Debt outstanding
during the fiscal month ending on such date minus (ii) the daily
average of cash and marketable securities during the fiscal month
ending on such date to be equal to or less than the applicable ratio
set forth below:
Fiscal Month(s) Ending Ratio
04/3/99 through 05/29/99 1.10 to 1
07/3/99 through 10/2/99 1.15 to 1
10/30/99 through 12/31/99 1.20 to 1
01/29/00 1.10 to 1
2/26/00 through 12/31/00 1.20 to 1
01/27/01 1.10 to 1
2/24/01 through 12/31/01 1.20 to 1
01/26/02 1.10 to 1
2/23/02 and thereafter 1.20 to 1
1.7 Paragraph 6H of the Note Agreement is amended in its entirety to
read as follows:
6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the
Fixed Charge Coverage Ratio as of the end of any fiscal quarter to be
less than the applicable ratio set forth below:
Fiscal Quarter Ending Ratio
4/3/99 1.30 to 1.00
7/3/99 1.35 to 1.00
10/2/99 1.50 to 1.00
12/31/99 1.85 to 1.00
4/1/00 2.00 to 1.00
7/1/00 2.15 to 1.00
9/30/00 and thereafter 2.25 to 1.00
<PAGE> 7
TruServ Corporation
May 12, 1999
Page 7
1.8 (a) Paragraph 7A(ii) of the Note Agreement is amended by deleting the
phrase "10 days" appearing therein and inserting in place thereof the phrase "3
days"; and (b) Paragraph 7A(iii) is amended by deleting the amount "$7,000,000"
appearing therein and inserting in place thereof the amount "$5,000,000."
1.9 (a) Paragraph 8B is amended by adding the following paragraph at the
end thereof:
The projections relating to the Company and its Subsidiaries for the
two-year period 1999-2000, a copy of which is attached hereto as Schedule
8B, disclose all material assumptions used in formulating such projections.
The Company is not aware of any facts that (individually or in the
aggregate) would result in any material change in any of such projections.
Such projections have been prepared on the basis of the assumptions stated
therein (all of which were made by the Company in good faith), and reflect
the reasonable estimates of the Company of the financial condition, results
of operations and other information projected therein.
(b) Paragraph 8 is also amended by adding a new paragraph after
Paragraph 8P as follows:
8Q. YEAR 2000 PROBLEM. The Company and its Subsidiaries (a) have reviewed
the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and (b) have made appropriate inquiries
as to the effect the Year 2000 Problem will have on their material
suppliers and customers. Based on such a review, program and inquiries, the
Company reasonably believes that the Year 2000 Problem will not have a
Material Adverse Effect.
1.10 Paragraph 11 of the Note Agreement is amended by adding a new
paragraph 11T at the end thereof as follows:
11T. COMPANY INDEMNIFICATION. Whether or not the transactions contemplated
by this Agreement are consummated, the Company shall indemnify and hold you
and each of your respective officers, directors, employees, counsel, agents
and attorneys-in-fact (each an "INDEMNIFIED PERSON") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements
(including attorney's fees and expenses of any kind or nature whatsoever
which may at any time (including at any time following repayment, or
transfer by you, of the Notes) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this
Agreement, or the Notes or any document contemplated by or referred to
herein or therein, or the transactions contemplated hereby or thereby, or
any action taken or omitted by any such Person under or in connection with
any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any bankruptcy, insolvency,
reorganization or other similar proceeding or any appellate proceeding)
related to or arising out of this Agreement or the Notes or the use of the
proceeds thereof, whether or not an Indemnified Person is a party thereto
(all the foregoing, collectively, the "INDEMNIFIED LIABILITIES") provided
that the Company shall not have obligation under this Paragraph 11T to any
Indemnified Person with respect to Indemnified Liabilities resulting solely
from the gross negligence or willful misconduct of such Indemnified Person.
<PAGE> 8
TruServ Corporation
May 12, 1999
Page 8
1.11 The Schedule 6B2 and the Schedule 8B attached to this letter are added
to the Agreement as Schedule 6B2 and Schedule 8B, respectively.
SECTION 2. Representations and Warranties. The Company represents and
warrants to each of the undersigned that, after giving effect hereto (a) each
representation and warranty set forth in Paragraph 8 (including without
limitation, Paragraph 8B) of the Note Agreement is true and correct as of the
date of the execution and delivery of this letter by the Company with the same
effect as if made on such date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they were true and
correct as of such earlier date) and (b) no Event of Default or Default exists.
SECTION 3. Effectiveness. The amendments described in Section 1 above
shall become effective on the date when (the "EFFECTIVE DATE") each Purchaser
has received:
(a) the fees referred to in Section 4 below and all costs and expenses
of such Purchaser in connection with this letter;
(b) the following documents, each (including, with limitation, those
referred to in clause (ii) below) in a form and substance satisfactory to
the Purchasers:
(i) counterparts of this letter agreement executed by the Company
and the Purchasers;
(ii) certified copies of each of the BA Credit Agreements and the
Private Placement Agreements (as such terms are defined in Section 1.1
above); and
(iii) such other documents or certificates as the Purchasers may
reasonably request; and
(c) All corporate and other proceedings in connection with the
transactions contemplated by this letter agreement shall be satisfactory to
the Purchasers and its counsel, and the Purchasers shall have received all
such counterpart originals or certified or other copies of such documents
as they may reasonably request.
SECTION 4. Fees. In consideration of the Purchasers entering into this
letter agreement, the Company agrees to pay, on or before the Effective Date,
(i) to Prudential a processing fee of $75,000, and (ii) ratably to Prudential
and the Prudential Affiliates who are holders of notes issued by the Company an
aggregate fee of $395,000.
SECTION 5. Reference to and Effect on Note Agreement. Upon the
effectiveness of this letter, each reference to the Note Agreement in any other
document, instrument or agreement shall mean and be a reference to the Note
Agreement as modified by this letter. Except as specifically set forth in
Section 1 hereof, the Note Agreement shall remain in full force and effect and
is hereby ratified and confirmed in all respects.
SECTION 6. Governing Law. THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS OF SUCH
<PAGE> 9
TruServ Corporation
May 12, 1999
Page 9
STATE.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 10
TruServ Corporation
May 12, 1999
Page 10
SECTION 7. Counterparts; Section Titles. This letter may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument. The section titles contained in this letter are and shall be without
substance, meaning or content of any kind whatsoever and are not a part of the
agreement between the parties hereto.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:______________________________
Vice President
PRUCO LIFE INSURANCE COMPANY
By:______________________________
Vice President
U.S. PRIVATE PLACEMENT FUND
By: Prudential Private Placement
Investors, L.P., Investment Advisor
By: Prudential Private Placement
Investors, Inc., its General Partner
By:______________________________
Vice President
AGREED AND ACCEPTED:
TRUSERV CORPORATION
<PAGE> 11
TruServ Corporation
May 12, 1999
Page 11
By:
--------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 4-O
AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENTS
AMENDMENT NO. 1 dated as of April 1, 1999 to each of the Note Purchase
Agreements dated September 10, 1998 (the "NOTE PURCHASE AGREEMENTS"), between
TruServ Corporation (the "Company") and the Purchasers listed on the signature
pages hereto (the "PURCHASERS").
The parties hereto desire to amend each of the Note Purchase
Agreements as more fully set forth below.
The parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein (a) each term used herein which is defined in the Note Purchase
Agreements shall have the meaning assigned to such term in the Note Purchase
Agreements and (b) each reference to a paragraph shall mean a paragraph of the
Note Purchase Agreements. Each reference to "hereof," "hereunder," "herein" and
"hereby" and each other similar reference and each reference to "this Agreement
'and each other similar reference contained in each of the Note Purchase
Agreements (including, without limitation, paragraph 7A thereto) or any other
document shall from and after the Effective Date (as defined in Section 4 below)
refer to each of the Note Purchase Agreements as amended hereby.
SECTION 2. AMENDMENTS.
2.1 Additions to Definitions. The following definitions are added to
Paragraph 10A of each Note Purchase Agreement in the appropriate alphabetical
sequence:
"ASSET BASE" shall mean, as of the last day of any, fiscal month, the
total of (i) 85% of the remainder of (A) the daily average for such month
of the amount of "Accounts and notes receivable, net 'as would be shown on
the Company's consolidated balance sheet minus (B) all Debt payable to
members of the Company plus (ii) 50% of the amount, based on the lower of
cost or market value, of "Inventories" as would be shown on the Company's
consolidated balance sheet as of the last day of such month plus (iii) the
remainder of (x) the Specified Percentage (as defined below) of the amount
of "Properties, less accumulated depreciation" as would be shown on the
Company's consolidated balance sheet as of the last day of such month minus
(y) the then outstanding amount of all Indebtedness secured by a Lien on
any such properties; provided that the amount determined pursuant to clause
(ii) (the "INVENTORY AMOUNT") shall be reduced by the amount (if any)
necessary so that the Inventory Amount is not more than 45% of the total of
clauses (i), (ii) and (iii). For purposes of the foregoing, "SPECIFIED
PERCENTAGE" means (a) from April 3, 1999 9 through December 31, 1999, 50%,
(b) from January 1, 2000 through December 3 1, 2000, 40%, (c) from January
1, 2001 through December 31, 2001, 30%, and (d) thereafter, 20%.
<PAGE> 2
"BA CREDIT AGREEMENTS" shall mean (i) the Credit Agreement dated as of
July 1, 1997 among the Company, Bank of America National Trust and Savings
Association, as agent, and the various financial institutions party
thereto, as amended from time to time, (ii) the 364-Day Credit Agreement
dated as of September 30, 1998 among the Company, Bank of America National
Trust and Savings Association, as agent, and the various financial
institutions party thereto, as amended from time to time, and (iii) any
refinancings, renewals or replacements of either of the credit agreements
referred to in clauses (i) and (ii) above.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument, document
or agreement to which such Person is a party or by which it or any of its
property is bound.
"EBITDA" shall mean, for any period, Consolidated Net Earnings for
such period plus, to the extent deducted in computing such Consolidated Net
Earnings, interest expense, taxes, depreciation and amortization.
"FIXED CHARGE COVERAGE RATIO" shall mean, as of the last day of any
fiscal quarter, the ratio of
(a) the sum, for the period of four consecutive fiscal quarters ending
on such day, of (i) Consolidated Net Earnings plus. (ii) to the extent
deducted in determining such Consolidated Net Earnings, interest
expense, operating lease expense, depreciation and amortization,
to
(b) the sum for such period of (i) operating lease expense and (ii)
interest expense;
each as determined for the Company and its Subsidiaries on a consolidated
basis.
"GOVERNMENT AUTHORITY" shall mean any nation or government any state
or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity ex exercising
executive-, legislative, judicial, regulatory or administrative functions
of or pertaining, to government, and any corporation or other entity owned
or controlled, through stock. or capital ownership or otherwise, by any of
the foregoing.
"PRUDENTIAL AGREEMENT" means the Note Purchase Agreement dated as of
November 13, 1997 among the Company and The Prudential Insurance Company of
America and certain of its affiliates as amended from time to time.
"RATIO COMPLIANCE DATE" shall mean the first date to: occur after
April 3, 1999 on which financial statements of the Company have been
delivered pursuant to Section 5A showing that for each of the two most
recent fiscal quarters of the
2
<PAGE> 3
Company, as reported in such financial statements, the Total Senior Debt to
EBITDA Ratio has been below 3.0 to 1.0 as of the last day of such fiscal
quarters.
"SUPPLEMENTAL COUPON ELIMINATION DATE" shall mean the first January
1st or July 1st to occur after the Ratio Compliance Date.
"TOTAL SENIOR DEBT" shall mean all Debt of the Company and its
Subsidiaries other than Subordinated Debt.
"TOTAL SENIOR DEBT TO EBITDA RATIO" shall mean, as of the last day of
any fiscal quarter, the ratio of (a) the remainder of (i) the daily average
of the amount of Total Senior Debt outstanding during the last fiscal month
of such fiscal quarter' minus (ii) the daily average of cash and marketable
securities during the last fiscal month of such fiscal quarter to (b)
EBITDA for the period of four consecutive fiscal quarters then ending.
"YEAR 2000 PROBLEM" shall mean the risk that computer applications and
embedded microchips in non-computing devices may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999.
2.2 Amendment to Definition of Consolidated Net Earnings. The definition
of "Consolidated Net Earnings in Paragraph 10A is amended to read as follows:
"CONSOLIDATED NET EARNINGS" shall mean with respect to any period:
(i) consolidated gross revenues of the Company and its Subsidiaries, minus
(ii) all operating and non-operating expenses of the Company and its
Subsidiaries including all charges of a proper character (including current
and deferred taxes on income, provision for taxes on unremitted foreign
earnings which are included in gross revenues, and current additions to
reserves and merger integration costs),
provided that it is agreed and understood that the following shall not be
included in the calculation of consolidated gross revenues of the Company
and its Subsidiaries:
(a) any gains (net of expenses and taxes applicable thereto) in excess of
losses resulting from the sale, conversion or other disposition of
capital assets (i.e., assets other than current assets);
(b) any gains resulting from the appraised write-up of assets;
(c) any equity of the Company or any Subsidiary in the unremitted earnings
of any corporation which is not a Subsidiary;
(d) any earnings of any Person acquired by the Company or any Subsidiary
through purchase, merger or consolidation or otherwise for any year
prior to the year of acquisition; or
3
<PAGE> 4
(e) any deferred credit representing the excess of equity in any
Subsidiary at the date of acquisition over the cost of the investment
in the Subsidiary,
all determined in accordance with GAAP provided that, to the extent that
amounts are deducted from Consolidated Net Earnings during the Company's
1999 fiscal year as a result of SOP 98-5, "Reporting the Costs of Start-up
Activities", issued by the American Institute of Certified Public
Accountants ("SOP 98-5"), in excess of the amount that would have been
deducted absent SOP 98-5, such excess shall be added back to Consolidated
Net Earnings.
2.3 Amendment of Definition of Current Debt. The definition of "Current
Debt" in Paragraph 10A is amended to read as follows:
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly
or indirectly renewable or extendible at the option of the debtor to a date
more than one year from the date of the creation thereof, provided that (i)
borrowings under any revolving credit facility (including, without
limitation, the BA Credit Agreements) shall constitute Current Debt and
(ii) Guarantees of Indebtedness of Company members in an aggregate amount
not to exceed $20,000,000 shall not constitute Current Debt, so long as no
event has occurred the result of which would be to cause or permit such
Indebtedness to become due prior to any stated, maturity.
2.4 Amendment to Paragraph 1. Paragraph 1 is amended by the addition of
the following paragraph:
For the period from (and including) April 1, 1999 to (but excluding)
the Supplemental, Coupon Elimination Date, the Company shall pay to each
holder of Notes supplemental interest on the unpaid balance of the
aggregate principal amount, of the Notes held by it at the rate of 0.50%
per annum. Such supplemental interest shall be computed on the basis of a
360 day year of twelve 30 day months and shall be payable semiannually on
the first day of January and July in each year, commencing with July 1,
1999. To the extent permitted by law, any overdue payment of supplemental,
interest shall bear interest (payable on demand) at a rate per annum from
time to time equal to the greater of (i) 9.60% or (ii) 2% over the rate of
interest publicly announced by Morgan Guaranty Trust Company of New York
from time to time as its "base" or "prime" rate. For the avoidance of
doubt, all references in this Agreement to interest shall be deemed to
include the supplemental interest payable pursuant to this paragraph
(including, Without limitation, the references to interest in Paragraphs 4,
7A(ii), and 12B).
4
<PAGE> 5
2.5 Amendment to Paragraph 5A. Paragraph 5A is amended by (a) deleting the
word "and" immediately after clause 5A(v), (b) renumbering clause (vi) as clause
(ix), and (c) inserting the following new clauses (vi), (vii) and (viii):
(vi) promptly, such information or documentation as any such holder
of Notes may request from time to time regarding the efforts of
the Company and its Subsidiaries to address the Year 2000
Problem;
(vii) promptly, and in any event within, five Business Days after a
Responsible Officer becoming aware of any of the following, a
written notice to you setting forth the nature of any of the
following matters that has resulted or may reasonably be
expected to result in a Material Adverse Effect: (a) any breach
or nonperformance of, or any default under, a Contractual
Obligation of the Company or any Subsidiary; (b) any dispute,
litigation, investigation, proceeding or suspension between the
Company or any Subsidiary and any -Governmental Authority; or
(c) the commencement of, or any material development in, any
litigation or proceeding affecting the Company or any Subsidiary
including pursuant to any applicable Environmental Laws;
(viii)together with each delivery on or prior to the Ratio Compliance
Date of financial statements required by clauses (i) and (ii)
above relating to each of the periods covered by the projections
attached hereto as Schedule 8E, the Company will deliver to each
such holder of Notes a management's discussion and analysis (x)
discussing the results of such period and (y) showing all the
variances from such projections that occurred in such period and
explaining in reasonable detail the reasons therefor, and
2.6 Amendment to Paragraph 6A(1)(x). Paragraph 6A(1)(x) is amended to read
as follows:
(x) other Liens securing Funded Debt (other than Funded Debt that
constitutes Subordinated Debt); provided, however, that (a) such Funded
Debt is permitted by the provisions of paragraph 6A(2) and (b) the
aggregate amount of all Secured Funded Debt outstanding together with all
Funded Debt of any Subsidiary (other than as permitted by clause (i) of
paragraph 6A (2)) does not at any time exceed (A) prior to the Ratio
Compliance Date, $25,000,000 and (B) on and after the Ratio Compliance
Date, an amount equal to ten percent (10%) of Consolidated Total Assets.
2.7 Amendment to Paragraph 6A(2). Paragraph 6A(2) is amended by (a)
amending Paragraph 6A(2)(iii) in its entirety to read as follows:
(iii) Senior Funded Debt of the Company and its Subsidiaries, so long
as (a) the aggregate principal amount of consolidated Senior Funded Debt
does not exceed at any time (i) through (and including) December 31, 1999
an amount equal to sixty) per cent (60%) of Consolidated Capitalization,
(ii) from (and including) January 1, 2000 through (and including) July 1,
2000 an amount equal to fifty-eight per cent
5
<PAGE> 6
(58%) of Consolidated Capitalization, (iii) from (and including) July 2,
2000 through (and including) June 30, 2001 an amount equal to fifty-five
per cent (55%) of, Consolidated Capitalization and (iv) after June 30, 2001
an amount equal to 50% of Consolidated Capitalization and (b) the aggregate
amount of all Funded Debt of Subsidiaries (excluding that permitted by
clause (i) of this paragraph 6A(2)), together with all Secured Funded Debt
does not exceed 10% of Consolidated Total Assets (it being understood that
for purposes of this clause (iii) Consolidated Capitalization and
Consolidated Total Assets shall be measured as of the later of (x) the end
of the Company's most recent quarterly period and (y) any other date as of
which the Company has prepared and delivered to each holder of the Notes
that is an Institutional Investor a consolidated balance sheet of the
Company and its Subsidiaries).
and (b) by adding the following paragraph at the end of Paragraph 6A(2):
Without limiting the foregoing provisions of this paragraph 6A(2), the
Company shall not permit the aggregate principal amount of all Debt of the
Company and its Subsidiaries (other than (i) Debt hereunder, (ii) Debt
under the BA Credit Agreements referred to in clauses (i) and (ii) of the
definition thereof (without giving effect to any amendments thereto that
would increase the amounts that may be borrowed thereunder), (iii) Debt
referred to on Schedule 6A2 which was outstanding on March 25, 1999 and
(iv) Subordinated Debt owed to members of the Company) to exceed
$35,000,000 at any time prior to the Ratio Compliance Date.
2.8 Amendment to Paragraph 6G. Paragraph 6G is amended in its entirety to
read as follows:
6G. RATIO OF ASSET BASE TO DEBT. The Company will not permit, at any time
prior to the Ratio Compliance Date, the ratio of (a) the Asset Base as of
the last day of any, fiscal month to (b) the remainder of (i) the daily
average of the amount of Total Senior Debt outstanding during the fiscal
month ending on such date minus (ii) the daily average of cash and
marketable securities during the fiscal month ending on such date to be
equal to or less than the applicable ratio set forth below:
Fiscal Month(s) Ending Ratio
---------------------- -----
04/3/99 through 05/29/99 1.10 to 1
07/3/99 through 10/2/99 1.15 to 1
10/30/99 through 12/31/99 1.20 to 1
01/29/00 1.10 to 1
2/26/00 through 12/31/00 1.20 to 1
01/27/01 1.10 to 1
2/24/01 through 12/31/01 1.20 to 1
01/26/02 1.10 to 1
2/23/02 and thereafter 1.20 to 1
2.9 Addition of Paragraph 6H. Paragraph 6 is amended by adding the
following new paragraph immediately after Paragraph 6G:
6
<PAGE> 7
6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the Fixed
Charge Coverage Ratio as of the end of any fiscal quarter to be less than
the applicable ratio set forth below:
Fiscal Quarter Ending Ratio
--------------------- -----
4/3/99 1.30 to 1.00
7/3/99 1.35 to 1.00
10/2/99 1.50 to 1.00
12/31/99 1.85 to 1.00
4/1/00 2.00 to 1.00
7/1/00 2.15 to 1.00
9/30/00 and thereafter 2.25 to 1.00
2.10 Amendment to Paragraph 7A. (a) Paragraph 7A(ii) is amended by deleting
the number "10" and inserting in place thereof the number "3"; and (b) Paragraph
7A(iii) is amended by deleting the number "$7,000,000" and inserting in place
thereof the number "$5,000,000."
2.11 Amendments to Paragraph 8. (a) Paragraph 8E is amended by adding the
following paragraph at the end thereof
The projections relating to the Company and its Subsidiaries for the
two-year period 1999-2000, a copy of which is attached hereto as Schedule
8E, disclose all material assumptions used in formulating such projections.
The Company is not aware of any facts that (individually or in the
aggregate) would result in any material change in any of such projections.
Such projections have been prepared on the basis of the assumptions stated
therein (all of which were made by the Company in good, faith), and reflect
the reasonable estimates of the Company of the financial condition, results
of operations and other information projected therein.
(b) Paragraph 8 is also amended by adding a new paragraph after Paragraph
8S as follows:
8T. YEAR 2000 PROBLEM. The Company and its Subsidiaries (a) have reviewed
the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and (b) have made appropriate inquiries
as to the effect the Year 2000 Problem will have on their material
suppliers and customers. Based on such a review, program and inquiries, the
Company reasonably believes that the Year 2000 Problem will not have a
Material Adverse Effect.
2.12 Amendment to Paragraph 13. Paragraph 13 is amended by adding a new
paragraph at the end of paragraph 13A as follows:
COMPANY INDEMNIFICATION. Whether or not the transactions contemplated by
this Agreement are consummated, the Company shall indemnify and hold you
and each of your respective officers, directors, employees, counsel, agents
and attorneys-in-fact
7
<PAGE> 8
(each an "INDEMNIFIED PERSON") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, charges, expenses and disbursements (including attorney's
fees and expenses) of any kind or nature whatsoever which may at any time
(including at any time following repayment, or transfer by you, of the
Notes) be imposed on, incurred by or asserted against any such Person in
any way relating to or arising out of this Agreement, or the Notes or any
document contemplated by or referred to herein or therein, or the
transactions contemplated hereby or thereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding
(including any bankruptcy, insolvency, reorganization or other similar
proceeding or any appellate proceeding) related to or arising out of this
Agreement or the Notes or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively,
the "INDEMNIFIED LIABILITIES") provided that the Company shall not have
obligation under this Paragraph 13A to any Indemnified Person with respect
to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person.
2.13 Addition of Schedules 6A2 and 8E. The Schedule 6A2 and the Schedule 8E
attached to this Amendment is added to the Agreement as Schedule 6A2 and
Schedule 8E, respectively.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to each of the Purchasers that, after giving effect hereto (a) each
representation and warranty set forth in Paragraph 8 (including, without
limitation, Paragraph 8E) of each Note Purchase Agreement is true and correct as
of the date of the execution and delivery of this Amendment by the Company with
the same effect as if made on such date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they were true and correct as of such earlier date) and (b) no Event of Default
or Default exists.
SECTION 4. EFFECTIVENESS. The amendments described in Section 2 above
shall become effective on the date when (the "Effective Date") each Purchaser
has received:
(a) the fees referred to in Section 5 below and all costs and expenses
of such Purchaser in connection with this Amendment;
(b) the following documents, each (including, with limitation, those
referred to in clause (viii) below) in a form and substance satisfactory to
the Purchasers:
(i) counterparts of this Amendment executed by the Company and
the Purchasers;
(ii) certified copies of the resolutions of the Board of
Directors of the Company authorizing the execution and delivery of
this Amendment and the performance by the Company of its obligations
under the Agreement and
8
<PAGE> 9
of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Amendment;
(iii) a certificate of the Secretary or an Assistant Secretary
dated the Effective Date certifying the names and true signatures of
the officers of the Company authorized to sign this Amendment and
certifying as to the resolutions attached to such certificate and
other corporate proceedings relating to the authorization, execution
and delivery of this Amendment;
(iv) certified copies of the Certificate of Incorporation and
By-laws of the Company;
(v) a favorable opinion of Daniel T. Burns, general counsel of
the Company (or such other counsel designated by the Company and
acceptable to the Purchasers) in form and substance satisfactory to
the Purchasers. The Company hereby directs such counsel to deliver
such opinions and understands and agrees that the Purchasers upon
receipt of such opinions will and hereby are authorized to rely on
such opinions;
(vi) evidence satisfactory to the Purchasers that the Company has
paid the fees, charges and disbursements of Howard, Smith & Levin LLP;
(vii) good standing certificates for the Company from the
Secretaries of State of Delaware and Illinois dated of a recent date
and such other evidence of the status of the Company as the Purchasers
may reasonably request;
(viii) certified copies of each of the BA Credit Agreements and
the Prudential Agreement (as such terms are defined in Section 2.1
above); and
(ix) such other documents or certificates as the Purchasers may
reasonably request; and
(c) All corporate and other proceedings in connection with the
transactions contemplated by this Amendment shall be satisfactory to the
Purchasers and its special counsel, and the Purchasers shall have received
all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
SECTION 5. FEES. In consideration of the Purchasers entering into this
Amendment, the Company agrees to pay, on or before the Effective Date, to each
Purchaser an amendment fee in an amount equal to 0.25% of the aggregate
principal amount of the Notes held by such Purchaser.
SECTION 6. MISCELLANEOUS.
6.1 Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
9
<PAGE> 10
6.2 Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
6.3 Successors and Assigns. This Amendment shall be binding upon the
Company, the Purchasers and their respective successors and permitted assigns,
and shall inure to the benefit of the Company and the Purchasers and the
respective successors and permitted assigns of the Purchasers.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duty executed as of the date first above written.
TRUSERV CORPORATION
/s/ KERRY J KIRBY
---------------------------------
By: KERRY J KIRBY
Title: EVP, CFO
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
as Trustee for a Commingled
Pension Trust Fund
---------------------------------
By:
Title:
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
as Investment Manager for various
Institutional Investors
---------------------------------
By:
Title:
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
TRUSERV CORPORATION
---------------------------------
By:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
as Trustee for a Commingled
Pension Trust Fund
/s/ E. CLIFFORD COLE
---------------------------------
By: E. CLIFFORD COLE
Title: VICE PRESIDENT
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
as Investment Manager for various
Institutional Investors
/s/ E. CLIFFORD COLE
---------------------------------
By: E. CLIFFORD COLE
Title: VICE PRESIDENT
11
<PAGE> 13
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
as Investment Advisor for an
Institutional Investor
/s/ E. CLIFFORD COLE
---------------------------------
By: E. CLIFFORD COLE
Title: VICE PRESIDENT
ALLSTATE LIFE INSURANCE COMPANY
---------------------------------
By:
Title:
---------------------------------
By:
Title:
ALLSTATE INSURANCE COMPANY
---------------------------------
By:
Title:
---------------------------------
By:
Title:
12
<PAGE> 14
J.P. MORGAN INVESTMENT
MANAGEMENT INC.
as Investment Advisor for an
Institutional Investor
---------------------------------
By:
Title:
ALLSTATE LIFE INSURANCE COMPANY
/s/ JOHN M. GOENSE
---------------------------------
By: JOHN M. GOENSE
Title: AUTHORIZED SIGNATORY
/s/ RONALD A. MENDEL
---------------------------------
By: RONALD A. MENDEL
Title: AUTHORIZED SIGNATORY
ALLSTATE INSURANCE COMPANY
/s/ JOHN M. GOENSE
---------------------------------
By: JOHN M. GOENSE
Title: AUTHORIZED SIGNATORY
/s/ RONALD A. MENDEL
---------------------------------
By: RONALD A. MENDEL
Title: AUTHORIZED SIGNATORY
12
<PAGE> 15
AID ASSOCIATION FOR LUTHERANS
/s/ Frederick J. Russler
---------------------------------
By: Frederick J. Russler
Title: Assistant Vice President
Mortgages and Real Estate
/s/ ALAN D. ONSTAD
---------------------------------
By: ALAN D. ONSTAD
Title: ASSISTANT VICE PRESIDENT-SECURITIES
KEYPORT LIFE INSURANCE COMPANY by
Stein Roe &
Farnham Incorporated as Agent
---------------------------------
By:
Title:
NATIONWIDE LIFE INSURANCE
COMPANY
---------------------------------
By:
Title:
13
<PAGE> 16
AID ASSOCIATION FOR LUTHERANS
---------------------------------
By:
Title:
---------------------------------
By:
Title:
KEYPORT LIFE INSURANCE COMPANY by
Stein Roe &
Farnham Incorporated as Agent
/s/ Richard Hegwood
---------------------------------
By: Richard Hegwood
Title: Senior Vice President
NATIONWIDE LIFE INSURANCE
COMPANY
---------------------------------
By:
Title:
13
<PAGE> 17
AID ASSOCIATION FOR LUTHERANS
---------------------------------
By:
Title:
---------------------------------
By:
Title:
KEYPORT LIFE INSURANCE COMPANY by
Stein Roe &
Farnham Incorporated as Agent
---------------------------------
By:
Title:
NATIONWIDE LIFE INSURANCE
COMPANY
/s/ MARK W. POEPPELMAN
---------------------------------
By: MARK W. POEPPELMAN
Title: AUTHORIZED SIGNATORY
13
<PAGE> 18
FEDERATED MUTUAL INSURANCE
COMPANY
/s/ Mark A. Hood
---------------------------------
By: Mark A. Hood
Title: Second Vice President
FEDERATED LIFE INSURANCE COMPANY
/s/ Mark A. Hood
---------------------------------
By: Mark A. Hood
Title: Second Vice President
MODERN WOODMEN OF AMERICA
---------------------------------
By:
Title:
AMERITAS LIFE INSURANCE CORP.
by Ameritas Investment Advisors, Inc. as Agent
---------------------------------
By:
Title:
14
<PAGE> 19
FEDERATED MUTUAL INSURANCE
COMPANY
---------------------------------
By:
Title:
FEDERATED LIFE INSURANCE COMPANY
---------------------------------
By:
Title:
MODERN WOODMEN OF AMERICA
/s/ C. Ernest Beane
---------------------------------
By: C. Ernest Beane
Title: General Counsel
AMERITAS LIFE INSURANCE CORP.
by Ameritas Investment Advisors, Inc. as Agent
---------------------------------
By:
Title:
14
<PAGE> 20
FEDERATED MUTUAL INSURANCE
COMPANY
---------------------------------
By:
Title:
FEDERATED LIFE INSURANCE COMPANY
---------------------------------
By:
Title:
MODERN WOODMEN OF AMERICA
---------------------------------
By:
Title:
AMERITAS LIFE INSURANCE CORP.
by Ameritas Investment Advisors, Inc. as Agent
/s/ Patrick J. Henry
---------------------------------
By: Patrick J. Henry
Title: Vice President Fixed Income Securities
14
<PAGE> 21
NATIONAL GUARDIAN LIFE INSURANCE COMPANY
/s/ R. A. Mucci
---------------------------------
By: R. A. Mucci
Title: Vice President and Treasurer
15
<PAGE> 22
SCHEDULE 6A2
(Debt Outstanding on March 25, 1999)
(in thousands)
Senior Notes:
8.60% $ 39,000
7.38% 50,000
6.91% 25,000
6.79% 50,000
6.73% 25,000
Variable term loan (6.21%) 6,200
Redeemable (subordinated) term notes:
Fixed Interest rates ranging from 5.15% to 7.47% 28,655
Industrial Revenue Bonds (4.50%) 4,000
Other, including capital lease obligations 9,456
--------
$237,311
========
16
<PAGE> 1
Exhibit 10c
TRUSERV CORPORATION
DEFINED LUMP SUM PENSION PLAN
As Amended and Restated
as of January 1, 1998
<PAGE> 2
TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION -- SECTION I
1.1 History of the Plan................................................................1
1.2 Preservation of Rights.............................................................1
1.3 Intent to Comply...................................................................1
1.4 Application of Plan................................................................2
DEFINITIONS -- SECTION 2
2.1 Definitions........................................................................3
PARTICIPATION -- SECTION 3
3.1 Date of Participation.............................................................13
3.2 Events Affecting Participation....................................................14
3.3 Participation upon Reemployment...................................................14
NORMAL PENSION -- SECTION 4
4.1 Formula...........................................................................15
4.2 Eligibility and Commencement-- Normal Pension.....................................15
4.3 Amount of Normal Pension..........................................................15
4.4 Terminations and Retirements Before January 2, 1998...............................18
4.5 Uniformed Services Employment and Reemployment Rights.............................18
4.6 SERVISTAR Plan....................................................................18
IMMEDIATE, EARLY AND LATE PENSION -- SECTION 5
5.1 Immediate Pension.................................................................19
5.2 Early Retirement Pension..........................................................19
5.3 SERVISTAR Plan....................................................................19
5.4 Late Retirement Pension...........................................................20
</TABLE>
<PAGE> 3
TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NORMAL FORM OF PAYMENT -- SECTION 6
6.1 Normal Form of Payment-- Joint and Survivor.......................................21
6.2 Normal Form of Payment-- Single Life Annuity......................................21
6.3 Optional Forms of Payment.........................................................21
6.4 Election of Option................................................................21
6.5 Notice to Participants............................................................22
6.6 SERVISTAR Protected Payment Forms.................................................22
6.7 Payment of Pension to the Participant.............................................23
6.8 Payment Options...................................................................23
6.9 Minimum Amounts to be Paid........................................................25
6.10 TEFRA Transition Rule Elections...................................................25
6.11 Restoration of Retired Participant or Other Former Associate to Service...........27
6.12 Direct Rollover of Certain Distributions..........................................27
SURVIVING SPOUSE BENEFIT -- SECTION 7
7.1 Eligibility.......................................................................29
7.2 Amount............................................................................29
7.3 Payments..........................................................................29
7.4 Minimum Benefit and Payment Form..................................................30
TRUST FUND AND TRUSTEE -- SECTION 8
8.1 Trust Fund........................................................................31
8.2 Trust Fund Applicable Only to Payment of Benefits and Expenses....................31
8.3 Trustee Capacity..................................................................31
8.4 Resignation and Removal of Trustee................................................31
8.5 Taxes, Expenses and Compensation of Trustee.......................................32
8.6 Funding Policy and Investment Managers............................................32
FUNDING OF BENEFITS -- SECTION 9
9.1 Contributions to the Fund.........................................................33
9.2 Fund for Exclusive Benefit of Participants........................................33
9.3 Disposition of Credits and Forfeitures............................................33
</TABLE>
<PAGE> 4
TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLAN ADMINISTRATOR -- SECTION 10
10.1 Plan Administrator/Appointment of Committee.......................................34
10.2 Duties and Authority..............................................................34
10.3 Removal of Plan Administrator.....................................................35
10.4 Appointment of Successor Plan Administrator.......................................35
10.5 Plan Administration-- Miscellaneous...............................................35
AMENDMENT AND TERMINATION OF PLAN -- SECTION 11
11.1 Amendment-- General...............................................................42
11.2 Amendment-- Merger or Consolidation of Plan.......................................42
11.3 Termination of Plan...............................................................42
RESTRICTION OF BENEFITS UPON EARLY TERMINATION OF THE PLAN -- SECTION 12
12.1 Limitation Concerning Highly Compensated Employees or
Highly Compensated Former Employee................................................43
SPECIAL PENSION BENEFITS PROVISIONS -- SECTION 13
13.1 Statutory Maximum Pension Benefits................................................44
13.2 Top-Heavy Provisions..............................................................49
EXECUTION PAGE...................................................................................54
</TABLE>
<PAGE> 5
TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUPPLEMENT A ACTUARIAL ASSUMPTIONS.............................................................55
SUPPLEMENT B MERGER OF NORTHERN WHOLESALE HARDWARE CO
RETIREMENT PLAN WITH AND INTO PRIOR PLAN..........................................56
SUPPLEMENT C SERVISTAR COAST TO COAST CORPORATION
RETIREMENT INCOME PLAN PROVISIONS.................................................57
SUPPLEMENT D 1999 SPECIAL RETIREMENT OPPORTUNITY...............................................70
TABLE A LATE RETIREMENT ADJUSTMENT FACTOR.................................................71
TABLE B CONTINGENT PENSIONER ADJUSTMENT FACTORS
JOINT AND SURVIVOR ADJUSTMENT FACTORS.............................................72
TABLE C IMMEDIATE ANNUITY 10-YEAR CERTAIN ANNUITY
MONTHLY INCOME PER 1000...........................................................77
</TABLE>
<PAGE> 6
INTRODUCTION -- SECTION 1
1.1 HISTORY OF PLAN
As of January 1, 1958, Cotter & Company established a program for
providing retirement income and other benefits for certain of its
associates and their beneficiaries. This program was set forth in a
document entitled the Cotter & Company Pension Plan. Since the Cotter &
Company Pension Plan was initially established, it has been amended and
restated and its name changed to the Cotter & Company Defined Lump Sum
Pension Plan.
On July 1, 1997, Cotter & Company and SERVISTAR COAST TO COAST
Corporation merged to form TruServ Corporation. In conjunction with the
merger, the Cotter & Company Defined Lump Sum Pension Plan changed its
name to be known as the TruServ Corporation Defined Lump Sum Pension
Plan effective as of January 1, 1998. On January 2, 1998, the TruServ
Corporation Defined Lump Sum Pension Plan and the SERVISTAR COAST TO
COAST Corporation Retirement Income Plan were combined. Between July 1,
1997 and January 1, 1998, all Associates of the TruServ Corporation who
were participants in the SERVISTAR Plan on June 30, 1997 remained
participants in the SERVISTAR Plan. All benefit accruals under the
SERVISTAR COAST TO COAST Corporation Retirement Income Plan ceased as
of December 31, 1997. On January 2, 1998, all participants under the
SERVISTAR Plan became participants under the TruServ Corporation
Defined Lump Sum Pension Plan and will be entitled to the retirement
benefits described in this Plan, including current accruals beginning
on January 1, 1998.
1.2 PRESERVATION OF RIGHTS
No provisions, other than those required to maintain this Plan as one
qualified under Section 401(a) of the Code, of any previous amendment,
this amendment and restatement of the Plan, or any future amendment
shall operate to diminish or otherwise adversely affect the amount or
terms of retirement income accrued in respect to a Participant's
coverage under the Plan prior to the effective date of any such
amendment or restatement.
1.3 INTENT TO COMPLY
It is the intent of the Employer that the Plan shall be established and
maintained (1) as a retirement program which is in full compliance with
ERISA, and (2) as a qualified plan under the terms of Section 401(a) of
the Internal Revenue Code of 1986 as amended from time to time.
1
<PAGE> 7
1.4 APPLICATION OF PLAN
This Plan supersedes the Cotter & Company Defined Lump Sum Pension Plan
and the SERVISTAR COAST TO COAST Corporation Retirement Income Plan,
both in effect on December 31, 1997. With respect to all persons who
have retired on or prior to December 31, 1997, retirement benefits will
be made in accordance with such plan in effect on the date of
retirement or separation from service. With respect to all persons who
retire or otherwise separate from service on or after January 1, 1998,
the retirement benefits will be made in accordance with the terms of
the Plan.
2
<PAGE> 8
DEFINITIONS -- SECTION 2
2.1 DEFINITIONS
The terms, as capitalized and defined in this Section, shall for all
purposes of this Plan have the meaning described in this Section unless
the context clearly requires otherwise or as otherwise expressly
provided.
(A) ACCRUED BENEFIT -- The yearly Pension commencing on the
Participant's Normal Retirement Date determined in accordance
with Section 4, as if the Participant's termination of
employment occurred on the date of determination and he had a
Vesting Percentage of 100%.
(B) ACTUARIAL EQUIVALENT OR ACTUARIALLY EQUIVALENT -- The amount
of equal value when computed on the basis of the actuarial
assumptions set forth in Supplement A of the Plan. Application
of such assumptions to the computation of benefits under the
Plan shall be made uniformly and consistently with respect to
all Participants in similar circumstances.
(C) ADJUSTMENT FACTOR -- The appropriate adjustment factor(s)
which may be applicable to a Participant's Pension in
accordance with the further terms of the Plan.
(D) AFFILIATED EMPLOYER -- Any company not participating in the
Plan which is a member of a controlled group of corporations
(as defined in Section 414(b) of the Code) which also includes
as a member the Employer; any trade or business under common
control (as defined in Section 414(c) of the Code) with the
Employer; any organization (whether or not incorporated) which
is a member of an affiliated service group (as defined in
Section 414(m) of the Code) which includes the Employer; and
any other entity required to be aggregated with the Employer
pursuant to regulations under Section 414(o) of the Code.
Notwithstanding the foregoing sentence, for purposes of
Section 13.1, the definitions in Sections 414(b) and (c) of
the Code shall be modified as provided in Section 415(h) of
the Code.
(E) ANNUITY STARTING DATE -- The first day of the first period for
which an amount is payable as an annuity or in the case of a
lump sum payment the first date on which all events have
occurred which entitle a Participant to such benefit.
(F) ASSOCIATE -- Any person in the employ of the Employer, but
excluding any person who is:
(1) a Leased Employee as defined in Section 414(n) of the
Code;
3
<PAGE> 9
(2) in a unit of Associates covered by a collective
bargaining agreement which does not provide for
participation in the Plan;
(3) a participant, or eligible to become a participant,
in any other retirement or pension plan (except the
TruServ Corporation Associates' Savings and
Compensation Deferral Plan) intended to qualify under
Section 401(a) of the Code and which is established
by the Employer or to which the Employer makes any
contribution; or
(4) any person who is treated as being other than a
common law employee on the payroll records of the
Employer, including any person classified as an
independent contractor or consultant by the Employer
during the period such person is so classified by the
Employer regardless of such person's reclassification
for such period by the Internal Revenue Service or
other controlling authority for tax withholding
purposes.
The term "Associate" as used in this Plan means any person who
is employed by the Employer or an Affiliated Employer as a
common law employee of the Employer or an Affiliated Employer,
regardless of whether the person is an "Associate," and any
Leased Employee.
(G) AVERAGE COMPENSATION -- The annual average of the Compensation
of an Associate during the three consecutive calendar years
within the ten calendar years up to an including the calendar
year of such Associate's termination of employment which yield
the highest average. For purposes of computing an Associate's
Average Compensation, if the date of such Associate's
termination of employment shall occur prior to the end of a
calendar year, then that calendar year shall be included as
one of the ten calendar years, and the Associate shall be
deemed to have received Compensation during that calendar year
equal to the annualized rate of his base wages received during
that calendar year plus any bonuses actually received during
that calendar year.
(H) BENEFICIARY -- The person or persons named by a Participant by
written designation filed with the Employer to receive
payments after the Participant's death as provided in Section
7.4.
(I) CODE -- The Internal Revenue Code of 1986, as amended from
time to time.
(J) COMMITTEE -- The individuals appointed by the Employer to
administer the Plan as described in Section 10.1.
(K) COMPENSATION -- For any calendar year is the total cash
compensation (including commissions, bonuses [other than
sign-on bonuses], overtime pay, sick pay, vacation pay and
holiday pay) paid to him by the Employer during that calendar
year for personal services rendered to an Employer as an
Associate, plus elective
4
<PAGE> 10
deferrals under Sections 125 and 401(k) of the Code for that
calendar year, but excluding severance pay, moving or
relocation allowances or bonuses, tuition reimbursements, auto
or travel expense allowances or bonuses, or any other
extraordinary remuneration. During the period of any Leave of
Absence, an Associate shall be deemed to receive Compensation
at the annual rate of Compensation actually received by him
during such period, or, if no compensation is paid, the annual
rate of Compensation immediately prior to the commencement of
such Leave of Absence.
However, effective on and after the first day of the Plan Year
beginning in 1989 and before the first day of the Plan Year
beginning in 1994, Compensation taken into account for any
purpose under the Plan, including the determination of Average
Compensation, shall not exceed $200,000 per year. Except as
provided below, as of January 1 of each calendar year on and
after January 1, 1990 and before January 1, 1994, the
applicable limitation as determined by the Commissioner of
Internal Revenue for that calendar year shall become effective
as the maximum Compensation to be taken into account for Plan
purposes for 12-month compensation computation periods
beginning within that calendar year only in lieu of the
$200,000 limitation set forth above. Commencing with the Plan
Year beginning in 1994, Compensation taken into account for
any purpose under the Plan, including the determination of
Average Compensation, shall not exceed $150,000 (as adjusted
from time to time by the Secretary of the Treasury in
accordance with Section 401(a)(17)(B) of the Code). Effective
January 1, 1997, the compensation limit shall be applied
without regard to the family aggregation provisions of the now
repealed Section 414(q)(6) of the Code in determining benefit
accruals for Plan Years beginning on and after January 1,
1997, and, to the extent permissible under the Internal
Revenue Service rules or regulations, for any earlier Plan
Year.
Solely for purposes of this subsection 2.1(K), for those
individuals who were employed by SERVISTAR Corporation or
SERVISTAR COAST TO COAST Corporation and who were participants
in the SERVISTAR Corporation Retirement Income Plan or the
SERVISTAR COAST TO COAST Corporation Retirement Income Plan,
Compensation for periods beginning before January 1, 1998
shall include "Earnings" as defined in the SERVISTAR Plan as
restated in Supplement C hereto subject to the above statutory
limits and for the purposes of this Plan recasted on a
calendar year basis assuming level "Earnings." Compensation
shall not include any "Earnings" received by an individual
while an associate of Coast to Coast Stores, Inc.
(L) DEFINED LUMP SUM -- The amount determined under Section
4.3(B).
(M) DISABILITY INSURANCE PLAN -- Any plan from time to time in
force which provides for the payment of income benefits to
Associates of an Employer by reason of disability resulting
from accident or sickness.
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<PAGE> 11
(N) EFFECTIVE DATE -- January 1, 1998, unless otherwise noted.
(O) EMPLOYER -- On and after July 1, 1997, Employer shall mean
TruServ Corporation or any successor by merger, purchase or
otherwise, with respect to its associates. Before July 1,
1997, Employer shall mean Cotter & Company, a Delaware
corporation, and any Affiliated Employer which adopted the
Plan by resolution of its board of directors and with the
consent of Cotter & Company.
(P) EMPLOYMENT CONTINUITY -- The period commencing with the date
on which an associate first performs an Hour of Service for an
Employer or an Affiliated Employer and ending on the first day
of the 12-month period in which the associate incurs a
One-Year Break in Service; provided, however, that if an
Associate leaves the employ of the Employer or an Affiliated
Employer other than pursuant to an authorized Leave of Absence
and does not return until after a One-Year Break in Service,
his Employment Continuity upon return to employment by the
Employer or an Affiliated Employer shall be determined on the
basis of the date on which the associate first performs an
Hour of Service subsequent to his return to the employ of the
Employer or an Affiliated Employer. A former associate who
terminates employment and is reemployed by the Employer or an
Affiliated Employer before incurring a One-Year Break in
Service will not be deemed to have terminated employment with
the Employer or an Affiliated Employer. Solely for purposes of
determining Employment Continuity with respect to all persons
who were active participants in the SERVISTAR Plan on December
31, 1997, for periods on or before June 30, 1997, Employer
means SERVISTAR COAST TO COAST Corporation and its
predecessors.
(Q) ERISA -- The Employee Retirement Income Security Act of 1974,
as it may be amended from time to time, and any regulations
issued pursuant thereto.
(R) FUND -- The fund or funds established by separate written
agreement between the Employer and an insurance company and/or
trustee or trustees for the purpose of accumulating
contributions made in accordance with the Funding of Benefits
Section and paying the benefits and expenses described in
certain other Sections of this Plan.
(S) HIGHLY COMPENSATED EMPLOYEE -- With respect to a Plan Year
commencing on or after January 1, 1997, any associate of the
Employer or an Affiliated Employer (whether or not eligible
for the Plan) who
(i) was a 5% owner of the Employer for such Plan Year or
the prior Plan Year, or
(ii) for the preceding Plan Year received "statutory
compensation" in excess of $80,000 (as adjusted by
the Secretary of the Treasury from time to time). For
this purpose, "statutory compensation" shall mean the
wages, salaries,
6
<PAGE> 12
and other amounts paid in respect of an associate for
services actually rendered to an Employer or an
Affiliated Employer and including amounts excluded
from the income of an associate pursuant to Sections
125, 402(e)(3), 402(h)(1)(B) and 403(b) of the Code,
but excluding deferred compensation, stock options
and other distributions which receive special tax
benefits under the Code.
Notwithstanding the foregoing, associates who are nonresident
aliens and who receive no earned income from the Employer or
an Affiliated Employer which constitutes income from sources
within the United States shall be disregarded for all purposes
of this Section.
The provisions of this definition shall be further subject to
such additional requirements as shall be described in Section
414(q) of the Code and its applicable regulations, which shall
override any aspects of this Section inconsistent therewith.
(T) HOUR OF SERVICE -- With respect to the applicable computation
period:
(1) each hour for which the Associate is either directly
or indirectly paid by the Employer or Affiliated
Employer or entitled to payment for the performance
of duties for the Employer or an Affiliated Employer;
and
(2) up to a maximum of 501 hours for reasons other than
the performance of duties (such as but not limited to
paid sick leave, paid vacation time), irrespective of
whether the employment relationship has terminated,
which hours shall be credited to the Associate during
the computation period in which payment is made or
amounts payable to the Associate become due, and
(3) any additional hours as normally would have been
credited to the Associate had he worked on a
nonovertime basis during military leave while the
Associate's reemployment rights are protected by law
or is eligible to receive a benefit under a
Disability Insurance Plan, provided that any such
periods qualify as a Leave of Absence in accordance
with the terms of the Leave of Absence definition,
and
(4) each hour for which back pay is either awarded or
agreed to by the Employer or an Affiliated Employer,
irrespective of mitigation of damages, which hour
shall be credited to the Associate for the
computation period to which the award, agreement or
payment pertains, rather than the period in which the
award, agreement or payment was made.
The same hours of service shall not be credited under
more than one paragraph of this definition. In no
event will Hours of Service be allowed
7
<PAGE> 13
and computed in a manner less liberal than the manner
described in the Department of labor Regulation
2530.200b-2.
Solely for purposes of this subsection 2.1(T), the term
Associate shall be deemed to include any person who is in the
common law employ of the Employer or an Affiliated Employer so
that Associates may be credited under the Plan with Hours of
Service for participation purposes for period of employment
during which they are not Associates as such term is defined
in subsection 2.1(F).
(U) LEAVE OF ABSENCE -- A temporary absence from active service
with the Employer or an Affiliated Employer that, in the
discretion of the Employer or an Affiliated Employer, may be
granted to an Associate because of temporary incapacity or
other good cause. If an Associate on a Leave of Absence does
not return to employment with the Employer or an Affiliated
Employer within the period authorized by the Employer or an
Affiliated Employer, the Associate's employment shall be
deemed to have terminated as of the first day following the
period of the Leave of Absence. A Participant shall
automatically be entitled to a Leave of Absence during any
period of time for which he is eligible to receive a benefit
under a Disability Insurance Plan. An Associate shall
automatically be entitled to a Leave of Absence during any
period of time he is in the military services of the United
States, provided that he returns to employment within the
period within which his right to reemployment is protected by
law.
(V) NAMED FIDUCIARY -- For purposes of ERISA, is the Committee
appointed in Section 10.
(W) NORMAL RETIREMENT DATE -- For benefit eligibility and vesting
purposes, the day on which the Participant attains his 65th
birthday. For all other purposes, the first day of the month
coinciding with or next following the Participant's 65th
birthday.
(X) ONE-YEAR BREAK IN SERVICE -- For an associate, a 12-month
period commencing on the date of an associate's termination of
employment and on each anniversary thereof during which such
associate is not employed (i.e., does not complete an Hour of
Service) with an Employer or an Affiliated Employer. In the
case of a maternity or paternity Leave of Absence, the
12-month period beginning on the first day of such absence
shall not constitute a One-Year Break in Service. For purposes
of this subsection 2.1(X), maternity or paternity Leave of
Absence means an absence from work by reason of the
associate's pregnancy, birth of the associate's child, or
placement of a child with the associate in connection with the
adoption of such child, or an absence for the purpose of
caring for such child for a period immediately following such
birth or placement.
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<PAGE> 14
(Y) PARTICIPANT -- Any Associate who becomes covered under this
Plan. A former Associate who is entitled to a vested Pension
under the Plan shall continue to be a Participant until he has
received his vested Pension.
(Z) PENSION -- Yearly payments (and lump sum payment, if elected)
under the Plan in the amount provided in Section 4.1 and the
forms provided in Section 7 payable to the Participant or his
Beneficiary under the Plan as a consequence of the termination
of employment of the Participant.
(AA) PLAN -- The TruServ Corporation Defined Lump Sum Pension Plan
as set forth in this document, as amended from time to time
thereafter.
(BB) PLAN ADMINISTRATOR -- The individual or group of individuals
designated by the Employer to administer and supervise the
Plan as provided in Section 10.
(CC) PLAN YEAR -- The 12-month period commencing on a January 1 and
ending on the following December 31.
(DD) PRIOR PLAN -- The Cotter & Company Pension Plan in effect on
December 31, 1995.
(EE) PROTECTED BENEFITS -- As of any date of determination, the
Accrued Benefit of a Participant and
(1) any right of the Participant under the terms of the
Plan as of such date to have such Accrued Benefit,
and the Prior Plan benefit, commence on a date other
than the Normal Retirement Date;
(2) any right of the Participant under the terms of the
Plan as of such date to have such Accrued Benefit,
and the Prior Plan benefit, payable in an optional
form of payment; and
(3) the methodology under the terms of the Plan as of
such date for determining the amount of benefit
payable as a result of the exercise of any right of
the Participant expressed in paragraph (1) or (2)
above.
For the sole purposes of paragraph (3) above, any provision of
the Plan that requires payment of a Participant's Pension in a
form other than that described in Section 6.2 shall be
considered to be the exercise of a right by the Participant
therefor.
See Sections 2.1(OO), 4.1(B), 5.3, 6.6 and 7.4 and for any
Protected Benefits rights with respect to the SERVISTAR Plan.
9
<PAGE> 15
(FF) QUALIFIED JOINT AND SURVIVOR ANNUITY --
(1) in the case of a 50% Qualified Joint and Survivor
Annuity, an annuity for the life of the Participant
with a survivor annuity for the life of his Spouse
which is one-half of the amount of the annuity
payable during the joint lives of the Participant and
his Spouse, and which is the Actuarial Equivalent of
a single annuity for the life of the Participant in
the amount specified by the relevant provision of
Section 4; and
(2) in the case of a 100% Qualified Joint and Survivor
Annuity, an annuity for the life of the Participant
with an survivor annuity for the life of his Spouse
which is equal to the amount of the annuity payable
during the joint lives of the Participant and his
Spouse, and which is the Actuarial Equivalent of a
single annuity for the life of the Participant in the
amount specified by the relevant provision of Section
4.
(GG) RETIREMENT DATE -- The date on which the payment of a
Participant's Pension is to commence as a result of his
termination of employment, as determined in accordance with
the further terms of the Plan.
(HH) SERVISTAR -- Is SERVISTAR COAST TO COAST Corporation, which
merged with Cotter & Company to form the TruServ Corporation
on July 1, 1997.
(II) SERVISTAR PLAN -- Is the SERVISTAR COAST TO COAST Corporation
Retirement Income Plan in effect on December 31, 1997. Certain
provisions of the SERVISTAR Plan are contained in Supplement C
to this Plan to assist the Committee's administration of this
Plan's provisions where they relate to the SERVISTAR Plan
provisions.
(JJ) SPOUSAL CONSENT -- The Spouse's consent to the Participant's
election of a form of payment other than Qualified Joint and
Survivor Annuity must be in writing, must acknowledge the
effect of the election, and the Spouse's signature must be
witnessed by a Plan representative or notary public.
Additionally, the Spouse's consent must specifically
acknowledge any nonspouse Beneficiary designated by the
Participant in conjunction with his election of an optional
form of payment. The Participant may not subsequently
designate another nonspouse Beneficiary without the further
written consent of the Spouse. Notwithstanding this consent
requirement, if the Participant establishes to the
satisfaction of a Plan representative that such written
consent cannot be obtained because there is no Spouse; the
Spouse cannot be located; of other circumstances as the
Secretary of the Treasury may by regulations prescribe, the
Participant's election to waive coverage will be considered
valid. Any consent necessary under this provision will be
valid only with respect to the Spouse who signs the consent. A
Participant is allowed to revoke his election without the
consent of his Spouse. The number of his revocations is not
limited.
10
<PAGE> 16
(KK) SPOUSE -- The lawful wife of a male Participant, or the lawful
husband of a female Participant, on the Participant's
Retirement Date, date of death, or other event date as the
context requires, if earlier.
(LL) TRUST -- The trust established with the Trustee to hold the
assets which fund the benefits payable by the Plan.
(MM) TRUSTEE -- The Trustee of the Fund appointed by the Employer,
which may be a bank, trust company or other corporation
possessing trust powers under applicable state and Federal
law, or one or more individuals or any combination thereof.
(NN) VESTING PERCENTAGE -- The percentage which may be applied to a
Participant's Accrued Benefit in accordance with the further
terms of the Plan as determined below:
<TABLE>
<CAPTION>
Vesting
Percentage
----------
<S> <C>
If he has 5 Years of Service 100%
On his Normal Retirement Date 100%
In all other cases 0%
</TABLE>
Notwithstanding the above, a Participant shall have a 100%
Vesting Percentage in his Accrued Benefit if he:
(i) attained age 50, regardless of his Years of Service,
and
(ii) became a participant in the SERVISTAR Plan before
July 1, 1996.
(OO) YEAR OF SERVICE -- Shall be credited to each Participant based
on the number of days during a Participant's period of
Employment Continuity divided by 365.25 rounded to the nearest
1/10 of a year, subject to the following:
(1) a Prior Plan participant shall be credited with his
Years of Service earned through December 31, 1995 in
accordance with provisions of the Prior Plan;
(2) a Participant in the SERVISTAR Plan as of December
31, 1997 shall be credited with a minimum number of
Years of Service which shall be equal to his Years of
Service as of June 30, 1997 under the SERVISTAR Plan;
(3) in addition, if an individual was a participant in
the SERVISTAR Plan on July 1, 1997 and earned at
least 500 hours of service (as defined in the
SERVISTAR Plan and included in Supplement C hereto in
which the Employer and Affiliated Employer referred
to therein has the same meaning as defined in this
Plan) during the period July 1, 1997 through December
31, 1997, he shall be credited with an additional
one-half Year of Service under this Plan and
thereafter shall be credited with a Year of Service
(and fractions thereof) as generally provided in this
subsection (OO).
11
<PAGE> 17
(4) if a former Participant with no Vesting Percentage in
the Plan again becomes a Participant in this Plan,
his Years of Service prior to any One-Year Break in
Service shall be taken into account only if the
number of consecutive One-Year Breaks in Service is
less than five.
(5) no more than one Year of Service shall be granted to
any individual for any period; and
(6) notwithstanding any Plan provision to the contrary,
for purposes of Section 4.3, no Year of Service shall
be credited to any Participant for any of the
following periods: (a) periods of employment with
Coast to Coast Stores, Inc. occurring prior to July
1, 1996, (b) periods of employment with Advocate
Services, Inc. occurring prior to January 1, 1998,
(c) periods of employment while such person is in an
employment classification, including but not limited
to a unit of associates covered by a collective
bargaining agreement which does not provide for
participation in this Plan, (d) periods of employment
during which an employee was a participant (or
eligible to be a participant) in any retirement plan
which is intended to be qualified under the Code
(except the TruServ Corporation Employees' Savings
and Compensation Deferral Plan and the SERVISTAR
Plan) sponsored by the Employer or an Affiliated
Employer, (e) periods of employment as a Leased
Employee as defined in Section 414(n) of the Code,
(f) periods of employment for which an employee has
received or is receiving benefits under this Plan.
12
<PAGE> 18
PARTICIPATION -- SECTION 3
3.1 DATE OF PARTICIPATION
(A) Each Associate who:
(1) was a Participant in the Cotter & Company Defined
Lump Sum Pension Plan on January 1, 1998; or
(2) was a Participant in the SERVISTAR Plan on January 1,
1998
shall automatically become a Participant in the Plan on
January 2, 1998 provided that his Employment Continuity did
not end on January 1, 1998.
(B) Each other Associate will become a Participant under the Plan
on the January 1 or July 1 which coincides with or next
following the date the Associate has completed "one year of
employment" and has attained age 21.
(C) Notwithstanding any Plan provision to the contrary, each
individual, who on January 1, 1998 was employed by Advocate
Services, Inc. and who became an Associate of the Employer on
January 2, 1998, shall commence participation in the Plan on
January 2, 1998.
(D) For the purposes of this Section, an Associate shall be
credited with "one year of employment" when he completes a
12-month period of employment during his period of Employment
Continuity.
(E) Notwithstanding any Plan provision to the contrary, for
purposes of this Section, each individual who is hired as a
temporary employee shall be credited with "one year of
employment" for the 12-month computation period beginning on
the date he first completes an Hour of Service if he completes
at least 1,000 Hours of Service by the end of that period, and
he shall become a Participant as provided in (B) above. If a
temporary employee terminates employment prior to becoming a
Participant, but after having worked 1,000 Hours of Service in
the 12-month period during which he was employed, and is
subsequently rehired, he shall become a Participant as of the
first January 1 or July 1 which coincides with or immediately
follows his reemployment. If he terminates employment, is
subsequently rehired as a temporary employee, and had not
worked 1,000 Hours of Service in the 12-month period
commencing with his initial date of hire, his prior service
shall be disregarded and he shall begin a new computation
period and his Hours of Service shall be counted from his date
of rehire.
13
<PAGE> 19
3.2 EVENTS AFFECTING PARTICIPATION
A person's participation in the Plan shall end when he is no longer
employed by the Employer, if he is not entitled to either an immediate
or a deferred Pension under the Plan. Participation shall continue
while on a Leave of Absence or during a period while he is not an
Associate but is in the employ of the Employer or an Affiliated
Employer, but no Years of Service for the purpose of determining the
Accrued Benefit shall be counted for that period, except as
specifically provided otherwise in this Plan, and such person's Pension
shall be determined in accordance with the provisions of the Plan in
effect on the date he ceased to be an Associate.
3.3 PARTICIPATION UPON REEMPLOYMENT
(A) If an Associate's participation in the Plan ends and he again
becomes an Associate, he shall again become a Participant as
of his date of restoration to service as an Associate if his
Vesting Percentage was 100% or he had not incurred five
One-Year Breaks in Service. In any other case, he will
participate in the Plan when he again meets the requirements
of Section 3.1
(B) However, if an associate's employment is terminated before he
participates in the Plan and:
(i) he is later reemployed before he incurred a One-Year
Break in Service, his employment after reemployment
shall be aggregated with his previous period of
employment and the period between his date of
termination and his date of reemployment shall be
included in his requirement of one year of
employment; or
(ii) he incurred at least a One-Year Break in Service and
the length of his break in service exceeded his
Service prior to his Break, his employment before
reemployment shall not be aggregated with his period
of employment after his absence,
in which case he will participate in the Plan when he meets
the requirements of Section 3.1.
14
<PAGE> 20
NORMAL PENSION -- SECTION 4
4.1 FORMULA
With respect to a Participant who retires or terminates on or after
January 2, 1998, the Pension payable under the Plan is the greater of
(A), (B) or (C):
(A) The Vesting Percentage of the Participant's Accrued Benefit
determined in Section 4.3; or
(B) The Vesting Percentage of the Participant's accrued benefit
payable under the SERVISTAR Plan as of January 1, 1998, as
modified by Sections 2.1(OO)(4) and 4.6; or
(C) The Vesting Percentage of the Participant's accrued benefit
under the Prior Plan as of December 31, 1995.
4.2 ELIGIBILITY AND COMMENCEMENT -- NORMAL PENSION
Each Participant who retires from the employ of the Employer on his
Normal Retirement Date will receive a normal Pension commencing as of
such date.
4.3 AMOUNT OF NORMAL PENSION
The yearly Pension payable to such Participant will be equal to the
amount described in subsections (A), (B), (C), (D) and (E) below
(subject, however, to Section 13.1 of this Plan, if applicable, and the
election of the Participant to take the Accrued Benefit in a lump sum
form under Section 6.8):
(A) The Participant's Accrued Benefit shall equal his Defined Lump
Sum converted into an Actuarially Equivalent single life
annuity payable at the Participant's Normal Retirement Date
or, if the Participant retires after his Normal Retirement
Date, the age he retires after his Normal Retirement Date.
(B) The Participant's Defined Lump Sum equals the sum of (1) and
(2) below:
(1) the Participant's Average Compensation multiplied by
the sum of the annual pension credit percentages in
the table below that are earned by the Participant
for each Year of Service (and fraction thereof):
15
<PAGE> 21
<TABLE>
<CAPTION>
YEARS OF SERVICE ANNUAL PENSION YEARS OF SERVICE ANNUAL PENSION
WHILE AGE CREDIT PERCENTAGE WHILE AGE CREDIT PERCENTAGE
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Less than 26 2.0% 46 7.0%
26 - 28 2.5% 47 7.5%
29 - 31 3.0% 48 8.0%
32 - 33 3.5% 49 8.5%
34 - 35 4.0% 50 9.0%
36 - 37 4.5% 51 9.5%
38 - 39 5.0% 52 10.0%
40 - 41 5.5% 53 10.5%
42 - 43 6.0% 54 11.0%
44 - 45 6.5% 55- 60 11.5%
61 or More 12.0%
</TABLE>
For each Participant who: (a) was a participant in the
SERVISTAR Plan and attained age 50 and completed 15 Years of
Service as of December 31, 1997, or (b) was a participant in
the Prior Plan and attained age 50 and completed 15 Years of
Service as of January 1, 1996, the sum of his annual pension
credit percentages shall be increased by 25 percentage points.
(2) 50% of the sum of the Participant's annual pension
credit percentages, determined under (1) above,
multiplied by the excess of the Participant's Average
Compensation over the "integration level." For this
purpose, the "integration level" shall be 2/3 of the
contribution and benefit base under Section 230 of
the Social Security Act (42 U.S.C. Section 430), as
amended, as in effect on the first day of the Plan
Year for which a determination is made for purposes
of a retirement or other termination of employment
occurring during such year.
16
<PAGE> 22
(C) With respect to any Participant specified by the Chief
Executive Officer of TruServ Corporation pursuant to a
supplement to the Plan, such Participant's Defined Lump Sum
shall not be less than an amount which is equal to the sum of
33% of the Participant's Average Compensation for each Year of
Service up to age 55 and 42% of the Participant's Average
Compensation for each Year of Service after age 55, up to a
maximum of 20 Years of Service, limited to 660%, reduced by 96
times the Participant's "primary social security benefit"
times his Years of Service divided by 20 (but this fraction
cannot exceed one). For this purpose, the Participant's
"primary social security benefit" means the estimated monthly
primary old-age Social Security insurance benefit to which the
Participant is or would be entitled at his Normal Retirement
Date or at his later retirement date based on the provisions
of the Social Security Act in effect on the date of
retirement, before any offsets for earned income. For purposes
of estimating the "primary social security benefit," it shall
be assumed that the Participant has no wages covered by Social
Security after retirement.
(D) Minimum Benefit Protection
(1) With respect to a Participant in the Prior Plan, the
lump sum benefit payable under this Plan shall be no
less than the Actuarial Equivalent of the
Participant's Accrued Benefit under the Prior Plan.
Further, for a Participant eligible for an immediate
benefit under the Prior Plan, the lump sum shall be
no less than the Actuarial Equivalent of the
immediate Prior Plan benefit payable to the
Participant.
(2) With respect to a Participant in the Prior Plan who
attains age 62 or completes 30 Years of Service while
an active Associate, the lump sum shall be no less
than the lump sum calculated in (1) above, assuming
the Participant commenced receipt of the lump sum at
the later of (a) January 1, 1996, and (b) the first
day of the month coincident with or next following
the earlier of (i) the date the Associate attains age
62, and (ii) the date the Associate completes 30
Years of Service.
(3) With respect to a Participant in the SERVISTAR Plan,
the lump sum benefit payable under this Plan will not
be less than the Actuarial Equivalent of the
Participant's Accrued Benefit under the SERVISTAR
Plan.
(4) With respect to a Participant in the SERVISTAR Plan
who attains age 60 while an active Associate, the
lump sum shall be no less than the lump sum
calculated in (3) above, assuming the Participant
commenced receipt of the lump sum at the later of (a)
January 1, 1998, and (b) the first day of the month
coincident with or next following the date the
Associate attains age 60.
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4.4 TERMINATIONS AND RETIREMENTS BEFORE JANUARY 2, 1998
Any pension benefit that a Participant, who terminated his employment
or retired prior to January 2, 1998, may be entitled to receive shall
be governed by the provisions of the Plan, Prior Plan and/or SERVISTAR
Plan as in effect on the date of his termination of employment or
retirement. Any Participant who terminated employment or retired prior
to January 2, 1998 and who is reemployed on or after January 2, 1998
shall have his benefits calculated in accordance with the Plan as in
effect on the date of his subsequent retirement or termination of
employment as provided in Section 6.11.
With respect to participants in the SERVISTAR Plan who terminated
employment or retired on or after July 1, 1997 and before January 2,
1998, a lump sum pension option, calculated as the Actuarial Equivalent
of the Participant's Accrued Benefit under the SERVISTAR Plan, was made
available, effective June 1, 1998.
4.5 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS
Notwithstanding any Plan provision to the contrary, for re-employments
initiated on or after December 12, 1994, benefits and service credit
with respect to qualified military service will be provided in
accordance with Section 414(u) of the Code.
4.6 SERVISTAR PLAN
On and after January 1, 1998, a participant under the SERVISTAR Plan
will cease to be credited with service, credited service, earnings,
and/or cash balance credit for purposes of benefit accrual under the
SERVISTAR Plan.
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IMMEDIATE, EARLY AND LATE PENSION -- SECTION 5
5.1 IMMEDIATE PENSION
A Participant, whose employment with the Employer or an Affiliated
Employer terminates with a 100% Vesting Percentage, may upon such
termination of employment prior to his Normal Retirement Date be
entitled to receive an immediate Pension. An immediate Pension is the
Participant's Accrued Benefit converted into an Actuarially Equivalent
single life annuity. With the consent of the Participant and Spousal
Consent, if applicable, such immediate Pension shall commence on the
first day of the month coinciding with or immediately following the
Participant's termination of employment and shall be payable in any
form of benefit as described in Section 6. Such Immediate Pension
election must be made within 60 days from the date the Pension
information and forms are provided to the Participant which will be as
soon as administratively practical after the earlier of the submission
of the Participant's written notice of termination or the Participant's
actual termination from employment.
5.2 EARLY RETIREMENT PENSION
A Participant who does not timely elect an immediate Pension under
Section 5.1 upon his termination of employment may next elect to
receive his Pension as an early retirement Pension under the Plan at a
date not earlier than his attainment of age 55 (or age 50 for a former
SERVISTAR Plan participant) and not later than his Normal Retirement
Date. The early retirement Pension shall equal his Accrued Benefit
reduced by 2/3 of 1% for each of the first 60 months and by 1/3 of 1%
for each of the next 60 months by which payment of his early retirement
Pension precedes his Normal Retirement Date (see SERVISTAR Plan
application in Section 5.3 below). In no event, however, shall a
Participant's early retirement Pension be less than his immediate
Pension. With the consent of the Participant and Spousal Consent, if
applicable, the early retirement Pension shall be payable in any form
of benefit described in Section 6.
5.3 SERVISTAR PLAN
For any Participant whose Pension is determined under Section 4.1(B),
the calculation of any immediate or early retirement reduction factors
will be based upon an age 60 Normal Retirement Date in accordance with
the terms of the SERVISTAR Plan in effect at the earlier of his
termination, retirement or January 1, 1998, as restated in Supplement C
hereto.
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5.4 LATE RETIREMENT PENSION
If a Participant's employment with the Employer continues after his
Normal Retirement Date, such Participant will receive a late retirement
Pension commencing on the first day of the month immediately following
the calendar month in which his employment ceases by reason other than
death. The Participant's late retirement Pension is the Participant's
Accrued Benefit.
In the event a Participant's Pension is required to begin under Section
6.7 while the Participant is in active service, such required beginning
date shall be the Participant's Annuity Starting Date for purposes of
Section 6 and the Participant shall receive a late retirement Pension
commencing on or before such required beginning date in an amount
determined as if he had retired on the last day of the preceding Plan
Year. Subsequently, as of the end of each prior Plan Year before the
Participant's actual late retirement date (and as of his actual late
retirement date), the Participant's Pension shall be recomputed to
reflect additional accruals. The Participant's recomputed Pension shall
then be paid as of the following January 1.
(A) If the Participant's Pension is being paid on an annuity form,
the Participant's recomputed Pension shall then be reduced by
the Actuarial Equivalent of the total payments of his late
retirement Pension which were paid prior to each such
recomputation to arrive at the Participant's late retirement
Pension; provided that no such reduction shall reduce the
Participant's late retirement Pension below the amount of late
retirement Pension payable to the Participant prior to the
recomputation of such Pension.
(B) If the Participant's Pension is being paid in a lump sum
payment, additional accrual will be based on that Year of
Service only and not be reduced by any prior payments.
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<PAGE> 26
NORMAL FORM OF PAYMENT -- SECTION 6
6.1 NORMAL FORM OF PAYMENT -- JOINT AND SURVIVOR
If the Participant has a Spouse, to whom he was married at least one
year prior to his Annuity Starting Date, the normal form of payment is
the 50% Qualified Joint and Survivor Annuity form.
As an alternative to the 50% Qualified Joint and Survivor Annuity
described above, a Participant may elect that his benefit be payable to
him in the 100% Qualified Joint and Survivor Annuity form. Such
election will not require spousal consent as provided in Section 6.4.
6.2 NORMAL FORM OF PAYMENT -- SINGLE LIFE ANNUITY
If the Participant does not have a Spouse on his Annuity Starting Date,
the normal form of payment is the single life annuity form. This form
provides that payments will be made to the Participant during his
lifetime with no payments made after death.
6.3 OPTIONAL FORMS OF PAYMENT
In lieu of receiving his Pension in the normal form applicable to his
coverage, a Participant may elect to receive a benefit of equal value
based on one of the optional forms of payment provided in accordance
with the further terms of the Plan, including Sections 6.6 and 6.8.
6.4 ELECTION OF OPTION
The Participant may elect or revoke an option during the 90-day period
before his Annuity Starting Date by filing a written election,
including the Spousal Consent, with the Employer. However, a
Participant may not elect more than one option to be effective at the
same time. No such election or revocation can be made after the
Participant's Retirement Date.
In addition a Participant may elect or revoke an optional form of
payment, to become effective upon his death, at any time on or after
his Normal Retirement Date and before his late Retirement Date. To
elect an option the Participant must waive surviving Spouse benefit
coverage and elect an optional form of payment. His election must
include the Spousal Consent to both the waiver and election.
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If a Participant elects an optional form of payment, the Pension
payable to him must be more than 50% of the Actuarial Equivalent of a
Pension payable to the Participant had the option not been elected,
unless the alternate recipient is the Participant's Spouse; otherwise,
such election will be inoperative.
6.5 NOTICE TO PARTICIPANTS
The Employer shall furnish to each Participant, no less than 30 days
and no more than 90 days, before his Annuity Starting Date a written
explanation in nontechnical language of the terms and conditions of the
Pension payable to the Participant in the normal and optional forms
described in Sections 6.1, 6.2, 6.3, 6.6 and 6.8. Such explanation
shall include a general description of the eligibility conditions for,
and the material features and relative values of, the optional forms of
payment under the Plan, any rights the Participant may have to defer
commencement of his Pension, the requirement for Spousal Consent, and
the right of the Participant to make, and to revoke, elections under
Section 6.4. A Participant's Annuity Starting Date may not occur less
than 30 days after receipt of the notice. An election under Section 6.4
shall be made on a form provided by the Plan Administrator and may be
made during the 90-day period ending on the Participant's Annuity
Starting Date, but not prior to the date the Participant receives the
written explanation described in this Section. Notwithstanding any
provision to the contrary, the Participant may, after having received
the notice, affirmatively elect (with any applicable Spousal Consent)
to waive any requirement that the written explanation be provided at
least 30 days before his Annuity Starting Date if:
(A) the Committee clearly informs the Participant that he has a
period of at least 30 days after receiving the notice to
decide when to have his benefits begin and, if applicable, to
choose a particular optional form of payment;
(B) the Participant affirmatively elects a date for his benefit to
begin and, if applicable, an optional form of payment, after
receiving the notice;
(C) the Participant is permitted to revoke his election until the
later of his Annuity Starting Date or seven days following the
day he received the notice;
(D) the distribution of his Pension commences more than 7 days
after such explanation is provided to the Participant.
6.6 SERVISTAR PROTECTED PAYMENT FORMS
Each Participant who was a participant in the SERVISTAR Plan on January
1, 1998 shall have, in addition to the optional forms of payment
available under this Plan, all of the normal and optional forms of
payment available under the SERVISTAR Plan, except for the 66-2/3 Joint
and Survivor Annuity form, with respect to the payment of his Pension
22
<PAGE> 28
under this Plan. The Participant's Pension payable under said SERVISTAR
Plan optional payment forms shall be the Actuarial Equivalent of the
single life annuity form of payment for the life of the Participant and
all calculations of these forms are based on the provisions contained
in the SERVISTAR Plan on December 31, 1997 and restated in Supplement C
hereto.
6.7 PAYMENT OF PENSION TO THE PARTICIPANT
A Participant's Pension will be payable monthly with each payment
equivalent to 1/12 of the yearly amount. The first of such monthly
payments will be made at the Participant's Normal Retirement Date or
early retirement date, if appropriate, with subsequent monthly payments
being made at the first of each month thereafter until the
Participant's death occurs, or in the case of a survivor annuity, until
the surviving Beneficiary's death occurs.
Except as otherwise provided in Sections 4, 5 or 7, unless the
Participant elects otherwise, the payment of a Pension shall commence
not later than the 60th day after the latest of the close of the Plan
Year in which:
(A) the Participant attains the earlier of age 65 or his Normal
Retirement Date, or
(B) the fifth anniversary of the year in which the Participant
commenced participation in the Plan occurs, or
(C) the Participant terminates his Service with the Employer.
Notwithstanding the preceding paragraph, in the case of a Participant
in active service of the Employer or an Affiliated Employer, the
Participant's Pension shall begin not later than the April 1 following
the calendar year in which he attains age 70 1/2. In this situation,
the provisions of Section 5.4 shall apply to him. However, a
Participant who attains age 70 1/2 prior to January 1, 1988 and who is
not a 5% owner (as defined in Section 416(i) of the Code) of the
Employer as described above shall not receive payment while in active
service under the provisions of this Section 6.7.
6.8 PAYMENT OPTIONS
If not made in a lump-sum under the small benefits provisions of
Section 10.5(G), payment may be made in one of the following forms upon
the Participant's election and with Spousal Consent, if applicable::
(A) A monthly pension payable in equal installments for the life
of the Participant; provided however, that in the event the
Participant dies within the 10-year period following his
Annuity Starting Date, monthly payments equal to those payable
during the life of the Participant shall be made to the
Beneficiary or Spouse of the
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<PAGE> 29
deceased Participant designated to receive such payments for
the remainder of said 10-year period.
(B) A lump sum payment equal to the Participant's Defined Lump
Sum, as determined under Section 4.3(B) but in no event less
than the lump sum amount determined under Section 4.3(D),
which payment shall be made as of the first day of the month
following the date an election to receive such lump sum
payment is made pursuant to this Section.
(C) A monthly pension payable in equal installments for the life
of a Participant.
(D) Any Participant, who was also a participant in the SERVISTAR
Plan and terminated employment with the Employer between July
1, 1997 and December 31, 1997, may elect to receive his
Accrued Benefit in a lump sum payment effective as of June 1,
1998. Such lump sum payment shall be calculated as provided in
Sections 4.3(D)(3) and (4) subject to the following
modifications, if applicable:
(1) the calculation of the lump sum payment shall include
Participant contributions and interest thereon that
have not been previously distributed by valuing them
based on the Actuarial Equivalent but substituting
the May, 1998 rate of interest (5.93%) for the stated
lump sum distribution rate of interest.
(2) the lump sum payment calculation shall not take into
account any previously distributed Participant
contributions and interest thereon;
(3) for a Participant receiving monthly Pension payments
prior to June 1, 1998, the lump sum payment amount
calculated hereunder will be reduced by the sum of
all previous monthly Pension payments.
The Committee will provide notice to any affected Participant
of this election and provide a method by which the Participant
can elect the lump sum payment with Spousal Consent, if
applicable.
The Participant must elect the optional forms of payment described in
this Section 6.8, subject to the provisions of Section 5.1 and as
provided in Section 6.4. Each of the optional forms of payment in this
Section 6.8 (except as modified by Section 6.8(D)) shall be the
Actuarial Equivalent of the single life annuity form of payment for the
life of the Participant.
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<PAGE> 30
6.9 MINIMUM AMOUNTS TO BE PAID
Notwithstanding any other provision in this Section 6, if the
Participant's entire interest is to be paid in other than a lump-sum,
then the amount to be paid each year (recognizing the possibility of
paying the Cash Balance Benefit in a lump sum in the first year) must
be at least an amount equal to the quotient obtained by dividing the
Participant's entire interest by the life expectancy of the Participant
or joint and last survivor expectancy of the Participant and designated
beneficiary. Life expectancy and joint and last survivor expectancy are
computed by the use of the return multiples contained in section 1.72-9
of the Income Tax Regulations. For purposes of this computation, a
Participant's life expectancy may be recalculated no more frequently
than annually, however, the life expectancy of a nonspouse beneficiary
may not be recalculated. If the Participant's spouse is not the
designated beneficiary, the method of payment selected must assure that
at least 50% of the present value of the amount available for payment
would be payable within the life expectancy of the Participant.
If the Participant dies after payment of his interest has commenced,
the remaining portion of such interest shall be paid at least as
rapidly as under the method of payment being used prior to the
Participant's death.
If the Participant dies before payment of his interest commences, the
Participant's entire interest must be paid no later than 5 years after
the Participant's death except to the extent that an election is made
to receive payment in accordance with (a) or (b) below:
(A) if any portion of the Participant's interest is payable to a
designated beneficiary, such payments shall be made in
substantially equal installments over the life or life
expectancy of the designated beneficiary and shall commence no
later than 1 year after the Participant's death;
(B) if, however, the designated beneficiary is the Participant's
surviving spouse, the date on which payments are required to
begin in accordance with (a) above is not required to be
earlier than the date on which the Participant would have
attained age 70 1/2; but, if the spouse dies before such
payments begin, subsequent payments shall be made as if the
spouse had been the Participant.
6.10 TEFRA TRANSITION RULE ELECTIONS
Notwithstanding the other requirements of this Section and subject to
the Qualified Joint and Survivor Annuity requirements, distribution on
behalf of any Participant, including a 5% owner of the Employer, may be
made in accordance with all of the following requirements (regardless
of when such distribution commences):
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<PAGE> 31
(A) The distribution by the Plan is one which would not have
disqualified such Plan under Section 401(a)(9) of the Code as
in effect prior to amendment by the Deficit Reduction Act of
1984.
(B) The distribution is in accordance with a method of
distribution designated by the Participant whose interest in
the Plan is being distributed or, if the Participant is
deceased, by a beneficiary of such Participant.
(C) Such designation was in writing, was signed by the Participant
or the beneficiary, and was made before January 1, 1984.
(D) The Participant had accrued a benefit under the Plan as of
December 31, 1983.
(E) The method of distribution designated by the Participant or
the beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made,
and in the case of any distribution upon the Participant's
death, the beneficiaries of the Participant listed in order of
priority. The method of distribution selected must assure that
at least 50% of the present value of the amount available for
distribution would be payable within the life expectancy of
the Participant.
A distribution upon death will not be covered by this transition rule
unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Participant.
For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Participant or the beneficiary,
to whom such distribution is being made, will be presumed to have
designated the method of distribution under which the distribution is
being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in subsections (A) and (E)
above.
If a designation is revoked any subsequent distribution must satisfy
the requirements of Section 6.9. Any changes in the designation will be
considered to be a revocation of the designation. However, the mere
substitution or addition of another beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under
the designation, directly or-indirectly (for example, by altering the
relevant measuring life).
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<PAGE> 32
6.11 RESTORATION OF RETIRED PARTICIPANT OR OTHER FORMER ASSOCIATE TO SERVICE
If a Participant having received his Pension or in receipt of a Pension
is restored to service with the Employer or an Affiliated Employer, the
following shall apply:
(A) Upon his restoration to service he shall not be required or
allowed to repay any benefit he has received and, if his
Pension is payable in an annuity form, his Pension shall not
be suspended and any optional form of payment shall remain in
effect; if the Participant had commenced payment prior to his
Normal Retirement Date, however, any additional Pension he
accrues after his restoration to service shall be paid to his
surviving Spouse in accordance with the provisions of Section
7 if he should die in active service.
(B) Any Years of Service to which he was entitled when he retired
or terminated service shall be restored to him, subject to the
provisions of section 2.1(OO) ("Years of Service").
6.12 DIRECT ROLLOVER OF CERTAIN DISTRIBUTIONS
(A) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to
an eligible retirement plan specified by the distributee in a
direct rollover.
(B) The following definitions apply to the terms used in this
Section:
(1) An "eligible rollover distribution" is any
distribution of all or any portion of the balance to
the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life
expectancies) of the distributee and the
distributee's designated beneficiary, or for a
specified period of ten years or more; any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in
gross income;
(2) An "eligible retirement plan" is an individual
retirement account described in Section 408(a) of the
Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described
in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution.
However, in the case
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<PAGE> 33
of an eligible rollover distribution to the surviving
Spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity;
(3) A "distributee" includes an Associate or former
Associate. In addition, the Associate's or former
Associate's surviving Spouse and the Associate's or
former Associate's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the
Spouse or former Spouse; and
(4) A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the
distributee.
(C) In the event that the provisions of this Section 6.12 or any
part thereof cease to be required by law as a result of
subsequent legislation or otherwise, this Section or any
applicable part thereof shall be ineffective without the
necessity of further amendments to the Plan.
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<PAGE> 34
SURVIVING SPOUSE BENEFIT -- SECTION 7
7.1 ELIGIBILITY
Upon the death of a Participant before his Retirement Date, his Spouse
will receive a surviving Spouse benefit as described below in either
7.2(A) or (B) as applicable, if all the following requirements were met
when the Participant died:
(A) The Participant had a Spouse to whom the Participant had been
married at least one full year prior to his death;
(B) The Participant dies on or after January 2, 1998; and
(C) The Participant's Vesting Percentage is 100%.
7.2 AMOUNT
(A) If the Participant dies while actively employed by the
Employer, the surviving Spouse benefit shall be equal to 55%
of the Participant's Defined Lump Sum, but in no event less
than 55% of the lump sum amount determined under Section
4.3(D).
(B) If the Participant dies after his employment with the Employer
is terminated, but prior to commencement of payments under the
Plan, the Surviving Spouse benefit shall be equal to 55% of
the benefit the Participant would have received if the
Participant had survived to age 55 (or the age at his date of
death, if older) and elected a 50% Qualified Joint and
Survivor Annuity, and died.
7.3 PAYMENTS
(A) Subject to the surviving Spouse's right to have the benefit
paid at what would have been the Participant's Normal
Retirement Date, the surviving Spouse benefit under Section
7.2(A) shall be paid commencing as of the first day of the
month coinciding with or immediately following the
Participant's death. In lieu of immediate monthly payments for
life, the surviving Spouse may elect to receive the benefit
immediately as a lump sum. Alternatively, the surviving Spouse
may elect to defer commencement of the surviving Spouse
benefit until the first day of any month coinciding with or
immediately following the date the Participant would have
attained age 55 (or age at death, if older), but not later
than the first day of the month coinciding with or next
following the date that would have been the Participant's
Normal Retirement Date (or age at death, if older).
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<PAGE> 35
If a surviving Spouse elects to defer commencement of the
surviving Spouse benefit, the benefit shall be converted to an
Actuarially Equivalent monthly annuity for the life of the
surviving Spouse commencing on the date that would have been
the Participant's Normal Retirement Date. This benefit will be
reduced by 2/3 of 1% for each of the first 60 months and 1/3
of 1% for each of the next 60 months by which the benefit
commencement date precedes the date that would have been the
Participant's Normal Retirement Date. In no event, however,
shall this benefit be less than the benefit the surviving
Spouse could have received as a monthly annuity for life
commencing on the first of the month coinciding with or
immediately following the Participant's death.
(B) Subject to the surviving Spouse's right to have the benefit
paid at what would have been the Participant's Normal
Retirement Date, the surviving Spouse benefit under Section
7.2(B) shall be paid commencing as of the first day of the
month coinciding with or immediately following the
Participant's death. In lieu of such immediate payment, the
surviving Spouse may elect to defer receipt of the surviving
Spouse benefit to any date which is not later than the
Participant's Normal Retirement Date. If such an election is
made, the surviving Spouse benefit shall be equal to 55% of
the benefit the Participant would have received if the
Participant had survived to the date at which the surviving
Spouse elects to commence the surviving Spouse benefit and had
elected a 50% Qualified Joint and Survivor Annuity.
(C) An election by the Spouse to commence receiving payments prior
to what would have been the Participant's Normal Retirement
Date shall be made on a form provided by the Plan
Administrator and may be made during the 90-day period ending
on the date the payments to the Spouse commence.
7.4 MINIMUM BENEFIT AND PAYMENT FORM
If a Participant, who was a former participant in the SERVISTAR Plan,
dies and his Spouse is not eligible to receive the surviving Spouse
benefit, his Beneficiary will receive a refund of his available
Participant's contributions together with credited interest computed
thereon to the date of the Participant's death. Credited interest on a
Participant's contributions means interest for the number of full
months from the January 1 following the date each such contribution was
paid to the Plan to the date specified herein. Prior to January 1,
1960, the rate of credited interest was 2 1/2% per annum, compounded
annually. From January 1, 1960 to January 1, 1976, the rate of credited
interest was 3% per annum, compounded annually. From January 1, 1976 to
July 1, 1983, the rate of credited interest is 5% per annum. On and
after July 1, 1983, the rate of credited interest is 7% per annum,
compounded on each July 1. Any change in the rate of credited interest
will apply to interest allowed for months occurring after the effective
date of change.
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TRUST FUND AND TRUSTEE -- SECTION 8
8.1 TRUST FUND
The Employer has heretofore established the Fund which comprises all of
the assets of the Plan and into which future contributions to finance
this Plan shall be made. The Trust shall hold the Fund, which shall be
used to pay benefits or expenses as provided in this Plan pursuant to
authorization by the Committee; and such benefits shall be payable only
from the Fund.
8.2 TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS AND EXPENSES
The fund will be used and applied only in accordance with the
provisions of the Plan and the Trust Agreement entered into by the
Employer and the Trustee to provide the benefits thereof, and no part
of the corpus or income of the Trust fund will be used for, or diverted
to, purposes other than for the exclusive benefit of Participants under
the Plan and other persons thereunder entitled to benefits except to
the extent provided in Sections 9.2 and 11.3 or to pay any reasonable
expenses in the administration of the Plan.
8.3 TRUSTEE CAPACITY
When there are two or more Trustees, they are authorized to allocate
specific responsibilities, obligations or duties among themselves by
their written agreement. An executed copy of such written agreement is
to be delivered to and retained by the Committee. In the event of more
than one Trustee, any action shall be taken at the direction of a
majority of such Trustees.
8.4 RESIGNATION AND REMOVAL OF TRUSTEE
Any Trustee may resign at any time by delivering to the Board of
Directors of TruServ Corporation (the "Board of Directors") a written
notice of resignation, which notice may be waived by the Board of
Directors, to take effect at a date specified therein, which shall not
be less than 30 days after the delivery thereof. The Trustee may be
removed by the Board of Directors with or without cause, by tendering
to the Trustee a written notice of removal to take effect at a date
specified therein. Upon such removal or resignation of a Trustee, the
Board of Directors shall either appoint a successor Trustee who shall
have the same powers and duties as those conferred upon the resigning
or discharged Trustee, or, if more than one Trustee is acting,
determine that a successor shall not be appointed and the number of
Trustees shall be reduced by one.
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8.5 TAXES, EXPENSES AND COMPENSATION OF TRUSTEE
The Trustee shall deduct from and charge against the Trust any taxes
paid by it which may be imposed upon the Trust, or the income thereof,
or which the Trustee is required to pay with respect to the interest of
any Participant or Beneficiary therein. The Employer may pay the
Trustee's reasonable expenses in administering the Plan and a
reasonable compensation for its services as Trustee hereunder, either
directly or through the Fund, at a rate to be agreed upon from time to
time; provided, however, that no full-time Associate shall receive any
compensation for acting as Trustee hereunder.
8.6 FUNDING POLICY AND INVESTMENT MANAGERS
The Employer or its delegate shall be responsible for establishing and
carrying out a funding policy and method consistent with the objectives
of this Plan and the requirements of ERISA and shall determine the
investment policy for the Plan. However, the Employer or its delegate
may appoint one or more investment managers to manage the assets of the
Plan (including the power to acquire and dispose of all or part of such
assets) as the Employer shall designate. In that event, the authority
over and responsibility for the management of the assets so designated
shall be the sole responsibility of that investment manager.
For purposes of this Article, the term "investment manager" means an
individual who:
(A) Has the power to manage, acquire or dispose of any asset of
the Plan;
(B) Is (i) registered as an investment advisor under the
Investment Advisors Act of 1940, (ii) is a bank, as defined in
that Act, or (iii) is an insurance company qualified to
perform services described in paragraph (A) above; and
(C) Has acknowledged in writing that he is a fiduciary with
respect to the Plan.
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FUNDING OF BENEFITS -- SECTION 9
9.1 CONTRIBUTIONS TO THE FUND
From time to time, the Employer shall make such contributions to the
Fund as the Employer determines are required to maintain the Plan on a
sound actuarial basis. In determining the amounts and incidence of such
contributions, the Employer will take into account such actuarial
recommendations as may be provided by an enrolled actuary as defined by
ERISA. Contributions by Participants are neither required nor
permitted.
9.2 FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS
The Fund is for the exclusive benefit of Participants and other persons
who may become entitled to benefits hereunder, and may also be used to
pay any reasonable expenses arising from the administration of the Plan
not assumed and then paid directly by the Employer. Prior to the
satisfaction of all liabilities for benefits provided hereunder, no
contribution made to the Fund will be refunded to the Employer except
in the following circumstances:
(A) The Employer's contributions to the Plan are conditioned upon
their deductibility under Section 404 of the Code. If all or
part of the Employer's deductions for contributions to the
Plan are disallowed by the Internal Revenue Service, the
portion of the contributions to which that disallowance
applies shall be returned to the Employer without interest,
but reduced by any investment loss attributable to those
contributions. The return shall be made within one year after
the date of the disallowance of deduction.
(B) The Employer may recover without interest the amount of its
contributions to the Plan made on account of a mistake in
fact, reduced by any investment loss attributable to those
contributions, if recovery is made within one year after the
date of those contributions.
9.3 DISPOSITION OF CREDITS AND FORFEITURES
No credit or forfeitures arising from the operation of the Plan may be
used to increase the benefit of any Participant or group of
Participants but will instead be taken into account in determining
contributions to be made by the Employer.
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PLAN ADMINISTRATOR -- SECTION 10
10.1 PLAN ADMINISTRATOR/APPOINTMENT OF COMMITTEE
To the extent provided in this Section, the general administration of
the Plan and the responsibility for carrying out the provisions of the
Plan shall be placed in a Committee of not less than 3 persons
appointed from time-to-time by the Board of Directors of TruServ
Corporation to serve at the pleasure of the Board of Directors. Any
person who is appointed a member of the Committee shall signify his
acceptance by filing written acceptance with the Board of Directors and
the Secretary of the Committee. Any member of the Committee may resign
by delivering his written resignation to the Board of Directors and the
Secretary of the Committee. If the Employer does not appoint a
Committee, the Employer shall perform the duties of the Committee.
10.2 DUTIES AND AUTHORITY
The Plan Administrator shall administer the Plan on behalf of the
Employer in a nondiscriminatory manner for the exclusive benefit of
Participants and their Beneficiaries.
The Plan Administrator shall have the exclusive power to, and perform
all such duties as are necessary to, operate, administer and manage the
Plan in accordance with the terms thereof, including but not limited to
the following:
(A) To determine all questions relating to a Participant's
coverage under the Plan,
(B) To maintain all necessary records for the administration of
the Plan,
(C) To compute and authorize the payment of a Pension and other
benefit payments to eligible Participants and Beneficiaries,
(D) To adopt and amend rules for the administration of the Plan
and the transaction of its business subject to the limitations
of the Plan. The Plan Administrator shall have the sole and
unilateral discretionary authority to interpret the Plan and
to make factual determinations (including but not limited to,
determination of an individual's eligibility for Plan
participation, the right, amount and form of any benefit
payable under the Plan and the date on which any individual
ceases to be a Participant and to remedy ambiguities,
inconsistences and/or omissions). The determinations, acts and
decisions of the Plan Administrator shall be final, conclusive
and binding on all parties and, subject to the claim
procedures in Section 10.7(B), shall not be overturned unless
determined to be arbitrary and capricious by a court of
competent jurisdiction.
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(E) To advise or assist Participants regarding any rights,
benefits or elections available under the Plan.
The Plan Administrator shall take such actions as are necessary to
establish and maintain the Plan as a retirement program which is at all
times in full and timely compliance with any law or regulation having
pertinence to this Plan.
The Plan Administrator shall be exclusively granted by the Employer all
reasonable powers necessary or appropriate to accomplish his duties as
Plan Administrator. The Plan Administrator shall use that degree of
care, skill, prudence and diligence that a prudent man acting in a like
capacity and familiar with such matters would use in his conduct of a
similar situation.
10.3 REMOVAL OF PLAN ADMINISTRATOR
The Plan Administrator may be removed with or without cause by the
Employer through delivery to him of written notice of removal, to take
effect at a date specified therein.
10.4 APPOINTMENT OF SUCCESSOR PLAN ADMINISTRATOR
In the event the office of Plan Administrator is vacant, the Employer
shall promptly designate a successor Plan Administrator who must
signify acceptance of this position in writing. In the event no
successor is appointed, the Board of Directors or other governing body
of the Employer shall function as the Plan Administrator until a new
Plan Administrator has been appointed and has accepted such
appointment.
10.5 PLAN ADMINISTRATION -- MISCELLANEOUS
(A) Filing a claim for Benefits. A Participant or Beneficiary
shall notify the Plan Administrator of a claim for benefits
under the Plan. Such request may be in any form adequate to
give reasonable notice to the Plan Administrator and shall set
forth the basis of such claim. The claim shall also authorize
the Plan Administrator to conduct such examinations as may be
necessary to determine the validity of the claim and to take
such steps as may be necessary to facilitate the payment of
any benefits to which the Participant or Beneficiary may be
entitled under the Plan.
(B) Claims Procedure. The Plan Administrator shall make all
determinations as to the right of any person to receive
benefits under the Plan. Any denial by the Plan Administrator
of a claim for benefits under the Plan by a Participant,
Spouse, retired Participant or beneficiary (collectively
referred to herein as "claimant") shall be stated in writing
by the Plan Administrator and delivered or mailed to the
claimant. Such notice shall set forth:
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(1) the specific reasons for denial;
(2) specific reference to pertinent provisions of the
Plan upon which the denial is based;
(3) a description of any additional material or
information necessary for the claimant to perfect his
claim with an explanation of why such material or
information is necessary; and
(4) an explanation of claim review procedures under the
Plan written in a manner that may be understood
without legal or actuarial counsel.
A claimant whose claim for benefits has been wholly or
partially denied by the Plan Administrator may, within 90 days
following the date of such denial:
(i) request a review of such denial in a writing
addressed to the Plan Administrator;
(ii) submit such issues or comments, in writing
or otherwise, as he shall consider relevant
to a determination of his claim, and may
include in his request a request for a
hearing in person before the Plan
Administrator; and
(iii) request to review any pertinent documents,
which may be reviewed prior to his
submitting his request for review.
The claimant may, at all stages of review, be represented by
counsel, legal or otherwise, of his choice, provided that the
fees and expenses of such counsel shall be borne by the
claimant.
All requests for review shall be promptly resolved. The
decision of the Plan Administrator with respect to any such
review shall be set forth in writing and such shall be mailed
to the claimant not later than 60 days following receipt by
the Plan Administrator of the claimant's request unless
special circumstances, such as need to hold a hearing, require
an extension of time for processing, in which case the
decision shall be so mailed not later than 120 days after
receipt of such request. All decisions of the Plan
Administrator shall be final, conclusive and binding on all
parties and shall not be overturned unless such decision is
determined by a court of competent jurisdiction to be
arbitrary and capricious.
(C) Governing Law. To the extent not preempted by ERISA, the Plan
shall be construed, regulated and administered under the laws
of the State of Illinois.
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(D) Masculine and Feminine, Singular and Plural. In construing the
text of this Plan, the masculine shall include the feminine
and the singular shall include the plural, and the plural the
singular wherever the context shall plainly so require.
(E) Reference to Laws. Any reference herein to any section of the
federal Internal Revenue Code, ERISA, TEFRA or any other
statute or law shall be deemed to include any successor
statute or law of similar import.
(F) Non-Assignment. Except as required by any applicable law, no
benefit under the Plan shall in any manner be anticipated,
assigned, alienated, subject to garnishment, levy, execution
or other legal or equitable process, or otherwise subject to
the claims of creditors, and any attempt to do so shall be
void. However, payment shall be made in accordance with the
provisions of any judgment, decree, or order which:
(1) creates for, or assigns to, a spouse, former spouse,
child or other dependent of a Participant the right
to receive all or a portion of the Participant's
benefits under the Plan for the purpose of providing
child support, alimony payments or marital property
rights to that spouse, child or dependent,
(2) is made pursuant to a State domestic relations law,
(3) does not require the Plan to provide any type of
benefit, or any option, not otherwise provided under
the Plan, and
(4) otherwise meets the requirements of Section 206(d) of
ERISA, as amended, as a "qualified domestic relations
order," as determined by the Plan Administrator.
If the present value of any series of payments meeting the
criteria set forth in clauses (1) through (4) above amounts to
$5,000 or less, a lump sum payment of the Actuarial Equivalent
of such assigned amount, determined in the manner described in
Section 10.5(G), shall be made in lieu of the series of
payments.
If the amount payable to an alternate payee under a qualified
domestic relations order exceeds such $5,000 present value, it
may be paid to the alternate payee as soon as practicable
after the order has been determined to be qualified by the
Plan Administrator if the qualified domestic relations order
so provides and the alternate payee consents thereto;
otherwise it may not be payable before the earliest of the
Participant's termination of employment or earliest retirement
date under the Plan.
(G) Small Benefits. If the Actuarial Equivalent of the Vesting
Percentage of the Participant's Pension under the Plan is
$5,000 or less, such Pension shall be distributed without the
Participant's consent (or his Spouse's/Beneficiary's consent,
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if applicable) in the form of a lump sum cash distribution.
For purposes of determining such Actuarial Equivalent amount,
it shall be assumed that the benefit commencement date is the
Participant's Normal Retirement Date.
The lump sum payment shall be made as soon as administratively
practicable following the Participant's termination of
employment or death, but in any event prior to the date his
Pension payments would have otherwise commenced. In the event
a Participant is not entitled to any Pension upon his
termination of employment, he shall be deemed cashed-out under
the provisions of this paragraph (G) as of the date he
terminated service. However, if a Participant described in the
preceding sentence is subsequently restored to service, the
provisions of Section 6.11 shall apply to him without regard
to such sentence.
(H) Conditions of Employment Not Affected by Plan. The
establishment of the Plan shall not confer any legal rights
upon any Associate or other person for a continuation of
employment, nor shall it interfere with the rights of the
Employer or an Affiliated Employer to discharge any Associate
and to treat him without regard to the effect which that
treatment might have upon him as a Participant or potential
Participant of the Plan. Participation in the Plan shall not
grant any Participant the right to be retained in the service
of the Employer or an Affiliated Employer or any other rights
other than those to which he is entitled under relevant law or
regulations.
(I) Clerical Error. If any fact pertaining to eligibility for or
amount of benefits payable under the Plan to a Participant or
other payee has been misstated, or in the event of clerical
error, the benefits will be adjusted by the Plan Administrator
on the basis of the correct facts in a manner precluding
individual selection.
(J) Divestment of Benefits for Cause Precluded. In no event may a
Participant be divested for cause of Pension or other benefits
which he is eligible to receive.
(K) Advisors and Counsel. The Employer, or the Committee acting
through the Employer, may employ one or more persons to render
advice with respect to any duty or responsibility it may have
including, but not limited to, consultants, actuaries,
financial advisors, accountants and attorneys.
(L) Incompetency. If the Committee receives evidence satisfactory
to it that a Participant or his Beneficiary to whom an amount
is distributable under this Plan is legally incompetent to
receive such amount and give valid receipt therefore, the
Committee may cause payment of such amount to be made to the
guardian or other legal representative of such Participant or
his Beneficiary, or in the absence of a legal guardian or
other legal representative, to such other person or
institution who is then maintaining and has custody of such
Participant or his Beneficiary. Any payments made shall be a
complete discharge of liabilities of the Plan for that
benefit.
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(M) Erroneous Payments. In the event that a Participant (or his
Beneficiary) receives a distribution under this Plan in excess
of the amount, if any, to which he is entitled, by reason of a
calculation error or otherwise, the Plan Administrator, in his
sole and absolute discretion, may adjust future benefit
payments to the Participant (or his Beneficiary) to the extent
necessary to recoup the amount which the Participant (or his
Beneficiary) received which was in excess of the amount to
which he was entitled under the term of the Plan. If the Plan
Administrator determines, in his sole and absolute discretion,
that it is not feasible or desirable to adjust future benefit
payments to the Participant, the Plan Administrator may
require the Participant (or his Beneficiary) to repay to the
Plan the amount which is in excess of the amount to which the
Participant (or his Beneficiary) is entitled under the terms
of the Plan. All amounts received by the Participant (or his
Beneficiary) under the Plan shall be deemed to be paid subject
to these conditions. The determination of the Plan
Administrator made pursuant to this Section 10.7(M) shall be
final, conclusive and binding on all parties, subject to the
claims procedures under Section 10.7(B), and shall not be
overturned unless such determinations are arbitrary and
capricious.
(N) Headings. The headings of the Plan have been inserted for
convenience of reference only and are to be ignored in the
construction of the Plan.
(O) Information. Before any benefit shall be payable by the Plan,
each Participant, Spouse, Beneficiary or other person entitled
to a benefit shall file with the Committee all the information
that the Committee shall require to establish such persons
rights and benefits under the Plan.
(P) Written Elections. Any elections, notifications or
designations made by a Participant or any other individual
pursuant to the provisions of the Plan shall be made in
writing and filed with the Committee in a time and manner
determined by the Committee under rules uniformly applicable
to all persons similarly situated. The Committee reserves the
right to change from time to time the time and manner for
making notifications, elections or designations by such
persons under the Plan if it determines after due deliberation
that such action is justified in that it improves the
administration of the Plan. In the event of a conflict between
the provisions for making an election, notification or
designation set forth in the Plan and such new administrative
procedures, those new administrative procedures shall prevail.
(Q) Vested Rights. No person shall have any vested rights under
the Plan and Trust except to the extent that such rights may
accrue to him as provided under the Plan. Furthermore, any
person with vested rights under the Plan and Trust shall look
solely to the Plan and Trust and the assets thereunder for
satisfaction of such vested rights.
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(R) Plan Provisions Controlling. In the event of any conflict
between the provisions of the Plan and the provisions of a
summary or other description of the Plan or the terms of any
agreement or instrument related to the Plan, the provisions of
the Plan shall control.
(S) Interpretation of the Plan. It is the intent of the Employer
that the Plan and Trust qualify under Sections 401(a) and
501(a) of the Code, respectively, and meet all applicable
requirements of ERISA. Accordingly, the Plan and Trust shall
be construed and interpreted in such manner as to give effect
to this intent.
(T) Limitation of Liability. The Employer, the Board of Directors
of the Employer or any Affiliated Employer, the members of the
Committee, and any of their officers, associates,
representatives, consultants, counsel, or agents shall not
incur any liability individually or on behalf of any other
individuals or on behalf of the Employer for any act or
failure to act, made in good faith in relation to the Plan or
the Funds of the Plan. However, this limitation shall not act
to relieve any such individual or the Employer from a
responsibility or liability for any fiduciary responsibility,
obligation or duty under Part 4, Title I of ERISA.
(U) Indemnification. The Employer, members of the Committee, the
Board of Directors of the Employer or any Affiliated Employer,
and their officers, associates, representatives, consultants,
counsel, and agents shall be indemnified against any and all
liabilities arising by reason of any act, or failure to act,
in relation to the Plan or the Fund of the Plan, including,
without limitation, expenses reasonably incurred in the
defense of any claim relating to the Plan or the Fund of the
Plan, and amounts paid in any compromise or settlement
relating to the Plan or the Fund of the Plan, except for such
liability, losses or costs which result from:
(1) their actions or failures to act made in bad faith;
(2) their own gross negligence or willful conduct;
(3) any settlement, without TruServ Corporation's prior
approval, of an action, suit, or preceding; or
(4) suits or actions at law or in equity advanced by
TruServ Corporation against such party.
The foregoing indemnification shall be from the Fund of the
Plan to the extent of this Fund and to the extent permitted
under applicable law; otherwise from the assets of the
Employer.
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(V) Authority to Act
(1) The Employer and the Committee may authorize one or
more of its members, associates, representatives,
consultants, counsel, or agents to execute on its
behalf instructions or directions to any interested
party, and any such interested party may rely
thereupon and the information contained therein.
(2) Whenever, under the terms of the Plan or Trust
Agreement, the Employer is required or permitted to
take action (except when related to administrative
duties), such action shall be taken under
authorization of the Board of Directors, unless
otherwise provided by the Plan or the Trust Agreement
or by prior action of such Board of Directors.
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AMENDMENT AND TERMINATION OF PLAN -- SECTION 11
11.1 AMENDMENT -- GENERAL
The Employer, by action of its Board of Directors, taken at a meeting
held either in person or by telephone or other electronic means, or by
unanimous written consent in lieu of a meeting, reserves the right at
any time and from time to time, and retroactively if deemed necessary
or appropriate, to amend in whole or in part any or all of the
provisions of the Plan. However, no amendment shall make it possible
for any part of the Fund of the Plan to be used for, or diverted to,
purposes other than for the exclusive benefit of persons entitled to
benefits under the Plan, before the satisfaction of all liabilities
with respect to them. No amendment shall be made which has the effect
of decreasing the Protected Benefit of any Participant or of reducing
the nonforfeitable percentage of the Accrued Benefit of a Participant
below the nonforfeitable percentage computed under the Plan as in
effect on the date on which the amendment is adopted or, if later, the
date on which the amendment becomes effective.
11.2 AMENDMENT -- MERGER OR CONSOLIDATION OF PLAN
This Plan may be amended by the Employer to provide for the merger or
consolidation of the Plan with another retirement plan, or for the
transfer of assets and liabilities hereunder to another retirement
plan. Such an event, however, may not occur unless each Participant
would receive a retirement benefit under such other retirement plan
after the merger, consolidation, or transfer (assuming that plan had
then terminated) which is at least as great as the benefit he would
have received under this Plan immediately prior to the merger,
consolidation, or transfer (assuming this Plan had then terminated).
11.3 TERMINATION OF PLAN
The Employer, by action of its Board of Directors, taken at a meeting
held either in person or by telephone or other electronic means, or by
unanimous written consent in lieu of a meeting, may terminate the Plan
for any reason at any time. In case of termination of the Plan, the
rights of Participants to their Protected Benefits as of the date of
the termination, to the extent then funded or protected by law, if
greater, shall be nonforfeitable. The Funds of the Plan shall be used
for the exclusive benefit of persons entitled to benefits under the
Plan as of the date of termination, except as provided in Section 9.2.
However, any funds not required to satisfy all liabilities of the Plan
for benefits because of erroneous actuarial computation shall be
returned to the Employer. The Plan Administrator shall determine on the
basis of actuarial valuation the share of the Fund of the Plan
allocable to each person entitled to benefits under the Plan in
accordance with Section 4044 of ERISA, or corresponding provision of
any applicable law in effect at the time. In the event of a partial
termination of the Plan, the provisions of this Section shall be
applicable to the Participants affected by that partial termination.
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RESTRICTION OF BENEFITS UPON EARLY TERMINATION OF THE PLAN --
SECTION 12
12.1 LIMITATION CONCERNING HIGHLY COMPENSATED EMPLOYEES OR HIGHLY
COMPENSATED FORMER EMPLOYEES
(A) The provisions of this Section shall apply (i) in the event
the Plan is terminated, to any Participant who is a Highly
Compensated Employee or Former Highly Compensated Employee of
the Employer or an Affiliated Employer and (ii) in any other
event, to any Participant who is one of the 25 Highly
Compensated Employees of former Highly Compensated Employees
of the Employer or Affiliated Employer with the greatest
compensation in any Plan Year. The amount of the annual
payments to any one of the Participants to whom this Section
applies shall not be greater than an amount equal to the
annual payments that would be made on behalf of the
Participant during the year under a single life annuity that
is of Actuarial Equivalent to the sum of the Participant's
Accrued Benefit and the Participant's other benefits under the
Plan.
(B) If, (i) after payment of Pension or other benefits to any one
of the Participants to whom this Section applies, the value of
Plan assets equals or exceeds 110% of the value of current
liabilities (as that term is defined in Section 412(l)(7) of
the Code) of the Plan, (ii) the value of the Accrued Benefit
and other benefits of any one of the Participants to whom this
Section applies is less than 1% of the value of current
liabilities of the Plan, or (iii) the value of the benefits
payable to a Participant to whom this Section applies does not
exceed the amount described in Section 411(a)(11)(A) of the
Code, the provisions of paragraph (A) above will not be
applicable to the payment of benefits to such Participant.
(C) If any Participant to whom this Section applies elects to
receive a lump sum payment in lieu of his Pension and the
provisions of paragraph (B) above are not met with respect to
such Participant, the Participant shall be entitled to receive
his benefit in full provided he shall agree to repay to the
Plan any portion of the lump sum payment which would be
restricted by operation of the provisions of paragraph (A),
and shall provide adequate security to guarantee that
repayment.
(D) Notwithstanding paragraph (A) of this Section, in the event
the Plan is terminated, the restriction of this Section shall
not be applicable if the benefit payable to any Highly
Compensated Employee and any former Highly Compensated
Employee is limited to a benefit that is nondiscriminatory
under Section 401(a)(4) of the Code.
(E) If it should subsequently be determined by statute, court
decision acquiesced in by the Commissioner of Internal
Revenue, or ruling by the Commissioner of Internal Revenue,
that the provisions of this Section are no longer necessary to
qualify the Plan under the Code, this Section shall be
ineffective without the necessity of further amendment to the
Plan.
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SPECIAL PENSION BENEFITS PROVISIONS -- SECTION 13
13.1 STATUTORY MAXIMUM PENSION BENEFITS
The statutory maximum amount of yearly Pension payable during any Plan
Year, which shall be the limitation year for the purpose attributable
to the Employer Accrued Benefit shall be determined in accordance with
the further provisions of this Section 13.1.
(A) Basic Limitation
Regardless of any other provisions of this Plan, other than
paragraphs (B)(4), (C) and (D) below, the amount of yearly
Pension payable hereunder for any Limitation Year shall not
exceed the lesser of (1) $90,000 or (2) 100% of the
Participant's average annual remuneration determined with
reference to the three consecutive limitation years of Service
which he received the highest aggregate remuneration from the
Employer or an Affiliated Employer (referred to hereinafter in
this Section 13.1 as "highest average compensation").
(B) Secondary Limitations
The basic limitation in paragraph (A) shall be reduced or
increased, as applicable, for the following situations if they
are applicable:
(1) Form of Pension other than a life annuity.
If the Pension is payable in a form other than a
single life annuity, or a Qualified Joint and
Survivor Annuity, the basic limitation in paragraph
(A) shall be adjusted to its actuarial equivalent
based upon the age at which such Pension commences
and an interest rate assumption of the greater of the
rate of interest specified in Supplement A - Section
A.1.(a) or 5%.
(2) Less Than 10 Years of Service
If the Participant has less than 10 full years of
Service, the basic limitations in paragraph (A)(2)
shall be reduced by multiplying such limitation by a
fraction, the numerator of which is the Participant's
years of Service (computed to the nearest full month)
and the denominator of which is 10. In addition, if
the Participant has not been a Participant of the
Plan for at least 10 years, the maximum annual
Pension in paragraph (A)(1) above shall be multiplied
by the ratio which the number of years of his
participation in the Plan bears to 10. In both cases,
these limits under this Section 13.1(B)(2) shall not
be reduced to an amount less than 1/10 of the
applicable limitation in Section 13.1(A).
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(3) Commencement of Pension
For purposes of this Section 13, the Participant's
Social Security retirement age shall be the
retirement age for the Participant under Section
216(l) of the Social Security Act, but shall be
applied without regard to the age increase factor
under Section 216(l) of the Social Security Act and
as if the early retirement age under the Social
Security Act were 62 years of age. If the Pension
begins before the Participant's Social Security
retirement age, the maximum Pension in paragraph
(A)(1) above shall be adjusted to the Actuarial
Equivalent amount based on an interest rate
assumption of the greater of the rate of interest
specified in Supplement A-Section A.1.(a) or 5% per
year and the Group Annuity Mortality Table specified
in Supplement A - Section A.1.(b).
(4) Commencement of Pension After Social Security
Retirement Age
If the Pension begins after the Participant's Social
Security retirement age, the maximum Pension in
paragraph (A)(1) above shall be adjusted to the
Actuarial Equivalent amount based on an interest rate
assumption of the lesser of 5% per year or the
interest rate specified in Supplement A-Section
A.1.(a). and the Group Annuity Mortality Table
specified in Supplement A - Section A.1.(b).
(C) Minimum Pension
If the Participant's yearly Pension is not more than $10,000,
as adjusted in accordance with paragraph (B)(2) above, the
Participant may receive such $10,000 without regard to the
other secondary limitations, provided the Participant did not
at any time participate in a defined contribution plan
maintained by the Employer.
(D) Cost-of-Living Limitation Adjustment
Effective January 1, 1988, and each January 1 thereafter, the
$90,000 limitation of paragraph (A) above will be
automatically adjusted to the new dollar limitation determined
by the Commissioner of Internal Revenue for that calendar
year. The new limitation will apply to limitation years in
which the dollar limitation is changed.
(E) Participation in More Than One Defined Benefit Plan
If the Participant participated in more than one defined
benefit plan maintained by the Employer or an Affiliated
Employer regardless of whether any such plans are terminated,
the statutory maximum retirement benefit shall be determined
as if there were just one defined benefit plan, but the
retirement income so determined will apply on a pro rata basis
between, or among, such plans.
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<PAGE> 51
(F) Annual Additions
The sum of:
(1) amounts defined as annual additions under applicable
defined contribution plans or the Employer or an
Affiliated Employer; and
(2) the Participant's non-deductible contributions to
this and all other defined benefit plans maintained
by the Employer or an Affiliated Employer, regardless
of whether any such plan is terminated; and
(3) amounts allocated in Plan Years commencing after
March 31, 1984 to an individual medical account, as
defined in Section 415(l)(2) of the Code, which is a
part of this or any other defined benefit plan
maintained by the Employer or an Affiliated Employer;
and
(4) amounts derived from contributions paid or accrued
attributable to post-retirement medical benefits
allocated to the separate account of a key associate,
as defined in Section 419A(d)(3) of the Code, under a
welfare benefit fund, as defined in Section 419(e) of
the Code, maintained by the Employer or an Affiliated
Employer.
(G) Participation in one or more Defined Contribution Plans
If any Participant is or has been a Participant in a defined
contribution plan maintained by the Employer regardless of
whether any such plans are terminated, the Participant may not
have contributions made to the defined contribution plan(s)
which would cause the sum of the defined benefit plan fraction
and the defined contribution plan fraction to exceed l.0. This
shall be accomplished by reducing the Pension otherwise
determined under this Plan to the extent necessary to preclude
such excess.
(1) Defined Benefit Fraction
A fraction, the numerator of which is the sum of the
Participant's projected annual benefit under each
defined benefit plan maintained by the Employer or an
Affiliated Employer regardless of whether any such
plans are terminated, and the denominator of which is
the lesser of 125% of the dollar limitation in effect
for the limitation year under Section 415(b)(1)(A) of
the Code or 140% of the "highest average
compensation."
Notwithstanding the above, if the Participant was a
Participant in one or more defined benefit plans
maintained by the Employer which were in existence on
July 1, 1982, the denominator of this fraction will
not be less than 125% of the sum of the annual
benefits under such plans which the
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<PAGE> 52
Participant had accrued as of December 31, 1982. The
preceding sentence applies only if the defined
benefit plans individually and in the aggregate
satisfied the requirements of Section 415 of the Code
as in effect at the end of the 1982 Limitation Year.
The projected annual benefit shall be the yearly
Pension to which a Participant is entitled under the
terms of each applicable defined benefit plan
assuming continued employment until normal retirement
age, or current age if later, and Compensation and
all other relevant factors used to determine benefits
under the plan remaining constant until normal
retirement age, or current age if later.
(2) Defined Contribution Fraction
A fraction, the numerator of which is the sum of the
Annual Additions to the Participant's account under
all the defined contribution plans maintained by the
Employer or an Affiliated Employer regardless of
whether any such plans are terminated for the current
and all prior limitation years and the denominator of
which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years of service
with the Employer (regardless of whether a defined
contribution plan was maintained by the Employer).
The maximum aggregate amount in any limitation year
is the lesser of 125% of the dollar limitation in
effect under Section 415(c)(1)(A) of the Code or 140%
multiplied by 25% of the Participant's Compensation
for such year.
If the Associate was a Participant in one or more
defined contribution plans maintained by the Employer
which were in existence on July 1, 1982, the
numerator of this fraction will be adjusted if the
sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions
over 1.0 multiplied by (2) the denominator of this
fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is
calculated using the fractions as they would be
computed as of the later of the end of the last
Limitation Year beginning before January 1, 1983 or
June 30, 1983. This adjustment also will be made if,
at the end of the last limitation year beginning
before January 1, 1984, the sum of the fractions
exceeds 1.0 because of accruals or additions that
were made before the limitations of this Article
became effective to any Plan of the Employer in
existence on July 1, 1982.
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<PAGE> 53
(H) Remuneration
For the purposes of this Section 13.1 and the following
Section 13.2, a Participant's remuneration means his earned
income, wages, salaries, and fees for professional services,
and other amounts received for personal services actually
rendered in the course of employment with the employer
maintaining the plan determined for purposes of Section 13.1
before any pre-tax contributions under a "qualified cash or
deferred arrangement" (as defined under Section 401(k) of the
Code and its applicable regulations) or under a "cafeteria
plan" (as defined under Section 125 of the Code and its
applicable regulations) (including, but not limited to,
commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses [except as excluded below]), and
excluding the following:
(1) Employer contributions to a plan of deferred
compensation which are not included in the
associate's gross income for the taxable year in
which contributed or employer contributions under a
simplified associate pension plan to the extent such
contributions are deductible by the associate, or any
distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the associate either becomes freely
transferable or is no longer subject to a substantial
risk or forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option;
(4) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity described in section 403(b) of
the Code (whether or not the amounts are actually
excludable from the gross income of the associate).
Remuneration for any limitation year is the
remuneration actually paid or includible in gross
income during such year.
(I) Discrepancy With Code
The limitations set forth in this Section 13.1 are intended to
comply with the provisions of Section 415 of the Code and any
regulations issued pursuant thereto, so that the maximum
Pension shall be exactly equal to the maximum amount allowed
under said Section 415, and any regulations issued pursuant
thereto. Should there be any discrepancy between the
provisions of this Section 13.1 and those of said Section 415
and any regulations issued pursuant thereto, such
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<PAGE> 54
discrepancy shall be resolved by giving full effect to the
provisions of said Section 415 and any regulations issued
pursuant thereto.
13.2 TOP-HEAVY PROVISIONS
As required by TEFRA, the following provisions shall become effective
in any Plan Year subsequent to the 1983 Plan Year in which this Plan is
a Top-Heavy Plan.
The provisions of this Section 13.2 will apply to both active and
frozen plans and, with the exception of the minimum Pension and minimum
Vesting Percentage provisions, will apply to any terminated plans which
were maintained at any time during the five years ending on the
Determination Date.
(A) Top-heavy Plan Status. This Plan will be a Top-Heavy Plan as
of a Determination Date if:
(1) this Plan is not a Plan that is required to be
aggregated and the ratio of the Present Value of
Accrued Benefits of Participants who are Key
Employees to the Present Value of the Accrued
Benefits of all Participants in the Plan exceeds
6/10; or
(2) this Plan is part of a Required Aggregation Group and
the ratio of the Present Value of Accrued Benefits of
Participants who are Key Employees to the Present
Value of Accrued Benefits of all Participants in the
Required Aggregation Group exceeds 6/10.
Notwithstanding anything in (A)(2) to the contrary, the
determination of whether this Plan is a Top-Heavy Plan of a
Determination Date shall be made after aggregating all Plans
in the Required Aggregation Group, and after aggregating any
other Plans which are in the Permissive Aggregation Group, if
such permissive aggregation thereby eliminates the Top-Heavy
status of the Required Aggregation Group. Regardless of the
results of any aggregation, a Plan that was not part of the
Required Aggregation Group will not be top-heavy.
(B) Super Top-Heavy Plan. This Plan will be a Super Top-Heavy Plan
for a given Plan Year in which the ratio defined in A, above,
exceeds 9/10.
(C) Key Employee. The term Key Employee means any Associate or
former Associate (including deceased Associates) of the
Employer who at any time during the Plan Year or the four
preceding Plan Years is:
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<PAGE> 55
(1) An officer of the Employer, but in no event if there
are more than 500 Associates, shall more than 50
Associates or, if there are less than 500 Associates,
shall the greater of three Associates or 10% of all
Associates, be taken into account under this
subsection as Key Employees;
In no event shall an officer whose annual
Compensation, as defined in Section 13.1(I) of this
Plan, is less than 50% of the limitation in effect
under Section 415(b)(1)(A) of the Code as adjusted
from time to time, be a Key Employee for any such
Plan Year.
(2) One of the ten Associates owning (or considered as
owning within the meaning of Section 318 of the Code)
the largest interest in the Employer, or, if the
Employer is other than a corporation, one of the ten
Associates owning the largest interest of the capital
or profits interest in the Employer. If two or more
Associates own equal interests in the Employer the
ranking of ownership share will be in descending
order of the Associates' Earnings;
In no event shall an Associate who meets the
requirements of the prior paragraph but whose
interest in the Employer is not greater than 1/2% or
whose Compensation is less than the dollar limitation
in effect under Section 415(c)(i)(A) of the Code, as
adjusted from time to time, be a Key Employee.
(3) Associates owning (or considered as owning within the
meaning of Section 318 of the Code, as modified by
Section 416(i)(1)(B)(i) of the Code) 5% or more of
the outstanding stock of the Employer or stock
possessing 5% or more of the total combined voting
power of all stock of the Employer, or, if the
Employer is other than a corporation, any Associate
owning 5% or more of the capital or profits interest
in the Employer;
(4) Associates owning (or considered as owning within the
meaning of Section 318 of the Code, as modified by
Section 416(i)(1)(B)(ii) of the Code) 1% or more of
the outstanding stock of the Employer or stock
possessing 1% or more of the total combined voting
power of all stock of the Employer and whose annual
Compensation from the Employer is $150,000 or more,
or, if the Employer is other than a corporation, any
Associate owning 1% or more of the capital or profits
interest in the Employer, and whose annual
Compensation from the Employer is $150,000 or more;
The beneficiary of any deceased Associate who was a Key
Employee shall be considered a Key Employee for the same
period as the deceased Associate would have been so
considered.
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<PAGE> 56
(D) Non-Key Employee. A Non-Key Employee means any Associate who
is not a Key Employee. Any Associate who previously was a Key
Employee and is now a Non-Key Employee will be excluded
entirely from the calculation done to determine Top-heavy
Status.
(E) Employer. For purposes of Section 13.2 the Employer is the
Employer who adopts this Plan, and any Affiliated Employer.
(F) Accrued Benefit. The Accrued Benefit is the yearly Pension
commencing on the Participant's Normal Retirement Date
determined in accordance with Section 4 as if the
Participant's Termination of Employment had occurred as of the
most recent valuation date prior to the Determination Date.
For purposes of Section 13.2 the Accrued Benefit will not
include the accrued benefit attributable to any Associate who
has not performed an Hour of Service during the five-year
period ending on the Determination Date, but will include any
distribution made to a Key Employee or Non-Key Employee during
the five-year period ending on the Determination Date.
The extent to which rollover contributions and transfers are
to be taken into account in determining the Accrued Benefit
will be determined in accordance with Section 416(g)(4)(A) of
the Code and IRS Regulation 1.416-1, T-32.
(G) Present Value. Present Value shall be based on the actuarial
assumptions specified in Supplement A - Section A.1. If this
Plan is part of a Required or Permissive Aggregation Group,
the mortality and interest assumptions shall be the same for
all plans within the Group. In determining Present Value,
proportional subsidies shall not be taken into account, but
nonproportional subsidies shall be taken into account. The
Present Value will be determined as of the valuation date
occurring during the twelve-month period ending on the
Determination Date. The valuation date is the date used in
computing Plan costs for minimum funding.
(H) Required Aggregation Group. The term Required Aggregation
Group means all of the plans of the Employer which cover a Key
Employee during the five-year period ending on the relevant
Determination Date, or those plans which during said five-year
period were aggregated, so that a plan which covers a Key
Employee would satisfy the requirements of Sections 401(a)(4)
or 410 of the Code.
(I) Permissive Aggregation Group. The term Permissive Aggregation
Group means all of the plans of the Employer which are
included in the Required Aggregation Group plus any plans of
the Employer which provide comparable benefits to the benefits
provided by plans in the Required Aggregation Group and are
not included in the Required Aggregation Group, but which
satisfy the requirements of Sections 401(a)(4) and 410 of the
Code when considered together with the Required Aggregation
Group.
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<PAGE> 57
(J) Determination Date. The term Determination Date means, with
respect to a Plan Year, the last day of the preceding Plan
Year, or, in the case of the first Plan Year of a plan, the
last day of the first Plan Year.
(K) Minimum Pension Benefit. The yearly amount of Pension as
described in Section 4.1 for a Participant who is a Non-Key
Employee, shall not be less than the Participant's average
yearly Compensation, during the Participant's five
highest-paid consecutive calendar years, multiplied by the
lesser of (1) 2%, multiplied by the number of the
Participant's years of Service after December 31, 1983 in
which this Plan is a Top-Heavy Plan, or (2) 20%. This minimum
amount is assumed to be payable on a single life annuity
basis, commencing on his Normal Retirement Date.
If a Participant who is a Non-Key Employee is covered under
this Plan and a defined contribution plan maintained by the
Employer, the yearly amount of Pension, for such Participant,
determined in the preceding paragraph shall not be applicable
to such Participant if the minimum contribution under such
defined contribution plan is equal to 5% of the Participant's
Compensation (or is equal to 7 1/2% of the Participant's
Compensation if the Employer uses a factor of 1.25 in
computing the denominators of the defined benefit and defined
contribution fractions under Section 415(e) of the Code).
If this Plan is not Super Top-Heavy, such 2% benefit accrual
shall be increased to 3% and such 20% by one percentage point
for any year in which the Employer also maintains a defined
contribution plan if such increase is necessary to avoid the
application of Section 416(h)(1) of the Code relating to
special adjustments to Section 415 of the Code limitations for
plans which are Top-Heavy, if the adjusted limitations of said
Section 416(h)(1) would otherwise be exceeded if such minimum
contribution were not so increased.
If the minimum Pension payable on a basis other than a single
life annuity or on a date other than Normal Retirement Date,
it shall be adjusted to be the actuarial equivalent of the
single life annuity form payable at Normal Retirement Date.
(L) Minimum Vesting Percentage. Notwithstanding any other Vesting
Percentage provision of this Plan to the contrary unless it
would produce a greater Vesting Percentage, the Vesting
Percentage that is applied to the Participant's Accrued
Benefit, on and after this Plan becomes a Top-Heavy Plan,
shall, in accordance with the further terms of this Plan, be
as determined below:
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<PAGE> 58
<TABLE>
<CAPTION>
YEARS OF SERVICE PERCENTAGE
--------------------------- ----------
<S> <C>
If he has less than 2 years 0%
If he has 2 years 20%
If he has 3 years 40%
If he has 4 years 60%
If he has 5 years 100%
</TABLE>
(M) Compensation Limitation. For any Plan Year in which this is a
Top-Heavy Plan, the annual Compensation for each Participant
shall not exceed the dollar limitation set forth in the
definition of Earnings.
(N) Modification to Section 13.1 When a Plan is a Top-Heavy Plan.
For any Limitation Year in which the Plan is determined to be
a Top-Heavy Plan, the definitions of the "Defined Benefit
Fraction" and "Defined Contribution Fraction" shall be changed
by substituting in the denominator of each Fraction "100%" for
"125%".
53
<PAGE> 59
TRUSERV Corporation herewith causes this amended and restated Plan to be
executed by its duly authorized officers on this __________ day of
______________, 1998.
TRUSERV CORPORATION
---------------------------------
54
<PAGE> 60
SUPPLEMENT A
ACTUARIAL ASSUMPTIONS
A.1. LUMP SUM DISTRIBUTIONS
For purposes of determining "Actuarially Equivalent" or "Actuarial
Equivalent" lump sum distributions under the Plan, the following
actuarial assumptions are used:
(a) Rate of Interest: The rate in use during a Plan Year shall be
the annual rate of interest on 30-year Treasury securities for
the month of November immediately preceding such Plan Year as
specified by the Commissioner for such month in the Internal
Revenue Bulletin but not greater than 8.0%.
(b) Mortality: The mortality table prescribed by the Secretary of
the Treasury, in revenue rulings, notices, or other guidance
pursuant to Section 807(d)(5)(A) of the Code that has been
published in the Internal Revenue Bulletin as of the date such
lump sum distribution is being determined.
A.2. TYPE OF ANNUITY
For purposes of determining "Actuarially Equivalent" or "Actuarial
Equivalent" benefits under the Plan, the following factors shall be
used in determining benefits that are actuarially equivalent to the
normal single annuity for the life of the Participant form of benefit
provided under the Plan (in no event will a factor exceed one):
(a) 50% Qualified Joint and Survivor Annuity: 90%, plus (or minus)
0.4 of 1% for each full year that the Participant is younger
(or older) than the Participant's spouse; except that, if the
Participant's age at the Annuity Starting Date is less than 55
years, "94%" shall be substituted for "90%." In no event will
this factor exceed 100%.
(b) 100% Qualified Joint and Survivor Annuity: 81%, plus (or
minus) 0.7 of 1% for each full year that the Participant is
younger (or older) than the Participant's spouse; except that,
if the Participant's age at the Annuity Starting Date is less
than 55 years, "89%" shall be substituted for "81%." In no
event will this factor exceed 100%.
(c) Life and 10-Year Certain Annuity: 94%; except that, if the
Participant's age at the Annuity Starting Date is less than 55
years, "98%" shall be substituted for "94%."
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<PAGE> 61
SUPPLEMENT B
MERGER OF NORTHERN WHOLESALE HARDWARE CO.
RETIREMENT PLAN WITH AND INTO PRIOR PLAN
B.1. MERGER
Effective as of January 1, 1990, the Northern Wholesale Hardware Co.
Retirement Plan ("Northern Plan") was amended, continued and merged
with the Cotter & Company Pension Plan ("Prior Plan").
B.2. PARTICIPATION
On January 1, 1990, each former participant in the Northern Plan
("Northern Participant") became a Participant in the Prior Plan and
will have benefits determined and paid in accordance with this Plan.
B.3. PRESERVATION OF ACCRUED BENEFIT
Notwithstanding any provisions of the Plan to the contrary, in no event
shall a Northern Participant's accrued benefit under the Prior Plan as
in effect on January 1, 1990 be less than the accrued earned by such
Northern Participant under the Northern Plan as at December 31, 1989.
B.4. YEARS OF SERVICE
Each Northern Participant will be credited with the Years of Service
before January 1, 1990 that such Northern Participant had earned under
the Northern Plan as in effect on December 31, 1989 for participation,
vesting and accrued benefit purposes.
B.5. RECORDS
The Committee shall maintain such records as it deems necessary and
desirable to demonstrate the amount of each Northern Participant's
benefits and Years of Service under Paragraphs B.3 and B.4 above
pursuant to applicable Internal Revenue Service regulations.
B.6. EFFECTIVE DATE
The effective date of this Supplement B is January 1, 1990.
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<PAGE> 62
SUPPLEMENT C
SERVISTAR COAST TO COAST CORPORATION
RETIREMENT INCOME PLAN PROVISIONS
The following provisions from the SERVISTAR Plan are included herein (with
slight modification if appropriate) to assist the administration of this Plan as
it requires inclusion of the SERVISTAR Plan provisions or the calculation of the
Participant's Accrued Benefit under the SERVISTAR Plan:
Certain defined terms from the SERVISTAR Plan are referred to in this Supplement
C, but are not reproduced in the interest of conciseness. The terms - Accrued
Benefit, Code, Contingent Pensioner, Credited Interest, Employee, Employer,
Excess Benefit Plan, Long-Term Disability, Normal Retirement Date, Participant
Pension, Retirement Date, Termination of Employment - should not need further
defining and are intended to continue their meaning from the SERVISTAR Plan. The
term "Plan" was used in the SERVISTAR Plan to refer to itself, but will be used
herein to refer to this Plan. Any reference to "Plan" from the SERVISTAR Plan
document is changed herein to "SERVISTAR Plan" where appropriate. Any use of the
term "Plan Year" in Supplement C will refer to the SERVISTAR Plan Year (July 1
to June 30) unless otherwise indicated. The method used to recast SERVISTAR Plan
"Earnings" for this Plan is described in Plan Section 2.1(K). Vesting Percentage
as used herein is now defined in Section 2.1(NN) of the Plan.
SERVISTAR PLAN SECTION REFERENCES HAVE BEEN CHANGED TO SUPPLEMENT C SECTIONS IF
INCLUDED IN THIS SUPPLEMENT C, OTHERWISE SERVISTAR PLAN REFERENCES HAVE BEEN
MAINTAINED.
The provisions of this Supplement C are subject to Section 4.6 of the Plan which
provides that SERVISTAR Plan service, credited service, earnings and cash
balance credits shall cease on January 2, 1998.
In the event of a conflict in the terms of the SERVISTAR Plan as included in
Supplement C and the SERIVSTAR Plan itself, the terms of the SERVISTAR Plan
shall control.
C.1 EARNINGS
Includes basic salary or wages paid to an Employee for services
rendered to the Employer, determined prior to any pre-tax contributions
under a "qualified cash or deferred arrangement" (as defined under
Section 401(k) of the Code and its applicable regulations) or under a
"cafeteria plan" (as defined under Section 125 of the Code and its
applicable regulations), including executive bonuses, pay for which no
duties are performed due to vacation pay, holiday pay, sick pay, and
any other authorized policy pay, safe driver awards and perfect
attendance awards (effective July 1, 1994), gain sharing (effective
July 1, 1995) and overtime payments received from the Employer during
each Plan Year, excluding Employer contributions to Social Security,
contributions to this or through any other profit sharing or retirement
plan or program, capital income compensation or the value of any other
fringe benefits (including any long-term disability payments) provided
at the expense of the Employer which are not specifically included
herein.
If, in a Plan Year, a Participant has lower Earnings than he had the
preceding Plan Year because he was paid either Worker's Compensation or
Long-Term Disability, or both, Earnings will be considered to be his
Earnings received in the preceding Plan Year. These higher Earnings
calculations will continue for the period of time that benefits are
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<PAGE> 63
paid under either Worker's Compensation or Long-Term Disability, or
both. Notwithstanding the immediately preceding two sentences, for Plan
Years beginning on or after July 1, 1996, if a Participant is disabled
in any Plan Year, only the Participant's Earnings in such Plan Year
shall be taken into account for any purpose under the SERVISTAR Plan.
Notwithstanding any SERVISTAR Plan provision to the contrary, Earnings
for any Participant, who transferred employment from Coast to Coast
Corporation to SERVISTAR Corporation prior to July 1, 1996, shall only
include such remuneration paid by SERVISTAR Corporation.
C.2 HOUR OF SERVICE
(1) each hour for which the Employee is either directly or
indirectly paid by the Employer or Affiliated Employer or
entitled to payment,
(a) for duties performed during the applicable
computation period, and
(b) for reasons other than the performance of duties
(such as but not limited to paid sick leave, paid
vacation time), irrespective of whether the
employment relationship has terminated, and
(2) any additional hours as normally would have been credited to
the Employee had he worked on a nonovertime basis during the
following periods for the Employer or an Affiliated Employer:
(a) temporary layoff,
(b) leave of absence of up to two years, as authorized by
the Employer pursuant to the Employer's established
leave policy, and
(c) military leave while the Employee's reemployment
rights are protected by law, provided that any such
periods qualify as Service in accordance with the
terms of the Service definition, and
58
<PAGE> 64
(3) each hour for which back pay is either awarded or agreed to by
the Employer or an Affiliated Employer, irrespective of
mitigation of damages.
Hours of Service shall be credited to the Employee for the computation
period(s): (1) in which the duties are performed or payments are due,
(2) in which payments would have been due during a covered unpaid leave
of absence or layoff, or (3) to which the back pay award or agreement
pertains. The same Hours of Service shall not be credited under more
than one paragraph of this definition.
In no event will Hours of Service be allowed and computed in a manner
less liberal than the manner described in the Department of Labor
Regulation 2530.200b-2.
C.3 SERVISTAR PLAN PRIOR FORMULA
With respect to each Participant who retires or terminates on or after
July 1, 1996, the yearly amount of basic Pension payable under the Plan
is equal to the greater of (A) or (B) plus (C):
(A) Is (i) less (ii) where:
(i) is 2% of a Participant's Final Earnings multiplied by
the years and fraction of Credited Service, up to a
maximum of 25, 1/2 of 1% of a Participant's Final
Earnings multiplied by the years and fraction of
Credited Service over 25 years, and
(ii) is 3/4 of 1% of the Participant's Offset Earnings
multiplied by the years and fraction of Credited
Service, up to a maximum of 25, plus 1/4 of 1% of (a)
the Participant's Offset Earnings, or (b) effective
July 1, 1994 the Participant's Final Earnings (if
smaller), multiplied by the years and fractions of
Credited Service over 25 years, provided that this
offset will not be applied until the first of the
month following or coincident with the Participant's
attainment of Social Security Retirement Age.
Notwithstanding any Plan provision to the contrary, for
purposes of calculating the benefit under Supplement C Section
C.3(A)(i) and (ii), Credited Service shall not include any
period after June 30, 1996.
(B) Is the amount the Participant would have received under the
terms of Section 4.1(B) of the SERVISTAR Plan (referring to
the SERVISTAR Plan as in effect on June 30, 1983) assuming
level Earnings from that time forward, using Credited Service
through June 30, 1994 only.
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<PAGE> 65
(C) With respect to each Participant who contributed to the
SERVISTAR Plan in accordance with its terms prior to July 1,
1974, the Employee Accrued Benefit, unless:
(1) if a cash refund of the Participant's Contributions
with Credited Interest is elected on or after July 1,
1994, the Employee Accrued Benefit is not payable
under this paragraph (C);
(2) if a refund of the Participant's contributions with
Credited Interest is elected prior to January 1,
1994, the benefit calculated under this paragraph (C)
is equal to the excess, if any, of the amount
determined in paragraph (a) over paragraph (b),
where:
(a) is a yearly amount beginning on the
Participant's Normal Retirement Date
determined on an equivalent Value (using the
monthly interest rate in effect when the
refund is paid instead of the yearly rate)
to the cash refund of the Participant's
contributions; and
(b) is the Employee Accrued Benefit;
provided, however, that the yearly benefit under Supplement C Section
C.3 of a Participant who is affected by the imposition of the $150,000
limitation on Earnings shall be equal to the greater of (a) the
Participant's benefit calculated under the provisions of Supplement C
Section C.3 as determined with regard to such imposition, or (b) the
benefit equal to the Participant's Accrued Benefit determined as of the
last day of the Plan Year beginning in 1993, plus the Participant's
Accrued Benefit based solely on Credited Service after such date under
the provisions of Supplement C Section C.3 as determined with regard to
such imposition. For purposes of the SERVISTAR Plan, the Accrued
Benefit determined as of the last day of the Plan Year beginning in
1993 shall be equal to the greater of (c) the Participant's Accrued
Benefit determined as of the last day of the Plan Year beginning in
1993 as determined with regard to the $200,000 limitation on Earnings,
or (d) the Participant's Accrued Benefit determined as of the last day
of the Plan Year beginning in 1988, plus the Participant's Accrued
Benefit based solely on Credited Service after such date under the
provisions of the SERVISTAR Plan as determined with regard to such
limitation.
In no event will the Pension determined for a Participant on his
Retirement Date to be less than the highest amount of Pension the
Participant would have received in the same form of payment had his
Credited Service ceased at any time prior to his Retirement Date when
he was eligible to receive an immediate Pension.
In no event will any amendment to the SERVISTAR Plan reduce the Accrued
Benefit to the effective date of such amendment including, but not
limited to, any Pension payable as a result of the delayed application
of the offset in Supplement C Section C.3.(A)(ii).
60
<PAGE> 66
In addition, effective July 1, 1988, in no event will the annuities
purchased for Participants in the Employer's Excess Benefit Plan plus
retirement income payable under the Plan (as limited by the maximums
outlined in Section 13.1 of the Plan) exceed the total retirement
income as calculated in this Supplement C Section C.3 and the Cash
Balance Formula under Section 4.4 of the SERVISTAR Plan (assuming the
maximums in Section 13.1 of the Plan had not been in effect). Any
excess will be subtracted from the yearly amount of retirement income
payable under the Plan after reduction to comply with the maximums as
outlined in Section 13.1 of the Plan. This provision will not reduce
the amount of retirement income accrued under the SERVISTAR Plan as of
July 1, 1988.
C.4 FINAL EARNINGS
The highest average Earnings received in any five consecutive Plan
Years ending on or before June 30, 1996, excluding any Plan Year in
which the Credited Service is not granted under Supplement C Section
C.5. Notwithstanding the foregoing, for the purposes of determining a
Participant's Final Earnings, all Earnings received during the Plan
Year starting January 1, 1976 and ending July 1, 1976 shall be
annualized and counted as a full Plan Year's Earnings.
C.5 CREDITED SERVICE
That portion of a Participant's Service which is included for purposes
of determining the amount of his accrued Pension attributable to the
Prior Formula. With respect to any employment period, a Participant's
Credited Service shall include employment with the Employer
corresponding with Service allowed except:
(1) Any Plan Year in which the Participant has less than 1,000
Hours of Service, except for the Plan Year commencing on
January 1, 1976, as determined in Supplement C Section C.6.
(2) Service prior to a break-in-service if the Participant
received a lump sum payment equal to the equivalent Value of
his vested accrued Pension at the time of his latest
termination.
A Participant's Credited Service shall be counted in whole years and
full months. In no event will a Participant receive Credited Service
for a period that is considered a "break-in-service," as determined in
the Service definition.
Notwithstanding any Plan provision to the contrary, Credited Service
shall not include any Service for periods after June 30, 1996.
61
<PAGE> 67
C.6 SERVICE
Shall be the aggregate number of years of employment with the Employer
excluding any period or portion of any period as determined in
accordance with the following rules. Service is used to determine an
Employee's participation and vesting status, and effective for Plan
Years beginning on or after July 1, 1996, Service also is used to
determine the Participant's Plan Year Cash Balance Formula benefit
credit under Section 4.4 of the SERVISTAR Plan.
(1) With respect to any employment periods prior to January 1,
1976, an Employee's last period of continuous employment
immediately prior to such date will be counted as Service.
(2) With respect to any employment periods on and after January 1,
1976 and before January 2, 1998:
(a) If in any Plan Year an Employee has at least 1000
hours of Service, he will be credited with one year
of Service.
(b) If in any Plan Year an Employee has less than 1000
Hours of Service, no Service will be credited for
such Plan Year but a break-in service" will not be
deemed to have occurred.
(c) If in any Plan Year an Employee has 500 or less Hours
of Service, no Service will be credited for such Plan
Year, and a "break-in-service" will be deemed to have
occurred.
Solely for purposes of determining whether a one year
break-in-service has occurred in a Plan Year, an Employee who
is absent from work for maternity or paternity reasons shall
receive credit for up to 501 Hours of Service which would
otherwise have been credited to such Employer but for such
absence, or in any case in which such hours cannot be
determined 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence:
(a) by reason of the pregnancy of the Employee,
(b) by reason of a birth of a child of the Employee,
(c) by reason of the placement of a child with the
Employee in connection with the adoption of such
child by such Employee, or
(d) for purposes of caring for such child for a period
beginning immediately following such birth or
placement.
The Hours of Service credited under this paragraph shall be
credited (a) in the Plan Year in which the absence begins if
the crediting is necessary to prevent a break-in-service in
that period, or (b) in all other cases, in the following Plan
Year.
(3) Service prior to a break-in-service which occurs before July
1, 1985 will be determined in accordance with the terms of the
SERVISTAR Plan as of the date the break-in-service occurred.
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<PAGE> 68
(4) If an Employee who has a break-in-service which occurs after
July 1, 1985 is later reemployed by the Employer, the
following special rule shall apply:
Service prior to his most recent break-in-service shall be
counted along with any Service earned on or after the
Employee's reemployment date:
(a) he was entitled to any vested Pension attributable to
Employer contributions in accordance with Section 6
of the SERVISTAR Plan prior to his most recent
break-in-service, or
(b) he was not entitled to any vested Pension
attributable to Employer contributions and the length
of his latest break-in-service did not equal or
exceed the greater of:
(i) the Employee's aggregate number of years of
prebreak Service; or
(ii) 5 years.
If a reemployed Employee fails to meet any of the tests
described in (a) or (b) above, any Service earned prior to his
most recent break-in-service shall be disregarded.
(5) Absence from employment shall be counted as Service if the
following circumstances apply:
(a) temporary layoff,
(b) subject to Section 2.1(L) of the SERVISTAR Plan, a
leave of absence of up to two years, as authorized by
the Employer pursuant to the Employer's established
leave policy,
(c) military leave while the Employee's re-employment
rights are protected by law,
provided that the Employee returns to active employment with
the Employer when recalled (if temporary layoff), within 2
years (if leave of absence), or within 90 days after he
becomes eligible for release from active duty (if military
leave). Except as required by law for military leaves, if the
Employee does not return to active employment with the
Employer, his Service will be deemed to have ceased on the
date his absence commenced, and he will receive credit for 501
Hours of Service for each year of continuous absence.
The Employer's leave policy shall be applied in a uniform and
nondiscriminatory manner to all Employees under similar
circumstances.
(6) Employment with a predecessor company shall be counted as
Service to the extent required by ERISA.
(7) Transfers and Service with an Affiliated Employer or as a
Leased Employee
(a) If an Employee (i) becomes employed by the Employer
in any capacity
63
<PAGE> 69
other than as an Employee, or (ii) becomes employed
by an Affiliated Employer, or (iii) becomes a Leased
Employee, he shall retain any Credited Service he has
under the SERVISTAR Plan. Upon his later retirement
or termination of employment with the Employer or
Affiliated Employer (or upon benefit commencement in
the case of a Leased Employee), any benefits to which
the Employee is entitled under the SERVISTAR Plan
shall be determined under the SERVISTAR Plan
provisions in effect on the date he ceases to be an
Employee, and only on the basis of his Credited
Service accrued while he was an Employee.
(b) Subject to the break-in-service provisions of this
Supplement C Section C.6, in the case of a person who
(i) was originally employed by the Employer in any
capacity other than as an Employee, or (ii) was
originally employed by an Affiliated Employer, or
(iii) was originally providing services to the
Employer as a Leased Employee, and thereafter becomes
an Employee, upon his later retirement or termination
of employment, the benefits payable under the
SERVISTAR Plan shall be computed under the SERVISTAR
Plan provisions in effect at that time, and only on
the basis of the Credited Service accrued while he is
an Employee.
(c) Any Participant who was formerly employed with Coast
to Coast Stores, Inc. (as it was formerly known)
shall receive credit for service with Coast to Coast
Stores, Inc. prior to May 29, 1990 (as defined at
that time by Coast to Coast Stores, Inc.) for
purposes of calculating his Service for the Vested
Percentage.
(d) For any Participant who is an Employee of the
Employer on July 1, 1996, Service, with respect to
Plan Years beginning on or after July 1, 1996, shall
include all service recognized under the Coast Profit
Sharing and Savings Plan for purposes of vesting
thereunder and credited to the Participant as of June
30, 1996.
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<PAGE> 70
C.7 OFFSET EARNINGS
The average of the Employee's Earnings for the three consecutive Plan
Years preceding the Plan Year in which the Employee's employment ceases
or June 30, 1996, if earlier. In determining the Offset Earnings, any
Earnings for a Plan Year in excess of the taxable wage base in effect
under Section 230 of the Social Security Act shall be disregarded.
Prior to June 30, 1994, Offset Earnings shall not include any Plan Year
excluded from Credited Service under Supplement C Section C.5 and shall
be the average of the Employee's Earnings for the three highest
consecutive Plan Years ending with the Plan Year that the Employee's
employment ceases. Notwithstanding the foregoing, Offset Earnings shall
not exceed Covered Compensation for the Plan Year in which the
Employee's employment ceases.
C.8 COVERED COMPENSATION
For any Participant, the average of the taxable wage bases in effect
under Section 230 of the Social Security Act for each year in the
35-year period ending with the year in which the Participant attains
his Social Security Retirement Age rounded to the nearest $600 or such
other similar amount designated by the Internal Revenue Service. In
determining a Participant's Covered Compensation for any Plan Year, the
taxable wage base for the current Plan Year and any subsequent Plan
Year shall be assumed to be the same as the taxable wage base in effect
as of the beginning of the Plan Year for which the determination is
made.
C.9 SOCIAL SECURITY RETIREMENT AGE
Age 65 with respect to a Participant who was born before January 1,
1938; age 66 with respect to a Participant who was born after December
31, 1937 and before January 1, 1955; and age 67 with respect to a
Participant who was born after December 31, 1954. For employees who
terminate prior to July 1, 1994, Social Security Act means the age (in
years and months) at which he or she qualifies for unreduced old age
Social Security benefits.
C.10 NORMAL RETIREMENT DATE
For benefit eligibility and vesting purposes, the day on which the
Participant attains his 60th birthday. For all other purposes, the
first day of the month coinciding with or next following the
Participant's 60th birthday.
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<PAGE> 71
C.11 VALUE
With respect to the refund of a Participant's contribution under
Supplement C Section C.20 or the calculation of the monthly benefit
derived from the Participant's contributions under Supplement C Section
C.3(C)(2)(a), Value means the present value of a Participant's Pension
based upon the Pension Benefit Guaranty Corporation's male annuity
rates, factors, tables, assumptions and procedures for lump sum
payments in effect for the month in which the refund is distributed.
For all other Pensions based on the provisions of the SERVISTAR Plan:
(i) for terminations occurring on or after July 1, 1996, Value shall
mean the equivalent actuarial value of the Ten-Year Certain and Life
form of payment as described in Supplement C Section C.17 computed on
the basis of the Participant's age at distribution (or the
Beneficiary's age, if the benefit is payable due to the Participant's
death prior to commencement of benefits), the 1983 Group Annuity
Mortality Table as set forth in Revenue Ruling 95-28 or such other
mortality table as may be required by the Internal Revenue Service in
any ruling superseding Revenue Ruling 95-28, with interest at the
annual rate of interest on 30-Year Treasury securities. The rate of
interest shall be fixed for each Plan Year and shall be determined by
the rate of interest on 30-year Treasury securities set in April and
published by the Board of Governors of the Federal Reserve System in
May of the preceding Plan Year; and (ii) for terminations occurring
before July 1, 1996, Value shall mean the equivalent actuarial value
calculated as above but based on the Pension Benefit Guaranty
Corporation's male annuity rates, factors, tables, assumptions and
procedures for lump sum payments in effect at the beginning of the Plan
Year in which the distribution is made.
C.12 ADJUSTMENT FACTOR
The appropriate adjustment factor(s) which may be applicable to a
Participant's Pension under the SERVISTAR Plan in accordance with the
further terms of the SERVISTAR Plan.
With respect to each Participant whose Retirement Date occurs after
August 1, 1983, the appropriate Adjustment Factors are the applicable
gender-neutral Adjustment Factors based on the 1971 GAM, 6% interest
and the gender mix as shown in the Tables attached hereto and, with
respect to Participants who are retiring after the Normal Retirement
Date, the late retirement Adjustment Factors. Table A shall apply to
Accrued Benefit as of June 30, 1994 in accordance with the procedures
in Section 5.4 of the SERVISTAR Plan.
C.13 CASH BALANCE ACCOUNT
Is the bookkeeping account established for eligible Participants who
accrue Service under the SERVISTAR Plan after June 30, 1996 and who are
entitled to a Cash Balance Benefit.
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<PAGE> 72
C.14 CASH BALANCE BENEFIT
The benefit described in Cash Balance Formula under Section 4.4 of the
SERVISTAR Plan derived from a Participant's Cash Balance Account, which
if not distributed in a lump sum, will be the annual benefit which has
a Value equal to the Participant's Cash Balance Account, adjusted as
necessary to reflect the form of payment elected by the Participant by
applying the Adjustment Factor.
C.15 AMOUNT OF EARLY PENSION REDUCTION
During the period commencing July 1, 1994 and ending June 30, 1996, the
yearly amount of early Pension payable to the Participant will be equal
to the amount determined in Supplement C Section C.3, based on Credited
Service to the date the Participant's employment ceases or June 30,
1996, if earlier, and then reduced by 1/4 of 1%, for each month (3% per
year) by which the early retirement date precedes the Normal Retirement
Date up to 60 months early (5 years) and then 2/5 of 1% for each month
(4.8% per year) thereafter.
C.16 NORMAL FORM OF PAYMENT - JOINT AND SURVIVOR
If the Participant has a Spouse on his Retirement Date, the normal form
of payment is the Joint and Survivor form. This form provides that,
upon the Participant's death on or after his Retirement Date, 50% of
the Pension payable to the Participant, will be paid to such Spouse, if
surviving the Participant, for the balance of the Spouse's life.
However, if the Participant dies within the ten-year period commencing
on his Retirement Date, a Pension in the same amount as the Participant
would have received will be paid until the end of such ten-year period.
As an alternative to the 50% continuation described above, a
Participant may elect that 66-2/3% or 100% of the benefit payable to
him, be continued to his Spouse upon his death. Such election will not
require Spousal Consent as provided in the Plan.
C.17 NORMAL FORM OF PAYMENT - TEN-YEARS CERTAIN
If the Participant does not have a Spouse on his Retirement Date or if
this Termination of Employment occurred prior to January 1, 1976, the
normal form of payment is the Ten Years Certain form. This form
provides that payments will be made to the Participant in an amount
determined in accordance with Supplement C Section C.3 and the Cash
Balance Formula under Section 4.4 of the SERVISTAR Plan during his
lifetime and that, if his death occurs within the 10-year period
commencing upon his Retirement Date, a Pension in the same amount as
the Participant would have received will be paid to the Beneficiary
designated by the Participant for the balance of the 10-year period.
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<PAGE> 73
C.18 CONTINGENT PENSION OPTION
Subject to the right to elect the lump sum payment of the Cash Balance
Benefit, the Participant who elects this option will receive a reduced
Pension amount during his lifetime so that, after his death, a Pension
in the same amount or 66-2/3% or 50% thereof (as specified in the
election) will be paid for the life of the Contingent Pensioner
designated by the Participant if surviving the Participant. However, if
the Participant dies within the ten-year period commencing on his
Retirement Date, payments will not be reduced to the elected percentage
until the tenth anniversary of his Retirement Date.
If the option is in effect on the Participant's Retirement Date, the
amount of Pension payable to the Participant will be determined using
the same procedures specified in Section 4.3(A) of the Plan except that
the Contingent Pensioner Adjustment Factor will be applied instead of
the Joint and Survivor Adjustment Factor.
This option will be inoperative if the Contingent Pensioner dies before
the Participant's Retirement Date or the Participant dies before his
Retirement Date and the terms of the next paragraph are not applicable.
If a Participant who has elected this option dies on or after his
Normal Retirement Date, but before his Pension is due to commence, his
Contingent Pensioner will receive Pension payments beginning on the
first day of the month next following the Participant's death and
continuing for the balance of his life. Prior to the tenth anniversary
of such first day of the month, these Pension payments will be equal to
the amount of Pension which would have been payable to the Participant
had he retired hereunder on such first day of the month with the option
in effect; any such payments payable thereafter will be adjusted by the
continuation percentage (100%, 66-2/3%, or 50%) elected by the
Participant.
C.19 CASH BALANCE BENEFIT PAYMENT OPTION
Notwithstanding any Plan provision to the contrary, the entire Vesting
Percentage of the Cash Balance Benefit portion of the Participant's
Pension may be distributed in a cash lump sum form of payment if
elected by the Participant, or his Beneficiary if applicable. Such
distribution may commence as soon as practicable after the earliest to
occur of the following: the Participant's death, disability, or
retirement, or termination of service and in no event later than the
dates described in Section 8.9 of the Plan. The spousal consent rules
described in Section 8.4 of the Plan shall apply to such distribution.
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<PAGE> 74
C.20 REFUND OF PARTICIPANT'S CONTRIBUTIONS TO PARTICIPANT
If a Participant's Service ceases by reason other than death prior to
his Normal Retirement Date, he may elect prior to or on his Retirement
Date to receive a refund of his Participant's contributions made prior
to July 1, 1974, together with Credited Interest computed thereon to
the date the election is made.
Effective July 1, 1994, the cash refund of the Participant's
contributions shall be no less than the equivalent Value of the yearly
amount of Pension that can be provided by the Participant's
contributions with Credited Interest computed to the date such amount
is applied to purchase this Pension in accordance with the rates in
Table C. Such benefit shall be on a Full Cash Refund - Ten-Year Certain
Form of payment.
Credited Interest on a Participant's Contributions means interest for
the number of full months from the January 1 following the date each
such contribution was paid to the Fund to the date specified herein.
Prior to January 1, 1960, the rate of Credited Interest was 2 1/2% per
annum, compounded annually. From January 1, 1960 to January 1, 1976,
the rate of Credited Interest was 3% per annum, compounded annually.
From January 1, 1976 to July 1, 1983, the rate of Credited Interest is
5% per annum. On and after July 1, 1983, the rate of Credited Interest
is 7% per annum, compounded on each July 1. Any change in the rate of
Credited Interest will apply to interest allowed for months occurring
after the effective date of change.
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<PAGE> 75
SUPPLEMENT D
1999 SPECIAL RETIREMENT OPPORTUNITY
I. Each Participant employed at the Employer's World Headquarters location
(other than the Employer's corporate officers) who will be at least age
55 and have at least 5 Years of Service on December 31, 1999 and who
elects to retire by filing a written notice and waiver agreement with
the Employer on or before August 9, 1999 will be eligible to retire
between July 1 and December 31, 1999. The actual date of retirement
will be determined by the Participant's department management.
Any Participant electing to so retire will be entitled to an enhanced
Pension. The Pension will be calculated by adding 5 Years of Service
and 5 years of age to the Participant's Years of Service and age at his
retirement date. All other benefit provisions will be applied as stated
in the Plan.
Any Participant who is eligible for this Special Retirement Opportunity
and does not elect to retire as provided herein shall not have this
Opportunity available at any future time.
II. Each Participant employed at the Employer's West Loop Facility whose
employment was terminated as a result of that Facility's closing in
July, 1999 and who would have attained at least 30 Years of Service by
the end of the year 2000 if he had continued employment with the
Employer will be eligible for a Pension at the time of such termination
calculated on the basis of the Years of Service he would have at
December 31, 2000. All other benefit provisions will be applied as
stated in the Plan.
Any Participant who is eligible for this Pension enhancement and
transfers employment within the Employer or Affiliated Employer rather
than retire shall not have this enhancement available at any future
time.
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<PAGE> 76
TABLE A
LATE RETIREMENT ADJUSTMENT FACTOR
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Years and Months from Normal Retirement Date to Late Retirement Date
- ------------------------------------------------------------------------------------------------------------------------------------
Months: Years: 0 1 2 3 4 5 6 7 8 9 10
- ------ ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 107.2% 114.4% 122.8% 131.2% 140.8% 150.4% 161.2% 172.0% 182.8% 193.6%
1 100.6% 107.8 115.1 123.5 132.0 141.6 151.3 162.1 172.9 183.7
2 101.2 108.4 115.8 124.2 132.8 142.4 152.2 163.0 173.8 184.6
3 101.8 109.0 116.5 124.9 133.6 143.2 153.1 163.9 174.7 185.5
4 102.4 109.6 117.2 125.6 134.4 144.0 154.0 164.8 175.6 186.4
5 103.0 110.2 117.9 126.3 135.2 144.8 154.9 165.7 176.5 187.3
6 103.6 110.8 118.6 127.0 136.0 145.6 155.8 166.6 177.4 188.2
7 104.2 111.4 119.3 127.7 136.8 146.4 156.7 167.5 178.3 189.1
8 104.8 112.0 120.0 128.4 137.6 147.2 157.6 168.4 179.2 190.0
9 105.4 112.6 120.7 129.1 138.4 148.0 158.5 169.3 180.1 190.9
10 106.0 113.2 121.4 129.8 139.2 148.8 159.4 170.2 181.0 191.8
11 106.6 113.8 122.1 130.5 140.0 149.6 160.3 171.1 181.9 192.7
====================================================================================================================================
</TABLE>
Factors for other years and months will be determined in a manner consistent
with the manner used in determining these factors.
71
<PAGE> 77
TABLE B
CONTINGENT PENSIONER ADJUSTMENT FACTORS
JOINT AND SURVIVOR ADJUSTMENT FACTORS
50% CONTINUATION
<TABLE>
<CAPTION>
===============================================================================================================
Participant
- ---------------------------------------------------------------------------------------------------------------
Age* 55 56 57 58 59 60 61
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C 41 89.1 88.4 87.7 86.9 86.2 85.4 84.6
O 42 89.3 88.7 88.0 87.2 86.4 85.7 84.9
N 43 89.6 89.0 88.2 87.5 86.7 86.0 85.2
T 44 89.9 89.3 88.5 87.8 87.0 86.3 85.5
I 45 90.1 89.5 88.8 88.1 87.3 86.6 85.8
G ----- ---- ---- ---- ---- ---- ---- ----
E 46 90.4 89.8 89.1 88.4 87.7 86.9 86.2
N 47 90.7 90.2 89.4 88.7 88.0 87.3 86.6
T 48 91.0 90.5 89.8 89.0 88.3 87.6 86.9
49 91.3 90.8 90.1 89.4 88.7 88.0 87.3
50 91.6 91.1 90.4 89.7 89.0 89.3 87.6
----- ---- ---- ---- ---- ---- ---- ----
51 91.9 91.4 90.7 90.1 89.4 88.7 88.0
52 92.3 91.7 91.1 90.4 89.8 89.1 88.4
53 92.6 92.1 91.4 90.8 90.1 89.5 88.8
54 92.9 92.4 91.8 91.1 90.5 89.9 89.2
55 93.2 92.7 92.1 91.5 90.9 90.3 89.6
----- ---- ---- ---- ---- ---- ---- ----
P 56 93.5 93.1 92.5 91.9 91.3 90.7 90.1
E 57 93.8 93.4 92.8 92.2 91.7 91.1 90.5
N 58 94.2 93.7 93.2 92.6 92.1 91.5 90.9
S 59 94.5 94.1 93.5 93.0 92.4 91.9 91.4
I 60 94.8 94.4 93.9 93.4 92.8 92.3 91.8
O ----- ---- ---- ---- ---- ---- ---- ----
N 61 95.1 94.7 94.2 93.7 93.2 92.7 92.2
E 62 95.4 95.0 94.6 94.1 93.6 93.1 92.6
R 63 95.7 95.4 94.9 94.4 94.0 93.5 93.1
64 96.0 95.7 95.2 94.8 94.4 93.9 93.5
65 96.3 96.0 95.6 95.2 94.8 94.3 93.9
----- ---- ---- ---- ---- ---- ---- ----
66 96.5 96.3 95.9 95.5 95.1 94.7 94.7
67 96.8 96.5 96.2 95.8 95.5 95.1 94.7
68 97.1 96.8 96.5 96.1 95.8 95.5 95.1
69 97.3 97.1 96.8 96.5 96.1 95.8 95.5
70 97.6 97.4 97.1 96.8 96.5 96.2 95.9
----- ---- ---- ---- ---- ---- ---- ----
71 97.8 97.6 97.3 97.0 96.8 96.5 96.2
72 98.0 97.8 97.5 97.3 97.0 96.8 96.5
73 98.2 98.0 97.8 97.6 97.3 97.1 96.9
74 98.4 98.2 98.0 97.8 97.6 97.4 97.2
75 98.6 98.4 98.3 98.1 97.9 97.7 97.5
===============================================================================================================
</TABLE>
* Age nearest birthday on Retirement Date, or on date option becomes
effective, if later.
Factors for other age combinations will be determined in a manner consistent
with the manner used in determining these factors.
72
<PAGE> 78
TABLE B (CONTINUED)
CONTINGENT PENSIONER ADJUSTMENT FACTORS
66-2/3% CONTINUATION
<TABLE>
<CAPTION>
===============================================================================================================
Participant
- ---------------------------------------------------------------------------------------------------------------
Age* 55 56 57 58 59 60 61
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C 41 85.9 85.2 84.2 83.3 82.4 81.4 80.5
O 42 86.3 85.5 84.6 83.6 82.7 81.8 80.9
N 43 86.6 85.8 84.9 84.0 83.1 82.2 81.2
T 44 86.9 86.2 85.3 84.3 83.4 82.5 81.6
I 45 87.3 86.5 85.6 84.7 83.8 82.9 82.0
G ----- ---- ---- ---- ---- ---- ---- ----
E 46 87.6 86.9 86.0 85.1 84.2 83.3 82.4
N 47 88.0 87.3 86.4 85.5 84.6 83.7 82.9
T 48 88.4 87.7 86.8 85.9 85.0 84.2 83.3
49 88.8 88.1 87.2 86.3 85.5 84.6 83.7
50 89.1 88.4 87.6 86.7 85.9 85.0 84.2
----- ---- ---- ---- ---- ---- ---- ----
51 89.5 88.9 88.0 87.2 86.3 85.5 84.7
52 89.9 89.3 88.5 87.6 86.8 86.0 85.2
53 90.3 89.7 88.9 88.1 87.3 86.5 85.7
54 90.7 90.1 89.3 88.5 87.7 87.0 86.2
55 91.1 90.5 89.8 89.0 88.2 87.4 86.7
----- ---- ---- ---- ---- ---- ---- ----
P 56 91.5 91.0 90.2 89.5 88.7 87.9 87.2
E 57 91.9 91.4 90.7 89.9 89.2 88.5 87.7
N 58 92.4 91.8 91.1 90.4 89.7 89.0 88.3
S 59 92.8 92.2 91.6 90.9 90.2 89.5 88.8
I 60 93.2 92.7 92.0 91.3 90.7 90.0 89.3
O ----- ---- ---- ---- ---- ---- ---- ----
N 61 93.6 93.1 92.4 91.8 91.2 90.5 89.9
E 62 93.9 93.5 92.9 92.3 91.7 91.0 90.4
R 63 94.3 93.9 93.3 92.7 92.2 91.6 91.0
64 94.7 94.3 93.8 93.2 92.6 92.1 91.5
65 95.1 94.7 94.2 93.7 93.1 92.6 92.1
----- ---- ---- ---- ---- ---- ---- ----
66 95.4 95.1 94.6 94.1 93.6 93.1 92.6
67 95.8 95.4 95.0 94.5 94.0 93.6 93.1
68 96.1 95.8 95.4 94.9 94.5 94.0 93.6
69 96.4 96.2 95.8 95.3 94.9 94.5 94.1
70 96.8 96.5 96.1 95.8 95.4 95.0 94.6
----- ---- ---- ---- ---- ---- ---- ----
71 97.0 96.8 96.5 96.1 95.7 95.4 95.1
72 97.3 97.1 96.8 96.4 96.1 95.8 95.5
73 97.6 97.4 97.1 96.8 96.5 96.2 95.9
74 97.8 97.7 97.4 97.1 96.8 96.6 96.3
75 98.1 97.9 97.7 97.4 97.2 97.0 96.7
===============================================================================================================
</TABLE>
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner
option becomes effective, if later.
Factors for other age combinations will be determined in a manner
consistent with the manner used in determining these factors.
73
<PAGE> 79
TABLE B (CONTINUED)
CONTINGENT PENSIONER ADJUSTMENT FACTORS
66-2/3% CONTINUATION
<TABLE>
<CAPTION>
===============================================================================================================
Participant
- ---------------------------------------------------------------------------------------------------------------
Age* 62 63 64 65 66 67 68
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C 41 79.5 78.5 77.5 76.5 75.5 74.5 73.5
O 42 79.9 78.9 77.9 76.9 75.9 74.9 73.9
N 43 80.2 79.2 78.2 77.2 76.2 75.3 74.3
T 44 80.6 79.6 78.6 77.6 76.6 75.7 74.7
I 45 81.0 80.0 79.0 78.0 77.0 76.1 75.1
G ----- ---- ---- ---- ---- ---- ---- ----
E 46 81.4 80.4 79.5 78.5 77.5 76.5 75.6
N 47 81.9 80.9 79.9 78.9 78.0 77.0 76.1
T 48 82.3 81.4 80.4 79.4 78.4 77.5 76.5
49 82.8 81.8 80.8 79.9 78.9 78.0 77.0
50 83.2 82.3 81.3 80.3 79.4 78.4 77.5
----- ---- ---- ---- ---- ---- ---- ----
51 83.7 82.8 81.8 80.9 79.9 79.0 78.1
52 84.2 83.3 82.4 81.4 80.5 79.6 78.6
53 84.7 83.8 82.9 82.0 81.1 80.1 79.2
54 85.3 84.3 83.4 82.5 81.6 80.7 79.8
55 85.8 84.9 84.0 83.1 82.2 81.3 80.4
----- ---- ---- ---- ---- ---- ---- ----
P 56 86.3 85.4 84.6 83.7 82.8 81.9 81.0
E 57 86.9 86.0 85.2 84.3 83.4 82.6 81.7
N 58 87.4 86.6 85.8 84.9 84.1 83.2 82.3
S 59 88.0 87.2 86.3 85.5 84.7 83.8 83.0
I 60 88.5 87.7 86.9 86.1 85.3 84.5 83.7
O ----- ---- ---- ---- ---- ---- ---- ----
N 61 89.1 88.3 87.6 86.8 86.0 85.2 84.4
E 62 89.7 88.9 88.2 87.4 86.7 85.9 85.1
R 63 90.3 89.5 88.8 88.1 87.4 86.6 85.8
64 90.8 90.1 89.4 88.8 88.1 87.3 86.6
65 91.4 90.7 90.1 89.4 88.7 88.0 87.3
----- ---- ---- ---- ---- ---- ---- ----
66 91.9 91.3 90.7 90.0 89.4 88.7 88.0
67 92.5 91.9 91.3 90.7 90.1 89.4 88.7
68 93.0 92.5 91.9 91.3 90.7 90.1 89.5
69 93.6 93.0 92.5 92.0 91.4 90.8 90.2
70 94.1 93.6 93.1 92.6 92.1 91.5 90.9
----- ---- ---- ---- ---- ---- ---- ----
71 94.6 94.1 93.6 93.1 92.7 92.1 91.6
72 95.0 94.6 94.1 93.7 93.3 92.7 92.2
73 95.5 95.1 94.7 94.2 93.8 93.4 92.9
74 95.9 95.5 95.2 94.8 94.4 94.0 93.5
75 96.4 96.0 95.7 95.4 95.0 94.6 94.2
===============================================================================================================
</TABLE>
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner
option becomes effective, if later.
Factors for other age combinations will be determined in a manner
consistent with the manner used in determining these factors.
74
<PAGE> 80
TABLE B (CONTINUED)
CONTINGENT PENSIONER ADJUSTMENT FACTORS
100% CONTINUATION
<TABLE>
<CAPTION>
===============================================================================================================
Participant
- ---------------------------------------------------------------------------------------------------------------
Age* 55 56 57 58 59 60 61
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C 41 80.3 79.3 78.1 76.9 75.7 74.5 73.4
O 42 80.8 79.7 78.5 77.4 76.2 75.0 73.8
N 43 81.2 80.2 79.0 77.8 76.6 75.5 74.3
T 44 81.6 80.6 79.4 78.3 77.1 75.9 74.7
I 45 82.1 81.0 79.9 78.7 77.5 76.4 75.2
G ----- ---- ---- ---- ---- ---- ---- ----
E 46 82.6 81.6 80.4 79.2 78.1 76.9 75.8
N 47 83.1 82.1 80.9 79.8 78.6 77.5 76.3
T 48 83.6 82.6 81.4 80.3 79.2 78.0 76.9
49 84.1 83.1 82.0 80.8 79.7 78.6 77.4
50 84.6 83.6 82.5 81.4 80.2 79.1 78.0
----- ---- ---- ---- ---- ---- ---- ----
51 85.1 84.2 83.1 82.0 80.9 79.8 78.6
52 85.6 84.7 83.7 82.6 81.5 80.4 79.3
53 86.2 85.3 84.2 83.2 82.1 81.0 79.9
54 86.7 85.9 84.8 83.8 82.7 81.7 80.6
55 87.3 86.4 85.4 84.4 83.3 82.3 81.2
----- ---- ---- ---- ---- ---- ---- ----
P 56 87.8 87.0 86.0 85.0 84.0 83.0 82.0
E 57 88.4 87.6 86.6 85.6 84.7 83.7 82.7
N 58 89.0 88.2 87.3 86.3 85.3 84.4 83.4
S 59 89.5 88.8 87.9 86.9 86.0 85.0 84.1
I 60 90.1 89.4 88.5 87.6 86.7 85.7 84.8
O ----- ---- ---- ---- ---- ---- ---- ----
N 61 90.6 90.0 89.1 88.2 87.3 86.5 85.6
E 62 91.2 90.6 89.7 88.9 88.0 87.2 86.3
R 63 91.7 91.1 90.3 89.5 88.7 87.9 87.1
64 92.3 91.7 90.9 90.2 89.4 88.6 87.8
65 92.8 92.3 91.5 90.8 90.1 89.3 88.6
----- ---- ---- ---- ---- ---- ---- ----
66 93.3 92.8 92.1 91.4 90.7 90.0 89.7
67 93.8 93.3 92.7 92.0 91.3 90.7 90.0
68 94.3 93.8 93.2 92.6 92.0 91.3 90.7
69 94.8 94.4 93.8 93.2 92.6 92.0 91.4
70 95.3 94.9 94.3 93.8 93.2 92.7 92.1
----- ---- ---- ---- ---- ---- ---- ----
71 95.6 95.3 94.8 94.3 93.8 93.2 92.7
72 96.0 95.7 95.2 94.8 94.3 93.8 93.3
73 96.4 96.1 95.7 95.2 94.8 94.4 93.9
74 96.8 96.5 96.1 95.7 95.3 94.9 94.5
75 97.2 96.9 96.6 96.2 95.9 95.5 95.1
===============================================================================================================
</TABLE>
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner
option becomes effective, if later.
Factors for other age combinations will be determined in a manner
consistent with the manner used in determining these factors.
75
<PAGE> 81
TABLE B (CONTINUED)
CONTINGENT PENSIONER ADJUSTMENT FACTORS
100% CONTINUATION
<TABLE>
<CAPTION>
===============================================================================================================
Participant
- ---------------------------------------------------------------------------------------------------------------
Age* 62 63 64 65 66 67 68
----- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C 41 72.1 70.9 69.7 68.5 67.2 66.1 65.0
O 42 72.6 71.4 70.1 68.9 67.7 66.6 65.4
N 43 73.1 71.8 70.6 69.4 68.2 67.0 65.9
T 44 73.5 72.3 71.1 69.8 68.6 67.5 66.3
I 45 74.0 72.8 71.5 70.3 69.1 67.9 66.8
G ----- ---- ---- ---- ---- ---- ---- ----
E 46 74.5 73.3 72.1 70.9 69.7 68.5 67.4
N 47 75.1 73.9 72.7 71.5 70.2 69.1 68.0
T 48 75.7 74.5 73.2 72.0 70.8 69.7 68.5
49 76.2 75.0 73.8 72.6 71.4 70.3 69.1
50 76.8 75.6 74.4 73.2 72.0 70.8 69.7
----- ---- ---- ---- ---- ---- ---- ----
51 77.5 76.3 75.1 73.9 72.7 71.5 70.4
52 78.1 76.9 75.7 74.6 73.4 72.2 71.1
53 78.8 77.6 76.4 75.2 74.1 72.9 71.8
54 79.4 78.3 77.1 75.9 74.8 73.6 72.5
55 80.1 78.9 77.8 76.6 75.5 74.3 73.2
----- ---- ---- ---- ---- ---- ---- ----
P 56 80.8 79.7 78.5 77.4 76.3 75.2 74.0
E 57 81.6 80.4 79.3 78.2 77.1 76.0 74.9
N 58 82.3 81.2 80.1 79.0 77.9 76.8 75.7
S 59 83.0 81.9 80.9 79.8 78.7 77.6 76.5
I 60 83.8 82.7 81.6 80.6 79.5 78.4 77.4
O ----- ---- ---- ---- ---- ---- ---- ----
N 61 84.5 83.5 82.5 81.4 80.4 79.4 78.3
E 62 85.3 84.3 83.3 82.3 81.3 80.3 79.2
R 63 86.1 85.1 84.2 83.2 82.2 81.2 80.2
64 86.9 85.9 85.0 84.0 83.1 82.1 81.1
65 87.7 86.7 85.8 84.9 84.0 83.0 82.1
----- ---- ---- ---- ---- ---- ---- ----
66 88.4 87.5 86.7 85.8 84.9 84.0 83.1
67 89.2 88.3 87.5 86.7 85.8 84.9 84.0
68 89.9 89.1 88.3 87.5 86.8 85.9 85.0
69 90.7 89.9 89.2 88.4 87.7 86.8 86.0
70 91.4 90.7 90.0 89.3 88.6 87.8 87.0
----- ---- ---- ---- ---- ---- ---- ----
71 92.1 91.4 90.7 90.1 89.4 88.7 87.9
72 92.7 92.1 91.5 90.9 90.2 89.5 88.8
73 93.4 92.8 92.2 91.6 91.1 90.4 89.7
74 94.0 93.5 92.9 92.4 91.9 91.3 90.6
75 94.7 94.2 93.7 93.2 92.7 92.1 91.5
===============================================================================================================
</TABLE>
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner
option becomes effective, if later.
Factors for other age combinations will be determined in a manner
consistent with the manner used in determining these factors.
76
<PAGE> 82
TABLE C
IMMEDIATE ANNUITY
10-YEAR CERTAIN ANNUITY
MONTHLY INCOME PER 1000
<TABLE>
<CAPTION>
Age* Monthly Income
----- --------------
<S> <C>
45 7.72
46 7.81
47 7.89
48 7.98
49 8.07
50 8.16
51 8.26
52 8.36
53 8.46
54 8.57
55 8.68
56 8.80
57 8.93
58 9.05
59 9.19
60 9.33
61 9.47
62 9.62
63 9.77
64 9.93
65 10.10
66 10.26
</TABLE>
* Age, nearest birthday, or annuity commencement date.
Purchase of retirement annuity with employee contributions plus Credited
Interest.
77
<PAGE> 1
Exhibit 21
Subsidiaries of Registrant
The registrant owns 100% of the issued and outstanding Capital Stock
of TruServ Real Estate Agency, Inc., TruServ Acceptance Company, TruServ
Logistics Company, and General Paint and Manufacturing Co., all Illinois
corporations, ServiStar Paint Company and Advocate Services Incorporated, both
Pennsylvania Corporations, and indirectly through TruServ Real Estate Agency,
Inc., 100% of the issued and outstanding capital stock of True Value de Mexico,
S.A. de C.V., a Mexican Corporation, Mary Green, LLC, a Delaware Corporation,
and is the sole member of True Specialty Company, LLC. The accounts of these
subsidiaries have been consolidated with the registrant's in December 31, 1999,
and December 31, 1998.
In January 1992, the registrant formed a Canadian subsidiary, Cotter
Canada Hardware & Variety Company, Inc., owning 100% of the issued and
outstanding Capital Stock. Indirectly, through this subsidiary, the registrant
owns 100% of the issued and outstanding voting Preferred Stock of the
Canadian cooperative, TruServ Canada Cooperative, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-31-1999
<CASH> 1,815
<SECURITIES> 0
<RECEIVABLES> 460,419
<ALLOWANCES> 0
<INVENTORY> 482,415
<CURRENT-ASSETS> 954,586
<PP&E> 497,679
<DEPRECIATION> 252,834
<TOTAL-ASSETS> 1,348,147
<CURRENT-LIABILITIES> 875,346
<BONDS> 309,796
0
0
<COMMON> 225,049
<OTHER-SE> (62,044)
<TOTAL-LIABILITY-AND-EQUITY> 1,348,147
<SALES> 4,502,326
<TOTAL-REVENUES> 4,502,326
<CGS> 4,320,861
<TOTAL-COSTS> 4,320,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,702
<INCOME-PRETAX> (107,639)
<INCOME-TAX> 17,020
<INCOME-CONTINUING> (124,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (6,484)
<NET-INCOME> (131,143)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
