-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YSyitRweC8Vl3iXPXzmJfymkeOEMCNshJDMI5lp0GNsXqV8yXr1I+bWXH4oIEjB0 hc3XZ7dTcozzctvnuq1TqQ== 0000002024-95-000008.txt : 19950616 0000002024-95-000008.hdr.sgml : 19950616 ACCESSION NUMBER: 0000002024-95-000008 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19950323 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE HARDWARE CORP CENTRAL INDEX KEY: 0000002024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 360700810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58191 FILM NUMBER: 95522604 BUSINESS ADDRESS: STREET 1: 2200 KENSINGTON COURT CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7089906600 S-2 1 ANNUAL FORM S-2 As filed with the Securities and Exchange Commission--subject to change. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form S-2 REGISTRATION STATEMENT Under the SECURITIES ACT OF 1933 Ace Hardware Corporation (Exact Name of Registrant as Specified in its Charter) Delaware (State of Incorporation) 36-0700810 (I.R.S. Employer Identification No.) 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 (Address and telephone number of registrant's principal executive offices) David W. League Vice President, General Counsel Ace Hardware Corporation 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 (Name, address and telephone number of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of the Registration Statement If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. X If the registrant elects to deliver its latest annual report to security- holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this form, check the following box. CALCULATION OF REGISTRATION FEE Proposed Proposed Maximum Maximum Amount Title of Each Class Amount Offering Aggregate of Reg- of Securities Being Price Offering istration Being Registered Registered Per Share Price Fee Class A Stock, $1000 par value 1,500 shares $1,000 $1,500,000 $520 Class C Stock, $100 par value 40,000 shares $ 100 $4,000,000 $1,380 This registration also includes unsold shares of Class A Stock and Class C Stock previously registered under registration statement No. 33-46449 pursuant to Rule 429 of Regulation C under the Securities Act of 1933. The registration hereby amends this registration statement on such date or dates may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ACE HARDWARE CORPORATION Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Between Items in Part I of Form S-2 and the Prospectus Item Number and Caption Heading in Prospectus 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges Factors To Be Considered; Summary 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Not Applicable 8. Plan of Distribution Distribution Plan and Offering Terms 9. Description of Securities to be Registered Outside Front Cover Page; Description of Capital Stock 10. Interests of Named Experts and Counsel Opinions of Experts 11. Information with Respect to the Registrant The Company's Business; Properties; Index to Financial Statements; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Management. 12. Incorporation of Certain Information by Reference Documents Incorporated by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Indemnification Obligations of Company and S.E.C. Position on Securities Act Indemnification PROSPECTUS ACE HARDWARE CORPORATION 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 2,126 Shares Class A (Voting) Stock, $1,000 par value 92,750 Shares Class C (Non-Voting) Stock, $100 par value Class A Stock is offered only in combination with Class C Stock to retailers of hardware and related or similar merchandise in connection with their initial business outlets that become members of the Company. Class C Stock is also offered separately to such retailers in connection with each additional business outlet that becomes a member of the Company. (See "Distribution Plan and Offering Terms" herein) There is no existing market for the Capital Stock offered hereunder, and there is no expectation that any market will develop. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Underwriting Price to Discounts and Proceeds to Public Commissions (5) Company Class A Stock Per share(1)(2) $ 1,000 None $ 1,000 Total $2,126,000 None $2,126,000 Class C Stock Per Share(1)(3)(4)(6) $ 100 None $ 100 Total $9,275,000 None $9,275,000 (1) The shares are offered in a unit of $5,000 to each retail dealer, with 1 share of Class A Stock being included only in the unit offered to dealers having no retail business outlet that is already a member of the Company. (2) 1 share (with 40 shares of Class C Stock) to each retail dealer in connection with such dealer's first retail business outlet which becomes a member of the Company. (3) 40 shares (with 1 share of Class A Stock) to each retail dealer for such dealer's first member outlet. (4) 50 shares to each member dealer for each of such dealer's retail business outlets, over and above the first such outlet, which become a member of the Company. (5) There will be no underwriters. The subject stock will be offered for sale directly by the Company. Applicants for new memberships are charged $400 to defray estimated costs of processing their membership applications. Assuming the sale of all of the stock offered hereunder, and before deduction of approximately $28,000 estimated expenses in connection with this offering, the total proceeds will be as shown above. (6) All of the shares of Class C Stock included in this offering have been reserved for sale for cash but, unless the purchaser elects to prepay the purchase price, such price is to be paid in bi-weekly installments. However, the Company also intends to issue additional authorized shares of Class C Stock each year to its member dealers as a part of patronage dividends with respect to business done with dealers in 1994 and subsequent years. This offering is exempt from the registration provisions of the New York Franchise/Disclosure Statute. The Company's agent for service of process in connection with the offering pursuant to such exemption is C T Corporation, 1633 Broadway, New York, New York 10019. See back cover page regarding revocation rights of Florida purchasers. REFERENCE IS MADE TO FACTORS TO BE CONSIDERED ON PAGE 2 OF THIS PROSPECTUS. This is a continuous offering terminating not later than April 30, 1996. The date of this Prospectus is ,1995 AVAILABLE INFORMATION The Company is subject to the informational requirements of Section 15(d) of the Securities Exchange Act of 1934. Accordingly, it files annual and quarterly reports and other information with the Securities and Exchange Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 5th Street, N.W., Judiciary Plaza, Washington, D. C. 20549, and copies of such material can be obtained from the Public Reference Section of the Commission, Washington, D. C. 20549 at prescribed rates. The material can also be inspected and copied at the following Regional Offices of the Commission: 219 South Dearborn Street, Room 1204, Chicago, Illinois 60604; 26 Federal Plaza, Room 1028, New York, New York 10278; and 5757 Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036. REPORTS TO SECURITY HOLDERS Within a reasonable time following the end of each calendar year, the Company furnishes to its stockholders an annual report containing financial information that has been examined and reported upon, with an opinion expressed by, a certified public accounting firm. DOCUMENTS INCORPORATED BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1994 filed pursuant to Section 15(d) of the Exchange Act is incorporated herein by reference. The Company will provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the documents incorporated by reference in the Registration Statement (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the documents that the Registration Statement incorporates). Requests for such copies should be directed to David League, Vice President, General Counsel and Secretary, Ace Hardware Corporation, 2200 Kensington Court, Oak Brook, Illinois 60521, (708) 990-6600. FACTORS TO BE CONSIDERED Limitations on Value and Marketability of Stock Although Ace Hardware Corporation ("the Company") is obligated to pay patronage dividends to its stockholders in proportion to the respective purchases of merchandise made by them from the Company, the payment of dividends on shares of the Company's capital stock is prohibited and transfer of the shares is limited so that no trading market for them exists. The shares can be sold only to another retail hardware dealer whom the Company has approved as a member for the retail outlet for which the shares were purchased or to the Company which must repurchase the shares if said retail outlet closes down or if its Company membership is otherwise terminated. (See the heading "Description of Capital Stock".) However, no amounts to fund repurchase of shares by the Company are expressly set aside for such purpose and repurchases can be made only as permitted under the General Corporation Law of Delaware. (See the heading "Summary," subheading "Repurchase of Shares by Company".) Accordingly, except for the voting rights attached to the Class A Stock, the stock has value to a purchaser thereof only in the event of the liquidation of the Company or upon termination of the Company membership for the retail outlet for which the stock has been purchased. Income Tax Liability Incidental to Patronage Dividends A purchaser of shares will be required to report as gross income for federal income tax purposes the total amount of patronage dividends distributed by the Company to such purchaser, including shares of Class C Stock and patronage refund certificates distributed in the form of written notices of allocation at their stated dollar amounts. Patronage refund certificates are non-negotiable having a maturity date and bearing interest 2 at an annual rate to be determined by the Board of Directors prior to issuance. Although a minimum of 20% of each recipient's total annual patronage dividends is required to be paid in cash in all cases except those in which the cash portion has been applied against indebtedness owed to the Company by a stockholder whose Company membership has terminated and who has not requested payment of such 20% minimum portion in cash, the cash portion may be insufficient, depending upon the income tax bracket of each recipient, to provide funds for the full payment of the federal income tax liability incurred by the recipient with respect to such patronage dividends. (See the heading "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends".) Sale of All Shares Offered Not Assured Since the shares offered hereby are available for purchase only by retailers of hardware and related merchandise with respect to particular retail outlets for which a Company membership is approved, it is not certain that all of the shares offered will be sold. Company's First Lien Rights on Shares The shares held by any purchaser, including any shares of Class C Stock distributed as patronage dividends, will be subject to a first lien in favor of the Company for the amount of any indebtedness payable to the Company by such holder. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights".) Any patronage refund certificates which are distributed as patronage dividends will also be subject to a similar first lien. (See the heading "The Company's Business", subheading "Forms of Patronage Dividend Distributions".) Full Payment Required for Issuance of Shares Unless a purchaser of shares chooses to prepay the purchase price of the shares, the purchase price is to be paid by charges added to the purchaser's bi-weekly billing statements from the Company for merchandise and services. A purchaser will receive a certificate for each class of stock included in his subscription for shares only upon the completion of payment of the purchase price for the share or shares of that class. (See the heading "Distribution Plan and Offering Terms".) By-law Provisions Constitute a Legal Contract with the Company It is provided in Article XXVI of the By-laws of the Company that said By-laws shall constitute a legal contract between the Company and its stockholders. A copy of the By-laws of the Company, as amended as of September 20, 1994, is attached to this Prospectus as Appendix A. Those By-law provisions having special significance with respect to the operations of the Company include Sections 5 through 12 of Article XVI which set forth limitations on the transfer of the Company's stock and the circumstances under which shares thereof will be repurchased by the Company;) Article XXIV entitled "Members' Patronage Dividends"; and Article XXV dealing with the membership rights and obligations of the Company's dealers. Documents Accompanying Prospectus The Company's most recent annual report to security holders and Company's current standard form of Membership Agreement accompany this Prospectus. (See the heading "The Company's Business," subheading "Membership Agreement.") SUMMARY The Company and Its Business The mailing address and telephone number of the Company's principal executive offices are: 2200 Kensington Court, Oak Brook, Illinois 60521, (708) 990-6600. 3 The Company is a wholesaler of hardware and related products, and manufactures paint products. Sales of such products are made almost exclusively to retail hardware dealers having Membership Agreements with the Company entitling them to purchase merchandise and services from it and to use the Company's marks as provided in the Membership Agreement. (See the heading "The Company's Business," subheading "Membership Agreement.") The number of retail business outlets for which Membership Agreements have been executed as of December 31, 1994 were 4,940. (See the heading "The Company's Business.") Basic Distinctions Between Classes of Stock The issued and outstanding shares of capital stock of the Company are divided into three classes. Class A Stock is the only class of stock having voting rights with respect to the election of directors and most other matters. Class B Stock had been offered to retail dealers with respect to each business outlet owned or controlled by them for which a membership was granted by the Company on or before February 20, 1974, but the offering of Class B Stock terminated on March 31, 1979 and no shares of such stock are being offered by this Prospectus. The Board of Directors has authority to redeem the whole or any part of the outstanding shares of Class B Stock, or the whole or any part of the outstanding shares of Class C Stock which have been issued to the Company's member dealers in partial payment of their patronage dividend distributions from the Company. In the event of the Company's liquidation, the outstanding shares of Class B Stock and Class C Stock have priority over the outstanding shares of Class A Stock in the distribution of the Company's net assets to the extent of an amount equal to the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock. If the net assets of the Company exceed the total amount which the Company would have been required to pay for such purpose, such excess is to be distributed in equal portions to each holder of an outstanding share of Class A Stock up to an amount equal to the par value of the Class A Stock. Any net assets still remaining are to be distributed among the holders of all three classes of issued and outstanding stock of the Company. Each share of Class A Stock will participate in such distribution in the proportion which the par value of such share bears to the sum of the total par value of the outstanding shares of Class A Stock and the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock. Each share of Class B Stock and Class C Stock will participate in such distribution in the proportion which the then applicable purchase or redemption prices thereof bear to the aforementioned sum. (See the heading "Description of Capital Stock", subheadings "Voting Rights","Liquidation Rights", and "Redemption Provisions.") By virtue of express prohibitions contained in the Company's Certificate of Incorporation and Bylaws, no dividends can be declared on any of the shares of any class of stock of the Company. (See the heading "Description of Capital Stock", subheading "Dividend Rights.") Basic Features of Offering The shares of the Company's stock being offered hereby are offered only to approved retail and other dealers in hardware and related products who submit applications for Ace Hardware Corporation memberships. The offering price for each share of Class A Stock is $1,000 and the offering price for each share of Class C Stock is $100. The offering enables dealers in hardware or similar merchandise to obtain membership in the Company. Membership entitles a dealer to use the Company's marks as provided in the Membership Agreement, to purchase merchandise from the Company under the various sales classes and programs described under the 4 heading "The Company's Business," and also to receive patronage dividends based upon the dealer's purchases from the Company. A dealer who applies for an initial Company membership must subscribe for a combination of 1 share of Class A Stock plus 40 shares of Class C Stock. If a membership is applied for with respect to an additional outlet owned or controlled by the same dealer, the dealer must subscribe for 50 shares of Class C Stock for such outlet. Any application for a membership must be accompanied by a $400 payment constituting a handling charge to defray the estimated cost of processing such application. The shares subscribed for by a dealer are to be paid for by means of charges to be added to the biweekly billing statements of the Company for merchandise and services purchased from it by its dealers. The dealer shall also have the right at any time to make prepayments on account of the purchase price. For a detailed explanation of the offering reference is made to the information set forth under the heading "Distribution Plan and Offering Terms". Repurchase of Shares by Company Upon termination of the Ace Hardware Corporation membership for any retail business outlet, all of the shares with respect to such outlet held by the dealer must be sold back to the Company, unless the shares are to be transferred to another party whom the Company agrees to accept as a member dealer with regard to such outlet. In any repurchase of its shares, the Company must pay a price equal to the $1,000 par value for Class A Stock, a price which cannot be less than twice the $1,000 par value for Class B Stock, and a price which cannot be less than the $100 par value for Class C Stock. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights", paragraph (g).) A portion of the repurchase price to be paid by the Company will be paid by means of an interest-bearing 4-year installment note if the dealer's membership with the Company terminates in either of two basic types of situations. Reference is made to the heading "Description of Capital Stock", subheading "Other Restrictions and Rights", paragraph (h), of this Prospectus and to Section 12 of Article XVI of the By-laws, set forth in Appendix A of this Prospectus, for further details concerning the situations in which part of such repurchase price will be paid by means of an installment note and the terms and conditions which will be applicable to such notes. As of December 31, 1994 the number of outstanding shares of the Company's stock is Class A stock - 3,924 shares, Class B stock - 3,248 shares and Class C stock - 1,646,656 shares. As of the completion of this offering, assuming that all Class A stock is sold, the number of outstanding shares of the Company's stock will be Class A stock - 6,027 shares, Class B stock - 3,212 shares and Class C stock - 1,724,670 shares. Under the applicable provisions of the General Corporation Law of Delaware, however, the Company would be prohibited from repurchasing any of its shares at any time when its assets are less than the amount represented by the aggregate outstanding shares of its capital stock or would be reduced below said amount as a result of a repurchase of its shares. The number of shares of stock repurchased by the Company and the price per share paid by it during each of the past three calendar years were as follows:
Class of Stock A B C No. of Purchase No. of Purchase No. of Purchase Aggregate Shares Price Shares Price Shares Price Cost Year ended December 31, 1994 240 $1,000 168 $2,000 77,013 $100 $8,277,300 Year ended December 31, 1993 271 $1,000 164 $2,000 72,359 $100 $7,834,900 Year ended December 31, 1992 329 $1,000 152 $2,000 72,600 $100 $7,893,000
5 Patronage Dividends and Income Tax Treatment Thereof The Company operates on a cooperative basis with respect to purchases of merchandise made from it by its member dealers who are either the owners of shares of its capital stock or who are subscribers for shares which are being paid for by charges added to the Company's bi-weekly billing statements for merchandise purchased from it, and makes annual distributions of patronage dividends to such dealers in proportion to the amount of purchases made by each of them during the year. Reference is made to the table under the heading "The Company's Business," subheading "Distribution of Patronage Dividends" for information as to the percentages of sales of merchandise made by the Company during the years 1992 through 1994 which were distributed as patronage dividends. Under the Company's patronage dividend plan which is currently in effect, a portion of such patronage dividends (which can never be less than 20% nor more than 45% of the total annual patronage dividends distributed to each eligible and qualifying dealer) will be paid in cash, except that the portion of any patronage dividends which would otherwise have been paid in cash to a dealer whose membership with the Company has terminated will instead be applied against any indebtedness owing by such dealer to the Company to the extent of such indebtedness unless a timely request for the payment of the minimum 20% cash portion thereof is submitted to the Company by the dealer. The entire remaining portion will be paid in the form of shares of Class C Stock of the Company or non-negotiable patronage refund certificates, or in a combination of Class C shares and such patronage refund certificates. Those dealers whose volume of purchases entitles them to larger total annual patronage dividend distributions will receive larger percentages of their patronage dividends in cash. (See the heading "The Company's Business", subheadings "Distribution of Patronage Dividends", "Patronage Dividend Determinations and Allocations", and "Forms of Patronage Dividend Distributions.") The amount of patronage dividends allocated over the past five fiscal years is set forth in Note (C) to Selected Financial Data. The cash payments and the stated dollar amounts of shares of the Company's Class C Stock and of any patronage refund certificates which are distributed by the Company as a part of patronage dividends must all be taken into the gross income of each of the recipients thereof for federal income tax purposes in the taxable years in which they are received. (See the heading "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends.") In the case of member dealers whose places of business are located in foreign countries or Puerto Rico (except for unincorporated Puerto Rico dealers owned by individuals having U.S. citizenship) who are subject to the special 30% U.S. income tax imposed on nonresident alien individuals and foreign corporations (not including certain Guam, American Samoa, Northern Mariana Islands, or U.S. Virgin Islands corporations) receiving fixed or determinable annual income from sources within the United States, the minimum portion of the annual patronage dividends to be distributed in cash is 30%, and that amount will be withheld by the Company for payment of the U.S. income tax imposed on such dealers. (See the heading "The Company's Business", subheadings "Forms of Patronage Dividend Distributions", and "Federal Income Tax Treatment of Patronage Dividends.") USE OF PROCEEDS The proceeds to be received from the shares of stock of the Company offered hereby will be used by the Company primarily for general working capital purposes (including the purchase of merchandise to be resold by the Company to its member dealers and the maintenance of adequate inventories of such merchandise) and also for capital expenditures as required in order to serve the retail business outlets having Membership Agreements with the Company. The Company has no current specific plan for the proceeds or a significant portion thereof. The Company has no plan if less than all shares offered are sold, as the principal reason for the offering is to enable the Company to accept new dealer outlets in accordance with the Company's By-laws. See the heading "The Company's Business," subheadings "Patronage Dividend Determinations and Allocations" and "Forms of Patronage Dividend Distributions", for a description of the method by which the Company will obtain most of the balance of its operating capital. (See the heading "Factors to be Considered," subheading "Sale of All Shares Offered Not Assured.") 6 DISTRIBUTION PLAN AND OFFERING TERMS Offering Made Through Company Officers Sales of each class of stock offered by the Company are made by the officers of the Company to dealers whose applications for Ace memberships have been accepted by the Company. The Company also employs approximately 163 field sales personnel including retail consultants, management and retail development personnel whose duties include initial contact with potential new retail dealer outlets and promotion of the Company's business and the dealer services offered by it. The field sales personnel, however, do not and are not empowered to accept new dealer outlets on behalf of the Company, nor are they authorized to make sales of any shares of the stock offered by the Company. Also, no commission, bonus or other separate compensation is to be paid to any officer, field sales personnel, or other employee of the Company in connection with the sale of its stock. Limitation of Offering to Applicants for Ace Dealer Memberships The offering of the Company's stock being made by this Prospectus is limited to dealers in hardware or similar merchandise who submit membership applications to the Company with respect to designated retail outlets which are accepted by the Company. In connection with each such application with respect to any retail outlet owned or controlled by a dealer, there must be submitted to the Company: 1. A membership agreement executed by the applicant in the form submitted by the Company; 2. A check in the sum of $400 in payment of a processing charge which is imposed to defray the estimated cost of processing the application; and 3. An executed Subscription Agreement for the purchase of shares of the Company's stock. Offering Price and Terms of Payment Each retail dealer who applies for Ace membership privileges with respect to any retail business outlet must subscribe for shares of the Company's stock having a total purchase price of $5,000. In the case of a dealer who does not already have a Membership Agreement with the Company with respect to any retail outlet, the shares to be subscribed for on behalf of such dealer's first retail outlet will include 1 share of Class A Voting Stock at a price of $1,000 per share plus 40 shares of Class C Non-voting Stock at a price of $100 per share. The shares of stock to be subscribed for by a dealer on behalf of each additional retail outlet owned or controlled by the same dealer will consist entirely of 50 shares of Class C Non-voting Stock at a price of $100 per share. Unless the right of prepayment described below is exercised, the entire purchase price of all shares of stock of the Company subscribed for by a dealer for any retail business outlet owned or controlled by such dealer shall be paid by means of a stock subscription payment charge to be added to such outlet's bi-weekly billing statement from the Company in the amount of $40 or in an amount equal to 2% of the purchase price of the merchandise and services purchased by such outlet from the Company during each bi-weekly period (if such percentage amount is greater than $40). Such charge shall be continued until the full purchase price for all shares of the stock of the Company subscribed for with respect to such outlet has been paid. Upon the acceptance by the Company of the Membership Agreement and the Stock Subscription Agreement executed by a dealer for a prospective member outlet, such outlet will be entitled to participate in the patronage dividend distributions made by the Company even though the full purchase price for the shares of stock subscribed for has not yet been paid. 7 Right of Prepayment All dealers subscribing for shares of any class of stock of the Company shall also have the right at any time to pay all or any portion of the then unpaid balance of the purchase price payable by them for the shares of any class of the stock of the Company subscribed for by them with respect to any member business outlet. However, no interest or other finance charge shall accrue upon or be added to the unpaid balance so long as all payments are made when the same are due in accordance with the terms described above. Time of Issuance of Stock Certificates Immediately upon the completion of the payment by a dealer of the full purchase price of $1,000 for the 1 share of Class A Voting Stock of the Company subscribed for by such dealer, a certificate for such share will be issued to him. In the case of a dealer whose subscription for shares includes 1 share of Class A Stock, all payments made by him under his Stock Subscription Agreement will be applied first toward the $1,000 purchase price for such Class A Stock. No dealer shall have any voting rights until such share of Class A Voting Stock has been issued to him. Certificates for the shares of Class C Stock of the Company subscribed for by a dealer with respect to any member business outlet owned or controlled by such dealer will be issued to him only upon the completion of the payment by him of the full purchase price of all of the Class C shares subscribed for by him with respect to such outlet. If any store or other business outlet with respect to which a dealer has subscribed for shares of stock of the Company ceases to be a member business outlet of the Company before such shares have been issued and paid for in full, the amount paid in by such dealer on account of the purchase price of such shares will thereupon be refunded to him. Termination of Membership Upon Transfer or Repurchase of Shares Unless the Company expressly consents at such time to the continuation of such membership, the Ace Hardware Membership Agreement for any store or other business outlet shall automatically be deemed to have terminated as of the time when any of the shares of capital stock of the Company owned for such outlet by a dealer (regardless of whether the shares were purchased by the dealer or were received by him as patronage dividends) are transferred by him to another eligible holder or are purchased from him by the Company. Federal Income Tax Status of Class A and Class C Shares (See the Heading "Opinions of Experts"). If the Ace Hardware Corporation membership for a particular business outlet owned by a dealer who has only one member outlet is terminated, or if the memberships for all of a dealer's business outlets having memberships with the Company are terminated, and the shares of the Company's stock owned by such dealer are then repurchased by the Company, such dealer's 1 share of Class A Stock would be included among the shares so repurchased. Since the Class A Stock can never be repurchased by the Company at a price other than the $1,000 par value, no taxable income would be realized by a dealer upon the Company's repurchase of his share of Class A Stock. Upon the purchase by the Company of shares of Class C Stock previously sold or distributed to a dealer, taxable income would be realized by such dealer under the present provisions of the U.S. Internal Revenue Code to the extent that the price to be paid by the Company for such shares is established by the Board of Directors at some time in the future at a figure in excess of the $100 par value offering price of the shares. Unless the dealer whose shares of Class C Stock are purchased by the Company still owns shares of the Company's stock in connection with one or more other outlets that are members of the Company, the taxable income realized by such dealer at the time of the Company's purchase of Class C shares from him would probably qualify for capital gain treatment. 8 In the case of a dealer who continues to own shares of the Company's stock for one or more other member outlets after his shares with respect to a member outlet have been purchased or redeemed by the Company, the entire amount paid to such dealer for the shares purchased by the Company might be treated under applicable provisions of the Internal Revenue Code as a distribution essentially equivalent to a dividend which would be taxable to the dealer as ordinary income. In such case the income tax basis of the shares of the Company's stock still held by such dealer would be increased by an amount equal to the original basis of the shares purchased from him by the Company. The provisions of Section 483 of the U.S. Internal Revenue Code may be applicable to sales of the Company's stock to dealers who make payment for said shares in periodic installments extending more than 1 year after the date of the sale. In any such case, all payments which are due to be made by a dealer more than 6 months after the date of the sale may be deemed to include "unstated interest" which would be tax deductible by the dealer, but would also reduce the cost basis of his shares. "Unstated interest" constituting taxable income may be imputed under Section 483 of the U.S. Internal Revenue Code to a dealer whose Company membership is terminated and who receives a 4-year installment note (See the heading "Description of Capital Stock," subheading "Other Restrictions and Rights," subparagraph (h)) in partial payment of the repurchase price of his Company stock if the sum of the total payments to be made to the dealer by the Company with respect to such repurchase exceeds the sum of the present values of such payments and the present values of any interest payments due under the note. For this purpose, the present value of a payment is to be determined by using a discount rate equal to the applicable Federal rate in effect as of the date of the note, compounded semi-annually. DESCRIPTION OF CAPITAL STOCK Dividend Rights The Company's Certificate of Incorporation and By-laws prohibit the declaration of dividends on any of the shares of any class of stock of the Company. However, the Company may distribute shares of its Class C Stock as a part of the annual patronage dividends to be paid to its eligible and qualifying dealers. (See the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions," as well as Note 5 to Financial Statements, and Note (B) to "Selected Financial Data.") Voting Rights All rights to vote and all voting powers are vested solely in the Class A Stock, provided, however, that holders of shares of $1,000 par value Class B Stock and shares of $100 par value Class C Stock shall be entitled to vote separately as a class upon any proposed amendment to the Company's Certificate of Incorporation which would increase or decrease the number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the power, preferences or special rights of the shares of such class so as to affect them adversely. Each holder of any class of stock having the right to vote at any meeting of the stockholders of the Company shall be entitled to one vote for every share of such stock standing in the name of such holder on the books of the Company. Cumulative voting of shares with respect to the election of directors or otherwise is expressly prohibited. Liquidation Rights In the event of any liquidation or winding up of the affairs of the Company, whether voluntary or involuntary, the net assets of the Company shall be distributed among the holders of all classes of issued and outstanding stock of the Company. In such event, there shall first be distributed to the holders of outstanding shares of Class B Stock and Class C Stock amounts equal to the total amounts which the Company would have been required to pay to them to purchase or redeem all of their outstanding shares of such stock in accordance with the purchase or redemption prices for said shares as last determined by the Board of Directors, but if the net assets 9 are insufficient to pay such amounts to the holders of said shares, each outstanding share of Class B Stock and each outstanding share of Class C Stock shall share in the distribution of the Company's net assets in the proportion which its purchase or redemption price bears to such total amount. (See the subheading "Redemption Provisions" below). If the net assets exceed said total amount, the excess is to be distributed in equal portions to each holder of an outstanding share of Class A Stock, but the amount so distributed to each holder of a share of Class A Stock cannot exceed such share's $1,000 par value. Any net assets still remaining are to be distributed among the holders of all classes of issued and outstanding shares of stock of the Company pursuant to the following procedure: (a) there shall first be determined the sum of the total $1,000 par value of all of the outstanding shares of Class A Stock and the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock in accordance with the purchase or redemption price thereof last determined by the Board of Directors; (b) each outstanding share of Class A Stock shall share in said remaining net assets in the proportion which the $1,000 par value thereof bears to the sum determined in the foregoing manner; and (c) each outstanding share of Class B Stock and each outstanding share of Class C Stock shall share in said remaining net assets in the proportion which the purchase or redemption prices thereof last determined by the Board of Directors bear to said sum. Preemptive Rights No stockholder of the Company shall, by reason of his holding shares of any class of stock of the Company, have any preemptive or preferential right to purchase or to subscribe to any shares of any class of the Company, now or to be hereafter authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase any shares of any class, now or hereafter to be authorized. Redemption Provisions There are no redemption provisions applicable to any of the shares of Class A Stock or to any of the shares of Class C Stock other than shares of Class C Stock which have been issued to the Company's member dealers in partial payment of their annual patronage dividends. The Company may, at the option of its Board of Directors, redeem the whole or any part of the outstanding shares of its Class B Stock or the whole or any part of the outstanding shares of its Class C Stock which have been issued as patronage dividend distributions. Such redemptions may be made at any time or from time to time. The redemption price in each instance shall be determined by the Board of Directors, but the redemption price to be paid for Class C Stock shall in no event be less than the $100 par value of such stock and the redemption price to be paid for Class B Stock shall at all times be no less than twice the $1,000 par value of the Class B Stock and shall always be equal to twenty times the per share price last established by the Board of Directors with respect to purchases or redemptions by the Company of its Class C Stock. Notice of any election to redeem shall be mailed to each holder of the class of stock so to be redeemed at his address as it appears on the books of the Company not less than 30 days prior to the date upon which the stock is to be redeemed. In case less than all of the outstanding shares of Class B Stock are redeemed, or in case less than all of the eligible outstanding shares of Class C Stock are redeemed, the number of shares to be redeemed and the method of effecting such redemption, whether by lot or prorata or otherwise, may be determined by the Board of Directors. Other Restrictions and Rights (a) There are no conversion rights, sinking fund provisions, or liability to further calls or assessment by the Company in regard to any of its shares of stock. (b) As security for the payment of any indebtedness owing to the Company by any stockholder or any subscriber for shares of the Company's stock, the Company retains a first lien upon all shares of its stock held by each 10 stockholder and upon all amounts which have been paid to the Company pursuant to a Stock Subscription agreement for shares to be issued upon the completion of payment of the purchase price of the shares. The interest of each holder of shares of the Company's stock in and to the shares issued to such holder and the interest of each subscriber for shares of the Company's stock in and to the funds paid to the Company by such subscriber shall at all times be deemed to be offset by the amount of any indebtedness payable to the Company by such holder or subscriber. In no event shall any transfer of the shares owned by any stockholder or any transfer of the stock subscription account of any subscriber for shares be made unless and until the stockholder whose shares are being transferred or the subscriber whose subscription account is being transferred is free from all indebtedness to the Company. If an installment note would be issuable in payment of a portion of the total purchase price to be paid by the Company for shares of its capital stock held by a dealer for a retail outlet whose Company membership is terminated in one of the situations described in subparagraph (h) below, the cash portion of the purchase price of said shares will be applied first toward any indebtedness payable to the Company by such dealer and the portion of the purchase price which would otherwise be paid by the issuance of an installment note will then be applied against any such indebtedness which still remains. (c) From and after the date on which shares of the Company's stock are first issued to its member dealers who subscribe for such shares, ownership of the shares of all classes of stock of the Company shall be limited to approved retail or other dealers in hardware and related products having membership agreements with the Company, and ownership of shares of Class B Stock shall be limited to dealers having membership agreements with the Company which were entered into on or before February 20, 1974. No certificate representing any issued and outstanding share or shares of any class of stock of the Company shall be pledged, mortgaged, hypothecated, sold, assigned or transferred without the prior consent of the Board of Directors of the Company. In the event that the Board of Directors shall refuse to consent to any transfer or assignment of any certificate or certificates representing any share or shares of issued and outstanding stock of the Company of any class, then the Company shall have the right and shall be obligated to purchase such stock from its owner at a price determined in accordance with the provisions of subparagraph (g) below. In no event shall any transfer or assignment of shares of any class of stock of the Company be made to any transferee who is not eligible to be a holder of such shares, that is, a dealer having a membership agreement with the Company. In the case of a proposed transfer of ownership of a store or other business outlet owned by a holder of shares of stock of the Company to a transferee which the Company has accepted or is willing to accept as a member Ace Hardware dealer, then the owner of such stock shall have the option of either (i) selling or otherwise transferring to such transferee such number of shares of stock of the Company of any class which the Company would otherwise have been required to offer to such transferee in connection with the membership granted to such transferee with respect to such store or other business outlet, or (ii) selling such shares to the Company. However, the following types of transfers of ownership of a store or other business outlet will not be recognized for purposes of determining the availability of the option of selling to the Company shares of its capital stock: (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which the transferor retains an ownership interest; or (iii) any transfer to the spouse of the transferor. (d) Subject to the Company's first lien and set-off rights as described in subparagraph (b) above, in the event of the termination of the Company membership granted for a retail hardware store or other business unit for which shares of stock of the Company are held, the Company shall be obligated to purchase such shares. The Company shall also be obligated to refund all amounts which have been paid to it pursuant to a Stock Subscription Agreement for the purchase of shares which have not as yet been issued to the subscriber, subject only to the Company's first lien and set-off rights as described in subparagraph (b) above. Termination of the membership granted for a particular retail hardware store or other business outlet shall include not only any termination pursuant to a formal notice of termination given by either the Company or the holder of the membership but shall also include each of the following situations which shall be deemed to constitute such a termination: 11 (i) The closing down of the store or other business unit with respect to which such shares of stock of the Company are held, unless such store or other business unit is merely being moved, with the Company's consent and approval, to another location or is being acquired by another dealer which the Company has accepted or is willing to accept as a member dealer for operation pursuant to the same membership at another location; (ii) The death of an individual holder of the shares of stock of the Company held for such retail store or other business unit, or of a member of a partnership which is a holder of such shares, except in a case where the store or other business unit with respect to which such shares are held continues, with the approval of the officers of the Company (which approval shall not be unreasonably withheld), to be operated under a membership from the Company by the decedent's estate or by the person or persons to whom such shares are to be distributed by the decedent's estate or by the successor or successors to the decedent's interest in the partnership holding such shares (it being immaterial for this purpose that, in connection with such continuation of operation, the legal form of ownership of the member dealer has been changed from an individual proprietorship or partnership to a corporation or from a partnership to an individual proprietorship); (iii) An adjudication of the insolvency of the dealer or of the store or other business unit for which the shares of stock of the Company are held, or the making of an assignment for the benefit of creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U. S. Bankruptcy Code by or on behalf of such dealer or retail business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code against the dealer or against said business unit. (e) A transfer of shares of stock of the Company requiring the consent of the Board of Directors shall not be deemed to have occurred upon the death of a person who is the holder of shares of stock of the Company jointly with one or more other persons under circumstances whereby ownership of such shares passes automatically by operation of law to the surviving holder or holders of such shares, nor shall the Company become obligated to purchase such shares upon the death of such person unless the store or other business outlet with respect to which such shares are held either (i) closes down, or (ii) ceases to be operated under a membership from the Company. (f) In any case where the holder or holders of 50% or more of the outstanding voting stock of a corporation having a membership from the Company for one or more business outlets, or the holder or holders of 50% or more of the outstanding voting stock of a corporation owning 80% or more of the outstanding stock of a corporation having such a membership, propose to sell or otherwise transfer all of the shares of capital stock (both voting and non-voting) of such corporation held by them, written notice of such proposal shall be given to the Company. Upon the consummation of such sale or transfer, the corporation whose shares have been sold or transferred shall have the option of either retaining all the shares of the capital stock of the Company then held by it with respect to each member business outlet operated by it or of selling such shares to the Company and having each Company membership held by it deemed to have been terminated by the voluntary action of said corporation, in which case no business unit for which said corporation has held a Company membership shall thereafter operate as a member of the Company unless said corporation submits a new application for a membership for such business unit and such application is accepted by the Company. However, the following types of transfers of ownership of shares of the capital stock of a corporation having a membership from the Company will not be recognized for purposes of determining the availability of the option of selling to the Company shares of its capital stock: (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which the transferor retains an ownership interest; or (iii) any transfer to the spouse of the transferor. 12 (g) The price to be paid by the Company in connection with the purchase by it of any shares of its stock shall be as follows: (i) in the case of Class A Stock, the $1,000 par value of the shares; (ii) in the case of Class B Stock, an amount per share equal to the per share price last established by the Board of Directors as the price to be paid by the Company in the event of redemption of shares of its Class B Stock (currently $2,000 per share), which price shall in no event be less than twice the $1,000 par value of the Class B Stock and shall also at all times be equal to twenty times the per share purchase price last established by the Board of Directors with respect to purchases by it of shares of its Class C Stock; (iii) in the case of Class C Stock, an amount per share equal to the per share price last established by the Board of Directors as the purchase price to be paid by the Company for shares of its Class C Stock (currently $100 per share), which price shall in no event be less than the $100 par value thereof. (h) In case of the purchase by the Company of the shares of its stock held by a dealer for a business outlet whose Company membership is terminated in either of the following situations, a portion of the purchase price will be paid in the form of an installment note payable in four equal annual installments plus accrued interest: (i) voluntary termination of the membership by the dealer under circumstances whereby the member outlet continues to engage in substantially the same business and continues to be controlled to the extent of more than 50% by the same person, partnership or corporation; (ii) termination of the membership by the Company due to a delinquency on the dealer's part in paying for goods or services supplied by the Company or due to a default on the dealer's part in performing some other obligation under his membership agreement with the Company. Even in the above situations, though, the portion of the total purchase price represented by the amount actually paid in by the dealer under a Stock Subscription Agreement for Class A Stock, Class B Stock and Class C Stock will be paid in cash, and the entire remaining portion of the total purchase price for the shares being purchased by the Company from the dealer will also be paid in cash if such remaining portion is less that $5,000. Where such remaining portion of the total purchase price is $5,000 or more in any of the above situations, then only the amount actually paid in by the dealer under the dealer's Stock Subscription Agreement will be paid in cash and the entire remaining portion of the purchase price will be paid by means of an installment note as described above. The interest rate on any such installment note will be such rate as shall have been established by the Company's Board of Directors for such purpose as of the date of the issuance of the note, but the interest rate shall in no event be less than the latest interest rate established for patronage refund certificates to be issued as a part of the annual patronage dividends payable to the Company's dealers, nor shall the interest rate ever be less than 6% per annum. After considering the financial condition and requirements of the Company, the Company's Board of Directors may authorize that payment be made in cash of all or any portion of the total purchase price which would otherwise be payable by means of such an installment note if the Board determines that the installment payment method would impose an undue hardship on the dealer. (i) There is no restriction on the repurchase or redemption of any of its shares of stock by the Company in the event that the Company shall at any time be in arrears in making any sinking fund installment payments which it may hereafter incur an obligation to make. Since the Company is prohibited from paying dividends on any of its shares of stock, there can be no arrearage in the payment of any such dividends which would impose any restriction on the repurchase or redemption of any of its shares of stock by 13 the Company. Under the General Corporation Law of Delaware, the Company cannot repurchase any of its shares at any time when its assets are less than the amount represented by the aggregate outstanding shares of its capital stock or would be reduced below said amount as a result of a repurchase of its shares. OPINIONS OF EXPERTS The validity of shares of stock of the Company offered hereby will be passed upon for the Company by the Company's general counsel, David W. League. The statements made under the heading "Distribution Plan and Offering Terms," subheading "Federal Income Tax Status of Class A and Class C Shares," as well as those made under the subheading "Federal Income Tax Treatment of Patronage Dividends" are also based upon his opinions. The firm of Gatenbey, Law & League, of which Mr. League was previously a partner, has previously passed upon legal questions relating to the effect upon the surplus or retained earnings of the Company of the fact that, in the event of the involuntary liquidation of the Company, shares of its Class B stock will have a preference exceeding the par value of said shares in the distribution of the net assets of the Company. The financial statements of Ace Hardware Corporation as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994, included herein and elsewhere in the Registration Statement have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing. THE COMPANY'S BUSINESS Ace Hardware Corporation was formally organized as a Delaware corporation in 1964. In 1973, by means of a corporate merger, it succeeded to the business of Ace Hardware Corporation, an Illinois corporation organized in 1928. Until 1973, the business now being engaged in by the Company had been conducted by the Illinois corporation. The Company's principal executive offices are located at 2200 Kensington Court, Oak Brook, Illinois 60521. Its telephone number is (708) 990-6600. The Company functions as a wholesaler of hardware and related products, and manufactures paint products. Sales of the products distributed by it are presently made primarily to individuals, partnerships or corporations who are engaged in business as dealers in hardware or related items and who have entered into Membership Agreements with the Company. The Membership Agreements entitle members to purchase merchandise and services from the Company and to use the Company's trademarks and trade names. (See the heading "Factors To Be Considered," subheading "Documents Accompanying Prospectus," and the heading "The Company's Business" subheading "Membership Agreement"). The Company operates on a cooperative basis and distributes patronage dividends to its eligible member dealers each year in proportion to the amount of their annual purchases of merchandise from it. (See the subheading "Distribution of Patronage Dividends"). At December 31, 1994 there were 4,940 retail business outlets with respect to which such Membership Agreements had been entered into. Those States having the largest concentration of member outlets are California (approximately 10%), Texas (approximately 6%), Illinois and Florida (approximately 5% each), Michigan (approximately 4%) and Georgia (approximately 3%). States into which were shipped the largest percentages of the merchandise sold by the Company in 1994 are California (approximately 11%), Illinois (approximately 9%), Florida and Texas (approximately 6% each) and Michigan and Georgia (approximately 4% each). Less than 4% of the Company's sales are made to outlets located outside of the United States or its territories. 14 Information as to the number of the Company's member outlets during each of the past three calendar years is set forth in the following table:
1994 1993 1992 Member outlets at beginning of period 4,921 4,986 5,111 New member outlets 198 158 183 Member outlets terminated 179 223 308 Member outlets at end of period 4,940 4,921 4,986 Dealers having one or more member outlets at end of period 4,054 4,045 4,134
The Company services its dealers by purchasing merchandise in quantity lots, primarily from manufacturers, by warehousing substantial quantities of said merchandise and by selling the same in smaller lots to the dealers. Most of the products that the Company distributes to its dealers from its regional warehouses are sold at a 10% markup. In 1994 warehouse sales accounted for 62% of total sales and bulletin sales accounted for 2% of total sales with the balance of 36% representing direct shipment sales, including lumber and building material. The proportions in which the Company's total warehouse sales were divided among the various general classes of merchandise sold by it during each of the past three calendar years are as follows:
Class of Merchandise 1994 1993 1992 Paint, cleaning and related supplies 19% 19% 18% Hand and power tools 14% 14% 15% Electrical supplies 12% 12% 13% Plumbing and heating supplies 16% 15% 15% General hardware 13% 12% 12% Housewares and appliances 6% 7% 7% Garden, rural equipment and related supplies 11% 12% 11% Sundry 9% 9% 9%
The Company sponsors two major conventions annually (one in the Spring and one in the Autumn) at various locations. Dealers and vendors are invited to attend, and dealers generally place orders for delivery during the period prior to the next convention. During the convention regular merchandise, new merchandise and seasonal merchandise for the coming season are displayed to attending dealers. Lawn and garden supplies, building materials and exterior paints are seasonal merchandise in many parts of the country, as are certain sundries such as holiday decorations. Warehouse sales involve the purchase of merchandise from the Company that is maintained in inventory by the Company at its warehouses. Direct shipment sales involve the purchase of merchandise from the Company with shipment directly from the vendors. Bulletin sales involve the purchase of merchandise from the Company pursuant to special bulletin offers by the Company. Direct shipment sales are orders placed by dealers directly with vendors, using special purchase orders. Such vendors bill the Company for such orders, which are shipped directly to dealers. The Company, in turn, bills the ordering dealers at a markup. The markup on this category of sales varies with invoice amounts in accordance with the following schedule and is exclusive of sales under the LTL Plus program discussed below. 15 Invoice Amount Handling Charge (Markup) $1,000.00 to $ 999.99 2.00% or $1.00 whichever is greater $1,000.00 to $1,999.99 1.75% $2,000.00 to $2,999.00 1.50% $3,000.00 to $3,999.00 1.25% $4,000.00 to $4,999.00 1.00% $5,000.00 to $5,999.00 .75% $6,000.00 to $6,999.00 .50% $7,000.00 to $7,999.00 .25% $8,000.00 and over .00% Bulletin sales are made based upon notification from dealers of their participation in special bulletins offered by the Company. Generally, the Company will give notice to all members of its intention to purchase certain products for bulletin shipment and then purchases only so many of such products as the members order. When the bulletin shipment arrives at the Company, it is not warehoused, but is broken up into appropriate quantities and deliveried to members who placed orders. A 6% markup is generally applied to this category of sales. An additional markup of 3% is applied on the various categories of sales of merchandise exported to certain dealers located outside of the United States and its territories and possessions. Effective April 1995, a flat 2% markup is applied to all direct shipments placed by all dealers located outside of the United States. The Company maintains inventories to meet only normal resupply orders. Resupply orders are orders from members for merchandise to keep inventories at normal levels. Generally, such orders are filled within one week of receipt. Bulletin orders (which are in the nature of resupply orders) may be for future delivery. The Company does not backlog normal resupply orders and, accordingly, no significant backlog exists at any point in time. The Company also has established special sales programs for lumber and building materials products and for products assigned from time to time to an "extreme competitive price sales" classification and for products purchased from specified vendors for delivery to certain of the Company's dealers on a direct shipment basis (LTL Plus Program). Under its lumber and building materials ("LBM") program, the Company imposes no handling charge, markup or national advertising assessment on direct shipment orders for such products. The LBM program also enables the Company's dealers to purchase these products at net invoice prices which pass on to them important cost savings resulting from the Company's closely monitored lumber and building materials purchasing procedures. Additionally, the LBM program offers dealers the opportunity to order less than truckload quantities of many lumber and building materials products at economical prices under the LTL warehouse redistribution procedure which the Company has established with certain major vendors. The Store Traffic Opportunity Program ("STOP") established by the Company is a program under which certain stockkeeping units of specific products assigned to an "extreme competitive price sales" classification are offered for sale to its dealers for delivery from designated Company retail support centers. Sales under this program are made without the addition of freight charges and with such handling charge or markup (if any) of not more than 5% as shall be specified for each item. The Company's officers have authority to add items to, and to withdraw items from, the STOP program from time to time and to establish reasonable minimum or multiple item purchase requirements for the items offered under the program. No allocations or distributions of patronage dividends are made with respect to sales under the STOP program. Purchases under the STOP program are, however, deemed to be warehouse purchases or bulletin purchases, as the case may be, for purposes of calculating the form of patronage dividend distributions. (See the heading "The Company's Business" subheading, "Forms of Patronage Dividend Distributions"). 16 The LTL Plus Program established by the Company is a program under which full or partial truckloads of products are purchased by certain of the Company's dealers from specified vendors for delivery to such dealers on a direct shipment basis. No markup, handling charge or national advertising assessment is imposed by the Company on sales under the LTL Plus Program, and the maximum amount of patronage dividends allocated or distributed to the Company's dealers with respect to their purchases of products in the LTL Plus category is .5% of such sales. (See heading "The Company's Business," subheading "Patronage Dividend Determinations and Allocations".) The Company, in addition to conducting semi-annual and other conventions and product exhibits for its dealers, also provides them with numerous special services (on a voluntary basis and at a cost to cover its related expenses), such as inventory control systems, price and bin ticketing and an electronic ordering system. In order for them to have on hand current pricing and other information concerning the merchandise obtainable from the Company, the Company further provides to each of its dealers either a catalogue checklist service or a microfiche film service (whichever the dealer selects), for either of which services the dealer must pay a monthly charge. The Company also provides on a full participation basis videotapes and related materials for educational and training programs for which dealers must pay an established monthly charge. (See the heading "The Company's Business," subheading "Special Charges and Assessments.") Through its wholly-owned subsidiary, Ace Insurance Agency, Inc., the Company makes available to its dealers a Group Dealer Insurance Program under which they can purchase a package of insurance coverages, including "all risk" property insurance and business interruption, crime, liability and workers' compensation coverages, as well as medical insurance coverage for their employees. AHC Realty Corporation, another wholly-owned subsidiary of the Company, provides the services of a broker to those dealers who desire to sell or seek a new location for a presently owned store or to acquire an additional store. Loss Prevention Services, Inc., a third wholly-owned subsidiary provides security training and services for all dealers desiring security assistance. In addition, the Company offers to its dealers retail computer systems consisting of computer equipment, maintenance service and certain software programs and services. These are marketed by the Company under its registered service mark "PACE". The Company manufactures paint and related products at a facility owned by it in Matteson, Illinois and will begin manufacturing paint and related products at a Chicago Heights, Illinois facility in mid 1995. These facilities now constitute the primary source of such products offered for sale by the Company to its dealers. It is operated as a separate Division of the Company for accounting purposes. All raw materials used by the Company to manufacture paint are purchased from outside sources. The Company has had adequate sources of raw materials, and no shortages of any materials which would materially impact operations are currently anticipated. The manufacturing of paint is seasonal to the extent that greater paint sales are found in the months of April through September. Historically, compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had any material impact. The Company's business, either in hardware wholesaling or paint manufacturing activities is not dependent on any major suppliers and the Company feels that any seasonal fluctuations do not have a significant impact upon operations. For further discussion of the Company's business, see the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," which appears following the "Notes to Financial Statements" in this prospectus. Special Charges and Assessments The Company sponsors a national advertising program for which its dealers are currently assessed an amount equal to 1.25% of their purchases (exclusive of lumber, building materials, purchases of PACE computer systems (hardware and software), less than truckload lumber and building material program purchases and LTL Plus Program purchases (as described in previous paragraphs under the heading "The Company's Business") from the Company during each 17 bi-weekly period with the current minimum annual assessment being $975.00 and with the maximum annual assessment being $4,750 for each member business location of any one dealer which has become a member of the Company. The total annual amount of advertising assessments payable by any one dealer is also subject to a further maximum limit which is determined by multiplying the number of such dealer's member retail store outlets serving the general public by $4,750. In the case of a dealer whose place of business is located outside the contiguous States of the United States, the Company's management has authority to determine the extent, if any, to which such dealer shall be required to pay the annual national advertising assessment based upon its evaluation of the amount and nature of the television broadcasts received in the dealer's area. The percentage of bi-weekly purchases to be assessed for the Company's national advertising program and the amount of the maximum annual assessment for such program are both subject to being changed from time to time by action of the Board of Directors of the Company. The Company also has the authority, effective January 1, 1993 to impose a regional advertising assessment (for select geographic regions) not to exceed 2% of annual purchases with the same minimum and maximum assessments imposed by the National Advertising assessment. Each dealer must pay a low volume service charge if the dealer's purchases during the calendar year are less than the minimum purchase levels described below. Minimum purchase levels and the amount of the low volume service charge are subject to change from time to time by the Company's Board of Directors. Presently, the low volume service charge is $30.00 and applies beginning one (1) year after the granting of the membership, if the dealer's purchases from the Company (exclusive of carload lumber purchases) are less than $4,000.00 per bi-weekly billing period. If the dealer's purchases from the Company reach $104,000 during the calendar year, then the dealer receives credit on its next bi-weekly billing statement for all low volume service charges imposed on that account earlier in the same calendar year, and the account is not subject to any further low volume service charges for the rest of the calendar year. The low volume service charge is not billed on a bi-monthly basis to those accounts whose previous year's sales volume exceeded the minimum purchases level for the previous year, but the full annual low volume service charge will be billed at year end to those accounts if the minimum purchase level to avoid imposition of the charge has not been met for the current year. For the calendar year in which the first anniversary of the store's membership occurs, the $104,000 purchase requirement is pro-rated from the first billing statement after that anniversary through December 31, if less than a full calendar year. An Ace store that falls below minimum purchase levels may also be subject to termination. A late payment service charge is added on any past due balance owing by a dealer to the Company for purchases of merchandise and services or for the purchase price of the capital stock of the Company subscribed for by the dealer. The late payment service charge currently in effect is an amount equal to .77% per bi-weekly statement period, except in Texas where the charge is .384% and Georgia where the charge is .692%. A past due balance is created whenever payment of the amounts shown as due on any such statement is not received by the Company within 10 days following the date of the statement. The percentage for determining the amount of the late payment service charge may be changed from time to time by the Company. Subscriptions to a retail training program consisting of video tapes and related course materials (the "S.T.A.R. Program") are mandatory for all stores located in the United States and U.S. Territories. The initial monthly assessment imposed on such stores for such subscriptions is $14.50 for each single store or parent store and $10.00 for each branch store. A single store or parent store is an initial retail outlet for which a dealer owns, or has subscribed for, one (1) share of Class A stock and forty (40) shares of Class C stock of the Company. A branch store is an additional retail outlet for which a dealer owns, or has subscribed for, fifty (50) shares of Class C stock of the Company. (See Article XXV, Section 2 of the By-laws, set forth in Appendix A). Branch stores may, upon request, be granted an exemption from the monthly subscription fee. 18 Subscriptions to a Material Safety Data Sheet information service are also mandatory for all stores located in the United States. The initial annual assessment imposed on such stores for such subscriptions is $30.00 for each single store or parent store and $15.00 for each branch store. Trademark and Service Mark Registrations The names "ACE HARDWARE" and "ACE" are used extensively by the Company and by its member-dealers in connection with the promotion, advertising and marketing of products and services sold by the Company. The Company holds the following Trademark and Service Mark Registrations issued by the U.S. Patent and Trademark Office for the marks used by it:
Registration Description of Mark Type of Mark Number Expiration Date "ACE HARDWARE" with winged emblem design Service Mark 840,176 December 5, 2007 "ACE HARDWARE" with winged emblem design Trademark 898,070 September 8, 2000 "WEATHER SHEDDER" Trademark 1,053,816 December 7, 1996 "THE HELPFUL HARDWARE MAN" Service Mark 1,055,741 January 4, 1997 "ACE IS THE PLACE WITH THE HELPFUL HARDWARE MAN" Service Mark 1,055,743 January 4, 1997 "BRIGHT & EASY" Trademark 1,058,117 February 8, 1997 "THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2000 "HARDWARE UNIVERSITY" with design Service Mark 1,180,539 December 1, 2001 "SUPER STRICKER" Trademark 1,182,330 December 15, 2001 "PACE" with design Service Mark 1,208,887 September 14, 2002 "ACE HARDWARE" with winged emblem design Trademark 1,277,581 May 15, 2004 "ACE HARDWARE" in slanted bar design Trademark 1,426,137 January 27, 2007 "ACE" in stylized lettering design Service Mark 1,464,025 November 3, 2007 "ACE HARDWARE" in stylized lettering design Service Mark 1,486,528 April 26, 2008 "ACE HARDWARE AND GARDEN CENTER" in stylized lettering design Service Mark 1,487,216 May 3, 2008 "FLO-SOFT" Trademark 1,532,900 April 14, 2009 "ACE NEW EXPERIENCE" in stylized lettering design Trademark 1,554,322 September 5, 2009 "ACE SEVEN STAR" in stylized lettering design Trademark 1,556,389 September 19, 2009 "ACE BEST BUYS" in circle design Service Mark 1,560,250 October 10, 2009 "PACER" Trademark 1,570,820 December 12, 1999 "ACENET" Service Mark 1,574,019 December 26, 1999 "ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000 "LUB-E" Trademark 1,615,386 October 2, 2000 "Ace FIVE STAR" in stylized lettering design Trademark 1,627,887 December 18, 2000 "ACE THREE STAR" in stylized lettering design Trademark 1,631,237 January 15, 2001 "ACE PRO" Trademark 1,632,078 January 22, 2001 "ASK ACE" Service Mark 1,653,263 August 6, 2001 19 Christmas Elves design Trademark 1,669,306 December 24, 2001 "ACE 2000" Service Mark 1,682,467 April 7, 2002 "ACE" in stylized lettering design Trademark 1,683,538 April 21, 2002 "HARMONY" in stylized lettering design Trademark 1,700,526 July 14, 2002 "SEVEN STAR SATISFACTION GUARANTEED QUALITY ACE PAINTS" with design Service Mark 1,705,321 August 4, 2002 "THE OAK BROOK COLLECTION" in stylized lettering design Trademark 1,707,986 August 18, 2002 "ACE HARDWARE BROWN BAG BONANZA" with design Service Mark 1,761,277 April 13, 2003 "ACE HARDWARE COMMITTED TO A QUALITY ENVIRONMENT" design Service Mark 1,764,803 April 13, 2003 "THE OAK BROOK COLLECTION" in stylized lettering design Trademark 1,783,335 July 20, 2003 "STORE 2000 THE STORE OF THE FUTURE" Service Mark 1,811,032 December 14, 2003 "ENVIRO-CHOICE" Trademark 1,811,392 December 14, 2003
Currently, the Company has a applications pending before the U.S. Patent and Trademark Office for Registration of "ACE RENTAL PLACE" in stylized lettering design for use in connection with the rental of equipment, merchandise and supplies; "THE NEW AGE OF ACE" with design for business consulting and retail store services; "CELEBRATIONS" for Christmas lights and light fixtures and "GREAT FINISHES" for paints, paint-like coatings, primers, lacquers, stains and varnishes. In addition, the Company also has service mark applications pending for "ACE HOME CENTER," "HELPFUL HARDWARE FOLKS," Repeating "A" in stylized lettering design and Repeating "A" in stylized lettering design with "ACE" in stylized lettering design for retail stores services. Competition The competitive conditions in the wholesale hardware industry can be characterized as intensive due to the fact that independent retailers are required to remain competitive with discount stores and chain stores, such as Wal-Mart, Home Depot, Menard's and Sears, and with other mass merchandisers. The gradual shift of retail operations to high rent shopping center locations and the trend toward longer store hours have also intensified pressures to obtain low cost wholesale supply sources. The Company directly competes in several U.S. markets with Cotter & Company, Servistar Corporation, Hardware Wholesalers, Inc., Our Own Hardware Company, and United Hardware Distributing Co., all of which companies are also dealer-owned wholesalers. Of the aforementioned companies, only Cotter & Company, headquartered in Chicago, Illinois, has a larger sales volume than the Company. Employees The Company employs 3,664 full-time employees, of which 1,083 are salaried employees. Collective bargaining agreements, covering one truck drivers' bargaining unit and four warehouse bargaining units are currently in effect at certain of the Company's distribution warehouses. The Company's employee relations with both union and non-union employees are considered to be good, and the Company has experienced no significant employee-related work stoppage in the past five years. All employees are covered either by negotiated or non-negotiated employee benefit plans which include hospitalization, death benefits and, with few exceptions, retirement benefits. 20 Limitations on Ownership of Stock All of the issued and outstanding shares of capital stock of the Company are owned by its dealers. Only approved retail and other dealers in hardware and related products having Membership Agreements with the Company are eligible to own or purchase shares of any class of the Company's stock. No dealer, regardless of the number of member business outlets owned or controlled by him, shall be entitled to own more than 1 share of Class A Stock, which is the only class of voting stock which can be issued by the Company. This ensures that each stockholder-dealer will have an equal voice in the management of the Company. An unincorporated person or partnership shall be deemed to be controlled by another person, partnership or corporation if 50% or more of the assets or profit shares therein are owned (i) by such other person, partnership or corporation or (ii) by the owner or owners of 50% or more of the assets or profit shares of another unincorporated business firm or (iii) by the owner or owners of 50% or more of the capital stock of an incorporated business firm. A corporation shall be deemed to be controlled by another person, partnership or corporation if 50% or more of the capital stock of said corporation is owned (i) by such person, partnership or corporation or (ii) by the owner or owners of 50% or more of the capital stock of another incorporated business firm or (iii) by the owner or owners of 50% or more of the assets or profit shares of an unincorporated business firm. Distribution of Patronage Dividends The Company operates on a cooperative basis with respect to purchases of merchandise made from it by those of its dealers who have become "members" of the Company as described below and in the Company's By-laws. In addition, the Company operates on a cooperative basis with respect to all dealers who have subscribed for shares but who have not as yet become "members" by reason of the fact that the payments made by them on account of the purchase price of their shares have not yet reached an amount equal to the $1,000 purchase price of 1 share of Class A Voting Stock. All member dealers falling into either of the foregoing classifications are entitled to receive patronage dividend distributions once each year from the Company in proportion to the amount of their annual purchases of merchandise from it. The patronage dividends distributed on wholesale warehouse, bulletin and direct shipment sales made by the Company and on total sales of products manufactured by the Paint Division represented the following percentages of each of said categories of sales during each of the past three calendar years: 1994 1993 1992 Warehouse Sales 4.64117% 4.94434% 5.26838% Bulletin Sales 2.0% 2.0% 2.0% Direct Shipment Sales 1.0% 1.0% 1.0% Paint Sales 8.2205% 7.9389% 8.9440% In addition to the dividends described above, patronage dividends are calculated separately and distributed on sales of lumber products, building material products and less-than-truckload (LTL) sales of lumber and building material products. Patronage dividends equal to .4073%, .1763% and .1260% of the total sales of these products (calculated separately by each of these three sales categories) were distributed to the Company's dealers who purchased these products in 1994, 1993 and 1992 respectively. Under the LTL Plus Program, patronage dividends are also calculated separately on sales of full or partial truckloads of products purchased by eligible dealers from specified vendors (see discussion of LTL Plus Program under the heading "The Company's Business.") The maximum amount of patronage dividends allocable to LTL Plus sales is .5% of such sales. The LTL Plus Program dividend was .5%, of such sales for 1994, 1993 and 1992. Patronage Dividend Determinations and Allocations The amounts distributed by the Company as patronage dividends consist of its gross profits on business done with dealers who qualify for patronage dividend distributions after deducting from said gross profits a proportionate 21 share of the Company's expenses for administration and operations. Such gross profits consist of the difference between the price at which merchandise is sold to such dealers and the cost of such merchandise to the Company. All income and expenses associated with activities not directly related to patronage transactions are excluded from the computation of patronage dividends. Generally these include profits on business done with dealers who do not qualify for patronage dividend distributions and any income (loss) realized by the Company from the disposition of property and equipment (except that, to the extent that depreciation on such assets has been deducted as an expense during the time that the Company has been operating on a cooperative basis and is recaptured in connection with such a disposition, the income derived from such recapture would be included in computing patronage dividends). The By-laws of the Company provide that, by virtue of a dealer being a "member" of the Company (that is, by virtue of his ownership of 1 share of Class A Voting Stock), he will be deemed to have consented to include in his gross income for federal income tax purposes for the dealer's taxable year in which they are received by him all patronage dividends distributed to him by the Company in connection with his purchases of merchandise from the Company. A dealer who has not yet paid an amount which at least equals the $1,000 purchase price of the 1 share of Class A Voting Stock subscribed for by him will also be required to include all patronage dividends distributed to him by the Company in his gross income for federal income tax purposes in the year in which they are received by him. This is required by virtue of a provision in the Subscription Agreement executed by him under which he expressly consents to take all such patronage dividends into his gross income for such purposes. The amount of the patronage dividends which must be included in a dealer's gross income includes both the portion of such patronage dividends received by him in cash or applied against indebtedness owing by him to the Company in accordance with Section 7 of Article XXIV of the Company's By-laws and the portion or portions thereof which he receives in shares of Class C Nonvoting Stock of the Company or in patronage refund certificates. Patronage dividends on each of the Company's three basic categories of sales (warehouse sales, bulletin sales and direct shipment sales) are allocated separately, as are patronage dividends under the LTL Plus Program. However, the maximum amount of patronage dividends allocable to the LTL Plus Program is an amount no greater than .5% of such sales, the maximum amount of patronage dividends allocable to direct shipment sales exclusive of LTL Plus Program sales is an amount equal to 1% of such sales and the maximum amount of patronage dividends allocable to bulletin sales is an amount equal to 2% of that category of sales. All remaining patronage dividends resulting from sales made under these programs are allocated by the Company to warehouse sales. The Company feels that this allocation procedure provides a practical and understandable method for the distribution of these patronage dividends in a fair and equitable manner. Sales of lumber and building materials products are not included as part of warehouse sales, bulletin sales, or direct shipment sales for patronage dividend purposes. Patronage dividends are calculated separately and distributed to the Company's dealers with respect to their purchases within each of three sales categories involving these types of products. These three categories are (a) lumber products (other than less-than-truckload sales); (b) building materials products (other than less-than-truckload sales); and (c) less-than-truckload ("LTL") sales of lumber and building material products. Patronage dividends are also calculated separately and distributed to the Company's dealers for full and partial truckloads of products purchased under the LTL Plus program. (See the heading "The Company's Business", discussion of LTL Plus program, and the subheading "Forms of Patronage Dividend Distributions", subparagraphs 2(a)-(b).) Any manufacturing profit realized on intracompany sales of the products manufactured by the Company's Paint Division is allocated among and distributed as patronage dividends to those member dealers who are eligible to receive patronage dividends from the Company in proportion to their respective 22 annual dollar purchases of paint and related products manufactured by said Division. The earnings realized by the Company on wholesale sales of such products made by it to its member dealers are distributed as patronage dividends to all of its dealers who are eligible to receive patronage dividends from it as part of the patronage dividends which they receive each year with respect to the basic patronage dividend categories established for warehouse sales, bulletin sales, and direct shipment sales. Under Section 8 of Article XXIV of the Company's By-laws, if the Paint Division's manufacturing operations for any year result in a net loss, rather than a profit, to the Paint Division, such loss would be netted against the earnings realized by the Company from its other activities during the year, with the result that the earnings available from such other activities for distribution as patronage dividends for such year would be correspondingly reduced. Forms of Patronage Dividend Distributions Patronage dividend distributions will be made to the eligible and qualified member dealers of the Company in cash, shares of the Company's Class C stock and patronage refund certificates in accordance with the following plan which has been adopted by the Company's Board of Directors with respect to purchases of merchandise made by such dealers from the Company on or after January 1, 1995, and which will continue to be in effect until such time as the Board of Directors, in the exercise of their authority and discretion based upon business conditions from time to time and the requirements of the company, shall determine that such plan should be altered or amended: 1. With respect to each store owned or controlled by each eligible and qualifying dealer, such dealer shall receive a minimum cash distribution determined as follows: (a) an amount equal to 20% of the first $5,000 of the total patronage dividends allocated for distribution each year to such dealer in connection with the purchases made for such store; (b) an amount equal to 25% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $5,000 but does not exceed $7,500; (c) an amount equal to 30% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceed $7,500 but does not exceed $10,000; (d) an amount equal to 35% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $10,000 but does not exceed $12,500; (e) an amount equal to 40% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $12,500. 2. The portion of the total annual distribution allocated to any such dealer for each store owned or controlled by such dealer in excess of the amount to be distributed to such dealer for such store in cash shall be distributed to him each year in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share), valued at the par value thereof, until the total par value of all shares of all classes of capital stock of the corporation held by such dealer with respect to such store equals the greater of: (a) $20,000; or (b) a sum equal to the total of the following categories of purchases made by such dealer for such store during the most recent calendar year: (i) 15% of the volume of warehouse (including STOP and excluding Ace manufactured paint and related products) and bulletin purchases, plus (ii) 15% of the volume of Ace manufactured paint and related products purchases, plus (iii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured paint and related products), plus 23 (iv) 4% of the volume of lumber and building material (excluding LTL) purchases, plus (v) 4% of the volume of LTL Plus purchases; provided, however, that no fractional shares of Class C Non-voting Stock shall be issued to any dealer and that any amount which would have otherwise been distributable as a fractional share of such stock shall instead be distributed to such dealer in cash. 3. The portion of the total patronage dividends allocated each year to any such dealer for each store owned or controlled by such dealer which exceeds the sum of (a) the amount to be distributed to such dealer for such store in cash pursuant to Paragraph 1., above and (b) any amount to be distributed to him in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share) pursuant to Paragraph 2. above shall be distributed to such dealer in cash; provided, however, that in no event shall the total amount distributed under this plan to any such dealer for any such store in cash exceed 45% of the total patronage dividends allocated for such store for such year, and to the extent that any distribution to be made to any such dealer for any store pursuant to this Paragraph 3. would otherwise cause the total cash distribution to such dealer for such store to exceed 45% of the total patronage dividends allocated for such store for such year, the distribution to be made under this Paragraph 3. shall instead be made in the form of a non-negotiable patronage refund certificate having such a maturity date and bearing interest at such an annual rate as shall be determined by the Board of Directors prior to the issuance thereof. Patronage dividend distributions will be made to the eligible and qualified member dealers of the Company in cash, shares of the Company's Class C stock and patronage refund certificates in accordance with the following plan which has been adopted by the Company's Board of Directors with respect to purchases of merchandise made by such dealers from the Company on or after January 1, 1993, through and including December 31, 1994: 1. With respect to each store owned or controlled by each eligible and qualifying dealer, such dealer shall receive a minimum cash distribution determined as follows: (a) an amount equal to 20% of the first $5,000 of the total patronage dividends allocated for distribution each year to such dealer in connection with the purchases made for such store; (b) an amount equal to 25% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $5,000 but does not exceed $7,500; (c) an amount equal to 30% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceed $7,500 but does not exceed $10,000; (d) an amount equal to 35% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $10,000 but does not exceed $12,500; (e) an amount equal to 40% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $12,500. 2. The portion of the total annual distribution allocated to any such dealer for each store owned or controlled by such dealer in excess of the amount to be distributed to such dealer for such store in cash shall be distributed to him each year in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share), valued at the par value thereof, until the total par value of all shares of all classes of capital stock of the corporation held by such dealer with respect to such store equals the greater of: (a) $20,000; or 24 (b) a sum equal to the total of the following categories of purchases made by such dealer for such store during the most recent calendar year: (i) 13% of the volume of warehouse (including STOP and excluding Ace manufactured paint and related products) and bulletin purchases, plus (ii) 10% of the volume of Ace manufactured paint and related products purchases, plus (iii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured paint and related products), plus (iv) 4% of the volume of lumber and building material (excluding LTL) purchases, plus (v) 4% of the volume of LTL Plus purchases; provided, however, that no fractional shares of Class C Non-voting Stock shall be issued to any dealer and that any amount which would have otherwise been distributable as a fractional share of such stock shall instead be distributed to such dealer in cash. 3. The portion of the total patronage dividends allocated each year to any such dealer for each store owned or controlled by such dealer which exceeds the sum of (a) the amount to be distributed to such dealer for such store in cash pursuant to Paragraph 1. above and (b) any amount to be distributed to him in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share) pursuant to Paragraph 2. above shall be distributed to such dealer in cash; provided, however, that in no event shall the total amount distributed under this plan to any such dealer for any such store in cash exceed 49.9% of the total patronage dividends allocated for such store for such year, and to the extent that any distribution to be made to any such dealer for any store pursuant to this Paragraph 3. would otherwise cause the total cash distribution to such dealer for such store to exceed 49.9% of the total patronage dividends allocated for such store for such year, the distribution to be made under this Paragraph 3. shall instead be made in the form of a non-negotiable patronage refund certificate having such a maturity date and bearing interest at such an annual rate as shall be determined by the Board of Directors prior to the issuance thereof. With certain modifications, the above Plans are applied separately in determining the form in which patronage dividends accrued with respect to sales of lumber and building materials products are distributed. In this connection the combined patronage dividends allocated annually to a store from (a) sales of lumber products (other than LTL sales) to the store, (b) sales of building materials (other than LTL sales) to the store, and (c) LTL sales to the store are used in determining the minimum cash distribution percentages to be applied under Paragraph 1 of the above Plans. A store's patronage dividends from any other sales category with respect to which patronage dividends are distributed by the Company are not taken into account in determining either the minimum portion or any additional portion of the store's patronage dividends derived from its purchases of lumber and building materials products which is to be distributed in cash. Also, Paragraphs 2 and 3 of the above Plans are applied separately to patronage dividends on lumber and building materials sales and the requirements of Paragraph 2 of the Plans shall not be deemed to have been complied with in the cases of (a) purchases of lumber products (other than LTL purchases) or (b) purchases of building materials products (other than LTL purchases) until the store's holdings of Class C Non-voting Stock of the Company resulting from patronage dividends on the Company's sales to it within the particular one of those two sales categories for which a patronage dividend distribution is to be made equal 4% of the volume of the store's purchases within such category during the most recent calendar year. However, no such special Class C Stock requirement applies to patronage dividends accrued on LTL purchases. Notwithstanding the provisions of the above-described Plans, however, under Section 7 of Article XXIV of the Company's By-laws the portion of any patronage dividends which would otherwise be distributable in cash with respect to a retail dealer outlet which is a member of the Company will 25 instead be applied against any indebtedness owing by the dealer to the Company to the extent of such indebtedness in any case where the membership for such outlet is cancelled or terminated prior to the distribution of such patronage dividends except that an amount equal to 20% of the dealer's total annual patronage dividends for such outlet will be paid in cash if a timely request for the payment of such amount in cash is submitted to the Company by the dealer. Because of the requirement of the U.S. Internal Revenue Code that the Company withhold 30% of the annual patronage dividends distributed to member dealers of the Company whose places of business are located in foreign countries or Puerto Rico (except in the case of unincorporated Puerto Rico dealers owned by individuals who are U.S. citizens and certain dealers incorporated in Guam, American Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands, if less than 25% of its stock is owned by foreign persons, and at least 65% of the Corporation's gross income for the last three years has been effectively connected with the conduct of a trade or business in such possession or in the United States), the cash portion of the annual patronage dividends of such dealers shall in no event be less than 30%. It is anticipated that the terms of any patronage refund certificates issued pursuant to Paragraph 3. of the foregoing Plans would include provisions giving the Company a first lien thereon for the amount of any indebtedness owing to it at any time by the owner of any such certificate and provisions subordinating the certificates to all the rights and claims of secured, general and bank creditors against the Company. It is further anticipated that all such patronage refund certificates will have maturity dates which will be no later than five years from the dates of issuance thereof. In order to aid the Company's dealers in acquiring and installing standardized exterior signs identifying the retail stores operated by them as member outlets supplied by the Company, the Board of Directors of the Company has authorized a program under which a dealer may borrow from the Company within a range of $100 to $20,000 the funds required for such purpose. A dealer who obtains a loan under this program may either repay the loan in twelve substantially equal payments billed on such dealer's regular bi-weekly billing statement, or may execute a direction to have the portion of the dealer's annual patronage dividends which would otherwise be distributed under the above plan in a form other than cash from no more than the next three annual distributions of such dividends applied toward payment of the principal and interest on the loan. In order to aid the Company's dealers in acquiring and installing PACE and PAINTMAKER computer systems purchased from the Company, the Board of Directors of the Company has also authorized programs under which the Company will finance, for qualified dealers (but not to exceed 80% of the cost of any system), in the case of a PAINTMAKER computer, within the range of $1,000 to $15,000 repayable over a period of three (3) years, and in the case of a PACE computer, within the range of $5,000 to $50,000 repayable over a period of five (5) years, for such purpose. Dealers who obtain financing from the Company for these purposes direct the Company, during the financing term, to first apply toward the principal and interest due on such balances, the patronage dividends which would otherwise be payable in the form of patronage refund certificates for each year, and then to apply the patronage dividends which would otherwise be payable for the same year in the form of the Company's Class C stock. The aforementioned signage and computer financing programs may be revised or discontinued by the Board at any time. Federal Income Tax Treatment of Patronage Dividends (See Previous Heading "Opinions of Experts") Both the shares of Class C Non-voting Stock and the patronage refund certificates used by the Company to pay patronage dividends that accrue to its eligible and qualifying dealers constitute "qualified written notices of allocation" within the meaning of that term as used in Sections 1381 through 1388 of the U.S. Internal Revenue Code, which specifically provide for the 26 income tax treatment of cooperatives and their patrons and which have been in effect since 1963. The stated dollar amounts of such qualified written notices of allocation must be taken into the gross income of each of the recipients thereof for the taxable years in which such written notices of allocation are received, notwithstanding the fact that the stated dollar amounts may not be received in such taxable years. In order for the Company to receive a deduction from its gross income for federal income tax purposes for the amount of any patronage dividends paid by it to a patron (that is, to one of its eligible and qualifying dealers) in the form of qualified written notices of allocation, it is necessary that the Company pay (or apply against indebtedness owing to the Company by such patron in accordance with Section 7 of Article XXIV of the Company's By-laws) not less than 20% of the total patronage dividends distributable to such patron in cash and that the patron consent to having the written notices of allocation, at their stated dollar amounts, included in his gross income for the taxable year in which they are received by him. It is also required under the Code that any patronage dividend distributions deducted by the Company on its federal income tax return with respect to business done by it with patrons during the year for which such deduction is taken must be made to the Company's patrons within 8 months after the end of such year. Dealers who have become "members" of the Company by owning 1 share of Class A Voting Stock are deemed under the U.S. Internal Revenue Code to have consented to take any written notices of allocation distributed to them into their gross income by their act of obtaining or retaining membership in the Company and by having received from the Company a written notification of the By-law provision providing that membership in the Company constitutes such consent. In accordance with another provision in the Internal Revenue Code, nonmember dealers who have subscribed for shares of the Company's stock will also be deemed to have consented, by virtue of the consent provisions included in their Subscription Agreements, to take any written notices of allocation distributed to them into their gross income. A dealer receiving a patronage refund certificate as part of the dealer's patronage dividends in accordance with the last clause of Paragraph 3 of the patronage dividend distribution plans previously described under the heading "The Company's Business," subheading, "Forms of Patronage Dividend Distributions," may be deemed to have received interest income in the form of an original issue discount to the extent of any excess of the face amount of the certificate over the present value of the stated principal and interest payments to be made by the Company under the terms of the certificate. Such income would be taxable to the dealer ratably over the term of the certificate under Section 7872(b) (2) of the U.S. Internal Revenue Code. The present value for this purpose is to be determined by using a discount rate equal to the applicable Federal rate in effect as of the day of issuance of the certificate, compounded semi-annually. The Company will be required to withhold for federal income tax on the total patronage dividend distribution which is made to a payee who has not furnished his taxpayer identification number to the Company or as to whom the Company has notice of the fact that the number furnished to it is incorrect. A cooperative organization may also be required to withhold on the cash portion of each patronage dividend distribution made to a payee who becomes a member of the cooperative if the payee fails to certify to the cooperative that he is not subject to backup withholding. It is the opinion of counsel for the Company that this provision is not applicable to any patronage dividend distribution to a payee unless 50% or more of the total distribution is made in cash. Since all of the Company's patronage dividends for a given year are distributed at the same time and the Company's currently effective patronage dividend plan does not permit any store which is a member of the Company to receive more than 49.9% of its patronage dividends for the year in the form of cash, it is said counsel's further opinion that such a certification failure would ordinarily have no effect on the Company or any of its dealers. Patronage dividends distributed by a cooperative organization to its patrons who are located in foreign countries or certain U.S. possessions have been held to constitute fixed or determinable annual or periodic income on 27 which such patrons are required to pay a tax of 30% of the amount received in accordance with the provisions of Sections 871(a)(1)(A) and 881(a) (1) of the Internal Revenue Code, as do patronage dividends distributed to patrons which are incorporated in Puerto Rico or who reside in Puerto Rico but have not become citizens of the United States. With respect to its dealers who are subject to such 30% tax, the Company is also obligated to withhold from their patronage dividends and pay over to the U.S. Internal Revenue Service an amount equal to the tax. The foregoing provisions do not apply to a corporation organized in Guam, American Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands if less than 25% of its stock is owned by foreign persons and at least 65% of its gross income for the last three years has been effectively connected with the conduct of a trade or business in such possession or in the United States. The 20% minimum portion of the patronage dividends to be paid in cash to a patron with respect to whom the Company is neither required to withhold 30% of his total patronage dividend distribution nor permitted to apply such minimum portion against indebtedness owing to it by him may be insufficient, depending upon the income tax bracket of each individual patron, to provide funds for the full payment of the federal income tax for which such patron will be liable as a result of the receipt of the total patronage dividends distributed to him during the year, including cash, patronage refund certificates and/or Class C Non-voting Stock. In the opinion of the Company's management, payment in cash of not less than 20% of the total patronage dividends distributable each year to the Company's eligible and qualifying dealers will not have a material adverse effect on the operations of the Company or its ability to obtain adequate working capital for the normal requirements of its business. Membership Agreement In addition to signing a Subscription Agreement for the purchase of shares of the Company's stock, each retail dealer who applies to become an Ace dealer (excluding firms which are "International Retail Merchants" as discussed below under the subheading "International Retail Merchants") must sign the Company's customary Membership Agreement. A payment of $400 must accompany the signed Membership Agreement to defray the Company's estimated costs of processing the membership application. If the application is accepted, copies of both the Membership Agreement and the Stock Subscription Agreement, signed on behalf of the Company to evidence its acceptance, are forwarded to the dealer. No royalties are payable at any time by a dealer for an outlet which the Company accepts for affiliation into its dealer network. Membership may be terminated upon various notice periods and for various reasons (including voluntary termination by either party) as prescribed in the Membership Agreement, except to the extent that special laws or regulations applicable to specific locations may limit the Company's right to terminate memberships, or may prescribe greater periods of advance notice under particular circumstances. International Retail Merchants In 1989, the Company's Board of Directors authorized the Company to affiliate International Retail Merchants, who operate retail businesses outside the United States, its territories and possessions. International Retail Merchants do not sign the Company's regular Membership Agreement but may, depending on the circumstances, be granted a license to use certain of the Company's trademarks and service marks. They do not sign stock subscription agreements or become shareholders of the Company, nor do they receive distribution of patronage dividends. As of December 31, 1994, 1993 and 1992, International Retail Merchant volume accounted for less than 4% of the Company's total sales in each such year. 28 PROPERTIES The Company's general offices are located at 2200 Kensington Court, Oak Brook, lllinois 60521. Information with respect to the Company's principal properties follows:
Square Feet Owned Lease of facility or Expiration Location (Land in Acres) Leased Date General Offices: Oak Brook, Illinois 206,030 Leased September 30, 2009 Oak Brook, Illinois (1) 70,508 Owned Distribution Warehouses: Lincoln, Nebraska 346,000 Leased December 31, 1996 Arlington, Texas 313,000 Leased July 31, 1996 Perrysburg, Ohio 396,000 Leased November 1, 2004 Tampa, Florida 391,760 Owned Harmans, Maryland 277,000 Owned Yakima, Washington 502,400 Owned Maumelle, Arkansas 585,500 Owned LaCrosse, Wisconsin 363,000 Owned Bloomfield, Connecticut 449,820 Owned Huntersville, North Carolina 354,000 Owned Rocklin, California 470,000 Owned Gainesville, Georgia 478,000 Owned Prescott Valley, Arizona 633,000 Owned Princeton, Illinois 1,080,000 Owned Carol Stream, Illinois (2) 250,000 Leased September 30, 1999 Chicago, Illinois (3) 18,168 Leased May 31, 1997 Print Shop Facility: Downers Grove, Illinois 41,000 Leased January 31, 1998 Paint Manufacturing Facility: Matteson, Illinois 356,000 Owned Chicago Heights, Illinois (4) 194,000 Owned Other Property (Land): Aurora, Illinois 72 acres Owned LaCrosse, Wisconsin (5) 3 acres Owned
(1) Includes 35,254 square feet leased to tenant until July 31, 1996. The subject property is adjacent to the Company's general offices. (2) This facility was leased by the Company in October, 1994, for use as a bulk merchandise redistribution center. (3) This facility was leased by the Company in June, 1994 for use as a freight consolidation center. (4) This facility was purchased by the Company in December, 1994 and is currently being remodeled. The Company anticipates that production will commence the second quarter of 1995. (5) This land is adjacent to the Company's LaCrosse, Wisconsin warehouse. The Company also leases a fleet of transportation equipment for the primary purpose of delivering merchandise from the Company's warehouses to its dealers. 29 THIS PAGE INTENTIONALLY LEFT BLANK INDEX TO FINANCIAL STATEMENTS Page Independent Auditors' Report 32 Balance Sheets as of December 31, 1994 and 1993 33 Statements of Earnings for the three years in the period ended December 31, 1994 35 Statements of Member Dealers' Equity for the three years in the period ended December 31, 1994 36 Statements of Cash Flows for the three years in the period ended December 31, 1994 37 Notes to Financial Statements 38 31 INDEPENDENT AUDITORS' REPORT The Board of Directors Ace Hardware Corporation: We have audited the balance sheets of Ace Hardware Corporation as of December 31, 1994 and 1993, and the related statements of earnings, member dealers' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ace Hardware Corporation at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Chicago, Illinois January 31, 1995 32 ACE HARDWARE CORPORATION BALANCE SHEEET December 31, 1994 and 1993 ASSETS
1994 1993 (000's omitted) Current assets: Cash $ 4,868 $ 4,142 Receivables: Dealers 228,584 183,493 Others 32,377 29,831 260,961 213,324 Less Allowance for doubtful receivables (1,350) (720) Net receivables 259,611 212,604 Inventories (Note 2) 270,391 263,576 Prepaid expenses and other current assets 6,810 6,869 Total current assets 541,680 487,191 Property and equipment (Notes 4 and 9): Land 14,219 13,673 Buildings and improvements 135,252 131,794 Warehouse equipment 48,947 47,146 Office equipment 53,965 48,842 Manufacturing equipment 12,165 12,012 Transportation equipment 14,557 12,508 Leasehold improvements 10,925 6,553 Construction in progress 7,561 2,319 297,591 274,847 Less accumulated depreciation and amortization (120,493) (108,710) Net property and equipment 177,098 166,137 Other assets 6,703 14,160 $ 725,481 $ 667,488 See accompanying notes to financial statements.
33 ACE HARDWARE CORPORATION BALANCE SHEETS December 31, 1994 and 1993 LIABILITIES AND MEMBER DEALERS' EQUITY
1994 1993 (000's omitted) Current Liabilities: Current installments of long-term debt (Note 4) $ 7,369 $ 10,707 Short-term borrowings (Note 3) 30,000 38,500 Accounts payable 293,088 234,190 Patronage dividends payable in cash (Note 5) 27,302 25,766 Patronage refund certificates payable (Note 5) 1,315 11,059 Accrued expenses 38,627 33,682 Total current liabilities 397,701 353,904 Long-term debt (Note 4) 64,287 71,286 Patronage refund certificates payable (Note 5) 63,666 56,270 Member dealers' equity (Notes 5 and 8): Class A Stock of $1,000 par value 3,924 3,946 Class B Stock of $1,000 par value 6,499 6,499 Class C Stock of $100 par value 164,666 153,155 Class C Stock of $100 par value, issuable to dealers for patronage dividends 21,766 19,064 Additional stock subscribed, net 555 613 Retained earnings 5,624 5,622 Contributed capital 3,295 3,295 206,329 192,194 Less: Treasury stock, at cost (6,502) (6,166) Total member dealers' equity 199,827 186,028 Commitments (Notes 6 and 9) -- -- $ 725,481 $ 667,488 See accompanying notes to financial statements.
34 ACE HARDWARE CORPORATION STATEMENTS OF EARNINGS
Year Ended December 31, 1994 1993 1992 (000's omitted) Net sales $ 2,326,115 $ 2,017,763 $ 1,870,625 Cost of sales 2,158,896 1,867,326 1,723,017 Gross Profit 167,219 150,437 147,608 Operating expenses: Warehouse and distribution 29,379 31,650 32,291 Selling, general and administration 63,515 54,378 48,451 Total operating expenses 92,894 86,028 80,742 Operating income 74,325 64,409 66,866 Interest expense (Note 11) (12,035) (9,798) (8,380) Other income, net (Note 11) 3,716 2,909 2,852 Income taxes (Note 7) (1,484) (428) (571) Net earnings 64,522 57,092 60,767 Retained earnings at beginning of year 5,622 7,553 9,993 Net earnings 64,522 57,092 60,767 Patronage Dividends (Notes 5 and 8) (64,520) (59,023) (63,207) Retained earnings at end of year $ 5,624 $ 5,622 $ 7,553 See accompanying notes to financial statements.
35 ACE HARDWARE CORPORATION STATEMENTS OF MEMBER DEALERS' EQUITY Three Years Ended December 31, 1994 (000's omitted)
Class C Stock Issuable to Dealers for Additional Class A Class B Class C Patronage Stock Stock Stock Stock Dividends Subscribed* Balance at December 31, 1991 $ 4,165 $ 6,499 $ 130,083 $ 14,841 $ 1,069 Net earnings -- -- -- -- -- Net payments on subscriptions -- -- -- -- 1,302 Stock issued 224 -- 16,191 (14,841) (1,574) Stock repurchased -- -- -- -- -- Stock retired (329) -- (7,260) -- -- Stock issuable as patronage dividends -- -- -- 20,301 -- Patronage dividends payable -- -- -- -- -- Balance at December 31, 1992 $ 4,060 $ 6,499 $ 139,014 $ 20,301 $ 797 Net earnings -- -- -- -- -- Net payments on subscriptions -- -- -- -- 1,049 Stock issued 157 -- 21,377 (20,301) (1,233) Stock repurchased -- -- -- -- -- Stock retired (271) -- (7,236) -- -- Stock issuable as patronage dividends -- -- -- 19,064 -- Patronage dividends payable -- -- -- -- -- Balance at December 31, 1993 $ 3,946 $ 6,499 $ 153,155 $ 19,064 $ 613 Net earnings -- -- -- -- -- Net payments on subscriptions -- -- -- -- 1,394 Patronage financing deductions -- -- -- (1,086) -- Stock issued 218 -- 19,212 (17,978) (1,452) Stock repurchased -- -- -- -- -- Stock retired (240) -- (7,701) -- -- Stock issuable as patronage dividends -- -- -- 21,766 -- Patronage dividends payable -- -- -- -- -- Balance at December 31, 1994 $ 3,924 $ 6,499 $ 164,666 $ 21,766 $ 555
(Table Continued on following page) * Additional stock subscribed is comprised of the following amounts at December 31, 1992, 1993 and 1994:
1992 1993 1994 Class A Stock . . . . . . . . . $ 185 $ 223 $ 291 Class B Stock . . . . . . . . . -- -- -- Class C Stock . . . . . . . . . 2,184 1,952 2,180 2,369 2,175 2,471 Less unpaid portion . . . . . . 1,572 1,562 1,916 $ 797 $ 613 $ 555
Retained Contributed Treasury Earnings Capital Stock Total Balance at December 31, 1991 $ 9,993 $ 3,295 $ (5,534) $ 164,411 Net earnings 60,767 -- -- 60,767 Net payments on subscriptions -- -- -- 1,302 Stock issued -- -- -- -- Stock repurchased -- -- (7,893) (7,893) Stock retired -- -- 7,589 -- Stock issuable as patronage dividends -- -- -- 20,301 Patronage dividends payable (63,207) -- -- (63,207) Balance at December 31, 1992 $ 7,553 $ 3,295 $ (5,838) $ 175,681 Net earnings 57,092 -- -- 57,092 Net payments on subscriptions -- -- -- 1,049 Stock issued -- -- -- -- Stock repurchased -- -- (7,835) (7,835) Stock retired -- -- 7,507 -- Stock issuable as patronage dividends -- -- -- 19,064 Patronage dividends payable (59,023) -- -- (59,023) Balance at December 31, 1993 $ 5,622 $ 3,295 $ (6,166) $ 186,028 Net earnings 64,522 -- -- 64,522 Net payments on subscriptions -- -- -- 1,394 Net payments on patronage financing programs -- -- -- (1,086) Stock issued -- -- -- -- Stock repurchased -- -- (8,277) (8,277) Stock retired -- -- 7,941 -- Stock issuable as patronage dividends -- -- -- 21,766 Patronage dividends payable (64,520) -- -- (64,520) Balance at December 31, 1994 $ 5,624 $ 3,295 $ (6,502) $ 199,827 See accompanying notes to financial statements.
36 ACE HARDWARE CORPORATION STATEMENTS OF CASH FLOWS Year Ended December 31,
(000's omitted) Operating Activities: 1994 1993 1992 Net earnings $ 64,522 $ 57,092 $ 60,767 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 16,954 16,156 14,817 Loss on sale of property and equipment 175 460 507 Increase in accounts receivable, net (47,007) (18,880) (32,783) Increase in inventories (6,815) (50,099) (2,091) (Increase) Decrease in prepaids and other current assets 59 (352) (632) Increase (Decrease) in accounts payable and accrued expenses 63,843 58,087 (2,237) Net Cash Provided by Operating Activities 91,731 62,464 38,348 Investing Activities: Purchase of property, plant and equipment (28,277) (16,346) (34,582) Proceeds from sale of property and equipment 187 238 83 (Increase) Decrease in other assets 7,457 (1,991) (3,831) Net Cash Used in Investing Activities (20,633) (18,099) (38,330) Financing Activities: (Payments of) Proceeds from short-term borrowings (8,500) (17,500) 34,000 Proceeds from Notes Payable -- 30,000 20,000 Principal payments on long-term debt (10,337) (1,092) (16,170) Payment of cash portion of patronage dividend (25,766) (27,538) (26,864) Payments of Patronage refund certificates and patronage financing deductions (18,886) (19,451) (9,182) Proceeds from sale of common stock 1,394 1,049 1,302 Repurchase of common stock (8,277) (7,835) (7,893) Net Cash Used by Financing Activities (70,372) (42,367) (4,807) Increase (Decrease) in Cash and Cash Equivalents 726 1,998 (4,789) Cash and Cash Equivalents at beginning of year 4,142 2,144 6,933 Cash and Cash Equivalents at end of year $ 4,868 $ 4,142 $ 2,144 See accompanying notes to financial statements.
37 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) The Company and Its Business The Company operates as a wholesaler of hardware and related products, and manufactures paint products. As a dealer-owned cooperative, the Company distributes substantially all of its patronage sourced earnings in the form of patronage dividends to its member dealers based on their volume of merchandise purchases. (b) Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. (c) Receivables Receivables from dealers include amounts due from the sale of merchandise and special equipment used in the operations of dealers' businesses. Other receivables are principally amounts due from suppliers for promotional and advertising allowances. (d) Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using the last-in, first-out method on substantially all inventories. (e) Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures for maintenance, repairs and renewals of relatively minor items generally are charged to earnings. Significant improvements or renewals are capitalized. Depreciation expense is computed on both straight-line and accelerated methods based on estimated useful lives as follows: Useful Life Principal Years Depreciation Method Buildings and improvements 10-40 Straight line Warehouse equipment 5-10 Sum of years Office equipment 3-10 Various Manufacturing equipment 3-20 Straight line Transportation equipment 3-7 Straight line Leasehold improvements are generally amortized on a straight-line basis over the term of the respective leases. (f) Retirement Plans The Company has retirement plans covering substantially all non-union employees. Costs with respect to the noncontributory pension plans are determined actuarially and consist of current costs and amounts to amortize prior service costs and unrecognized gains and losses. The Company contribution under the profit sharing plan is determined annually by the Board of Directors. (g) Reclassifications Certain financial statement reclassifications have been made to prior year amounts to conform to comparable classifications followed in 1994. 38 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) (2) Inventories Inventories consist primarily of merchandise inventories. Substantially all of the Company's inventory is valued on the last-in, first-out (LIFO) method; the excess of replacement cost over the LIFO value of inventory was approximately $65,052,000 and $63,615,000 at December 31, 1994 and 1993, respectively. Indirect costs, consisting primarily of warehousing costs, are absorbed as inventory costs rather than period costs. (3) Short-Term Borrowings Short-term borrowings were utilized during 1994 and 1993. The maximum amount outstanding at any month-end during the period was $115,500,000 in 1994 and $91,000,000 in 1993. The interest rate effective as of December 31, 1994 and 1993 was 6.5% and 3.6%, respectively. Short term borrowings outstanding as of December 31, 1994 and 1993 were $30,000,000 and $38,500,000, respectively. At December 31, 1994 the Company has available a revolving credit facility with a group of banks providing for $100 million in committed lines and $50 million in uncommitted lines. The aggregate unused line of credit available at December 31, 1994 and 1993 was $120,000,000 and $69,000,000, respectively. At December 31, 1994, the Company had no compensating balance requirements. Aggregate compensating balances (not legally restricted) at December 31, 1993 were $600,000. (4) Long-Term Debt Long-term debt is comprised of the following: December 31,
1994 1993 (000's omitted) Industrial Development Revenue and Variable Rate Bonds: $125,000 payable quarterly through December 1, 1996 with interest at 65% of the prime rate $ 1,000 $ 1,500 $8,250,000 due on February 1, 1994 with interest payable monthly beginning September 1, 1988 at variable rates ranging from 1.95% to 4.95% -- 8,250 Notes Payable: $20,000,000 due in quarterly installments of $540,500 commencing July 1, 1994 with interest payable quarterly beginning January 1, 1992 at a fixed rate of 8.74% 18,919 20,000 $20,000,000 due in quarterly installments of $952,400 commencing January 1, 1995 with interest payable quarterly beginning October 1, 1992 at a fixed rate of 6.89% 20,000 20,000 $30,000,000 due in semi-annual installments of $2,000,000 commencing June 22, 2001 with interest payable quarterly beginning December 22, 1993 at a fixed rate of 6.47% 30,000 30,000 Liability under capitalized leases (see Note 9) 726 1,197 Installment notes with maturities through 1998 with various interest rates 1,011 1,046 71,656 81,993 Less current installments 7,369 10,707 $64,287 $71,286
39 ACE HARDWARE CORPORATION NOTES TO FINANCIALSTATEMENTS-(Continued) Prime interest rates in effect ranged from 6.0% to 8.5% in 1994 and were 6.0% in 1993. Aggregate maturities of long-term debt are $7,369,000, $7,060,000, $6,131,000, $6,064,000 and $5,972,000 in 1995 through 1999, respectively. The fair value of the Company's debt based upon discounting of future cash flows does not materially vary from the carrying value of such debt as of December 31, 1994. (5) Patronage Dividends and Refund Certificates Payable The Company operates as a cooperative organization and has paid or will pay patronage dividends to member dealers on the portion of earnings derived from business done with such dealers. Patronage dividends are allocated in proportion to the volume of purchases by member dealers during the period. The amount of patronage dividends to be remitted in cash depends upon the level of dividends earned by each member outlet, varying from 20% on the total dividends under $5,000 and increasing by 5% on total dividends for each subsequent $2,500 earned to a maximum of 40% on total dividends exceeding $12,500. All amounts exceeding the cash portions will be distributed in the form of Class C $100 par value stock, to a maximum based upon the current year's purchase volume or $20,000 whichever is greater, and thereafter in a combination of additional cash and patronage refund certificates having maturity dates and bearing interest as determined by the Board of Directors. A portion of the dealer's annual patronage dividends distributed under the above plan in a form other than cash can be applied toward payment of principal and interest on any balances outstanding for approved exterior signage and computer equipment financing. The patronage dividend composition for 1994, 1993 and 1992 follows:
Subordinated Class Patronage Total Cash Refund C Financing Patronage Portion Certificates Stock Deductions Dividend (000's omitted) 1994 $27,302 $ 9,920 $21,766 $5,532 $64,520 1993 25,766 12,728 19,064 1,465 59,023 1992 27,538 14,598 20,301 770 63,207
Patronage dividends are allocated on a calendar year basis with issuance in the following year. The patronage refund certificates outstanding at December 31, 1994 are payable as follows:
Interest January 1, Amount Rate (000's omitted) 1995 $ 1,315 7.0% 1996 12,868 7.0 1997 14,570 6.25 1998 14,227 6.0 1999 12,081 6.0 2000 9,920 7.0
40 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) On January 1, 1994 the Company prepaid a portion of the patronage refund certificates payable on January 1, 1995 and accordingly, these certificates are classified as current liabilities in the December 31, 1993 balance sheet. The remaining patronage refund certificates payable on January 1, 1995 will be paid in January 1995. (6) Retirement Plans The Company has defined benefit pension plans covering substantially all non-union employees. Benefits are based on years of service, highest average compensation (as defined) and the related profit sharing and primary social security benefit. Contributions to the plan are based on the Entry Age Normal, Frozen Initial Liability actuarial funding method and are limited to amounts that are currently deductible for tax reporting purposes. As of December 31, 1994, plan assets were held primarily in group annuity and guaranteed interest contracts, equities and mutual funds. Pension income for the years 1994, 1993 and 1992 included the following components:
1994 1993 1992 (000's omitted) Service cost - benefits earned during the period $ 323 $ 292 $ 338 Interest cost on projected benefit obligation 805 752 722 Actual return on plan assets (121) (1,104) (975) Net amortization and deferral (1,073) (169) (313) Net periodic pension income $ (66) $ (229) $ (228)
The following table sets forth the funded status of the plans and amounts recognized in the Company's Balance Sheet at December 31, 1994 and 1993 (September 30th measurement date):
1994 1993 (000's omitted) Accumulated benefit obligation, including vested benefits of $10,919,000 and $8,500,000 $11,384 $ 9,515 Plan assets at fair value $13,654 $14,023 Projected benefit obligation for service rendered to date 12,364 10,897 Plan assets in excess of projected benefit obligation $ 1,290 $ 3,126 Unrecognized net (gain) loss from past experience different from that assumed and effects of changes in assumptions 3,361 1,544 Remaining unrecognized net asset being amortized over participants average remaining service period (1,983) (2,148) Prepaid pension cost included in other assets $ 2,668 $ 2,522
41 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0% in 1994 and 7.5% in 1993. The related expected long-term rate of return was 8.0% in 1994 and 8.5% in 1993. The rate of increase in future compensation was projected using actuarial salary tables plus 1% in 1994 and using a rate of 6% in 1993. The Company also participates in several multi-employer plans covering union employees. Amounts charged to expense and contributed to the plans totaled approximately $282,000, $275,000, and $426,000 in 1994, 1993 and 1992, respectively. The Company's profit sharing plan contribution for the years ended 1994, 1993, and 1992 was approximately $9,381,000, $8,690,000 and $7,374,000, respectively. The Company has no significant post-retirement benefit liabilities as defined under Financial Accounting Standard No. 106. (7) Income Taxes As a cooperative, the Company distributes substantially all of its patronage sourced earnings to its members in the form of patronage dividends. The 1994, 1993 and 1992 provisions for federal income taxes were $924,000, $141,000 and $162,000, respectively, and for state income taxes were $560,000, $287,000 and $409,000, respectively. The Company made tax payments of $1,428,000, $357,000, and $728,000 during 1994, 1993 and 1992, respectively. (8) Member Dealers' Equity The Company's founders for many years contemplated that the ownership of the Company would eventually be with the Company's member dealers. Prior to November 30, 1976, dealers deposited monies to the Ace Dealer's Perpetuation Fund for the purpose of accumulating funds for the purchase of stock when such ownership became available. The Company registered its stock with the Securities and Exchange Commission on October 1, 1976 and existing dealers who subscribed for stock applied their deposits toward payment of such shares. The small number of dealers who did not subscribe for shares had their respective deposits refunded during 1977. 42 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) The Company's classes of stock are described below:
Number of Shares at December 31, 1994 1993 Class A Stock, voting, redeemable at par value -- Authorized 10,000 10,000 Issued and outstanding 3,924 3,946 Class B Stock, nonvoting, redeemable at not less than twice par value -- Authorized 6,500 6,500 Issued 6,499 6,499 Outstanding 3,248 3,416 Treasury stock 3,251 3,083 Class C Stock, nonvoting, redeemable at not less than par value -- Authorized 2,000,000 2,000,000 Issued and outstanding 1,646,656 1,531,549 Issuable as patronage dividends 217,658 190,635 Additional Stock Subscribed: Class A Stock 291 223 Class B Stock -- -- Class C Stock 21,800 19,520
At December 31, 1994 and 1993 there were no common shares reserved for options, warrants, conversions or other rights; nor were any options granted or exercised during the two years then ended. Member dealers may subscribe for the Company's stock in various prescribed combinations. Only one share of Class A Stock may be owned by a dealer with respect to the first member retail outlet controlled by such dealer. Only four shares of Class B Stock may be owned by a dealer with respect to each retail outlet controlled by such dealer, but only if such outlet was a member of the Company on or before February 20, 1974. An appropriate number of shares of Class C Stock must be included in any subscription by a dealer in an amount to provide that such dealer has a par value of all shares subscribed for equal to $5,000 for each retail outlet. Unregistered shares of Class C Stock are also issued to dealers in connection with patronage dividends. No dividends can be declared on any shares of any class of the Company's Stock. Upon termination of the Company's membership agreement with any retail outlet, all shares of stock of the Company, held by the dealer owning or controlling such outlet, must be sold back to the Company, unless a transfer of such shares is made to another party accepted by the Company as a member dealer with respect to the same outlet. A Class A share is issued to a member dealer only when the share subscribed has been fully paid. Class B and Class C shares are only issued when all such shares subscribed with respect to a retail outlet have been fully paid. Additional Stock Subscribed in the accompanying statements represents the par value of shares subscribed, reduced by the unpaid portion. 43 ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) All shares of stock are currently issued and repurchased at par value, except for Class B Stock which is repurchased at twice its par value, or $2,000 per share. Upon retirement of Class B shares held in treasury, the excess of redemption price over par is allocated equally between contributed capital and retained earnings. Transactions during 1993 and 1994 affecting treasury shares follow:
Shares Held in Treasury Class A Class B Class C Balance at December 31, 1992 -- 2,919 -- Stock issued -- -- -- Stock repurchased 271 164 72,359 Stock retired (271) -- (72,359) Balance at December 31, 1993 -- 3,083 -- Stock issued -- -- -- Stock repurchased 240 168 77,013 Stock retired (240) -- (77,013) Balance at December 31, 1994 -- 3,251 --
(9) Commitments Leased property under capital leases is included under "Property and Equipment" in the balance sheets as follows:
December 31, (000's omitted) 1994 1993 Buildings and improvements $ 3,422 $ 3,422 Data processing equipment 723 723 Less: Accumulated depreciation and amortization (3,609) (3,291) $ 536 $ 854
44 ACE HARDWARE CORPORATION NOTES TO FINANCIALSTATEMENTS-(Continued) The Company rents buildings and warehouse, office and certain other equipment under operating and capital leases. At December 31, 1994 annual minimum rental commitments under leases that have initial or remaining noncancelable terms in excess of one year were as follows: Year Ending Capital Operating December 31, Leases Leases (000's omitted) 1995 $502 $ 9,421 1996 271 7,746 1997 -- 5,768 1998 -- 4,502 1999 -- 3,448 Thereafter -- 24,780 Total minimum lease payments $773 $55,665 Less amount representing interest 47 Present value of total minimum lease payments $726 All leases expire prior to 2010. Under certain leases, the Company pays real estate taxes, insurance and maintenance expenses in addition to rental expense. Management expects that in the normal course of business, leases that expire will be renewed or replaced by other leases. Rent expense was approximately $21,814,000, $21,444,000 and $21,073,000 in 1994, 1993 and 1992, respectively. Rent expense includes $4,382,000, $4,282,000 and $3,706,000 in contingent rentals paid in 1994, 1993 and 1992, respectively, primarily for transportation equipment mileage. (10) Supplementary Income Statement Information Gross media expense, prior to income offsets from dealers and suppliers, amounting to $52,185,000, $48,293,000 and $47,813,000 were charged to operations in 1994, 1993, and 1992, respectively. (11) Interest Expense and Other Income, Net Capitalized interest totaled $213,000, $29,000 and $836,000 in 1994, 1993 and 1992, respectively. Interest paid was $13,518,000, $10,670,000 and $9,149,000 in 1994, 1993 and 1992, respectively. 45 Item 6. Selected Financial Data SELECTED FINANCIAL DATA Income Statement Data:
Year Ended December 31, 1994 1993 1992 1991 1990 (000's omitted) Net sales $2,326,115 $2,017,763 $1,870,625 $1,704,203 $1,625,029 Cost of sales 2,158,896 1,867,326 1,723,017 1,569,871 1,497,147 Gross profit 167,219 150,437 147,608 134,332 127,882 Total expenses 102,697 93,345 86,841 75,175 67,470 Net earnings $64,522 $57,092 $60,767 $59,157 $60,412 Patronage dividends (Notes A, B, 5 and 8) $64,520 $59,023 $63,207 $57,729 $57,519
Balance Sheet Data:
Year Ended December 31, 1994 1993 1992 1991 1990 (000's omitted) Total assets $725,481 $667,488 $594,676 $540,953 $479,202 Working capital 143,979 133,287 103,952 105,899 92,376 Long-term debt 64,287 71,286 51,696 38,737 22,521 Patronage refund certificates payable, long-term 63,666 56,270 55,389 58,559 52,134 Member dealers' equity 199,827 186,028 175,681 164,411 154,563
(A) The Company operates as a cooperative organization, and pays patronage dividends to member dealers on earnings derived from business done with such dealers. It is the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends. (B) The form in which patronage dividends are to be distributed can only be determined at the end of each year when the amount distributable to each of the member dealers is known. For the five years ended December 31, 1994, patronage dividends were payable as follows:
1994 1993 1992 1991 1990 (000's omitted) In cash $ 27,302 $ 25,766 $ 27,538 $ 26,864 $ 26,462 In patronage refund certificates payable 9,920 12,728 14,598 15,176 13,597 In Class C Stock 21,766 19,064 20,301 14,841 16,322 In patronage financing deductions 5,532 1,465 770 848 1,138 Total patronage dividends $ 64,520 $ 59,023 $ 63,207 $ 57,729 $ 57,519
(C) Numbered notes refer to Notes to Financial Statements, beginning on page 38. 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Company's ability to generate cash adequate to meet its needs ("liquidity") results from internally generated funds, short-term lines of credit and long-term financings (see Notes 3 and 4 to the financial statements). These sources have been sufficient to finance the Company's seasonal and other working capital requirements and its capital expenditure programs. In the second quarter of 1994, the Company established an unsecured revolving credit facility with a group of banks. The Company had unused unsecured lines of credit of $120.0 million at December 31, 1994. Any borrowings under these lines of credit would bear interest at the prime rate or less. Long-term financings are arranged as determined necessary to meet the Company's capital or other requirements, with principal amount, timing and form dependent on prevailing debt markets and general economic conditions. Capital expenditures for new and improved facilities were $28.3, $16.3 and $34.6 million in 1994, 1993 and 1992, respectively. During 1994, the Company financed the $28.3 million of capital expenditures out of current and accumulated internally generated funds, and short-term borrowings. 1995 capital expenditures are anticipated to be approximately $44.3 million primarily for a new distribution facility and improvements to existing facilities. As a cooperative, the Company distributes substantially all of its patronage source earnings to its members in the form of patronage dividends, which are deductible for income tax purposes (see headings "Patronage Dividend Determinations And Allocations" and "Federal Tax Treatment of Patronage Dividends"). The Company expects that existing and new internally generated funds, along with established lines of credit and long-term financings, will continue to be sufficient to finance the Company's patronage dividend and capital expenditure programs. Operations-1994 Compared to 1993 Net sales increased 15.3% in 1994 primarily due to increases in volume from existing dealers and increased International sales. Sales of basic hardware and paint merchandise (including warehouse, bulletin, and direct shipments) increased 13.5%. Increased advertising activity fueled strong 1994 promotional increases, particularly in the warehouse sales categories. Lumber and building material sales experienced higher percentage increases in 1994 as sales efforts were accelerated. Net dealer outlets increased in 1994 as set forth on page 15 partially reversing previous year declines. Targeted sales efforts on new store development and conversions to the Ace program and increased emphasis on dealer retail success resulted in positive 1994 dealer growth. Gross profit increased $16.8 million or 11.2% vs. 1993 due primarily to the strong sales results in the basic sales categories and strong manufacturing profits. As a percent of sales, however, gross profit declined due to continued growth of competitively priced and promotional items within the overall sales mix. Upfront rebates through reduced handling charges and low upfront pricing programs and discounts have accelerated and reduced gross profit as a percent of sales. Warehouse and distribution expenses decreased by $2.3 million or 7.2%, and as a percent of sales due to increased traffic revenues and reduced building and operating costs due to the replacement of a facility in 1993. 47 Selling, general, and administration expenses increased by $9.1 million or 16.8% and as a percent of sales due to reduced net advertising income, increased personnel costs for field retail support and increased marketing costs. Increases within these expense categories are directly related to retail support of Ace dealers. Interest expense increased $2.2 million in 1994 due to increased borrowing levels to fund the sales growth and increased interest rates. The use of both short-term borrowings and long-term financing is expected to continue to fund planned capital expenditures (see liquidity and capital resources and Notes 3 and 4 to the financial statements). Other income increased $807,000 or 27.7% in 1994 due to increased interest income related to dealer financing programs and 1993 losses on asset disposals at a replaced facility which did not re-occur in 1994. Operations-1993 Compared to 1992 Net sales increased 7.9% in 1993 primarily due to increases in volume from existing dealers. Sales of basic hardware and paint merchandise (including warehouse, bulletin, and direct shipments) increased 6.8%. Lumber and building material sales experienced a higher percentage increase in 1993. Net dealer outlets decreased as set forth on page 15 as a result of increased sales and marketing efforts with existing dealers and increased competition. Gross profit increased $2.8 million or 1.9% vs. 1992 due primarily to higher net merchandise discounts and allowances. Gross profit decreased as a percent of sales, however, due to reduced handling charges on competitively priced items and shifts in the Company's sales mix. Warehouse and distribution expenses decreased by $641,000 or 2.0% due to decreased building rental and facility costs and increased levels of warehousing costs absorbed into cost of sales, partially offset by increased personnel and equipment costs and traffic freight subsidies. Selling, general, and administration expenses increased by $5.9 million or 12.2% due to higher personnel costs and marketing expenses partially offset by higher advertising and retail support income. Interest expense increased $1.4 million in 1993 despite lower interest rates due to increased borrowing levels resulting from the financing of planned capital expenditures and increased inventory levels. Inflation and Changes in Prices The Company's business is not generally governed by contracts that establish prices substantially in advance of the receipt of goods or services. As vendors increase their prices for merchandise supplied to the Company, the Company increases the price to its dealers in an equal amount plus the normal handling charge on such amounts. In the past, these increases have provided adequate gross profit to offset the impact of inflation on operating expenses. 48 MANAGEMENT The directors and the executive officers of the Company are: Name Age Position(s) Held Jennifer C. Anderson 44 Director Michael C. Bodzewski 45 Vice President-Merchandising Lawrence R. Bowman 48 Director David F. Hodnik 47 President and Chief Operating Officer Paul M. Ingevaldson 49 Vice President-Corporate Strategy and International Business Mark Jeronimus 46 Director Howard J. Jung 47 Director Rita D. Kahle 38 Vice President-Finance John E. Kingrey 51 Director Richard E. Laskowski 53 Chairman of the Board and Director David W. League 55 Vice President-General Counsel William A. Loftus 56 Senior Vice President-Retail Operations and Marketing David F. Myer 49 Vice President-Retail Support and New Business Fred J. Neer 55 Vice President-Human Resources Ray W. Osborne 58 Director Roger E. Peterson 57 Chief Executive Officer (CEO) Donald L. Schuman 56 Vice President-Information Systems Jon R. Weiss 59 Director Don S. Williams 53 Director James R. Williams 47 Director The primary type of business in which each director has been engaged during the past 5 years is that of the operation of one or more retail hardware stores. The By-laws of the Company provide that its Board of Directors shall be comprised of such number of persons, not less than 9 and not greater than 12, as shall be fixed from time to time by the Board of Directors. A minimum of 9 of the directors shall be dealer directors. A maximum of two of the directors may be non-dealer directors. A person shall be eligible for election or appointment as a non-dealer director without regard to whether or not such person is the owner of a retail business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a retail business organization. The By-laws also provide for three classes of directors who are to be elected for staggered 3-year terms. The By-laws provide that no person is eligible to serve as a dealer director unless such person is either the owner of a retail business organization holding stock in the Company or an executive officer, general partner or general manager of such a retail business organization. Regional dealer directors are elected from geographic regions of the United States established by the Board in accordance with Article IV, Section 1 of the Company's By-laws. (See Appendix A). If the Board determines that all regions have representation by regional dealer directors and the maximum number of directors would not thereby be exceeded, then dealer directors at large may also be elected. The current geographic composition of each of the regions established by the Board of Directors for the election of directors pursuant to the applicable By-law provisions is as follows: Region 1 - Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, Pennsylvania, New Jersey; 49 Region 2 - Delaware, Maryland, Virginia, West Virginia, Kentucky, Tennessee, North Carolina, South Carolina, District of Columbia; Region 3 - Alabama, Mississippi, Georgia, Florida; Region 4 - Ohio, Indiana, Illinois; Region 5 - Iowa, Missouri, Nebraska, Kansas, Colorado; Region 6 - Arkansas, Louisiana, Oklahoma, Texas; Region 7 - Alaska, Washington, Oregon, Idaho, Montana, Wyoming, Utah; Region 8 - Arizona, New Mexico, Nevada, California, Hawaii; Region 9 - Michigan, Minnesota, North Dakota, South Dakota, Wisconsin. In accordance with the applicable procedure established by the By-laws, the following directors have been selected as nominees for reelection at the annual stockholders meeting to be held on June 5, 1995 as directors of the classes, from the regions, and for terms as indicated below: Nominee Class Region Term Richard E. Laskowski Third 4 3 years James R. Williams Third 5 3 years Lawrence R. Bowman Third 7 3 years The person named below has been selected as the nominee for election to the Board for the first time at the 1995 annual meeting as a non-dealer director of the class, and for the term indicated: Nominee Age Class Region Term Roger E. Peterson 57 Third None 3 years Reference should be made to Article IV of the copy of the By-laws in Appendix A for information concerning the qualifications required for membership on the Board of Directors, the terms of directors, the limitations on the total period of time for which a director may hold office, the procedure established for the designation of Nominating Committees to select certain persons as nominees for election to the Board of Directors, and the procedure for filling vacancies on the Board for the remaining portion of unexpired terms. INDEMNIFICATION OBLIGATIONS OF COMPANY AND S.E.C. POSITION ON SECURITIES ACT INDEMNIFICATION Under Article EIGHTH (b) of the restated Certificate of Incorporation of the Company, and Article XV, Section 1 of the By-laws of the Company, persons serving as directors, officers, employees or agents of or at the request of the Company are required to be indemnified by the Company against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes, or penalties under the U.S. Employee Retirement Income Security Act, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by them in connection with any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted or threatened to be instituted against them by reason of their service in any of the aforementioned capacities on behalf of the Company or at its request. The same section of the restated Certificate of Incorporation also authorizes the advancement of litigation expenses to any such person without specific approval of the Board of Directors in each specific case under certain circumstances. 50 Also, Article EIGHTH (a) of the restated Certificate of Incorporation provides that a director of the Company shall not be personally liable to the Company or to its stockholders for monetary damages arising solely out of such director's breach of fiduciary duty as a director. This provision does not affect a director's liability for monetary damages based upon such grounds as a breach of the duty of loyalty, a failure to act in good faith, intentional misconduct, a knowing violation of law, or the receipt of an improper personal benefit. The indemnification provisions described above would extend to and include proceedings under the federal Securities Act of 1933. However, insofar as indemnification for liabilities arising under said Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in said Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being offered by this Prospectus, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in said Act and will be governed by the final adjudication of such issue. 51 APPENDIX A BY-LAWS OF ACE HARDWARE CORPORATION (As Amended on January 24, 1994) ARTICLE I OFFICES SECTION 1. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington in said State, and the registered agent in charge thereof shall be Corporation Service Company, 4305 Lancaster Pike. In the event that the business address of said registered agent in said State shall at any time be changed, the address of the corporation's registered office shall be deemed to have changed correspondingly. SECTION 2. The corporation may also have an office or offices in the Village of Oak Brook, Illinois, and at such other places as the Board of Directors may from time to time designate. ARTICLE II CORPORATE SEAL SECTION 1. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". ARTICLE III MEETINGS OF STOCKHOLDERS SECTION 1. The annual meeting of stockholders for the election of directors shall be held on such date between April 10 and June 10 of each year as shall be designated in a written communication mailed not less than 160 days prior to the designated date to each holder of record of a share of Class A stock of the corporation as of a date no earlier than 40 days preceding the date of such mailing. The Board of Directors shall adopt a resolution establishing each annual meeting date as designated in such communication, the purpose of which is to inform the Class A stockholders of the annual meeting date in advance of the commencement of the time period specified in Article XXIII, Section 3 of the By-laws for the submission to the President or Secretary of the corporation of proposed By-law amendments, director nominations, or other matters by a stockholder or stockholders. At each annual meeting the stockholders shall elect by plurality vote (and by written ballot unless the same shall be waived or dispensed with by a majority vote of the stockholders represented at the meeting) members of the class of directors whose terms expire at that time, and all directors so elected shall hold office until the date of the next annual meeting of the stockholders for the election of directors of such class or until their respective successors shall have been elected and qualified. SECTION 2. Special meetings of the stockholders may be called at any time by the President and shall be called by the President or Secretary on the request in writing or by vote of a majority of the whole Board of Directors or at the request in writing of stockholders of record owning ten percent (10%) in amount of the capital stock outstanding and entitled to vote. Any special meeting may be called for any specified purpose or purposes permitted by the General Corporation Law of Delaware and the Certificate of Incorporation of the corporation. A-1 SECTION 3. All meetings of the stockholders for the election of directors shall be held at the office of the corporation in Oak Brook, Illinois, or at such other place within the United States of America as may from time to time be designated by the Board of Directors and stated in the Fnotice of the meeting to be given under Article III, Section 6 of the By-laws. All other meetings of the stockholders shall be held at such place or places in the United States of America as may from time to time be designated by the Board of Directors and stated in the notice of meeting. Each meeting of the stockholders shall be held at such time of day as shall be approved by the Board of Directors. SECTION 4. A complete list of the stockholders entitled to vote at any meeting thereof, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary or by such person as shall be designated by him to prepare such list. The list shall be kept on file at the registered office of the corporation in the State of Illinois and shall be subject to inspection by any stockholder at any time during usual business hours for a period of ten (10) days prior to the meeting, and the same shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. SECTION 5. Each stockholder entitled to vote shall, at every meeting of the stockholders, be entitled to one vote in person or by proxy, signed by him, for each share of voting stock held by him. Such right to vote shall be subject to the right of the Board of Directors to close the transfer books or to fix a record date for voting stockholders not more than sixty (60) nor less than ten (10) days before the date of the meeting as hereinafter provided, and if the directors shall not have exercised such right, no share of stock shall be voted on at any election for directors which shall have been issued or transferred on the books of the corporation within twenty (20) days next preceding such election. SECTION 6. Written notice of the time and place of the annual meeting and of any special meeting of stockholders shall be mailed or personally delivered to each stockholder entitled to vote thereat not less than thirty (30) nor more than sixty (60) days prior to the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his address as it appears on the records of the corporation, with postage prepaid thereon. Notice of any special meeting shall state in general terms the purposes for which the meeting is to be held. SECTION 7. The holders of a majority of the stock outstanding and entitled to vote at any meeting of the stockholders, represented in person or by proxy, shall constitute a quorum for the transaction of business at such meeting. In the absence of a quorum, the stockholders attending or represented at the time and place for such meeting may adjourn the meeting from time to time, without notice other than announcement of the time and place of the adjourned meeting at the meeting at which the adjournment is taken, until a quorum shall be present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally scheduled. ARTICLE IV DIRECTORS SECTION 1. The property and business of the corporation shall be managed and controlled by its Board of Directors, which shall be comprised of 10 persons as of the annual meeting of stockholders to be held in 1987 and which thereafter shall be comprised of such number of persons, not less than 9, as shall be fixed from time to time by the Board of Directors. One of the members of the Board of Directors at all times may be the President of Ace Hardware Corporation, but otherwise no person shall be eligible for election or appointment as a director, or to continue to hold office as a director, unless such person is either the owner of a retail business A-3 organization which is a stockholder of Ace Hardware Corporation or an executive officer, general partner or general manager of such a retail business organization. Each director who is not a full-time executive officer of Ace Hardware Corporation shall sometimes hereinafter be referred to as a "dealer director". Effective with respect to the election of directors at the annual meeting of stockholders to be held in 1987, the following procedure shall be utilized in electing dealer directors:. (a) The Board of Directors shall divide the United States into such number of geographic regions as it shall deem appropriate as regions from which dealer directors shall be chosen. (b) No later than the fifteenth day of October preceding the date of each annual meeting of stockholders, the Board shall determine the regions from which each dealer director to be elected at such meeting shall be chosen. No person shall be eligible to serve as a dealer director from a particular region unless the headquarters store or office of the stockholder of Ace Hardware Corporation of which he is an owner, executive officer, general partner, or general manager is located in such region. In the discretion of the Board, two or more dealer directors may be elected from and qualify for service on the Board from the same region. (c) Each region shall consist of such of the States of the United States as shall be determined by the Board of Directors, which shall have authority from time to time to make revisions as to the States included within particular regions as well as to change the number of regions, provided that no such revision or change shall deprive any director holding office at the time the revision or change is made from continuing to serve for the balance of the term for which he was elected or otherwise chosen. (d) Each dealer director who was elected prior to the annual meeting of stockholders to be held in 1987 for a term expiring in a year subsequent to 1987 shall be deemed to have been chosen from the particular initially established region in which there is located the headquarters store or office of the stockholder of Ace Hardware Corporation of which he is an owner, executive officer, general partner or general manager. In the event that, for any reason other than a revision made by the Board of Directors as to the States to be included within particular regions or a change made by the Board in the number of regions, either a dealer director or an executive officer director ceases to satisfy the eligibility requirements which are applicable to his position as a director, his membership on the Board of Directors shall thereupon immediately terminate. At all annual meetings of the stockholders, all holders of Class A stock of Ace Hardware Corporation as of the record date established for voting at the meeting shall be eligible to vote in the election for each position on the Board of Directors to be filled at such meeting regardless of the region or regions from which any particular position is to be filled. SECTION 2. No dealer director elected or appointed as such a director for the first time at the annual meeting of stockholders to be held in 1987 or at any time thereafter shall be eligible for subsequent election or appointment to any position on the Board if such election or appointment would result in his being elected or appointed to serve a total of more than 9 years as such a director. Subject to such extensions of their eligibility for which they qualify pursuant to provisions previously contained in these By-laws which were applicable to certain positions on the Board filled by elections conducted at certain annual stockholders meetings held prior to the year 1987, no dealer director who was elected or appointed for the first time at any time prior to that year shall be eligible to be elected or appointed to serve as a dealer director for a period of more than two elected terms of three years. Notwithstanding the foregoing provisions, however, one director whose term expires as of the date of the annual meeting of stockholders to be held in 1987 may be elected at that meeting for a 2-year term and two directors whose terms expire as of the date of said annual meeting may be reelected at said meeting for additional 1-year terms, one director who would not otherwise be eligible for reelection in 1988 may be reelected at the annual meeting of stockholders to be held in 1988 for a 2-year term, and one director who would not otherwise be eligible A-3 for election in 1990 may be reelected at the annual meeting of stockholders to be held in 1990 for a 3-year term. The President of the corporation, if elected as a director, shall be eligible for election or reelection or appointment as a director at any time without regard to the period of time during which he has previously served as a director. SECTION 3. The directors shall be divided into three classes, as nearly equal in number as possible, as determined by the Board of Directors. Commencing as of the date of the annual meeting of stockholders to be held in 1987, the first of said classes shall consist of 4 directors, 2 of whom shall be directors to be elected at that meeting for 1-year terms, with a total of 4 directors of the first class then being elected for 3-year terms at the annual meeting of stockholders to be held in 1988. The second of said classes shall consist of 3 directors, 1 of whom shall be a director elected for a 1-year term at the 1987 annual meeting of stockholders whose position shall be filled at the 1988 annual meeting of stockholders by a person elected for a 2-year term. The remaining two second class positions shall be positions to be filled by the election of 2 persons for 3-year terms at the 1987 annual meeting. The third of said classes shall consist of 3 directors, 2 of whom shall be directors elected for 2-year terms at the 1987 annual meeting of stockholders whose positions shall be filled at the 1989 annual meeting of stockholders by 2 persons elected for 3-year terms. The remaining third class position shall be a position having a term expiring at the 1989 annual meeting and filled at that time by a person elected for a 3-year term. At each subsequent annual meeting of the stockholders, as the terms of each class of directors expire, directors of the class whose terms expire shall be elected for terms of 3 years. The directors shall be elected by the stockholders, except that if there by any vacancies in the Board by reason of death, resignation or otherwise, or if there be any newly created directorships resulting from any increase in the authorized number of directors which is to take effect prior to the next annual meeting of stockholders, a majority of the directors then in office (though less than a quorum) shall have authority to fill any such vacancy or any newly created directorship for the unexpired term. In no event shall any term for which any director is elected exceed three years. SECTION 4. Without affecting the right of any Class A stockholder to nominate as a candidate for election to membership on the Board of Directors any person who would be eligible to serve as a director in accordance with the procedure specified in Article XXIII, the Board of Directors shall cause nominees to be selected for election as directors at each annual meeting of stockholders for whom proxies will be solicited on behalf of the Board. If the Board determines that proxies shall be solicited on its behalf for the election as a director at the next annual meeting of stockholders of the President of Ace Hardware Corporation, the Board shall make a timely determination to this effect. At the time that the Board determines the regions from which dealer directors are to be elected at the next annual meeting of the stockholders, the Board shall also determine whether each incumbent dealer director who is eligible to be reelected for another term at such annual meeting shall be selected as a Board-endorsed nominee for reelection from any such region at said meeting. Each such determination shall be made by the Board without participation in its proceedings by the director who is eligible to be reelected at such next annual meeting. The following procedure shall be applied by the Board in selecting all other Board-endorsed dealer director nominees for whom proxies will be solicited on the Board's behalf at the next annual meeting: (a) A standing Nominating Committee established by the Board shall submit to the Board as soon as practicable prior to the last regularly scheduled meeting of the directors in each calendar year a list of such number of persons as the Board shall determine who are recommended by such Committee to be considered as members of a candidate selection committee for each director region from which the Board has determined that a new dealer director should be elected at the next annual meeting of the stockholders. (b) At or prior to its last regularly scheduled meeting in each calendar year, the Board shall create such a candidate selection committee for each such director region and shall select as members of each such candidate selection committee five of the persons recommended by the Nominating Committee plus two incumbent members of the Board. The Board may also select such alternate members, if any, of any such candidate selection committee as it deems appropriate. A-4 (c) Each candidate selection committee shall make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a director. (d) Notwithstanding any of the foregoing provisions, in any instance where a board-endorsed nominee for election as a director becomes ineligible under the provisions of the By-Laws for election as a director or shall decline to run or seek reelection or shall be unable to run or seek reelection by reason of death or disability, or shall, in the case of an incumbent director have resigned or been removed from the Board of Directors subsequent to having been named a board-endorsed nominee, or in any instance where the Board of Directors, having endorsed a nominee for election as a director shall withdraw or revoke such endorsement, then the standing Nominating Committee established by the Board shall submit to the Board as soon as practicable, a list of such number of persons as the Board shall determine who are recommended by such committee to be considered as members of a candidate selection committee for that particular director region. The Board shall at a regularly scheduled meeting or a special meeting of the directors as soon as practicable, create a candidate selection committee for that director region and shall select as members of the candidate selection committee five persons recommended by the nominating committee plus two incumbent members of the Board. The Board may also select such alternate members, if any, of any such candidate selection committee as it deems appropriate. The candidate selection committee shall then make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a director. ARTICLE V POWERS OF DIRECTORS SECTION 1. The Board of Directors shall have, in addition to such powers as are hereinafter expressly conferred on it, all such powers as may be exercised by the corporation, subject to the provisions of the statute, the Certificate of Incorporation and the By-Laws. SECTION 2. The following powers are hereby expressly conferred upon the Board of Directors: (a) to purchase or otherwise acquire property, rights or privileges for the corporation, which the corporation has power to take, at such prices and on such terms as the Board of Directors may deem proper; (b) to pay for such property, rights or privileges in whole or in part with money, stock, bonds, debentures or other securities of the corporation (secured by mortgages or otherwise), or by the delivery of other property of the corporation; (c) to create, make and issue mortgages, bonds, deeds, leases, trust agreements and negotiable or transferable instruments and securities, and to do every act and thing necessary to effectuate the same; (d) to appoint agents, consultants, advisors and trustees, and to dismiss them at its discretion, to fix their duties and emoluments and to change them from time to time and to require such security as it may deem proper; (e) to confer on any officer or officers of the corporation the power of selecting, discharging or suspending any of the persons referred to in subsection (d) of this Section; (f) to determine by whom and in what manner the corporation's bills, notes, receipts, acceptances, endorsements, checks, releases, contracts or other documents shall be signed; A-5 (g) irrespective of any personal interest of any of its members, to determine the amount of compensation, if any, to be paid to directors and to members of the Executive Committee and other Committees established by the Board of Directors for their services to the corporation as directors or Committee members. ARTICLE VI MEETINGS OF DIRECTORS SECTION 1. An annual organizational meeting of the Board of Directors as constituted after the election of directors at each annual meeting of the stockholders shall be held without call or formal notice at a time later in the same day as the annual meeting of the stockholders or during the day next following such stockholders meeting. The specific date of each such meeting of the Board, as well as the time and place thereof, shall be determined at one of the meetings of the Board held during the time between the most recently conducted annual stockholders meeting and the next scheduled annual stockholders meeting. In addition to electing officers of the corporation as provided for in Article VIII, Section 2, the Board shall select the members of its standing committees for the period until its next annual organizational meeting and shall give voting directions to the President as to the persons to be elected by the corporation as members of the Boards of Directors of each of its wholly-owned subsidiary corporations at their respective annual meeting times. SECTION 2. Additional regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board. SECTION 3. Special meetings of the directors may be called by the Chairman of the Board on four (4) days' notice by mail (calculated from the date of mailing) or on two days' notice by telephone to each director and shall be called by the Chairman of the Board in like manner on the written request of not less than four (4) directors. Special meetings of the directors may be held within or without the State of Delaware at such place as is indicated in the notice or waiver of notice thereof. SECTION 4. A majority of the total number of directors then holding office shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is secured. ARTICLE VII COMMITTEES ESTABLISHED BY THE BOARD SECTION 1. The Board of Directors shall establish as standing committees of the Board an executive committee and such other committees as it shall deem from time to time to be appropriate. The Chairman of the Board shall be an ex-officio member of any standing committee if the resolution adopted by the Board with regard to the membership of such committee so provides, except for any committee authorized to grant or withhold consent to the transfer of shares of the corporation's stock pursuant to Article XVI, Section 9 of these By-laws. Each such committee shall have such responsibilities and duties as shall be described in a resolution or resolutions adopted by a majority of the whole Board. Such resolution or resolutions may also establish the number (or the minimum and maximum numbers) of persons to be selected to serve on each of said committees, the voting members of each of which shall be members of the Board. The Board shall also have authority from time to time to establish special ad hoc committees comprised of two or more directors, the specific responsibilities of which shall be described in the resolutions creating them. A-6 SECTION 2. One or more directors may be designated by the Board as alternate members of any standing or special ad hoc committee, who may replace any absent or disqualified committee member at any meeting of the committee. Vacancies in the membership of any committee established by the Board shall be filled only by the Board. SECTION 3. In no event shall the executive committee or any other committee established by the Board have the power or authority at any time to take any final action on behalf of the Board with respect to (a) proposing amendments to the corporation's certificates of incorporation, (b) the adoption of any amendments to the By-laws of the corporation, (c) the adoption of an agreement of merger or consolidation, (d) the making of recommendations to the stockholders for the sale, lease, or exchange of all or substantially all of the corporation's property or assets, (e) the making of recommendations to the stockholders for the dissolution of the corporation or the revocation of a dissolution, (f) the making of any proposals submitted to the Board with respect to the purchase of all or a controlling portion of the outstanding capital stock of the corporation, (g) the authorization of issuance of shares of capital stock of the corporation or (h) the filling of vacancies in the membership of the Board or any committee thereof. SECTION 4. Each standing committee of the Board (with the exception of any committee authorized to grant or withhold consent to the transfer of shares of the corporation's stock pursuant to Article XVI, Section 9 of these By-laws) shall select one of its members to act as Chairman thereof as promptly as feasible after the members of the committee are selected at each annual organizational meeting of the Board. At the time of establishment of any special ad hoc committee of the Board, the Board shall designate a member of such committee to act as its Chairman. SECTION 5. Regular meetings of each standing committee established by the Board shall be held as provided for in a resolution adopted by the Board, or by a particular committee or its Chairman if authorized in a resolution of the Board. Special meetings of any standing committee, and all meetings of any special ad hoc committee, shall be held on reasonable notice given to all members thereof by the Chairman of the committee. Even if he has not been made a member of a particular standing committee, the Chairman of the Board shall be provided with the same notice of all regular or special meetings of such committee as is provided to members of the committee, and he shall have the right to attend any of the meetings held by the committee in an advisory non-voting capacity. Subject to the provisions of the resolution describing the responsibilities and duties of a particular committee established by the Board, any such committee shall have authority to establish its own rules of procedure. The Chairman of each committee of the Board which is required by these By-laws to have one of its members designated as its Chairman shall be responsible for assuring that: (a) an appropriate agenda is prepared for each formal meeting of the Committee; (b) minutes of the proceedings of each such meeting are kept; and (c) either a copy of such minutes or a summarized written report of the meeting is submitted to the Board at or prior to the next meeting of the Board. SECTION 6. A majority of the voting members of any committee hereunder shall constitute a quorum for meetings thereof, but the affirmative vote of a majority of all voting members of the whole committee shall be necessary with respect to all actions taken by the committee. SECTION 7. With the exception of the Chairman of any committee of the type described in the first sentence of Section 4 of this Article VII, the Board may authorize the payment to the Chairman of any standing or special ad hoc committee of compensation for the services rendered by him in his capacity as Chairman in such amount as the Board shall deem to be appropriate. Such compensation shall be in addition to the compensation paid to dealer directors for their regular services as members of the Board. A-7 ARTICLE VIII OFFICERS OF THE CORPORATION SECTION 1. There shall be elected by the Board of Directors the following executive officers of the corporation: (a) a Chairman of the Board and, if deemed appropriate by the directors, a Vice Chairman of the Board, each of whom shall be elected from the membership of the Board of Directors; (b) a President; (c) a Treasurer; and (d) one or more Executive Vice Presidents, Senior Vice Presidents, or Vice Presidents as the Board shall deem the business of the corporation to require from time to time. In addition the Board of Directors shall elect as corporate (but not executive) officers of the corporation a Secretary and such Assistant Secretaries as the Board shall determine to be appropriate. The board shall also elect from time to time such other additional executive or corporate officers as in its opinion are desirable for the conduct of the business of the corporation. Any number of offices filled by election of the Board may be held by the same person, except the offices of President and Secretary. Any executive officer of the corporation may bestow upon any employee of the corporation under his supervision such title or titles descriptive of the position held by such employee as such executive officer shall deem to be appropriate, provided that no such title shall be the same as or confusingly similar to the title of any officer elected by the Board, and provided further that no such title shall be deemed to bestow the status of an executive officer or corporate officer upon such employee nor to empower him with any authority to act on behalf of the corporation other than such authority as shall have expressly been assigned to him by the executive officer bestowing such title upon him. SECTION 2. All executive officers and corporate officers of the corporation shall be elected by the Board of Directors for one-year terms at the regular meeting thereof following the annual meeting of stockholders, provided that, in any event, any such officer shall hold office until his successor has been elected and qualified or until his death, resignation or removal from office. In the case of any officer with whom an employment contract employing him to perform the functions of a specific office for a period extending beyond one year has been entered into, the office or offices to which he is elected at each such meeting of the Board of Directors shall constitute the office or offices with respect to which he is employed under such employment contract during the ensuing year. The Board of Directors shall have authority to direct that the corporation enter into an employment contract with any executive officer or other employee for the purpose of employing him for a specified period of time, and no such contract shall be legally binding upon the corporation unless the same has been expressly authorized by the Board and has been executed on behalf of the corporation by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President of the corporation. In no event shall any such employment contract extend for an initial term of more than five years, but any such contract may contain a provision whereby the contract is automatically renewed for additional successive terms of not less than three years each, provided that the corporation is given the right to terminate the contract at the end of the initial term or renewal term by giving notice to the executive officer or other employee involved of its intention to do so by such specific period of time prior to the last day of the initial term or the then current renewal term as shall be set forth in the contract. Authorization of any such employment contract shall require the affirmative vote of a majority of the whole Board of Directors then in office. Subject to such contractual rights (if any) as may exist with respect to his employment, any executive officer or other officer elected or appointed by the Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of a majority of the whole Board of Directors then in office. If the office of any executive officer or other officer elected or appointed by the Board of Directors becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of a majority of the whole Board of Directors then in office. SECTION 3. In case of the absence or disability of any executive officer or any other officer of the corporation elected or appointed by the Board of Directors, or for any other reason deemed sufficient by a majority of the whole Board of Directors then in office, and subject to such contractual rights as may exist with respect to the employment of any such officer, the Board of Directors may delegate the powers or duties of any such officer to any other officer, or to any director, for the time being. A-8 SECTION 4. In addition to executive officers, certain employees of the corporation may be designated from time to time by the President as staff officers, that is, officers upon whom responsibility is conferred with respect to the operations of a particular department, division, branch or function of the corporation. Any such staff officer shall be appointed by the President and may thereafter be removed at any time, with or without cause, by the President. However, if the Board of Directors elects or appoints an Executive Vice President, Senior Vice President, Vice President or other officer pursuant to the authority vested in it by Section 1. above, such officer may thereafter be removed only by the affirmative vote of a majority of the whole Board of Directors then in office even though such officer's title includes one or more words which are descriptive of the particular department, division, branch or function of the corporation managed by such officer. The removal of any officer shall be subject to such contractual rights (if any) as may exist under any contract of employment which has been entered into with him. SECTION 5. Unless his compensation has been expressly specified by a contract of employment entered into with him, the compensation of any executive officer shall be such amount as shall be determined from time to time by the Board of Directors. The President shall have sole authority to determine from time to time the amount of compensation to be paid to any other officer, except in the case of an officer whose compensation has been expressly specified in a contract of employment which has been entered into with him and except in the case of any such officer whose basic annual compensation would be or is in an amount which equals or exceeds the basic annual compensation then being paid to any executive officer (exclusive of the Secretary or any Assistant Secretary or Assistant Treasurer). ARTICLE IX DUTIES OF THE CHAIRMAN OF THE BOARD, VICE CHAIRMAN OF THE BOARD AND PRESIDENT SECTION 1. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the By-laws. His specific duties and responsibilities shall include (a) acting as the primary liaison between the executive officers of the corporation on the one hand and its Board of Directors and its dealer- stockholders on the other hand; (b) bringing to the attention of and consulting with the corporation's executive officers with respect to any special concerns of the corporation's dealer-stockholders which come to his attention or to the attention of the Board of Directors; (c) reviewing from the perspective of the Board of Directors and the corporation's dealer- stockholders all reports, financial budgets, and corporate plans as developed and submitted to him from time to time by the corporation's executive officers; (d) overseeing and aiding in the implementation of plans for orderly successions to the positions held by the corporation's executive officers and other important staff personnel; and (e) seeing that the efforts of the various executive officers and other key management personnel of the corporation are carried out in a coordinated manner, particularly in periods when transitions in important officer or management positions occur. Except where it is provided by law that the signature of the President is required, the Chairman of the Board shall possess all of the same powers as the President to sign all certificates for shares of stock of the corporation and all contracts and other instruments of the corporation which may be authorized by the Board of Directors. SECTION 2. If the Board has elected a Vice Chairman of the Board, he shall preside at all meetings of the stockholders and the Board of Directors in the absence of the Chairman of the Board, and he shall be empowered to perform the other duties and exercise the other powers vested in the Chairman of the Board in the event that the Chairman of the Board is prevented by his absence, by disability, or otherwise from being able to perform such duties and powers in connection with a particular matter within the legally permitted period of time or within such period of time as shall be deemed to be reasonable and appropriate for action to be taken by the Chairman with regard to such matter. If there is no director holding the position of Vice Chairman of the Board, but there is a director (other than the Chairman of the Board) holding the position of Chairman of the Executive Committee of the Board, then the Chairman of the Executive A-9 Committee shall perform the duties and exercise the powers described above for the Vice Chairman of the Board whenever necessary; otherwise, upon the occurrence of any circumstance in which a Vice Chairman of the Board would have been vested with authority to perform the duties and exercise the powers of Chairman of the Board, the Board shall select one of its members as acting Chairman of the Board who shall be vested with the same authority. SECTION 3. The President shall be charged with the general and active management of the day-to-day operations of the corporation and with seeing that all orders and resolutions of the Board of Directors are carried into effect. His specific duties and responsibilities shall include (a) reporting from time to time to the Chairman of the Board on all significant matters affecting the operations and interests of the corporation which fall within his knowledge; (b) seeing that short-term and long-term corporate plans and budgets consistent with the directions of the Board of Directors are prepared and developed on a regular basis; (c) seeing that the corporation continually maintains competent personnel at all levels in order to adequately serve the needs of the retail hardware dealers supplied by it; (d) consulting with the Chairman of the Board from time to time with respect to the types of programs, products and services to be made available to the corporation's retail hardware dealers in order to serve the best interests of the corporation's entire network of dealers; (e) submitting to the stockholders at their annual meetings and/or at dealer conventions sponsored by the corporation such reports on the operations and affairs of the corporation as shall be appropriate in order to provide them with information of importance to them as both customers and stockholders of the corporation; and (f) executing on behalf of the corporation contracts and other instruments in writing, including mortgages, bonds and governmental reports of various kinds, in all instances wherein the signature of the President of the corporation is required or has been authorized by the Board of Directors or is otherwise deemed to be appropriate. The Board of Directors, in its discretion, may vest the person holding the office of President of the corporation at any given time with the additional title of Chief Executive Officer. Whenever the title of Chief Executive Officer is used as an additional title for the person holding the office of President, it shall be deemed to relate specifically to the duties and responsibilities dealing with the development of plans for orderly successions to the positions held by the corporation's executive officers and other management personnel and to the ongoing development of short-term and long-term strategic plans for the corporation to be presented to and reviewed by the Board of Directors and to the execution of all such plans as are approved by the Board. ARTICLE X DUTIES OF EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND OTHER VICE PRESIDENTS SECTION 1. Any Executive Vice President elected by the Board of Directors shall possess the power and may perform the duties of the President in his absence or disability. Each officer having the title of Executive Vice President shall perform such other duties as may be prescribed from time to the time by the Board of Directors. SECTION 2. Any Senior Vice President elected by the Board of Directors shall possess the power and may perform the duties herein authorized to be performed by an Executive Vice President in the event that there is no person holding the office of Executive Vice President at the time, or in the event of the absence or disability of all persons then holding the office of Executive Vice President. Each officer having the title of Senior Vice President shall perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 3. Any Vice President elected by the Board of Directors shall possess the power and may perform the duties herein authorized to be performed by a Senior Vice President in the event that there is no person holding the office of Senior Vice President at the time, or in the event of the absence or disability of all persons then holding the office of Senior Vice President. Each officer having the title of Vice President shall A-10 perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 4. If there shall be more than one person holding the office of Executive Vice President at any time, or if there shall be more than one person holding the office of Senior Vice President at any time, or if there shall be more than one person holding the office of Vice President at any time, in each such instance the Board of Directors shall designate the order in which each of them shall possess the power and perform the duties of an officer of the next higher rank under the applicable one of the above Sections in the event of the nonexistence, absence or disability of all such higher ranking officers. SECTION 5. Notwithstanding any of the above provisions of this Article X, if the title given to any Executive Vice President, Senior Vice President, or Vice President also includes one or more words that are descriptive of a particular department, division, branch or function of the corporation managed by such officer, the duties of such officer shall consist only of the general and active management of the operations or activities of such department, division, branch or function and such other duties as shall have been specifically assigned to such officer by the Board of Directors. ARTICLE XI DUTIES OF CONTROLLER SECTION 1. In the event that a Controller shall be elected or appointed at any time by the Board of Directors, or in the event that a staff officer having the title of Controller is appointed at any time by the President, such officer shall be responsible to the Board of Directors, the President, and the Vice President-Finance (if such office has been created and filled), for all financial control and internal audit of the corporation and its subsidiaries. He shall also perform such other duties as may be assigned to him by the Board of Directors or the President. ARTICLE XII DUTIES OF THE SECRETARY AND ASSISTANT SECRETARIES SECTION 1. The Secretary (or an Assistant Secretary) shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. SECTION 2. The Secretary shall also keep, or cause to be kept by such person or persons to whom he shall delegate such duty, a register of all shares of capital stock issued by the corporation and all transfers of such shares. Such register shall be maintained in such manner and subject to such regulations as the Board of Directors may prescribe. SECTION 3. The Assistant Secretary, or if there be more than one (1), the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. A-11 ARTICLE XIII DUTIES OF THE TREASURER SECTION 1. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. SECTION 2. He shall disburse the funds of the corporation, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. SECTION 3. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE XIV WRITTEN CONSENTS AND CONFERENCE TELEPHONE MEETINGS SECTION 1. To the extent permitted by the General Corporation Law of the State of Delaware, and in accordance with the applicable procedure prescribed by the provisions thereof, whenever a vote or resolution of stockholders, the Board of Directors, or a committee of the Board at a meeting is required or permitted in connection with any corporate action by any provision of law, the Certificate of Incorporation, these By-laws, or any unrevoked resolution previously adopted by the Board, the meeting and vote or resolution may be dispensed with and the corporate action may be taken pursuant to written consent. The writing evidencing such consent shall be filed with the minutes of the proceedings of the stockholders, Board, or committee. SECTION 2. In accordance with the applicable procedure prescribed by the General Corporation Law of the State of Delaware, members of the Board of Directors, or of any committee of the board, may participate in a meeting of the Board, or of any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE XV INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. In accordance with the provisions of Section 145 of the General Corporation Law of the State of Delaware, and as more fully provided for in Article EIGHTH (b) of the restated Certificate of Incorporation of Ace Hardware Corporation, as amended, persons serving as directors, officers, employees or agents of or at the request of the corporation shall be indemnified against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties under the U.S. Employee Retirement Income Security Act, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by them in connection with any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted or threatened to be instituted against them by reason of their service in any of the aforementioned capacities on behalf of the corporation or at its request. A-12 ARTICLE XVI CERTIFICATES OF STOCK AND TRANSFER THEREOF SECTION 1. The shares of the corporation shall be represented by certificates signed by the Chairman of the Board or the President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the corporation and may be sealed with the seal of the corporation or a facsimile thereof. SECTION 2. The signatures of the officers of the corporation upon a certificate may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. SECTION 3. Each certificate of stock shall have conspicuously noted or stated thereon a statement of the liens, restrictions and limitations upon the voting power, ownership, transfer or other rights and privileges of the holder thereof. All shares of stock in the corporation shall be issued and accepted in accordance with and subject to the conditions, restrictions, and offsetting liens stipulated in the Certificate of Incorporation and By-laws of this corporation and amendments thereto. SECTION 4. If a certificate of stock be lost or destroyed, another may be issued in its stead upon proof of such loss or destruction and the giving of a satisfactory bond of indemnity, in an amount sufficient to indemnify the corporation against any claim. A new certificate may be issued without requiring bond when, in the judgment of the directors, it is proper to do so. SECTION 5. The corporation shall have a first lien upon each share of its issued and outstanding stock of any class, and upon each certificate of stock representing a share or shares of stock of any class of the corporation, for the amount of any indebtedness payable to the corporation by the holder thereof, and shall have a similar first lien upon all amounts which have been paid to the corporation pursuant to a subscription agreement for the purchase of shares of stock of the corporation which will be issuable to the subscriber upon the completion of payment of the purchase price of the shares. The interest of each holder of shares of the corporation's stock in and to the shares issued to such holder and the interest of each subscriber for shares of the corporation's stock in and to the funds paid to the corporation by such subscriber on account of the purchase price of the shares being purchased by such subscriber shall at all times be deemed to be offset by the amount of any indebtedness payable to the corporation by such holder or subscriber. In no event shall any transfer of any of the shares owned by any holder or any transfer of the stock subscription account of any subscriber for shares of stock of the corporation be made unless and until the stockholder whose shares are being transferred or the subscriber whose subscription account is being transferred is free from all indebtedness to the corporation. SECTION 6. No certificate representing any issued and outstanding share or shares of any class of stock of the corporation shall be pledged, mortgaged, hypothecated, sold, assigned or transferred without the prior consent of the Board of Directors of the corporation. In the event that the Board of Directors shall refuse to consent to any transfer or assignment of any certificate or certificates representing any share or shares of issued and outstanding stock of the corporation of any class, then the corporation shall have the right and shall be obligated to purchase from the owner thereof all of the shares of its stock of any class held for the store or other retail business unit with respect to which the corporation issued the share or shares as to which such consent has been refused and the franchise granted by this corporation with regard to the operation of such retail business unit shall thereby be terminated. In no event shall any transfer or assignment of shares of any class of stock of the corporation be made to any transferee who is not eligible to be a holder of such shares under the provisions of Article Fourth of the restated Certificate of Incorporation of the corporation. In the case of a proposed transfer of ownership of a store or other retail business unit owned by a holder of shares of stock of the corporation to a transferee which the corporation has accepted or is willing to accept as a franchised Ace Hardware dealer, then the owner of such stock shall have the option of either (a) selling or otherwise transferring to such transferee such number of shares of stock of this A-13 corporation of any class which the corporation would otherwise have been required to offer to such transferee in connection with the franchise granted to such transferee with respect to such store or other retail business unit, or (b) selling such shares to the corporation. In any case where the holder or holders of 50% or more of the outstanding voting stock of a corporation having a franchise from this corporation for one or more retail business outlets, or the holder or holders of 50% or more of the outstanding voting stock of a corporation owning 80% or more of the outstanding voting stock of a corporation having such a franchise, propose to sell or otherwise transfer all of the shares of capital stock (both voting and non-voting) of such corporation held by them, written notice of such proposal shall be given to this corporation, and upon the consummation of any such sale or transfer, such corporation shall have the option of either (a) retaining all of the shares of the capital stock of this corporation then held by it or (b) selling such shares to this corporation, but in the case of such a sale of said shares to this corporation, the franchise granted to said corporation by this corporation for each retail business unit operated by said corporation shall thereupon be deemed to have terminated by the voluntary action of said corporation and no such retail business unit shall thereafter operate as a franchise of this corporation unless a new application for a franchise for such retail business unit has been submitted to and accepted by this corporation. Notwithstanding any of the foregoing provisions, this corporation shall in no event be obligated to treat any of the following types of transfers as qualifying for purposes of the options provided for in this Section 6 of selling to this corporation shares of its capital stock: (a) any transfer of ownership of a retail business outlet or unit or of shares of the capital stock of a corporation directly or indirectly owning such outlet or unit which is not complete, unconditional and irrevocable; (b) any such transfer to an entity in which the transferor retains an ownership interest; or (c) any such transfer to the spouse of the transferor. SECTION 7. Subject to the provisions of Section 5 of this Article XVI of these By-laws, in the event of the termination of the franchise granted by this corporation with regard to the operation of a retail hardware store or other retail business unit for which shares of stock of the corporation are held, the corporation shall be obligated to purchase such shares. Unissued shares which have been subscribed for with respect to any such store or other retail business unit shall also be covered by the provisions of this Section to the extent of the amounts which have been paid on account of the purchase price thereof, and the corporation shall be obligated to refund all such amounts, subject only to the provisions of Section 5 of this Article XVI. For purposes of this Section, termination of the franchise granted for a particular retail hardware store or other retail business outlet shall include not only any termination pursuant to formal notice of termination given by either this corporation or the holder of the franchise but shall also include each of the following situations which shall be deemed to constitute such a termination: (a) The closing down of the store or other retail business unit with respect to which such shares of stock of the corporation are held, unless such store or other retail business unit is merely being moved, with the corporation's consent and approval, to another location or is being acquired by another dealer which this corporation has accepted or is willing to accept as a franchised dealer for operation pursuant to the same franchise at another location; (b) The death of an individual holder of the shares of stock of this corporation held for such retail store or other retail business unit, or of a member of a partnership which is a holder of such shares, except in a case where the store or other retail business unit with respect to which such shares are held continues, with the approval of the officers of the corporation (which approval shall not be unreasonably withheld), to be operated under a franchise from the corporation by the decedent's estate or by the person or persons to whom such shares are to be distributed by the decedent's estate or by the successor or successors to the decedent's interest in the partnership holding such shares (it being immaterial for this purpose that, in connection with such continuation of operation, the legal form of ownership of the franchised dealer has been changed from an individual proprietorship or partnership to a corporation or from a partnership to an individual proprietorship); (c) An adjudication of the insolvency of the dealer or of the store or other retail business unit for which the shares of stock of this corporation are held, or the making of an assignment for the benefit of A-14 creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code by or on behalf of such dealer or retail business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code against the dealer or against said retail business unit. SECTION 8. A transfer of shares of stock of the corporation requiring the consent of the Board of Directors shall not be deemed to have occurred upon the death of a person who is the holder of shares of stock of the corporation jointly with one or more other persons under circumstances whereby ownership of such shares passes automatically by operation of law to the surviving holder or holders of such shares, nor shall the corporation become obligated to purchase such shares upon the death of such person unless the store or other retail business unit with respect to which such shares are held either (a) closes down, or (b) ceases to be operated under a franchise from this corporation. SECTION 9. The Board of Directors may delegate to a committee composed of two (2) or more members of the Board authority to act on its behalf with respect to all matters where the consent of the Board is required in connection with the transfer or assignment of any shares of any class of stock of the corporation. SECTION 10. The price to be paid by the corporation in connection with the purchase by it of any shares of its stock shall be as follows: (a) in the case of Class A stock, the par value of the shares; (b) in the case of Class B stock, an amount per share equal to the per share price last established by the Board of Directors as the price to be paid by the corporation in the event of redemption of shares of its Class B stock, which shall in no event be less than twice the par value of the Class B stock and shall also at all times be equal to twenty (20) times the per share purchase price last established by the Board of Directors with respect to purchases by it of Shares of its Class C Stock; (c) in the case of Class C stock, an amount per share equal to the per share price last established by the Board of Directors as the purchase price to be paid by the Corporation for shares of its Class C stock, which price shall in no event be less than the par value thereof. SECTION 11. Any shares of any class of stock of the corporation which are purchased by it from any stockholder shall become treasury shares which shall be eligible for sale to any other person, persons or firm which shall be qualified to hold such shares. SECTION 12. Effective with respect to all purchases and redemptions of shares of its capital stock made by the corporation from its stockholders on or after December 31, 1981, the entire purchase or redemption price to be paid by the corporation for such shares shall be paid in cash except that, in any of the situations described in subsection (a) hereof, the purchase or redemption price for such shares shall be paid in the manner set forth in subsection (b) hereof. (a) The situations in which such price shall be paid in the manner set forth in subsection (b) of this Section are as follows: (1) the voluntary termination by a stockholder of this corporation of the franchise from this corporation held by such stockholder for a retail business outlet under circumstances whereby such outlet continues to engage in substantially the same business under the ownership or control of the same person, partnership or corporation that owned or controlled it immediately prior to such termination; for purposes of this paragraph: (A) control of an outlet owned by an unincorporated person or partnership shall be deemed to be the same if more than fifty per cent (50%) of the assets or profit shares therein, or more than fifty per cent (50%) of the capital stock of a corporation becoming the owner of such outlet, continues to A-15 be legally or equitably owned by the same person, partnership or corporation; and (B) control of an outlet owned by a corporation shall be deemed to be the same if more than fifty per cent (50%) of the capital stock of said corporation, or more than fifty per cent (50%) of the assets or profit shares of an unincorporated person or partnership becoming the owner of such outlet, continues to be owned by the same person, partnership or corporation. (2) the termination by this corporation of the franchise from this corporation for a retail business outlet pursuant to the provisions of the Ace Dealer Franchise Agreement authorizing such termination by reason of: (A) the failure of such retail business outlet to make any payment owing to the corporation for merchandise or services supplied by it within the time period specified in such provisions; or (B) any default of such retail business outlet in performing any obligation of such outlet under the Ace Dealer Franchise Agreement of such outlet other than the obligation to pay for merchandise or services supplied by the corporation, provided that such default is described in the corporation's notice of termination in such a manner as to reasonably apprise such retail business outlet as to the nature of such default. (b) In each of the situations described in subsection (a) above, the purchase or redemption price to be paid by the corporation for the shares of its stock being purchased or redeemed by it shall be paid in the following manner: (1) in the case of Class A stock, the entire price shall be paid by the corporation in cash; (2) in the case of Class B stock or Class C stock purchased by a stockholder as part of the shares of capital stock of the corporation subscribed for in connection with the granting of a franchise by the corporation for a retail business outlet, that portion of the purchase or redemption price to be paid by the corporation which equals the amount paid to the corporation pursuant to such subscription shall be paid by the corporation in cash and any remaining balance of the price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years; (3) in the case of Class C stock received by a stockholder as part of the patronage dividends distributed by the corporation for a retail business outlet, the entire price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years; (4) if the total portion of the purchase or redemption price which would otherwise be payable under the foregoing paragraphs in equal annual installments over a period of four years is less than $5,000, the entire purchase or redemption price shall be paid by the corporation in cash, notwithstanding the installment provisions of said paragraphs; (5) in any situation where a stockholder whose shares of capital stock of the corporation are to be purchased or redeemed by it is indebted to the corporation at such time, then, in accordance with the corporation's first lien and offset rights under Article XVI, Section 5, of these By-laws and Article Fourth (1) of the restated Certificate of Incorporation of the corporation, the purchase or redemption price shall in all cases be applied against such indebtedness to the extent thereof, with the portion of such price which would otherwise have been payable in cash being first applied for such purpose and, if any indebtedness to the corporation still remains, the portion of the price which would otherwise have been payable in equal annual installments then being applied for such purpose to the extent of any such remaining indebtedness; A-16 (6) the corporation's obligation to pay any portion of the purchase or redemption price of its shares in equal annual installments shall be evidenced by an installment promissory note of the corporation delivered to the stockholder whose shares are being purchased or redeemed, which note shall provide for the payment of the principal thereof in four equal annual installments commencing one year from the date of the repurchase or redemption of the shares and for the payment of interest with each annual installment payment of principal on the unpaid balance of principal from time to time at such rate as shall have been established by the Board of Directors as of the date of issuance thereof, provided, however, that said rate of interest shall in no event be less than the greater of (A) the latest interest rate as of the date of issuance of such note determined by the Board of Directors as the rate to be paid on patronage refund certificates distributed to the corporation's member-stockholders as part of their annual patronage dividends or (B) 6% per annum; (7) notwithstanding any of the foregoing provisions, the Board of Directors, in its discretion and after considering the financial condition and requirements of the corporation, may authorize and cause payment to be made in cash for all or any portion of the purchase or redemption price which would otherwise be payable in four equal annual installments if the Board of Directors determines that the prescribed method of payment would impose an undue hardship upon the stockholder whose shares are being repurchased or redeemed; (8) the Board of Directors may adopt hardship guidelines to implement the provisions of paragraph (7) of this Section and may delegate the authority to make determinations pursuant to said provisions to a committee comprised of two or more directors or to a committee comprised of two or more executive officers of the corporation. ARTICLE XVII CLOSING OF TRANSFER BOOKS AND DETERMINATION OF RECORD DATE SECTION 1. The Board of Directors shall have power to close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for the allotment of rights or the dates when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding sixty (60) days in connection with obtaining the consent of stockholders for any purpose. SECTION 2. Notwithstanding the foregoing, in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote, at any such meeting and any adjournment thereof, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. SECTION 3. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. A-17 ARTICLE XVIII FISCAL YEAR SECTION 1. Except as from time to time otherwise provided for by the Board of Directors, the fiscal year of the corporation shall end on the 3lst day of December in each year. ARTICLE XIX DIVIDENDS SECTION 1. No dividends shall ever be declared on any of the shares of any class of stock of the corporation. ARTICLE XX CHECKS FOR MONEY SECTION 1. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE XXI BOOKS AND RECORDS SECTION 1. The books, accounts and records of the corporation, except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the By-laws or by resolution of the directors. ARTICLE XXII NOTICES SECTION 1. Notice required to be given under the provisions of these By-laws to any director, officer or stockholder shall not be construed to mean personal notice, but may be given in writing by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, officer or director may waive, in writing, any notice required to be given under these By-laws, whether before or after the time stated therein. ARTICLE XXIII AMENDMENTS OF BY-LAWS AND ADVANCE NOTIFICATION BY STOCKHOLDERS OF PROPOSALS FOR AMENDMENTS, DIRECTOR NOMINATIONS OR OTHER CORPORATE ACTIONS SECTION 1. Except for any provisions hereof which shall at any time have been adopted by the stockholders in the manner prescribed in Section 2, these By-laws may be amended or repealed or added to, or new By-laws may be adopted, by the affirmative vote of a majority of the Board of Directors at any regular meeting of the Board or at any special meeting thereof called for that purpose. If any By-law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of stockholders for A-18 the election of directors the By-law so adopted, amended or repealed, together with a precise statement of the changes made. SECTION 2. These By-laws may also be amended or repealed or added to, or new By-laws may be adopted, at any regular or special meeting of stockholders at which a quorum is present or represented by the affirmative vote of a majority of the issued and outstanding shares of Class A stock of the corporation. Any amendment, repeal, addition to the By-laws, or any new By-laws, adopted by the stockholders may be further amended, repealed, or added to only at a regular or special meeting of the stockholders at which a quorum is present or represented by the affirmative vote of a majority of the issued and outstanding shares of Class A stock of the corporation in the manner prescribed herein. SECTION 3. A written notice shall be given to the President or Secretary of the corporation of the intent of one or more stockholders to submit at a forthcoming stockholders meeting (a) a proposed amendment to these By-laws; (b) the nomination of an eligible person for election as a director; or (c) any other stockholder proposal for corporate action. Such notice must be received, either by mail or by personal delivery, not less than seventy-five (75) nor more than one hundred fifty (150) days prior to the date of the annual meeting or, in the event of a special meeting of stockholders, not later than the close of the fifteenth (15th) day following the day on which notice of the meeting is first mailed to stockholders. In the case of an annual meeting, the intention of one or more stockholders to submit a proposed By-law amendment, nomination or other proposal for corporate action which is so received in proper order shall be mentioned in the formal notice of the meeting, but neither the name or names of the stockholder or stockholders intending to make any such submission nor the name of any director nominee proposed by one or more stockholders shall be mentioned in the notice. No reference of any kind to any proposal or nomination to be submitted by any stockholder pursuant to this Section shall be made in the proxy materials caused to be sent to stockholders by the Board of Directors. At all annual or special meetings the Chairman shall declare out of order any proposed amendment, any nomination, or any other stockholder proposal not presented in accordance with this Section. Every notice given by a stockholder or stockholders under this Section shall set forth: (a) the name and the business and residence addresses of the stockholder (or person authorized by such stockholder as the stockholder's voting representative) intending to submit the proposed amendment, nomination, or other matter; (b) with respect to such notice of intent to submit a nomination, information concerning the proposed nominee's business and residence addresses, age and eligibility to serve as a director; and (c) with respect to notice of an intent to propose a By-law amendment or some other corporate action, a description of the proposed amendment or other action. Notice of intent to submit a nomination shall be accompanied by the written consent of each nominee to serve as a director of the corporation if so elected. ARTICLE XXIV MEMBERS' PATRONAGE DIVIDENDS SECTION 1. A "membership" in the corporation within the meaning of the term "membership" as used in Section 1388(c)(2)(B) of the U.S. Internal Revenue Code of 1954, as amended, shall be deemed to be held by (a) each retail hardware dealer owning a share of Class A stock of the corporation and (b) each other dealer in hardware or related products which becomes an owner of a share of Class A stock of the corporation after having been expressly approved as an Ace Hardware dealer by the Board of Directors of the corporation. The term "retail hardware dealer" as used in clause (a) of the preceding sentence shall mean any person or firm purchasing merchandise from this corporation for the purpose of reselling such merchandise at retail. However, whenever the term "retail hardware dealer" is used in any of the subsequent Sections of this Article XXIV of the A-19 By-laws, such term shall be deemed to include all dealers holding memberships in this corporation except where the context in which such term appears is of such a nature that it is not practical for such term to be applied to "other dealers" as referred to in clause (b) of the first sentence of this Section. For purposes of this Article XXIV of the By-laws a "retail hardware store" shall be deemed to refer to a business location to which there is delivered for resale from such location at the retail level any merchandise purchased from this corporation. Each such retail hardware store owned or controlled, directly or indirectly, by the same person, partnership or corporation, shall be deemed to constitute only one (1) retail hardware dealer. An unincorporated person or partnership shall be deemed controlled by another person, partnership or corporation if fifty per cent (50%) or more of the assets or profit shares therein are legally or equitably owned by such other person, partnership or corporation, or by the legal or equitable owner or owners of fifty per cent (50%) or more of such other person, partnership or corporation's assets or profit shares (if unincorporated) or shares of capital stock (if incorporated). A corporation shall be deemed controlled by another person, partnership or corporation if fifty per cent (50%) or more of the capital stock of said corporation is owned by such other person, partnership or corporation, or by the owner or owners of fifty per cent (50%) or more of its capital stock (if incorporated) or fifty per cent (50%) or more of its assets or profit shares (if unincorporated). SECTION 2. In accordance with the policy heretofore established by the corporation in the Amendment to its By-laws adding Article XXIV thereto by the resolution adopted by the Board of Directors on July 20, 1973, there shall be distributed on a patronage basis to such members (that is, dealers holding memberships, as hereinabove defined, in the corporation) in a manner taking into account the amount of business done by the corporation with each of them, all the net savings and overcharges effected by or resulting from the operations conducted and carried on by the corporation in connection with sales of merchandise made by the corporation after May 31, 1974, to such members which remain after paying all operating and administration expenses of the corporation and all interest on its indebtedness and after the setting aside by the Board of Directors of such reasonable reserves as they shall determine from time to time to be appropriate for the purpose of insuring the safety and welfare of the corporation and for the purpose of providing for the expectancy of any losses or contingencies. Said distributions shall be made no later than eight and one-half (8 1/2) months following the close of the year of the corporation during which the patronage occurred with respect to which each such distribution is made. In no event shall less than twenty per cent (20%) of the total patronage distributions made each year to each member be distributed in cash. The remaining portion shall be distributed in cash or in written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code) in whatever proportions shall be determined each year by the Board of Directors. SECTION 3. Notwithstanding the foregoing, every such member on becoming such authorizes and directs that all net savings of every character effected by this corporation which are distributable to such member, to the extent of the excess thereof over the twenty per cent (20%) minimum portion of such distributable amount required to be distributed in cash, may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such member. Any such net savings which become distributable with respect to merchandise sold by this corporation for delivery to any retail hardware store owned or controlled, directly or indirectly, by the same person, partnership or corporation which so owns or controls one (1) or more other retail hardware stores may be so applied against any indebtedness owing with respect to merchandise sold by this corporation for delivery to any store which is part of any group deemed hereunder to constitute one (1) retail hardware dealer. The balance of any such net savings not so applied shall then be distributed as patronage dividends in the manner set forth in Article XXIV, Section 2, of these By-laws. SECTION 4. Each retail hardware dealer who applies for and is accepted as a member of this corporation shall, by his act of subscribing for a share of Class A stock of the corporation entitling such dealer to become such a member, consent that the amount of any patronage dividends with respect to his purchases of merchandise from this corporation occurring on or after June 1, 1974, which are made in written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code, as amended) and which are received by such member from this corporation will be taken into account by him at their stated dollar amounts in the manner provided in A-20 Section 1385(a) of said Code in the taxable year in which such notices of allocation are received by said member. The term "written notice of allocation" as used here shall be deemed to include, but not to be limited to, a letter of advice to a member which discloses to such member an amount which the corporation has elected to apply against indebtedness owed to the corporation in accordance with the first sentence of Article XXIV, Section 3, of these By-laws. SECTION 5. The aforesaid written notices of allocation shall be redeemable by the corporation in cash at the discretion of the Board of Directors and/or in accordance with the restated Certificate of Incorporation of the corporation and these By-laws. As security for the payment to the corporation of any indebtedness owing at any time to the corporation by any retail hardware dealer having membership in the corporation or by any retail hardware dealer who has subscribed for the 1 share of Class A stock of the corporation which is required to be owned in order to become a member of the corporation, the corporation shall have a first lien upon any written notice of allocation held by any such dealer (including all retail hardware stores treated as being part of a group constituting one "member" or "dealer"). The interest of each holder of any written notice of allocation in and to the same shall at all times be deemed to be offset by the amount of any indebtedness payable to the corporation by such holder. SECTION 6. Notwithstanding any other provision of these By-laws, and in accordance with the policy heretofore established by the corporation in the Amendment to its By-laws adding Section 6 to Article XXIV thereof by the resolution adopted by the Board of Directors on April 24, 1974, commencing with respect to purchases of merchandise made from the corporation after May 31, 1974 the corporation shall also make distributions on a patronage basis to those of its dealers who have franchise or membership agreements with the corporation and who have executed unrevoked and unexpired written consents of the type referred to in Section 1388 (c)(2) (A) of the U. S. Internal Revenue Code to include in their gross income all patronage dividends distributed to them in the form of written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code), even though such dealers do not then own any shares of any class of the capital stock of the corporation. Such patronage dividend distributions shall be made to such dealers in a manner taking into account the amount of business done by the corporation with each of them during the periods with respect to which said written consents are effective for each of them and shall consist of all the net savings and overcharges effected by or resulting from the business done by the corporation with such dealers which remain after paying all of the operating and administration expenses and interest on indebtedness of the corporation allocable to such business and after the setting aside by the Board of Directors of such reasonable reserves as they shall determine from time to time to be appropriate for the purpose of insuring the safety and welfare of the corporation and for the purpose of providing for the expectancy of any losses or contingencies. Each such written consent shall provide that it may be revoked at any time by the dealer, effective with respect to business done by the corporation with such dealer after the close of the taxable year of this corporation during which the revocation is filed with it. Each such written consent shall cease to be effective with respect to all business done by this corporation with any dealer who has furnished such a written consent to this corporation immediately upon said dealer's becoming an owner of a share of Class A stock of this corporation, as of which date such consent shall expire and such dealer shall be deemed to hold a "membership" in this corporation so that the provisions of this Article XXIV which are applicable to the distribution of patronage dividends to its members then become effective with respect to such dealer. Unless the same shall have been revoked or otherwise terminated, any such consent which has theretofore been executed by a dealer shall in any event be deemed to have expired and been rendered ineffective at the end of one hundred twenty (120) days following the later of (a) the date as of which an initial Registration Statement and Prospectus with respect to an offer to sell shares of the capital stock of the corporation (including shares of its Class A stock) to its dealers have become effective under the U.S. Securities Act of 1933, or (b) the date as of which such Prospectus can be used under the securities law of any state in which state registration of such stock is required. No such dealer shall be eligible to receive distributions of patronage dividends from the corporation with respect to business done by the corporation with such dealer after the expiration of such 120-day period unless such dealer either has. become a member of the corporation by owning a share of its Class A stock (in which case such dealer shall thereupon be entitled to patronage dividends as provided for A-21 in Section 2 of this Article XXIV) or has executed a subscription agreement for the purchase of shares of capital stock of the corporation (including one (1) share of its Class A stock) which has been accepted by the corporation. There shall be incorporated in all such subscription agreements which include a subscription for a share of the Class A stock of the corporation a provision whereby the subscribing dealer consents to include in his gross income all patronage dividends distributed to such dealer in the form of written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code), and any dealer who has executed such a subscription agreement but who is not entitled to become the owner of a share of Class A stock of this corporation until he has completed payment of the purchase price for such share in accordance with such subscription agreement shall be entitled to receive patronage dividends pursuant to this Section 6 during the period for which he makes payments on account of such purchase price as required by the subscription agreement. Upon the completion of such payments and the issuance of such share of stock to him, such dealer shall then be entitled to receive patronage dividends pursuant to Section 2 of this Article XXIV. In no event shall less than twenty per cent (20%) of the total patronage dividend distributions made each year to any dealer who is entitled to receive such distributions pursuant to this Section 6 be distributed in cash. Any amount in excess of said twenty per cent (20%) minimum portion of the patronage dividends otherwise distributable to a dealer under this Section 6 may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such dealer in the same manner as set forth in Section 3 of this Article XXIV. Any patronage dividends distributed in the form of written notices of allocation pursuant to this Section 6 shall be subject to all of the provisions with respect to distributions made in the form of written notices of allocation which are set forth in Section 5 of this Article XXIV. SECTION 7. Notwithstanding any of the foregoing provisions, the portion of any patronage dividends which would otherwise be distributable in cash under any provision of this Article XXIV to a retail hardware dealer with respect to a retail hardware store having a franchise or membership agreement with this corporation which has been cancelled or terminated at any time subsequent to the date of the annual meeting of stockholders to be held on the third Monday of May in 1980 by any means or for any reason whatsoever prior to the time of distribution of such patronage dividends shall be applied by the corporation to the payment of any indebtedness owed to the corporation by or on behalf of such store to the extent of such indebtedness instead of being distributed in cash, provided, however, that an amount equal to 20% of the total patronage dividends distributable for the applicable year to any such dealer with respect to such store shall nevertheless be paid in cash within 8 1/2 months following the close of such year if a timely written request for the payment of such amount in cash is submitted to the corporation by the dealer. However, in all events no less than 30% of the total annual patronage dividends distributable to a retail hardware dealer with respect to a retail business outlet pursuant to any provision of these By-laws shall be paid in cash if the retail business outlet is located in a jurisdiction as to which the 30% income tax withholding provisions of Section 1441 or Section 1442 of the U.S. Internal Revenue Code are applicable. SECTION 8. Effective with respect to business done by them with this corporation after December 31, 1982, each retail hardware dealer having membership in this corporation on that date and each retail hardware dealer who is a subscriber on that date or who becomes a subscriber after that date for the 1 share of Class A stock of this corporation which is required to be owned in order to become a member of this corporation shall, solely by such dealer's act of commencing or continuing to do business with this corporation after said date, be deemed to have authorized and directed that, notwithstanding any other provision of this Article XXIV of these By-laws, the distributions to be made on a patronage basis as provided for in Section 2 and Section 6 of this Article XXIV shall be made in a manner taking into account the quantity or value of business done with each dealer by each separate division of the corporation as shall be established on the books of the corporation with respect to its operations and/or the quantity or value of business done by the corporation or each such division of the corporation with each of its dealers with respect to each category of sales as shall be established on the books of the corporation. Each such dealer shall further thereby be deemed to have authorized and directed that, in any taxable year of this corporation during which it incurs a loss in connection with the operations of any such division or in connection with A-22 any such category of sales, (i) a proportionate share of such loss shall be deducted from the net earnings of the corporation on the business done during such year by each of its other divisions or with respect to each of its other sales categories with its dealers and (ii) the amount of patronage dividends which the corporation would otherwise be obligated to distribute to its dealers in connection with their purchases from each such other division of the corporation or in connection with each of the other sales categories established by the corporation (as the case may be) shall be reduced by such proportionate share of said loss. For the foregoing purposes the proportionate share of any such loss in connection with the operations of any such division of the corporation or in connection with any such category of sales which shall be deducted from the net earnings realized by it with respect to business done by each other division of the corporation or with respect to each of the other sales categories established by the corporation shall be determined by multiplying the total amount of such loss by a fraction having as its numerator the net earnings which would otherwise be distributable as patronage dividends in connection with the business done with its members by each such other division or each such other category of sales and having as its denominator the total of the net earnings which would otherwise be distributable as patronage dividends in connection with the business done with its members by all such divisions of this corporation and/or all such sales categories. ARTICLE XXV ESTABLISHMENT OF ACE HARDWARE CORPORATION DEALERSHIPS AND INTERNATIONAL DISTRIBUTORSHIPS SECTION 1. Except as provided in Article XXV, Section 3 hereof, no person, partnership or corporation shall be authorized or permitted to use the name "Ace Hardware" or any trademark or trade name including the word "Ace" in conjunction with the sale of hardware or related merchandise, to display any identification sign or emblem indicating that said person, partnership or corporation is an authorized Ace Hardware dealer, or to purchase merchandise (including items carried under the Ace brand name) from Ace Hardware Corporation unless such person, partnership or corporation has first been accepted by Ace Hardware Corporation as a duly licensed or franchised dealer and has executed the membership or similar agreement then utilized by Ace Hardware Corporation for the establishment of such a dealer relationship and has otherwise complied with the usual requirements of Ace Hardware Corporation with respect thereto. Any such agreement may contain such reasonable provisions with respect to the termination thereof as shall be legally permitted by the laws of the United States of America and by the laws of the state or other jurisdiction in which the business of the dealer is located. SECTION 2. In order for any person, partnership or corporation to be accepted by Ace Hardware Corporation as a licensed dealer, such person, partnership or corporation shall also be required to purchase the necessary number of shares of capital stock of the corporation as required by Article Fourth (c) and Article Fourth (e) of the restated Certificate of Incorporation of Ace Hardware Corporation filed with the Secretary of State of Delaware on September 18, 1974. Accordingly, each such person, partnership or corporation shall, concurrently with the execution by such person, partnership or corporation of the Ace Dealer Membership Agreement then utilized by the corporation, also agree in writing to purchase one (1) share of Class A stock of the corporation at a price equal to the par value thereof of $1,000 per share, and forty (40) shares of Class C stock of the corporation at a price equal to the par value thereof of $100 per share or, when the store which is licensed under such Membership Agreement is not the first store owned or controlled by said person, partnership or corporation which has become accepted by Ace Hardware Corporation as a licensed dealer, to purchase fifty (50) shares of Class C stock at a price equal to the par value thereof of $100 per share. The terms of payment with respect to any shares of capital stock of the corporation purchased by any such person, partnership or corporation shall be as set forth in such resolution as shall be adopted from time to time by the Board of Directors of the corporation for the purpose of establishing such terms of payment. SECTION 3. In the case of a person, partnership or corporation operating one or more business outlets located outside the United States of America, its territories and possessions, Ace Hardware Corporation A-23 may approve the sale of merchandise for delivery to such an outlet under the terms of an international distributor agreement entered into with it by such party in lieu of the membership or similar agreement utilized with respect to business outlets by parties who are accepted by Ace Hardware Corporation as licensed or franchised dealers. No party approved as an international distributor shall be entitled to purchase or own any shares of the capital stock of Ace Hardware Corporation, nor shall any patronage dividends be paid on account of any purchases made from Ace Hardware Corporation by international distributors. Purchases of merchandise by international distributors shall be made in accordance with the applicable terms of the international distributor agreement and such other terms as may be imposed by Ace Hardware Corporation from time to time with regard to particular international distributors. Such purchases may include items carried under "Ace" or "Ace Hardware" brand names or under other private label names owned by, or licensed to, Ace Hardware Corporation only with the express written consent of an executive officer whom its President has vested with authority to grant such consents. No international distributor shall have authority or be permitted to use names "Ace" or "Ace Hardware" or any other trade name, trademark or service mark owned or registered by, or licensed to, Ace Hardware Corporation in the United States of America or elsewhere (including any translations of any of said names or marks) unless a separate written license agreement granting such distributor the right to such use is entered into between it and Ace Hardware Corporation. All of the terms and conditions contained in international distributor or license agreements or imposed upon international distributors (including, but not limited to, those dealing with territorial rights, duration, and service, handling, or license fees or charges, as well as any terms which vary among particular international distributors) shall be established solely by the executive officer or officers of Ace Hardware Corporation vested with such authority by its President, provided, however, that no international distributor shall be granted any exclusive area or territorial rights without the prior approval of the Board of Directors or a committee of the Board to which the Board has delegated the authority to approve the granting of such rights. In establishing such terms, consideration shall be given to the relevant business circumstances, including, but not limited to, specific legal requirements and various costs associated with serving an international distributor in a particular location. SECTION 4. Each person, partnership or corporation accepted by Ace Hardware Corporation as a duly licensed dealer or international distributor shall, by virtue of such acceptance, be deemed to have agreed to assume liability for and indemnify Ace Hardware Corporation and hold it harmless from and against any and all claims which may be asserted against it and from any losses sustained by it (including attorneys' fees and expenses incurred by it in defending such claims or in attempting to avoid or mitigate such losses) in connection with or resulting from billings by suppliers of merchandise purchased by or at the request of such dealer or distributor from or through Ace Hardware Corporation in cases where such merchandise is not to be supplied from the corporation's own inventories. ARTICLE XXVI BY-LAWS TO CONSTITUTE BINDING CONTRACT SECTION 1. These By-laws, as amended from time to time, shall constitute a binding legal contract between Ace Hardware Corporation and its stockholders, and shall be legally binding on all stockholders of Ace Hardware Corporation and the successors, heirs, executors, administrators, assigns and personal representatives of such stockholders. SECTION 2. The purchase of shares of any class of stock of this corporation and the issuance thereof to any stockholder shall constitute and be equivalent to a consent of the part of the stockholder to whom said shares are issued to be bound by these By-laws, as amended from time to time, and an agreement on such stockholder's part to be bound thereby. SECTION 3. The invalidity of any portion of these By-laws, as amended from time to time, shall in no way affect any other portion of the By-laws which can be given effect without such invalidated part, and the remaining portions of the By-laws shall continue to constitute a legally binding contract between this corporation and its stockholders. A-24 No dealer, salesman, or any other person has been authorized by the Company to give ACE HARDWARE CORPORATION any information or make any representations in connection with the offering described herein. This Prospectus does not constitute an offer to sell, or a solicitation of an 2,126 Shares of Class A offer to buy, to any person in any state in (Voting) Stock which it is unlawful to make such $1,000 par value solicitation. The delivery of this Prospectus at any time does not imply that there has been no change in the affairs of the Company subsequent to its date of issue. 92,750 Shares of Class C In Florida the securities covered by this (Non-voting) Stock Prospectus are being offered pursuant to a $100 par value limited offering exemption which extends to Florida purchasers the privilege of electing to void their purchases within 3 days after making any payment on account of the purchase price. TABLE OF CONTENTS Item Page Available Information 2 Reports to Security Holders 2 Factors to be Considered 2 Summary 3 Use of Proceeds 6 PROSPECTUS Distribution Plan and Offering Terms 7 Description of Capital Stock 9 Opinions of Experts 14 The Company's Business 14 Properties 29 Index to Financial Statements 31 Independent Auditors' Report 32 Financial Statements 33 Selected Financial Data 46 Dated: , 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations 47 Management 49 Indemnification Obligations of Company and S.E.C. Position on Securities Act Indemnification 50 Appendix A--By-laws of Ace Hardware Corporation A-1 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following is an estimate of expenses in connection with the issuance and distribution of the capital stock being offered: Printing of Registration Statement and Prospectus $10,000 Accounting Fees and Expenses 12,000 Legal Fees 2,000 Fees and Expenses under "Blue Sky" Laws of Various States 3,500 Miscellaneous Expenses 500 Total $28,000 Item 15. Indemnification of Directors and Officers. In accordance with the authority granted by Section 145 of the General Corporation Law of the State of Delaware, under which the Registrant is incorporated, Article XV of the Registrant's By-Laws (which Article is included in the copy of the By-laws designated as Appendix A to the Prospectus constituting a part of this Registration Statement and is incorporated herein by reference) provides for indemnification by the Registrant of its directors, officers, employees or agents. The principal provisions of said By-law obligate the Registrant to indemnify any such person against expenses (including attorneys' fees) actually and reasonably incurred by any such person in connection with his successful defense of any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted against him by reason of the fact that he is or was an officer, director, employee or agent of the Registrant and further authorize the Registrant, in any situation where the Board of Directors of the Registrant, by a majority vote of disinterested directors, determines that any such person acted in good faith and in a manner he reasonably believed to be in the best interest of the Registrant, to indemnify him for the amount of any judgment or fine or settlement payment incurred by him, together with his expenses and attorneys' fees, in connection with any such action, suit or proceeding. Richard Kaup, the late Virgil Poss, and Antone Salel, who constitute the Trustees of the Ace Dealers' Perpetuation Fund prior to its termination on November 30, 1976 (as of which date all of the assets of said Fund were assigned and transferred to the Registrant and the Registrant then assumed and became responsible for any and all obligations and liabilities, contingent or otherwise, of the Trustees of said Fund), would also be afforded indemnification by the Registrant with respect to any of their activities while acting as such Trustees under the following terms included in a resolution adopted by unanimous vote of the Board of Directors of the Registrant on April 24, 1974: "... that the corporation indemnify and hold harmless each of said Trustees with respect to any claims made against any of them and any expenses thereby incurred by any of them in connection with any of their activities as such Trustees". Insofar as indemnification for liabilities arising under the federal Securities Act of 1933 may be permitted to directors, officers, or persons controlling the Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. S-1 The Registrant also maintains a directors and officers liability and corporation indemnification insurance policy issued by Illinois National Insurance Company under which there are to be paid on behalf of the Registrant all amounts for which the Registrant grants indemnification to a director or officer of the Registrant with respect to any claim(s) made against him which arise out of a "Wrongful Act" (as defined in the policy) committed by such director or officer in his capacity as such a director or officer and which he has become legally obligated to pay. Said policy also insures each director or officer of the Registrant against loss arising from any claim(s) not indemnified by the Registrant which may be made against him by reason of any such "Wrongful Act" committed by him. The limits of liability under said policy are $10,000,000 for each loss and $10,000,000 for each policy year. The Registrant is subject to a $250,000 self-insured retention for a loss in which the Registrant grants indemnification to the directors and officers. Each director and officer covered by the policy has first dollar coverage with no deductible for each loss in which the Registrant does not grant indemnification. Coverage is not provided for claims under Section 16(b) of the federal Securities Exchange Act of 1934, which could not arise in any event due to the ownership limitations and restrictions on transfers which are applicable to the Registrant's stock. Among the other classes of claims which are excluded from coverage under the policy are claims based upon alleged violations of the federal Employee Retirement Income Security Act of 1974. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits: Exhibit No. 1 No exhibit. 2 No exhibit. 3 Not applicable. 4-A Restated Certificate of Incorporation of the Registrant dated September 18, 1974 filed as Exhibit 3-A to the Registrant's Form S-1 Registration Statement (Registration No. 2-55860) on March 30, 1976 and incorporated herein by reference. 4-B By-laws of the Registrant as amended on September 20, 1994 (included as Appendix A to the Prospectus constituting a part of this Form S-2 Registration Statement). 4-C Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated May 19, 1976 filed as Exhibit 3-D to Amendment No. 1 to the Registrant's Form S-1 Registration Statement (Registration No. 2-55860) on June 10, 1976 and incorporated herein by reference. 4-D Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated May 21, 1979 filed as Exhibit 3-F to Amendment No. 1 to the Registrant's Form S-1 Registration Statement (Registration No. 2-63880) on May 23, 1979 and incorporated herein by reference. 4-E Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated June 7, 1982 filed as Exhibit 3-G to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 16, 1983 and incorporated herein by reference. S-2 Exhibit No. 4-F Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated June 5, 1987 filed as Exhibit 3-F to the Registrant's Form S-1 Registration Statement (Registration No. 33-4299) on March 29, 1988 and incorporated by reference. 4-G Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant dated June 16, 1989 filed as Exhibit 4-G to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Regis- tration No. 33-27790) on March 20, 1990 and incorporated herein by reference. 4-H Specimen copy of Class B stock certificate as revised as of November, 1984, filed as Exhibit 4-A to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 15, 1985 and incorporated herein by reference. 4-I Specimen copy of Patronage Refund Certificate as revised in 1988 filed as Exhibit 4-B to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 33-4299) on March 29, 1988 and incorporated herein by reference. 4-J Specimen copy of Class A stock certificate as revised in 1987 filed as Exhibit 4-C to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 33-4299) on March 29, 1988 and incorporated herein by reference. 4-K Specimen copy of Class C stock certificate filed as Exhibit 4-I to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 16, 1983 and incorporated herein by reference. 4-L Copy of current standard form of Subscription for Capital Stock Agreement to be used for dealers to subscribe for shares of the Registrant's stock in conjunction with new membership agreements submitted to the Registrant filed as Exhibit 4-L to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 4-M Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on and after January 1, 1995, adopted by the Board of Directors of the Registrant on July 26, 1994 (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Form S-2 Registration Statement). 4-N Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on or after January 1, 1993 through December 31, 1994 adopted by the Board of Directors of the Registrant on December 8, 1992, (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Form S-2 Registration Statement). 5 Opinion of David W. League, General Counsel of the Registrant, as to legality of securities being registered. 6 No exhibit. S-3 Exhibit No. 7 Opinion of Messrs. Gatenbey, Law & League filed as Exhibit 7 to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 16, 1983 and incorporated herein by reference. 8 No exhibit; the opinions of David W. League, General Counsel of the Registrant, as to certain tax matters are set forth in statements attributed to him under the heading "Distribution Plan and Offering Terms," subheading "Federal Income Tax Status of Class A and Class C Shares" and under the heading "The Company's Business," subheading "Federal Income Tax Treatment of Patronage Dividends" in the Prospectus constituting a part of this Form S-2 Registration Statement. 9 Not applicable. 10-A Copy of Retirement Benefits Replacement Plan of the Registrant, restated as of January 1, 1989 filed as Exhibit 10- A to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-B Copy of resolutions amending the 1990 Incentive Plans for Executives and establishing the Executive Supplement Benefit Plans of the Registrant adopted by its Board of Directors on December 11, 1990, filed as exhibit 10-G to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-27790) on March 20, 1991 and incorporated herein by reference. 10-C Copy of Amendment to the Executive Supplemental Benefits Plan of the Registrant adopted by its Board of Directors on July 30, 1991 filed as Exhibit 10-E to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-D Copy of amendment to the Executive Supplemental Benefits Plan of the Registrant adopted by its Board of Directors on December 9, 1991 filed as Exhibit 10-F to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-E Copy of the "Ace Hardware Corporation Officer's (sic) Incentive Compensation Plan" as amended and restated effective January 1, 1994 filed as Exhibit 10-G to Post- Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-F Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and Paul Ingevaldson. 10-G Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and David F. Hodnik. 10-H Copy of Employment Agreement dated October 12, 1994 between Ace Hardware Corporation and William A. Loftus. 10-I Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and Roger E. Peterson filed as Exhibit 10-K to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. S-4 Exhibit No. 10-J Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and Paul Ingevaldson filed as Exhibit 10-I to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-464489) on March 22, 1993 and incorporated herein by reference. 10-K Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and David F. Hodnik filed as Exhibit 10-J to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-L Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and William A. Loftus filed as Exhibit 10-L to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-M Copy of Loan Agreement with Anne Arundel County, Maryland dated December 1, 1981 securing 15-year floating rate industrial development revenue bonds in the principal sum of $9 million held by The Northern Trust Company, Chicago, Illinois, for itself and other participating lenders filed as Exhibit 10-A-k to Post-Effective Amendment No. 3 to the Registrant's Form S-1 Registration Statement (Registration No. 2-63880) on March 9, 1982 and incorporated herein by reference. 10-N Copy of Note Purchase and Private Shelf Agreement with The Prudential Insurance Company of America dated September 27, 1991 securing 8.74% Senior Series A Notes in the principal sum of $20,000,000 with a maturity date of July 1, 2003 filed as Exhibit 10-A-q to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-O Copy of Standard Form of Ace Hardware International Retail Merchant Agreement adopted in 1990, filed as Exhibit 10-A-q to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-27790) on March 20, 1991 and incorporated herein by reference. 10-P Copy of Current Standard Form of Ace Hardware Membership Agreement filed as Exhibit 10-P to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-Q Copy of 6.89% Senior Series B notes in the aggregate principal sum of $20,000,000 issued July 29, 1992 with a maturity date of January 1, 2000 pursuant to Note Purchase and Private Shelf Agreement with the Prudential Insurance Company of America dated September 27, 1991 filed as Exhibit 10-Q to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-R Copy of 6.47% Senior Series A notes in the aggregate principal sum of $30,000,000 issued September 22, 1993 with a maturity date of June 22, 2008, and $20,000,000 Private Shelf Facility, pursuant to Note Purchase and Private Shelf Agreement with the Prudential Insurance Company of America dated as of September 22, 1993 filed as Exhibit 10-R to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. S-5 Exhibit No. 10-S Assignment and Assumption dated October 22, 1992 of Lease dated August 31, 1992 with MTI Vacations, Inc. filed as Exhibit 10-A-s to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-T Copy of Amendment to the Executive Supplemental Benefit Plans of the Registrant adopted by its Board of Directors on March 17, 1992 filed as Exhibit 10-A-t to the Post- Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-U Copy of Lease dated September 30, 1992 for general offices of the Registrant in Oak Brook, Illinois filed as Exhibit 10-A-u to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-V Copy of Fourth Amendment to Executive Supplemental Benefit Plans effective January 1, 1994 filed as Exhibit 10-V to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-W Copy of Ace Hardware Corporation Deferred Director Fee Plan as amended on June 8, 1993 filed as Exhibit 10-W to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-X Copy of Ace Hardware Corporation Deferred Compensation Plan effective January 1, 1994 filed as Exhibit 10-X to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-Y Copy of Lease dated September 22, 1994 for bulk merchandise redistribution center of Registrant in Carol Stream, Illinois. 10-Z Copy of Lease dated May 4, 1994 for freight consolidation center of the Registrant in Chicago, Illinois. 10-a-1 Copy of Long Term Incentive Compensation Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994. 10-a-2 Copy of Director's Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994. 10-a-3 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Fred J. Neer. 10-a-4 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Donald L. Schuman. 10-a-5 Copy of Employment Agreement dated December 13, 1993 between Ace Hardware Corporation and David W. League. 10-a-6 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and David F. Myer. 10-a-7 Copy of Employment Agreement dated March 24, 1994 between Ace Hardware Corporation and Michael C. Bodzewski. S-6 Exhibit No. 10-a-8 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and Rita D. Kahle. 10-a-9 Copy of Agreement dated January 6, 1995 between Ace Hardware Corporation and Roger E. Peterson. 10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan for Fiscal Year 1994. 11 No exhibit. 12 No exhibit. 13 Not applicable. 14 Not applicable. 15 No exhibit. 16 Not applicable. 17 Not applicable. 18 Not applicable. 19 Not applicable. 20 Not applicable. 21 Not applicable. 22 Not applicable. 23 (a) Auditors' Consent, Dated March 23, 1995. (b) Consent of Counsel, Legal Opinions-Exhibit 5 and Exhibit 7. 24 Powers of Attorney. 25 No exhibit. 26 No exhibit. 27 No exhibit. 28 Not applicable. S-7 Item 17. Undertakings. The undersigned Registrant hereby undertakes: (a) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section; (b) To file with the Securities and Exchange Commission, during any period in which offers or sales are being made pursuant to the registration, a post-effective amendment to the Registration Statement: (i) to include any Prospectus required by Section 10(a) (3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including (but not limited to) any addition or deletion of a managing underwriter. (c) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment to the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (d) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. S-8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. ACE HARDWARE CORPORATION By RICHARD E. LASKOWSKI Richard E. Laskowski Chairman of the Board and Director DATED: March 23, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date RICHARD E. LASKOWSKI Chairman of the Board March 23, 1995 Richard E. Laskowski and Director ROGER E. PETERSON Chief Executive Officer March 23, 1995 Roger E. Peterson DAVID F. HODNIK President and March 23, 1995 David F. Hodnik Chief Operating Officer RITA D. KAHLE Vice President-Finance March 23, 1995 Rita D. Kahle (Principal Financial Officer) Jennifer C. Anderson, Directors Lawrence R. Bowman, Mark Jeronimus, Howard J. Jung, John E. Kingrey, Ray W. Osborne, Don S. Williams, Jon R. Weiss and James R. Williams *By DAVID F. HODNIK David F. Hodnik *By RITA D. KAHLE Rita D. Kahle *Attorneys-in-fact March 23, 1995 S-9 INDEX TO EXHIBITS FILED TO THE REGISTRATION STATEMENT ON FORM S-2 OF ACE HARDWARE CORPORATION Exhibit Number Exhibit 4-B By-laws of the Registrant as amended on September 20, 1994 (included as Appendix A to the Prospectus constituting a part of this Form S-2 Registration Statement). 4-M Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on and after January 1, 1995, adopted by the Board of Directors of the Registrant on July 26, 1994 (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Form S-2 Registration Statement). 4-N Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on or after January 1, 1993 through December 31, 1994, adopted by the Board of Directors of the Registrant on December 8, 1992, (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Form S-2 Registration Statement). 5 Opinion of David W. League, General Counsel of the Registrant as to legality of securities being registered. 10-F Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and Paul Ingevaldson. 10-G Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and David F. Hodnik. 10-H Copy of Employment Agreement dated October 12, 1994 between Ace Hardware Corporation and William A. Loftus. 10-Y Copy of Lease dated September 22, 1994 for bulk merchandise redistribution center of Registrant in Carol Stream, Illinois. 10-Z Copy of Lease dated May 4, 1994 for freight consolidation center of the Registrant in Chicago, Illinois. 10-a-1 Copy of Long Term Incentive Compensation Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994. 10-a-2 Copy of Director's Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994. 10-a-3 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Fred J. Neer. 10-a-4 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Donald L. Schuman. S-10 Exhibit Number Exhibit 10-a-5 Copy of Employment Agreement dated December 13, 1993 between Ace Hardware Corporation and David W. League. 10-a-6 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and David F. Myer. 10-a-7 Copy of Employment Agreement dated March 24, 1994 between Ace Hardware Corporation and Michael C. Bodzewski. 10-a-8 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and Rita D. Kahle. 10-a-9 Copy of Agreement dated January 6, 1995 between Ace Hardware Corporation and Roger E. Peterson. 10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan for Fiscal Year 1994. 23(a) Auditors' consent dated March 23, 1995 24 Powers of Attorney The various exhibits incorporated by reference are listed in Item 16 of this Form S-2 Registration Statement of Ace Hardware Corporation. S-11 EX-5 2 OPINION OF GENERAL COUNSEL March 23, 1995 To the Board of Directors Ace Hardware Corporation 2200 Kensington Court Oak Brook, Illinois 60521 Gentlemen: This opinion relates to the legality of the 1,500 shares of Class A voting stock (par value $1,000 per share) and 40,000 shares of Class C nonvoting stock (par value $100 per share) of Ace Hardware Corporation (the "Company"), a Delaware corporation, which are being registered with the Securities and Exchange Commission under the Securities Act of 1933 under a Registration Statement (Form S-2) with respect to which Registration Statement this opinion is furnished. Said opinion further relates to the legality of unsold shares of Class A stock and Class C stock previously registered under Registration Statement No. 33-46449 which, pursuant to Rule 429 of Regulation C of the Securities Act of 1933, are included among the shares being offered by the Prospectus constituting a part of the Registration Statement with respect to which said opinion is furnished. As General Counsel in the Legal Department of the Company since January 1, 1989 and as a partner in the firm of Gatenbey, Law & League which acted as general counsel to the Company and its Illinois predecessor corporation for many years prior to that date, I have examined the Company's restated Certificate of Incorporation (as amended to date), the By-laws of the Company (as amended to date), and its corporate proceedings, and have made such other investigations as I have deemed necessary or appropriate for the purpose of this opinion. Based upon the foregoing, I am of the opinion that: (1) The Company is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware and is also duly qualified to do business as a foreign corporation in, and is in good standing under the laws of, the States of Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Maryland, Mississippi, Nebraska, New York, North Carolina, Ohio, Oregon, Texas, Washington and Wisconsin. (2) The total authorized capital stock of the Company consists of 10,000 shares of Class A Voting Stock (par value $1,000 per share), 6,500 shares of Class B Nonvoting Stock (par value $1,000 per share) and 2,000,000 shares of Class C Nonvoting Stock (par value $100 per share). (3) All of the shares of capital stock of the Company which are to be offered by the Prospectus filed as a part of the aforesaid Registration Statement with respect to which this opinion is furnished (including any shares which may have heretofore been issued but are not presently outstanding), will, upon issuance in accordance with the terms set forth in said Prospectus, constitute legally and validly issued, fully paid and non-assessable shares. I understand that this opinion is to be used in connection with the aforesaid Registration Statement, and I consent to the filing of this opinion with the Registration Statement and to the reference to me in the Prospectus under the heading "Opinions of Experts". I also hereby consent to the comment made in the Prospectus under "Distribution Plan and Offering Terms", subheading "Federal Income Tax Status of Class A and Class C Shares", to the effect that the statements made under said subheading with respect to the federal income tax treatment of shares of the Company's Class A and Class C Stock purchased by its dealers and the statements made in the Prospectus under "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends" represent my opinion concerning said matters. I also hereby consent on behalf of Gatenbey, Law & League to the reference to them in the Prospectus under the heading "Opinions of Experts" and to the incorporation by reference as Exhibit No. 7 to said Post-Effective Amendment of their opinion relating to the preference in excess of par value to which shares of Class B nonvoting stock of the Company are entitled in the event of the involuntary liquidation of the Company which was heretofore filed as Exhibit No. 7 to the Company's Form S-1 Registration Statement under Registration No. 2-63880. Very truly yours, David W. League General Counsel - Ace Hardware Corporation EX-10 3 EMPLOYMENT AGREEMENT-INGEVALDSON EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 04th day of October, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and Paul M. Ingevaldson , hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1995 and shall terminate on December 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4 hereof or by reason of a determination made pursuant to Section 9 hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1997 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3 and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to December 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2 above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of Two Hundred Thirty Two Thousand Dollars ($232,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the last quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning January 1,1996. In the event that this Agreement is extended for one (1) year beyond December 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the last quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning January 1,1997. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9 for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5 hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8 and 10 hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4 and 9 hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4 and 9 hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10 of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12 and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10, the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5 of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Deffered Compensation Plan, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) Paul M. Ingevaldson ATTEST: David W. League (SEAL) Secretary EX-10 4 EMPLOYMENT AGREEMENT-HODNIK EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 4th day of October, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and David F. Hodnik, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1995 and shall terminate on December 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4 hereof or by reason of a determination made pursuant to Section 9 hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1997 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3 and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to December 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2 above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of Three Hundred Fifty Thousand Dollars ($350,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the last quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning January 1, 1996. In the event that this Agreement is extended for one (1) year beyond December 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the last quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning January 1, 1997. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9 for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5 hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8 and 10 hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4 and 9 hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4 and 9 hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10 of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12 and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10, the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5 of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Deffered Compensation Plan, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) David F. Hodnik ATTEST: David W. League (SEAL) Secretary EX-10 5 EMPLOYMENT AGREEMENT-LOFTUS EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 12th day of October, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and William A. Loftus, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1995 and shall terminate on December 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4 hereof or by reason of a determination made pursuant to Section 9 hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1997 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3 and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to December 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2 above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of Two Hundred Sixty Thousand Dollars ($260,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the last quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning January 1, 1996. In the event that this Agreement is extended for one (1) year beyond December 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the last quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning January 1, 1997. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9 for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5 hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8 and 10 hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4 and 9 hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4 and 9 hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10 of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12 and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10, the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5 of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Deffered Compensation Plan, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) William A. Loftus Attest: David W. League (SEAL) Secretary EX-10 6 LEASE AGREEMENT INDUSTRIAL BUILDING LEASE LANDLORD: RS&P/Carol Stream Limited Partnership, an Illinois limited partnership TENANT: Ace Hardware Corporation, a Delaware corporation PREMISES: The real estate legally described on Exhibit B attached hereto containing a 250,000 square foot building BUILDING: ADDRESS: 250 S. Gary Avenue, Carol Stream, Illinois DATE OF LEASE: September 22, 1994 GUARANTOR: N/A TABLE OF CONTENTS Article Page I. PREMISES AND TERM 1 1.1 Premises 1 1.2 Term 1 1.3 Agent 1 1.4 Use 1 1.5 Prohibited Uses 1 II. RENT 2 2.1 Monthly Base Rent 2 2.2 Base Rent and Additional Rent 2 2.3 Payment of Estimated Rent Adjustments 2 2.4 All Payments 3 III. TAXES 3 3.1 Taxes 3 IV. UTILITIES 3 4.1 Utilities 3 V. OPERATING EXPENSES 4 VI. INSURANCE 5 6.1 Kinds and Amounts 5 6.2 Form of Insurance 5 6.3 Mutual Waiver of Claims 5 VII. DAMAGE OR DESTRUCTION 6 7.1 Damage of Destruction 6 VIII. ALTERATION/POSSESSION 6 8.1 Alteration 6 8.2 Construction 6 IX. POSSESSION 7 9.1 Possession of Existing Buildings 7 9.2 Possession with Improvements to be Constructed 7 9.3 Early Occupancy 8 X. ENVIRONMENTAL PROVISIONS 8 XI. CONDEMNATION 9 11.1 Taking of Whole 9 11.2 Partial Taking 9 XII. ASSIGNMENT AND SUBLETTING 9 XIII. HOLDING OVER 11 13.1 Holding Over 11 XIV. EVENTS OF DEFAULT 11 14.1 Events of Default 11 Article Page XV. REMEDIES 12 15.1 Remedies 12 XVI. LIENS AND ENCUMBRANCES 15 16.1 Encumbering Title 15 16.2 Liens 15 16.3 Event of Default 15 XVII. LIABILITY, INDEMNIFICATION, WAIVER 15 17.1 Liability and Indemnification 15 17.2 Waiver of Certain Claims 16 XVIII. SUBORDINATION 16 18.1 Subordination 16 XIX. QUIET ENJOYMENT 16 19.1 Quiet Enjoyment 16 XX. MISCELLANEOUS 16 20.1 Tenant's Statement 16 20.2 Inspection 16 20.3 Gender and Captions 16 20.4 Terms 17 20.5 Delays 17 20.6 Estoppel 17 20.7 Lender's Requirements 17 20.8 Understanding 17 20.9 Obligations 18 20.10 Severability 18 20.11 Lease Reference 18 20.12 Landlord's Right to Cure 18 20.13 Brokerage 18 20.14 Signs 18 XXI. NOTICES 19 21.1 Notices 19 EXHIBITS: "A" The Premises "B" Legal Description of Real Estate "C" Landlord's Work "D" Depiction of Wall referred to in Exhibit C Address: 250 S. Gary Avenue Carol Stream, Illinois Drafted: September 8, 1994 LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between RS&P/Carol Stream Limited Partnership, an Illinois limited partnership hereinafter referred to as "Landlord" and Ace Hardware Corporation, a Delaware corporation, hereinafter referred to as "Tenant", who hereby mutually covenant and agree as follows: I. PREMISES AND TERMS 1.1 Premises. In consideration of the mutual obligations of Landlord and Tenant set forth herein, Landlord hereby leases to Tenant and Tenant hereby accepts the premises designated on the plan attached hereto as Exhibit "A", containing a building (the "Building") located on the real estate (the "Real Estate") legally described on Exhibit "B", together with all rights, privileges, easements, appurtenances, and amenities belonging to or in any way pertaining to the Premises, to have and to hold, subject to the terms, covenants and conditions in this Lease (collectively, the "Premises"). 1.2 Term. The term of this Lease shall commence on October 1, 1994 (the "Commencement Date") and shall end 60 months thereafter or as amended, pursuant to Article IX below (the "Expiration Date"). 1.3 Agent. As used in this Lease, the term "Agent" shall mean the agent of Landlord or in the event Landlord is a land trust, then agent shall mean the agent for the beneficiaries of Landlord. Until otherwise designated by notice, in writing from Landlord, Agent shall be Kinney Associates located at 50 W. North Avenue, Melrose Park, IL 60190. Tenant may rely upon any consent or approval given in writing by Agent or upon notice from Agent or from the attorneys for Agent or Landlord. 1.4 Use. The premises shall be used only for the purposes of warehousing and general offices and for no other purpose. 1.5 Prohibited Uses. Tenant shall not use or permit the Premises to be used in any manner which would violate any certificate of occupancy affecting the Premises, constitute a public or private nuisance or waste, or render the insurance on the Building void or the insurance risk more hazardous. Tenant shall not use or occupy the Premises contrary to any statute, rule, order, ordinance, requirement or regulation applicable thereto. Landlord may promulgate reasonable rules and regulations, which rule or regulation shall become effective thirty (30) days after notice thereof to Tenant provided they do not interfere with Tenant's intended use of the Premises. II. BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT 2.1 Monthly Base Rent. Tenant agrees to pay to Landlord, monthly base rent for the Premises, payable in advance, without demand, deduction or set off at the following rates per month: Months Monthly Base Rental 1-42 $62,500.00 ($3.00 psf per year) 43-60 $67,708.33 ($3.25 psf per year) Each monthly installment, plus the other monthly charges set forth in Paragraph 2.2 below shall be due and payable on the date hereof and a like monthly installment shall be due and payable on or before the first day of each calendar month, and all payments due hereunder for any fractional calendar month shall be prorated. 2.2 Base Rent and Additional Rent. Tenant agrees to pay Taxes (hereinafter defined) payable by Landlord pursuant to Paragraph 3.1 below assessed for and attributable to the portion of the term hereof that falls within the applicable taxing period (e.g., the Taxes attributable to the period of October 1, 1994 to December 31, 1994, shall be those Taxes attributable to said period of 1994 and payable in the tax bills issued in 1995) the cost payable by Tenant in accordance with Article V hereof. During each month of the term of this Lease, on the same day that rent is due hereunder, Tenant shall pay to Landlord an amount equal to one-twelfth of the estimated annual cost of Taxes. Said payments shall be as and for additional rent. Tenant authorizes Landlord to use the funds deposited with Landlord under this Paragraph 2.2 to pay such costs. The amount of the monthly base rent and the initial monthly Taxes are as follows: (1) Initial Base Rent as set forth in Para. 2.1 $62,500.00 (2) Tax Payment $19,666.74 (3) Other $ Initial Monthly Payment Total $82,166.74 2.3 Payment of Estimated Rent Adjustments. Landlord shall from time to time deliver to Tenant a written notice or notices ("Project Notice") setting forth Landlord's reasonable estimates, forecasts or projections (collectively, the "Projections") of Taxes with respect to the current calendar year. On or before the first day of the next calendar Month following Landlord's service of a Projection Notice, and on or before the first day of each month thereafter, Tenant shall pay to Landlord on account one-twelfth of the amount of the Projections as shown in the Projection Notice. Within thirty (30) days following Landlord's service of a Projection Notice, Tenant shall also pay to Landlord a lump sum equal to the amount of such Projections for the current calendar year less the sum of (i) any previous payments of the respective rent adjustments made for such calendar year, and (ii) monthly installments of such rent adjustments due for the remainder of such calendar year pursuant to such Projection Notice. Following the end of each calendar year and after Landlord shall have determined the actual amount of Taxes for such calendar year, Landlord shall notify Tenant in writing of such Taxes. If such Taxes exceed the respective rent adjustments paid for such calendar year by Tenant, Tenant shall, within thirty (30) days after the date of Landlord's notice pay to Landlord an amount equal to such excess. If the rent adjustments paid for such calendar year by Tenant exceed such Taxes, then Landlord shall credit such excess to Rent payment after the date of Landlord's notice until such excess has been exhausted. If this Lease shall expire prior to full application of such excess, Landlord shall pay to Tenant the balance not theretofore applied against Rent and not reasonably required for payment of rent adjustments for the calendar year in which the Lease expires. No interest or penalties shall accrue on any amounts which Landlord is obligated to credit or to pay to Tenant by reason of this Section. 2.4 All Payments. All rentals and charges due from Tenant to Landlord herein (collectively "Rent") shall be paid as directed in writing by Landlord. III. TAXES 3.1 Landlord agrees to pay all taxes, assessments and governmental charges of any kind and nature (collectively referred to herein as "Taxes") that accrue against the Premises, and/or improvements of which the Premises are a part and deliver copies of the tax bills to Tenant. If at any time during the term of this Lease, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, rental tax or use tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the land and improvements of which the Premises are a part, then such all taxes, assessments, levies or charges, or the part, thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. The Landlord shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Building and Real Estate within the applicable taxing jurisdiction. Tenant agrees to pay the cost of such consultant, which shall not exceed the savings in Taxes achieved by the consultant. Tenant shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises. If any such taxes are levied or assessed against Landlord or Landlord's property (i) Landlord pays the same or (ii) the assessed value of Landlord's property is increased by inclusion of such personal property and fixtures and Landlord pays the increased taxes, then, upon demand Tenant shall pay to Landlord such taxes. IV. UTILITIES 4.1 Landlord agrees to make available normal water and electricity service to the Premises. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or at the Premises ("Utility Charges") together with any taxes, penalties, surcharges or the like pertaining to the Tenant's use of the Premises, and any maintenance charges for utilities. Landlord shall not be liable for any interruption or failure of utility service on the Premises. V. OPERATING EXPENSES 5.1 Except as otherwise provided herein, Tenant shall keep and maintain the entire Premises and Building clean and in good condition and repair, including without limitation, necessary replacements, and pursuant thereto Tenant shall pay all costs and expenses for operating, maintaining, managing and repairs the Building and the Real Estate and the personal property used in conjunction therewith (collectively, the "Project"), including, without limitation all Utility Charges, the costs of heating and lighting, security and security systems, snow and ice and trash removal, painting, cleaning, landscaping and grounds maintenance, repairs and maintenance of loading docks, parking lots and truck dock equipment, fuel, water, sewer, steam, electricity, gas, insurance, supplies, sales and use taxes, and any other expense or charge which an expense of operating, maintaining, managing and repairs the Project, except as hereinafter provided, and shall include any capital improvement made after the Commencement Date which is required under any governmental laws, regulations or ordinances except as provided in Section 5, 2(iii) below. 5.2 Tenant, at its cost and expense, shall (i) maintain all parts of the exterior Premises, landscape and grounds surrounding the Premises in good condition, (ii) promptly make all necessary repairs and replacements, (iii) keep the parking areas, sidewalks, driveways and alleys surrounding the Premises in a clean and sanitary condition and shall remove all rubbish, snow and ice from same. Tenant shall have no obligations to repair or maintain the north parking lot during the term of this Lease whether or not Tenant is using said lot, nor shall Tenant have any obligation to remove the surface of the north parking lot or improve it following the expiration of any permit allowing the use of said lot by Tenant, unless Tenant desires or intends to continue to use said parking lot, in which case Tenant shall perform all work required to extend or continue such permit. 5.3 Tenant, at it own cost and expense, shall enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all hot water, heating and air conditioning systems (air conditioning in the office space only), equipment and levelers, if any, servicing the Premises. The service contract must include all services suggested by the equipment manufacturer in its operations/maintenance manual and executed copy of such contract and service report must be provided to Landlord. The service contracts shall not be subject to cancellation except after at least thirty (30) days' prior written notice to Landlord. True and correct copies of the service contracts, together with satisfactory evidence of payment of the premiums and fees thereon, shall be deposited with Landlord at the Commencement Date and renewals thereof not less than thirty (30) days prior to the end of the term of each such coverage. 5.4 Landlord shall be responsible, at Landlord's expense, for the maintaining and repairing of the roof, general structure and foundation of the building. VI. INSURANCE 6.1 Kinds and Amounts. Tenant shall procure and maintain the following insurance policies at its own cost and expense: a. Comprehensive general liability insurance, including contractual liability under Tenant's indemnification obligations contained in this Lease, covering injury to or death of persons and damages to property in an amount of not less than $5,000,000.00 combined single limit per occurrence; (so long as Ace Hardware Corporation is the Tenant hereunder and its creditworthiness is equal to or greater than it was on the Commencement Date, then it may self insure for another portion of this coverage). b. Workman's compensation insurance is not less than statutory amounts; c. Insurance against risk of breakage of plate glass in or on the Premises or at Tenant's option, self insure; d. Insurance covering all contents including leasehold improvements, and Tenant's trade fixtures, machinery, equipment, furniture and furnishing and goods stored in the Premises to the extent of their full replacement cost under broad form standard fire and extended coverage insurance, including, without limitation, vandalism and malicious mischief and sprinkler leakage endorsements. e. Business interruption insurance in an amount that would indemnify Tenant for loss of income. f. Fire and casualty loss to the Building and any improvement therein with broad form extended coverage to the extent of the full replacement cost thereof. 6.2 Form of Insurance. Insurance to be carried by Tenant shall be in companies and in form, substance and amount (initially in amounts stated above) satisfactory from time to time to Landlord and any mortgagee of Landlord. Insurance policies described in Paragraphs 6.1(a), (b), (c), (d), (e) and (f) shall name Landlord, Landlords's Mortgagees and agent and shall contain waivers of subrogation against Landlord or Agent as additional party insureds and/or loss payee, as appropriate, pursuant to the Standard Mortgagee Endorsement customarily issued by insurers and shall contain waivers of subrogation against Landlord and expressly permit waiver of claims prior to a loss as provided in Paragraph 6.2 hereof. The aforesaid insurance shall not be subject to cancellation except after at least thirty (30) days' prior written notice to Landlord and any mortgagee of Landlord. The original insurance policies or certificates, together with satisfactory evidence of payment of the premiums thereon, shall be deposited with Landlord prior to the Commencement Date and renewals thereof not less than thirty (30) days prior to the end of the term of each such coverage. 6.3 Mutual Waiver of Claims and Subrogation Rights. Notwithstanding any other provision of this Lease to the contrary, whenever (a) any loss, cost, damage or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties to this Lease, or anyone claiming by, through, or under it in connection with the Premises, and (b) such party is then covered in whole or in part by insurance with insured, then the part so insured (or so required) hereby waives any claims against and releases the other party from any liability said other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had such insurance been carried as so required). 6.4 Tenant hereby indemnifies and hold Landlord and Landlord's Mortgagees harmless and will defend from and against any losses, costs, damages, fees (including reasonable attorneys' fees) or claims of any kind whatsoever that arise or result from matters that would be covered under insurance policies described in 6.1(a) above, but for which Tenant is then or was self- insuring. VII. DAMAGE OR DESTRUCTION 7.1 Damage or Destruction by Fire or Casualty. In the event the Premises are damaged or destroyed by fire, explosion or other casualty, Landlord shall commence the repair, restoration or rebuilding thereof as soon as practicable after Landlord settles the insurance claims with its insurer, but no later than within ninety (90) days after such damage and shall complete such restoration, repair or rebuilding within one hundred eighty (180) days after the commencement thereof, subject to delay because of changes, deletions, or additions in construction requested by Tenant, acts of Tenant, strikes, lockouts, casualties, acts of God, war, fuel or energy shortages, material or labor shortages, governmental regulation or control or other causes beyond the control of Landlord. If the fire or casualty (not caused by any act or neglect of Tenant, its agents, employees or contractors) or the repair, restoration or rebuilding caused thereby shall render the Premises untenantable for the use identified in Paragraph 1.4, in whole or part, Base Rent shall be adjusted from the date when the damage occurred until the date on which the Premises are again fit for occupancy by Tenant in an amount bearing the same ratio to the total amount of Base Rent for such period as the portion of the Premises not ready for occupancy from time to time bears to the entire Premises. If such a fire, explosion or other casualty damages the Building, Landlord may, in lieu of repairing, restoring or rebuilding the same, elect to terminate this lease by notice to Tenant within ninety (90) days after occurrence of the fire or the casualty causing the damage. In the event Landlord has not commenced the repair, restoration or rebuilding of the Building within 180 days after the date of the casualty, then Tenant shall have the right to terminate this Lease by giving Landlord written notice of such election within ten (10) days after the expiration of such 180-day period. In either of such events, Tenant shall be obligated to pay Rent and other charges hereunder accrued to the date when the damage occurred. In the event Landlord's fire and extended coverage insurance provides for a deductible amount, and a loss occurs which is the kind of risk otherwise insured under the policy, then Tenant shall pay to Landlord, promptly upon being billed therefor, the lesser of (a) the amount of the loss, or (b) the amount of the deductible. Notwithstanding anything to the contrary herein set forth, Landlord shall have no obligation pursuant to this Paragraph 7.1, (a) to repair or restore any Alterations (as hereinafter defined) owned or made by Tenant in the Premises or to spend for any repair or restoration amounts in excess of insurance proceeds paid to Landlord which are not applied to reduce the balance of any mortgage on the Building or Real Estate, or (b) repair or restore the Premises if the damage or destruction occurs during the last twenty four (24) months of the Term. VIII. ALTERATIONS/POSSESSION 8.1 Tenant shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord. Tenant, at its own cost and expense, may erect such shelves, bins, machinery and trade fixtures as it desires provided that (a) such items do not alter the basic character of the Premises or the Building and/or improvements of which the Premises are a part; (b) such items do not overload or damage the same; (c) such items may be removed without injury to the Premises; (d) or said installations do not affect insurance rates or risks thereunder and (e) the construction, erection or installation thereof complies with all applicable governmental laws, ordinances, regulations and with Landlord's specifications and requirements. Tenant shall obtain any and all permits required by governmental authorities. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of this Lease. All shelves, bins, machinery and trade fixtures installed by Tenant shall be removed on or before the earlier to occur of the date of termination of this Lease or vacating the Premises, at which time Tenant shall restore the Premises to their original condition, except for ordinary wear and tear. All alterations, installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building and Real Estate. 8.2 Construction with Landlord's Consent. Tenant shall not commence or engage in any construction or installation of any alterations, improvements or fixtures, including business fixtures, to the Premises unless the Tenant first does the following: a. Prepares all necessary plans and secures any and all licenses and permits to perform the work from all appropriate governmental agencies; b. Obtains the prior written consent of Landlord for such improvements, which consent shall not be unreasonably withheld. To secure said consent, Tenant shall furnish Landlord with copies of all plans, at which time Landlord shall have thirty (30) days to approve or disapprove the work; and c. Obtains Certificates of Insurance from all contractors in amounts and from companies acceptable to Landlord, naming Landlord, Agent and all other parties required by Landlord to be named, as additional insureds thereon. d. Obtains waivers of mechanics and other liens and contractors affidavits from all contractors as to all work to be performed and all materials to be provided. IX. POSSESSION 9.1 Possession of Existing Building. Tenant acknowledges that (i) it has inspected and accepts the Premises, (ii) the buildings and improvements comprising the same are suitable for the purpose for which the Premises are leased, (iii) the Premises are in good and satisfactory condition, and (iv) no representations as to condition or as to the repair of the Premises, nor promises to alter, remodel or improve the Premises have been made by Landlord except for those items set forth on Exhibit C attached hereto which Landlord agrees to use all commercially reasonable effort to complete by October 1, 1994. If this Lease is executed before the Premises become vacant or otherwise available and ready for occupancy, or if any present Tenant or occupant of the Premises holds over, and Landlord cannot, using good faith efforts, acquire possession of the Premises prior to the date above recited as the Commencement Date of this Lease, Landlord shall not be deemed to be in default hereunder, not in any way liable to Tenant because of such failure, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to tender the same, which date shall thenceforth be deemed to be the "Commencement Date"; and the Term of this Lease automatically shall be extended so as to include the full number of months hereinbefore provided for, except that if the Commencement Date is other than the first day of a calendar month, such term also shall be extended for the remainder of the calendar month in which possession is tendered. Landlord hereby waives payment of rent covering any period prior to such tendering of possession. After the Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. 9.2 Early Occupancy. If Landlord permits Tenant to occupy the Premises for conduct of its business prior to the Commencement Date, then such occupancy shall be subject to all the terms and conditions of this Lease, including payment of Rent from and after the date of Tenant's occupancy. X. ENVIRONMENTAL PROVISIONS 10.1 In addition to all other provisions of this Lease, Tenant represents and warrants that (i) Tenant, at its sole cost and expense, shall comply with all federal, state and local statutes, ordinances, regulations and rules, presently in force or hereinafter enacted relating to environmental quality, contamination and clean-up (collectively "Environmental Laws") and (ii) except as hereinafter provided, Tenant, its agents and contractors, licensees or invitees shall not possess, handle, use, manufacture, store, release or dispose of any flammables, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances, petroleum products or derivatives or any other similar substances or materials that are included under or regulated by any Environmental Laws (collectively, "Hazardous Substances") on, under or about the Premises (including, but not limited to the groundwater or soil thereof). 10.2 Notwithstanding the provisions of Paragraph 10.1, Tenant may handle, store, and use Hazardous Substances, limited to the types, amounts and uses as reasonably necessary to conduct Tenant's business as now being conducted, provided that: (i) Tenant's business and operations, and more especially its handling, storage, use and disposal of Hazardous Substances shall at all times comply with all applicable Environmental Laws, (ii) Tenant shall secure and abide by any and all permits required under applicable Environmental Laws for Tenant's handling, storage, use and disposal of any such Hazardous Substances, and (iii) Tenant shall give or post all notices required by any and all applicable Environmental Laws pertaining to such Hazardous Substances. 10.3 Tenant shall provide Landlord with copies of all manifests, schedules, correspondence, reports and other documents of all types and kinds, when filed or provided to any governmental or quasi-governmental agency ("Agency") having jurisdiction over environmental matters, or therwise required to be maintained by any Agency, or as such received from any Agency. 10.4 Any increase in the premiums of insurance maintained by Landlord on the Property which arises from Tenant's possession, use and/or storage of Hazardous Substances shall be paid for solely by Tenant upon demand by Landlord. Tenant shall, as its sole cost and expense, procure and maintain such additional insurance as (i) may be necessary to comply with any and all applicable Environmental Laws and (ii) reasonably requested by Landlord from time to time, and all parties set forth in Article IV as additional insureds, shall be named as additional insureds thereunder. 10.5 Landlord and its agents and representatives shall have the right to take samples in quantity sufficient for scientific analysis of all products, materials and substances present on the Premises including, but not limited to, samples or products, materials or substances brought onto or made or produced on the Premises by the Tenant or an occupant claiming by, through or under Tenant or otherwise present on the Premises. Tenant may not perform any sampling, testing or drilling to locate any Hazardous Substances on the Premises without Landlord's prior written consent. Landlord and its agents and representatives shall also have access to the premises for purpose of (i) inspecting the books and records of Tenant, or any other occupant of the Premises claiming by, through or under the Tenant, (ii) ascertaining the nature of the activities being conducted thereon, and (iii) determining the type, kind and quantity of all products, materials and substances brought onto the Premises, or made or produced thereon. 10.6 Notwithstanding anything contained in this Lease to the contrary, Tenant shall reimburse, defend, indemnify and hold Landlord, Landlord's beneficiary and their respective partners, officers, directors, shareholders and employees harmless from and against any and all claims, losses, liabilities, damages, costs and expenses, including, without limitation, loss of rental income, loss due to business interruption, and reasonable attorneys' fees and costs, arising out of or in any way connected with the placing, locating, introduction, disposal or release at any time during the term of this Lease of any Hazardous Substances in, on, under or about the Premises (or the subsurface thereof) or the violation of any Environmental Laws by Tenant or any occupant claiming by, through or under Tenant including, without limitation, the costs of any required or necessary investigation, repair, clean-up or detoxification and the preparation of any closure or other required plans or remedies in connection wherewith, whether voluntary or compelled by governmental authority. The indemnity obligations of Tenant under this Article shall survive any termination or expiration of the Lease. 10.7 Landlord agrees that Tenant shall not be responsible or liable for any Hazardous Substances or other violations of Environmental Laws that existed on or about the Premises as of the Commencement Date of this Lease. Landlord further agrees to defend, indemnify and hold Lessee harmless from and against any and all loss, cost, damage, liability, or claims that lessee may incur or suffer as a result of Hazardous Substances or violations of Environmental Laws that were present or existing on or under the Premises prior to the Commencement Date of this Lease. This indemnification and hold harmless shall not be binding upon Landlord's Mortgagees and their successors and assigns. XI. CONDEMNATION 11.1 Taking of Whole. If the entire Building or a substantial part thereof, or any part thereof which includes all or a substantial part of the Premises, shall be taken or condemned for a public or quasi-public use or purpose by a competent authority, or if such a portion of the Premises shall be so taken that as a result thereof the balance cannot be used for the same purpose and with substantially the same utility to Tenant as immediately prior to such taking, then in either of such events, the Term shall terminate upon the earlier of delivery of possession to the condemning authority or the effective date of the taking. Any award, compensation or damages (the "Award") for a partial or total taking shall be paid to and be the sole property of Landlord whether the Award shall be made as compensation for diminution of the value of the leasehold estate or the fee of the Building and Real Estate or otherwise, and Tenant hereby assigns to Landlord all of Tenant's right, title and interest in and to any and all of the Award. Tenant shall pay Rent and other charges hereunder accruing to the date of termination. 11.2 Partial Taking. If only a part of the Premises shall be so taken or condemned, but the balance of the Premises can still be used for the same purpose and with substantially the same utility to Tenant as immediately prior to such taking, this Lease shall not terminate and Landlord shall repair and restore the Premises and all improvements thereon, except that Landlord shall not hereby be required to expend for repair and restoration any sum in excess of the Award. Any portion of the Award which has not been expended by Landlord for such repairing or restoration shall be retained by Landlord as Landlord's sole property. Base Rent and Tenant's Proportionate Share of Taxes and Operating Expenses pursuant to Article I and II shall be equitably adjusted following delivery of possession to the condemning authority. XII. ASSIGNMENT AND SUBLETTING 12.1 Tenant shall not have the right to assign, sublet, transfer or encumber this Lease, or any portion thereof or interest therein, without the prior written consent of Landlord, such consent not to be unreasonably withheld or delayed. Any attempted assignment, subletting, transfer or encumbrance by Tenant in violation of the terms and covenants of this Paragraph shall be void and shall be deemed to be an Event of Default. In the event Tenant desires to sublet the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord within a reasonable time prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed sublessee or assignee, a copy of the proposed sublease and copies of financial reports and other financial information of the proposed sublessee or assignee, as reasonably required by Landlord. 12.2 In addition to, but not in limitation of, Landlord's right to approve of any sublessee or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, to terminate this Lease, or in case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised if at all, by Landlord giving Tenant written notice thereof within ten (10) business days (provided Tenant has given Landlord prior notice or of its intention to sublease or assign) following Landlord's receipt of Tenant's written notice as required above. If this Lease shall be terminated with respect to the entire demised Premises pursuant to this paragraph, the term of this Lease shall end on the date stated in Landlord's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease for the expiration of the term hereof; provided, however, that effective on such date Tenant shall pay Landlord all amounts, as estimated by Landlord, payable by Tenant to such date with respect to taxes, insurance, repairs, maintenance, restoration and other obligations, costs or changes which are the responsibility of Tenant hereunder. Further, upon any such cancellation Landlord and Tenant shall have no further obligations or liabilities to each other under this Lease, except with respect to obligations or liabilities which accrued hereunder as of such cancellation date (in the same manner as if such cancellation date were the date originally fixed in this Lease of the expiration of the term hereof). If Landlord recaptures under this paragraph only a portion of the Premises, the rent during the unexpired term hereof shall adjust proportionately based on the rent per square foot contained in this Lease as of the date immediately prior to such recapture. Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to this Lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant thereto and rented by Landlord to the proposed Tenant or any other tenant. 12.3 If this lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 es esq., (the "Bankruptcy Code"), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. 12.4 Any assignee, sublessee or transferee of Tenant's interest in this Lease (all such assignees, sublessees and transferees being hereinafter referred to as "Transferees"), by assuming Tenant's obligations hereunder, shall assume liability to Landlord for all amounts paid to persons other than Landlord by such Transferees in contravention of the Paragraph. No assignment, subletting or other transfer, whether consented to by Landlord or not or permitted hereunder shall relieve Tenant of its obligations under this Lease. 12.5 Assumption and Attornment. If Tenant shall assign this Lease as permitted herein, the assignee shall expressly assume all of the obligations of Tenant hereunder in a written instrument satisfactory to Landlord. If Tenant shall sublease the Premises as permitted herein, Tenant shall obtain and furnish to Landlord, not later than fifteen (15) day prior to the effective date of such sublease and in form satisfactory to Landlord, the written agreement of such subtenant to the effect that the subtenant will attorn to the Landlord, at Landlord's option and written request, in the event this Lease terminates before the expiration of the sublease. 12.6 Default During Sublet Period. If an Event of Default occurs while the Premises or any part thereof are assigned or sublet, then Landlord in addition to any other remedies herein provided, or provided by law, may collect directly from such Transferee all rents payable to the Tenant and apply such rent against any sums due Landlord hereunder. No such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. 12.7 Excess Rent. If Tenant, having first obtained Landlord's consent to any sublease or assignment, shall assign this Lease or sublet the Premises, or any part thereof, at a rental in excess of the Rent or Proportionate Share thereof due and payable by Tenant under this Lease, then Tenant shall pay to Landlord as additional rent all of any such excess rent. XIII. HOLDING OVER 13.1 Holding Over. Tenant shall have no right to occupy the Premises or any portion thereof after the Expiration date of the lease or after termination of the Lease or of Tenant's right to possession pursuant to Articles XIV and XV hereof. In the event Tenant or any party claiming by, through or under Tenant holds over, Landlord may exercise any and all remedies available to it at law or in equity to recover possession of the Premises, and for damages. For each and ever month or partial month that Tenant or any party claiming by, through or under Tenant remains in occupancy of all or any portion of the Premises after the Expiration Date of the Lease or after termination of the Lease or Tenant's right to possession, Tenant shall pay without notice or demand, as minimum damages and not as a penalty, monthly rental at a rate equal to double the rate of Rent and other charges payable by Tenant hereunder immediately prior to the expiration or other termination of the Lease or of Tenant's right to possession. The acceptance by Landlord of any lesser sum shall be construed as a payment on account and not in satisfaction of damages for such holding over. XIV. EVENTS OF DEFAULT 14.1 The following events (herein individually referred to as "Event of Default") each shall be deemed to be events of nonperformance by Tenant under this Lease. a. Tenant shall fail to pay any installment of the rent herein reserved when due, or any other payment, change, escrow, additional rent, or reimbursement to Landlord required herein when due. b. The Tenant or any guarantor of the Tenant's obligations hereunder shall (i) become insolvent; (ii) admit in writing its inability to pay its debts; (iii) make a general assignment for the benefit of creditors; (iv) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or seeking appointment of a receiver, trustee, part of its property; or (v) take any action to authorize or in contemplation of any of the actions set forth above in this Paragraph. c. Any case, proceeding or other action against the Tenant or any guarantor of the Tenant's obligations hereunder shall be commenced seeking (i) to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent; (ii) reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency reorganization, dissolution or composition to it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii) appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (a) results in the entry of an order for relief against it which it is not fully stayed within seven (7) business days after the entry thereof or (b) shall remain undismissed for a period of forty-five (45) days. d. Tenant shall (i) vacate all or a substantial portion of the Premises or (ii) fail to continuously operate its business at the Premises for the permitted use set forth herein, whether or not Tenant is in default of the rental payments due under this Lease. e. Tenant shall fail to discharge any lien placed upon the Premises in violation of Article XVI hereof within twenty (20) days after any such lien or encumbrance is file against the Premises. f. If Tenant is a corporation, Tenant shall enter into a contract for the liquidation or sale, other than in the ordinary course of business, of all or substantially all of the assets of the corporation. g. Tenant shall fail to comply with any term, provision or covenant of this Lease (other than those listed in this Article XIV), and shall not cure such failure within thirty (30) days after written notice thereof to Tenant. XV. REMEDIES 15.1 Upon the occurrence of an Event of Default, Landlord shall, prior to the exercise of any remedy provided herein or otherwise, serve upon the Tenant a five-day notice, in the event of a monetary default, or a thirty (30) day notice, in the event of a non-monetary default, in accordance with the provisions of Article XXI, Notices. That notice shall specify the default or defaults to be cured, and the time provided in the respective notice shall be deemed a cure period for the benefit of the Tenant. After the expiration of the applicable cure period, Landlord shall not be obligated to accept any tender of cure by the Tenant. 15.2 Upon expiration of the applicable notice, the Landlord shall have the option to pursue any one or more of the following remedies, in addition to cumulatively and concurrently with, any other remedies available to Landlord at law or in equity: a. Terminate this Lease; and/or b. Terminate Tenant's right to possession of the Premises, and enter upon and take possession of the Premises without terminating this Lease; and/or c. To the extent permitted by law, alter all locks and other security devices at the Premises with or without terminating this Lease, and pursue at Landlord's option, one or more remedies pursuant to this Lease, Tenant hereby specifically waiving any state or federal law to the contrary. In any such event, or in the event of Landlord's exercise of any other remedy available to Landlord at law or in equity, Tenant immediately shall surrender the Premises to Landlord, and if Tenant fails to do so, Landlord, without waiving any other remedy it may have, may enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim of damages therefor. 15.3 If Landlord terminates this Lease, at Landlord's option, Tenant shall be liable for and shall pay to Landlord, the sum of all rental and other payments owed to Landlord hereunder accrued to the date of such termination, plus, as liquidated damages, an amount equal to (1) the present value of the total rental and other payments owed hereunder for the remaining portion of the Lease term, calculated as if such term expired on the date set forth in Article I, less (2) the then present fair market rental value of the Premises for such period, which because of the difficulty of ascertaining such value, Landlord and Tenant stipulate and agree, shall in no event be deemed to exceed seventy-five percent (75%) of the rental amount set forth in Article II above. Present values shall be determined using an 8?% discount rate. 15.4 If Landlord terminates the Tenant's right to possession and repossesses the Premises without terminating the Lease, Tenant, at Landlord's option, shall be liable for and shall pay Landlord on demand all rental and other payments owed to Landlord hereunder, accrued to the date of such repossession, plus all amounts required to be paid by Tenant to Landlord until the Expiration Date as stated in Article I, diminished by all amounts received by Landlord through reletting the Premises during such remaining term (but only to the extent of the rent herein reserved). Actions to collect amounts due by Tenant to Landlord under this subparagraph may be brought from time to time, on one or more occasions, without the necessity of Landlord's waiting until expiration of the Lease term. 15.5 Upon an Event of Default, in addition to any sum provided to be paid herein, Tenant also shall be liable for and shall pay to Landlord (i) brokers' fees incurred by Landlord in connection with reletting the whole or any part of the Premises; (ii) the costs of removing and storing Tenant's or other occupant's property; (iii) the costs of repairing, altering, remodeling or otherwise putting the Premises into its original condition, ordinary wear and tear excepted and (iv) all reasonable expenses incurred in marketing the Premises and (v) all reasonable expenses incurred by Landlord in enforcing or defending landlord's rights and/or remedies. If either party hereto institute any action or proceeding to enforce any provision hereof by reason of any alleged breach of any provision of this Lease, the prevailing party shall be entitled to receive from the losing party all reasonable attorney's fees and all court costs in connection with such proceeding. 15.6 In the event Tenant fails to made any payment due, within five (5) days after due, Tenant shall pay to Landlord, on demand, a late charge in an amount equal to two percent (2%) of the outstanding balance for each month said balance exists, which amount shall be deemed to be additional rent. This sum shall be due in addition to, and cumulatively with, all of Landlord's other rights and remedies hereunder, at law or in equity, and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. 15.7 Exercise by Landlord of any one or more remedies hereunder granted or otherwise available shall not be deemed to be an acceptance of surrender of the Premises by Landlord, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Landlord and Tenant. Tenant and Landlord further agree that forbearance by Landlord to enforce its rights pursuant to the Lease at law or in equity, shall not be a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. Further, acceptance of rentals or any other payments due pursuant to this Lease, with knowledge by the Landlord of any default by Tenant under this Lease, or subsequent to issuance to the Tenant of a demand to cure a default under this Lease, shall not be deemed to be a waiver of Landlord's right to demand cure of the default, or to be a waiver of Landlord's right to proceed against Tenant for said default. 15.8 In the event of termination and/or repossession of the Premises for an Event of Default, Landlord shall use reasonable efforts to relet the Premises and to collect rental after reletting; provided, that, Tenant shall not be entitled to credit or reimbursement of any proceeds in excess of the rental owed hereunder. Landlord may relet the whole or any portion of the Premises for any period, to any Tenant and for any use and purpose. 15.9 If landlord fails to perform any of its obligations hereunder within thirty (30) days after written notice form Tenant specifying such failure, Tenant's exclusive remedy shall be an action for damages and Tenant shall not have the right of setoff or deduction from any sums due to Landlord. Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof. All obligations of Landlord hereunder will be construed as covenants not conditions; and all such obligations will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term "Landlord" shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Landlord thereafter accruing, but such covenants and obligations shall be binding during the Lease term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. In the event of any breach or default by Landlord in any term or provision of this Lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the Premises or of the Building of which the Premises are a part; however, in no event, shall any deficiency judgement or any money judgment of any kind be sought or obtained against any Landlord. 15.10 If Landlord terminates Tenant's right to possession and repossesses the Premises pursuant to the authority herein granted, then Landlord shall have the right to (i) keep in place and use or (ii) remove or store all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Tenant at all times prior to any foreclosure thereon by Landlord or repossession thereof by and Landlord thereof possession of all or any portion of such furniture, fixtures, equipment and other property to any person ("Claimant") who presents to landlord a copy of any instrument represented by Claimant to have been executed by Tenant (or any predecessor of tenant) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Landlord to inquire into the authenticity or legality of said instrument. The rights of Landlord herein stated shall be in addition to any and all other rights that Landlord has or may hereafter have at law or in equity; and Tenant stipulates and agrees that the rights herein granted Landlord are commercially reasonable. 15.11 Notwithstanding anything in this Lease tot he contrary, all amounts payable by Tenant to, or on behalf of, Landlord under this Lease, whether or not expressly denominated as rent, shall constitute rent. 15.12 Landlord shall not be required to accept performance from (or rendering performance to) any person or entity other than Tenant. 12.13 Landlord's acceptant of rent subsequent to its receipt of knowledge of Tenant's breach or default of a non- monetary provision under this Lease shall not constitute a waiver or forgiveness of said breach or default, or a waiver of Landlord's right to pursue its remedies therefor. XVI. LIENS AND ENCUMBRANCES 16.1 Encumbering Title. Tenant shall not do any act which shall in any way encumber the title of Landlord in and to the Premises, the Building or Real Estate, nor shall the interest or estate of Landlord in the Premises, the Building or Real Estate be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant. Any claim to, or lien upon, the Premises, the Building or Real Estate arising from any act or omission of Tenant shall accrue only against the leasehold estate of Tenant and shall be subject and subordinate to the paramount title and rights of Landlord in and to the Premises, the Building and Real Estate. 16.2 Liens. Tenant shall not permit the Premises, the Building or Real Estate to become subject to any mechanics', laborers' or materialmen's lien on account of labor or material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed on the Premises by, or at the direction or sufferance of, Tenant. Tenant shall immediately pay and judgment rendered against Tenant, with all proper costs and changes, and shall have the lien released and any judgement satisfied. 16.3 Event of Default. The imposition of any encumbrance or lien pursuant to Paragraphs 16.1 and 16.2 above, regardless of merit of said claims, shall constitute an Event of Default under this Lease, and Landlord shall be entitled to all rights and remedies accorded Landlord in the Event of Default. Further, at any time after 10 days following the imposition of the encumbrance or lien, Landlord shall have the right to pay, discharge, settle, compromise or otherwise act to remove the encumbrance or lien, without regard to the merits of sid encumbrance or lien, and Tenant shall be responsible for the actual damages incurred in removing, costs, expenses and attorneys' fees incurred in connection therewith, all of which constituting additional rent due to the landlord. XVII. LIABILITY, INDEMNIFICATION AND WAIVER 17.1 Liability and Indemnification. Except for any claims, rights of recovery and causes of action that Tenant has released, Landlord shall hold Tenant harmless and defend Tenant against any and all claims or liability for any injury or damage to any person in, on or about the Premises or any part thereof and/or the Building of which the Premises are a part, when such injury or damage shall be caused by the gross negligence or intentional misconduct by Landlord, its agents, servants and employees. Except for any claims, rights of recovery and causes of action that Landlord has released, Tenant shall hold Landlord harmless form and defend Landlord against any and all claims or liability for any injury or damage (i) to any person or property whatsoever occurring in, on or about the Premises or any part thereof and/or the Building of which the Premises are a part, including without limitation elevators, stairways, passageways or hallways, the use of which Tenant may have in accordance with this Lease, when such injury or damage shall be caused by the act, neglect, fault of, or omission of any duty with respect to the same by Tenant, its agents, servants, employees, or invitees (ii) arising from the conduct of management of any work done by the Tenant in or about the Premises, (iii) arising form transactions of the Tenant, and (iv) all costs, counsel fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon. The provisions of this Article XVII shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. 17.2 Waiver of Certain Claims. All property belonging to Tenant or any occupant of the premises that is in or on any part of the Building or Real Estate shall be there at the risk of Tenant or of such other person only, and Landlord shall not be liable for any damage thereof or for the theft or misappropriation thereof. XVIII. SUBORDINATION 18.1 Subordination. Tenant accepts this Lease subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the Building of which the premises are a part. Tenant, at any time hereafter on demand, shall execute any instruments, releases or other documents that may be required by any mortgage for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. XIX. QUIET ENJOYMENT 19.1 Quiet Enjoyment. Landlord covenants that on or before the Commencement Date it will have good title to the Premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, any mortgage or mortgages, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record to the extent required to provide Tenant with quiet enjoyment of the Premises. If this Lease is a sublease, than Tenant agrees to take the Premises subject to the provisions of the prior Leases. Landlord represents that it has the authority to enter into this Lease and that so long as Tenant pays all amounts due hereunder and performs all other covenants and agreements herein set forth, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation form Landlord, subject to the terms and provisions of this lease. XX. MISCELLANEOUS 20.1 Tenant's Statement. Tenant shall furnish to Landlord, within 10 (10) days after written request thereof from Landlord, a copy of Tenant's then most recent audited and certified financial statement. Tenant agrees that landlord may deliver a copy of such statements to any mortgagee or prospective mortgagee of Landlord, or any prospective purchaser of the Premises, Building or Real Estate. 20.2 Inspection. Landlord and Landlord's agents and representatives shall have the right to enter the Premises at any reasonable time during business hours, after giving reasonable notice, to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease. During the period that is nine (9) months prior to the Expiration Date, upon telephonic notice to Tenant, Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises. In addition, Landlord shall have the right to erect a suitable sign on the Premises stating that the Premises will be available. 20.3 Gender and Captions. Words of any gender used in this Lease shall be held and construed to include any other gender, and works in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. 20.4 The terms, provisions and covenants and conditions contained in this Lease shall run with the land and shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, executors, personal representatives, legal representatives, successors and assigns, except as otherwise herein expressly provided. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations in the Building and Real Estate that are the subject of this Lease. Tenant agrees to furnish to Landlord, promptly upon demand, a Certificate of Good Standing for the Corporation, from the Secretary of State of the state of incorporation, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease. Tenant agrees to provide a certificate of good standing and corporate resolution upon signing of the Lease and at any time during the period of this Lease. 20.5 Landlord shall not be held responsible for delays in the performance of its obligations hereunder when caused by material shortages, weather, war, acts of God or labor disputes. 20.6 Estoppel. Tenant agrees, form time to time, within ten (10) days after request by Landlord to deliver to Landlord or Landlord's designee, a certificate of occupancy and an estoppel certificate stating that this lease is in full force and effect, the date to which rent is paid and such other factual matters pertaining to this Lease as may be requested by Landlord. Tenant hereby irrevocably appoints Landlord as attorney-in-fact for the Tenant with full power and authority to execute and deliver in the name of Tenant such estoppel certificate if Tenant fails to deliver the same within such ten (10) day period and such certificate as signed by Landlord or Landlord's beneficiary, as the case may be, shall be fully binding on Tenant, if Tenant fails to deliver a contrary certificate within five (5) days after receipt by Tenant of a copy of the certificate executed by Landlord or Landlord's beneficiary, as the case may be, on behalf of Tenant. 20.7 Lender's Requirements. If any mortgagee or prospective lender of Landlord should require, as a condition precedent to the closing of any loan or the disbursal of any money under any loan, that this Lease be amended or supplemented in any manner (other than the size or location of the Premises, the Term, the purpose set forth in Article I or the Rent or in any other regard as will substantially or materially affect the rights of Tenant under this Lease), Landlord shall give written notice thereof to Tenant, which notice shall be accompanied by an agreement ("Lease Supplement") embodying such amendments and supplements. Tenant shall, within 10 (10) business days after the effective date of Landlord's notice, execute the tendered Lease Supplement. If Tenant reasonably believes that the amendments or supplements fall within the categories set forth in the clause in parenthesis in the first sentence, then Tenant shall deliver to Landlord a written statement of its reason or reasons for refusing to execute the lease Supplement. Failure of Tenant to respond or execute the lease Supplement within said ten (10) business day period shall be an Event of Default under this Lease without further notice and opportunity to cure such default. 20.8 This Lease constitutes the entire understanding and agreement of the Landlord and Tenant with respect to the subject matter of this Lease, and contains all of the covenants and agreements of Landlord and Tenant with respect thereto. Landlord and Tenant each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Landlord or Tenant or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations not expressly set forth in this Lease are of no force or effect. This Lease may not be altered, changed or amended except by an instrument in writing executed by both parties hereto. 20.9 All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation, all payment obligations with respect to taxes and insurance and all obligations concerning the condition and repair of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the Premises, including without limitation, all plumbing, electrical, heating and air conditioning systems and equipment therein, in the same condition and repair, reasonable wear and tear excluded. Tenant shall also, prior to vacating the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for Real Estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied as the case may be. Any security deposit held by Landlord shall be credited against the amount due from Tenant under this Paragraph 20.9. 20.10 Severability. If any term or provision of this Lease shall to any extent be held invalid or unenforceable, the remaining terms and provision of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. This Lease and the terms and provisions thereof, shall be governed by the laws of the state in which Premises is located. 20.11 All references in this Lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. 20.12 Landlord's Right to Cure. Landlord may, but shall not be obligated to, cure any default by Tenant (specifically including, but not by way of limitation, Tenant's failure to obtain insurance, obtain or maintain utilities, make repairs, or satisfy lien claims); and whenever Landlord so elects, all costs and expenses paid by Landlord in curing such default, including without limitation reasonable attorneys; fees, shall be so much additional rent due on the next rent date after such payment together with interest (except in the case of said attorneys' fees) at the same rate as for late payments set forth in Paragraph 15.6 from the date of the advance to the date of repayment by Tenant to Landlord. 20.13 Brokerage. Tenant warrants that it has had no dealings with any broker or agent in connection with this Lease other than HSA, Inc. and Stein & Co., Inc. (whose commission, if any, Landlord covenants and agrees to pay in accordance with a separate agreement, if any, between Landlord and Landlord's broker). Tenant covenants to pay, hold harmless and indemnify Landlord from and against any and all costs, expenses or liability for any compensation, commissions and charges claimed by any broker, agent or finder other than the brokers named in this Paragraph 20.13 with respect to the Lease or the negotiation hereof is such claim is made by, through or on account of the actions of Tenant. 20.14 Signs. Tenant shall have the right to install any exterior signs upon the Premises or surrounding grounds, subject to landlord's consent, which shall not be unreasonably withheld or delayed, and which sign shall be removed at Tenant's cost upon termination or expiration of this Lease. Tenant shall repair, paint, and/or replace the Building facia surface to which its signs are attached upon vacation of the Premises, or the removal or alteration of its signage. Tenant shall not, (1) make any changes to the exterior of the Premises, (ii) install any exterior lights, decorations, balloons, flags, pennants, banners or painting or (iii) erect or install any signs, windows or door lettering, placards, decorations or advertising media of any type which can be viewed from the exterior of the Premises, without Landlord's prior written consent. All signs, decorations, advertising media, blinds, draperies and other window treatment or bars or other security installations visible from outside the Premises shall conform in all respects to the criteria established by Landlord. XXI. NOTICES 21.1 Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivering of notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivering of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: a. All rent and other payments required to be made by Tenant to landlord hereunder shall be payable to Landlord at the address for Landlord as Landlord may specify from time to time by written notice delivered in accordance herewith Tenant's obligation to pay rent and any other amounts to Landlord under the term of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received and funds collected by Landlord or by Landlord's Lender. In addition to base rental due hereunder, all sums of money and all payments due Landlord hereunder shall be deemed to be additional rental owed to Landlord. b. All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address set forth below, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. c. Any written notice or document required or permitted to be delivered hereunder shall be deemed to be delivered and served, whether actually received or not, when (a) personally served to Tenant if Tenant is an individual, or (b) if Tenant is a partnership or corporation, personally served to any partner, officer or agent of the Tenant, or employee then and there in charge of the Premises on behalf of the Tenant, or (c) deposited in the United States Mail, proper postage prepaid, Certified or Registered Mail, with return receipt requested, addressed to the Tenant at the address of the Premises or such other address as Tenant may designate to Landlord or (d) delivered by courier or other recognize method of transmittal. d. Any written notice or document required or permitted to be delivered hereunder shall be deemed to be delivered and served, whether actually received or not, when (a) personally served to Landlord if Landlord is an individual, or (b) if Landlord is a partnership or corporation, personally served to any partner, officer or agent of the landlord, or (c) deposited in the United Sates Mail, proper postage prepaid, Certified or Registered Mail, with return receipt requested, addressed to the Landlord at 501 W. North Avenue, Melrose Park, Illinois 60190, or such other address as Landlord may designate by notice to Tenant or (d) delivered by courier or other recognized method of transmittal. Any written notice given to Landlord shall also be given to LaSalle National Bank, 120 S. LaSalle Street, Chicago, Illinois 60603, Attn: Mr. John Marynell, Vice President. XXII. ADDITIONS TO BUILDING 22.1 Landlord shall have the right to construct additions to the Building for Landlord's use or benefit, or for use by any successor, assign or tenant of Landlord, subject to the prior approval of Tenant, which approval shall not be unreasonably withheld or delayed. During the construction of any such addition, Landlord shall take all reasonable measures and steps to not materially interfere with Tenant's use and operation of its business in the Building or occupancy of the remainder of the Premises. Tenant shall have not interest or right in any such addition to the Building, not any right to any rents or other proceeds resulting from the use of occupancy of such additions. EXECUTED BY LANDLORD, this 26th day of September, 1994. Witness RS&P/Carol Stream Limited Partnership, an Illinois limited partnership By:RS&P Gary Avenue Limited Partnership, an Illinois limited partnership, General Partner By: RS&P/Gary Avenue, Inc., an Illinois corporation, General Partner Robert W. Numan By: Bruce Kinney Title: Attorney Title: President Address: 501 W. North Ave. Suite 407 Melrose Park, IL 60160 EXECUTED BY TENANT, this 22nd day of September, 1994 Attest/Witness Ace Hardware Corporation David League By: David Myer Title: Secretary Title: Vice President, Retail Support ADDRESS: 2222 Kensington Court Oak Brook, IL 60521 EXHIBIT B LEGAL DESCRIPTION Lot 1 in Narco-Carol Stream Center for the Industry Unit 1 Subdivision, a Subdivision of part of the Northwest Quarter of Section 5, Township 39 North, Range 10 East of the Third Principal Meridian (except that part thereof falling within Gary Avenue, as widened) in the Village of Carol Stream, DuPage County, Illinois EXHIBIT C TENANT IMPROVEMENTS Landlord shall, at its cost and expense, provide the following improvements: 1. Fill in rail pit and pour a concrete floor comparable to existing floors. 2. Place all mechanical systems in good working order including but not limited to, levelors and dock doors, HVAC system for office and heating for warehouse. 3. Minor repair of parking lot and seal entire east lot. 4. Remove rack and sprinkler per Tenant's direction. 5. Lights in staging area in working order. 6. Tenant shall have the right to reimbursement from Landlord for up to $20,000 of improvements made by Tenant to the Premises. Upon written notice to Landlord accompanied by appropriate evidence of the expenditures made by Tenant, Landlord shall make such reimbursement within thirty (30) days after receipt of such notice. Failure by Landlord to make such payment within said thirty (30) day period shall entitle Tenant to set off the requested amount against the next payment of Rent due from Tenant hereunder. EX-10 7 LEASE AGREEMENT Lease of Real Property This Agreement of Lease of real property is made and entered into by and between DONGARY INVESTMENTS, LTD., a Colorado corporation, hereinafter referred to as "Lessor," and ACE HARDWARE CORPORATION, hereinafter referred to as "Lessee." LESSOR LESSEE Name: Dongary Investments, Ltd. Name: Ace Hardware Corporation Street: 3980 Quebec Street, Street: 2200 Kensington Court Suite 214 Mailing address: P.O. Box 7240 Mailing Address:2222 Kensington Court City,State,Zip: Denver, CO 80207 City,State,Zip: Oak Brook,IL 60521 Telephone: (303)320-3960 Attn: Jerry Barton Telephone: (708) 990-6648 DATE OF LEASE TERM OF LEASE MONTHLY BASE RENT Beginning End January 26, 1994 June 1, 1994 May 31, 1997 $15,000.00 I. LOCATION OF PREMISES: 4300 WEST 35TH PLACE, CHICAGO, IL 60632 Consisting of forty four (44) doors of a truck terminal dock, offices, shop and parking, all located on approximately 5.15 acres as more particularly described in Exhibit "A" attached hereto and made a part hereof. II. TERM: TO HAVE AND TO HOLD the premises, together with all improvements, rights, easements, privileges and appurtenance thereon or appertaining or held and enjoyed, unto Lessee upon the covenants and agreements herein set forth, the term of this Lease shall be THREE (3) YEARS, commencing the 1st DAY OF JUNE, 1994, and terminating the 31st DAY OF MAY, 1997 with five, one (1) year renewal options at rental rates of FIFTEEN THOUSAND ($15,000.00) plus one half of the percentage increase in the city of Chicago CPI (Consumer Price Index), annual average, all items, for the period June 1, 1994 through May 31, 1997 for first option then prior year thereafter, but never less than the previous years written notice of intent for each option. Notwithstanding anything herein to the contrary, Lessee may terminate this Lease at any time after the first year of the initial term upon four (4) months prior written notice. III. BASE RENT: The base rental payable during the THREE YEAR TERM shall be FIVE HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($540,000.00). Said base rental shall be payable by Lessee to Lessor in THIRTY SIX (36) installments as follows: A. Contemporaneous with the execution of this Lease, lessee shall pay Lessor the first installment of FIFTEEN THOUSAND DOLLARS ($15,000.00) and a security deposit of FIFTEEN THOUSAND DOLLARS ($15,000.00). The prepaid installment for the security deposit will not accrue interest to Lessee. Any income which may be earned by Lessor from these funds will be considered additional rental income by Lessor. The security deposit will be refunded at the termination, plus any extensions, of this Lease providing Lessee is not in default and after an inspection of the premises by lessor and any repairs are made which are Lessee's responsibility. B. Beginning on the 1st DAY OF JULY, 1994, and on the same day of the succeeding THIRTY-FOUR MONTHS, Lessee shall pay Lessor FIFTEEN THOUSAND AND NO/100 DOLLARS ($15,000.00) through MAY 31, 1997. C. Unless otherwise specified in writing by lessor, all rental payments shall be made payable to DONGARY INVESTMENTS, LTD., at the address stated above. D. All installments of rent due under the provisions of this Lease which are unpaid as of ten (10) days of the date the same are due shall bear interest at the highest legal rate of the state in which the demised premises are located per annum from and after the due date thereof and until paid; and all sums of money which the Lessor shall be required to pay or shall advance or expend by reason of the default of the Lessee under the provisions of this Lease shall bear interest at the highest legal rate of the state in which the demised premises are located per annum from and after the date of the payment thereof and until the Lessor shall be reimbursed therefor. The interest due as provided under this Section shall constitute additional rent under this Lease. E. The entire amount of rent reserved and agreed to be paid under this lease and each and every installment thereof, the amount of all taxes, assessments, insurance premiums and other charges to be paid by the Lessee as herein provided, if paid by Lessor, and all costs, reasonable attorneys' fees and expenses which may be incurred by Lessor in enforcing the provisions of this Lease or on account of any delinquency of Lessee in carrying out any of the provisions of this Lease, shall be the responsibility of the Lessee. IV. USE OF DEMISED PREMISES: Subject to the applicable zoning, use and building laws, ordinances, and governmental regulations in force from time to time, the Lessee may use the demised premises for motor freight terminal purposes. The rules and regulations of the Board of Fire Underwriters for the area in which the demised premises are located shall be complied with in dealing with all volatile, explosive or especially inflammable fluids, vapors, gases, or materials on the demised premises. Lessee warrants that they will not conduct any hazardous waste storage or hazardous waste disposal operations (including but not limited to hazardous waste transportation operations or special waste transportation operations) on the leased premises; not will they store any hazardous waste in the trailers, tractors, yard, shop, or terminal areas (in drums or other containers) at the leased premises; not will Lessee have hazardous waste generators at this site; nor will Lessee permit the use or storage upon the premises of hazardous waste in any form by others who Lessee may bring on to the leased premises or conduct business with. Lessee understands that there is one (12,000 gallon diesel) underground storage tank on the premises which the Lessor warrants is in compliance with EPA's current new tank standards. Lessee does not want to use this tank at the present time, therefore Lessor will take this tank temporarily out of service by following the current EPA requirements for temporary closure. Lessor shall be responsible for, and shall indemnify and defend Lessee against, any claims, fines, penalties, expenses or other damages arising out of any environmental contamination involving said underground storage tank or the failure of the tank to comply with federal, state or local laws or regulations while the tank is not being used. Should Lessee decide to use this tank at a later date, then Lessee shall be liable for any and all then current governmental regulations for underground storage tanks, and Lessee shall be responsible for, and shall indemnify and defend Lessor against, any claims, fines, penalties, expenses or other damages arising out of any environmental contamination involving said underground storage tank or the failure of the tank to comply with federal, state or local laws or regulations upon Lessee's use of said tank. Lessee understands that there are no underground storage tanks on the premises, for waste oil, oil, anti-freeze, solvents and etc. Proper containment and disposal of waste oil, oil, anti-freeze, solvents and etc. will be at Lessee's sole liability and expense. Lessee shall indemnify Lessor from any damage whatsoever, including attorney's fees, which are due to any release or threatened release of fuel, oil or other hazardous substance caused by Lessee, its employees, agents or invitees. Lessor shall be responsible for any environmental contamination, fines, penalties, and cleanup costs plus any third party liability which occurred prior to Lessee's occupancy, and any and all contamination, fines, penalties, cleanup costs or third party liability which are caused by Lessee, its servants or agents, shall be the sole responsibility of the Lessee. V. IMPROVEMENTS - LESSOR - LESSEE: Prior to the commencement of Lessee's term, Lessor and lessee shall inspect the premises. Any repairs shall be only those things reasonable and necessary for Lessee's enjoyment and use of the premises, as is but repaired, and shall not include any alterations or customizing of the premises for Lessee's special requirements. Lessor agrees to make an inspection to document the condition of the facility. This inspection will document the condition upon which the lessee accepts the premises and will return the premises at the expiration of the lease. Facility to be delivered in broom clean, operational condition. At the expiration of the Lease Agreement, or prior termination, the lessee shall surrender the leased property to the Lessor in at least as good a condition as when received, damage form the elements or acts of God, or damage resulting form the negligence or willful misconduct of Lessor, its agents or employees, excepted. Lessee shall be liable to Lessor for any damage to the leased property resulting from the negligent or willful acts or omissions of lessee or its agent or employees. VI. REAL ESTATE TAXES: Lessee shall, as additional rent together with all other sums agreed to be paid by it under this Lease, pay unto Lessor, monthly, the real estate taxes and assessments of the total property. The amount of the real estate taxes and assessments at the present time is FIVE THOUSAND, FOUR HUNDRED, TWENTY SIX AND 35/100 DOLLARS ($5,426.35) monthly beginning June 1, 1994. Annually, when the real estate tax bills are received, a copy will be forwarded to Lessee and any overage will be refunded to Lessee or any shortage will be billed to Lessee and must be paid to Lessor no later than the next regular monthly rental installment. VII. INSURANCE: A. Lessee shall, as additional rent together with all other sums agreed to be paid by it under this lease, pay unto lessor, monthly, the cost of lessor's fire and extended casualty insurance on only the structures on the demised premises. The cost of the insurance at the present time is FORTY NINE AND 92/100 DOLLARS ($49.92) per month. Lessee shall be responsible for and obtain their own insurance for their personal property. This payment for insurance shall be due and payable with the regular monthly rental installments. B. Lessee agrees to maintain public liability insurance in a reputable insurance company at its own expense. The liability under such insurance to be not less than Five Million Dollars ($5,000,000.00) for any one person injured, or Five Million Dollars ($5,000,000.00) for any one accident, or Two Million Dollars ($2,000,000.00) for property damages. Said policy shall name Lessor as an additional insured and protect Lessor and Lessee as their interests may appear. Lessee shall provide Lessor with a Certificate of Insurance that provides the aforesaid coverage, with a provision for thirty (30) days Notice of Cancellation. C. Lessor shall not be liable for any damage or injury to persons or property occurring or arising upon the said demised premises from any cause whatsoever; and Lessee hereby agrees to keep and save Lessor harmless from any suit or claims for damage or injury sustained upon the demised premises, by any person from any cause whatsoever except those caused by the neglect of Lessor, during the term of this Lease. VIII. UTILITIES: Lessee shall, in addition to all other sums agreed to be paid by it under this Lease, pay all utilities on this property each month. Said utilities shall include but not be limited to, service usage charges for heat, light, water, sewage, trash hauling and cleaning service. Lessee shall transfer all utilities into their name prior to occupancy. IX. PERSONAL PROPERTY TAXES: It is understood and agreed that Lessee shall be liable for all taxes levied against personal property and fixtures owned by Lessee or placed by Lessee in, on or about the demised premises, and if any such taxes on such personal property or fixtures are levied against Lessor's property, and if Lessor pays the same, which Lessor shall have the right to do regardless of the validity of such levy, or if the assessed value of Lessor's premises is increased by the inclusion therein of the value placed upon such property, and if Lessor pays the taxes based on such increased assessment, which Lessor shall have the right to do regardless of the validity thereof, Lessee, upon demand, shall, as the case may be, pay to Lessor the taxes so levied against Lessor resulting from such increase in assessment. X. ALTERATIONS: Lessee shall not make, or suffer to be made, any alternations of said premises or any part thereof, without the written consent of Lessor first had and obtained. Any additions to, or alterations of, the said premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Lessor. Any and all alterations, changes and improvements which Lessee may make with Lessor's consent shall be made by Lessee at its own cost and expense, and Lessee shall not permit any liens for labor and/or materials to attach to or be filed against the property of Lessor. Lessee hereby agrees to indemnify and protect Lessor against, and hold it free and harmless from all such liens and claim of liens. XI. REPAIRS AND REPLACEMENT: Lessee shall, at its own expense, keep the entire premises, including but not limited to doors, paving, fences, fixtures and equipment, repaired and in good tenantable condition, order and repair at all times. Lessor shall at its own expense keep the roof and main structure in good tenantable condition, order and repair. Any and all asphalt paving damage caused by Lessee, holes or ware due to Lessee's use, etc. shall be lessee's responsibility. Due to the responsibility of Lessee to keep the facilities and the improvements in good condition and repair at all times at its expense, it is agreed that Lessee shall maintain the following good housekeeping rules during the term of this lease: A. It is the responsibility of Lessee to have the heating and ventilating equipment checked by a qualified engineer or contractor at least once each year and the cost for such inspection and repairs shall be paid by Lessee. B. All plumbing and plumbing fixtures shall be kept in good, clean operating condition and checked at least once each two years by a licensed plumbing contractor. All expenses for such inspection and repairs shall be paid by Lessee. C. Lessee will maintain the interior offices in a clean and sanitary condition at all times. D. All electric outlets and fixtures shall be kept in good working condition by Lessee and any inspection and/or repairs are to be paid for by Lessee. E. In the event any of the above conditions are not complied with by Lessee, Lessor may notify Lessee by registered mail of his intent and shall perform the necessary services or repairs and Lessee agrees that he will pay the total cost for same within thirty days after submission of invoices. In addition, any and all damages caused by Lessee, its employees, or agents, shall be immediately repaired by Lessee at Lessee's sole expense. If Lessor has the damages repaired, it shall be billed to Lessee and shall be due and payable within thirty (30) days of billing. F. Failure to list specifically any item shall not relieve Lessee of its duty to maintain the entire facility unless specifically listed as Lessor's responsibility. G. Lessee shall provide Lessor with copies of any and all inspections. XII. RIGHT OF INSPECTION AND ENTRY: Lessor shall have the right, through its agents, at all reasonable times during the continuance hereof, to enter upon said premises to see that proper care is taken thereof, or to show the same to any intending lessee. XIII. ASSIGNMENT OF LEASE: Lessee agrees not to assign this Lease not any rights hereunder, nor let, nor sublet the demised premises nor any part thereof, without first obtaining the written consent of Lessor, which shall not be unreasonable withheld. XIV. ABANDONMENT OF PREMISES: If Lessee shall abandon or vacate the Premises, or if Lessee's right to occupy the Premises be terminated by lessor by reason of Lessee's breach of any of the covenants herein, the same may be re- let by Lessor for such rent and upon such terms as Lessor may deem fit; and if a sufficient sum shall not thus be realized monthly, after paying the expenses of such re-letting and collecting to satisfy the rent hereby reserved, Lessee agrees to satisfy and pay all deficiency monthly during the remaining period of this Lease. XV. SURRENDER BY PREMISES: Lessee will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Lessor, and failing so to do, will pay as liquidated damages, for the whole time such possession is withheld, the sum of SEVEN HUNDRED AND NO/100 DOLLARS ($700.00) per day; but the provisions of this clause shall not be held as a waiver by Lessor of any right of re-entry as herein set forth; nor shall the receipt of said rent or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver of the right to forfeit this lease and the term granted for the period still unexpired, for a breach of any of the covenants herein. XVI. REMOVAL OF FURNITURE: Lessee shall have the right to remove from the premises all movable furniture belonging to it, and the same shall be removed by Lessee at the expiration or termination of this Lease, or any renewal term hereof, provided that the same may be removed without damage to the building or property, and if damage is caused by such removal, Lessee agrees to repair such damage at its own cost forthwith. XVII. BANKRUPTCY OR INSOLVENCY OF LESSEE: If Lessee be adjudged bankrupt or insolvent, this Lease shall thereupon immediately terminate, and the same shall not be assignable by any process of law not be treated as an asset of Lessee or assignees of said Lessee by virtue of any proceeding in bankruptcy or insolvency; and, in case of any such adjudication, or if Lessee shall become bankrupt or insolvent, or made an assignment of all its property for the benefit of its creditors, said Lessor may, in any such case, at its option, terminate this Lease and re- enter upon said premises and thereupon all rights of Lessee hereunder shall cease and terminate. XVIII. REMEDIES OF LESSOR: A. If default be made in the payment of the above rent, taxes, and insurance or any part thereof, or in any of the covenants herein contained to be kept by the Lessee, ten days after notice in writing to Lessee, Lessor may at any time thereafter at his election declare said term ended and re-enter the Premises or any part thereof, with or (to the extent permitted by law) without notice or process of law and remove Lessee or any persons occupying the same without prejudice to any remedies which might otherwise be used for arrears of rent, taxes and insurance, and Lessor shall have at all times the right to distrain for rent due, and shall have a valid and first lien upon all personal property which Lessee now owns, or may hereafter acquire or have an interest in, which is by law subject to such distraint, as security for payment of the rent, taxes and insurance herein reserved. B. Lessee's covenant to pay rent, taxes and insurance is and shall be independent of each and every other covenant of this Lease. Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent, taxes and insurance not set off against any claim for rent, taxes and insurance in any action. C. The rights and remedies of lessor under this Lease are cumulative. The exercise or use of any one or more thereof shall not bar Lessor from any exercise or use of any other right or remedy provided herein or otherwise provided by law, not shall exercise nor use of any right or remedy by Lessor waive any other right or remedy. XIX. PLURALS AND SUCCESSORS: The words "Lessor" and "Lessee" wherever herein occurring and used shall be construed to mean "Lessors" and "Lessees" in case more than one person constitutes either party to this Lease; and all the covenants and agreements contained shall be binding upon, and insure to, their respective successors, heirs, executors, administrators and assigns and may be exercised by them or their attorney or agent. XX. SEVERABILITY: Whenever possible, each provision of this Lease shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Lease shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Lease. XXI. INDEMNITY OF LESSOR: A. Against Violation of Laws and Ordinances: Lessee covenants and agrees that it will protect and save and keep the Lessor forever harmless and indemnified against and from any penalty of damage or charges claimed or imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Lessee or those holding under Lessee or by the occupancy and business of Lessee. B. Against Accidents and Occurrences: Lessee covenants and agrees that it will protect and save and keep the Lessor forever harmless and indemnified against and from any and all loss, cost, damage or expense arising out of or from any accident or other occurrence due to the acts or neglects of the Lessee, its servants or agents on or about the demised premises, causing injury to any person or damage to any property whosoever or whatsoever. C. Against Claims and Liens of Third Parties: Lessee further covenants and agrees that it will defend and indemnify Lessor and hold it harmless from any and all liens, claims, suits, judgements, loss, costs, damage or expense made by or for any contractor, employee of a contractor or any other person whatsoever arising out of or in any way connected with any other person whatsoever arising out of or in any way connected with any contract with Lessee, its agents or employees or in connection with any work performed, material furnished, construction, installation or alterations made or being made or performed in or about the demised premises which are contracted for by the Lessee. Lessee's obligations set for the in this Section shall not apply to work performed, materials furnished, construction, installation, alterations or repairs required of Lessor by this Lease. XXII. ASSOCIATION MEMBERSHIP: It is understood and agreed that the various owners and the Lessees within the development, known as Highway Freight Center, will all be members of an association. This association will have the responsibility of maintaining the roadways and utilities and to further provide additional services desired by the lessees and owners, such as security, for their mutual benefit. All costs incurred by this association shall be paid by each member on a basis proportionate to the square footage of the land area owned or leased to the total area within the development. XXIII. NET LEASE: It is the intention of the parties that this Lease should be a net lease and that all the cost and expenses of operation, maintenance, and repair, all taxes and insurance, and all other expenses incurred in connection with the demised premises shall be paid by the Lessee, except as otherwise specifically provided herein; and whenever in this Lease it shall be provided that any work is to be performed by the Lessee or any taxes or insurance premiums are to be paid by the Lessee or by any of the terms and provisions of this Lease it is the obligation of the Lessee to do or perform any act or thing, such work to be so done and such taxes and insurance premiums to be so paid and such other obligations to be so performed shall be done at the cost and expense of the Lessor, except where otherwise herein specifically provided. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement by affixing their names by their duly authorized officers on the date appearing below their respective names. LESSOR LESSEE DONGARY INVESTMENTS, LTD. ACE HARDWARE CORPORATION Federal ID # 84-0478211 BY: Eldon C. Yeutter BY: David Myer Vice President TITLE: Executive Vice President TITLE: Retail Support DATE: April 5, 1994 DATE: May 4, 1994 EX-10 8 LONG-TERM INCENT COMP DEF OPTION PLAN ACE HARDWARE CORPORATION LONG-TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN JANUARY 1, 1995 ACE HARDWARE CORPORATION LONG-TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN I. PURPOSE The purpose of this Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan (the "Plan") is to provide a further means whereby Ace Hardware Corporation (the "Company") may afford wealth accumulation to certain officers of the Company who have rendered and continue to render valuable service to the Company. By providing a means whereby income may be deferred into the future, the Plan will aid in attracting and retaining executives of exceptional ability. Compensation reductions made pursuant to the Plan will be credited with interest for the benefit of each Participant. The intent of the Plan is to credit Participants' compensation deferrals with a specified rate of interest and to provide the Participants a means to accumulate supplemental funds for retirement, special needs prior to retirement or death. II. DEFINITIONS AND CERTAIN PROVISIONS 2.1 "Agreement" means the Ace Hardware Corporation's Long-Term Incentive Compensation Deferral Option Agreement executed between a Participant and the Company, whereby a Participant agrees to defer a portion of his/her Bonus pursuant to the provisions of the Plan, and the Company agrees to make benefit payments in accordance with the provisions of the Plan. 2.2 "Beneficiary" means the person or persons who under this Plan becomes entitled to receive a Participant's interest in the event of the Participant's death. 2.3 "Board of Directors" means the Board of Directors of Ace Hardware Corporation or any committee thereof acting within the scope of its authority. 2.4 "Bonus" means the amount(s) paid during a calendar year to a Participant under the Ace Hardware Corporation Long-Term Incentive Compensation Plan. 2.5 "Committee" means the committee appointed to manage and administer the Plan. 2.6 "Company" means Ace Hardware Corporation, a Delaware corporation and its subsidiaries and any successor in interest. 2.7 "Deferral Year" means any calendar year, 1995 through 1999. 2.8 "Deferred Benefit Account" means the account(s) maintained on the books of the Company for a Participant under this Plan. A separate Deferred Benefit Account shall be maintained for each Participant. A Participant's Deferred Benefit Account shall not constitute or be treated as a trust fund of any kind. 2.9 "Determination Date" means the date on which the amount of a Participant's Deferred Benefit Account is determined as provided in Article III hereof. The last day of a Plan year or the date of a Participant's Termination of Service shall be a Determination Date. 2.10 "Disability" means a condition, as determined by the Company, that totally and continuously prevents the Participant, for at least six consecutive months, from engaging in an "occupation" for compensation or profit. During the first twenty-four (24) months of total disability, "occupation" means the Participant's occupation at the time the disability began. After that period, "occupation" means any occupation for which the Participant is or becomes reasonably fitted by education, training or experience. Notwithstanding the foregoing, a Disability shall not exist for purposes of this Plan if the Participant fails to qualify for disability benefits under the Social Security Act, unless the Company determines, in its sole discretion, that a Disability exists. 2.11 "Effective Date" means January 1, 1995. 2.12 "Hour of Service" shall mean (1) each hour for which an employee is directly or indirectly compensated or entitled to compensation by the Company for the performance of duties during the applicable computation period; (2) each hour for which an employee is directly or indirectly compensated or entitled to compensation by the Company (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period; (3) each hour for which back pay is awarded or agreed to by the Company without regard to mitigation of damages. 2.13 "Interest Yield" means either the Retirement Interest Yield, the Termination Interest Yield, or the Death Interest Yield, as defined below: (a) "Retirement Interest Yield" means a rate of interest equal to 120 percent of Prime. (b) "Termination Interest Yield" means a rate of interest equal to 100 percent of Prime. (c) "Death Interest Yield" means a rate of interest equal to 120 percent of Prime. This rate of interest shall be fixed at the time of the Participant's death. 2.14 "Participant" means an officer of the Company who is eligible to participate in the Plan pursuant to Article III, has executed an Agreement with the Company, and who has commenced Bonus reductions pursuant to such Agreement. 2.15 "Plan" means the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan as amended from time-to-time. 2.16 "Prime" means the Prime Rate as of December 31st of the preceding year as reported in the Wall Street Journal. 2.17 "Retirement Date" means the date of Termination of Service of the Participant other than by reason of death or Disability on or after he/she attains either age 55 with 10 Years of Service or age 60 with 5 Years of Service or age 65. 2.18 "Termination of Service" means the Participant's cessation of his/her service with the Company for any reason whatsoever, whether voluntarily or involuntarily, including by reason of retirement, death or Disability. 2.19 "Year of Service" means any calendar year during which a Participant completes at least 1000 Hours of Service with the Company. III. PARTICIPATION AND COMPENSATION REDUCTION 3.1 Participation. Participation in the Plan shall be limited to officers of the Company, who are eligible to participate in the Ace Hardware Corporation Long-Term Incentive Compensation Plan and who elect to participate in this Plan by filing an Agreement with the Company prior to the first day of the deferral period in which a Participant's participation commences in the Plan. The election to participate shall be effective upon receipt by the Committee of the Agreement that is properly completed and executed in conformity with the Plan. 3.2 Minimum and Maximum Deferral and Length of Participation. A Participant may elect to defer any amount of his/her Bonus including the non-vested portion, the immediate award portion and the PREP portion of the Long-Term Incentive Compensation Plan award. The amount of each portion of the Bonus award which may be deferred shall be equal to 20% to 100% (in 20% increments) of the award granted. If a Bonus award is subject to a one year vesting provision under the Long-Term Incentive Compensation Plan, the same vesting requirements shall apply to Bonus awards deferred into this Plan. A Participant shall make an annual election for the upcoming Deferral Year by December 1st of the year preceding the Deferral Year for which the election is being made. 3.3 Timing of Deferral Credits. The amount of Bonus that a Participant elects to defer in the Agreement shall cause an equivalent reduction in his/her Bonus. Bonus deferrals shall be credited to the Participant's Deferred Benefit Account at such time as the Participant would have otherwise received or been eligible to receive the Bonus deferred pursuant to the Plan. 3.4 New Participants. A Participant who first attains such status subsequent to January 1, 1995, shall be entitled to participate in the Plan after satisfying the requirements of Section 3.1 and shall be bound by all terms and conditions of the Plan, provided, however, that this Agreement must be filed no later than thirty (30) days following his/her eligibility to participate. 3.5 Emergency Benefit; Waiver of Deferral. In the event that the Committee, upon written petition of the Participant or his/her Beneficiary, determines in its sole discretion, that the Participant or his/her Beneficiary has suffered an unforeseeable financial emergency, the Company shall pay to the Participant or his/her Beneficiary, as soon as possible following such determination, an amount, not in excess of the Participant's Deferred Benefit Account, necessary to satisfy the emergency. For purposes of this Plan, an unforeseeable financial emergency is an unanticipated emergency that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if the emergency distribution were not permitted. Cash needs arising from foreseeable events, such as the purchase of a residence or education expenses for children shall not be considered the result of an unforeseeable financial emergency. The Committee may also grant a waiver of the Participant's agreement to defer a stated amount of Bonus upon finding that the Participant has suffered an unforeseeable financial emergency. The waiver shall be for such period of time as the Committee deems necessary under the circumstances to relieve the hardship. 3.6 Determination of Account. Each Participant's Deferred Benefit Account as of each Determination Date shall consist of the balance of the Participant's Deferred Benefit Account as of the immediately preceding Determination Date, plus the Participant's elective deferred Bonus pursuant to Section 3.2 since the immediately preceding Determination Date. The Deferred Benefit Account of each Participant shall be reduced by the amount of all distributions, if any, made from such Deferred Benefit Account since the preceding Determination Date. The appropriate Interest Yield shall be credited on the average daily balance of the Deferred Benefit Account as of the Determination Date and since the last preceding Determination Date, but after the Deferred Benefit Account has been adjusted for any additions (including interest earnings) or distributions to be credited or deducted for each such day. 3.7 Vesting of Deferred Benefit Account. Except as provided in Section 3.2, a Participant shall be one hundred (100) percent vested in his/her Deferred Benefit Account. Notwithstanding any other provision of this Plan, a Participant shall be one hundred (100) percent vested in his/her Deferred Benefit Account at the time of retirement, death or Disability. IV. BENEFITS 4.1 Inservice Distribution. At the time a Participant executes the Agreement, he/she may elect to receive a return of up to 50%, in 5% increments, of the annual deferrals originally made pursuant to the Plan. The return of deferral election applies solely to the Participant's deferral and not to interest credited to the Participant's Deferred Benefit Account. Each return of deferral shall be paid in a lump sum on December 1 of the year which is five (5) years after the year in which the deferral is made. A return of deferral shall only be paid prior to a Participant's Termination of Service. Any return of deferral paid shall be deemed a distribution, and shall be deducted from the Participant's Deferred Benefit Account. A separate return of deferral selection shall be made for each Deferral Year. 4.2 Retirement Benefit. Subject to Section 4.6 below, upon a Participant's Retirement Date, he/she shall be entitled to receive the amount of his/her Deferred Benefit Account determined under Section 3.6 using the Retirement Interest Yield. The form of benefit payment shall be as provided in Section 4.6. 4.3 Termination Benefit. Upon the Termination of Service of a Participant prior to his/her Retirement Date for reasons other than death or Disability, the Company shall pay to the Participant a benefit equal to the amount of his/her Deferred Benefit Account, determined under Section 3.6 hereof using the Termination Interest Yield. In calculating a Participant's Deferred Benefit Account pursuant to this Section, the Termination Interest Yield shall be utilized retroactive to the beginning of the Participant's initial deferral into this Plan. Unless otherwise directed by the Committee, the termination benefit shall be payable in a lump sum within sixty (60) days following such Termination of Service. Upon a Termination of Service, the Participant shall immediately cease to be eligible for any other benefit provided under this Plan. In the event of a Participant's Termination of Service, interest shall be credited to his/her Deferred Benefit Account through the last day of the month during which the Termination of Service occurred. 4.4 Death Benefits. Upon the death of a Participant or a retired Participant, the Beneficiary of such Participant shall receive the Participant's remaining Deferred Benefit Account. Payment of a Participant's remaining Deferred Benefit Account shall be in accordance with Section 4.6. 4.5 Disability. In the event of a Termination of Service due to Disability, which first manifests itself after the Effective Date of the Plan and prior to his/her Retirement Date, a disabled Participant may receive a benefit equal to the remaining balance, if any, of his/her Deferred Benefit Account. Such benefit shall be paid until the earliest of the following events: (i) there is no longer any balance in the Participant's Deferred Benefit Account; (ii) the Participant ceases to be disabled and resumes employment with the Company; (iii) the Participant dies. Payment of a Participant's remaining Deferred Benefit Account shall be in accordance with Section 4.6 over the number of years elected by the Participant. Disability benefits shall be treated as distributions from a Participant's Deferred Benefit Account. 4.6 Form of Benefit Payment. Upon the happening of an event described in Section 4.2, 4.4 or 4.5, the Company shall pay to the Participant or his/her Beneficiary, monthly installments payable in substantially equal amounts over the number of years elected by the Participant. For purposes of any installment payments due under this Section 4.6, Participant at the time of his/her election to defer into this Plan shall elect the number of years such payments shall be paid. The number of years installment payments may be paid shall not be fewer than five (5) years nor greater than twenty (20) years. Interest on the unpaid principal balance equal to the applicable Retirement Interest Yield in the event of a benefit payable pursuant to Section 4.2 or 4.5 or the Death Interest Yield in the event of a benefit payable pursuant to Section 4.4 will be added to the Deferred Benefit Account on each Determination Date. During the period a Participant is receiving installment payments, the amount of the installment payments shall be based on the prevailing Interest Yield applicable at the commencement of payments, projected into the future. The amount of the installment payments shall be recomputed every three years and the installment payments shall be increased or decreased to reflect any changes in the applicable Interest Yield. Upon the death of a Participant after the commencement of benefits pursuant to Section 4.4, the remaining installment payments payable to the Beneficiary shall be fixed. The Interest Yield used to determine the installment payment amounts shall be the Death Interest Yield. The Company may, in its sole discretion, elect to pay, at any time, a Participant's or Beneficiary's Deferred Benefit Account in a lump sum payment. 4.7 Lump Sum Settlement Option. Notwithstanding any other provision of this Plan, any Participant, retired Participant or Beneficiary who has a Deferred Benefit Account hereunder may elect to receive an immediate lump sum payment of the balance of his/her Deferred Benefit Account, reduced by a penalty equal to six percent (6%) of the Participant's, retired Participant's or Beneficiary's remaining Deferred Benefit Account. The six percent (6%) penalty shall be permanently forfeited and shall not be paid to the Participant, retired Participant, or Beneficiary. A Participant who elects to receive a lump sum payment pursuant to this Section 4.7 must forego further participation in the Plan for eighteen (18) months. In determining the amount to be paid as a lump sum payment pursuant to this Section 4.7, the Termination Interest Yield shall be utilized. In the event that the Participant, prior to the election to receive a lump sum payment pursuant to this Section 4.7, has attained either age 55 with 10 Years of Service or age 60 with 5 Years of Service or age 65; and within one year following the election to receive the lump sum has not acted in competition with the Company either individually or as an employee of a competitor, the difference between the Deferred Benefit Account using the Retirement Interest Yield or the Death Interest Yield, if applicable and the Termination Interest Yield shall be paid to the Participant, retired Participant or Beneficiary. 4.8 Withholding; Employment Taxes. To the extent required by law in effect at the time payments are made, the Company shall withhold any taxes required to be withheld by any Federal, State or local government. 4.9 Commencement of Payments. Unless otherwise provided, commencement of payments under this Plan shall be within sixty (60) days following receipt of notice by the Committee of an event which entitles a Participant or a Beneficiary to payments under this Plan, or at such earlier date as may be determined by the Committee. All payments shall be made as of the first day of the month. 4.10 Full Payment of Benefits. Notwithstanding any other provision of this Plan, all benefits shall be paid no later than the Participant's eightieth (80th) birthday. 4.11 Recipients of Payments: Designation of Beneficiary. All payments to be made by the Company under the Plan shall be made to the Participant during his/her lifetime, provided that if the Participant dies prior to the completion of such payments, then all subsequent payments under the Plan shall be made by the Company to the Beneficiary determined in accordance with this Section 4.11. The Participant may designate a Beneficiary by filing a written notice of such designation with the Committee in such form as the Company requires and may include contingent Beneficiaries. The Participant may from time-to-time change the designated Beneficiary without the consent of such Beneficiary by filing a new designation in writing with the Committee. If no designation is in effect at the time when any benefits payable under this Plan shall become due, the Beneficiary shall be the spouse of the Participant, or if no spouse is then living, the representatives of the Participant's estate. V. CLAIMS FOR BENEFITS PROCEDURE 5.1 Claim for Benefits. Any claim for benefits under the Plan shall be made in writing to any member of the Committee. If such claim for benefits is wholly or partially denied by the Committee, the Committee shall, within a reasonable period of time, but not later than sixty (60) days after receipt of the claim, notify the claimant of the denial of the claim. Such notice of denial shall be in writing and shall contain: (a) The specific reason or reasons for denial of the claim; (b) A reference to the relevant Plan provisions upon which the denial is based; (c) A description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claim review procedure. If no such notice is provided, the claim shall be deemed granted. 5.2 Request for Review of a Denial of a Claim for Benefits. Upon the receipt by the claimant of written notice of denial of the claim, the claimant may within ninety (90) days file a written request to the Committee, requesting a review of the denial of the claim, which review shall include a hearing if deemed necessary by the Committee. In connection with the claimant's appeal of the denial of his/her claim, he/she may review relevant documents and may submit issues and comments in writing. 5.3 Decision Upon Review of Denial of Claim for Benefits. The Committee shall render a decision on the claim review promptly, but no more than sixty (60) days after the receipt of the claimant's request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time, in which case the sixty (60) day period shall be extended to 120 days. Such decision shall: (a) Include specific reasons for the decision; (b) Be written in a manner calculated to be understood by the claimant; and (c) Contain specific references to the relevant Plan provisions upon which the decision is based. The decision of the Committee shall be final and binding in all respects on both the Company and the claimant. VI. ADMINISTRATION 6.1 Committee. The Plan shall be administered by the Committee. Members of the Committee or agents of the Committee may be Participants under the Plan. No member of the Committee who is also a Participant shall be involved in the decisions of the Committee regarding any determination of any claim for benefit with respect to himself or herself. 6.2 General Rights, Powers, and Duties of Committee. The Committee shall be responsible for the management, operation, and administration of the Plan. The Committee may designate a Committee member or an officer of the Company as Plan Administrator. Absent such delegation, the Committee shall be the Plan Administrator. The Plan Administrator shall perform duties as designated by the Committee. In addition to any powers, rights and duties set forth elsewhere in the Plan, it shall have the following powers and duties: (a) To adopt such rules and regulations consistent with the provisions of the Plan as it deems necessary for the proper and efficient administration of the Plan; (b) To administer the Plan in accordance with its terms and any rules and regulations it establishes; (c) To maintain records concerning the Plan sufficient to prepare reports, returns and other information required by the Plan or by law; (d) To construe and interpret the Plan and resolve all questions arising under the Plan; (e) To direct the Company to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; (f) To employ or retain agents, attorneys, actuaries, accountants or other persons, who may also be Participants in the Plan or be employed by or represent the Company, as it deems necessary for the effective exercise of its duties, and may delegate to such agents any power and duties, both ministerial and discretionary, as it may deem necessary and appropriate; and (g) To be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable Federal or State law. 6.3 Information to be Furnished to Committee. The Company shall furnish the Committee such data and information as it may require. The records of the Company shall be determinative of each Participant's period of employment, termination of employment and the reason therefor, leave of absence, reemployment, Years of Service, personal data, and Bonus deferrals. Participants and their Beneficiaries shall furnish to the Committee such evidence, data, or information, and execute such documents as the Committee requests. 6.4 Responsibility. No member of the Committee of the Company shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his/her own fraud or willful misconduct. The Company agrees to defend, indemnify and hold each Committee member harmless from any and all damages, losses or costs (including reasonable attorney's fees) which occur by reason of, arise out of, or are incidental to the implementation or administration of the Plan unless attributable to his/her own willful fraud or willful misconduct. 6.5 Committee Review. Any action on matters within the discretion of the Committee shall be final and conclusive as to all Participants, retired Participants, Beneficiaries and other persons claiming rights under the Plan. The Committee shall exercise all of the powers, duties and responsibilities set forth hereunder in its sole discretion. VII. AMENDMENT AND TERMINATION 7.1 Amendment. The Plan may be amended in whole or in part by the Board of Directors at any time. Notice of any such amendment shall be given in writing to the Committee and to each Participant and each Beneficiary. No amendment shall decrease the value of a Participant's Deferred Benefit Account. 7.2 Company's Right to Terminate. The Board of Directors may terminate the Plan and/or the Agreements pertaining to the Participant at any time after the Effective Date of the Plan. In the event of any such termination, the Participant or Beneficiary shall be entitled to the amount of his/her Deferred Benefit Account determined under Section 3.6, using the Retirement Interest Yield as of the date of termination of the Plan and/or his/her Agreement. Such benefit shall be paid to the Participant in monthly installments over a period of no more than fifteen (15) years, except that the Company, in its sole discretion, may pay out such benefit in a lump sum or in installments over a period shorter than fifteen (15) years. VIII. MISCELLANEOUS 8.1 No Implied Rights; Rights on Termination of Service. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, retired Participant, Beneficiary, or any other person any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Company in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, the Company shall not be required or be liable to make any payment under the Plan. 8.2 No Right to Company Assets. Neither the Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Company whatsoever including, without limiting the generality of the foregoing, any specific funds, assets, or other property which the Company, in its sole discretion, may set aside in anticipation of a liability hereunder. Any benefits which become payable hereunder shall be payable from the general assets of the Company. The Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Company. Nothing contained in the Plan constitutes a guarantee by the Company that the assets of the Company shall be sufficient to pay any benefit to any person. 8.3 No Employment Rights. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company to continue the services of the Participant, or obligate the Participant to continue in the service of the Company, or as a limitation of the right of the Company to discharge any of its employees, with or without cause. Nothing herein shall be construed as fixing or regulating the Bonus payable to the Participant. 8.4 Offset. If, at the time payments or installments of payments are to be made hereunder, the Participant, retired Participant or the Beneficiary are indebted or obligated to the Company, then the payments remaining to be made to the Participant, retired Participant, or the Beneficiary may, at the discretion of the Company, be reduced by the amount of such indebtedness or obligation, provided, however, that an election by the Company not to reduce any such payment or payments shall not constitute a waiver of its claim for such indebtedness or obligation. 8.5 Non-assignability. Neither the Participant nor any other person shall have any voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall be, prior to actual payment, subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, or be transferable by operation of law in the event of the Participant's or any other person's bankruptcy or insolvency. 8.6 Gender and Number. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa. 8.7 Notice. Any notice required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, and if given to the Company, delivered to the principal office of the Company, directed to the attention of the Committee. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification. 8.8 Governing Laws. The Plan shall be construed and administered according to the laws of the State of Illinois. IN WITNESS WHEREOF, the Company has adopted this Ace Hardware Corporation LONG- TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN as of January 1, 1995. Ace Hardware Corporation By: ____________________________ Its: ____________________________ EX-10 9 DIRECTOR DEF OPTION PLAN ACE HARDWARE CORPORATION DIRECTORS' DEFERRAL OPTION PLAN JANUARY 1, 1995 ACE HARDWARE CORPORATION DIRECTORS' DEFERRAL OPTION PLAN I. PURPOSE The purpose of this Ace Hardware Corporation Directors' Deferral Option Plan (the "Plan") is to provide a further means whereby Ace Hardware Corporation (the "Company") may afford financial security to directors of the Company who have rendered and continue to render valuable service to the Company. Compensation reductions made pursuant to the Plan will be credited with interest for the benefit of each Participant. The intent of the Plan is to credit Participants' compensation deferrals with a specified rate of interest and to provide the Participants a means to accumulate supplemental funds for retirement, special needs prior to retirement or death. II. DEFINITIONS AND CERTAIN PROVISIONS 2.1 "Agreement" means the Ace Hardware Corporation's Directors' Deferral Option Agreement executed between a Participant and the Company, whereby a Participant agrees to defer a portion of his/her Compensation pursuant to the provisions of the Plan, and the Company agrees to make benefit payments in accordance with the provisions of the Plan. 2.2 "Beneficiary" means the person or persons who under this Plan becomes entitled to receive a Participant's interest in the event of the Participant's death. 2.3 "Board of Directors" means the Board of Directors of Ace Hardware Corporation or any committee thereof acting within the scope of its authority. 2.4 "Committee" means the committee appointed to manage and administer the Plan. 2.5 "Company" means Ace Hardware Corporation, a Delaware corporation and its subsidiaries and any successor in interest. 2.6 "Compensation" means the directors fees for personal services rendered by a Participant as a director of the Company during a calendar year. 2.7 "Deferral Year" means any calendar year, 1995 through 2000. 2.8 "Deferred Benefit Account" means the account(s) maintained on the books of the Company for a Participant under this Plan. A separate Deferred Benefit Account shall be maintained for each Participant. A Participant's Deferred Benefit Account shall not constitute or be treated as a trust fund of any kind. 2.9 "Determination Date" means the date on which the amount of a Participant's Deferred Benefit Account is determined as provided in Article III hereof. The last day of a Plan year or the date of a Participant's Termination of Service shall be a Determination Date. 2.10 "Disability" means a condition, as determined by the Company, that totally and continuously prevents the Participant, for at least six consecutive months, from engaging in an "occupation" for compensation or profit. During the first twenty-four (24) months of total disability, "occupation" means the Participant's occupation at the time the disability began. After that period, "occupation" means any occupation for which the Participant is or becomes reasonably fitted by education, training or experience. Notwithstanding the foregoing, a Disability shall not exist for purposes of this Plan if the Participant fails to qualify for disability benefits under the Social Security Act, unless the Company determines, in its sole discretion, that a Disability exists. 2.11 "Effective Date" means January 1, 1995. 2.12 "Interest Yield" means either the Retirement Interest Yield, the Termination Interest Yield, or the Death Interest Yield, as defined below: (a) "Retirement Interest Yield" means a rate of interest equal to 120 percent of Prime. (b) "Termination Interest Yield" means a rate of interest equal to 100 percent of Prime. (c) "Death Interest Yield" means a rate of interest equal to 120 percent of Prime. This rate of interest shall be fixed at the time of the Participant's death. 2.13 "Participant" means a member of the Board of Directors of the Company who is designated to be eligible pursuant to Section 3.1 and who has executed an Agreement with the Company. 2.14 "Plan" means the Ace Hardware Corporation Directors' Deferral Option Plan as amended from time-to-time. 2.15 "Prime" means the Prime Rate as of December 31st of the preceding year as reported in the Wall Street Journal. 2.16 "Retirement Date" means the date of Termination of Service of the Participant other than by reason of death or Disability on or after he/she attains either 3 completed board terms, age 55 with 2 completed board terms, age 60 with 1 completed board term or age 65. 2.17 "Termination of Service" means the Participant's cessation of his/her service with the Company for any reason whatsoever, whether voluntarily or involuntarily, including by reason of retirement, death, or Disability. III. PARTICIPATION AND COMPENSATION REDUCTION 3.1 Participation. Participation in the Plan shall be limited to directors of the Company who elect to participate in this Plan by filing an Agreement with the Company prior to the first day of the deferral period in which a Participant's participation commences in the Plan. The election to participate shall be effective upon receipt by the Committee of the Agreement that is properly completed and executed in conformity with the Plan. 3.2 Minimum and Maximum Deferral and Length of Participation. A Participant in the Plan may elect to defer 5 to 100 percent of his/her Compensation in 5 percent increments. A Participant may elect to defer a different percentage of Compensation for each Deferral year. A Participant shall make an annual election for the upcoming Deferral Year by December 1st of the year preceding the Deferral Year for which the election is being made. 3.3 Timing of Deferral Credits. The amount of Compensation that a Participant elects to defer in the Agreement shall cause an equivalent reduction in his/her Compensation. Compensation deferrals shall be credited to the Participant's Deferred Benefit Account at such time as the Participant would have otherwise received or been eligible to receive the Compensation deferred pursuant to the Plan. 3.4 New Participants. A Participant who first attains such status subsequent to January 1, 1995, shall be entitled to participate in the Plan after satisfying the requirements of Section 3.1 and shall be bound by all terms and conditions of the Plan, provided, however, that this Agreement must be filed no later than thirty (30) days following his/her eligibility to participate. 3.5 Emergency Benefit; Waiver of Deferral. In the event that the Committee, upon written petition of the Participant or his/her Beneficiary, determines in its sole discretion, that the Participant or his/her Beneficiary has suffered an unforeseeable financial emergency, the Company shall pay to the Participant or his/her Beneficiary, as soon as possible following such determination, an amount, not in excess of the Participant's Deferred Benefit Account, necessary to satisfy the emergency. For purposes of this Plan, an unforeseeable financial emergency is an unanticipated emergency that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if the emergency distribution were not permitted. Cash needs arising from foreseeable events, such as the purchase of a residence or education expenses for children shall not be considered the result of an unforeseeable financial emergency. The Committee may also grant a waiver of the Participant's agreement to defer a stated amount of Compensation upon finding that the Participant has suffered an unforeseeable financial emergency. The waiver shall be for such period of time as the Committee deems necessary under the circumstances to relieve the hardship. 3.6 Determination of Account. Each Participant's Deferred Benefit Account as of each Determination Date shall consist of the balance of the Participant's Deferred Benefit Account as of the immediately preceding Determination Date, plus the Participant's elective deferred Compensation pursuant to Section 3.2 since the immediately preceding Determination Date. The Deferred Benefit Account of each Participant shall be reduced by the amount of all distributions, if any, made from such Deferred Benefit Account since the preceding Determination Date. The appropriate Interest Yield shall be credited on the average daily balance of the Deferred Benefit Account as of the Determination Date and since the last preceding Determination Date, but after the Deferred Benefit Account has been adjusted for any additions (including interest earnings) or distributions to be credited or deducted for each such day. 3.7 Vesting of Deferred Benefit Account. A Participant shall be one hundred (100) percent vested in his/her Deferred Benefit Account. IV. BENEFITS 4.1 Inservice Distribution. At the time a Participant executes the Agreement, he/she may elect to receive a return of up to 50%, in 5% increments, of the annual deferral originally made pursuant to the Plan. The return of deferral election applies solely to the Participant's deferral and not to interest credited to the Participant's Deferred Benefit Account. Each return of deferral shall be paid in a lump sum on December 1 of the year which is six (6) years after the year in which the deferral is made. A return of deferral shall only be paid prior to a Participant's Termination of Service. Any return of deferral paid shall be deemed a distribution, and shall be deducted from the Participant's Deferred Benefit Account. A separate return of deferral election shall be made for each Deferral Year. 4.2 Retirement Benefit. Subject to Section 4.6 below, upon a Participant's Retirement Date, he/she shall be entitled to receive the amount of his/her Deferred Benefit Account determined under Section 3.6 using the Retirement Interest Yield. The form of benefit payment shall be as provided in Section 4.6. 4.3 Termination Benefit. Upon the Termination of Service of a Participant prior to his/her Retirement Date for reasons other than death or Disability, the Company shall pay to the Participant a benefit equal to the amount of his/her Deferred Benefit Account, determined under Section 3.6 hereof using the Termination Interest Yield. In calculating a Participant's Deferred Benefit Account pursuant to this Section, the Termination Interest Yield shall be utilized retroactive to the beginning of the Participant's initial deferral into this Plan. Unless otherwise directed by the Committee, the termination benefit shall be payable in a lump sum within sixty (60) days following such Termination of Service. Upon a Termination of Service, the Participant shall immediately cease to be eligible for any other benefit provided under this Plan. In the event of a Participant's Termination of Service, interest shall be credited to his/her Deferred Benefit Account through the last day of the month during which the Termination of Service occurred. 4.4 Death Benefits. Upon the death of a Participant or a retired Participant, the Beneficiary of such Participant shall receive the Participant's remaining Deferred Benefit Account. Payment of a Participant's remaining Deferred Benefit Account shall be in accordance with Section 4.6. 4.5 Disability. In the event of a Termination of Service due to Disability, which first manifests itself after the Effective Date of the Plan and prior to his/her Retirement Date, a disabled Participant may receive a benefit equal to the remaining balance, if any, of his/her Deferred Benefit Account. Such benefit shall be paid until the earliest of the following events: (i) there is no longer any balance in the Participant's Deferred Benefit Account; (ii) the Participant ceases to be disabled and resumes employment with the Company; (iii) the Participant dies. Payment of a Participant's remaining Deferred Benefit Account shall be in accordance with Section 4.6 over the number of years elected by the Participant. Disability benefits shall be treated as distributions from a Participant's Deferred Benefit Account. 4.6 Form of Benefit Payment. Upon the happening of an event described in Section 4.2, 4.4 or 4.5, the Company shall pay to the Participant or his/her Beneficiary, monthly installments payable in substantially equal amounts over the number of years elected by the Participant. For purposes of any installment payments due under this Section 4.6, Participant at the time of his/her election to defer into this Plan shall elect the number of years such payments shall be paid. The number of years installment payments may be paid shall not be fewer than five (5) years nor greater than twenty (20) years. Interest on the unpaid principal balance equal to the applicable Retirement Interest Yield in the event of a benefit payable pursuant to Section 4.2 or 4.5 or the Death Interest Yield in the event of a benefit payable pursuant to Section 4.4 will be added to the Deferred Benefit Account on each Determination Date. During the period a Participant is receiving installment payments, the amount of the installment payments shall be based on the prevailing Interest Yield applicable at the commencement of payments, projected into the future. The amount of the installment payments shall be recomputed every three years and the installment payments shall be increased or decreased to reflect any changes in the applicable Interest Yield. Upon the death of a Participant or a retired Participant, the remaining installment payments payable to the Beneficiary shall be fixed. The Interest Yield used to determine the installment payment amounts shall be the Death Interest Yield. The Company may, in its sole discretion, elect to pay, at any time, a Participant's or Beneficiary's Deferred Benefit Account in a lump sum payment. 4.7 Lump Sum Settlement Option. Notwithstanding any other provision of this Plan, any Participant, retired Participant or Beneficiary who has a Deferred Benefit Account hereunder may elect to receive an immediate lump sum payment of the balance of his/her Deferred Benefit Account, reduced by a penalty equal to six percent (6%) of the Participant's, retired Participant's or Beneficiary's remaining Deferred Benefit Account. The six percent (6%) penalty shall be permanently forfeited and shall not be paid to the Participant, retired Participant, or Beneficiary. A Participant who elects to receive a lump sum payment pursuant to this Section 4.7 must forego further participation in the Plan for eighteen (18) months. In determining the amount to be paid as a lump sum payment pursuant to this Section 4.7, the Termination Interest Yield shall be utilized. In the event that the Participant, prior to the election to receive a lump sum payment pursuant to this Section 4.7, has attained either 3 completed board terms, age 55 with 2 completed board terms, age 60 with 1 completed board term or age 65; and within one year following the election to receive the lump sum has not acted in competition with the Company either individually or as an employee or director of a competitor, the difference between the Deferred Benefit Account using the Retirement Interest Yield or the Death Interest Yield, if applicable and the Termination Interest Yield shall be paid to the Participant, retired Participant or Beneficiary. 4.8 Withholding; Employment Taxes. To the extent required by law in effect at the time payments are made, the Company shall withhold any taxes required to be withheld by any Federal, State or local government. 4.9 Commencement of Payments. Unless otherwise provided, commencement of payments under this Plan shall be within sixty (60) days following receipt of notice by the Committee of an event which entitles a Participant or a Beneficiary to payments under this Plan, or at such earlier date as may be determined by the Committee. All payments shall be made as of the first day of the month. 4.10 Full Payment of Benefits. Notwithstanding any other provision of this Plan, all benefits shall be paid no later than the Participant's eightieth (80th) birthday. 4.11 Recipients of Payments: Designation of Beneficiary. All payments to be made by the Company under the Plan shall be made to the Participant during his/her lifetime, provided that if the Participant dies prior to the completion of such payments, then all subsequent payments under the Plan shall be made by the Company to the Beneficiary determined in accordance with this Section. The Participant may designate a Beneficiary by filing a written notice of such designation with the Committee in such form as the Company requires and may include contingent Beneficiaries. The Participant may from time-to-time change the designated Beneficiary without the consent of such Beneficiary by filing a new designation in writing with the Committee. If no designation is in effect at the time when any benefits payable under this Plan shall become due, the Beneficiary shall be the spouse of the Participant, or if no spouse is then living, the representatives of the Participant's estate. V. CLAIMS FOR BENEFITS PROCEDURE 5.1 Claim for Benefits. Any claim for benefits under the Plan shall be made in writing to any member of the Committee. If such claim for benefits is wholly or partially denied by the Committee, the Committee shall, within a reasonable period of time, but not later than sixty (60) days after receipt of the claim, notify the claimant of the denial of the claim. Such notice of denial shall be in writing and shall contain: (a) The specific reason or reasons for denial of the claim; (b) A reference to the relevant Plan provisions upon which the denial is based; (c) A description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and (d) An explanation of the Plan's claim review procedure. If no such notice is provided, the claim shall be deemed granted. 5.2 Request for Review of a Denial of a Claim for Benefits. Upon the receipt by the claimant of written notice of denial of the claim, the claimant may within ninety (90) days file a written request to the Committee, requesting a review of the denial of the claim, which review shall include a hearing if deemed necessary by the Committee. In connection with the claimant's appeal of the denial of his/her claim, he/she may review relevant documents and may submit issues and comments in writing. 5.3 Decision Upon Review of Denial of Claim for Benefits. The Committee shall render a decision on the claim review promptly, but no more than sixty (60) days after the receipt of the claimant's request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time, in which case the sixty (60) day period shall be extended to 120 days. Such decision shall: (a) Include specific reasons for the decision; (b) Be written in a manner calculated to be understood by the claimant; and (c) Contain specific references to the relevant Plan provisions upon which the decision is based. The decision of the Committee shall be final and binding in all respects on both the Company and the claimant. VI. ADMINISTRATION 6.1 Committee. The Plan shall be administered by the Committee. Members of the Committee or agents of the Committee may be Participants under the Plan. No member of the Committee who is also a Participant shall be involved in the decisions of the Committee regarding any determination of any claim for benefit with respect to himself or herself. 6.2 General Rights, Powers, and Duties of Committee. The Committee shall be responsible for the management, operation, and administration of the Plan. The Committee may designate a Committee member or an officer of the Company as Plan Administrator. Absent such delegation, the Committee shall be the Plan Administrator. The Plan Administrator shall perform duties as designated by the Committee. In addition to any powers, rights and duties set forth elsewhere in the Plan, it shall have the following powers and duties: (a) To adopt such rules and regulations consistent with the provisions of the Plan as it deems necessary for the proper and efficient administration of the Plan; (b) To administer the Plan in accordance with its terms and any rules and regulations it establishes; (c) To maintain records concerning the Plan sufficient to prepare reports, returns and other information required by the Plan or by law; (d) To construe and interpret the Plan and resolve all questions arising under the Plan; (e) To direct the Company to pay benefits under the Plan, and to give such other directions and instructions as may be necessary for the proper administration of the Plan; (f) To employ or retain agents, attorneys, actuaries, accountants or other persons, who may also be Participants in the Plan or be employed by or represent the Company, as it deems necessary for the effective exercise of its duties, and may delegate to such agents any power and duties, both ministerial and discretionary, as it may deem necessary and appropriate; and (g) To be responsible for the preparation, filing and disclosure on behalf of the Plan of such documents and reports as are required by any applicable Federal or State law. 6.3 Information to be Furnished to Committee. The Company shall furnish the Committee such data and information as it may require. The records of the Company shall be determinative of each Participant's period of employment, termination of employment and the reason therefore, leave of absence, reemployment, number of completed board terms, personal data, and Compensation deferrals. Participants and their Beneficiaries shall furnish to the Committee such evidence, data, or information, and execute such documents as the Committee requests. 6.4 Responsibility. No member of the Committee of the Company shall be liable to any person for any action taken or omitted in connection with the administration of this Plan unless attributable to his/her own fraud or willful misconduct. The Company agrees to defend, indemnify and hold each Committee member harmless from any and all damages, losses or costs (including reasonable attorney's fees) which occur by reason of, arise out of, or are incidental to the implementation or administration of the Plan unless attributable to his/her own willful fraud or willful misconduct. 6.5 Committee Review. Any action on matters within the discretion of the Committee shall be final and conclusive as to all Participants, retired Participants, Beneficiaries and other persons claiming rights under the Plan. The Committee shall exercise all of the powers, duties and responsibilities set forth hereunder in its sole discretion. VII. AMENDMENT AND TERMINATION 7.1 Amendment. The Plan may be amended in whole or in part by the Company at any time. Notice of any such amendment shall be given in writing to the Committee and to each Participant and each Beneficiary. No amendment shall decrease the value of a Participant's Deferred Benefit Account. 7.2 Company's Right to Terminate. The Company may terminate the Plan and/or the Agreements pertaining to the Participant at any time after the Effective Date of the Plan. In the event of any such termination, the Participant or Beneficiary shall be entitled to the amount of his/her Deferred Benefit Account determined under Section 3.6, using the Retirement Interest Yield as of the date of termination of the Plan and/or his/her Agreement. Such benefit shall be paid to the Participant in monthly installments over a period of no more than fifteen (15) years, except that the Company, in its sole discretion, may pay out such benefit in a lump sum or in installments over a period shorter than fifteen (15) years. VIII. MISCELLANEOUS 8.1 No Implied Rights; Rights on Termination of Service. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, retired Participant, Beneficiary, or any other person any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Company in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, the Company shall not be required or be liable to make any payment under the Plan. 8.2 No Right to Company Assets. Neither the Participant nor any other person shall acquire by reason of the Plan any right in or title to any assets, funds or property of the Company whatsoever including, without limiting the generality of the foregoing, any specific funds, assets, or other property which the Company, in its sole discretion, may set aside in anticipation of a liability hereunder. Any benefits which become payable hereunder shall be payable from the general assets of the Company. The Participant shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Company. Nothing contained in the Plan constitutes a guarantee by the Company that the assets of the Company shall be sufficient to pay any benefit to any person. 8.3 No Employment Rights. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company to continue the services of the Participant, or obligate the Participant to continue in the service of the Company, or as a limitation of the right of the Company to discharge any of its directors, with or without cause. Nothing herein shall be construed as fixing or regulating the Compensation payable to the Participant. 8.4 Offset. If, at the time payments or installments of payments are to be made hereunder, the Participant, retired Participant or the Beneficiary are indebted or obligated to the Company, then the payments remaining to be made to the Participant, retired Participant, or the Beneficiary may, at the discretion of the Company, be reduced by the amount of such indebtedness or obligation, provided, however, that an election by the Company not to reduce any such payment or payments shall not constitute a waiver of its claim for such indebtedness or obligation. 8.5 Non-assignability. Neither the Participant nor any other person shall have any voluntary or involuntary right to commute, sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are expressly declared to be unassignable and non-transferable. No part of the amounts payable shall be, prior to actual payment, subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Participant or any other person, or be transferable by operation of law in the event of the Participant's or any other person's bankruptcy or insolvency. 8.6 Gender and Number. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean the plural or vice versa. 8.7 Notice. Any notice required or permitted to be given under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, and if given to the Company, delivered to the principal office of the Company, directed to the attention of the Committee. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification. 8.8 Governing Laws. The Plan shall be construed and administered according to the laws of the State of Illinois. IN WITNESS WHEREOF, the Company has adopted this Ace Hardware Corporation DIRECTORS' DEFERRAL OPTION PLAN as of January 1, 1995. Ace Hardware Corporation By: ____________________________ Its: ____________________________ EX-10 10 EMPLOYMENT AGREEMENT-NEER EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 22nd day of March, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and Fred J. Neer, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on April 1, 1994 and shall terminate on March 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4. hereof or by reason of a determination made pursuant to Section 9. hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to March 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond March 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond March 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of April 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3. and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to March 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by March 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2. above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Sixty-Eight Thousand Dollars ($168,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the first quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning April 1,1995. In the event that this Agreement is extended for one (1) year beyond March 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the first quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning April 1,1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9. for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5. hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8. and 10. hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4. and 9. hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4. and 9. hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10. of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12. and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10., the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5. of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) Fred J. Neer ATTEST: David W. League (SEAL) Secretary EX-10 11 EMPLOYMENT AGREEMENT-SCHUMAN EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 22nd day of March, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and Donald L. Schuman, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on April 1, 1994 and shall terminate on March 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4. hereof or by reason of a determination made pursuant to Section 9. hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to March 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond March 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond March 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of April 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3. and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to March 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by March 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2. above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Sixty-Five Thousand Dollars ($165,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the first quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning April 1, 1995. In the event that this Agreement is extended for one (1) year beyond March 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the first quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning April 1, 1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9. for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5. hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8. and 10. hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4. and 9. hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4. and 9. hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10. of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12. and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10., the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5. of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) Donald L. Schuman ATTEST: David W. League (SEAL) Secretary EX-10 12 EMPLOYMENT AGREEMENT-LEAGUE EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 13th day of December, 1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and David W. League, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1994 and shall terminate on December 31, 1995, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4 hereof or by reason of a determination made pursuant to Section 9 hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1995 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1995. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1995 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3 and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to December 31, 1995. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1995, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2 above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Fifty Thousand Dollars ($150,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the last quarter of 1994 with respect to the amount of such salary to be paid to the Executive during the contract year beginning January 1, 1995. In the event that this Agreement is extended for one (1) year beyond December 31, 1995, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the last quarter of 1995 with respect to the amount thereof to be paid to the Executive during the contract year beginning January 1, 1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Termination for Physical or Mental Incapacity or Alcohol or December 31, 1995. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1995, the Employer's offer of such new agreement shall be deemed null and void. Any addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9 for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5 hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8 and 10 hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4 and 9 hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4 and 9 hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10 of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12 and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10, the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5 of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Deffered Compensation Plan, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) David W. League Witness: Fred J. Neer (SEAL) Vice President Human Resources EX-10 13 EMPLOYMENT AGREEMENT-MYER EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 15th day of December, 1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and David F. Myer, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1994 and shall terminate on December 31, 1995, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4 hereof or by reason of a determination made pursuant to Section 9 hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1995 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1995. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1995 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3 and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to December 31, 1995. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1995, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2 above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Seventy Thousand Dollars ($170,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the last quarter of 1994 with respect to the amount of such salary to be paid to the Executive during the contract year beginning January 1,1995. In the event that this Agreement is extended for one (1) year beyond December 31, 1995, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the last quarter of 1995 with respect to the amount thereof to be paid to the Executive during the contract year beginning January 1,1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9 for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5 hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8 and 10 hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4 and 9 hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4 and 9 hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10 of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12 and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10, the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4 and 9 of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5 of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Deffered Compensation Plan, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) David F. Myer Attest: David W. League (SEAL) Secretary EX-10 14 EMPLOYMENT AGREEMENT-BODZEWSKI EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 24th day of March, 1994 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and Michael C. Bodzewski, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which he has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by him under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to him from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that he is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on April 1, 1994 and shall terminate on March 31, 1996, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4. hereof or by reason of a determination made pursuant to Section 9. hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to March 31, 1996 of its or his intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond March 31, 1996. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond March 31, 1996 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of April 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3. and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer him such new Employment Agreement not less than sixty (60) days prior to March 31, 1996. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by March 31, 1996, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2. above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to him by Employer, in conjunction with his employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to him to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Seventy Thousand Dollars ($170,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the first quarter of 1995 with respect to the amount of such salary to be paid to the Executive during the contract year beginning April 1, 1995. In the event that this Agreement is extended for one (1) year beyond March 31, 1996, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer during the first quarter of 1996 with respect to the amount thereof to be paid to the Executive during the contract year beginning April 1, 1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote his entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of his time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as he would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of his employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to him by the Employer or acquired or compiled by him from time to time in the course of his employment by the Employer for use in the Employer's business which he knows to have been received by him in confidence or which he knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of his employment hereunder, and in further consideration thereof, the Executive covenants and agrees that he will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that he is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on his duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of his salary shall have accrued to him to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to him during any accrued vacation time not utilized by him, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which he might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of his employment pursuant to this Section 9. for the payment by Employer of compensation to him or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of his employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of his employment hereunder at any time prior to the last day of the term for which he would otherwise be employed under this Agreement, he will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on his own behalf or for his own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by him for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5. hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by him for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8. and 10. hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for him under this Agreement if his employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4. and 9. hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for him if his employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of his employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if his employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of his employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4. and 9. hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of his employment. The non-competition provisions set forth in Section 10. of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12. and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10., the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5. of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) Michael C. Bodzewski ATTEST: David W. League (SEAL) Secretary EX-10 15 EMPLOYMENT AGREEMENT-KAHLE EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this 15th day of December, 1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and Rita D. Kahle, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which she has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by her under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to her from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that she is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1994 and shall terminate on December 31, 1995, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4. hereof or by reason of a determination made pursuant to Section 9. hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1995 of its or her intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1995. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1995 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1996 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3. and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer her such new Employment Agreement not less than sixty (60) days prior to December 31, 1995. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1995, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2. above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to her by Employer, in conjunction with her employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to her to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which she might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to her or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of One Hundred Sixty Thousand Dollars ($160,000.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure hereinafter provided for. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the year 1994 with respect to the amount of such salary to be paid to the Executive in 1995. In the event that this Agreement is extended for one (1) year beyond December 31, 1995, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer in 1995 with respect to the amount thereof to be paid to the Executive in the year 1996. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote her entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of her time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as she would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of her employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to her by the Employer or acquired or compiled by her from time to time in the course of her employment by the Employer for use in the Employer's business which she knows to have been received by her in confidence or which she knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of her employment hereunder, and in further consideration thereof, the Executive covenants and agrees that she will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that she is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on her duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of her salary shall have accrued to her to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to her during any accrued vacation time not utilized by her, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which she might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of her employment pursuant to this Section 9. for the payment by Employer of compensation to her or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of her employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of her employment hereunder at any time prior to the last day of the term for which she would otherwise be employed under this Agreement, she will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on her own behalf or for her own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by her for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5. hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by her for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8. and 10. hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for her under this Agreement if her employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4. and 9. hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for her if her employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of her employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if her employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of her employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4. and 9. hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of her employment. The non-competition provisions set forth in Section 10. of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12. and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10., the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5. of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: Roger E. Peterson President and CEO (SEAL) Rita D. Kahle ATTEST: David W. League (SEAL) Secretary EX-10 16 RETIREMENT AGREEMENT-PETERSON AGREEMENT This agreement made and entered into on January 6, 1995 by and between Ace Hardware Corporation, a Delaware corporation, with its principal office located at 2200 Kensington Court, Oak Brook, Illinois 60521 (the "Company") and Roger E. Peterson residing at 6N931 Hastings Drive, St. Charles, Illinois ("Peterson"). W I T N E S S E T H : WHEREAS Peterson has served the Company continuously during the past eighteen years and currently holds the position of President and CEO with the Company; and WHEREAS Peterson desires to voluntarily retire as an employee of the Company as of May 31, 1995 and, in order to continue to benefit from Peterson's experience and expertise as an executive in the hardlines wholesale industry the Company desires to enter into this Agreement providing for the retention by the Company from such retirement date of the services of Peterson in an advisory and consulting capacity until May 31, 2000 (the "Advisory Period"); and WHEREAS the Company further desires to prevent any other competitive business from utilizing the experience and know-how of Peterson with regard to the Company's business; Now, therefore, in consideration of the foregoing and of the past services rendered by Peterson to the Company and his undertakings hereinafter referred to, IT IS HEREBY AGREED by and between the Company and Peterson as follows: 1. Peterson shall continue in the employ of the Company until and including May 31, 1995 and will voluntarily retire from the employment of the Company as of June 1, 1995. During the remaining period of his employment, the compensation and all of the terms and conditions of Peterson's employment shall be the same as are applicable in his separate employment contract, which shall terminate on May 31, 1995 at the time Peterson commences retirement. 2. During the Advisory Period Peterson, if living, shall furnish to the Company such advisory and consulting services as the Company shall reasonably require from time to time. The scheduling of such services shall be arranged in such a manner as not to conflict with any prior commitments which Peterson may have made which make him unavailable to perform services for the Company at certain intervals of reasonable durations. Such services may be rendered by Peterson at the place where he may be residing at the time or at such other place or places as may be appropriate for him to be able to render the specific services requested of him at particular times. Notwithstanding the above provision in paragraph 2, Peterson shall attend the Fall Show in 1995, Spring and Fall Shows in 1996, Spring and Fall Shows in 1997, Spring Show in 1998. It is expected that he will be in attendance for 4 days at each Show. Peterson's spouse is invited, at Company's expense, to attend the same Shows. 3. The Company agrees, subject to the conditions herein set forth, to pay to Peterson (in addition to all pension and other similar payments and other benefits to which he may be entitled on account of his service to the Company prior to his retirement) the aggregate sum of Seven Hundred Fifty Thousand Dollars ($750,000.00). Such sum shall be paid in accordance with the designation by Peterson on an ELECTION FOR PAYMENT OF ADVISORY AND CONSULTING FEES form, a copy of which is attached hereto as Exhibit A, that has to be filed with and accepted by the Vice President - Finance of Ace Hardware Corporation prior to June 1,1995. 4. The Company shall provide medical insurance coverage as set forth on Exhibit B attached hereto and made a part hereof, at Company's expense, for Peterson, his spouse and unmarried child subject to such exceptions as are set forth in the policy on medical insurance coverage to the earlier of (a) his age of 65 years (December 14, 2002) or (b) his death. The medical insurance coverage shall be in addition to the aggregate sum set forth in Paragraph 3. 5. During the Advisory Period, Peterson shall perform his services hereunder for the Company as an independent contractor and will be permitted to engage in any business and perform services for his own account except as prohibited in Paragraph 7 herein. Any services performed by Peterson for his own account shall be scheduled by him in such a manner as not to interfere with his availability upon reasonable notice to perform such services as the Company shall reasonably require of him hereunder. In the event that Peterson shall be requested to perform services in excess of twenty-five (25) days, including Show attendance, within any agreement year (being the period between May 31 of a calendar year and May 31 of the following year) during the Advisory Period, he shall be paid an additional sum for such services performed based upon the value of the services as determined by the parties prior to performance. Any such additional payments shall not reduce the aggregate amount to be paid to Peterson as set forth in Paragraph 3. 6. Provided that the Agreement shall not have been deemed paid in full pursuant to Paragraph 8, the following provisions shall be applicable in the event of the death of Peterson on or after June 1, 1995 and before he has received the aggregate sum of Seven Hundred Fifty Thousand Dollars ($750,000.00) set forth in Paragraph 3 (reduced by any partial forfeitures thereof which may have been made pursuant to Paragraph 9): (a) If Peterson's spouse survives him, an aggregate amount equal to the difference between said aggregate sum and the portion thereof received by Peterson prior to his death shall be paid to her in the same installments and at the same times it would have been paid to Peterson had he been living; (b) If Petersons' spouse does not survive him, the amount of such difference shall be paid upon Petersons' death to his estate in one lump sum; (c) If Petersons' spouse survives him but dies before receiving the entire amount of the difference referred to in (a) above, then the remaining portion of such difference shall be paid upon her death in one lump sum to her estate. 7. For the purposes of this Agreement, the term "Confidential Information" shall mean, but shall not be limited to, any technical or non- technical data, programs, procedures, models, manuals, financial data, lists of actual or potential customers, dealers or suppliers of the Company, and any information regarding the Company's marketing, sales or dealer network or plans, which is not generally known to the public through legitimate origins. The Company and Peterson acknowledge and agree that such Confidential Information is extremely valuable to the Company and shall be deemed to be a "Trade Secret" pursuant to the Illinois Trade Secrets Act. Peterson will not during, or after termination of, this Agreement, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party, or utilize for Peterson's personal benefit or for the benefit of any competitor of the Company, any Confidential Information. Upon termination this Agreement with the Company for any reason, Peterson will promptly deliver to the Company all documents concerning the Company's customers, dealers, dealer network, marketing strategies, plans, products or processes and/or which contain Confidential Information. Peterson agrees that during the Advisory Period and during any further period for which monthly payments to Peterson are provided for hereunder, he shall not, directly or indirectly, render any services of an advisory nature to or otherwise become employed by or participate or engage in any competing business, without the prior written consent of the Company. Any notice to be given by Peterson under this Agreement shall be sent by certified mail to the Company at its office at 2200 Kensington Court, Oak Brook, Illinois, marked to the attention of the Company's President, and any notice from Company to Peterson shall be sent by registered mail to Peterson at 6N931 Hastings Drive, St. Charles, Illinois. Either party may change the address to which notices are to be addressed by notice in writing given to the other in accordance with the above terms. In the event that Peterson breaches any of the terms of Paragraph 7 of this Agreement, Peterson stipulates that said breach will result in immediate and irreparable harm to the business and goodwill of the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Company shall therefore be entitled to apply for and receive from any court of competent jurisdiction an injunction to restrain any violation of Paragraph 7 of this Agreement and for such further relief as the court may deem just and proper. 8. In the event of any violation by Peterson of any of the provisions of Paragraph 7 which could or does result in material detriment to the Company, the Company's obligation to pay to Peterson the then-remaining unpaid portion of the aggregate sum set forth in Paragraph 3, if any, shall thereupon cease, and all payment theretofore made by the company to Peterson under this Agreement shall constitute payment in full for all services performed by him during the Advisory Period. 9. In the event that, during any month within the Advisory Period, Peterson refuses to perform, or refrains from performing, any service which the Company feels has been reasonably requested of him and he persists and continues in such course of action for more than three (3) days from the date of mailing of written notice to him of the Company's determination that such refusal to perform or such act of refraining from performing constitutes an unreasonable breach of his obligations to the Company hereunder, a portion of the aggregate sum set forth in Paragraph 3 equal to the monthly installment next payable shall be deemed to have been forfeited by Peterson, and the Company shall have no obligation to make payment of such amount at any time to Peterson or his surviving spouse or to the estate or the heirs, distributees or personal representatives of either of Peterson or such spouse. 10. It is recognized that during the Advisory Period, Peterson may have to incur certain reasonable out-of-pocket expenses incident to his performance of advisory and consulting services hereunder. The Company agrees to reimburse Peterson for all such expenses which are incurred by him pursuant to directions given to him by the Company or which are approved by the Company in advance of their incurrence. This would include, but would not be limited to travel, lodging and meal expense to the Spring and Fall Shows as would be appropriate for a high level executive and spouse. 11. This Agreement is not intended to and shall not be deemed to be in lieu of any rights, benefits and privileges to which Peterson may be entitled as an employee of the Company by reason of his employment through May 31, 1995. In this connection, it is acknowledged and agreed that there shall be included among such benefits the prorata share to which Peterson would be entitled based on the Patronage Rebate Executive Pool (PREP) Plan formula which will be determined subsequent to the end of the year 1995. 12. Neither Peterson, his spouse, nor his spouse's estate shall have the right to assign, transfer or encumber any of the rights or interests which any of them may have under or pursuant to this Agreement. 13. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns (including, without limitation, any entity which may acquire substantially all of the Company's assets or business or merge or combine with it), and shall also be binding upon and inure to the benefit of Peterson and his spouse and their respective heirs, distributee's and personal representatives. 14. The failure of either party hereto to insist in any one or more instances upon performance of any terms or conditions of this Agreement shall not be construed as a waiver of future performance of any such term or condition, but the obligations of either party with respect thereto shall continue in full force and effect. 15. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the state of Illinois. IN WITNESS WHEREOF, all on the day and year first above written, Ace Hardware Corporation, a Delaware corporation, has caused this Agreement to be executed by its Chairman of the Board of Directors, pursuant to authority vested in him by its Board of Directors, and attested by its Secretary, with its corporate seal affixed, and Peterson has hereunto affixed his hand and seal. ACE HARDWARE CORPORATION, a Delaware corporation ATTEST: David W. League By: Richard E. Laskowski Secretary Chairman of the Board of Directors (Seal) Roger E. Peterson EX-10 17 OFFICER INCENTIVE PLAN ACE HARDWARE CORPORATION OFFICER INCENTIVE PLANS JUNE 1994 ACE HARDWARE CORPORATION OFFICER INCENTIVE PLAN 1. ESTABLISHMENT AND PURPOSE The Officer Incentive Compensation Plan is hereby amended, restated and retitled as the Officer Incentive Plan. Ace Hardware Corporation (the Corporation) has established this officer incentive program to provide key officers with financial motivation to act in the best interests of the Corporation. The program consists of a Short-Term Incentive Plan (the ST Plan) and a Value Added Long-Term Incentive Plan (the VA Plan). More specifically, the goals of the program are to: - Provide award opportunities which balance short- and long-term performance orientations, - Provide a strong retention vehicle, - Provide significant compensation opportunities in return for outstanding performance, - Reward performance measured over both short- and long- term performance periods, - Measure the elements of value which participants can impact, and - Provide a performance component for capital accumulation through the long-term incentive compensation deferral option plan. 2. EFFECTIVE DATES The ST Plan is effective as of fiscal year 1994. The VA Plan is effective for the three-year period Fiscal Year 1992 through Fiscal Year 1994. It will continue in effect for each subsequent rolling three-year period until and unless terminated by the Board of Directors (the Board). 3. ELIGIBILITY AND PARTICIPATION Participants in the Program shall include those key employees of the Corporation who meet the following eligibility criteria: Have an impact on both short- and long-term results, Are in positions with long-result cycle timeframes, and Manage distinct functions or business units. Based on these characteristics, the Program will initially apply to all officers, except the CEO/President, as designated on Exhibit A. Effective January 1, 1995, the President/COO will become eligible. The Chief Executive Officer, and or President, may at any time recommend to the Board the addition or deletion of Program Participants. The Board will have final authority to approve or disapprove such recommendations. Existing Participants' award opportunities will not be positively or negatively affected by the addition or deletion of Participants. 4. DEFINITIONS OF KEY TERMS The key terms of the Program are defined in this section: a. "Participant" means any officer designated to participate in the Program. b. "Performance Period" means one fiscal year for the ST Plan and a period of three consecutive fiscal years for the VA Plan. c. "Base Salary" as relates to the ST Plan is the base salary of officers' compensation, before any deferrals and excluding any amounts paid under the VA Plan. Base Salary as relates to the VA Plan is the cumulative base salary of officers' compensation for a three-year Performance Period, before any deferrals and excluding any amounts paid pursuant to the ST Plan. d. "Total Actual Gross Patronage Dividend" is a dividend dollar amount derived from actual Retail Support Center (RSC) sales combined with actual Lumber and Building Material (LBM) sales. It specifically includes the following components: - Total Patronage Dividend, - International or Other Non-Patronage Income or Loss, - Paint International Non-Patronage Income (Loss), - Stop Handling Charge Subsidy, - Stop Freight Subsidy, - LTL Plus HC Subsidy - LBM Up front Discounts, - Retail Support Costs, and - Other Significant Nonrecurring Items. e. "Total Gross Patronage Dividend Threshold" is the minimum acceptable dividend dollar amount derived from planned RSC sales and planned LBM sales (i.e., actual dividends below this level do not warrant a VA Plan payout). f. "Permanent Sharing Ratio" is a constant percent to be applied to the difference between the Total Actual Gross Patronage Dividend and the Total Gross Patronage Dividend Threshold for purposes of determining the annual contribution/deduction to the VA Plan dollar pool. g. "Participant Sharing Ratio" is a unique percent assigned to each Participant which indicates how the total VA Plan dollar pool will be distributed. Each Participants's ratio will be determined by his/her Base Salary divided by the sum of all Base Salaries. All individual Participant Sharing Ratios will total 100 percent for any given VA Plan Performance Period. h. "Participant Account" is a record of the cumulative annual adjustments of awards under the VA Plan allocated to a Participant. i. "Retirement", for the purposes of this Program only, shall be defined as the first day of the month following the conclusion of a Participant's active employment. j. "Disability" shall be defined as when a Participant becomes totally disabled as described in the Corporation's Long-term Disability Plan. 5. PROGRAM ADMINISTRATION Compensation and Human Resources Committee: The Board Compensation and Human Resources Committee (the Committee) shall be responsible for overall Program administration The Committee is authorized to interpret the Program, to prescribe, amend, and rescind rules and regulations relating to the Program, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Corporation, and to make all other determinations necessary or advisable for the administration of the Program, but only to the extent not contrary to the express provisions of the Program. The Committee may request the assistance of the Board in making any determination under the Program or in carrying out its duties hereunder. The Committee may also delegate selected responsibilities to Corporation officers to facilitate day-to-day Program administration. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Program shall be final, binding and conclusive for all purposes and upon all persons whomsoever. Amendment, Modification, and Termination of the Program: The Board, or if designated the Committee, may at any time terminate, and from time to time may amend or modify the Program to meet the best interests of the Corporation (e.g., to modify the incentive pool calculation formula inlight of a major acquisition or merger). Amendments to the Program will only be made inlight of extraordinary events, under which a failure to amend would result in a performance award not consistent with the stated purpose of the Program. 6. ST PLAN DESIGN Performance Measure: CEO, and/or President, and Participants will, on a periodic basis, develop individual business objectives for eligible participants. Once approved, these objectives will become the primary basis for assessing performance and assigning awards under the ST Plan. The CEO, and/or President, at his discretion, may also consider other factors in assessing overall performance. Performance Period: The ST Plan is designed to operate with one-year Performance Periods. Award Opportunities: The maximum award opportunity for any given Participant will be 20 percent of his/her Base Salary. 7. VA PLAN DESIGN Performance Measure: Participants will share in a proportion of the value added to the Corporation over time. Each fiscal year an adjustment (contribution or deduction) will be made to an incentive fund for the VA Plan Participants based on the value added to the Corporation during the year. The value added is based on Actual Gross Patronage Dividend realized during the fiscal year over a Gross Patronage Dividend Threshold for the same fiscal year. Corporation performance (in terms of Gross Patronage Dividend) above the threshold level will result in an increase in the incentive fund based on the Permanent Sharing Ratio. Company performance below the threshold will result in a deduction from the incentive fund based on the Permanent Sharing Ratio. Following is a presentation of initial ratios pertaining to the VA Plan. These ratios may be adjusted from time to time by the Board: Gross Patronage Dividend Threshold for actual RSC sales is 5.5 percent Gross Patronage Dividend Threshold for actual LBM sales is 0.8 percent Permanent Sharing Ratio is 3.9 percent. A financial model which supports the VA Plan is presented in Exhibit B. Performance Period: The VA Plan is designed to operate with three-year Performance Periods, with a new Performance Period beginning each year. Award Opportunities: The Corporation's Compensation Strategy calls for a greater emphasis on rewarding long-term performance. With this in mind, the VA Plan calls for targeted award opportunities equal to 45 percent of the CEO's, and/or President's, Base Salary, and 30 percent of other Participants' Base Salaries. These targets are reflected in the initial Permanent Sharing Ratio and will be considered in establishing Permanent Sharing Ratios for future Performance Periods. 8. ADJUSTMENTS TO THE PARTICIPANTS' VA PLAN ACCOUNTS Collectively: Adjustments to the value-added account of Participants will be made annually. The total performance adjustment for all Participants as a group will be calculated as follows: - If the Total Actual Gross Patronage Dividend exceeds the Total Gross Patronage Dividend Threshold, the total amount to be added is equal to the excess multiplied by the Permanent Sharing Ratio. - If the Total Actual Gross Patronage Dividend is less than the Total Gross Patronage Dividend Threshold, the total amount to be subtracted is equal to the shortfall multiplied by the Permanent Sharing Ratio. The subtraction can either be applied to Participants' current Performance Period accounts or to their deferred nonvested award account (see Section 9). Individually: A Participant Sharing Ratio will be assigned to each VA Plan Participant based on his/her Base Salary as a percentage of the total Base Salaries for all Participants. The total funded award pool will be allocated to individual Participants based on their respective ratios. Individual accounts will be maintained on a yearly basis, and Participants will receive periodic statements detailing account value and the effect of recent financial results. 9. VA PLAN VESTING AND DISTRIBUTION A Participant immediately vests in two-thirds of the calculated award at the end of each Performance Period. Of the vested amount, half will be paid in cash or deferred at employee's option within the first quarter of the subsequent Fiscal Year. The other half may be invested in the Pacific Mutual or Metropolitan supplemental life insurance plans or deferred at employee's option (See Section 10). With regard to the remaining one-third award, it may be immediately deferred, but it becomes vested one year following the end of the Performance Period. For example, the non-vested award portion applicable for the 1992-1994 VA Plan will become vested as of the end of Fiscal Year 1995. 10. ST AND VA PLAN DEFERRAL ELECTION Prior to or during the Performance Period, a Participant may elect to defer to a future date any or all of his/her award that otherwise would be payable. Such decisions are subject to Deferral Plan provisions and shall be made prior such sums becoming earned and payable. 11. CHANGES IN EMPLOYMENT STATUS If a Program Participant's employment terminates during a Performance Period because of death, retirement, or permanent disability, the Participant (or his/her Beneficiary) will be 100 percent vested in his/her account and immediately payable unless otherwise deferred by the Participant (See Section 10). In the case of voluntary termination and involuntary termination, the Participant will forfeit any award that is not vested or vested by subject to the required one year deferral period. 12. CHANGES IN CONTROL Upon the occurrence of a Change in Control of the Corporation, Participants' awards for the Plans then in effect shall be calculated based on a pro rata application of the performance criteria as of the end of the date the Change of Control is effective. All awards then made, as well as any prior awards currently non-vested or in required deferral, will become immediately vested with cash payments made within a 90 day period unless otherwise deferred by Participant (See Section 10). 13. WITHHOLDING PAYROLL TAXES To the extent required by the laws in effect at the time payments are made, the Corporation shall withhold from payments made hereunder any taxes required to be withheld for federal, state, or local governmental purposes. 14. MODE OF PAYMENT All payments under the Program shall be made by negotiable check or other case equivalent. 15. BENEFICIARY DESIGNATION If a Participant dies before receiving all the distributions to which he/she is entitled, the remainder will be paid to such person as may be designated by an instrument in writing, and in a form acceptable to the Committee, executed by the Participant and delivered to the Committee during the Participant's lifetime, which designation the Participant may revoke or modify from time to time by an instrument in writing in a form acceptable to the Committee, executed by the Participant and delivered to the Committee during the Participant's lifetime. If no such designation is delivered to the Committee, or if no such designated Beneficiary is then living, then the remaining distributions shall be paid to the surviving spouse of the Participant, or in the even there is no such surviving spouse, to the estate of the Participant. 16. NON-ALIENATION A Participant shall have no right to pledge, hypothecate, anticipate, or in any way create a lien upon any amounts payable under this Program, and no benefit payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law. 17. NO EMPLOYMENT RIGHTS Nothing in this Program shall interfere with or limit in any way the right of the Corporation to terminate any Participant's employment at any time for any reason, nor confer upon any Participant any right to continue in the employ of the Corporation or its subsidiaries. 18. GOVERNING LAW This Program shall be construed in accordance with the laws of the State of Illinois. IN WITNESS WHEREOF, The Corporation has adopted this the amended, restated, and retitled ACE HARDWARE CORPORATION OFFICER INCENTIVE PLAN as of June 7, 1994. ACE HARDWARE CORPORATION, A Delaware Corporation BY: _______________________________ Chairman of the Board of Directors and BY: _______________________________ President and CEO EXHIBIT B E L I G I B L E O F F I C E R S DAVE HODNIK BILL LOFTUS MIKE BODZEWSKI PAUL INGEVALDSON RITA KAHLE DAVE LEAGUE DAVE MYER FRED NEER DON SCHUMAN EXHIBIT B E L I G I B L E P A R T I C I P A N T S B Y T I T L E 1 9 9 4 EXECUTIVE VICE PRESIDENT AND COO SENIOR VICE PRESIDENT VICE PRESIDENT 1 9 9 5 PRESIDENT AND COO SENIOR VICE PRESIDENT VICE PRESIDENT EX-23 18 AUDITOR'S CONSENT Consent of Independent Auditors The Board of Directors Ace Hardware Corporation: We consent to the use of our report included herein and to the reference to our firm under the heading "Opinions of Experts" in the Prospectus. Chicago, Illinois March 23, 1995 EX-24 19 POWERS OF ATTORNEY ACE HARDWARE CORPORATION: POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors of ACE HARDWARE CORPORATION, a Delaware corporation, hereby constitutes and appoints DAVID F. HODNIK and RITA D. KAHLE, and each of them, his true and lawful attorneys-in-fact and agents, each with full power to act without the other, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement on Form S-2, and any and all amendments thereto, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has set his or her hand and seal as of this 22nd day of March, 1995. Jennifer C. Anderson Richard E. Laskowski Lawrence R. Bowman Ray W. Osborne Mark Jeronimus Jon R. Weiss Howard J. Jung Don S. Williams John E. Kingrey James R. Williams, Jr. EX-27 20 EXHIBIT 27 (FDS) FILED WITH FORM S-2
5 This schedule contains summary financial information extracted from SEC Form S-2 and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1994 DEC-31-1994 4868 0 260961 1350 270391 541680 297591 16954 725481 397701 0 0 0 0 0 725481 2326115 2326115 2158896 2158896 92894 0 12035 66006 1484 0 0 0 0 64522 0 0
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