S-2

As filed with the Securities and Exchange Commission on March 22, 2002.                                                                          Registration No. _________

UNITED STATES
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                                                               36-0700810
 (State of Incorporation)                                                         (I.R.S. Employer Identification No.) 2200 Kensington Court, Oak Brook, Illinois 60523 (630) 990-6600
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Rita D. Kahle, Executive Vice President
Ace Hardware Corporation, 2200 Kensington Court, Oak Brook, Illinois 60523 (630) 990-6600
(Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: From time to time, after the effective date of this 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.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. 

CALCULATION OF REGISTRATION FEE                                                   Proposed      Proposed
                                    Amount        Maximum       Maximum        Amount of
     Title of Each Class of          to be     Offering Price   Aggregate     Registration
  Securities to be Registered     Registered      Per Unit    Offering Price      Fee     
Class A Stock, $1,000 par value   2,000 shares    $1,000        $2,000,000
Class C Stock, $100 par value    80,000 shares    $  100        $8,000,000        $920

The Registrant hereby amends this Registration Statement on such date or dates as 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 this Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

PROSPECTUS

                                                           Subject to completion, dated March 22, 2002
ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60523
(630) 990-6600 2,000 Shares Class A (Voting) Stock, $1,000 par value
80,000 Shares Class C (Nonvoting) Stock, $100 par value We only offer Class A Voting Stock together with Class C Nonvoting Stock to hardware retailers for their initial membership in our cooperative. We offer Class C Nonvoting Stock without any Class A Voting Stock to our existing members when they have additional store locations that also become members of our cooperative. (See "Distribution Plan and Offering Terms") There is no existing market for the Capital Stock that is being offered in this Prospectus, and we do not expect any market to develop.

The information in this Prospectus is not complete and may be changed.  We may not sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective.  This Prospectus is not an offer to sell and is not soliciting an offer to buy in any state where the offer or sale is not permitted.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.             Underwriting
                           Price to   Discounts and   Proceeds to
                             Public    Commissions(4)     Company   Class A Stock
   Per share(1)(2)        $    1,000       None        $    1,000
   Total                  $2,000,000       None        $2,000,000
Class C Stock
   Per Share(1)(3)(4)     $      100       None        $      100
   Total                  $8,000,000       None        $8,000,000


(1) The shares are offered in a unit of $5,000 to each hardware retailer. Class A Stock is included only if the hardware retailer does not have a store location that is already a member of our cooperative.

(2) 1 share of Class A Stock and 40 shares of Class C Stock are offered to each hardware retailer for the first store location that becomes a member of our cooperative.

(3) 50 shares of Class C Stock are offered to each existing member who has another store location that also becomes a member of our cooperative.

(4) There are no underwriters. We sell this stock directly to our members. An applicant must pay a $1,500 ($2,500 for conversions or new investor ground-ups) fee to have a membership application processed. If all of the stock in this offering is sold, the total proceeds will be the amount shown above before deducting estimated expenses of approximately $65,000.

(5) All of the shares of Class C Stock included in this offering can be purchased for cash, but the purchaser can also choose to pay for the stock in bi-weekly installments. We also plan to issue additional shares of Class C Stock to our members as a part of their patronage dividends for business that they do with our cooperative.

     This offering is exempt from the registration provisions of the New York Franchise/Disclosure Statute. Our agent for service of process in New York is Lexis Document Services Inc., 41 State Street, Suite 608, Albany, New York 12207. (See back cover page regarding special revocation rights of Florida purchasers.)


PLEASE REFER TO THE "FACTORS TO BE CONSIDERED" ON PAGE 2 OF THIS PROSPECTUS.

This is a continuous offering that terminates no later than April 30, 2003. The date of this Prospectus is __________ __, 2002

          AVAILABLE INFORMATION

     The terms "Ace," "Company," "cooperative," "we," "us," "our" and similar words refer to Ace Hardware Corporation. The terms "member," "retailer," "dealer," "you," "your" and similar words refer to someone who purchases our stock.

     We are subject to the informational requirements of Section 15(d) of the Securities Exchange Act of 1934. Therefore, we file annual reports, quarterly reports, current reports and other information with the Securities and Exchange Commission (SEC). You may read and copy these materials at the SEC's Public Reference Room at 450 5th Street, N.W., Washington, D. C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC has an Internet site that contains reports, proxy and information statements and&n bsp;other information about issuers that file electronically with the SEC. The address of that Internet site is http://www.sec.gov. We also have an Internet site whose address is http://www.acehardware.com.
DOCUMENTS INCORPORATED BY REFERENCE

     We have filed an Annual Report on Form 10-K for our 2001 fiscal year ending December 29, 2001 under Section 15(d) of the Exchange Act. That Form 10-K Annual Report is incorporated by reference into this Prospectus. Someone to whom we deliver a Prospectus can request (in writing or verbally) a free copy of the Form 10-K and any other documents that we may in the future incorporate by reference into this Prospectus. If those documents also have exhibits, we will not include copies of the exhibits unless they are also expressly incorporated by r eference into the documents being copied. To request these copies, please contact Rita D. Kahle, Executive Vice President, Ace Hardware Corporation, 2200 Kensington Court, Oak Brook, Illinois 60523, (630) 990-6600.


                                     FACTORS TO BE CONSIDERED Limitations on Value and Marketability of Stock
     Although we pay "patronage dividends" or "patronage rebates" to our stockholders on the basis of the quantity or value of business that we do with them, our corporate charter prohibits us from declaring dividends on shares of our capital stock. Your ability to transfer these shares is limited and there is no trading market for them. If you have a store location that is a member of our cooperative and it closes down or if your Ace membership is terminated, you can only sell your shares to another hardware dealer whom we approve  as a member for a particular store location. If you do not sell the shares in this way, then we must repurchase them. (See the heading "Description of Capital Stock".) We do not expressly set aside any funds to repurchase these shares, and repurchases can be made only as permitted under the General Corporation Law of Delaware. (See the heading "Summary," subheading "Repurchase of Shares by Company".) Therefore, except for the voting rights which the Class A Stock has, our stock has value to you only if your membership terminates or if our Company& nbsp;is liquidated.
Income Tax Liability Incidental to Patronage Dividends

     If you purchase shares, you must report the total amount of your patronage dividends from us as gross income on your federal income tax return. Therefore, your gross income will include not only the cash portion of your patronage dividend, but also the stated dollar amount of any shares of Class C Stock and patronage refund certificates along with the fair market value of other qualified property that are included in your patronage dividends. These patronage refund certificates are non-negotiable. They have a maturity date and pay annual interest at a rate& nbsp;that is determined by our Board of Directors before the certificates are issued. A minimum of 20% of your total annual patronage dividends must be paid in cash, unless this cash portion has been applied against your indebtedness to us. The cash portion would be applied against your indebtedness if your membership had terminated and you had not requested payment of the 20% minimum in cash. Depending on your income tax bracket, this cash portion may not be enough to pay all of your federal income tax liability on your patronage dividend distributions. (See the hea ding "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends".)
Sale of All Shares Offered Not Assured

     Since only hardware retailers for particular store locations that have memberships approved can purchase our stock, it is not certain that all of the shares of stock in this offering will be sold.
Company's First Lien Rights on Shares

     All of your shares of our stock, including any Class C shares that we distribute to you as patronage dividends and any patronage refund certificates, are subject to our first lien rights to ensure that you pay your debts to us. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights" and the heading "The Company's Business", subheading "Forms of Patronage Dividend
Distributions".)
Full Payment Required for Issuance of Shares

     You may pay for your shares of stock in full in advance, or you may pay for them over time by having charges billed to your regular bi-weekly statement from us. You will not receive your stock certificate(s) until the purchase price for the share(s) of a particular class has been paid in full. (See the heading "Distribution Plan and Offering Terms".)
By-law Provisions Constitute a Legal Contract with the Company

     Our By-laws state that they are a legal contract between the Company and its stockholders. (See Article XXVI of the By-laws.) A full copy of these By-laws, amended as of January 26, 2002, is printed in this Prospectus as Appendix A. We particularly encourage you to review: 1) Article XVI, Sections 5 through 12, which limit transfers of our stock and govern our repurchase of shares; 2) Article XXIV titled "Members' Patronage Dividends"; and 3) Article XXV, which addresses a member's rights and obligations.
Documents Accompanying Prospectus

     Our most recent annual report to shareholders and the current standard form of our Membership Agreement accompany this Prospectus. (See the heading "The Company's Business," subheading "Membership Agreements.")

SUMMARY

The Company and Its Business

     The mailing address and telephone number of our main executive offices are: 2200 Kensington Court, Oak Brook, Illinois 60523, (630) 990-6600.

     We are a wholesaler of hardware and related products. We also manufacture paint products. We sell products mainly to retail hardware dealers who have Membership Agreements with us. These Membership Agreements entitle our dealers to purchase merchandise and services from us and grant a license to use some of our trademarks. (See the heading "The Company's Business," subheading "Membership Agreements.") Our dealers are subject to "Member Operational Requirements" and other important requirements. The number of hardware store locations that had Membership Agreements with&nbs p;us as of the end of our 2001 fiscal year on December 29, 2001 were 4,976. (See the heading "The Company's Business.")
Basic Distinctions Between Classes of Stock

     Our capital stock is divided into three classes, Class A, Class B and Class C. Class A Stock is the only class of stock that has voting rights for the election of directors and most other matters. Class B Stock was previously offered for memberships that we granted on or before February 20, 1974, but Class B Stock has not been offered since March 31, 1979. Our Board of Directors has the right to redeem some or all of the outstanding shares of Class B Stock. The Board can also redeem any outstanding shares of Class C Stock  that we issued for patronage dividends distributions. If our Company is ever liquidated, the outstanding shares of Class B Stock and Class C Stock have priority over the outstanding shares of Class A Stock in the distribution of our net assets. This priority only extends up to the amount we would have to pay to purchase or redeem all of our outstanding shares of Class B Stock and Class C Stock. If our net assets exceeded the total amount which we would have been required to pay for that redemption, then the excess would be distributed in equal portions  to the Class A Stockholders (up to the $1,000 par value of the Class A Stock). After that, any net assets left over would be proportionately distributed among the stockholders of all three classes of our stock. A Class A Stockholder would participate in this distribution based on the proportion which the par value of his share of Class A Stock bears to the sum of the total par value of all outstanding shares of Class A Stock and the total amount which we would have been required to pay to purchase or redeem all of the outstanding shares of&n bsp;Class B Stock and Class C Stock. Each share of Class B Stock and Class C Stock would participate in the distribution in the proportion which the applicable purchase or redemption prices of these types of stock would bear to the same sum.  (See the heading "Description of Capital Stock", subheadings "Voting Rights," "Liquidation Rights," and "Redemption Provisions.")

     The declaring of dividends on any shares of our stock in any class is expressly prohibited by our Certificate of Incorporation and By-laws (See the heading "Description of Capital Stock", subheading "Dividend Rights.")
Basic Features of Offering

     This offering is being made only to approved retailers of hardware and related products who apply for membership in Ace Hardware Corporation, either initially or with additional store 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. 

     Our Company operates as a retailer-owned cooperative. This offering enables retailers to obtain membership in our Company. Membership entitles our dealers to use certain trademarks that we own, to purchase merchandise from us, and also to receive patronage dividends on an equitable basis.

     For an initial membership, you must subscribe for 1 share of Class A Stock plus 40 shares of Class C Stock. If you apply for membership for an additional store location that you own or control, then you must subscribe for 50 shares of Class C Stock for that location. You must also pay us a $1,500 charge for processing your membership application ($2,500 for conversions or new investor ground-ups).

     If you do not pay for your shares in advance, then we bill you for them on the bi-weekly billing statement that we send you for your purchases of merchandise and services from us. You can prepay the purchase price of your shares at any time. For a more detailed explanation of this offering, please see the information under the heading "Distribution Plan and Offering Terms".
Repurchase of Shares by Company

     If your membership for a store location terminates, then all of your shares for that location must be sold back to us unless the shares are transferred to another party whom we agree to accept as a member for that location. If we repurchase your shares, we must do so at the following prices: 1) $1,000 par value for Class A Stock, 2) not less than twice the $1,000 par value for Class B Stock, and 3) not less than the $100 par value for Class C Stock. (See the heading "Description of Capital Stock", subheading "Oth er Restrictions and Rights", paragraph (g).) We pay some of the repurchase price by issuing you an interestbearing 4-year installment note if your membership terminates in either of two basic types of situations. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights", paragraph (h), of this Prospectus and Section 12 of Article XVI of the By-laws, in Appendix A of this Prospectus, for further details concerning those situations.)

     As of the end of our 2001 fiscal year on December 29, 2001, the number of outstanding shares of our stock was as follows: Class A Stock 3,693 shares, Class B Stock 2,108 shares, and Class C Stock 2,602,243 shares. At the completion of this offering, assuming that all Class A Stock is sold, the number of outstanding shares of our stock would be as follows: Class A Stock 5,680 shares, Class B Stock 2,092 shares, and Class C Stock 2,665,700 shares.

     Under Delaware corporate law, we are not allowed to repurchase any of our shares if our assets are less than the amount of our aggregate outstanding shares of capital stock or if our assets would be reduced below that amount because of the repurchase. 

     The number of shares of stock that we repurchased and the price per share that we paid during each of our past three fiscal years is summarized in the table below.
  Class of Stock
A   B C                              No. of  Purchase   No. of  Purchase    No. of Purchase   Aggregate
Shares Price Shares Price Shares Price Cost 2001 Fiscal Year ended
   December 29, 2001          260     $1,000     144     $2,000    144,584    $100   $15,006,400
2000 Fiscal Year ended
   December 30, 2000          307     $1,000     180     $2,000    141,365    $100   $14,803,500
1999 Fiscal Year ended
   January 1, 2000            228     $1,000     160     $2,000    119,614    $100   $12,509,400
Patronage Dividends and Income Tax Treatment

     We operate on a cooperative basis for patronage purchases of merchandise that our shareholders and
subscribers for shares make from us. We distribute annual patronage dividends to these shareholders and
subscribers on an equitable basis. Please see the table under the heading "The Company's Business,"
subheading "Distribution of Patronage Dividends" for information about the percentages of sales of
merchandise we made during the fiscal years 1999 through 2001 that we distributed as patronage
dividends. Under our current plan, a portion of patronage dividends (which can never be less than 20%
nor more than 45% of the total annual patronage dividends we distribute to each dealer) are paid in cash
except to terminated dealers. The cash portion of any patronage dividends which would have been paid
to a terminated dealer is applied against that dealer's indebtedness to us unless the terminated dealer
makes a timely request for the payment of the minimum 20% in cash. Other qualified property, shares of
Class C Stock or non-negotiable patronage refund certificates, or a combination of them are used to pay
the entire remaining portion of patronage dividends. Dealers whose volume of purchases entitles them to
larger total annual patronage dividend distributions receive larger percentages of their patronage
dividends in cash. (See the heading "The Company's Business", subheadings "Distribution of Patronage
Dividends", "Patronage Dividend Determinations and Allocations", and "Forms of Patronage Dividend
Distributions.") The amount of patronage dividends allocated over the past five fiscal years is shown in
Selected Financial Data.

     The cash payments and stated dollar amounts of Class C Stock and patronage refund certificates
along with the fair market value of any other qualified property that we distribute as patronage dividends must be taken into your gross income for federal income tax purposes. (See the heading "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends.")

     Members whose businesses are located in foreign countries or Puerto Rico (except for unincorporated
Puerto Rico dealers owned by individuals with U.S. citizenship) can be subject to a 30% U.S.
withholding tax imposed on nonresident alien individuals and foreign corporations (except for some
Guam, American Samoa, Northern Mariana Islands, or U.S. Virgin Islands corporations). These dealers
have a minimum 30% portion of their annual patronage dividends distributed in cash, and we withhold
that amount for the payment of U.S. income tax. A lower rate of withholding may be applicable in
countries maintaining tax treaties with the United States. (See the heading "The Company's Business",
subheadings "Forms of Patronage Dividend Distributions", and "Federal Income Tax Treatment ofPatronage Dividends.")

USE OF PROCEEDS

     We use the proceeds that we receive from this stock offering mainly for general working capital
purposes (including purchasing the merchandise that we resell and maintaining adequate inventories of
this merchandise) and also for the capital expenditures that we make in order to serve our business. We
currently have no other specific plan for these proceeds. We also have no plan if less than all the shares in this offering are sold as the main reason for the offering is to enable us to accept new members in accordance with our By-laws. (See the heading "The Company's Business," subheadings "Patronage Dividend Determinations and Allocations" and "Forms of Patronage Dividend Distributions"), for a discussion of how we plan to obtain most of the balance of our operating capital. (See the heading
"Factors to be Considered," subheading "Sale of All Shares Offered Not Assured.")

DISTRIBUTION PLAN AND OFFERING TERMS

Offering Made Through Company Officers

     Our officers make all of the sales of stock under this offering. We employ approximately 242 field
sales personnel including retail business managers, new business managers, retail development managers,
visual merchandisers and regional managers. Their duties include contacting retail dealers and promoting
our business and programs. Our field sales personnel, however, are not allowed to accept new members,
and they are not authorized to make sales of any shares of our stock. Also, we do not pay any commission, bonus or other separate compensation to any officers, field sales personnel, or other employees in connection with the sale of our stock.
Limitation of Offering to Applicants for Ace Dealer Memberships

     This offering is limited to dealers in hardware or similar merchandise who submit membership
applications to us for designated retail outlets that we choose to accept. Applicants for membership must submit the following for each store location that desires to become a member:

     1. A signed Membership Agreement in acceptable form;

     2. A check for the application processing fee; and

     3. A signed Subscription Agreement for the purchase of shares of our stock.
Offering Price and Terms of Payment

     Each applicant for membership must subscribe for shares of our stock having a total purchase price
of $5,000 per member store. If a dealer does not already have a Membership Agreement with us for any
store location, the subscription for shares for the first store location includes 1 share of Class A voting stock at a price of $1,000 per share plus 40 shares of Class C nonvoting stock at a price of $100 per share. The subscription for shares for each additional store location owned or controlled by the same dealer consists entirely of 50 shares of Class C nonvoting stock at a price of $100 per share.

     Unless you prepay your stock subscription, you pay for your shares through a series of charges that
we add to your bi-weekly billing statement from us. The amount of each of these charges is the larger of
$40 or 2% of the purchase price of the merchandise and services you purchase from us during each biweekly period. These charges continue until the stock subscription for your store location is paid for in full. We do not add any interest or other finance charges to the unpaid balance of your stock subscription so long as all of your payments are made by the due date of the billing statement. If we accept the Membership Agreement and Stock Subscription Agreement for your store location, you are entitled to participate in our patronage& nbsp;dividend distributions even though you have not finished paying the full purchase price for that store's shares of stock.
Right of Prepayment

     If you subscribe for shares of our stock, you have the right at any time to prepay some or the entire purchase price as discussed in the section above.
Time of Issuance of Stock Certificates

     Immediately upon your full payment of the $1,000 purchase price for your 1 share of Class A voting
stock, we issue you a certificate for that share. If your stock subscription includes a share of Class A Stock, all of your payments are first applied to the purchase price for this share. You do not have any voting rights until you are issued a share of Class A voting stock. We issue certificates for your shares of Class C nonvoting stock only when you have paid the full purchase price for all of your Class C shares for your particular store location. If the membership for your store location terminates before its shar es have been fully paid for and issued, then we give you a refund for the amount that you previously paid toward the purchase of these shares.
Termination of Membership Upon Transfer or Repurchase of Shares

     Unless we expressly consent to the continuation of your membership, it will automatically terminate
when any of your shares of our stock (whether you purchased them or whether you received them as
patronage dividends) are transferred to another eligible shareholder or we repurchase them.
Federal Income Tax Status of Class A and Class C Shares

     If your membership terminates for all of your member store locations and we repurchase your shares
of Ace stock, that repurchase would include your one share of Class A voting stock. Since we must
repurchase the share of Class A Stock at its $1,000 par value, you would not realize taxable income from
our repurchase of that share.

     If we repurchase your shares of Class C Stock, you could realize taxable income under the U.S.
Internal Revenue Code if the price we had to pay for the shares to redeem them exceeded the $100 par
value that you originally paid for them under this offering. This could occur if our Board of Directors set a higher offering price for Class C shares at some future date. In this example, unless you still owned our stock for other store locations that remained members, the taxable income you realized at the time of our repurchase of your Class C shares might qualify for capital gains treatment.

     If you still continued to own shares of our stock for other store locations after we repurchased your shares for one or more of your locations, then the entire amount we would pay you for the repurchased shares might be treated under the Internal Revenue Code as a dividend and be taxed to you as ordinary income. In that case, the income tax basis of the shares of our stock that you still held might be increased by an amount equal to the original basis of the shares you purchased from us.

     Section 483 of the U.S. Internal Revenue Code may apply if you pay for your shares in periodic
installments extending for more than 1 year from the date of the sale. In that case, all payments that are due more than 6 months after the date of the sale may be deemed to include "unstated interest." Although you might deduct this interest, it could also reduce the cost basis of your shares.

     "Unstated interest" that is taxable income to you can also occur under Section 483 of the U.S. Internal Revenue Code if your membership is terminated and you receive a 4-year installment note from us in partial payment for your stock. [(See the heading "Description of Capital Stock," subheading "Other
Restrictions and Rights," subparagraph (h))]. This could happen if the sum of the total payments to be
made to you for the repurchase of stock exceeded the sum of the present values of those payments plus
the present values of any interest payments due under the note. The present value of a payment is figured using a discount rate that is equal to the applicable Federal rate in effect as of the date of the note, compounded twice a year.

DESCRIPTION OF CAPITAL STOCK

Dividend Rights

     Our Certificate of Incorporation and By-laws prohibit us from declaring dividends on any shares of
any class of our stock. However, we may distribute shares of Class C Stock to you as a part of your annual patronage dividends. (See the heading "The Company's Business," subheading "Forms of Patronage
Dividend Distributions," as well as Note 5 to Financial Statements, and Note (B) to "Selected Financial
Data").
Voting Rights

     Our Class A Stock is voting stock, but Class B Stock and Class C Stock can vote separately by class
upon any increase or decrease in the number of authorized shares of their classes, any change in the par
value of those shares, or anything that would change the power, preferences or special rights of one of
those classes so as to adversely affect its shares. Any class of stock that has the right to vote has one vote per share. Cumulative voting of shares for the election of directors or other reasons is not allowed.
Liquidation Rights

     If our Company voluntarily or involuntarily liquidates or goes out of business, our net assets will be distributed among the shareholders of all classes of our issued and outstanding stock. In that case, our Class B and Class C shareholders would first receive the total amounts which we would have had to pay them to repurchase all of their outstanding shares of those classes at the prices previously set by our Board of Directors. However, if we did not have enough net assets to pay that amount, then each outstanding share of Class B Stock&nbs p;and each outstanding share of Class C Stock would share in the distribution of our net assets in the proportion which its purchase or redemption price would bear to the total available for payment. (See the subheading "Redemption Provisions" below). If our net assets were more than that, the excess would be distributed equally to each Class A stockholder up to the Class A Stock par value of $1,000 per share. Any net assets that were left would be distributed among the shareholders of all classes of stock as follows:

(a) first, we would take the amount of the total $1,000 par value for all of the outstanding shares of Class A Stock and we would add this to the total amount we would have been required to pay to purchase or redeem all of our outstanding shares of Class B Stock and Class C Stock at the prices previously set by our Board of Directors. The sum of these two figures would be used in the steps below;

(b) next, each outstanding share of Class A Stock would receive part of the remaining net assets in the proportion which its $1,000 par value bears to the sum determined in (a) above; and

(c) each outstanding share of Class B Stock and each outstanding share of Class C Stock would share in the remaining net assets in the proportion which its price, as previously set by our Board of Directors, bears to the sum determined in (a) above.

Preemptive Rights

     No stockholder has any special right or preference to purchase any present or future shares of our
stock, notes, debentures, bonds or other securities, including any convertible stock, options or warrants.
Redemption Provisions

     Redemption provisions do not apply to any shares of Class A Stock, and they only apply to the shares of our Class B Stock and our Class C Stock that have been issued as annual patronage dividends. These redemptions may be made at any time as determined by our Board of Directors. The redemption price
would also be determined by our Board of Directors, but the redemption price to be paid for Class C
Stock cannot be less than its $100 par value per share and the redemption price to be paid for Class B
Stock cannot be less than twice its $1,000 par value per share. (The redemption price for Class B Stock,
has to be equal to twenty times the per share price that our Board of Directors establishes for purchases or redemptions of our Class C Stock.) If we decided to redeem our stock as discussed above, we would have to mail notice to each stockholder of that class at least 30 days before the redemption date. If not all of the outstanding Class B or C shares were being redeemed, then the number of shares and the method of redemption, whether by lot or prorata or some other way, would be determined by our Board of
Directors.
Other Restrictions and Rights

(a) We do not have any conversion rights, sinking fund provisions, or liability to further calls or assessments for any shares of our stock.

(b) As security for your indebtedness to us, we retain a first lien upon all your shares of Ace stock and all amounts that you pay us under your Stock Subscription Agreement before your shares are issued. Your interest in your Ace stock and the amounts you pay us under your Stock Subscription Agreement are always offset by the amount of any indebtedness that you owe us. We will not transfer any of your shares or any funds in your stock subscription account unless you are free from all indebtedness to us. If we would issue an installment note to&nb sp;partially pay for the stock that we are buying back from a terminated dealer in one of the situations described in section (h) below, then the cash portion we would normally pay toward those shares would first be applied toward any indebtedness which that terminated member owed to us. The portion of the purchase price of those shares that we would normally pay with an installment note would then be applied toward any indebtedness that still remained.

(c) Since we first issued shares of our stock to members and continuing to the present time, the
ownership of all classes of our stock has been limited to approved dealers in hardware and related products who have Membership Agreements with us. Ownership of Class B Stock has been limited to dealers whose Membership Agreements with us began on February 20, 1974 or earlier. You are not allowed to transfer your shares of our stock or to sell, assign or pledge them, or to post them as collateral or give lien rights in them to anyone other than Ace without the prior consent of our Board of Directors. If our Board of Directors refuses&n bsp;to consent to a transfer or assignment of your stock certificates to another retail hardware dealer, then we have to purchase that stock back from you as described in section (g) below. You are not entitled to make a transfer or assignment to anyone who is ineligible to become a member of our Company. In other words, approved transfers can only be made to other dealers who either have Membership Agreements with us or whom we are willing to accept as members. Where you propose to transfer the ownership of your member store location to another member, (or  ;to someone whom we are willing to accept as a member), then you have the option of either (i) selling or transferring to that person the same number of shares that we would have been required to offer him as a member for that store location, or (ii) selling those shares back to us. However, there are certain types of transfers of your business where you do not have the option of selling those shares back to us. These situations involve (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which you&nb sp;retain an ownership interest; or (iii) any transfer to your spouse.

(d) If your membership terminates for your store location, then we must repurchase your shares of Ace stock. Our repurchase obligation is subject to our first lien and our right to set off your indebtedness to us as described in section (b) above. (If your stock has not yet been paid for and your shares have not yet been issued, we would instead refund the amounts that you paid under your Stock Subscription Agreement, again subject to our first lien and offset rights described in section (b) above). Your membership can be terminated by a formal notice of&nb sp;termination, and it can also be terminated automatically under our By-laws in each of the following three situations without a formal notice:

(i) If your store closes down or ceases business unless your store is moved, with our consent and approval, to another location, or unless your store is being acquired by another dealer whom we are willing to accept as a member for operation under the same membership at another location;

(ii) If an individual holder of our shares or a member of a partnership that is a holder of our shares dies, except where the store location having the Ace membership continues, with our approval (which we will not unreasonably refuse to give), to be operated by the deceased person's estate, heirs or partnership successors. Changes in the legal form of ownership of the member store from an individual proprietorship or partnership to a corporation or from a partnership to an individual proprietorship are not considered significant in these cases;

(iii) If a court or other official body rules that a member is insolvent, or the member assigns the business to be operated for the benefit of creditors, or a voluntary or involuntary bankruptcy or similar petition is filed under the U.S. Bankruptcy Code regarding the dealer or the store or business unit for which our shares of stock are held.

(e) Our Board of Directors does not need to consent to a transfer of shares of Ace stock that occurs when the shares are held jointly with others and the ownership of the shares automatically passes under law to the survivor(s), nor are we obligated to repurchase the shares in that case unless the store location either (i) closes down, or (ii) stops being operated as a member of our Company.

(f) If you hold your Ace membership in the form of a corporation (the "member corporation"), you must give us written notice of any proposal where the holders of 50% or more of the voting stock of the member corporation propose to sell or transfer all of their shares of capital stock (both voting and non-voting) of that member corporation. If there is a member corporation but another corporation (the "controlling company") holds 80% or more of the voting stock of the member corporation, then you must also give us written notice if the holders of&n bsp;50% or more of the voting stock of the controlling company propose to sell or transfer all of their shares of capital stock (both voting and non-voting) in the controlling company. In these cases, when the sale or transfer occurs, the corporation whose shares were sold or transferred can either keep all the shares of Ace stock that it owns for the member corporation or sell all of those shares of Ace stock back to us. If it chooses to sell all of the shares of Ace stock back to us, then the memberships for all of the store locations represente d by that stock are considered terminated by the member's voluntary action. Once terminated in this way, any store location that wishes to continue being a member must submit a new application for our acceptance. However, there are certain types of transfers of their own company stock by the shareholders of member corporations that do not result in the option of selling any Ace shares back to us. These situations involve (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which the person making the transfer retains an& nbsp;ownership interest; or (iii) any transfer to the spouse of the person making the transfer.

(g) The price that we pay when we repurchase shares of Ace stock is as follows:

(i) For Class A Stock, the $1,000 par value of the shares;

(ii) For Class B Stock, the per share price last set by our Board of Directors, currently 2,000 per share. This price cannot be less than twice the $1,000 par value of the Class B Stock and must be equal to twenty times the per share repurchase price set by our Board of Directors for repurchases of our Class C Stock;

(iii) For Class C Stock, the per share price last set by our Board of Directors, currently $100 per share. This price may not be less than the $100 par value of each of these shares. There is no market for the sale or trading of our stock, and the redemption prices last established by our Board of Directors have not been adjusted since 1974 when the Company first became a cooperative.

(h) When we repurchase our stock from a terminated member in either of the two situations described below, we issue an installment note for part of the purchase price. That note is payable in four equal annual installments plus accrued interest. The situations where we use an installment note are where:

(i) the dealer voluntarily terminates his Ace membership, but continues basically the same business at the store location, and the store continues being controlled (more than 50%) by the same person, partnership or corporation; or

(ii) we terminate the dealer's Ace membership for being delinquent in payment to us or because of some other default under the Membership Agreement.

     Even in the above situations, though, the amount originally paid in by the dealer under the Stock
Subscription Agreement is subject to being refunded in cash. We also pay cash when the entire remaining
portion of the purchase price is less than $5,000. Where the remaining portion is $5,000 or more in these cases, however, we only pay cash for the amount originally paid in by the dealer under the Stock
Subscription Agreement, and we pay the rest by an installment note as described above. The interest rate
on this installment note is the rate established by our Board of Directors at the time the note is issued. This interest rate is a minimum of 6% per annum, and is at least as high as the interest rate that applies to the patronage refund certificates that are issued as a part of our annual patronage dividends. Our Board of Directors may authorize higher levels of cash payments for dealer hardship situations, but this depends on our financial condition and requirements at the time.

(i) There is no restriction on our repurchase or redemption of any shares of our stock if we fall behind in making any sinking fund installment payments which we may become obliged to make in the future. Since we are prohibited from declaring dividends on any shares of our stock, there can be no past due situation in the payment of dividends that could impose any restriction on our repurchase or redemption of our stock. Under the General Corporation Law of Delaware, we are not allowed to repurchase any of our shares if our a ssets are less than the amount of the aggregate outstanding shares of our capital stock or would be reduced below that amount after the repurchase.

(j) We have established a LBM Retailer Incentive Pool Plan for our members who purchase lumber and building materials ("LBM") products through Builder's Mart of America, Inc. ("BMA") and are eligible participants under our Ace Contractor Center standards. Under the plan, we calculate an annual estimate of the amount by which our stock in BMA has increased or decreased in value from our initial investment, net of certain expenses. We allocate this estimate to eligible members annually based on their qualifying purchases of LBM products. A member's pool allocation only becomes&n bsp;vested and can only be redeemed upon the termination of the member's Ace membership which results in the sale or redemption of Ace stock held for that location, Ace's termination of the LBM Retailer Incentive Pool Plan, or Ace's liquidation, whichever comes first. Negative pool balances are not charged to members.

THE COMPANY'S BUSINESS

     Ace Hardware Corporation was formally organized as a Delaware corporation in 1964. In 1973, as the
result of a corporate merger, it became the successor of Ace Hardware Corporation, an Illinois
corporation that was organized in 1928. Until 1973, the Illinois corporation conducted the business now
being engaged in by our Company. Our main executive offices are located at 2200 Kensington Court, Oak
Brook, Illinois 60523. Our main telephone number is (630) 990-6600.

     We operate primarily as a wholesaler of hardware and related products, and we also manufacture
paint products. We mainly sell our products to hardware dealers who have Membership Agreements with
us. These Membership Agreements allow the hardware dealers to purchase merchandise and services
from us and, in most cases, to license one or more of our marks. (See the heading "Factors To Be
Considered", subheading "Documents Accompanying Prospectus," and the heading "The Company's
Business", subheading "Membership Agreements").

     We operate on a cooperative basis and distribute patronage dividends to our eligible member dealers
each year on the basis of quantity or value of patronage business that we do with them. (See the
subheading "Distribution of Patronage Dividends").

     As of the end of our 2001 fiscal year on December 29, 2001, there were 4,976 stores having Membership Agreements with us. The States with the largest concentration of members are California (approximately 10%), Texas and Illinois (approximately 6% each), Florida (approximately 5%) and Michigan and Georgia (approximately 4% each). The States where we shipped the largest percentages of merchandise in fiscal year 2001 were California (approximately 12%), Illinois (approximately 9%), Florida (approximately 6%), Texas, Michigan and Georgia (approximately 4% each). Approximately 4.4% of our s ales are made to locations outside of the United States and its territories.

     The number of member locations that we had during each of our past three fiscal years is summarized
in the following table:
2001 2000 1999 Member outlets at beginning of period                        5,011  5,082  5,039
New member outlets                                             220    208    264
Member outlets terminated                                      255   279   221
Member outlets at end of period                              4,976  5,011  5,082
                                                             =====  =====  =====
Dealers having one or more member outlets at end of period   3,778  3,858  3,932

     We service our dealers by buying merchandise in quantity lots, mainly from manufacturers. We then warehouse large quantities of this merchandise and sell it in smaller lots to our dealers. Most of the products that we distribute to our members from our warehouses are sold at a price that we establish ("dealer cost"), to which a 10% adder ("handling charge") is generally added. In fiscal year 2001, warehouse sales were 72% of our total sales and bulletin sales were 3% of our total sales with the balance of 25% being direct shipment s ales.

     The following is a breakdown of our total warehouse sales among various general classes of
merchandise for each of the past three fiscal years:
Class of Merchandise 2001 2000    1999
Paint, cleaning and related supplies          21%     20%     20%
Plumbing and heating supplies                 15%     15%     15%
Hand and power tools                          14%     14%     14%
Garden, rural equipment and related supplies  14%     14%     13%
Electrical supplies                           12%     12%     13%
General hardware                              11%     12%     12%
Sundry                                         8%      7%      7%
Housewares and appliances                      5%      6%      6%

     We sponsor two major hardware conventions each year at various locations. We invite dealers and
vendors to attend, and dealers generally place orders that are delivered before the next convention.
During the convention, there are exhibits of regular merchandise, new merchandise and seasonal
merchandise. Lawn and garden supplies and exterior paints are seasonal merchandise in many parts of
the country. Some types of goods such as holiday decorations are also seasonal.

     Warehouse sales involve the sale of merchandise that we inventory at our warehouses. Direct shipment sales involve sales where the merchandise is shipped directly to dealers by vendors. Bulletin sales involve our special bulletin offers where we order specific merchandise after dealers sign up to buy particular quantities of it.

     Dealers place direct shipment orders with our vendors using special purchase orders. The vendors then bill us for these orders, which are shipped directly to dealers. We, in turn, bill the ordering dealers with an adder ("handling charge") that varies according to the following schedule:
Invoice Amount Adder (Handling Charge) $    0.00 to $  999.99                   2.00%
$1,000.00 to $1,999.99                   1.75%
$2,000.00 to $2,999.99                   1.50%
$3,000.00 to $3,999.99                   1.25%
$4,000.00 to $4,999.99                   1.00%
$5,000.00 to $5,999.99                    .75%
$6,000.00 to $6,999.99                    .50%
$7,000.00 to $7,999.99                    .25%
$8,000.00 and over                        .00%

     We make bulletin sales based upon notices from dealers that they wish to participate in one of our special bulletin offers. Generally, we notify dealers of our intention to purchase certain products for bulletin shipment. We then purchase these products in the quantities that the dealers order. When the bulletin shipment arrives, we do not place it into warehouse inventory. Rather, we break it up into smaller quantities and deliver it to the dealers who ordered it. We generally apply a 6% adder ("handling charge") to this category of sales.

     We typically apply an additional adder of 3% to merchandise that is exported outside of the United
States, its territories and possessions. Ace dealers located outside of the United States, its territories and possessions who are not subject to the additional 3% adder are assessed a flat 2% adder on all direct shipment sales. We maintain inventories to meet only normal resupply orders. Resupply orders help keep our inventories at normal levels. Usually these resupply orders are filled within one day of receipt. Bulletin orders are somewhat similar to resupply orders, but can be for future delivery. We do not backlog normal resupply orders and therefor e, no significant backlog exists at any point in time.

     Our Store Traffic Opportunity Program ("STOP") is a program where we offer our dealers specific
products that we assign to a "competitive price sales" classification. These products are delivered from our warehouses with or without the addition of freight charges and with an adder (if any) of up to 5%,
determined on an item by item basis. Management has the authority to add and withdraw items from the
STOP program, and to establish reasonable minimum or multiple item purchase requirements for this
program. We do not make any patronage dividend distributions for purchases under the STOP program.
We do, however, consider STOP purchases to be either warehouse purchases or bulletin purchases, as
applicable, in determining the forms of patronage dividend distributions. (See the heading "Business,"
subheading "Forms of Patronage Dividend Distributions.")

     Our LTL Plus Program allows dealers to purchase full or partial truckloads of products from specific vendors for direct shipment delivery. No adder or national advertising assessment applies to these purchases. (See heading "The Company's Business," subheading "Patronage Dividend Determinations
and Allocations.")

     In addition to hosting conventions as well as other shows and product exhibits for our dealers, we also provide many special services. We offer these services at established charges. These services include inventory control systems, as well as price and bin ticketing. We also provide dealers with a checklist service so that they can have current information about the merchandise that we offer. We also provide a choice of ongoing educational and training programs for dealers. (See the heading "The Company's Business," subheading "Special Charges and Assessments." )

     Our wholly owned subsidiary, Ace Insurance Agency, Inc., offers a Group Dealer Insurance Program
so that dealers can purchase different types of insurance coverage. This program offers "all risk" property insurance and business interruption, crime, liability and workers' compensation insurance, in addition to medical insurance for store employees. AHC Realty Corporation, another wholly owned subsidiary, offers broker services to dealers who want to buy or sell stores. Loss Prevention Services, Inc., another wholly owned subsidiary, offers security training and other loss prevention services to dealers.

     Our wholly owned subsidiary, Ace Hardware Canada, Limited, operates as a wholesaler of hardware
and related merchandise in Canada. It has two distribution facilities located in Calgary, Alberta and
Brantford, Ontario. In November 2001, the Company announced the closure of the Calgary facility.
Ace Hardware Canada, Limited generated less than one percent (1%) of our consolidated revenue
during fiscal year 2001.

     We operate our Company-owned retail hardware stores through our wholly owned subsidiary Ace
Corporate Stores, Inc. For further information about these stores, please see the heading "Properties"
which appears later in this Prospectus.

     We manufacture paint and similar coating products at our factories in Matteson and Chicago Heights,
Illinois. These factories are the main source of the paint products that we offer for sale. We operate our paint manufacturing business as a separate Division of our Company for accounting purposes. We purchase all our raw materials for paint manufacturing from outside sources. We have had adequate sources of raw materials in the past, and we do not currently expect any shortages of raw materials that would have a major impact on our paint operations. Paint manufacturing is seasonal in the sense that greater paint sales occur from April through  September. Historically, our need to comply with environmental laws and regulations has not had a major effect on our ability to conduct our paint manufacturing operations. 

     Our business, both hardware wholesaling and paint manufacturing, is not dependent on any major suppliers and we feel that seasonal fluctuations do not have a major effect on our operations. For more discussion of our business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

     We also offer services to members that relate to the operation of their retail businesses. We provide these services (such as advertising, merchandising and training programs) to assist our members and in some cases, to maximize our centralized buying power.
Strategic Planning

     We have a strategic planning process that results in goals, objectives and programs that we want to
develop in the future for our Company and our members. Because strategic plans deal with the future,
this discussion of them contains "forward looking statements," which are based on our current
expectations. The actual results of our efforts can differ greatly from the results that we might desire. We believe that we have the facilities, the employees and the resources for ongoing success as we implement our plans and programs, but the future is difficult to forecast, especially areas such as revenues, costs, margins and profits which are influenced by many factors. Some of these factors are discussed below.

     The effects of future growth in the hardware and hardlines-related industries, are uncertain. By
"hardlines-related industries" we mean home center, do-it-yourself, rental and commercial/industrial
categories. The future condition of the economy is also uncertain, when viewed domestically, internationally or in specific geographical regions. Some other uncertainties that could affect our plans include possible future changes in merchandise and inventory prices, and the effect of increasingly intense competition. There could be potential shifts in market demand for some products. Lawsuits and laws, especially laws dealing with franchising, licensing, importing, exporting and environmental matters could affect our future business. We cannot predict whether these uncertainties might cause&n bsp;future costs or liabilities or have some other effect on our future ability to achieve our plans.

     Through our ongoing strategic planning process we have focused our plans around four segments for
future growth and success in our competitive industry. These four segments are: Retail Success (store
operations), Wholesale Success (distribution), International growth and new member growth. Retail
success for our dealers is a primary objective because, in our opinion, it drives both their retail
performance and our wholesale growth. We have therefore increased our efforts to assist members in
"retail success initiatives," which are designed to improve their retail performance and competitiveness. These retail success initiatives include retail goals that we urge dealers to strive for within their stores and in locally competitive markets. These goals do not, however, impose major restrictions or requirements on members. Our minimum requirements for the acceptance of new members are outlined in the current Membership Agreement and Supplement and in the Member Operational Requirements that apply under that Agreement. The Operational Requirements do require that, w ithin one year, the member must make us the primary source of supply and terminate any previous participation in the program of any other major hardware wholesaler. There are currently no general requirements (apart from special
voluntary programs) where members have to make particular percentages of purchases from us or have to achieve minimum retail performance levels, such as sales dollars per square foot.

     Our current strategic initiative, Vision 21, focuses on becoming a world class organization through
encouraging dealers to adopt certain merchandising, marketing and operational practices that are supported by some of our most successful dealers to improve the Company's and the dealers' overall competitiveness and efficiency. The cornerstones to Vision 21 are to improve retailers' sales and profits, streamline our processes, bring wholesale and retail together as one Ace team and provide ultimate customer satisfaction. Vision 21 goals include minimizing disparities between retail and wholesale, developing dealer-friendly procedures that take duplication and costs out of dealers' operati ons, achieving consistent implementation of programs more rapidly and improving the dealers' financial performance and their ability to pursue new stores and store expansions. As retailers become Vision 21 retailers they are afforded various benefits to assist them to succeed at retail.
Special Charges and Assessments

     We sponsor a national advertising program. To pay for this program, we assess dealers an amount
equal to 1.50% of their purchases (except purchases of LTL Plus products and certain hardware and
software computer systems), with minimum and maximum yearly assessments of $2,223.00 and
$6,800.00, respectively, (based on purchases) for each store location. We grant exemptions from these
assessments and make various adjustments to them for stores located outside the continental United
States and for new stores during their start up year, and for stores operating under an agreement that does not permit them to use "Ace" or "Ace Hardware". For the year 2002, we will also impose a flat charge of $100.00 on May 1, 2002 and November 1, 2002 per store location to pay for national sales promotions for Memorial Day and the day after Thanksgiving. The amount of our national advertising assessment can be changed from time to time by our Board of Directors. We can also impose assessments at a flat&nbs p;monthly rate or based on a percentage of sales for regional advertising not to exceed 2% of a dealer's annual purchases. Regional advertising assessments are subject to the same minimum and maximum amounts as the National Advertising assessment.

     Every two weeks, we bill the member store for a special low volume account service charge of $75 if
annual purchases from us are less than $50,000. We will bill the member store for a special low volume
account service charge of $60 per bi-weekly billing statement period if purchases from us during such
period are less than $5,700.00. The low volume service charges that we bill to the store in a specific year are automatically refunded if that store's total purchases increase to over $148,200 during the year. The store is excused from this low volume account service charge during the first 12 months that it is a member. There are some exceptions to our low volume account service charges that are described below:

1. Stores which purchase $148,200 of merchandise from us during the year, are given a credit on the next billing statement for any low volume charges which we billed that store earlier in the year. We then stop billing that store for low volume account service charges for the rest of the year, even if its current purchases on a billing statement are less than $5,700; and

2. We do not bill low volume account service charges every two weeks if a store's sales volume with us the year before was at our minimum ($148,200), but we will bill these charges in a lump sum to a store's last statement of the year if that store does not reach our applicable minimum by that time.

     An Ace store that falls below our minimum purchase levels can also be subject to termination.

     We add a late payment service charge on any past due balance that you owe us for merchandise,
services, or your stock subscription. The current rate for the late payment service charge is .77% per
bi-weekly statement period, except in Texas where the charge is .384% and Georgia where the charge is
.692%. We consider a past due balance to exist whenever we do not receive payment of the amount shown
as due on your billing statement within 10 days after the date of that statement. We can change the rate
of our late payment service charge from time to time.

     Effective August, 2001, we assess members operating under a standard Membership Agreement a
mandatory monthly fee for Core Retail Services in the amount of $197 per month for all single stores or
parent stores and $67 per month for all branch stores located in the United States. Core Retail Services
consist of the following elements:

1. ACENET. This service is our primary communications vehicle with our members. It is and electronic network that allows defective goods claims processing, product search online or through a CD-ROM catalog, electronic communications, employee testing and training courses, review and payment of retailer statements and numerous other applications.

2. Material Safety Data Sheet Subscription Service. This service provides members with access 24 hours per day and 7 days per week to information on the chemical ingredients of certain products that we sell.

3. Ace Training Network. This service is one of our retail training programs. Each single store or parent store is credited with 16 points per month and each branch store is credited with 11 points per month. A single store or parent store is one that has purchased or subscribed for a share of our Class A voting stock. A branch store is one whose membership involves only shares (or a subscription for shares) of our nonvoting Class C Stock. (See Article XXV, Section 2 of our By-laws). You may use your points at any time to buy one of the  training programs that we offer. If you do not have enough points for the program that you want, you can use the points that you
have and we will bill you for the difference. Multiple stores and member groups can pool their points together to purchase our training programs.

4. NRHA E-Tools. These include unlimited use of certain Internet-based services offered by the National Retail Hardware Association (NRHA), including their Advanced Course in Hardware Retailing, the Forte International Communications Survey and their Employee Compensation Study.

5. Retail Pricing. This includes access to our national price shopping and ad data collected from non-Ace stores, our suggested retail prices, our customized retail pricing strategy services and catalog updates to our suggested retail prices.

     Members operating under a Contractor agreement are assessed a mandatory monthly fee of $53 for
ACENET and the Material Safety Data Sheet Subsciption Service.
Trademark and Service Mark Registrations

     The names "ACE HARDWARE" and "ACE" are used extensively by members and ourselves in the
promotion, advertising and marketing of products and services that we sell. We have had the following
Trademark and Service Mark Registrations issued by the U.S. Patent and Trademark Office for our marks:
                                               
                                                  Registration
         Description of Mark Type of Mark Number Expiration Date "ACE HARDWARE" with winged
  emblem design                      Service Mark    840,176     December 5, 2007
"ACE HARDWARE" with winged
  emblem design                      Trademark       898,070     September 8, 2010
"THE PAINTIN' PLACE"                 Service Mark  1,138,654     August 12, 2010
"PACE" with design                   Service Mark  1,208,887     September 14, 2002
"ACE HARDWARE" with winged
  emblem design                      Trademark     1,277,581     May 15, 2004
"ACE HARDWARE" in stylized
  lettering design                   Trademark     1,426,137     January 27, 2007
"ACE" in stylized lettering design   Service Mark  1,464,025     November 3, 2007
"ACE HARDWARE" in stylized
  lettering design                   Service Mark  1,486,528     April 26, 2008
"ACE HARDWARE AND
  GARDEN CENTER" in stylized
  lettering design                   Service Mark  1,487,216     May 3, 2008
"ACE NEW EXPERIENCE" in
  stylized lettering design          Trademark     1,554,322     September 5, 2009
"ACE SEVEN STAR" in stylized
  lettering design                   Trademark     1,556,389     September 19, 2009
"ACE BEST BUYS" in circle design     Service Mark  1,560,250     October 10, 2009
"ACENET"                             Service Mark  1,574,019     December 26, 2009
"ACE IS THE PLACE"                   Service Mark  1,602,715     June 19, 2010
"LUB-E"                              Trademark     1,615,386     October 2, 2010
"ASK ACE"                            Service Mark  1,653,263     August 6, 2010
"ACE 2000"                           Service Mark  1,682,467     April 7, 2002
"ACE" in stylized lettering design   Trademark     1,683,538     April 12, 2002
"THE OAKBROOK COLLECTION"
  in stylized lettering design       Trademark     1,707,986     August 18, 2002
"ACE HARDWARE BROWN BAG
  BONANZA" with design               Service Mark  1,761,277     April 13, 2003
"ACE HARDWARE
  COMMITTED TO A QUALITY
  ENVIRONMENT" design                Service Mark  1,764,803     April 13, 2003
"CELEBRATIONS"                       Service Mark  1,918,785     September 12, 2005
Repetitive Stylized "A" design       Service Mark  1,926,798     October 10, 2005
"The NEW AGE OF ACE" design          Service Mark  1,937,008     November 21, 2005
"ACE RENTAL PLACE"
  in stylized lettering design       Service Mark  1,943,140     December 19, 2005
"HELPFUL HARDWARE FOLKS"             Service Mark  1,970,828     April 30, 2006
"ACE HOME CENTER"                    Service Mark  1,982,130     June 25, 2006
"SEALTECH"                           Trademark     2,007,132     October 8, 2006
"GREAT FINISHES"                     Trademark     2,019,696     November 26, 2006
"WOODROYAL"                          Trademark     2,065,927     May 27, 2007
"ROYAL SHIELD"                       Trademark     2,070,848     June 10, 2007
"ROYAL TOUCH"                        Trademark     2,070,849     June 10, 2007
"QUALITY SHIELD"                     Trademark     2,102,305     September 30, 2007
"QUALITY TOUCH"                      Trademark     2,102,306     September 30, 2007
"STAINHALT"                          Trademark     2,122,418     December 16, 2007
"ACE CONTRACTOR CENTER"              Service Mark  2,158,681     May 19, 2008
"NHS NATIONAL
  HARDLINES SUPPLY"                  Service Mark  2,171,775     July 7, 2008
"ACE COMMERCIAL &
  INDUSTRIAL SUPPLY"                 Service Mark  2,186,394     September 1, 2008
"THE OAKBROOK COLLECTION"            Trademark     2,187,586     September 8, 2008
"ACE GARDEN PLACE"                   Service Mark  2,227,729     March 2, 2009
"ACE ROYAL"                          Trademark     2,237,981     April 13, 2009
"HELPFUL HARDWARE CLUB"              Service Mark  2,239,400     April 13, 2009
"THE FOLKS IN THE RED VEST"          Service Mark  2,261,946     July 20, 2009
"ACE CONTRACTOR PRO"                 Trademark     2,273,483     August 31, 2009
"ILLUMINATIONS"                      Trademark     2,353,666     May 30, 2010
"ACE YOUR NEIGHBROHOOD
  SOLUTIONS PLACE"                   Service Mark  2,386,359     September 12, 2010
"ACE" with accent design             Service Mark  2,378,123     August 15, 2010
"ACE SOLUTIONS PLACE"                Service Mark  2,394,181     October 10, 2010
     As of the date of this filing, we also have the following applications for new registrations pending in the U.S. Patent and Trademark Office:
Mark Type of goods/services "STORE-IT-RIGHT"                         hardware products, namely, hooks
                                         brackets, knobs, hangers and
                                         extensions for support or hanging
"ACE HOMEPLACE"                          magazines
"ACE" with halo design                   retail hardware store services
"COLOR YOUR LIFE"                        indoor and outdoor paint, coatings and
                                         varnishes
"CONTRACTOR CENTERS OF AMERICA"
  and design                             retail store services in the field of
                                         hardware and related goods
"NATIONAL SUPPLY NETWORK"                wholesale store services; namely
                                         providing wholesale industrial supplies
                                         and equipment to commercial and
                                         industrial customers
Competition

     Competitive conditions in the wholesale and retail hardware industry are intense and increasing.
Independent hardware retailers must remain competitive with discount stores and chain stores, such as
WalMart, Home Depot, Menard's, Sears, and Lowe's, and with other mass merchandisers. Retail hardware stores have been slowly shifting their locations to high rent shopping centers. There has also
been a trend toward longer store hours. There is intense pressure on hardware retailers to obtain low cost wholesale supply sources. In several markets in the United States, we also compete directly with other dealer-owned wholesalers such as TruServ Corporation, Do it Best Corporation and United Hardware
Distributing Co.
Employees

     We have 5,229 full-time employees, of which 1,590 are salaried employees. Excluding our Canadian
operations and Company-owned retail locations, we have 4,828 full-time employees to support our
domestic and international retailers. We also have, as of the end of the 2001 fiscal year, union contracts covering one (1) truck driver's bargaining unit and two (2) warehouse bargaining units. We consider our employee relations with both union and non-union employees to be good, and we have had no strikes in the past five years. In general, our employees are covered by either negotiated or nonnegotiated benefit plans that include hospitalization, death benefits and, with few exceptions, retirement benefits.
Limitations on Ownership of Stock

     Our members own all of our outstanding shares of capital stock. Membership in our Company is
limited to approved dealers in hardware and related products who have Membership Agreements with
us. These are the only ones eligible to own or purchase shares of any class of our stock.

     No dealer is allowed to own more than 1 share of our Class A voting stock, no matter how many store
locations that dealer owns or controls. This ensures that each stockholder in our cooperative has equal
voting power. We treat an unincorporated member or a partnership member as being controlled by
someone else if 50% or more of the assets or profit shares of that member are owned by (i) another
person, partnership or corporation; or (ii) the owner(s) of 50% or more of the assets or profit shares of another unincorporated business firm or (iii) the owner(s) of at least 50% of the capital stock of a
corporation. We treat a member that is a corporation as being controlled by someone else if at least 50% of the capital stock of that member is owned by (i) another person, partnership or corporation; or (ii) the owner(s) of at least 50% of the capital stock of another corporation; or (iii) the owner(s) of at least 50% of the assets or profit shares of another unincorporated business.
Distribution of Patronage Dividends

     We operate on a cooperative basis for patronage purchases of merchandise from us that are made by
dealers who have become members of our Company. We also operate on a cooperative basis with dealers
who have subscribed for shares of our stock but who have not yet actually become "members" because they
have not yet fully paid for their $1,000 par value shares of our Class A voting stock. The dealers in either of these two categories are entitled to receive patronage dividends once a year on an equitable basis.

     We made patronage dividend distributions at the following percentages of our sales in the warehouse, bulletin and direct shipment categories and on the total sales of products manufactured by our Paint Division during the past three fiscal years:

                                   2001     2000     1999
     Warehouse Sales            4.27330% 4.43564% 4.98172%
     Bulletin Sales                 2.0%     2.0%     2.0%
     Direct Shipment Sales          1.0%     1.0%     1.0%
     Paint Sales                 8.9371%  8.1131%  7.8827%
     Under our LTL Plus Program, we also calculate patronage dividends separately on sales of full or
partial truckloads of products purchased by eligible dealers from certain vendors (see discussion of LTL
Plus Program under the heading "The Company's Business.") The LTL Plus Program patronage dividend
was .5% of these sales for fiscal year 2001, 2000 and 1999.

     Sales of merchandise under our Contractor and Industrial Distributor Programs are made on a
nonpatronage basis.
Patronage Dividend Determinations and Allocations

     The amounts that we distribute as patronage dividends consist of our gross profits on patronage business that we do with dealers who qualify for patronage dividend distributions, less a proportionate share of our expenses for administration and operations. Our gross profits consist of the difference between our selling price for the merchandise that these dealers buy from us and our purchase price for that merchandise. Our computation of patronage dividends excludes all of our income and expenses from activities that are not directly related to patronage transactions. The  ;excluded items primarily consist of profits on business that we do with dealers or other customers who do not qualify for patronage dividend distributions and any income or loss that we realize from the disposition of property and equipment.

     Our By-laws provide that, by virtue of dealers being "members" of our Company (that is, by owning
shares of our Class A voting stock), they consent to include in their gross income for federal income tax purposes all patronage dividends that we distribute to them. These distributions must be included in gross income for the taxable year in which the dealer receives them. Dealers who have not yet fully paid the $1,000 purchase price for their shares of our Class A voting stock are also required to include all patronage dividends we distribute to them in their gross income as explained above. Under our Stock Subscription Agreement, dealers&nb sp;must expressly consent to take these patronage dividend distributions into their gross incomes.

     The amount of the patronage dividends which dealers must include in their gross incomes includes
both the cash portion of patronage dividends and any portion of patronage dividends that we apply against any indebtedness the dealer owes to us in accordance with Section 7 of Article XXIV of our By-laws. It also includes any portion of patronage dividends that they receive in shares of our Class C nonvoting stock, other property and patronage refund certificates. The Company also has the authority to issue a portion of the patronage dividend in the form of other property.

     Under our present program, patronage dividends on each of our three basic categories of sales
(warehouse sales, bulletin sales and direct shipment sales) are allocated separately, as are patronage dividends under our LTL Plus Program. Dividend percentage calculations are made with reference to the net earnings derived from each of the respective categories. The 2001 patronage dividend rate for the LTL Plus Program is .5% of our LTL Plus sales. The 2001 patronage dividend rates for direct shipment and bulletin sales are 1.0% and 2.0%, respectively, while the current 2001 warehouse patronage dividend rate is 4.27%.

     Patronage dividends are calculated separately for full and partial truckloads of products purchased
under the LTL Plus Program. (See the heading "Business", discussion of LTL Plus Program and the subheading "Forms of Patronage Dividend Distributions" below.)

     Any manufacturing profit realized on intracompany sales of products manufactured by our Paint Division is allocated and distributed as patronage dividends to eligible dealers in proportion to their respective annual dollar purchases of paint and related products from that division. The earnings we realize on wholesale sales of the Paint Division's products to our eligible dealers are currently distributed as patronage dividends to them as part of the patronage dividends which they receive each year in the basic patronage dividend categories of warehouse sales, bulletin sales and&nb sp;direct shipment sales. The 2001 paint dividend rate is 8.94%. Under Section 8 of Article XXIV of our By-laws, if the Paint Division's manufacturing operations for any year result in a net loss instead of a profit to the Paint Division, this loss would be netted against the earnings we realized from our other activities during the year, so that the earnings available for distribution as patronage dividends from these other activities would be reduced for the year.

     We have established a LBM Retailer Incentive Pool Plan for our members who purchase LBM products
through Builder Marts of America, Inc. ("BMA") and are eligible participants under our Contractor Center
standards. This is not a patronage dividend plan, but rather an allocation of the increase in our stock
investment in BMA. Under the plan, we calculate an annual estimate of the amount by which our stock in
BMA has increased or decreased in value from our initial investment, net of certain expenses. We allocate this estimate to eligible members annually based on their qualifying purchases of LBM products. A member's pool allocation only becomes vested and can only be redeemed upon the termination of the member's Ace membership which results in the sale or redemption of Ace stock held for that location, Ace's termination of the LBM Retailer Incentive Pool Plan, or Ace's liquidation, whichever occurs first. Negative pool balances are not charged to members. T he 2001 incentive pool rate under this plan is .40% of qualifying purchases.
Forms of Patronage Dividend Distributions

     We make patronage dividend distributions to our eligible dealers in cash, shares of our Class C Stock and patronage refund certificates according to a specific plan that has been adopted by our Board of Directors. This plan can be changed from time to time by the Board as they deem fit depending on
business conditions and our Company's needs.

     This plan is summarized below for the purchases that our eligible dealers make from us for the year
2001 and subsequent years.

     1. For each of your eligible stores, we initially calculate the minimum cash patronage dividend
        distribution as follows:

(a) 20% of the first $5,000 of the total patronage dividends allocated for distribution each year to you based on the purchases made for the eligible store;

(b) 25% of the portion of the total patronage dividends allocated for that store which exceed $5,000 but do not exceed $7,500;

(c) 30% of the portion of the total patronage dividends allocated for that store which exceed $7,500 but do not exceed $10,000;

(d) 35% of the portion of the total patronage dividends allocated for that store which exceed $10,000 but do not exceed $12,500;

(e) 40% of the portion of the total patronage dividends allocated for that store which exceed $12,500.

2. We distribute the portion of patronage dividends in excess of the cash or property amounts above
in the form of shares of our Class C nonvoting stock (par value $100 per share) until the total par value
of all shares of all classes of our capital stock that you hold for the eligible store equals the
greater of:

(a) $20,000; or

(b) the sum of purchases in the following categories that you made for the eligible store during the most recent calendar year:

(i) 15% of the volume of Ace manufactured paint and related products purchases, plus

(ii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured paint and related products), plus

(iii) 15% of the volume of warehouse and bulletin purchases (including STOP and excluding Ace manufactured paint and related products), plus

(iv) 4% of the volume of LTL Plus purchases.

     Please note, however, that we do not issue fractional shares of Class C Stock. We take any amount
     that would result in a fractional share of stock and distribute it in cash or patronage refund
     certificates instead.

     3. The portion of your total patronage dividends for each of your eligible stores which exceeds the 
        sum of:

(a) the cash amount determined under Paragraph 1 above and

(b) the amount of Class C Stock determined under Paragraph 2 above is distributed to you in cash up to certain limits. The total amount that you receive in cash for an eligible store cannot exceed 45% of that store's total patronage dividends for the year. If a store's total cash distribution would exceed this 45%         limit, then the distribution over that amount is made instead in the form of a non-negotiable patronage refund certificate. Our Board of Directors determines the maturity dates and interest rates of these patronage refund certificates before they are issued. These certificates include provisions that give us a first lien on the amount of any indebtedness that you owe us. The certificates also contain language         subordinating them to all the rights and claims of our secured creditors, general creditors and our bank creditors. Historically, these patronage refund certificates have matured within five years from the date we issued them.

     Article XXIV, Section 7 of our By-laws requires the cash portion of any patronage dividends to be
applied against any indebtedness a member owes us where the membership for his store is terminated
before the distribution of patronage dividends. Despite this, however, 20% of a terminated store's total
annual patronage dividends will be paid in cash if we receive a timely request for this form of payment.

     Because of the requirement of the U. S. Internal Revenue Code that we withhold 30% of the annual
patronage dividends distributed to eligible dealers whose places of business are located in foreign countries or Puerto Rico, the cash portion of patronage dividends to these dealers is a minimum of 30%. There are exceptions to this 30% cash payment in the case of 1) unincorporated Puerto Rico dealers owned by individuals who are U.S. citizens, 2) certain dealers incorporated in Guam, American Samoa, the Northern Mariana Islands or the U.S. Virgin Islands. These exceptions apply if less than 25% of the stock of these dealers is owned by foreign  ;persons, and at least 65% of their gross income for the last three years has been sufficiently connected with a trade or business in one of these locations or in the United States, and 3) dealers located in countries maintaining tax treaties with the United States that provide for reduced rates of withholding.

     We also have certain loan programs that allow dealers to pay us back with part of their patronage
dividend distributions. For example, to help members buy standardized exterior signs identifying their
stores, our Board of Directors has authorized a loan program. Under this program, a dealer may apply to
borrow between $100 to $25,000 per location from us for this purpose. If you obtain a loan under this
program, you may either repay it in twelve payments billed on your regular bi-weekly billing statement,
or you may apply the non-cash portion of your annual patronage dividends (for up to the next three annual patronage dividend distributions) toward payment of your loan.

     Our Board of Directors has also authorized a loan program to help qualified dealers pay for costs of converting their stores from another hardware distributor's program to our program. Under this loan
program, these dealers can borrow up to $95,000 per store. If you obtain a loan under this program, we will apply the non-cash portion of your annual patronage dividends (for up to the next three annual patronage dividend distributions) towards payment of your loan. Unless extended by the Board of Directors, this loan program will remain in effect until June 1, 2002 or until 100 loans are made, whichever occurs first.

     Our Board of Directors has also authorized finance programs to help qualified dealers buy certain
computer systems from us and to finance capital improvements with patronage dividends. The amount
financed cannot exceed 80% of the cost of any system. For PAINTMAKER computers, members have
applied to borrow between $4,000 to $15,000 per location repayable over a period of three (3) years.

     Under these programs, members have directed us to first apply the patronage refund certificate
portion of their patronage dividend distributions toward the balance owed on financed items and next to
apply patronage dividends which would otherwise be payable for the same year in the form of our Class C
Stock. These signage, computer financing and store conversion programs may be revised or discontinued
by our Board at any time.

     Members also have the ability to apply for a Capital Stock loan which is designed to provide them with access to their future patronage dividends to assist them in opening new retail stores or to assist in significant store expansions. These loans are repaid at the end of seven (7) years from rebate distributions of the non-cash portion of the annual rebate on the respective store during that period.
Federal Income Tax Treatment of Patronage Dividends

     Both the shares of Class C nonvoting stock and the patronage refund certificates that we use to pay
patronage dividends are "qualified written notices of allocation" within the meaning of Sections 1381
through 1388 of the U.S. Internal Revenue Code. The Company may pay a portion of its dividend in the
form of other qualified property pursuant to Section 1382 of the U.S. Internal Revenue Code. These
Sections of the Internal Revenue Code deal with the income tax treatment of cooperatives and their
patrons and have been in effect since 1963. The dollar amount stated on a qualified written notice of
allocation and the fair market value of other qualified property must be taken into the gross income of the person to whom the notice is issued, even though this dollar amount may not actually be paid to the
person in the same year that it is taxed.

     In order for us to receive a deduction from our gross income for federal income tax purposes for the amount of any patronage dividends that we pay to a patron (that is, to one of our eligible and qualifying dealers) in the form of qualified written notices of allocation or other qualified property, we have to pay (or apply against any indebtedness that the patron owes us in accordance with Section 7 of Article XXIV of our By-laws) not less than 20% of each patron's total patronage dividend distribution in cash and the patron also has&nbs p;to consent to having the written notices of allocation at their stated dollar amounts, and other qualified property at the fair market value, included in his gross income for the taxable year in which he receives them. The Internal Revenue Code also requires that any patronage dividend distributions that we deduct on our federal income tax return for business we do with patrons must be paid to those patrons within eight and one-half months after the end of that taxable year.

     If you become one of our "members" by owning 1 share of Class A voting stock, you are deemed
under the U.S. Internal Revenue Code to have consented to take the written notices of allocation and
other qualified property that we distribute to you into your gross income. Your consent is deemed because of 1) your act of obtaining or retaining membership in our Company, and 2) because our By-laws provide that your membership constitutes this consent, and we give you written notification of that By-law provision. Under another provision of the Internal Revenue Code, dealers who have subscribed for shares of our stock are also deemed to have consented to take the dollar amounts of their written notices of allocation and other qualified property i nto their gross incomes. This occurs because of the consent provisions included in the Subscription Agreement for our stock.

     If you receive a patronage refund certificate as part of your patronage dividends (see the subheading "Forms of Patronage Dividend Distributions"), you may be deemed to have received interest income. This interest would arise in the form of an original issue discount to the extent that the face amount of the certificate exceeds the present value of the stated principal and interest payments that we have to pay you under the terms of the certificate. This interest income would be taxable to you "ratably" over the term of the certificate under& nbsp;Section 7872(b) (2) of the U.S. Internal Revenue Code. Present value for this purpose is determined by using a discount rate equal to the applicable Federal rate in effect as of the day of issuance of the certificate, compounded twice a year.

     We are required to backup withhold for federal income tax on the total patronage dividend distribution we make to anyone who has not furnished us with a correct taxpayer identification number. We can also be required to backup withhold federal taxes on the cash portion of each patronage dividend
distribution made to someone who fails to certify to us that he is not subject to backup withholding. This backup withholding obligation based on a failure to certify may not be applicable, however, unless 50% or more of the total distribution is made in cash. Since we distribute all of our patronage dividends for a given year at the same time and since our current patronage dividend plan (see the subheading "Forms of Patronage Dividend Distributions") does not permit any member store to receive more than 45% of its patronage dividend s for the year in cash, we believe that a certification failure like this should not ordinarily have any effect on our Company or any of its dealers.

     Patronage dividends that we distribute to patrons who are located in foreign countries or certain U.S. possessions (including those who are incorporated in Puerto Rico or who reside in Puerto Rico but have not become citizens of the United States) have been held to be "fixed or determinable annual or periodic income." Patrons who receive this type of income are currently required to pay a tax of 30% of the amount received under Sections 871(a)(1)(A) and 881(a)(1) of the Internal Revenue Code. When dealers are subject to this 30% tax, we must  withhold it from their patronage dividends and pay it over to the U.S. Internal Revenue Service. The above does not apply to a corporation organized in Guam, American
Samoa, the Northern Mariana Islands or the U. S. Virgin Islands if less than 25% of its stock is owned by foreign persons and at least 65% of its gross income for the last three years has been effectively connected with the conduct of a trade or business in that location or in the United States. A reduced rate of withholding may apply to dealers located in countries maintaining tax treaties with the United States.

     The 20% minimum portion of the patronage dividends that must be paid in cash to patrons other than
those discussed above may not be enough, depending upon the patron's income tax bracket, to pay all of
the patron's federal income tax on his annual patronage dividend distributions. In our management's
opinion, the payment of a minimum of 20% of total patronage dividends in cash each year will not have
a material adverse affect on our operations or on our ability to obtain sufficient working capital for the normal requirements of our business.
Membership Agreements

     If you apply to become an Ace member, you must sign a Subscription Agreement to purchase our stock.
You must also sign our customary Membership Agreement and Supplement. You must submit a payment of
$1,500 ($2,500 for conversions or new investor ground-ups) with your signed Membership Agreement and
Supplement. We use this fee toward our estimated costs of processing your membership application. If you
submit a membership application and we accept it, we sign your Stock Subscription Agreement and your
Membership Agreement and Supplement and send them back to you for your records. Your membership
may generally be terminated upon various notice periods and for various reasons (including voluntary
termination by either of us). The details of these reasons and notice periods are in the Membership
Agreement. These reasons for termination and notice periods apply except where special laws or regulations in certain locations limit our right to terminate memberships, or require longer notice periods.
Non-Shareholder Programs

     In 1989, our Board of Directors first authorized us to affiliate non-shareholder international dealers who operate retail businesses outside the United States, its territories and possessions. These international dealers sign agreements that differ from our regular Membership Agreement. They may be granted a license to use certain of our trademarks and service marks, but they do not sign stock subscription agreements or become shareholders, nor do they receive patronage dividends.

     In 1995, our Board of Directors first authorized us to affiliate non-shareholder retail accounts other than international dealers. These accounts, which are generally served through our wholly-owned
subsidiary National Hardlines Supply, Inc. ("NHS"), are not granted an ongoing license to use our
trademarks and service marks. They can purchase selected types of products from us for resale. They are
not members of our cooperative, and therefore do not own our stock or receive patronage dividends.

     In 1996, we established a license program for international non-shareholder dealers. These international licensees typically receive the exclusive right to use our trademarks and service marks, as well as exclusive rights to distribute the merchandise they purchase from us in their home countries.
International licensees pay us a negotiated license fee and ongoing royalties on their retail sales in
exchange for these rights, and for our ongoing training and support.

     In 1996, we also began operations through our subsidiary Ace Hardware Canada, Limited ("Ace
Canada"). Ace Canada's customers are non-shareholders who do not receive patronage dividends from us.
Only customers signed under the Ace Canada Franchise Agreement are licensed to use our trademarks
and service marks.

     In 1998, we began developing joint ventures with certain members as a way of increasing the Ace
presence in key markets without the need for Ace to use solely its own resources to open company stores.
For each joint venture, we and the member enter into a Limited Liability Company Agreement, with the
retailer acting as the managing member. The limited liability company ("LLC") operates the joint venture
stores. In each joint venture to date, we own 50% or less of the LLC's units. Currently, the Company has
an ownership interest in six joint ventures. In the future, we may explore other joint venture opportunities with our members; however we consider each situation unique and we evaluate each opportunity on its own merits.

     In our sole discretion, we may offer a member a mutually agreeable termination arrangement. In
some situations, a member who terminates on this basis may be offered the opportunity to purchase
products from us (including Ace private label products) for a period of up to 5 years after the termination of membership. The former member is not required to make any such purchases from us, but must maintain favorable credit status in order to do so.

     In 2001, we developed a non-shareholder industrial distributor program and contractor program.
These industrial distributors can purchase selected types of products from us for resale. They are not
members of our cooperative, and therefore do not own stock or receive patronage dividends. These
programs are made available to cooperative members, however, members will not receive patronage
dividends for purchases of products under these programs.

     Sales to international non-shareholder dealers accounted for approximately 4.4% of our total sales in 2001, approximately 6.7% of our total sales in 2000 and approximately 6.5% of our total sales in 1999. Sales to domestic non-shareholder locations accounted for less than 2.0% of our total sales in 2001, less than 2.5% of our total sales in 2000 and less than 1.5% of our total sales in 1999. (See Appendix A, Article XXV, section 2 of our By-laws regarding International Retail Merchants and non-member accounts.)

PROPERTIES

     Our general offices are located at 2200 Kensington Court, Oak Brook, Illinois 60523. Information
about our main properties appears below:
                                    
                                   Square Feet     Owned       Lease
                                   of Facility       or      Expiration 
              Location (Land in Acres) Leased       Date General Offices:
   Oak Brook, Illinois                291,816      Leased  September 30, 2009
   Downers Grove, Illinois             23,962      Leased  June 30, 2004
   Markham, Ontario, Canada(1)         15,372      Leased  February 28, 2006

Distribution Warehouses:
   Lincoln, Nebraska                  345,440      Leased  December 31, 2006
   Arlington, Texas                   313,091      Leased  July 31, 2003
   Perrysburg, Ohio                   393,720      Leased  December 31, 2004
   Tampa, Florida                     391,755       Owned
   Yakima, Washington                 507,030       Owned
   Maumelle, Arkansas                 597,253       Owned
   LaCrosse, Wisconsin                591,964       Owned
   Rocklin, California (4)            478,468       Owned
   Rocklin, California                '75,000      Leased  July 31, 2003
   Gainesville, Georgia               481,013       Owned
   Prescott Valley, Arizona           631,485       Owned
   Princeton, Illinois              1,094,756       Owned
   Chicago, Illinois (2)               18,168      Leased  May 31, 2002
   Summit, Illinois (2)                37,236      Leased  February 28, 2017
   Baltimore, Maryland (2)             19,600      Leased  December 31, 2008
   Colorado Springs, Colorado         494,219       Owned
   Wilton, New York                   800,525      Leased  September 1, 2007
   Loxley, Alabama                    798,698      Leased  May 27, 2009
   Brantford, Ontario, Canada (3)     354,000      Leased  March 31, 2006
   Calgary, Alberta, Canada (3)       240,000      Leased  June 30, 2002
   Prince George County, Virginia     798,786       Owned
   Fort Worth, Texas (2)               10,915      Leased  December 31, 2005

Print Shop Facility:
   Downers Grove, Illinois             41,000      Leased  April 30, 2003

Paint Manufacturing Facilities:
   Matteson, Illinois                 371,411       Owned
   Chicago Heights, Illinois          194,000       Owned

(1) This property is leased by our subsidiary Ace Hardware Canada Limited for its corporate office.
(2) This property is leased for use as a freight consolidation center.
(3) Our subsidiary, Ace Hardware Canada Limited, leases this property for a distribution warehouse.
    Ace Hardware Canada Limited has exercised an option to terminate the lease for the Calgary Warehouse
    effective April 30, 2002.
(4) The Company has entered into an agreement to sell this property and plans to acquire vacant land and
    construct a larger replacement warehouse.

     In addition to the above, we or our subsidiary, Ace Corporate Stores, Inc., lease 26 retail hardware stores ranging from 13,000 to 25,000 square feet in size located in the following states: Colorado, Georgia, Illinois, New Jersey, Oregon, Washington and Wisconsin.

     We also lease a fleet of trucks and equipment for the main purpose of delivering merchandise from
our warehouses to our dealers.

MANAGEMENT

Our directors and executive officers are:
                                              Position(s) Currently Held
Name Age and Business Experience (for the past 5 years) Jennifer C. Anderson           51   Director since June, 1994; term expires 2003;
                                    President of Davis Lumber and Ace Hardware,
                                    Inc., Davis, California since November, 1985.
Richard F. Baalmann, Jr.       42   Director since June, 1999; term expires 2002;
                                    President of Homart, Inc., Centralia, Illinois since
                                    May, 1988.
Eric R. Bibens II              45   Director since June, 1997; term expires 2003;
                                    President of Bibens Home Center, Inc.,
                                    Springfield, Vermont since 1983.
Michael C. Bodzewski           52   Vice President, Marketing, Advertising, Retail
                                    Development and Company Stores effective
                                    October, 2000; Vice President - Marketing,
                                    Advertising and Retail Operations East effective
                                    October, 1999; Vice President - Sales and
                                    Marketing effective October, 1998; Vice President
                                    - Merchandising effective June, 1990.
Lori L. Bossmann               41   Vice President, Merchandising effective October,
                                    2000; Vice President - Finance effective October
                                    1999; Vice President - Controller effective September,
                                    1997; Controller effective January, 1994.
J. Thomas Glenn                42   Director since June 1996; term expires 2002;
                                    President of Ace Hardware of Chattanooga,
                                    Chattanooga, Tennessee since January, 1990.
Ray A. Griffith                48   Executive Vice President, Retail effective October,
                                    2000; Vice President - Merchandising effective
                                    October, 1998; Vice President - Retail
                                    Development and Marketing effective September,
                                    1997; Director - Retail Operations, Western
                                    Division effective September, 1994.
Daniel L. Gust                 52   Director since June , 1998; term expires 2004;
                                    President of Garden Acres Ace Hardware,
                                    Longmont, Colorado since January, 1991.
D. William Hagan               44   Director since June, 1997; term expires 2003;
                                    President of Hagan Ace Hardware, Orange Park,
                                    Florida since February, 1980.
David F. Hodnik                54   President and Chief Executive Officer effective
                                    January, 1996; President and Chief Operating Officer
                                    effective January 1, 1995.
Paul M. Ingevaldson            56   Senior Vice President - International and Technology
                                    effective September, 1997; Vice President - Corporate
                                    Strategy and International Business effective
                                    September, 1992.
Howard J. Jung                 54   Chairman of the Board and Director since June, 1998;
                                    term expires 2003; Vice President of Ace Hardware
                                    Stores, Inc., Raleigh, North Carolina since June, 1997.
Rita D. Kahle                  45   Executive Vice President effective October, 2000;
                                    Senior Vice President - Wholesale effective
                                    September, 1997; Vice President - Finance effective
                                    January, 1994.
Richard A. Karp                50   Director since June, 2000; term expires 2003;
                                    President, Cole Hardware, San Francisco, California
                                    since June, 1979.
David F. Myer                  56   Senior Vice President, Retail Support and Logistics
                                    effective October, 2000; Vice President - Retail
                                    Support effective September, 1997; Vice President -
                                    Retail Support and New Business effective October,
                                    1994
Fred J. Neer                   62   Vice President - Human Resources effective April, 1989.
Kenneth L. Nichols             53   Vice President, Retail Operations effective October,
                                    2000; Vice President - Retail Operations West
                                    effective October, 1999; Vice President - New
                                    Business effective October, 1998; Director - Retail
                                    Operations, Eastern Division effective October, 1994.
Richard W. Stine               56   Director since June, 1999; term expires 2002; Vice
                                    President of Stine, Inc., Sulphur, Louisiana since
                                    September, 1976.
David S. Ziegler               46   Director since June 2001; term expires 2004; Vice
                                    President of Z Hardware Company, Elgin, Illinois
                                    since February, 1979.

     Our By-laws provide that our Board shall have between 9 and 12 directors. A minimum of 9 directors
must be dealer directors. A maximum of two directors may be non-dealer directors. Non-dealer directors
cannot exceed 25% of the total number of directors in office at any one time. Non-dealer directors may
(but do not have to be) shareholders of ours who are in the retail hardware business. Our By-laws provide for three classes of directors who are to be elected for staggered 3-year terms, except that one director who would not otherwise be eligible for reelection in 2001 was elected at the 2001 annual meeting of stockholders for a two year term under Article IV, Sections 1 through 3 of our By-laws. On January 23, 2001, the Board of Directors passed a resolution reducing the number of directors from eleven to ten effective with the  2001 Annual Stockholders meeting on June 4, 2001.

     Our By-laws also provide that no one can serve as a dealer director unless that person is an owner,
executive officer, general partner or general manager of a retail business organization that is a shareholder of ours. Regional dealer directors are elected from geographic regions of the United States. The Board under Article IV, Section 1 of our By-laws, determines these regions. If the Board finds that regional dealer directors represent all regions, then dealer directors at large may be elected, so long as the maximum number of directors allowed under our By-laws is not exceeded.

     A geographic breakdown of our current regions for the election of directors at our 2002 annual
stockholders meeting to be held on June 3, 2002 appears below:

Region 1 - Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York,
           Pennsylvania, New Jersey;
Region 2 - Delaware, Maryland, Virginia, West Virginia, Kentucky, Tennessee, North Carolina,
           South Carolina, District of Columbia, Ohio;
Region 3 - Alabama, Mississippi, Georgia, Florida;
Region 4 - Indiana, Illinois, Michigan, Wisconsin;
Region 5 - Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota,
           South Dakota, Utah, Wyoming;
Region 6 - Arkansas, Louisiana, Oklahoma, Texas, New Mexico, Arizona;
Region 7 - Hawaii, California, Nevada, Oregon, Washington, Alaska

     Under the procedure required by our By-laws, the following directors have been selected as
nominees for reelection as dealer directors at the 2002 annual stockholders meeting:

Nominee                                                        Age Class  Region  Term
Richard F. Baalmann, Jr. . . . . .. . .  . . . . . . . . . . . 42  Second   4    3 years
J. Thomas Glenn . . . . .. . . . .. . .  . . . . . . . . . . . 42  Second   2    3 years
Richard W. Stine . . . . . . . . .. . . .. . . . . . . . . . . 56  Second   6    3 years

The person named below has been selected as a nominee for election to the Board for the first time at
the 2002 annual meeting as a dealer director of the class, from the region and for the term indicated:

Nominee                                                        Age Class  Region  Term
Jeffrey M. Schulein . . . . . . . . . . . . . .. . . . . . . . 60  Second   7*   3 years

*Jeffrey M. Schulein has been selected as a nominee to replace Jennifer C. Anderson, Region 7, who has
announced her intention to resign from the Board for personal reasons effective June 3, 2002.

     Non-dealer directors and dealer directors at large are not elected from particular geographic regions.

     Article IV of our By-laws has information about the qualifications for membership on the Board of
Directors, the terms of directors, the limitations on the total period of time that a director may hold office, the procedure for Nominating Committees to select candidates and nominees for election to the Board of Directors and the procedure for filling vacancies on the Board if one occurs during an unexpired term.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Balance Sheets as of December 29, 2001 and December 30, 2000 . . ..     32

Consolidated Statements of Earnings and Consolidated Statements of
  Comprehensive Income for each of the years in the three-year
  period ended December 29, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Consolidated Statements of Member Dealers' Equity for each of the years in the
  three-year period ended December 29, 2001 . . . . . . . . . . . . . . . . . . . .  35

Consolidated Statements of Cash Flows for each of the years in the three-year
  period ended December 29, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 37

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Ace Hardware Corporation:

     We have audited the accompanying consolidated balance sheets of Ace Hardware Corporation and
subsidiaries as of December 29, 2001 and December 30, 2000 and the related consolidated statements of
earnings, comprehensive income, member dealers' equity and cash flows for each of the years in the
three-year period ended December 29, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ace Hardware Corporation and subsidiaries as of December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 29, 2001 in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

Chicago, Illinois
January 28, 2002

                                    ACE HARDWARE CORPORATION
                                   CONSOLIDATED BALANCE SHEETS
                              December 29, 2001 and December 30, 2000

                                              ASSETS

                                                           December 29,     December 30,
                                                              2001             2000     
                                                                  (000's omitted)

Current assets:
   Cash and cash equivalents                               $    25,213      $    24,644

   Short-term Investments                                       17,158           12,772

   Receivables:
      Trade                                                    308,390          316,339
      Other                                                     63,064           59,090 
                                                               371,454          375,429

      Less allowances for doubtful receivables                  (2,419)          (2,458)

            Net receivables                                    369,035          372,971

   Inventories (Note 2)                                        412,568          395,565

   Prepaid expenses and other current assets                    16,295           15,105 

            Total current assets                               840,269          821,057 

Property and equipment (Note 10):
   Land                                                         15,466           16,791
   Buildings and improvements                                  232,015          211,024
   Warehouse equipment                                         100,676           90,250
   Office equipment                                            111,175           99,560
   Manufacturing equipment                                      15,197           14,590
   Transportaion equipment                                      16,345           16,888
   Leasehold improvements                                       17,575           17,445
   Construction in progress                                         - -             2,054 
                                                               508,449          468,602
      Less accumulated depreciation and amortization          (220,942)        (206,712)

             Net property and equipment                        287,507          261,890

Other assets                                                    41,015           40,863 

                                                           $ 1,168,791      $ 1,123,810
                                                           ============     ============
                  
                See accompanying notes to consolidated financial statements.



                                     ACE HARDWARE CORPORATION
                                    CONSOLIDATED BALANCE SHEETS
                              December 29, 2001 and December 30, 2000


                               LIABILITIES AND MEMBER DEALERS' EQUITY


                                                           December 29,     December 30,
                                                              2001             2000     
                                                                  (000's omitted)

Current liabilities:
   Current installment of long-term debt (Note 4)          $     7,179      $     6,904
   Short-term borrowings (Note 3)                               72,600           81,500
   Accounts payable                                            409,789          448,766
   Patronage dividends payable in cash (Note 5)                 34,229           34,764
   Patronage refund certificates payable (Note 5)                9,084            4,795
   Accrued expenses                                             81,062           63,224 

      Total current liabilities                                613,943          639,953

Long-term debt (Note 4)                                        170,387          105,891
Patronage refund certificates payable (Note 5)                  77,401           68,385
Other long-term liabilities                                     27,184           24,923 

      Total liabilities                                        888,915          839,152 

Member dealers' equity (Notes 5 and 8):
   Class A Stock of $1,000 par value                             3,693            3,783
   Class B Stock of $1,000 par value                             6,499            6,499
   Class C Stock of $100 par value                             260,224          250,480
   Class C Stock of $100 par value, issuable to dealers
     for patronage dividends                                    23,284           24,267
   Additional stock subscribed, net                                303              351
   Retained deficit                                            (17,591)          (5,551)
   Contributed capital                                          13,485           13,485
   Accumulated other comprehensive loss                         (1,239)            (162)

                                                               288,658          293,152
Less: Treasury stock, at cost                                   (8,782)          (8,494)

      Total member dealers' equity                             279,876          284,658 

Commitments (Notes 6 and 10)                                                            
                                                           $ 1,168,791      $ 1,123,810
                                                           ============     ============
                   
                See accompanying notes to consolidated financial statements.


                                             ACE HARDWARE CORPORATION
                        CONSOLIDATED STATEMENTS OF EARNINGS



                                                                     Year Ended              

                                                      December 29,  December 30,  January 1,
                                                          2001          2000         2000    
                                                                  (000's omitted)


Net sales                                             $ 2,894,369   $ 2,945,151   $3,181,802
Cost of sales                                           2,617,069     2,665,614    2,908,138 

    Gross profit                                          277,300       279,537      273,664 

Operating expenses:
    Warehouse and distribution                             34,915        32,496       28,122
    Selling, general and administrative                    86,277        87,368       87,763
    Retail success and development                         68,523        71,558       57,149 
       Total operating expenses                           189,715       191,422      173,034 

         Operating income                                  87,585        88,115      100,630

Interest expense (Note 12)                                (23,156)      (21,803)     (16,651)
Other income, net                                          12,058        14,207       10,416
Income taxes (Note 7)                                      (3,418)         (127)      (1,833)

            Net earnings                              $    73,069   $    80,392   $   92,562
                                                      ============  ============  ===========

Retained earnings (deficit) at beginning of year      $    (5,551)  $       594   $    3,292
Net earnings                                               73,069        80,392       92,562
Patronage dividends (Note 5)                              (85,109)      (86,537)     (95,260)

Retained earnings (deficit) at end of year            $   (17,591)  $    (5,551)  $      594
                                                      ============  ============  ===========


             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


                                                                    Year Ended               

                                                      December 29,  December 30,  January 1,
                                                          2001          2000         2000    
                                                                  (000's omitted)

Net earnings                                          $    73,069   $    80,392   $   92,562
Unrealized gains on securities                                129           458           -
Foreign currency translation, net                          (1,206)         (911)       1,109 

     Comprehensive income                             $    71,992   $    79,939   $   93,671
                                                      ============  ============  ===========

             See accompanying notes to consolidated financial statements.

                                                 		  ACE HARDWARE CORPORATION
                                                      CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
                                                     Three Years Ended December 29, 2001 (000's Omitted)

                                                                             Class C Stock
                                                                              Issuable to                                      Accumulated
                                                                              Dealers for Additional  Retained                   Other
                                                Class A  Class B   Class C    Patronage     Stock     Earnings   Contributed Comprehensive   Treasury
                                                 Stock    Stock     Stock     Dividends   Subscribed* (deficit)    Capital   Income/(loss)    Stock        Total
Balance at January 2, 1999                      $3,846   $6,499   $226,571    $26,170      $  471       $3,292     $3,295       $(818)       $(7,814)    $261,512
   Net earnings                                     -        -          -          -           -        92,562         -           -              -        92,562
   Net payments on subscriptions                    -        -          -          -        1,531           -          -           -              -         1,531
   Patronage financing deductions                   -        -          -        (847)         -            -          -           -              -          (847)
   Stock issued                                    238       -      26,616    (25,323)     (1,504)          -          -           -              -            27
   Stock repurchased                                -        -          -          -           -            -          -           -         (12,509)     (12,509)
   Stock retired                                  (228)      -     (11,961)        -           -            -          -           -          12,189           -
   Patronage dividends issuable                     -        -          -      21,648          -            -      10,190          -              -        31,838
   Patronage dividends payable                      -        -          -          -           -       (95,260)        -           -              -       (95,260)
   Accumulated other comprehensive income (loss)    -        -          -          -           -            -          -        1,109             -         1,109 
Balance at January 1, 2000                       3,856    6,499    241,226     21,648         498          594     13,485         291         (8,134)     279,963
   Net earnings                                     -        -          -          -           -        80,392         -           -              -        80,392
   Net payments on subscriptions                    -        -          -          -        1,830           -          -           -              -         1,830
   Patronage financing deductions                   -        -          -        (158)         -            -          -           -              -          (158)
   Stock issued                                    234       -      23,391    (21,490)     (1,977)          -          -           -              -           158
   Stock repurchased                                -        -          -          -           -            -          -           -         (14,804)     (14,804)
   Stock retired                                  (307)      -     (14,137)        -           -            -          -           -          14,444           -
   Patronage dividends issuable                     -        -          -      24,267          -            -          -           -              -        24,267
   Patronage dividends payable                      -        -          -          -           -       (86,537)        -           -              -       (86,537)
   Accumulated other comprehensive income (loss)    -        -          -          -           -            -          -         (453)            -          (453)
Balance at December 30, 2000                     3,783    6,499    250,480     24,267         351       (5,551)    13,485        (162)        (8,494)     284,658
   Net earnings                                     -        -          -          -           -        73,069         -           -              -        73,069
   Net payments on subscriptions                    -        -          -          -        1,479           -          -           -              -         1,479
   Patronage financing deductions                   -        -          -      (1,324)         -            -          -           -              -        (1,324)
   Stock issued                                    170       -      24,202    (22,943)     (1,527)          -          -           -              -           (98)
   Stock repurchased                                -        -          -          -           -            -          -           -         (15,006)     (15,006)
   Stock retired                                  (260)      -     (14,458)        -           -            -          -           -          14,718           -
   Patronage dividends issuable                     -        -          -      23,284          -            -          -           -              -        23,284
   Patronage dividends payable                      -        -          -          -           -       (85,109)        -           -              -       (85,109)
   Accumulated other comprehensive income (loss)    -        -          -          -           -            -          -       (1,077)            -        (1,077)
Balance at December 29, 2001                    $3,693   $6,499   $260,224    $23,284      $  303     $(17,591)   $13,485     $(1,239)       $(8,782)    $279,876
			                =======  =======  =========   ========     =======    =========   ========    ========      =========   =========
*Additional stock subscribed is comprised of the following amounts at January 1, 2000, December 30, 2000 and December 29, 2001:

                                                           1999      2000      2001 
                                Class A Stock            $  118    $   41    $   94
                                Class B Stock                - -         - -         -
                                Class C Stock             1,452       975       977
                                                          1,570     1,016     1,071
                                Less unpaid portion       1,072       665       768
                                                         $  498    $  351    $  303
                                                         ======    ======    ======

                                    See accompanying notes to consolidated financial statements.
   ACE HARDWARE CORPORATION
                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                Year Ended                  

                                                              December 29,      December 30,      January 1,
                                                                  2001              2000             2000   
                                                                              (000's Omitted)

    Operating Activities:
    Net Earnings                                              $    73,069       $   80,392        $  92,562
    Adjustments to reconcile net earnings
    to net cash provided by operating activities:
       Depreciation and amortization                               29,221           32,273           23,396
       Gain on sale of property and equipment, net of
         deferred taxes of $1,681                                  (3,264)              -                -
       Decrease (increase) in accounts receivable, net              3,936           (2,092)          26,095
       Increase in inventories                                    (17,003)         (22,475)         (38,685)
       Decrease (increase) in prepaid expenses
	and other current assets                                (1,334)          (1,764)           1,805
       Decrease in accounts payable and accrued expenses          (21,139)          (7,497)          (1,101)
       Increase in other long-term liabilities                      2,261            2,523            3,718

          Net Cash Provided by Operating Activities                65,747           81,360          107,790 

    Investing Activities:
       Purchase of short-term investments                          (4,386)         (12,314)              -
       Purchase of property and equipment                         (51,430)         (44,649)         (43,074)
       Proceeds from sale of property and equipment                    -             9,664              349
       Increase in other assets                                    (1,229)         (12,200)         (21,160)

          Net Cash Used in Investing Activities                   (57,045)         (59,499)         (63,885)

    Financing Activities:
       Proceeds (payments) of short-term borrowings                (8,900)          31,631           24,869
       Proceeds from issuance of long-term debt                    70,000               -                -
       Payments on long-term debt                                  (5,229)          (3,167)          (6,892)
       Payment of cash portion of patronage dividend              (34,764)         (38,173)         (34,826)
       Payments of patronage refund certificates and
         patronage financing deductions                           (15,713)          (9,956)         (34,557)
       Proceeds from sale of common stock                           1,479            1,830            1,531
       Repurchase of common stock                                 (15,006)         (14,804)         (12,509)

          Net Cash Used in Financing Activities                    (8,133)         (32,639)         (62,384)

    Increase (decrease) in Cash and Cash Equivalents                  569          (10,778)         (18,479)
    Cash and Cash Equivalents at beginning of year                 24,644           35,422           53,901 

    Cash and Cash Equivalents at end of year                  $    25,213       $   24,644        $  35,422
					        ============	     ===========       ==========

			See accompanying notes to consolidated financial statements.

ACE HARDWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies     (a)  The Company and Its Business
     Ace Hardware Corporation (the Company) operates as a wholesaler of hardware and related
products, and manufactures paint products. As a dealer-owned cooperative, the Company distributes
substantially all of its patronage sourced earnings in the form of patronage dividends to member dealers
based on their volume of merchandise purchases.
    (b)  Cash Equivalents and Investments
     The Company considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents. Short-term investments consist primarily of corporate and government agency
bonds and are classified as held for sale.
    (c)  Consolidation
     The accompanying consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany transactions have been eliminated. The equity method of
accounting is used for the Company's 50% or less owned affiliates over which the Company has the ability
to exercise significant influence.
    (d)  Receivables
     Receivables from dealers include amounts due from the sale of merchandise and special equipment
used in the operation of dealers' businesses. Other receivables are principally amounts due from suppliers
for promotional and advertising allowances. The Company recognizes revenue from product sales upon
shipment to customers.
    (e)  Inventories
     Inventories are valued at the lower of cost or net realizable value. Cost is determined primarily using
the last-in, first-out method.
    (f)  Property and Equipment
     Property and equipment are stated at cost less accumulated depreciation and amortization.
Expenditures for maintenance, repairs and renewals of relatively minor items are generally charged to
earnings. Significant improvements or renewals are capitalized.

     Depreciation expense is computed on both straight-line and accelerated methods based on estimated
useful lives as follows:


                                             Useful Life        Principal
                                                Years      Depreciation Method
                Buildings and improvements      10-40         Straight Line
                Warehouse equipment              5-10         Accelerated
                Office equipment                 3-10         Various
                Manufacturing equipment          3-20         Straight Line
                Transportation equipment         3-7          Straight Line

     Leasehold improvements are generally amortized on a straight-line basis over the term of the respective
lease.
    (g)  Foreign Currency Translation
     Substantially all assets and liabilities of foreign operations are translated at the rate of exchange in
effect at the balance sheet date while revenues and expenses are translated at the average monthly exchange
rates prevailing during the year. The Company has utilized foreign exchange forward contracts to
hedge non-U.S. equity investments. Gains and losses on these foreign hedges are included in the basis of
the underlying hedged investment. Accumulated other comprehensive loss at December 29, 2001 and
December 30, 2000 includes gains of $2.0 million related to previously settled foreign currency contracts.
Foreign currency translation adjustments, net of gains on foreign exchange contracts, are reflected in the
accompanying Consolidated Statements of Comprehensive Income for 2001, 2000 and 1999. The
Company did not have any outstanding foreign exchange forward contracts at December 29, 2001 or
December 30, 2000.
    (h)  Financial Instruments
     The carrying value of assets and liabilities that meet the definition of a financial instrument included
in the accompanying Consolidated Balance Sheets approximate fair value.
    (i)  Retirement Plans
     The Company has retirement plans covering substantially all non-union employees. Costs with
respect to the noncontributory pension plans are determined actuarially and consist of current costs and
amounts to amortize prior service costs and unrecognized gains and losses. The Company contribution
under the profit sharing plan is determined annually by the Board of Directors.
    (j)  Use of Estimates
     The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
    (k)  Fiscal Year
     The Company's fiscal year ends on the Saturday nearest December 31st. Accordingly, 2001, 2000
and 1999 ended on December 29, 2001, December 30, 2000 and January 1, 2000, respectively.
    (l)  Reclassifications
     Certain financial statement reclassifications have been made to prior year amounts to conform to
comparable classifications followed in 2001.
(2) Inventories      Inventories consist primarily of merchandise inventories. Substantially all of the Company's domestic
inventories are valued on the last-in, first-out (LIFO) method; the excess of replacement cost over the
LIFO value of inventory was approximately $57,809,000 and $62,502,000 at December 29, 2001 and
December 30, 2000, 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 2001 and 2000. The maximum amount outstanding at any
month-end during the period was $128.0 million in 2001 and $147.0 million in 2000. The weighted
average interest rate effective as of December 29, 2001 and December 30, 2000 was 2.58% and 7.18%,
respectively. Short-term borrowings outstanding as of December 29, 2001 and December 30, 2000 were
$72.6 and $81.5 million, respectively. At December 29, 2001 the Company has available a revolving credit
facility with a group of banks providing for $175.0 million in committed lines and also has available $10.0
million in uncommitted lines. The aggregate unused line of credit available at December 29, 2001 and
December 30, 2000 was $112.4 million and $108.5 million, respectively. At December 29, 2001 the
Company had no compensating balance requirements.

(4) Long-Term Debt     Long-term debt is comprised of the following:

                                                                 December 29, December 30,
                                                                        2001         2000    
                                                                         (000's Omitted)
Notes Payable:
   $20,000,000 due in quarterly installments of $540,500
      with interest payable quarterly at a fixed rate of 8.74%      $    3,784   $    5,946
   $30,000,000 due in semi-annual installments of $2,000,000
      with interest payable quarterly at a fixed rate of 6.47%          26,000       30,000
   $20,000,000 due in quarterly installments of $714,300
      commencing September 15, 2004 with interest payable quarterly
      at a fixed rate of 7.49%                                          20,000       20,000
   $30,000,000 due in annual installments of $6,000,000
      commencing March 25, 2005 with interest payable quarterly
      at a fixed rate of 7.55%                                          30,000       30,000
   $25,000,000 due in annual installments of $5,000,000
      commencing February 9, 2006 with interest payable quarterly
      at a fixed rate of 6.61%                                          25,000       25,000
   $70,000,000 due in annual installments of $14,000,000
      commencing April 30, 2009 with interest payable semi-annually
      at a fixed rate of 7.27%                                          70,000           -
Other long term debt                                                        28           83
Installment notes with maturities through 2005 with various
      interest rates                                                     2,754        1,766 
                                                                       177,566      112,795
Less current installments                                               (7,179)      (6,904)
                                                                    $  170,387   $  105,891 
                                                                    ===========  ===========

     Aggregate maturities of long-term debt are $7,179,000, $6,412,000, $6,066,000, $13,195,000 and
$17,857,000 in 2002 through 2006, respectively, and $126,857,000 thereafter.
(5) Patronage Dividends and Refund Certificates Payable      The Company operates as a cooperative organization and has paid or will pay patronage dividends
to member dealers on the portion of earnings derived from business done with such dealers. Patronage
dividends are allocated in proportion to the volume of purchases by member dealers during the period.
The amount of patronage dividends to be remitted in cash depends upon the level of dividends earned
by each member outlet, varying from 20% on the total dividends under $5,000 and increasing by 5%
on total dividends for each subsequent $2,500 earned to a maximum of 40% on total dividends
exceeding $12,500. In 1999, amounts exceeding the cash portion were distributed in the form of
options (i.e. other property) exercisable by the dealers at a future date to acquire shares of the
Company's ownership in a minority-owned investment. Amounts exceeding the cash portion will be
distributed in the form of Class C $100 par value stock, to a maximum based upon the current year
purchase volume or $20,000 whichever is greater, and thereafter in a combination of additional cash
and patronage refund certificates having maturity dates and bearing interest as determined by the
Board of Directors. A portion of the dealer's annual patronage dividends distributed under the above
plan in a form other than cash can be applied toward payment of principal and interest on any balances
outstanding for approved patronage financing programs.

     The patronage dividend composition for 2001, 2000 and 1999 follows:

                  Subordinated Class           Patronage    Total
            Cash     Refund      C     Other   Financing  Patronage
          Portion Certificates Stock  Property Deductions Dividends
                               (000's Omitted) 
2001      $34,229    $18,739  $23,284 $    -   $   8,857  $  85,109
2000       34,764     18,029   24,267      -       9,477     86,537
1999       38,173     12,249   21,648  10,190     13,000     95,260

     Patronage dividends are allocated on a fiscal year basis with issuance in the following year.

     The patronage refund certificates outstanding or issuable at December 29, 2001 are payable as follows:

                                     Interest
            January 1,           Amount             Rate
                            (000's omitted)

            2002               $  9,084             6.25%
            2003                 13,319             6.00
            2004                 15,297             6.00
            2005                 12,449             6.25
            2006                 17,597             6.50
            2007                 18,739             6.00 (6) Retirement Plans      The Company has two defined benefit pension plans covering substantially all non-union employees,
the Employees' Pension Plan and Trust and the Employees' Retirement Income Plan and Trust. The
Company terminated the Employees' Pension Plan and Trust effective April 30, 2000. In addition to the
net periodic pension expense, the Company recognized a gain of $3,131,000 (net of tax) in 2000 of which
the pre-tax portion is classified as other income, net in the accompanying consolidated financial statements.
Benefits in these plans are based on years of service, highest average compensation (as defined)
and the related profit sharing and primary social security benefit. Contributions to the plans 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 29, 2001 plan assets in the
Employees' Retirement Income Plan and Trust were held primarily in equities, mutual funds and group
annuity contracts.


     Pension expense for 2001, 2000 and 1999 included the following components:

                                               December 29, December 30, January 1,
                                                   2001         2000        2000   
                                                          (000's omitted)
Service cost- benefits earned during the
   period                                        $   41       $  52        $  309
Interest cost on projected benefit obligation       116         112           399
Expected return on plan assets                     (123)       (115)         (733)
Net amortization and deferral                        - -          (31)          125
Gain on curtailment                                 (58)         - -             - -   

Net periodic pension expense (income)            $  (24)      $  18        $  100
                                               ============ ============ ==========

     The following table sets forth the funded status of the plans and amounts recognized in the Company's
Consolidated Balance Sheets at December 29, 2001 and December 30, 2000:

                                                   December 29,  December 30,
                                                       2001          2000    
                                                        (000's omitted)
Change in benefit obligation:
   
   Benefit obligation at beginning of year           $  1,656      $  5,412
   Service cost                                            41            52
   Interest cost                                          116           112
   Actuarial losses (gains)                                91          (119)
   Curtailment and settlements                           (141)           -
   Benefits paid                                          (49)       (3,801) 

Benefit obligation at end of year                       1,714         1,656  

Change in plan assets:
   
   Fair value of plan assets at beginning of year       1,560        10,293
   Actual return on plan assets                            91            29
   Employer contribution (reversion)                       43        (4,961)
   Benefits paid                                          (49)       (3,801) 

Fair value of plan assets at end of year                1,645         1,560  

   Funded status                                          (69)          (96)
   Unrecognized transition asset                            6           (65)
   Unamortized prior service cost                          (4)         (581)
   Unrecognized net actuarial losses (gains)               78           688  

Prepaid (accrued) pension cost                       $     11      $    (54)
                                                   ============  ============

     The weighted average discount rate used in determining the actuarial present value of the projected
benefit obligation was 7.25% in 2001 and 7.50% in 2000. The related expected long-term rate of return
was 8.0% in 2001 and 2000. The rate of increase in future compensation was projected using actuarial
salary tables plus 1.0% in 2001 and 2000.

     The Company also participates in several multi-employer plans covering union employees. Amounts
charged to expense and contributed to the plans totaled approximately $212,000, $222,000 and $233,000
in 2001, 2000 and 1999, respectively.

     The Company's profit sharing plan contribution for 2001, 2000 and 1999 was approximately
$14,253,000, $14,586,000 and $15,071,000, respectively.
(7) Income Taxes      As a cooperative, the Company distributes substantially all of its patronage sourced earnings to
its members in the form of patronage dividends. The 2001, 2000 and 1999 provisions (benefit) for federal
income taxes were $3,037,000, $(162,000) and $1,000,000, respectively, and for state income taxes were
$381,000, $289,000 and $833,000, respectively. The current year increase in the effective tax rate was
primarily due to nonrecurring gains realized on the sale of property and equipment.

     The Company made tax payments of $807,000, $1,095,000 and $2,755,000 during 2001, 2000 and
1999, respectively.

(8) Member Dealers' Equity      The Company's classes of stock are described below:

Number of Shares at
                                                                   December 29,    December 30,
                                                                       2001            2000    
        Class A Stock, voting, redeemable at par value -
          Authorized                                                   10,000          10,000
          Issued and outstanding                                        3,693           3,783
        Class B Stock, nonvoting, redeemable at not less than
         twice par value-
          Authorized                                                    6,500           6,500
          Issued                                                        6,499           6,499
          Outstanding                                                   2,108           2,252
          Treasury stock                                                4,391           4,247
        Class C Stock, nonvoting, redeemable at not less
         than par value -
          Authorized                                                4,000,000       4,000,000
          Issued and outstanding                                    2,602,243       2,504,796
          Issuable as patronage dividends                             232,839         242,671
        Additional Stock Subscribed:
          Class A Stock                                                    94              41
          Class B Stock                                                    -               -
          Class C Stock                                                 9,770           9,750      At December 29, 2001 and December 30, 2000 there were no common shares reserved for options, warrants,
conversions or other rights; nor were any options granted or exercised during the two years then ended.

     Member dealers may subscribe for the Company's stock in various prescribed combinations. Only one
share of Class A Stock may be owned by a dealer with respect to the first member retail outlet controlled by
such dealer. Only four shares of Class B Stock may be owned by a dealer with respect to each retail outlet
controlled by such dealer, but only if such outlet was a member of the Company on or before February 20,
1974. An appropriate number of shares of Class C Stock must be included in any subscription by a dealer
in an amount to provide that such dealer has a par value of all shares subscribed for equal to $5,000 for each
retail outlet. Unregistered shares of Class C Stock are also issued to dealers in connection with patronage
dividends. No dividends can be declared on any shares of any class of the Company's Stock.

     Upon termination of the Company's membership agreement with any retail outlet, all shares of stock
of the Company held by the dealer owning or controlling such outlet, must be sold back to the Company,
unless a transfer of such shares is made to another party accepted by the Company as a member dealer
with respect to the same outlet.

     A Class A share is issued to a member dealer only when the share subscribed has been fully paid.
Class B and Class C shares are only issued when all such shares subscribed with respect to a retail outlet
have been fully paid. Additional stock subscribed in the accompanying statements represents the par
value of shares subscribed, reduced by the unpaid portion.

     All shares of stock are currently issued and repurchased at par value, except for Class B Stock which
is repurchased at twice its par value, or $2,000 per share. Upon retirement of Class B shares held in
treasury, the excess of redemption price over par is allocated equally between contributed capital and
retained earnings.

     Treasury stock transactions during 1999, 2000 and 2001 are summarized below:

                                    Shares Held in Treasury
                                  Class A    Class B    Class C
Balance at January 2, 1999             -       3,907          -
   Stock issued                        -          -           -
   Stock repurchased                  228        160     119,614
   Stock retired                     (228)        -     (119,614)
Balance at January 1, 2000             -       4,067          -
   Stock issued                        -          -           -
   Stock repurchased                  307        180     141,365
   Stock retired                     (307)        -     (141,365)
Balance at December 30, 2000           -       4,247          -
   Stock issued                        -          -           -
   Stock repurchased                  260        144     144,584
   Stock retired                     (260)        -     (144,584)
Balance at December 29, 2001           -       4,391          -  
                                  =========  =========  ========= (9) Segments      The Company is principally engaged as a wholesaler of hardware and related products and is a manufacturer
of paint products. The Company identifies segments based on management responsibility and
the nature of the business activities of each component of the Company. The Company measures segment
earnings as operating earnings including an allocation for interest expense and income taxes. Information
regarding the identified segments and the related reconciliation to consolidated information are as
follows:

                                                      December 29, 2001
                                                        (000's omitted)
                                                                   Elimination of
                                                   Paint            Intersegment
                                     Wholesale Manufacturing Other   Activities  Consolidated
Net sales from external customers   $2,822,727 $  18,668     $52,974         -     $2,894,369
Intersegment sales                      27,881   110,621          -    (138,502)           -
Interest expense                        23,156     1,094       1,459     (2,553)       23,156
Depreciation and amortization           25,520     1,768       1,933         -         29,221
Segment profit (loss)                   63,504    11,255      (1,330)      (360)       73,069
Identifiable segment assets          1,075,358    62,205      49,742    (18,514)    1,168,791
Expenditures for long-lived assets      47,165     1,673       2,592         -         51,430

                                                       December 30, 2000
                                                        (000's omitted)
                                                                   Elimination of
                                                   Paint            Intersegment
                                     Wholesale Manufacturing Other   Activities  Consolidated
Net sales from external customers   $2,879,952 $  20,852     $44,347         -     $2,945,151
Intersegment sales                      28,641   100,780          -    (129,421)           -
Interest expense                        21,803     1,209       1,278     (2,487)       21,803
Depreciation and amortization           29,176     1,694       1,403         -         32,273
Segment profit (loss)                   73,540     9,739      (2,452)      (435)       80,392
Identifiable segment assets          1,026,130    68,130      48,775    (19,225)    1,123,810
Expenditures for long-lived assets      39,807       937       3,905         -         44,649

                                                        January 1, 2000
                                                        (000's omitted)
                                                                   Elimination of
                                                   Paint            Intersegment
                                     Wholesale Manufacturing Other   Activities  Consolidated
Net sales from external customers   $3,128,269 $  27,268     $26,265         -     $3,181,802
Intersegment sales                      22,647   100,758          -    (123,405)           -
Interest expense                        16,651     1,383         590     (1,973)       16,651
Depreciation and amortization           21,022     1,589         785         -         23,396
Segment profit (loss)                   85,574     9,475      (1,819)      (668)       92,562
Identifiable segment assets            975,618    78,057      40,235    (12,426)    1,081,484
Expenditures for long-lived assets      35,027     2,846       5,201         -         43,074


     Net sales and long-lived assets by geographic region based upon customer location for 2001, 2000 and
1999 were as follows:

                               December 29, 2001  December 30, 2000  January 1, 2000
                                                   (000's omitted)
Net sales:
   United States                  $2,767,829         $2,748,740         $2,975,567
   Foreign countries                 126,540            196,411            206,235

      Total                       $2,894,369         $2,945,151         $3,181,802
                                  ==========         ==========         ==========
Long-lived assets, net: 
   United States                  $  285,345         $  258,802         $  254,747
   Foreign countries                   2,162              3,088              4,431

      Total                       $  287,507         $  261,890         $  259,178
                                  ===========        ===========        ========== (10) Commitments      Leased property under capital leases is included as "Property and Equipment" in the Consolidated
Balance Sheets as follows:

                                                       December 29,     December 30,
                                                           2001             2000    
                                                              (000's omitted)

Data processing equipment                                  $3,444          $3,598
Less: accumulated depreciation and amortization            (3,345)         (3,252)  
                                                              $99            $346
                                                       ============     ============

     The Company primarily rents buildings and warehouse, office and certain other equipment under
operating leases. At December 29, 2001 annual minimum rental commitments under leases that have
initial or remaining noncancelable terms in excess of one year are as follows:

                                           December 29,
Year Ending                                    2001    
                                         (000's omitted)
2002                                        $  27,372
2003                                           20,905
2004                                           16,353
2005                                           13,481
2006                                           11,653
Thereafter                                     39,277  

      Total minimum lease payments          $ 129,041  
                                           ============


     All leases expire prior to 2017. 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
$49,336,000, $45,514,000 and $39,149,000 in 2001, 2000 and 1999, respectively. Rent expense
includes $9,793,000, $9,977,000 and $7,352,000 in contingent rentals paid in 2001, 2000 and 1999,
respectively, primarily for transportation equipment mileage.
(11) Media Expense      The Company expenses media costs the first time the advertising takes place. Gross media expense,
prior to income offsets from dealers and suppliers, amounting to $76,898,000, $76,372,000 and
$79,639,000 was charged to operations in 2001, 2000 and 1999, respectively.
(12) Interest Expense      Interest paid was $20,574,000, $20,256,000 and $16,411,000 in 2001, 2000 and 1999, respectively, net
of capitalized interest of $289,000, $715,000 and $234,000 in 2001, 2000 and 1999, respectively. ACE HARDWARE CORPORATION
SELECTED FINANCIAL DATA Income Statement Data:
                                       December 29,  December 30,  January 1,  January 2,   December 31,
    2001         2000        2000       1999        1997                                                                  (000's omitted) Net sales                              $2,894,369    $2,945,151    $3,181,802   $3,120,380  $2,907,259
Cost of sales                           2,617,069    2,665,614    2,908,138  2,879,296  2,693,362 Gross profit                              277,300       279,537       273,664      241,084     213,897
Total expenses                            204,231      199,145      181,102    153,124    137,510 Net earnings                           $   73,069   $   80,392   $   92,562 $   87,960 $   76,387
                                      ============   ============  ==========  ==========   ==========
Patronage dividends (Notes A, B and C) $   85,109   $   86,537   $   95,260 $   88,022 $   76,153
                                      ============   ============  ==========  ==========   ==========
Balance Sheet Data:
                                       December 29,  December 30,  January 1,   January 2,  December 31,
    2001         2000        2000       1999        1997                                                                    (000's omitted)
Total assets                           $1,168,791    $1,123,810    $1,081,484   $1,047,580  $  977,478
Working capital                           226,326       181,104       180,763      191,926     158,676
Long-term debt                            170,387       105,891       111,895      115,421      96,815
Patronage refund certificates payable,
   long-term                               77,401        68,385        55,257       43,465      49,044
Member dealers' equity                    279,876       284,658       279,963      261,512     245,479
(A)The Company operates as a cooperative organization, and pays patronage dividends to member dealers on earnings derived from business done with such dealers. It is the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends.
(B)The form in which patronage dividends are to be distributed can only be determined at the end of
each year when the amount distributable to each of the member dealers is known. Patronage
dividends were payable as listed in the table below.
(C)Refer to Note 5 of the Consolidated Financial Statements beginning on page 37 of this Form
S-2.
                                       December 29,   December 30,  January 1,  January 2,   December 31,
    2001         2000        2000       1999        1997___ (000's omitted)
In cash                                    $ 34,229      $ 34,764    $ 38,173     $ 34,826      $ 29,943
In patronage refund certificate payable      18,739        18,029      12,249       15,720        13,726
In Class C Stock                             23,284        24,267      21,648       26,170        22,366
In other property                                -             -       10,190           -             -
In patronage financing deductions             8,857        9,477     13,000     11,306       10,118 Total patronage dividends                  $ 85,109     $ 86,537   $ 95,260   $ 88,022     $ 76,153 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

     The Company's ability to generate cash adequate to meet its needs ("liquidity") results from internally generated funds, short-term lines of credit and long-term financing.

     The Company has an established, unsecured revolving credit facility with a group of banks. The
Company has unsecured lines of credit of $185.0 million of which $112.4 million was available at
December 29, 2001. Any borrowings under these lines of credit would bear interest at the prime rate or
less. Long-term financing is arranged as determined necessary to meet the Company's capital or other
requirements, with principal amount, timing and form dependent on prevailing debt markets and general
economic conditions.

     Capital expenditures for new and improved facilities were $51.4, $44.7 and $43.1 million in 2001,
2000 and 1999, respectively. During 2001, the Company financed the $51.4 million of capital expenditures
out of current and accumulated internally generated funds, short-term borrowings and the issuance of longterm debt. Capital expenditures for 2002 are anticipated to be approximately $65.3 million primarily for a new distribution facility, improvements to existing facilities and technology investments.

     As a cooperative, the Company distributes substantially all of its patronage sourced earnings to its members in the form of patronage dividends, which are deductible for income tax purposes.

     The Company expects that existing and new internally generated funds, along with established lines
of credit and long-term financing, will continue to be sufficient to finance the Company's working capital requirements and patronage dividend and capital expenditures programs.
Operations 2001 Compared to 2000

     Consolidated sales decreased 1.7%. Domestic sales increased .7% primarily due to conversions of
new stores to the Ace program. Sales to our existing retailer base were flat due to the soft economy and
inventory reductions at retail. International sales decreased 35.6% primarily due to a sale of Ace affiliated stores and reduced sales in Canada.

     Gross profit decreased $2.2 million; however increased slightly as a percent of total sales from 9.49% in 2000 to 9.58% in 2001. The decrease resulted primarily due to lower sales and lower cash discounts from reduced merchandise purchases. Higher vendor rebates, paint manufacturing margins and margin from company-owned retail locations offset the gross profit decline and contributed to the increase in gross profit as a percent of sales.

     Warehouse and distribution expenses increased $2.4 million over 2000 and increased as a percent of
total sales from 1.10% in 2000 to 1.21% in 2001. Increased utilities and distribution expenses associated with the new Loxley, Alabama distribution facility which was open for a full year in 2001 and the start-up of the Prince George, Virginia distribution facility drove the higher expenses. Higher logistics income partially offset the increased expenses.

     Selling, general and administrative expenses decreased $1.1 million due to continued cost control
measures put into place offset by expenses related to the closure of three distribution facilities.

     Retail success and development costs decreased $3.0 million due to continued cost control measures.
Expenses in this category are directly related to retail support of the Ace retailer. The Company continues to make investments in retail initiatives under our Vision 21 strategy to support Ace retailers.

     Interest expense increased $1.4 million due to higher average borrowing levels during the year
partially offset by lower interest rates. The higher borrowing levels result from the completion of the
Loxley, Alabama and Prince George, Virginia distribution centers, the expansion of the LaCrosse,
Wisconsin facility and increased retailer dating programs.

     Other income decreased $2.1 million primarily due to a nonrecurring gain on pension plan termination in 2000. 2001 other income includes a write-down of a minority owned investment offset by the gain recognized on the sale of two distribution facilities and higher income realized on non-controlling investments in affiliates.

     Income taxes increased $3.3 million primarily due to deferred taxes recorded on the sale/exchange of two distribution centers.
Operations 2000 Compared to 1999

     On June 30, 1999 the Company entered into a business combination agreement with Builder Marts
of America, Inc. (BMA) to combine the Company's lumber and building materials division (the "LBM
Division") with BMA. Under this agreement, the Company contributed defined business assets (primarily
vendor rebate receivables, fixed assets and inventories) for a non-controlling interest in the combined
entity. The investment in the combined entity is accounted for under the equity method of accounting.
The accompanying consolidated financial statements include the financial results of the LBM Division
through the closing date of August 2, 1999.

     The total sales decrease of 7.4% was affected by the business combination of the LBM Division with
BMA. As a result of this transaction, lumber and building materials (LBM) sales are not reported within
the Company's sales results after August 2, 1999. Excluding LBM, sales increased 4.7% in 2000 primarily
due to conversions to Ace membership, additional sales to non-members, increased existing retailer
volume and targeted efforts on new store development within our retailer base. Domestic basic business
sales increased 5.3%, while international basic business sales decreased 1.8%.

     Gross profit increased $5.9 million and increased as a percent of total sales from 8.60% in 1999 to
9.49% in 2000. The increase, as a percent of sales, results primarily from the loss of lower margin LBM
sales volume since August 1999. Basic business (excluding LBM Division) gross profit decreased slightly
as a percent of basic business sales (9.49% in 2000 vs. 9.52% in 1999) due to a sales mix shift towards the lower margin direct ship sales category and higher warehousing costs absorbed into inventory. Increased vendor rebates and increased company-owned store gross profit driven by higher sales volume partially offset the year-to-date gross profit percentage decline.

     Warehouse and distribution expenses increased $4.4 million over 1999 and increased as a percent of
total sales from 0.9% in 1999 to 1.1% in 2000. As a percent of basic business sales, these costs increased from 1.0% in 1999 to 1.1% in 2000. Higher distribution wages required to support the increased sales volume combined with pre-opening costs associated for a new Loxley, Alabama distribution facility are partially offset by higher logistics income.

     Selling, general and administrative expenses decreased $395,000 or 0.5% due to continued cost
control measures and lower LBM Division costs. Higher information technology costs and expenses
associated with opening the Loxley, Alabama distribution facility partially offset these expense decreases, and, along with the exclusion of LBM sales in the sales base, account for the increase in general and administrative expenses as a percent of sales.

     Retail success and development expenses increased $14.4 million primarily due to costs associated
with operating additional company-owned stores and investments made at retail to support our Vision 21
strategy. As part of this strategy, the Company entered into an agreement with an outside party to co-develop a common retail software platform for our dealers. This resulted in a write-down of prior software development costs which will not contribute to the new system. Increased advertising income partially offset these expense increases. Increases in this category are directly related to retail support of the Ace retailer as the Company continues to make retail investments in our dealer base.

     Interest expense increased $5.2 million due to higher average borrowing levels and increased interest rates. The increased borrowing levels resulted from the construction of the Loxley, Alabama distribution center, the expansion of our LaCrosse, Wisconsin facility and increased retailer dating programs. 

     Other income increased $3.8 million primarily due to the gain on pension plan termination and
income realized on non-controlling investments in affiliates.

     Income tax expense decreased due to increased operating losses from non-patronage activities.
Impact of New Accounting Standards

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition of intangible assets that
meet one of two specified criteria. The statement applies to all business combinations initiated after June 30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. SFAS No. 142 is effective for fiscal periods beginning after December 15, 200 1. The Company will implement the pronouncement beginning in the first quarter of fiscal year 2002. The Company estimates that the adoption of this standard will not have a material effect on its financial statements.

     In July 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS No. 121 on the same topic and the accounting and certain reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations-Reporting Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as defined in that Opinion). This statement also a mends Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for fiscal periods beginning after December 15, 2001. The Company will implement the pronouncement beginning in the first quarter of fiscal year 2002. The Company estimates that the adoption of this standard will not have a material effect on its financial statements.
Inflation and Changes in Prices

     The Company's business is not generally governed by contracts that establish prices substantially in advance of the receipt of goods or services. As vendors increase their prices for merchandise supplied to the Company, the Company increases the price to its dealers in an equal amount plus the normal handling charge on such amounts. In the past, these increases have provided adequate gross profit to offset the impact of inflation on operating expenses.
Quantitative and Qualitative Disclosures about Market Risk

     The Company is subject to certain market risks, including foreign currency and interest rates. The
Company uses a variety of practices to manage these market risks, including, when considered
appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. The Company is exposed to
potential gains or losses from foreign currency fluctuations affecting net investments and earnings
denominated in foreign currencies. The Company's primary exposure is to changes in exchange rates for
the U.S. dollar versus the Canadian dollar.

     Interest rate risk is managed through a combination of fixed rate debt and variable rate short-term
borrowings with varying maturities. At December 29, 2001, all long-term debt was issued at fixed rates.

     The table below presents principal amounts and related weighted average interest rates by year of
maturity for the Company's investments and debt obligations:
2002 2003 2004 2005 2006  Thereafter Total                                                        (000's omitted)
Assets:
   Short-term investment-
     fixed rate                          -   $3,474  $1,043    -     $3,125  $9,516    $17,158
   Fixed interest rate                   -    6.96%   5.75%    -      7.98%   6.77%      6.97%

Liabilities:
   Short-term borrowings-
     variable rate                   $72,600    -       -      -        -       -      $72,600
   Average variable interest rate      2.58%    -       -      -        -       -        2.58%
   Long-term debt-fixed rate          $7,179 $6,412  $6,066 $13,195 $17,857 $126,857  $177,566
   Average fixed interest rate         7.07%  7.07%   7.09%   7.08%   7.09%    7.12%     7.07%

     The Company is exposed to credit risk on certain assets, primarily accounts receivable. The Company
provides credit to customers in the ordinary course of business and performs ongoing credit evaluations.
Concentrations of credit risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company currently believes its allowance for
doubtful accounts is sufficient to cover customer credit risks.
 
     The Company's various currency exposures often offset each other, providing a natural hedge against
currency risk. The Company has utilized foreign exchange forward contracts to hedge non-U.S. equity
investments. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged investment. Accumulated other comprehensive loss at December 29, 2001 and December 30,
2000 includes gains of approximately $2.0 million related to previously settled foreign currency contracts.  The Company did not have any outstanding foreign exchange forward contracts at December 29, 2001.  Settlement of foreign sales and purchases are generally denominated in U.S. currency resulting in limited foreign currency transaction exposure.

                                    We have not autorized any dealer,
                               salesman, or any other person to give any
                               information or make any representations
                               other than those contained in this Prospectus
   ACE HARDWARE CORPORATION    in connection with this offering.  This
                               Prospectus is not an offer to sell, or a solici-
                               tation of an offer to buy, to any person in any
                               state where it is unlawful to make that type of
                               solicitation.  The delivery of this Prospectus
                               at any time does not imply that there has
    2,000 Shares of Class A    been no change in our Company's affairs
        (Voting) Stock         afterward.
       $1,000 pay value
                                    In Florida the securities covered by this
   80,000 Shares of Class C    Prospectus are being offered under a limited
       (Nonvoting) Stock       offering exemption which allows Florida
        $100 par value         Purchasers to cancel their purchases of this
                               stock within 3 days after making any
                               payment on account of the purchase price.

TABLE OF CONTENTS
                               Item                                                   Page
      __________________       Available Information                                     2
                               Documents Incorporated by Reference                       2
                               Factors to be Considered                                  2
                               Summary                                                   3
          PROSPECTUS           Use of Proceeds                                           6
                               Distribution Plan and Offering Terms                      6
                               Description of Capital Stock                              8
      __________________       The Company's Business                                   12
                               Properties                                               26
                               Management                                               27
                               Index to Consolidated Financial Statements               30
                               Independent Auditor's Report                             31
                               Consolidated Financial Statements                        32
                               Notes to Consolidated Financial Statements               37
     Dated:                    Management's Discussion and Analysis of
                                   Financial Condition and Results of
                                   Operations                                           48
                               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:
Securities and Exchange Commission Registration Fee       $   920
Printing of Registration Statement and Prospectus          10,000
Accounting Fees and Expenses                               25,000
Legal Fees                                                 25,000
Fees and Expenses under "Blue Sky" Laws of Various States   3,500
Miscellaneous Expenses                                        580      Total                                                $65,000 Item 15. Indemnification of Directors and Officers .

     Under Section 145 of the General Corporation Law of the State of Delaware, where we are
incorporated, Article XV of our By-Laws (see Appendix A to the Prospectus which is a part of this
Registration Statement and is included by reference) provides for us to indemnify our directors, officers, employees or agents. The main provisions of this By-law obligate us to indemnify these persons against expenses (including attorneys' fees) that they actually and reasonably incur in connection with their successful defense of certain proceedings. These proceedings include any action, suit or proceeding (whether civil, criminal, administrative or investigative) that are instituted against them because they are (or were) one of our officers, directors, employees or agents. This&n bsp;By-law also authorizes us to indemnify these people for the amount of any judgment, fine or settlement payments they incur, along with expenses and attorneys' fees, in connection the proceedings described above if certain circumstances occur. These circumstances are that a majority of disinterested directors on our Board of Directors must vote to find that the person being indemnified acted in good faith and in a manner he reasonably believed to be in our best interest.

     Richard Kaup, the late Virgil Poss, and Antone Salel, were the Trustees of the Ace Dealers'
Perpetuation Fund. This fund was terminated on November 30, 1976. As of that date, all of the assets of
that fund were transferred to us and we then became responsible for all obligations and liabilities of the Trustees of that fund. We also agreed to indemnify the Trustees named above for any of their activities as Trustees under the terms stated below. These terms were included in the following resolution adopted by the unanimous vote of our Board of Directors on April 24, 1974: "... that the corporation indemnify and hold harmless each of said Trustees with respect to any claims made against any of them and any expenses thereby incur red by any of them in connection with any of their activities as such Trustees".

     We also maintain Directors and Officers Liability coverage for limits which we believe are reasonable and appropriate for our exposure. Coverage is placed with insurers who are rated "A" by A.M. Best's rating service. The coverage is periodically reviewed by our broker regarding the adequacy of our limits and coverage.
Item 16. Exhibits.
Exhibit
  No.   Exhibit 3-A     Copy of Restated Certificate of Incorporation of the Registrant, as amended,
        through June 3, 1996 filed as Exhibit 3-A to Post-Effective Amendment No. 6 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 22, 2001 and incorporated herein by reference.
3-B     Copy of By-laws of the Registrant as amended through January 26, 2002
        (included as Appendix A to the Prospectus constituting a part of this Form S-2
        Registration Statement).
4-A     Specimen copy of Class B Stock certificate as revised as of November, 1984 filed as
        Exhibit 4-A to Post-Effective Amendment No. 2 to the Registrant's Form S-1
        Registration Statement (Registration No. 2-82460) on or about March 15, 1985 and
        incorporated herein by reference.
4-B     Specimen copy of Patronage Refund Certificate as revised in 1988 filed as Exhibit
        4-B to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration
        Statement (Registration No. 33-4299) on or about March 29, 1988 and
        incorporated herein by reference.
4-C     Specimen copy of Class A Stock certificate as revised in 1987 filed as Exhibit 4-C
        to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration
        Statement (Registration No. 33-4299) on or about March 29, 1988 and
        incorporated herein by reference.
4-D     Specimen copy of Class C Stock certificate filed as Exhibit 4-I to the Registrant's
        Form S-1 Registration Statement (Registration No. 2-82460) on or about March 16,
        1983 and incorporated herein by reference.
4-E     Copy of current standard form of Subscription for Capital Stock Agreement to be
        used for dealers to subscribe for shares of the Registrant's stock in conjunction with
        new membership agreements submitted to the Registrant.
4-F     Copy of plan for the distribution of patronage dividends with respect to purchases
        of merchandise made from the Registrant for the year 2000 and subsequent years
        adopted by the Board of Directors of the Registrant on December 6, 2000, filed as
        Exhibit 4-F to Post-Effective Amendment No. 6 to the Registrant's Form S-2
        Registration Statement (Registration No. 33-58191) on or about March 22, 2001
        and incorporated herein by reference.
4-G     Copy of LBM Retailer Incentive Pool Plan adopted on December 8, 1999 by the
        Board of Directors of the Registrant filed as Exhibit 4-G to Post-Effective
        Amendment No. 5 to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-58191) on or about March 15, 2000 and incorporated herein
        by reference.
5       Opinion of McDermott, Will & Emery as to the legality of securities being
        registered.
8       Opinion regarding tax matters of KPMG LLP.
Exhibit
  No.   Exhibit 10-A    Copy of Ace Hardware Corporation Retirement Benefits Replacement Plan
        Restated and Adopted December 7, 1993, consolidated and refiled with First,
        Second, Third and Fourth Amendments.
10-B    Copy of Ace Hardware Corporation Directors' Deferral Option Plan Amended and
        Restated as of January 1, 1997 (for years 1995-2001), consolidated and refiled with
        First and Second Amendments.
10-C    Copy of First Amendment to Ace Hardware Corporation Deferred Compensation
        Plan adopted on August 19, 1997 filed as Exhibit 10-C to Post-Effective Amendment
        No. 3 to the Registrant's Form S-2 Registration Statement (Registration No.
        33-58191) on or about March 18, 1998 and incorporated herein by reference.
10-D    Copy of Restated PREP Plan (formerly known as Executive Supplemental Benefit
        Plans) adopted on December 6, 2000, filed as Exhibit 10-D to Post-Effective
        Amendment No. 6 to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-58191) on or about March 22, 2001 and incorporated herein
        by reference.
10-E    Copy of Ace Hardware Corporation Restated Officer Incentive Plan effective
        January 1, 1999 consolidated, and refiled with First, Second and Third
        Amendments.
10-F    Copy of Second Modification of Amended and Restated Note Purchase and Private
        Shelf Agreement dated as of August 23, 1996 as amended by the First Modification
        of Amended and Restated Purchase and Private Shelf Agreement dated as of
        April 2, 1997 with The Prudential Insurance Company of America filed as Exhibit
        to Post-Effective Amendment No. 3 to the Registrant's Form S-2 Registration
        Statement (Registration No. 33-58191) on or about March 18, 1998 and
        incorporated herein by reference.
10-G    Copy of Participation Agreement with PNC Commercial Corp. dated December
        17, 1997 establishing a $10,000,000 discretionary leasing facility for the purchase of
        land and construction of retail hardware stores filed as Exhibit 10-G to Post-
        Effective Amendment No. 3 to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-58191) on or about March 18, 1998 and incorporated herein
        by reference.
10-H    Copy of form of Executive Officer Employment Agreement effective January 1,
        1996 filed as Exhibit 10-a-17 to Post-Effective Amendment No. 1 to the Registrant's
        Form S-2 Registration Statement (Registration No. 33-58191) filed on or about
        March 11, 1996 and incorporated herein by reference.
10-I    Copy of Note Purchase and Private Shelf Agreement with The Prudential
        Insurance Company of America dated September 27, 1991 securing 8.74% Senior
        Series A Notes in the principal sum of $20,000,000 with a maturity date of July 1,
        2003 filed as Exhibit 10-A-q to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-46449) on or about March 23, 1992 and incorporated herein
        by reference.
10-J    Copy of current standard form of Ace Hardware Corporation International
        Franchise Agreement, filed as Exhibit 10-J to Post-Effective Amendment No. 6 to
        the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 22, 2001 and incorporated herein by reference.
Exhibit
  No.   Exhibit 10-K    Copy of current standard form of Ace Hardware Membership Agreement filed as
        Exhibit 10-P to Pre-Effective Amendment No. 2 to the Registrant's Form S-2
        Registration Statement (Registration No. 33-58191) on or about April 26, 1995 and
        incorporated herein by reference.
10-L    Copy of Supplement to Ace Hardware Membership Agreement effective April 1,
        2000, filed as Exhibit 10-L to Post-Effective Amendment No. 6 to the Registrant's
        Form S-2 Registration Statement (Registration No. 33-58191) on or about March
        22, 2001 and incorporated herein by reference.
10-M    Copy of 6.47% Senior Series A notes in the aggregate principal sum of $30,000,000
        issued September 22, 1993 with a maturity date of June 22, 2008 and $20,000,000
        Private Shelf Facility, pursuant to Note Purchase and Private Shelf Agreement with
        the Prudential Insurance Company of America dated as of September 22, 1993
        filed as Exhibit 10-R to Post-Effective Amendment No. 2 to the Registrant's Form
        S-2 Registration Statement (Registration No. 33-46449) on or about March 23,
        1994 and incorporated herein by reference.
10-N    Copy of Lease dated March 24, 1997 for print shop facility of Registrant in
        Downers Grove, Illinois filed as Exhibit 10-N to Post-Effective Amendment No. 3
        to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
        on or about March 18, 1998 and incorporated herein by reference.
10-O    Copy of Lease dated September 30, 1992 for general offices of the Registrant in
        Oak Brook, Illinois filed as Exhibit 10-a-u to the Post-Effective Amendment No.1
        to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449)
        on or about March 22, 1993 and incorporated herein by reference.
10-P    Copy of Deed of Lease with Arundel II L.L.C. dated as of January 30, 1998 for the Registrant's
        redistribution center in Odenton, Maryland filed as Exhibit 10-P to Post-Effective
        Amendment No. 4 to the Registrant's Form S-2 Registration Statement (Registration No. 33-
        58191) on or about March 15, 1999 and incorporated herein by reference.
10-Q    Copy of Ace Hardware Corporation Deferred Compensation Plan effective
        January 1, 1994 filed as Exhibit 10-X to Post-Effective Amendment No. 2 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on or
        about March 23, 1994 and incorporated herein by reference.
10-R    Copy of current standard form of Ace Hardware Corporation License Agreement
        for international licensees, filed as Exhibit 10-R to Post-Effective Amendment No.
        6 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
        on or about March 22, 2001 and incorporated herein by reference.
10-S    Copy of Lease dated May 4, 1994 for freight consolidation center of the Registrant
        in Chicago, Illinois filed as Exhibit 10-Z to the Registrant's Form S-2 Registration
        Statement (Registration No. 33-58191) on or about March 23, 1995 and
        incorporated herein by reference.
10-T    Copy of Long-Term Incentive Compensation Deferral Option Plan of the Registrant
        effective January 1, 2000, filed as Exhibit 10-a-13 to Post-Effective Amendment No. 5
        to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 15, 2000 and incorporated herein by reference.
Exhibit
  No.   Exhibit 10-U    Copy of Ace Hardware Corporation Directors' Deferral Option Plan effective
        January 1, 2001, filed as Exhibit 10-U to Post-Effective Amendment No. 6 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 22, 2001 and incorporated herein by reference.
10-V    Copy of Ace Hardware Corporation Long-Term Incentive Compensation Deferral
        Option Plan effective January 1, 1995, consolidated and refiled with First, Second
        and Third Amendments.
10-W    Copy of Lease dated July 28, 1995 between A.H.C. Store Development Corp. and
        Tri-R Corporation for retail hardware store premises located in Yorkville, Illinois
        filed as Exhibit 10-a-11 to Post-Effective Amendment No. 1 to the Registrant's
        Form S-2 Registration Statement (Registration No. 33-58191) on or about March
        11, 1996 and incorporated herein by reference.
10-X    Copy of Lease dated October 31, 1995 between Brant Trade & Industrial Park, Inc.
        and Ace Hardware Canada Limited for warehouse space in Brantford, Ontario,
        Canada filed as Exhibit 10-a-12 to Post-Effective Amendment No. 1 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 11, 1996 and incorporated herein by reference.
10-Y    Copy of Lease dated November 27, 1995 between 674573 Ontario Limited and
        Ace Hardware Canada Limited for general office space in Markham, Ontario,
        Canada filed as Exhibit 10-a-13 to Post-Effective Amendment No. 1 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 11, 1996 and incorporated herein by reference.
10-Z    Copy of Executive Healthcare Plan adopted by the Board of Directors of the
        Registrant on August 25, 1998 filed as Exhibit 10-Z to Post-Effective Amendment
        No. 4 to the Registrant's Form S-2 Registration Statement (Registration No.
        33-58191) on or about March 15, 1999 and incorporated herein by reference.
10-a-1  Copy of Ace Hardware Corporation Executive Benefit Security Trust Agreement
        effective July 19, 1995 filed as Exhibit 10-a-18 to Post-Effective Amendment No. 1
        to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
        on or about March 11, 1996 and incorporated herein by reference.
10-a-2  Copy of current standard form of International Retail Merchant Agreement, filed
        as Exhibit 10-a-2 to Post-Effective Amendment No. 6 to the Registrant's Form S-2
        Registration Statement (Registration No. 33-58191) on or about March 22, 2001
        and incorporated herein by reference.
10-a-3  Copy of Lease Agreement dated as of September 1, 1996 for the Registrant's
        project facility in Wilton, New York filed as Exhibit 10-a-13 to Post-Effective
        Amendment No. 2 to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-58191) on or about March 12, 1997 and incorporated herein
        by reference.
10-a-4  Copy of 6.47% Series A Senior Notes in the aggregate principal amount of
        $30,000,000 issued August 23, 1996 with a maturity date of June 22, 2008 and
        $70,000,000 Private Shelf Facility, pursuant to Amended and Restated Note
        Purchase and Private Shelf Agreement with the Prudential Insurance Company
        dated August 23, 1996 filed as Exhibit 10-a-14 to Post-Effective Amendment No.
        2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
        on or about March 12, 1997 and incorporated herein by reference.
Exhibit
  No.   Exhibit 10-a-5  Copy of First Amendment to Ace Hardware Corporation Directors' Deferral
        Option Plan (effective January 1, 2001) adopted December 5, 2001 and effective
        January 1, 2002.
10-a-6  Copy of Lease Agreement dated May 27, 1999 for the Registrant's project facility
        in Loxley, Alabama filed as Exhibit 10-a-9 to Post-Effective Amendment No. 5 to
        the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on
        or about March 15, 2000 and incorporated herein by reference.
10-a-7  Copy of current standard form of Industrial Distributor Agreement.
10-a-8  Copy of First Amendment to Ace Hardware Corporation Long-Term Incentive
        Compensation Deferral Option Plan (effective January 1, 2000) adopted
        December 5, 2001 and effective January 1, 2002.
10-a-9  Copy of Lease dated October 19, 2001 for the Registrant's freight consolidation
        center in Baltimore, Maryland.
10-a-10 Copy of Amendment dated April 24, 2001 to Note Purchase and Private Shelf
        Agreement dated as of September 27, 1991, and Restated Note Purchase and
        Private Shelf Agreement dated as of August 23, 1996 with The Prudential
        Insurance Company of America.
10-a-11 Copy of $175,000,000 Revolving Credit Facility Agreement dated as of May 2,
        2000, filed as Exhibit 10-a-11 to Post-Effective Amendment No. 6 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 22, 2001 and incorporated herein by reference.
10-a-12 Copy of Lease effective November 27, 2000 for freight consolidation center of the
        Registrant in Fort Worth, Texas, filed as Exhibit 10-a-12 to Post-Effective
        Amendment No. 6 to the Registrant's Form S-2 Registration Statement
        (Registration No. 33-58191) on or about March 22, 2001 and incorporated herein
        by reference.
10-a-13 Copy of Lease (Reference Date April 1, 2000) for the Registrant's additional
        general office space at 1220 and 1300 Kensington Rd., Oak Brook, Illinois, filed as
        Exhibit 10-a-13 to Post-Effective Amendment No. 6 to the Registrant's Form S-2
        Registration Statement (Registration No. 33-58191) on or about March 22, 2001
        and incorporated herein by reference.
10-a-14 Copy of current standard form of Limited Liability Company Agreement for retail
        joint ventures, filed as Exhibit 10-a-14 to Post-Effective Amendment No. 6 to the
        Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
        about March 22, 2001 and incorporated herein by reference.
10-a-15 Copy of Amendment dated September 25, 2000 to Restated Note Purchase and
        Private Shelf Agreement dated as of August 23, 1996 with The Prudential Insurance
        Company of America, filed as Exhibit 10-a-15 to Post-Effective Amendment No. 6
        to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on
        or about March 22, 2001 and incorporated herein by reference.
10-a-16 Copy of Lease dated June 30, 2000 for the Registrant's supplemental warehouse
        space in Rocklin, California.
10-a-17 Copy of Lease dated January 16, 2002 for the Registrant's freight consolidation
        center in Summit, Illinois.
Exhibit
  No.   Exhibit 10-a-18 Copy of Amendment dated September 10, 2001 to Note Purchase and Private
        Shelf Agreement dated as of September 27, 1991, and Restated Note Purchase and
        Private Shelf Agreement dated as of August 23, 1996 with The Prudential
        Insurance Company of America.
10-a-19 Copy of Note Purchase Agreement dated April 15, 2001 for the issuance and sale
        of up to $100,000,000 of Senior Notes, under which $70,000,00 of 7.27% Senior
        2001-A Notes with a maturity date of April 30, 2013 have been sold to various
        purchasers.
23      (a) Consent of KPMG LLP.
        (b) Consent of KPMG regarding tax matters, opinion contained in Exhibit 8.
        (c) Consent of McDermott, Will & Emery, contained in Exhibit 5.
24      Powers of Attorney.
     Upon request of the Commission, we agree to furnish copies of any agreements regarding indebtedness that does not exceed ten percent of our total assets and the assets of our subsidiaries on a consolidated basis
.
Item 17. Undertakings.

     As the Registrant signing below, we undertake:

(a) Subject to Section 15(d) of the Securities Exchange Act of 1934, to file with the Securities and Exchange Commission any supplementary or periodic information, documents and reports as any rule or regulation of the Commission that is adopted under the authority conferred in that section requires.

(b) To file with the Securities and Exchange Commission, during any period in which offers or sales are being made under this registration, a post-effective amendment to this Registration Statement:

(i) to include any Prospectus required by Section 10(a) (3) of the Securities Act of 1933; 

(ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or its most recent post-effective amendment) which, individually or together, represent a fundamental change in the information set forth in the Registration Statement;

(iii) to include any material information about the plan of distribution that was not previously disclosed in the Registration Statement or any material change to this information in the Registration Statement, including, for example, any addition or deletion of a managing underwriter.

(c) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment to this Registration Statement shall be deemed to be a new Registration Statement relating to the securities being offered in it, and the offering of those securities at that time shall be deemed to be the initial bonafide offering of them;

(d) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

     Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions set forth or described in Item 15 of this Registration Statement, 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 liabilties (other than the payment by the Regist rant of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, officer or controlling person, in connection with the securities registered hereby, 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 i ssue. 

                                        SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing on Form S-2
and has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Village of Oak Brook, State of Illinois on the
day of March 22, 2002.
                                                        ACE HARDWARE CORPORATION
                                                        By         HOWARD J. JUNG                                                                    Howard J. Jung
                                                        Chairman of the Board and Director
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
Signatures Title Date HOWARD J. JUNG                        Chairman of the Board          March 22, 2002
Howard J. Jung                        and Director
DAVID F. HODNIK                       President and Chief            March 22, 2002
David F. Hodnik                       Executive Officer
RITA D. KAHLE                         Executive Vice President       March 22, 2002
Rita D. Kahle                        (Principal Financial and
                                      Accounting Officer)
Jennifer C. Anderson, Richard F.
Baalmann, Jr., Eric R. Bibens II,          Directors
J. Thomas Glenn, Daniel L. Gust,
D. William Hagan, Richard A. Karp,
Richard W. Stine, and David S. Ziegler
*By: DAVID F. HODNIK                                                 March 22, 2002
     David F. Hodnik
*By: RITA D. KAHLE                                                   March 22, 2002
     Rita D. Kahle
*Attorneys-in-fact

      INDEX TO EXHIBITS FILED TO
      THE REGISTRATION STATEMENT
ON FORM S-2 OF ACE HARDWARE CORPORATION

3-B       By-laws of the Registrant as amended through January 26, 2002 (included as
          Appendix A to the Prospectus constituting a part of this Form S-2 Registration
          Statement).

4-E       Copy of current standard form of Subscription for Capital Stock Agreement to be
          used for dealers to subscribe for shares of the Registrant's stock in conjunction with
          new membership agreements submitted to the Registrant.

5         Opinion of McDermott, Will & Emery as to legality of securities being registered.

8         Opinion regarding tax matters of KPMG LLP.

10-A      Copy of Ace Hardware Corporation Retirement Benefits Replacement Plan Restated
          and Adopted December 7, 1993, consolidated and refiled with First, Second, Third
          and Fourth Amendments.

10-B      Copy of Ace Hardware Corporation Directors' Deferral Option Plan Amended and
          Restated as of January 1, 1997 (for years 1995-2001), consolidated and refiled with
          First and Second Amendments.

10-E      Copy of Ace Hardware Corporation Restated Officer Incentive Plan effective
          January 1, 1999, consolidated and refiled with First, Second and Third Amendments.

10-V      Copy of Ace Hardware Corporation Long-Term Incentive Compensation Deferral
          Option Plan effective January 1, 1995, consolidated and refiled with First, Second
          and Third Amendments.

10-a-5    Copy of First Amendment to Ace Hardware Corporation Directors' Deferral
          Option Plan (effective January 1, 2001) adopted December 5, 2001 and effective
          January 1, 2002.

10-a-7    Copy of current standard form of Industrial Distributor Agreement.

10-a-8    Copy of First Amendment to Ace Hardware Corporation Long-Term Incentive
          Compensation Deferral Option Plan adopted (effective January 1, 2000)
          December 5, 2001 and effective January 1, 2002.

10-a-9    Copy of Lease dated October 19, 2001 for the Registrant's freight consolidation
          center in Baltimore, Maryland.

10-a-10   Copy of Amendment dated April 24, 2001 to Note Purchase and Private Shelf
          Agreement dated as of September 27, 1991, and Restated Note Purchase and
          Private Shelf Agreement dated as of August 23, 1996 with The Prudential
          Insurance Company of America.

10-a-16   Copy of Lease dated June 30, 2000 for the Registrant's supplemental warehouse
          space in Rocklin, California.

10-a-17   Copy of Lease dated January 16, 2002 for the Registrant's freight consolidation
          center in Summit, Illinois.

10-a-18   Copy of Amendment dated September 10, 2001 to Note Purchase and Private
          Shelf Agreement dated as of September 27, 1991, and Restated Note Purchase and
          Private Shelf Agreement dated as of August 23, 1996 with The Prudential
          Insurance Company of America.

10-a-19   Copy of Note Purchase Agreement dated April 15, 2001 for the issuance and sale
          of up to $100,000,000 of Senior Notes, under which $70,000,00 of 7.27% Senior
          2001-A Notes with a maturity date of April 30, 2013 have been sold to various
          purchasers.

23        (a) Consent of KPMG LLP.
          (b) Consent of KPMG regarding tax matters, opinion contained in Exhibit 8.
          (c) Consent of McDermott, Will & Emery, contained in Exhibit 5.

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.

EX-3

                                    BY-LAWS
                                      OF
                            ACE HARDWARE CORPORATION
                       (As Amended through January 26, 2002)                                    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 the registered agent in Delaware is changed at any time, 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 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 the 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 any 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&nb sp;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 the State of Delaware and the Cert ificate of Incorporation of the corporation.
     SECTION 3.  All meetings of the stockholders for the election of directors shall be held at the office of the corporation in Oak Brook, Illinois, or at such other place from time to time be designated by the Board of Directors and stated in the notice of the meeting to be given under Article III, Section 6 of the By-laws.  All other meetings of the stockholders shall be held at such place or places in the United States of America as may from time to time be designated by the Board of Directors and stated&n bsp;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 Controller or by the person designated by him or her to prepare such list.  The list shall be kept on file at the 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.  
     SECTION 5.  Each stockholder entitled to vote shall, at every meeting of the stockholders, be entitled to one vote in person or by proxy for each share of voting stock held by him or her. 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 sh are 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.&nb sp;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 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& nbsp;any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally scheduled.
                                ARTICLE IV
                                DIRECTORS
     SECTION 1.  The property and business of the corporation shall be managed and controlled by a Board of Directors, which shall be comprised of no fewer than 9 and no greater than 12 directors, as fixed from time to time by the Board of Directors. A minimum of 9 of the directors shall be dealer directors. No person shall be eligible for election or appointment as a dealer director (whether as a regional dealer director or as a dealer director at large), or to continue to hold office as a dealer director, unless the&nb sp;person is either the owner of a business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a business organization.  Dealer directors representing the regions established under Article IV, Section 4 hereof, shall be regional dealer directors. Subject to Article IV, Section 4(b) hereof, any additional dealer director(s) may be dealer director(s) at large, rather than regional dealer director(s).  A maximum of 2 of the directors of Ace Hardware Corporation may be non-dealer directors.  A person shall be eligi ble for election or appointment as a non-dealer director without regard to whether or not such person is the owner of a business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a business organization.
     SECTION 2.  The directors shall be divided into three classes, as nearly equal in number as possible, as determined by the Board of Directors.  The first class shall include 4 dealer directors elected for 3-year terms at the annual meeting of stockholders held in 1994. The second class shall include 3 dealer directors, elected for 3-year terms at the annual meeting of stockholders held in 1993. The third class shall include 3 dealer directors and one non-dealer director elected for 3-year terms at the annual meeting of stockholders hel d in 1995, plus one non-dealer director position for a three-year term to be filled at the 1998 annual meeting of stockholders. At each subsequent annual meeting of the stockholders, as the terms of each class of directors expire, directors of the class whose terms expire shall be elected for terms of 3 years. The directors shall be elected by the stockholders, except that if there be any vacancies in the Board by reason of death, resignation or otherwise, or if there be any newly created directorships resulting from any increase in the authorized number of directors  ;which is to take effect prior to the next annual meeting of stockholders, a majority of the directors then in office (though less than a quorum) shall have authority to fill the vacancy or any newly created directorship for the unexpired term. In no event shall any term for which any director is elected exceed three years.
     SECTION 3.  In the event that, for any reason other than a revision made by the Board of Directors as to the States to be included within particular regions or a change made by the Board in the number of regions, a dealer director ceases to satisfy the eligibility requirements which are applicable to his/her position as a director, his/her membership on the Board of Directors shall thereupon immediately terminate. No director elected or appointed shall be eligible for subsequent election or appointment to any position on the Board if&n bsp;such election or appointment would result in his/her being elected or appointed to serve a total of more than 9 years as such a director, except (1) that a dealer director that has been elected and holds the office of Chairman of the Board shall be eligible for election for one additional 3-year term, and (2) the President of the Corporation, if elected as a director, shall be eligible for election or reelection or appointment as a director at any time without regard to the period of time during which he has previously served as a director.  However, no twithstanding the provisions of Sections 2 and 3 of Article IV, one director who would not otherwise be eligible for election in 2001 may be elected at the annual meeting of stockholders to be held in 2001, for a two-year term. At all annual meetings of the stockholders, all holders of Class A stock of Ace Hardware Corporation as of the record date established for voting at the meeting shall be eligible to vote in the election for each position on the Board of Directors to be filled at such meeting.
     SECTION 4.  The following procedure shall be utilized in determining dealer director regions:
          (a) The Board of Directors shall divide the United States into such number of geographic regions as it shall deem appropriate as regions from which regional dealer directors shall be chosen.
          (b) No later than the fifteenth day of October preceding the date of each annual meeting of stockholders, the Board shall determine the regions from which each regional dealer director to be elected at such meeting shall be chosen. No dealer director shall be eligible to serve as a regional dealer director from a particular region unless the headquarters store or office of the stockholder of Ace Hardware Corporation of which he is an owner, executive officer, general partner, or general manager is located in such region.  ;If the Board determines that all regions have representation by regional dealer director(s) and the maximum number of directors would not thereby be exceeded, then dealer director(s) at large may be elected.
          (c) Each region shall consist of such of the States of the United States as shall be determined by the Board of Directors, which shall have authority from time to time to make revisions as to the States included within particular regions as well as to change the number of regions, provided that no such revision or change shall deprive any director holding office at the time the revision or change is made from continuing to serve for the balance of the term for which he was elected or otherwise chosen.
     SECTION 5.  Without affecting the right of any Class A stockholder to nominate as a candidate for election to membership on the Board of Directors any person who would be eligible to serve as a director in accordance with the procedure specified in Article XXIII, the Board of Directors shall cause nominees to be selected for election as directors at each annual meeting of stockholders for whom proxies will be solicited on behalf of the Board. At the time that the Board determines the regions from which regional dealer directors ar e to be elected at the next annual meeting of the stockholders, the Board shall also determine whether each incumbent director who is eligible to be reelected for another term at such annual meeting shall be selected as a Board-endorsed nominee for reelection from any such region at said meeting. Each such determination shall be made by the Board without participation in its proceedings by the director who is eligible to be reelected at such next annual meeting. If the Board determines that proxies shall be solicited on its behalf for the election of a director at th e next annual meeting of stockholders of a non dealer director or a dealer director at large, the Board shall make a timely determination to this effect. The following procedure shall be applied by the Board in selecting all other Board-endorsed regional dealer director nominees for whom proxies will be solicited on the Board's behalf at the next annual meeting.
           (a) A standing Nominating Committee established by the Board shall submit to the Board as soon as practicable prior to the last regularly scheduled meeting of the directors in each calendar year a list of such number of persons as the Board shall determine who are recommended by such Committee to be considered as members of a candidate selection committee for each director region from which the Board has determined that a new regional dealer director should be elected at the next annual meeting of the stockholders.
           (b) At or prior to its last regularly scheduled meeting in each calendar year, the Board shall create such a candidate selection committee for each such director region and shall select as members of each such candidate selection committee five of the persons recommended by the Nominating Committee plus two incumbent members of the Board. The Board may also select such alternate members, if any, of any such candidate selection committee as it deems appropriate.
          (c) Each candidate selection committee shall make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a regional dealer director.
     SECTION 6.  Notwithstanding any of the foregoing provisions, in any instance where a Board-endorsed nominee for election as a director becomes ineligible under the provisions of the By-Laws for election as a dealer director or shall decline to run or seek reelection or shall be unable to run or seek reelection by reason of death or disability, or shall, in the case of an incumbent director have resigned or been removed from the Board of Directors subsequent to having been named a Board-endorsed nominee, or in any instance where the&nbs p;Board of Directors, having endorsed a nominee for election as a director shall withdraw or revoke such endorsement, then in the case of a non-dealer director nominee or a dealer director at large nominee, the Board may endorse another non-dealer candidate or dealer director at large candidate, as the case may be, on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a director. In case of a regional dealer director nominee, the standing Nominating Committee established by the Board shall submit to the Board as soon&n bsp;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&nbs p;members, if any, of any such candidate selection committee as it deems appropriate. The candidate selection committee shall then make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a regional dealer director.
     SECTION 7.  The number of non-dealer directors elected or appointed to office shall be limited so that non-dealer directors shall not exceed twenty-five percent (25%) of the total number of directors in office at any one time. The foregoing twenty-five percent (25%) limitation on the number of non-dealer directors may be further amended, repealed, or added to only at a regular or special meeting of the shareholders in accordance with Article XXIII, Section 2.
                                ARTICLE V
                           POWERS OF DIRECTORS
     SECTION 1.  The Board of Directors shall have, in addition to such powers as are hereinafter expressly conferred on it, all powers which 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 compensation and to change them from time to time and to require such security as it may deem proper;
          (e) to confer on any officer or officers of the corporation the power of selecting, discharging or suspending any of the persons referred to in subsection 
(d) of this Section;
          (f) to determine by whom and in what manner the corporation's bills, notes, receipts, acceptances, endorsements, checks, releases, contracts or other documents shall be signed;
          (g) irrespective of any personal interest of any of its members, to determine the amount of compensation, if any, to be paid to directors and to members of the Executive Committee and other Committees established by the Board of Directors for their services to the corporation as directors or Committee members.
                                ARTICLE VI
                           MEETINGS OF DIRECTORS
     SECTION 1.  An annual organizational meeting of the Board of Directors as constituted after the election of directors at each annual meeting of the stockholders shall be held without call or formal notice at a time later in the same day as the annual meeting of the stockholders or during the day next following such stockholders meeting. The specific date of each 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 recent ly 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 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 committee, 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&nbs p;resolutions creating them.
     SECTION 2.  One or more directors may be designated by the Board as alternate members of any standing or special ad hoc committee, who may replace any absent or disqualified committee member at any meeting of the committee. Vacancies in the membership of any committee established by the Board shall be filled only by the Board.
     SECTION 3.  In no event shall the executive committee or any other committee established by the Board have the power or authority at any time to take any final action on behalf of the Board with respect to (a) proposing amendments to the corporation's certificates of incorporation, (b) the adoption of any amendments to the By-laws of the corporation, (c) the adoption of an agreement of merger or consolidation, (d) the making of recommendations to the stockholders for the sale, lease, or exchange of all or substantially all of the  corporation's property or assets, (e) the making of recommendations to the stockholders for the dissolution of the corporation or the revocation of a dissolution, (f) the making of any proposals submitted to the Board with respect to the purchase of all or a controlling portion of the outstanding capital stock of the corporation, (g) the authorization of issuance of shares of capital stock of the corporation or (h) the filling of vacancies in the membership of the Board or any committee thereof.
     SECTION 4.  Each standing committee of the Board (with the exception of any committee authorized to grant or withhold consent to the transfer of shares of the corporation's stock pursuant to Article XVI, Section 9 of these By-laws) shall select one of its members to act as Chairman thereof as promptly as feasible after the members of the committee are selected at each annual organizational meeting of the Board. At the time of establishment of any special ad hoc committee of the Board, the Board shall designate a member of such&nbs p;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&n bsp;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, each 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& nbsp;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 meeting are kept; and (c) either a copy of such minutes or a summarized written report of the meeting is submitted to the Board at or prior to the next 
meeting of the Board.
     SECTION 6.  A majority of the voting members of any committee hereunder shall constitute a quorum for meetings thereof, but the affirmative vote of a majority of all voting members of the whole committee shall be necessary with respect to all actions taken by the committee.
     SECTION 7.  With the exception of the Chairman of any committee of the type described in the first sentence of Section 4 of this Article VII, the Board may authorize the payment to the Chairman of any standing or special ad hoc committee of compensation for the services rendered by him in his capacity as Chairman in such amount as the Board shall deem to be appropriate. Such compensation shall be in addition to the compensation paid to dealer directors for their regular services as members of the Board.
                                ARTICLE VIII
                         OFFICERS OF THE CORPORATION
                           AND EMPLOYMENT CONTRACTS
     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; and (c) 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 may  ;elect as corporate (but not executive) officers of the corporation a Controller, Treasurer, (and such Assistant Treasurers), and 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.  Executive and corporate officers elected  by the Board of Directors 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.  
      SECTION 2.  In addition to executive and corporate officers, certain employees of the corporation may be appointed from time to time by the President as staff vice presidents or other staff officers upon whom responsibility is conferred with respect to the operations of a particular department, division, branch or function of the corporation.  Any staff officer may thereafter be removed at any time, with or without cause, by the President.  Any executive officer of the corporation may also bestow upon any employee of the corporation under& nbsp;his or her 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 deemed to bestow the status of an executive, corporate or staff officer upon such employee nor to empower such employee with any authority to act on behalf of the corporation other than such authority as shall have expressly been assigned to the employee by the executive officer bestowing the title.
     SECTION 3.  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.  Each officer shall hold office until such officer's successor is elected and qualified, or until such officer's earlier resignation or removal.  Notwithstanding anything to the contrary herein, any officer may resign at any time upon written notice to the corporation.
      SECTION 4.  The Board of Directors shall have authority to direct that the corporation enter into an employment contract with any employee for the purpose of employing him or her for a specified period of time.  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 any executive officer of the corporation other than the person who is being employed under such contract.  In the case of any executive o fficer with whom an employment contract employing him or her 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.  In no event shall any employment contract extend for an initial term of more than five years, but any contract may contain such other terms and conditions as are approved by the Board of Directors.  Authorization of  ;employment contracts 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 or her employment, any executive officer or other officer elected 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 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 5.  In case of the absence of any executive officer or other officer elected by the Board of Directors, or for any other reason deemed sufficient by a majority of the whole Board of Directors then in office, and subject to such contractual rights as may exist with respect to the employment of any such officer, the Board of Directors may delegate the powers or duties of any such officer to any other officer, or to any director, for the time being.
     SECTION 6.  Unless his or her compensation has been expressly specified in a contract of employment, the compensation of each 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 employee, except an employee whose compensation has been expressly specified in a contract of employment and an employee who is not an executive officer but whose basic compensation,&nb sp;if adjusted, would either equal or exceed the basic annual compensation then being paid to any executive officer, (except the Chairman of the Board and the Vice Chairman of the 
Board, if any.)
      SECTION 7.  In addition to the other duties prescribed for them herein, the Chairman of the Board, the President, the Secretary (and any Assistant Secretary) and the Treasurer (and any Assistant Treasurer) shall have the authority to execute stock certificates of this corporation pursuant to Article XVI, Section 1 hereof and Section 158 of the General Corporation Law of the State of Delaware.
                                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. The specific duties and responsibilities of the Chairman of the Board 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 member-stockholders on the other hand; (b) bringing to the attention of and consu lting with the corporation's executive officers with respect to any special concerns of the corporation's dealer-stockholders which come to his or her attention or to the attention of the Board of Directors; (c) reviewing from the perspective of the Board of Directors and the corporation's member-stockholders all reports, financial budgets, and corporate plans as developed and submitted 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 s taff 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 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 or she shall preside at all meetings of the stockholders and the Board of Directors in the absence of the Chairman of the Board, and 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 absence or otherwise from being able to perform such duties and powers in connection with a particular matter within the legally permitted period  of time or within such period of time as shall be deemed to be reasonable and appropriate for action to be taken by the Chairman with regard to such matter. If there is no director holding the position of Vice Chairman of the Board, but there is a director (other than the Chairman of the Board) holding the position of Chairman of the Executive Committee of the Board, then the Chairman of the Executive Committee shall perform the duties and exercise the powers described above for the Vice Chairman of the Board whenever necessary; otherwise, upon the occurrence&n bsp;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. The specific duties and responsibilities of the President 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 or her 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 business outlets 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 business outlets in order to serve the best interests of the corporation's entire network of shareholders; (e) submitting to the stockholders at their annual meetings and/or at conventions sponsored by the corporation such reports on the operations and affairs of the&n bsp;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 President 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 plans approved by the Board.
                             ARTICLE X
        DUTIES OF EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS 
                    AND OTHER ELECTED 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 the event of the President's absence.  Each executive 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 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& nbsp;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 of all persons then holding the office of Senior Vice President. Each such officer having the title of Vice President shall perform such other duties as may be prescribed from time to time by the Board of Directors.
     SECTION 4.  If there shall be more than one Executive Vice President at any time, or if there shall be more than one Senior Vice President at any time, or if there shall be more than one person holding the elected office of Vice President at any time, in each 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 or abs ence 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 elected 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 executive 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 specif ically assigned to such executive officer by the Board of Directors.
                                ARTICLE XI
                           DUTIES OF CONTROLLER
     SECTION 1.  In the event that a Controller shall be elected 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 to the executive officer serving as the chief financial officer of the corporation for all financial control and accounting matters of the corporation and its subsidiaries. The Controller shall also perform such other duties as may be assigned&nb sp;by the Board of Directors or the President.
     SECTION 2.  The Controller shall also keep, or cause to be kept by such person or persons to whom he or she 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 whatever regulations the Board of Directors may prescribe.
                                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.  The Secretary 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&nb sp;may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. The Secretary shall have custody of the corporate seal of the corporation and he or she, 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 the signature(s) of the Secretary or any Assistant Secretary.  The Board of Directors may give general authority to any other corporate or executive officer to affix the seal of the corporation and to attest the affixing by such offic er's signature.
     SECTION 2.  The Assistant Secretary, or if there be more than one (1), the Assistant Secretaries in the order assigned by the Board of Directors, shall, in the absence of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
                                ARTICLE XIII
               DUTIES OF THE TREASURER AND ASSISTANT TREASURERS
     SECTION 1.  In the event that a Treasurer (or Assistant Treasurer) shall be elected by the Board of Directors, or a staff officer having the title of Treasurer (or Assistant Treasurer) is appointed by the President, such officer(s) shall be responsible to the Board of Directors, the President, and to the executive officer serving as the chief financial officer of the corporation for the custody of the corporate funds and investments.  The Treasurer shall further be responsible for keeping full and accurate accounts of receipts and disbursements& nbsp;in books belonging to the corporation and for depositing all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated or authorized by the Board of Directors.
     SECTION 2.  The Treasurer 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 of his or her transactions as Treasurer.
     SECTION 3.  If required by the Board of Directors, the Treasurer and any Assistant Treasurers 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 the office and for the restoration to the corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or control belonging to the co rporation.
      SECTION 4.  The Assistant Treasurer, or if there be more than one (1), the Assistant Treasurers in the order assigned by the Board of Directors, or the President shall, in the absence of the Treasurer , perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe.
                                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&nbs p;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 committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at 
such meeting.
                                ARTICLE XV
                   INDEMNIFICATION OF OFFICERS, DIRECTORS,
                            EMPLOYEES AND AGENTS
     SECTION 1.  In accordance with the provisions of Section 145 of the General Corporation Law of the State of Delaware, and as more fully provided for in Article EIGHTH (b) of the restated Certificate of Incorporation of Ace Hardware Corporation, as amended, persons serving as directors, officers, employees or agents of or at the request of the corporation shall be indemnified against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties under the U.S. Employee Retirement Income Security Act, as amended , and amounts paid or to be paid in settlement) reasonably incurred or suffered by them in connection with any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted or threatened to be instituted against them by reason of their service in any of the aforementioned capacities on behalf of the corporation or at its request.
                                ARTICLE XVI
                 CERTIFICATES OF STOCK AND TRANSFER THEREOF
     SECTION 1.  The shares of the corporation shall be represented by certificates bearing the signatures (or facsimile signatures) of 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 in accordance with Section 158 of the General Corporation Law of the State of Delaware.
     SECTION 2.  In case any person whose signature or facsimile signature has been placed upon such certificate pursuant to Section 1 of this Article XVI 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 such person were still in office 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 is lost or destroyed, another may be issued in its place 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&nb sp;be obligated to purchase from the owner thereof all of the shares of its stock of any class held for the store or other 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 thereof 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 Articl e Fourth of the restated Certificate of Incorporation of the corporation.  In the case of a proposed transfer of ownership of a store or other 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 shareholder, then the owner of such stock shall have the option of either (a) selling or otherwise transferring to such transferee such number of shares of stock of this corporation of any class which the corporation would otherwise have been required to offer to such t ransferee in connection with the membership granted to such transferee with respect to such store or other 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 membership from this corporation 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 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 shares to this corporation, the franchise granted to said corporation by this corporation for each business unit operated by& nbsp;said corporation shall thereupon be deemed to have terminated by the voluntary action of said corporation and no such business unit shall thereafter operate as a member of this corporation unless a new application for a membership for such 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 cap ital stock: (a) any transfer of ownership of a 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 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 membership granted by this corporation with regard to the operation of a 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 store or other business unit shall also be covered by the provisions of this Section to the extent of the amounts which have bee n 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 membership granted for a particular business unit 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 business unit with respect to which such shares of stock of the corporation are held, unless such store or other 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 membership at another location;
            (b) The death of an individual holder of the shares of stock  of this corporation held for such 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 corporation (which approval shall not be unreasonably withheld), to be operated under a membership from the corporation by the decedent's estate or by the& nbsp;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 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 member or of the store or other business unit for which the shares of stock of this corporation are held, or the making of an assignment for the benefit of creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code by or on behalf of such member or business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code against such member or 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&n bsp;other business unit with respect to which such shares are held either (a) closes down, or (b) ceases to be operated under as a member of 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& nbsp;
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 he 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 business unit or outlet under circumstances whereby such business unit or outlet continues to engage in substantially the same business under the ownership or control of the same person, partnership or corporation that owned or controlled it immediately prior to such termination; for purposes of this paragraph:
                    (A) control of an outlet owned by an unincorporated person or partnership shall be deemed to be the same if more than fifty percent (50%) of the assets or profit shares therein, or more than fifty percent (50%) of the capital stock of a corporation becoming the owner of such outlet, continues to be legally or equitably owned by the same person, partnership or corporation; and
                    (B) control of an outlet owned by a corporation shall be deemed to be the same if more than fifty percent (50%) of the capital stock of said corporation, or more than fifty percent (50%) of the assets or profit shares of an unincorporated person or partnership becoming the owner of such outlet, continues to be owned by the  same person, partnership or corporation.
               (2) the termination by this corporation of the membership from this corporation for a business unit pursuant to the provisions of such unit's membership agreement authorizing such termination by reason of:
                    (A) the failure of such 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 business unit in performing any obligation of such unit its membership agreement 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 business unit 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 membership by the corporation for a business unit, 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 thereo n) 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 business unit, 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&nb sp;portion of such price which would otherwise have been payable in cash being first applied for such purpose and, if any indebtedness to the corporation still remains, the portion of the price which would otherwise have been payable in equal annual installments then being applied for such purpose to the extent of any such remaining indebtedness;
               (6) the corporation's obligation to pay any portion of the purchase or redemption price of its shares in equal annual installments shall be evidenced by an installment promissory note of the corporation delivered to the stockholder whose shares are being purchased or redeemed, which note shall provide for the payment of the principal thereof in four equal annual installments commencing one year from the date of the repurchase or redemption of the shares and for the payment of interest with each annual installment&nb sp;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.
               (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 r edeemed;
               (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 meet ing and any adjournment thereof, or to any allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock, or to give such consent, and in such case all 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  the record date fixed as aforesaid.
     SECTION 3.  The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware.
                             ARTICLE XVIII
                               FISCAL YEAR
     SECTION 1.   The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.                                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(s) or such other person(s) 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 wai ve, 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&n bsp;set forth in the notice of the next meeting of stockholders for the election of directors the By-law so adopted, amended or repealed, together with a precise statement of the changes made.
     SECTION 2.  These By-laws may also be amended or repealed or added to, or new By-laws may be adopted, at any regular or special meeting of stockholders at which a quorum is present or represented by the affirmative vote of a majority of the issued and outstanding shares of Class A stock of the corporation. Any amendment, repeal, addition to the By-laws, or any new By-laws, adopted by the stockholders may be further amended, repealed, or added to only at a regular or special meeting of the stockholders at which a quorum i s 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 submission nor the name  of any director nominee proposed by one or more stockholders shall be mentioned in the formal 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 Sect ion 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 business unit owning a share of Class A stock of the corporation and (b) each other business unit which becomes an owner of a share of Class A stock of the corporation after having been expressly approved as a member of this corporation under the authority delegated by the Board of Directors of&nbs p;this corporation to its executive officer(s) (excluding the Chairman of the Board) to accept membership agreements and stock subscription agreements.  Each such business unit owned or controlled, directly or indirectly, by the same person, partnership or corporation, shall be deemed to constitute only one (1) business unit.  An unincorporated person or partnership shall be deemed controlled by another person, partnership or corporation if fifty percent (50%) or more of the assets or profit shares therein are legally or equitably owned by such other person, partnership or corporation, or by the& nbsp;legal or equitable owner or owners of fifty percent (50%) or more of such other person, partnership or corporation's assets or profit shares (if unincorporated) or shares of capital stock (if incorporated). A corporation shall be deemed controlled by another person, partnership or corporation if fifty percent (50%) or more of the capital stock of said corporation is owned by such other person, partnership or corporation, or by the owner or owners of fifty percent (50%) or more of its capital stock (if incorporated) or fifty percent (50%) or more of its assets or profit shares& nbsp;(if unincorporated).
     SECTION 2.  There shall be distributed on a patronage basis to persons holding memberships, as hereinabove defined, in this corporation in a manner taking into account the amount of patronage business done by the corporation with each of them, all the net savings and overcharges effected by or resulting from the  patronage 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& nbsp;the corporation and all interest on its indebtedness and after the setting aside by the Board of Directors of such reasonable reserves as they shall determine from time to time to be appropriate for the purpose of insuring the safety and welfare of the corporation and for the purpose of providing for the expectancy of any losses or contingencies. Said distributions shall be made no later than eight and one-half (8 1/2) months following the close of the year of the corporation during which the patronage occurred with respect to which each such distribution is made. In  no event shall less than twenty percent (20%) of the total patronage distributions made each year to each member be distributed in cash. Notwithstanding any of the provisions of this Article XXIV, the remaining portion shall be distributed in cash, written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code) or other property in whatever proportions shall be determined each year by the Board of Directors.
     SECTION 3.  Notwithstanding the foregoing, every such member on becoming such authorizes and directs that all net savings of every character effected by this corporation which are distributable to such member, to the extent of the excess thereof over the twenty percent (20%) minimum portion of such distributable amount required to be distributed in cash, may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such member.  Any such net savings which become distributable with respect to merchandise so ld by this corporation for delivery to any business unit owned or controlled, directly or indirectly, by the same person, partnership or corporation which so owns or controls one (1) or more other units may be so applied against any indebtedness owing with respect to merchandise sold by this corporation to any person which is part of any group deemed hereunder to constitute one (1) business unit.  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 business unit that applies for and is accepted as a member of this corporation shall, by the act of subscribing for a share of Class A stock of the corporation entitling such business outlet to become such a member, consent that the amount of any patronage dividends with respect to its purchases of merchandise from this corporation occurring on or after June 1, 1974, which are made in written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code, as amended) or other property and  which are received by such member from this corporation will be taken into account by him at their stated dollar amounts (representing the fair market value at date of distribution) in the manner provided in Section 1385(a) of said Code in the taxable year in which such notices of allocation or other property are received by said member. The term "written notice of allocation" as used here shall be deemed to include, but not to be limited to, a letter of advice to a member which discloses to such member an amount which the corporation has elected to&n bsp;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 business unit having membership in the corporation or by any business unit who has subscribed for the 1 share of Class A stock of the corporation which is required to be ow ned 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 unit (including all business units 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 membership or similar 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 patronage business done by the corporation with each of them during the periods with respect to which s aid written consents are effective for each of them and shall consist of all the net savings and overcharges effected by or resulting from the patronage 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 purpo se 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& nbsp;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&nb sp;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 corpor ation with respect to business done by the corporation with such dealer after the expiration of such 120-day period unless such dealer either has become a member of the corporation by owning a share of its Class A stock (in which case such dealer shall thereupon be entitled to patronage dividends as provided for in Section 2 of this Article XXIV) or has executed a subscription agreement for the purchase of shares of capital stock of the corporation (including one (1) share of its Class A stock) which has been accepted by the corporation. There shall be incorporated&n bsp;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 fo r such share in accordance with such subscription agreement shall be entitled to receive patronage dividends pursuant to this Section 6 during the period for which he makes payments on account of such purchase price as required by the subscription agreement. Upon the completion of such payments and the issuance of such share of stock to him, such dealer shall then be entitled to receive patronage dividends pursuant to Section 2 of this Article XXIV. In no event shall less than twenty percent (20%) of the total patronage dividend distributions made each year to any dealer  who is entitled to receive such distributions pursuant to this Section 6 be distributed in cash. Any amount in excess of said twenty percent (20%) minimum portion of the patronage dividends otherwise distributable to a dealer under this Section 6 may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such dealer in the same manner as set forth in Section 3 of this Article XXIV. Any patronage dividends distributed in the form of written notices of allocation pursuant to this Section 6 shall be subject to all of the p rovisions 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 member with respect to a business unit having a membership or similar written 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 unit 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 unit shall nevertheless be paid in cash within 8 months following the close of such year if a timely written request for the payment of such amount in cash is submitted to the cor poration by the dealer.  However, in all events no less than 30% of the total annual patronage dividends distributable to a business unit with respect to a  business unit pursuant to any provision of these By-laws shall be paid in cash if the such unit 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 business unit having  membership in this corporation on that date and each business unit 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 business unit'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 patronage business done with each such business outlet 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 patronage business done by the cor poration or each such division of the corporation with each of the member's business units with respect to each category of sales as shall be established on the books of the corporation.  For purposes of this Article XXIV, all business of this corporation with or for each such dealer shall be conducted on a patronage basis (and shall thus be "patronage business" or part of "patronage operations" as those terms are used in this Article XXIV) unless the business is with a division or other operating unit of this corporation which the Board of Directors h as designated in advance to be nonpatronage or the business otherwise involves sales of a particular kind or category which the Board of Directors has designated in advance as nonpatronage sales.  Each such business unit shall further thereby be deemed to have authorized and directed that, in any taxable year of this corporation during which it incurs a loss in connection with the operations of any such division or in connection with any such category of sales, (i) a proportionate share of such loss shall be deducted from the net earnings of the corporation on the bu siness done during such year by each of its other divisions or with respect to each of its other sales categories with its members and (ii) the amount of patronage dividends which the corporation would otherwise be obligated to distribute to its members 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&nbs p;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
                     MEMBERSHIPS AND NONMEMBER ACCOUNTS
     SECTION 1.  In order for any person, partnership or corporation to be accepted by Ace Hardware Corporation as a member, 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&nbs p;by such person, partnership or corporation of the 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 business outlet under such membership agreement is not the first location owned or controlled by said person, partnership or corporation which has become accepted by Ace Hardware Corp oration as a member 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 2.  Ace Hardware Corporation may make or approve sales of merchandise for delivery to any customers either directly, or under the terms of a written agreement entered into with it by a person, partnership or corporation operating one or more businesses, whether located within or outside the United States of America, its territories and possessions, in lieu of the membership or similar agreement utilized with respect to business units by parties who are accepted by Ace Hardware Corporation as members.  No party approved as a nonmember&nbs p;domestic or international nonmember account shall be entitled to purchase or own any shares of the capital stock of Ace Hardware Corporation, nor shall any patronage dividends be paid on account of any purchases made from Ace Hardware Corporation by such party.  Purchases of merchandise by nonmembers shall be made in accordance with the terms of any applicable written agreement with this corporation and such other terms as may be imposed by this corporation from time to time in connection therewith.  Only with the express written consent of an executive officer of this corpo ration whom its President has vested with authority to grant such consents, can purchases by nonmember businesses include items carried under "Ace" or "Ace Hardware" brand names or under other private label names owned by, or licensed to, Ace Hardware Corporation.  No person 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&nbs p;or marks) unless a written agreement between such person and this corporation specifically grants the right to such use.  Subject to the provisions of any resolutions which may be enacted from time to time by the Board of Directors, all of the terms and conditions contained in any membership agreements with members or other written agreements with nonmembers (as well as terms which vary among  particular accounts) shall be established solely by the President of Ace Hardware Corporation or such other 
executive officer(s) as have been expressly delegated such authority by the President, provided, however, that no person shall be granted any exclusive area or territorial rights except in a writing signed by the President or other authorized executive officer following consultation with the Board of Directors (or an appropriate committee of the Board of directors) with respect thereto.
     SECTION 3.  Each person, partnership or corporation accepted by Ace Hardware Corporation as a member 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 member 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. EX-4 6 ex4e.htm 4-E CAPITAL STOCK AGREEMENT OCTOBER, 2001

ACE HARDWARE CORPORATION
SUBSCRIPTION FOR CAPITAL STOCK
(To be used for shares subscribed for in conjunction with
an application for membership by the undersigned to Ace Hardware Corporation) The undersigned, being the owner of the retail or other business unit with respect to which an Application is being concurrently submitted to Ace Hardware Corporation (a Delaware Corporation) for a membership to purchase merchandise from said corporation and a license to use one or more designated marks of Ace Hardware Corporation in connection therewith, hereby subscribes for and agrees to purchase the following shares of capital stock of said Ace Hardware Corporation at the prices set forth below:



                                                                                                                           Purchase Price


________      shares of Class "A" Voting Stock (par value $1,000 per share) at 
a price of  $1,000.00 (1 share to be subscribed for if, and only if, the business 
applying for membership in Ace Hardware Corporation would be the first member
in Ace Hardware Corporation owned or controlled by the undersigned)                        $___________



________      shares of Class "C" Non-Voting Stock (par value$100 per share) at 
a price of $100.00 per share (40 shares to be subscribed for if, and only if the 
business applying for membership in Ace Hardware Corporation would be the first 
member in Ace Hardware Corporation owned or controlled by the undersigned)           $___________



________      shares of Class "C" Non-Voting Stock (par value$100 per share) at a 
price of $100.00 per share (50 shares to be subscribed for if, and only if, the
business applying for membership in Ace Hardware Corporation would be an
additional member in Ace Hardware Corporation, over and above the first such
member, owned or controlled by the undersigned)                                                    $___________



Total Purchase Price for all shares hereby subscribed for - $________                       $___________ 

The undersigned agrees to pay for all of the shares hereby subscribed for at the principal office of Ace Hardware Corporation located at 2200 Kensington Court, Oak Brook, Illinois 60523. Written notice of a call for the payment of said purchase price is hereby waived.
The undersigned further agrees that payment for the shares hereby subscribed for will be made by means of a special stock subscription payment charge to be added to the biweekly statement rendered by Ace Hardware Corporation. The amount of such special stock subscription payment charge to be added to each such biweekly statement shall be the greater of $40.00 or an amount equal to 2% of the purchase price of the merchandise purchased by the retail or other business outlet that is the subject of the concurrent membership application from Ace Hardware Corporation during each bi-weekly period. Such charge shall be continued until the full purchase price for all shares of the capital stock of Ace Hardware Corporation has been paid.
No interest or other finance charge shall be added to the unpaid balance of the purchase price to be paid so long as all payments are made when the same are due. All such stock subscription payments shall be due and payable at the same time and shall be subject to the same late payment service charges and other terms as are applicable to the charges shown on such billing statements for purchases of merchandise.
The undersigned shall have the right to make prepayments at any time on account of the unpaid balance of the purchase price of the shares of stock subscribed for. It the retail or other business outlet with respect to which this Subscription Agreement has been executed would be the first member of Ace Hardware Corporation owned or controlled by the undersigned, all payments made on account of the purchase price of the shares hereby subscribed for shall first be applied toward payment for the 1 share of Class "A" Voting Stock. Upon the completion of the payment of $1,000.00 for said 1 share of Class "A" Voting Stock, a certificate for such share shall immediately be issued to the undersigned. It is expressly understood that the undersigned shall have no voting rights with respect to said share of Class "A" Voting Stock until the complete price therefore has been paid and a certificate for the same has been issued.
It is further understood that certificates for the shares of Class "C" Stock of Ace Hardware Corporation hereby subscribed for by the undersigned will be issued to the undersigned upon the completion of the payment of the full purchase price of all of the shares of Class "C" Stock so subscribed for.
If 1 share of Class 'A" Voting Stock of Ace Hardware Corporation is included as part of the shares of stock hereby subscribed for, the undersigned shall further hereby be deemed to have consented and agreed to include in gross income of the undersigned for U.S. income tax purposes all patronage dividends distributed to the undersigned (including those distributed in the form of qualified written notices of allocation or other property, as defined in Section 1388 of the U.S. Internal Revenue Code, as amended) with respect to purchases of merchandise made by the undersigned from Ace Hardware Corporation for all member business outlets that are owned or controlled by the undersigned on or after the date on which this Subscription Agreement has been accepted by Ace Hardware Corporation. Such consent shall expire immediately upon the undersigned's becoming an owner of 1 share of Class "A" Voting Stock of Ace Hardware Corporation. Until such time, the undersigned reserves the right to revoke any consent hereby given by the undersigned at any time by written notice of revocation furnished to Ace Hardware Corporation, provided, however, that any such revocation shall be effective only with respect to purchases of merchandise made by the undersigned from said corporation after the close of the taxable year of Ace Hardware Corporation during which such revocation is so furnished. It is understood that no patronage dividends will be payable to the undersigned with respect to purchases of merchandise made by the under-signed during any period for which any such revocation is effective unless and until the undersigned becomes the owner of 1 share of Class "A" Voting Stock of Ace Hardware Corporation.
If the undersigned is already the owner of 1 share of said Class "A" Voting Stock, or commencing as of the date when the undersigned becomes an owner of such a share, the undersigned instead shall be entitled to patronage dividends with respect to purchases of merchandise made by the undersigned for Ace Hardware Corporation in accordance with the provisions of Section 2 of Article XXIV of the By-laws of said corporation which are applicable to "members" of said corporation. The undersigned shall be deemed, by being a member owning such a share of Class "A" Voting Stock, to have consented that the amount of any patronage dividends distributed to the undersigned (including those distributed in the form of qualified written notices of allocation or other property) with respect to purchases of merchandise made by the undersigned from Ace Hardware Corporation for all member business outlets owned or controlled by the undersigned will be included in the unde rsigned's gross income for U.S. income tax purposes. All patronage dividends distributed at any time to the undersigned will be included in the undersigned's gross income for the taxable year in which the same are received by the undersigned, with those received in the form of qualified written notices of allocation or other property being included at their stated dollar amounts.
The undersigned acknowledges receipt of the Prospectus dated _________________, 20__ descriptive of the offering of the shares of stock of Ace Hardware Corporation hereby subscribed for by the undersigned.
The undersigned acknowledges receipt of a copy of the By-laws of Ace Hardware Corporation (including Article XXIV thereof relative to "members" patronage dividends" which contains provisions deeming a member to have consented to include patronage dividends received in the form of written notices of allocation or other property in his gross income) and agrees that the shares hereby subscribed for shall, when issued, be held by the undersigned subject to all of the provisions of the restated Certificate or Incorporation and the By-laws of Ace Hardware Corporation and all amendments and supplements thereto.
THE SHARES OF CAPITAL STOCK, WHEN ISSUED, SHALL BE HELD BY THE UNDERSIGNED SUBJECT TO ALL OF THE PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE COMPANY AND ALL AMENDMENTS AND SUPPLEMENTS THERETO, INCLUDING THE PROVISIONS GOVERNING THE DETERMINATION AS TO WHETHER A RETAIL OR OTHER BUSINESS OUTLET IS OWNED OR CONTROLLED BY THE UNDERSIGNED.
TO SECURE THE PAYMENT OF ANY INDEBTEDNESS OWING TO THE COMPANY BY THE UNDERSIGNED AT ANY TIME, THE COMPANY SHALL RETAIN A FIRST LIEN UPON AND A RIGHT OF SET-OFF AGAINST ALL MONEYS PAID IN ON THE PURCHASE OF SAID SHARES AND UPON ALL SHARES OF CAPITAL STOCK OF THE COMPANY ISSUED TO THE UNDERSIGNED FOR ANY PURPOSE AT ANY TIME.
THE UNDERSIGNED'S INTEREST IN ANY OF THE SHARES BEING PURCHASED UNDER THIS AGREEMENT AND IN ANY PATRONAGE DIVIDENDS HEREAFTER ISSUED BY THE COMPANY TO THE UNDERSIGNED FOR THE RETAIL OR OTHER BUSINESS OUTLET LICENSED UNDER THE AGREEMENT OR FOR ANY OTHER MEMBER BUSINESS OUTLET LICENSED BY THE COMPANY WHICH IS OWNED OR CONTROLLED BY THE UNDERSIGNED EITHER IN THE FORM OF SHARES OF THE COMPANY'S CAPITAL STOCK OR IN THE FORM OF ANY DEBT INSTRUMENT OF THE COMPANY SHALL AT ALL TIMES BE DEEMED TO BE OFFSET BY THE AMOUNT OF THE CURRENT BALANCE OF ANY INDEBTEDNESS OWING BY THE UNDERSIGNED TO THE COMPANY WITH RESPECT TO ANY OF SAID OWNED OR CONTROLLED MEMBER BUSINESS OUTLETS.
AT THE COMPANY'S OPTION AND IN ACCORDANCE WITH THE BY-LAWS AND MEMBERSHIP AGREEMENT, IT SHALL HAVE THE RIGHT AT ANY TIME TO APPLY THE VALUE OF ANY PATRONAGE DIVIDENDS ISSUED BY IT TO THE UNDERSIGNED FOR ANY MEMBER BUSINESS OUTLET LICENSED BY THE COMPANY WHICH IS OWNED OR CONTROLLED BY THE UNDERSIGNED AS AN OFFSET AGAINST THE INDEBTEDNESS OWED TO THE COMPANY IN CONNECTION WITH TRANSACTIONS BETWEEN THE COMPANY AND THAT OUTLET OR ANY OTHER SUCH OWNED OR CONTROLLED MEMBER BUSINESS OUTLET, AND WHENEVER THE COMPANY, IN ITS SOLE JUDGMENT, DEEMS ITSELF TO BE INSECURE WITH RESPECT TO ANY SUCH INDEBTEDNESS, THE COMPANY MAY DEMAND THE ASSIGNMENT TO THE COMPANY BY THE UNDERSIGNED OF THE UNDERSIGNED'S INTEREST IN ANY SHARES OF THE CAPITAL STOCK OF THE COMPANY PURCHASED BY THE UNDERSIGNED AND IN ANY WRITTEN NOTICES OF ALLOCATION OR OTHER PROPERTY RECEIVED BY THE UNDERSIGNED.
NO SHARES OF CAPITAL STOCK OF THE COMPANY HELD BY THE UNDERSIGNED AT ANY TIME SHALL BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT THE PRIOR CONSENT OF THE BOARD OF DIRECTORS OF THE COMPANY, AND IN NO EVENT SHALL ANY SUCH TRANSFER OR ASSIGNMENT BE MADE TO ANY TRANSFEREE WHO IS NOT ELIGIBLE TO BE A HOLDER OF SUCH SHARES.

The undersigned understands and agrees that this Subscription for Capital Stock shall become effective only upon its acceptance by Ace Hardware Corporation at its principal office in Oak Brook, Illinois and that all of the terms and provisions of the aforesaid Prospectus are incorporated herein by this reference thereto as if set forth herein verbatim.
Dated: _____________________, 20__              _____________________________________________
                                                                                       Corporate, Partnership or Business Name

                                                                                       _____________________________________________
                                                                                       Trading Name: D/B/A

                                                                                       _____________________________________________
                                                                                       _____________________________________________
                                                                                       _____________________________________________
                                                                                       _____________________________________________
                                                                                       _____________________________________________
                                                                                                  (Signatures)

                                                                                       (The name of a corporate subscriber or partnership
                                                                                       subscriber should be written above followed by the
                                                                                       signature of an appropriate corporate officer or all
                                                                                       partners of such subscriber.)

                                                                                      _____________________________________________
                                                                                      _____________________________________________

                                                                                      Address of Store or Outlet with Respect to Which the
                                                                                      Shares Hereby Subscribed for Pertain.

                                                                                      _____________________________________________
                                                                                      _____________________________________________
                                                                                      Address of Primary Store or Retail Outlet



ACCEPTED for Ace Hardware Corporation at Oak Brook,
Illinois this ___ day of _______________, 20__.
By _______________________________________
__________________________________________
                    (Title of Officer)
EX-5 7 ex5.htm 5 LEGAL OPINION

[McDERMOTT, WILL & EMERY LETTERHEAD]

March 22, 2002
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 50523

Re:    Form S-2 Registration Statement

Ladies and Gentlemen:

We have acted as counsel to Ace Hardware Corporation (the "Company") in connection with the Company's Form S-2 Registration Statement (the "Registration Statement") to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act") on or about the date hereof. The Registration Statement relates to the proposed issuance and sale of up to 2,000 shares of the Company's Class A Stock ($1,000 par value) and up to 80,000 shares of the Company's Class C Stock ($100 par value) (collectively, the "Stock") which may be sold by the Company from time to time as set forth in the prospectus which forms a part of the Registration Statement (the "Prospectus").

We have reviewed such records, documents and questions of law as we have considered necessary as a basis for the opinion expressed below. In our review, we have assumed the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies, the genuineness of all signatures on documents reviewed by us and the legal capacity of natural persons. We have assumed that the Stock will be issued and sold in accordance with the terms described in the Prospectus under "Distribution Plan and Offering Terms."

Based upon, subject to and limited by the foregoing, we are of the opinion that, when the Registration Statement has become effective under the Act, upon issuance and delivery of shares of Stock against payment of the consideration therefor, such shares of Stock will be legally issued, fully paid and non-assessable.

We express no opinion as to the applicability of, compliance with or effect of, the law of any jurisdiction other than United States Federal law, the General Corporation Law of the State of Delaware and the laws of the State of Illinois.

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission thereunder.

Very truly yours,



/s/ McDermott, Will & Emery

SNG:ct





CHI99 3887808-1.046445.0014

EX-4

OCTOBER, 2001

EX-5

EX-8

Ace Hardware Corporation March 18, 2002 Page 16

March 18, 2002
The Board of Directors
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60523


Dear Ladies and Gentlemen:


You have requested the opinion of KPMG LLP ("KPMG") regarding certain federal income tax consequences resulting from distributing patronage dividends and selling and redeeming Class A and Class C shares in Ace Hardware Corporation ("Ace"). Unless otherwise indicated, all section references in this opinion letter are to the Internal Revenue Code of 1986, as amended (the "IRC"), and the regulations promulgated thereunder.


The opinions contained in this letter are based on the facts, assumptions and representations stated herein. You represented to us that you have provided us with all facts and circumstances that you know or have reason to know are pertinent to this opinion letter. If any of these facts , assumptions or representations is not entirely complete or accurate, it is imperative that we be informed immediately in writing as the incompleteness or inaccuracy could cause us to change our opinions.


In various sections of this letter, for ease of understanding and as a stylistic matter, we may use language such as "will" which might suggest that we reached a conclusion on an issue at a standard different from a "should" level of certainty. Such language should not be so construed. Our conclusions on any issue discussed in this opinion letter do not exceed a "should" standard.


Facts


Ace Hardware Corporation operates as a cooperative corporation for federal income tax purposes under IRC Section 1381. Ace maintains this status because its members, which are called patrons for tax purposes, own shares in the corporation and purchase their inventory and supplies through the cooperative. To become a patron, a retail dealer of hardware must apply for membership and purchase shares from Ace.


When a new member enters the cooperative, this person (including individuals, corporations or other entities) must purchase one Class A voting share for its $1000 par value. Along with this Class A share the new member must purchase 40 Class C nonvoting shares for their par value of $100 each. A member who opens another store in addition to his first store must purchase an additional 50 shares of Class C stock at the $100 per share par value. The Class C shares may also be distributed to the patrons as part of the yearly patronage dividend. Class C shares may neither be sold nor assigned to non-patrons. However, Ace may approve a person to become a patron in order for shares to be transferred.


Once a person or entity becomes a patron of Ace, by purchasing one share of Class A voting stock, the patron consents under the Ace By-Laws Article 24, Section 4, to include in his income the total stated dollar amounts of any patronage dividends distributed in whatever form. Consent is also given by dealers who have subscribed for shares of Ace stock because the Subscription Agreement provides for this consent as a term of the agreement.


Each year, Ace distributes patronage dividends to its patrons based upon the quantity or value of business done with the members. The patronage dividend must consist of at least 20% cash, but may not exceed 45% cash. In addition to cash, Ace may distribute additional Class C shares, Patronage Refund Certificates (which will be qualified written notices of allocation as defined in IRC Section 1388(c)(1)), and/or other qualified property (as defined in IRC Section 1388). The Patronage Refund Certificates are equivalent to non-negotiable subordinated notes with a stated maturity date and pay an annual interest rate that is determined by Ace's Board of Directors before the certificates are issued.


A minimum of 20% of the total annual patronage dividend will be paid in cash, unless this portion of the dividend has been applied to the outstanding indebtedness of the patron to Ace. The cash portion would be applied to outstanding indebtedness if the dealer's patronage had been terminated and the terminated patron had not requested the payment of the cash distributed. Depending on the tax bracket of the patron receiving the patronage distribution, the cash distributed may not be sufficient to pay the federal income tax liability generated by the distribution.


Assumptions and Representations Ace makes the representations listed below and affirms the reasonableness of the representations and assumptions listed below. We have not independently verified, and will not independently verify, the completeness or accuracy of any of these assumptions and representations. It is understood and agreed that we are relying on these assumptions and representations in rendering the opinions contained herein.

• The By-Laws, Articles of Incorporation, and any other corporate documents of Ace Hardware Corporation are in conformity with the requirements of all United States laws and administrative regulations (including United States income tax laws) to qualify for cooperative corporation status and any transaction described in this letter.
• Ace has never issued and does not intend to issue a patronage dividend in the form of a non-qualified written notice of allocation.

Opinions


Based on the Facts and Assumptions and Representations and subject to any conditions or limitations herein, including the Scope of the Opinion below, it is our opinion that the federal income tax consequences described in the Analysis section below should prevail ( i.e ., there is a 70- percent or greater likelihood that those consequences will prevail) if challenged by the Internal Revenue Service ("IRS"), and that there is substantial authority for those consequences within the meaning of Treas. Reg. Sec. 1.6662-4(d).


Analysis Income Tax Liability Incidental to Patronage Dividends


Any patronage dividends that are distributed by Ace will be includible in the gross income of the distributee patrons. Gross income will include the amount of cash, the value of the Class C shares, the stated dollar amount of Patronage Refund Certificates of Ace, and the stated dollar amount of any other qualified property, within the meaning of IRC Sections 1385 and 1388, distributed to the cooperative patrons.


Federal Income Tax Treatment of Patronage Dividends


Treatment in General


The Class C shares and the Patronage Refund Certificates should be qualified written notices of allocation under IRC Section 1388(b) and (c). They should meet the following requirements, set forth in the IRC and Treas. Reg. Sec. 1.1388-1(b) and (c): 1) the notice must be in written form, which includes capital stock, certificates of indebtedness or other written notices which disclose to the recipient the stated dollar amount allocated to him on the books of the corporation; 2) at least 20% of the patronage dividend must be paid in cash or a qualified check; and either 3) the patron must be able to redeem the notice for cash at its stated dollar amount for a period beginning on the day the notice is paid and ending not earlier than 90 days after that date, but only if the distributee receives written notice of the right of redemption at the time he receives such written notice of allocation; or 4) the patron must consent to treat the face value of the allocation as gross income in the year the notice is received. That consent is given by each patron upon joining the cooperative.


In order for Ace to receive the corresponding deduction from federal gross income for the amount of patronage dividends paid to a patron, Ace must pay (or apply against indebtedness that the patron owes Ace in accordance with Article 24, Section 7 of the Ace Hardware Corporation By-laws) not less than 20% of each patron's distribution in cash. Although the regulations indicate that the 20% of patronage dividends that must be paid in cash do not include "a credit against amounts owed by the patron to the cooperative organization," Treas. Reg. Sec. 1.1388-1(c)(1), the IRS has ruled that a cooperative may use patronage dividends to pay an obligation of a member to a third party as long as the member has the right to insist on receiving that money directly in cash. Rev. Rul. 65-221, 1965-2 C.B. 320. Moreover, Ace received a private letter ruling from the IRS, dated November 20, 1979, specifically allowing Ace a deduction for patronage dividends when all or part of the 20% patronage dividends paid in cash can be offset against indebtedness that the patron owes Ace unless the patron elects to take the cash payment.


Further, the patrons must consent to have the stated dollar value of the written notice of allocation plus the fair market value of other qualified property included in the patron's gross income for the year that the patron receives the distribution and Ace will, as required by the IRC, pay the dividends within eight and one half months after the end of its tax year.


Interest Income Resulting from Patronage Refund Certificates


As a result of receiving Patronage Refund Certificates, the distributee patrons may be deemed to receive interest income. Any interest will be in the form of original issue discount if the face value of a refund certificate exceeds the present value of the stated principal and interest payments due from Ace under the terms of the refund certificate. Under IRC Section 7872(c)(1)(C), IRC Section 7872 applies to any below market loan between a corporation and a shareholder. Although Subchapter T of the Code provides special rules for the tax treatment of cooperatives, a cooperative's tax treatment is otherwise governed by the fact that it is a corporation and its patrons are shareholders. IRC Section 7872(b) determines the amount of the original issue discount and IRC Section 1272(a) requires the discount, as determined above, to be included in the income of the distributee patron ratably over the term of the refund certificates. To determine the present value of the sta ted principal and interest, the patrons must use a discount rate equal to the applicable federal rate, at the date of issuance, compounded semi-annually.


Withholding


Ace should be subject to the general withholding requirements under IRC Section 3406. If a patron does not provide a taxpayer identification number ("TIN") or provides an incorrect TIN, Ace should be required to withhold 27% of the total face amount of the patronage dividend.


Ace should also be required to withhold if there has been a notified payee underreporting as described in IRC Section 3406(c) or the patron has failed to certify that he is not subject to backup withholding under IRC Section 3406(d). These last two withholding requirements should not apply to Ace or its patrons, so long as Ace does not distribute 50% or more of the patronage dividend in cash.


Foreign Patrons


Patronage dividends and interest distributed to patrons who are located in foreign countries and certain United States Territories (including those patrons incorporated in Puerto Rico or non-United States citizens residing in Puerto Rico) are considered "fixed or determinable annual or periodic income." Rev. Rul. 66-53, 1966-1 C.B. 206.⁽¹⁾ Ace is required to withhold tax on the full stated amount of the dividend and any interest distributed to non-citizens outside of the United States at a rate of 30% (or other applicable rate as determined by tax treaties in effect) under IRC Section 871(a) and IRC Section 881(a). The tax will not apply to corporations organized in Guam, American Samoa, the Northern Mariana Islands or the Virgin Islands if: 1) at all times during the year, less than 25% of the value of the stock of such corporation is beneficially owned by foreign persons, 2) at least 65% of the gross income of the corporation is connected with the conduct of a trade or business in the possession or the U.S. for the three years ending with the close of the taxable year of the distribution, and 3) no substantial part of income of such corporation is used directly or indirectly to satisfy obligations to persons who are not bona fide residents of such possession or the United States. Federal Tax Status of Purchased Class A and Class C Shares Sale of Purchased Shares by Patrons⁽²⁾ If a patron's membership in the cooperative terminates for all of that patron's store locations and Ace redeems its shares from the patron, the redemption necessarily includes the one share of Class A voting stock. The redemption of that share will not result in taxable gain or loss under the IRC as Ace must repurchase Class A shares at their $1000 par value as stated in the Ace By-Laws Article XVI, Section 10.


If Ace redeems a patron's Class C shares, there may be taxable gain or loss under the IRC. The selling patron may need to recognize gain or loss if the price per share paid by Ace to redeem the shares differs from the patron's tax basis in the shares. Any taxable gain recognized upon redemption may qualify for capital gains treatment.


If a patron's purchased Class C shares are redeemed and the patron retains its Class A and other Class C shares to maintain its patronage membership for other stores, then the amount paid for redemption of the purchased Class C shares may be characterized as an ordinary dividend and taxed as ordinary income. If the IRC requires that the income be treated as ordinary, the basis of the patron's remaining shares may be increased by the amount of tax basis in the shares that were redeemed.


Unstated Interest⁽³⁾ If the purchase of the Class A and/or Class C shares by a patron occurs on a deferred basis with periodic payments extending for more than one year from the date of purchase, interest may be imputed to the sale contract. For payments that are due more than six months after the purchase date, IRC Section 483 may impute "unstated interest" that may be deducted so long as the basis of the shares does not include this deemed unstated interest. This unstated interest will also be taken into income for Ace.


Unstated interest may also be imputed to the sale of shares when a membership in the cooperative is terminated. IRC Section 483 would also apply if Ace redeems the shares with a four-year installment note as allowed by Article XVI, Section 12 of the Ace By-Laws. If the total payments to be made to the terminated patron exceed the present value of the total payments plus the present value of any interest due to the patron under the installment note, IRC Section 483 may cause part of the stated payments to be treated as unstated interest. The discount rate to be used for the present value calculations is the applicable federal rate at the time of termination, compounded semi-annually. This section may cause part of the payments received by the terminated patron to be treated as interest income rather than a return of capital.


Scope of the Opinion Our opinions in this letter are limited to those specifically set forth herein under the heading Opinions . KPMG expresses no opinion with respect to any other federal, state, local, or foreign tax or legal aspect of the transactions described herein. No inference should be drawn on any matter not specifically opined on above.


In rendering our opinions, we are relying upon the relevant provisions of the internal revenue laws, including the Internal Revenue Code of 1986, as amended, the regulations thereunder, and judicial and administrative interpretations thereof -- all as in effect on the date of this letter. These authorities are subject to change or modification retroactively and/or prospectively and any such change could affect the validity or correctness of our opinions. We will not update our advice for subsequent changes or modifications to the law and regulations or to the judicial and administrative interpretations thereof, unless you separately engage us to do so in writing after such subsequent change or modification.


These opinions are not binding on the Internal Revenue Service, any other tax authority, or any court, and no assurance can be given that a position contrary to that expressed herein will not be asserted by a tax authority and ultimately sustained by a court.


KPMG consents to the use of our reports included herein.


Very truly yours,


KPMG LLP

1. The IRS suggested internally some time ago that Rev. Rul. 66-53 might be modified or revoked. See G.C.M. 35846, 1974 IRS GCM LEXIS 496. Nothing has been done publicly regarding that as of this date.

2. For purposes of the conclusions in this section, we assume that the redeemed patron will not have any stock attributed to it under the provisions of IRC Section 318.

3. For purposes of the conclusions in this section, we assume that IRC Section 1274 would not apply to any of the transactions discussed because of the exception in IRC Section 1274(c)(3)(C) ("Sales Involving Total Payments of $250,000 or Less").

EX-10

ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN
RESTATED AND ADOPTED DECEMBER 7, 1993

IPURPOSE
The purpose of this Retirement Benefits Replacement Plan is to continue to provide on an unfunded basis for certain participants in the Ace Hardware Corporation Employees' Profit Sharing Plan ("Profit Sharing Plan") and the Ace Hardware Corporation Employees' Pension Plan ("Pension Plan") retirement benefits equal to the amounts by which the benefits they would have been entitled to receive under the Profit Sharing Plan and Pension Plan are reduced by reason of the limitations on contributions and benefits imposed by Section 415 of the Internal Revenue Code of 1986 ("Code"), the limitations on compensation imposed by Section 401(a)(17) of the Code, or by any future federal legislation which limits compensation or benefits (the "Limitations"). It is intended that this Plan shall constitute an "excess benefit plan" as defined in 3(36) of the Employee Retirement Income Security Act of 1974 ("ERISA") and an unfunded deferred compensation plan for a sele ct group of highly compensated employees as described in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

IIEFFECTIVE DATE
This Plan shall be effective for all reductions in benefits under the Profit Sharing Plan and the Pension Plan for participants herein which result from imposition of the Limitations at any time on or after January 1, 1985. The Plan was originally adopted on October 1, 1985 and is herein restated effective as of January 1, 1989, unless specifically provided otherwise.

III PLAN PARTICIPATION
Participation in this Plan shall be exclusively limited to any officer or key employee who is designated as a Participant by the Board of Directors of Ace Hardware Corporation ("Board") and whose benefits under either or both of the Profit Sharing Plan and the Pension Plan are reduced by reason of the Limitations Effective as of January 1, 1994, the following individuals shall become or continue to be Participants hereunder:

Roger E. Peterson
David F. Hodnik
William A. Loftus
Paul M. Ingevaldson
Michael C. Bodzewski
Rita D. Kahle
David  W. League
David F. Myer
Fred J. Neer
Donald L. Schuman

IV PENSION PLAN REPLACEMENT BENEFITS
Effective until December 31, 1992 there shall be accrued as monthly benefits for a Participant under this Plan an amount equal to the excess, if any, of the amount described in paragraph (i) below over the amount described in paragraph (ii) below:

(i) The amount of benefit to which he would be entitled under the Pension Plan if such benefit were computed without giving any effect to the Limitations imposed by Section 415 of the Code or by Section 401(a)(17) of the Code,

2. the amount of benefit to which he is entitled under the Pension Plan.

The amount so determined shall be subject to such adjustments as the Board may from time to time deem appropriate to reflect any changes in the application of the Limitations.

Any benefits under this Section which become payable to such Participant and/or surviving spouse or child or children of such Participant shall be paid in the same manner and at the same time that benefits are payable under the Pension Plan, except that if the Participant elects to take early retirement as provided for under the Pension Plan, his monthly benefits hereunder shall in no event commence to be paid to him earlier than the date as of which he attains the age of 60 years.

As of January 1, 1993, a Participant shall no longer accrue any Pension Plan Replacement Benefits and any benefit accrued prior to this time shall be "frozen" as of December 31, 1992.


V

PROFIT SHARING PLAN REPLACEMENT BENEFITS

(a)  Profit Sharing Replacement Benefits. As of the last day of each calendar year there shall be accrued for the account of a participant under this Plan amounts equal to the excess, if any, of the amount described in paragraph (i) below over the amount described in paragraph (ii} below:

(i) The amount of benefit to which he would be entitled under the Profit Sharing Plan if such benefit were computed without giving any effect to the Limitations imposed by Section 415 of the Code or by Section 401(a)(17) of the Code,

             (ii) The amount of benefit to which he is entitled under the Profit Sharing Plan.

The amount so determined shall be subject to such adjustments as the Board may from time to time deem appropriate to reflect any changes in the application of the Limitations.

At the same time that annual adjustments are made to the account of such Participant for his proportionate share of the earnings or losses realized or incurred by the Trust established under the Profit Sharing Plan, adjustments bearing the same percentage relationship to his account balance under this Plan shall be made to said account balance.

A Participant who dies, retires or becomes disabled during a calendar year shall be considered a Participant on the last day of the year in which such event occurs, for purposes of determining the Profit Sharing Replacement Benefit, if any, for such year.

(b)  Payment of Profit Sharing Plan Replacement Benefits. Effective January 1, 1993, any benefits accrued under this Section shall be paid to such Participant upon the following dates selected by the Participant pursuant to a valid election:

(A)  in one lump sum as soon as practicable after the date of his retirement, disability or death (as defined in the Profit Sharing Plan); or

(B)  in one lump sum at a date specified in the election, which date can be no later than 10 years after the date of retirement; or

(C)  in monthly installment payments beginning when designated after the date of retirement and extending for a period of up to 10 years as designated by the Participant; or

(D)  in one lump sum as soon as practicable following termination of employment other than retirement, disability or death.

In order to be valid, elections under this Plan must be made by the Participant and on file with the Plan Administrator prior to the earlier of (i) at least 6 months prior to the date of retirement or (ii) the last day of the calendar year preceding the calendar year of the Participant's retirement.

Payments will be made to the Participant except, that if termination of employment occurs by reason of the death of the Participant or upon the death of a Participant receiving installments, such benefits shall be paid or continue to be paid to the beneficiary or beneficiaries designated by him to receive payment of benefits under the Profit Sharing Plan, and in accordance with the Participant's election.

In the event a valid election is not on file with the Plan Administrator, as determined by the Board, any benefits payable to a Participant or beneficiary shall be paid in a lump sum as soon as practicable.

(c)  Accumulations on Deferred or Installment Payments. The benefits accrued for the account of any Participant in the Plan who has elected to defer payments or elected to, receive installments shall be augmented by the accumulation of additional values earned from the retirement (minus any installment payments) until the date of payment at simple interest rates equivalent to the "prime rate" of interest charged by The Northern Trust Company of Chicago, Illinois. For each year, such rate shall be established by applying said prime rate as in effect on the first day of the year. The Board reserves the right to increase or decrease the rate to be used in calculating the accumulation of additional values for all benefit payment deferrals at any time.

(d)  Acceleration of Benefit Payments. Notwithstanding the provisions of the Plan or the period of payment previously elected by the Participant, in the event a Participant ceases to be an employee of the Company and, within three years thereafter, becomes a proprietor, officer, director or employee, or otherwise becomes affiliated with, any business which competes with the Company as determined by the Board, the entire balance of such Participant's account may, if so decided by the Board, in its sole discretion, be paid to said Participant in a lump sum. Payments may also be accelerated at the sole discretion of the Board in the event of the Participant's financial hardship or other unforeseeable event.

VI VESTING

The vesting rules set forth in the Pension Plan shall be applied for purposes of determining the vested interest of a participant in the Pension Plan Replacement Benefits accrued for him under this Plan and the vesting rules set forth in the Profit Sharing Plan shall be applied for purposes of determining the vested interest of a Participant in the Profit Sharing Plan Replacement Benefits accrued for his account under this Plan.

VII UNFUNDED PLAN
Ace Hardware Corporation shall maintain such records as shall be deemed by it to be appropriate for the determination at the end of each calendar year of the Pension Plan Replacement Benefits accrued for a participant hereunder as of such date and the balances accrued for the account of each participant hereunder as of such date as Profit Sharing Plan Replacement Benefits, but annual or other periodic book entries need not be made with respect to any of the benefits provided for under the Plan unless the same shall otherwise be required by law or by generally accepted accounting principles. However, no payments are to be made by Ace Hardware Corporation for the funding of any of the benefits provided under this Plan, and Ace Hardware Corporation's only obligation hereunder with respect to any participant, surviving spouse, or other beneficiary of any participant shall be to pay the benefits provided hereunder as the same become due and payable in accordance with the terms hereof. The rights of any participant and of any surviving spouse or other beneficiary of a participant hereunder shall be solely those of an unsecured creditor of Ace Hardware Corporation.

VIII

BINDING EFFECT AND ASSIGNABILITY OF BENEFITS

In the event the Company becomes a party to any merger, consolidation or reorganization or a "change of control" occurs, any benefits accrued under this Plan prior to such merger, consolidation, reorganization or change of control shall remain in full force and effect as an obligation of the Company or its successor in interest. A change of control shall be deemed to have occurred on the date on which there is a change in 25% or more of the combined voting power of the Corporation (whether by tender or exchange offer, merger or beneficial ownership), the shareholders approve a sale of substantially all of the Corporation's assets or, during any period of two consecutive years, individuals who, at the beginning of such period, constituted the Board cease to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. None of the payments of benefits provided for by this Plan shall be subject to seizure for payment of any debts of or judgments against, the Participant. The right of the Participant or any other person to the payment of benefits under the Plan shall not be assigned, transferred, pledged or encumbered except by a written beneficiary designation, by will or by the laws of descent and distribution and any attempt at assignment, transfer, pledge or encumbrance shall not be recognized by the Company, and shall be void and of no further force or effect.

IX

GENERAL PROVISIONS

 (a) Administration. This Plan shall be administered by the Company. The Company shall be the Plan Administrator, within the meaning of ERISA and shall have authority with respect to this Plan that is co-extensive of that which the Plan Administrator has with respect to the Pension Plan and Profit Sharing Plan, including but not limited to the discretionary authority to construe and to interpret the Plan and to control and manage the operation and administration of the Plan. The Board may adopt rules regarding the administration of the Plan and delegate responsibilities as deemed appropriate. The claims procedure set forth in the Pension Plan and Profit Sharing Plan shall apply to claims for benefits under this Plan.

(b) Finality of Determination. The determination of the Plan Administrator as to any disputed questions arising under this Plan, including questions of construction and interpretation shall be final, binding, and conclusive upon all persons.

1. Expenses. The expenses of administering the Plan shall be borne by the Company.

(d) Indemnification and Exculpation. The Board, its agents and officers, directors, and employees of the Company and its affiliates shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by them in settlement (with the Company's written approval) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability, or expense is due to such person's gross negligence or willful misconduct.

(e) Action by the Company. Any action required of or permitted by the Company under this Plan shall be by resolution of the Board of Directors of the Company or any person or persons authorized by resolution of the Board of Directors.

(f) Severability. In the event any provision of this Plan or a related Participant election is held invalid, illegal or unenforceable, or is limited in whole or in part, such provision shall be deemed severed and the remaining provisions shall not be effected thereby.

(g) Tax Liability. The Company may withhold from any payment of benefits hereunder any taxes required to be withheld.

X

TERMINATION OR AMENDMENT

The Board reserves the right to amend this Plan from time to time or to terminate the Plan at any time by resolution of the Board; provided, no amendment or the termination of the Plan shall deprive a Participant of his accrued benefit, as constituted at the time of the amendment or termination, as may be the case, without written consent of the effected Participant.

ACE HARDWARE CORPORATION
ELECTION FOR PAYMENT OF PROFIT SHARING BENEFITS
UNDER THE RETIREMENT BENEFITS REPLACEMENT PLAN
I, the undersigned, being an employee of Ace Hardware Corporation who is eligible to participate in its Retirement Benefits Replacement Plan, do hereby elect that the total of the accrued benefit amount plus any additional valuation accumulation thereon shall be paid to me as follows (initial and complete one election):

_____ in one lump sum as soon as practicable after the date of my retirement or disability, or

_____ in one lump sum on _________, which date is no later than 10 years after the date of my retirement, or

_____ in monthly installment payments beginning on __________ after the date of my retirement and extending
            for a period of _________ years.  This period extends for no longer than a period of 10 years.

I understand that, in order to be valid, elections under this Plan must be made by the Participant and on file with the Plan Administrator prior to the earlier of (i) at least 6 months prior to the date of retirement or (ii) the last day of the calendar year preceding the calendar year of the Participant's retirement. I further understand that I may change my election only by written request and within the time periods noted for a valid election in accordance with the terms of the Plan. All elections will be filed with the Company as Plan Administrator. In the event a valid election is not on file with the Plan Administrator, as determined by the Board, any benefits payable to a Participant or beneficiary shall be paid in a lump sum as soon as practicable.

Notwithstanding any of the foregoing and any previously valid election on file if termination of employment occurs for any reason other than retirement, disability or death, any benefits accrued shall be paid in one lump sum.

I understand that payments will be made to me except that in the event of my death, such benefits shall be paid to the beneficiary or beneficiaries designated by me to receive payment of my death benefits under the Profit Sharing Plan.

Date: _______________________               Date: __________________________
                                                                                         Received by:

____________________________                        __________________________
Signature of Participant                                                Vice President - Finance
                                                                                          Ace Hardware Corporation




FIRST AMENDMENT
TO
RESTATED ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN
(Adopted on August 19, 1997)
This First Amendment to the Restated Ace Hardware Corporation Retirement Benefits Replacement Plan is hereby entered into on this 19th day of August, 1997 and is effective September 1, 1997:

WITNESSETH:
Whereas the Company adopted a Retirement Benefits Replacement Plan on October I, 1985 and restated the Plan on December 7, 1993; and

Whereas the Company has amended this Plan to provide for participation by certain officers of the corporation specifically named in the Plan as Participants therein;

Now therefore, effective September 1, 1997, the Ace Hardware Corporation Retirement Benefits Replacement Plan is amended to add certain named officers and key employees of the corporation as Participants in the Plan and to restate Article Ill, Plan Participation, as follows:

III PLAN PARTICIPATION
Participation in this Plan shall be exclusively limited to any officer or key employee who is designated as a Participant by the Board of Directors of Ace Hardware Corporation ("Board") and whose benefits under any of the Profit Sharing Plan, Money Purchase Plan and the Pension Plan are reduced by reason of the Limitations. Effective as of January 1, 1998, the following individuals shall become or continue to be Participants hereunder:

     David F. Hodnik
     William A. Loftus
     Paul M. Ingevaldson
     Rita D. Kahle
     Michael C. Bodzewski
     Lori L. Bossmann
     Ray A. Griffith
     David W. League
     David F. Myer
     Fred J. Neer
     Donald L. Schuman

Effective 9/01/97


SECOND AMENDMENT
TO
RESTATED ACE HARDW ARE CORPORA TION
RETIREMENT BENEFITS REPLACEMENT PLAN
(Adopted on December 8, 1998)
This Second Amendment to the Restated Ace Hardware Corporation Retirement Benefits Replacement Plan is hereby entered into on this 8^th day of December, 1998 and is effective January 1, 1999:

WITNESSETH:
Whereas the Company adopted a Retirement Benefits Replacement Plan on October 1, 1985 and restated the Plan on December 7, 1993; and

Whereas the Company has amended this Plan to provide for participation by certain officers of the corporation specifically named in the Plan as Participants therein;

Now therefore, effective January 1, 1999, the Ace Hardware Corporation Retirement Benefits Replacement Plan is amended to add certain named officers and key employees of the corporation as Participants in the Plan and to restate Article III, Plan Participation, as follows:

III PLAN PARTICIPATION
Participation in this Plan shall be exclusively limited to any officer or key employee who is designated as a Participant by the Board of Directors of Ace Hardware Corporation ("Board") and whose benefits under any of the Profit Sharing Plan, Money Purchase Plan and the Pension Plan are reduced by reason of the Limitations. Effective as of January 1, 1999, the following individuals sha1l become or continue to be Participants hereunder:

     David F. Hodnik                      
     William A. Loftus                     
     Paul M. Ingevaldson                 
     Rita D. Kahle                             
     Michael C. Bodzewski              
     Lori L. Bossmann                  
     Ray A. Griffith                      
     David W. League
     David F. Myer
     Fred J. Neer
     Donald L. Schuman
     William J. Bauman
     Kenneth L. Nichols
     Daniel C. Prochaska
     Wyane E. Wiggleton

Effective 1/01/99

THIRD AMENDMENT
TO
RESTATED ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN
(Adopted on December 8, 1999)
     THIS THIRD AMENDMENT to the RESTATED ACE HARDWARE CORPORATION RETIREMENT BENEFITS REPLACEMENT PLAN is hereby entered on this 8^th day of December, 1999 and effective as set forth herein:

WITNESSETH:
     WHEREAS, the Company adopted a Retirement Benefits Replacement Plan on October 1, 1985 and restated the Plan on December 7, 1993; and

     WHEREAS, Effective January 1, 1997 the profit sharing component was divided into two plans, Employees' Profit Sharing Plan and the Employees' Money Purchase Plan; and

     WHEREAS, the Company has amended this Plan to provide for participation by certain officers and key employees of the corporation specifically named in the Plan as Participants therein;

     NOW, THEREFORE, the Ace Hardware Corporation Retirement Benefits Replacement Plan is amended to combine the Employees' Profit Sharing Plan and the Employees' Money Purchase Plan within the term Profit Sharing Plan, and to add certain named officers and key employees of the corporation as Participants in the Plan and to restate Article III, Plan Participation, as follows:

1. Effective January 1, 1997, the first sentence of Article I shall be amended to read as follows:

I
PURPOSE
     The purpose of this Retirement Benefits Replacement Plan is to continue to provide on an un-funded basis for certain participants in the Ace Hardware Corporation Employees' Profit Sharing Plan and the Employees' Money Purchase Plan collectively called the ("Profit Sharing Plan") and the Ace Hardware Corporation Employees' Pension Plan ("Pension Plan") retirement benefits equal to the amounts by which the benefits they would have been entitled to receive under the Profit Sharing Plan and Pension Plan are reduced by reason of the limitations on contributions and benefits imposed by Section 415 of the Internal Revenue Code of 1986 ("Code"), the limitations on compensation imposed by Section 401 (a) (17) of the Code, or by any future federal legislation which limits compensation or benefits (the "Limitations").

1. Effective January 1, 2000, Article III shall be amended to read as follows:

III
PLAN PARTICIPATION
     Participation in this Plan shall be exclusively limited to any officer or key employee who is designated as a Participant by the Board of Directors of Ace Hardware Corporation ("Board") and whose benefits under any of the Profit Sharing Plan, Money Purchase Plan and the Pension Plan are reduced by reason of the Limitations. Effective as of January 1, 2000, the following individuals shall become or continue to be Participants hereunder:

     David F. Hodnik          
     Paul M. Ingevaldson      
     Rita D. Kahle            
     Michael C. Bodzewski     
     Lori L. Bossmann
     Ray A. Griffith
     David F. Myer
     Fred J. Neer
     William J. Bauman
     Kenneth L. Nichols
     Daniel C. Prochaska
         

FOURTH AMENDMENT
TO
RESTATED ACE HARDWARE CORPORATION
RETIREMENT BENEFITS REPLACEMENT PLAN
(Adopted on December 5, 2001)
     THIS FOURTH AMENDMENT to the RESTATED ACE HARDWARE CORPORATION RETIREMENT BENEFITS REPLACEMENT PLAN is hereby entered on this 5^th day of December, 2001 and effective as set forth herein:

WITNESSETH:
     WHEREAS, the Company adopted a Retirement Benefits Replacement Plan on October 1, 1985 and restated the Plan on December 7, 1993; and

     WHEREAS, the Company has amended this Plan to provide for participation by certain officers of the corporation specifically named in the Plan as Participants therein;

     NOW, THEREFORE, effective January 1, 2002, the Ace Hardware Corporation Retirement Benefits Replacement Plan is amended to delete certain named officer who will be no longer an employee of the corporation as of the effective date, as Participants in the Plan and to restate Article III, Plan Participation, as follows:

III
PLAN PARTICIPATION
     Participation in this Plan shall be exclusively limited to any officer or key employee who is designated as a Participant by the Board of Directors of Ace Hardware Corporation ("Board") and whose benefits under any of the Profit Sharing Plan, Money Purchase Plan and the Pension Plan are reduced by reason of the Limitations. Effective as of January 1, 2002, the following individuals shall become or continue to be Participants hereunder:


               David F. Hodnik              
               Paul M. Ingevaldson        
               Rita D. Kahle            
               Michael C. Bodzewski     
               Lori L. Bossmann
               Ray A. Griffith
               David F. Myer
               William J. Bauman
               Kenneth L. Nichols
               Daniel C. Prochaska

AND FURTHERMORE, effective January 1, 2002, the Ace Hardware Corporation Retirement Benefits Replacement Plan is amended to adjust profit sharing plan replacement benefits and restate Article V, Paragraph (c) Accumulation on Deferred or Installment Payments, as follows:

V
PROFIT SHARING PLAN REPLACEMENT BENEFITS
(c) Accumulations on Deferred or Installment Payments. The benefits accrued for the account of any Participant in the Plan who has elected to defer payments or elected to receive installments, shall be augmented by the accumulation of additional values earned from the retirement (minus any installment payments) until the date of payment at simple interest rates. The rate of interest per annum will be set and approved annually by the Board of Directors under the Long-Term Incentive Compensation Deferral Option Plan. For each year, such rate shall be established by applying said rate as in effect on the first day of the year. The Board reserves the right to increase or decrease the rate to be used in calculating the accumulation of additional values for all benefit payment deferrals at any time.

EX-10

ACE HARDWARE CORPORATION
DIRECTORS' DEFERRAL OPTION PLAN
1997 AMENDMENT AND RESTATEMENT

                                                              
                                                           ACE HARDWARE CORPORATION

DIRECTORS' DEFERRAL OPTION PLAN

Ace Hardware Corporation hereby amends and restates in its entirety, effective as of January 1, 1997, the Ace Hardware Corporation Directors' Deferral Option Plan which was originally established effective January I, 1995.

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 Normal Retirement Interest Yield, the Early Retirement Interest Yield, or the Death Interest Yield, as defined below:

(a)  "Normal Retirement Interest Yield" means a rate of interest equal to 120 percent of Prime.
(b)  "Early Retirement Interest Yield" means a rate of interest equal to 100 percent of Prime. This rate of interest shall be used only for crediting interest on amounts deferred in Deferral Years 1995 and 1996.
(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 "Payment Commencement Date" means the date benefits commence under this Plan in accordance with Sections 4.5 and 4.8. For amounts deferred pursuant to this Plan during Deferral Years 1995 and 1996, the Payment Commencement Date shall be within sixty (60) days of the date elected by the Participant in his/her Agreement, but in no event later than age 65. For amounts deferred pursuant to this Plan during Deferral Years 1997-2000, the Payment Commencement Date shall be a date within sixty (60) days of the Participant's Termination of Service.

2.15 "Plan" means the Ace Hardware Corporation Directors' 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 a Participant's Termination of Service other than by reason of death or Disability.

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.

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% of his/her Compensation in 5% increments. A Participant may elect to defer a different percentage of Compensation for each Deferral Year .A Participant shall make an annual election for the upcoming Deferral Year by December 15th of the year preceding the Deferral Year for which the election is being made.

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 gran t 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 100% 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 only to the Participant's deferral and not to the interest credited to the Participant's Deferred Benefit Account. Each return of deferral shall be paid in a lump sum on December 1st 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 4.5 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 4.5.

4.3  Death Benefits. Upon the death of a Participant or a retired Participant, the Beneficiary of the Participant or retired Participant shall receive the Participant's remaining Deferred Benefit Account. Payment of the Participant's remaining Deferred Benefit Account shall be in accordance with Section 4.5.

4.4  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 4.5 over the number of years elected by the Participant. Disability benefits shall be treated as distributions from a Participant's Deferred Benefit Account.

              4.5  Form of Benefit.

a) Deferral Years 1995 and 1996. Upon the happening of an event described in Section 4.2, 4.3 or 4.4, 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 4.5, a 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. In addition, for benefit payments related to deferrals made in Deferral Years 1995 and 1996, a Participant at the time he/she enters into his/her Agreement may elect to begin receiving benefits pursuant to this Section 4.5(a) within sixty (60) days of his/her Termination of Service or at a specific time up to and including the Participant's attainment of age 65. For Par ticipants who elect to begin receiving their benefit payments immediately upon a Termination of Service, their Deferred Benefit Account shall be credited with interest utilizing the Normal Retirement Interest Yield or the Death Interest Yield in the event of a benefit payable pursuant to Section 4.3 until all benefits due from this Plan have been paid. For Participants who elect to defer the receipt of benefits until a later date upon a Termination of Service, interest on the unpaid principal balance utilizing the Normal Retirement Interest Yield until the Termination of Service and the Early Retirement Interest Yield from the date of the Participant's Termination of Service until all benefits under the Plan have been paid will be added to the Participant's 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, except in any instance where a retired Participant had elected to defer the receipt of benefits until a later date upon his/her Termination of Service in accordance with this Section 4.5(a). In that event, the Interest Yield used to determine the installment payment amounts shall be the Early Retirement 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.

b) Deferral Years 1997-2000. Upon the happening of an event described in Section 4.2, 4.3 or 4.4, 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 4.5, a 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 Normal Retirement Interest Yield in the event of a benefit payable pursuant to Section 4.2 or 4.4 or the Death Interest Yield in the event of a benefit payable pursuant to Section 4.3 will be added to the Deferred Benefit Account on each Determination Date. Payment of a Participant's benefits under this Sectio n 4.5(b) shall commence within sixty (60) days of the Participant's Termination of Service.

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.

4.6  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 4.6 must forego further participation in the Plan for eighteen (18) months.

4.7  Withholding: Employment Taxes. To the extent required by the applicable 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.

4.8 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.

4.9  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.

4.10 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 4.10. 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 Partici pant'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 the denial of a 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 a Denial of a 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 payout 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  Offsets. 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 amended and restated this Ace Hardware Corporation Directors' Deferral Option Plan originally effective January 1, 1995, as of January 1, 1997.




Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO









FIRST
AMENDMENT
Ace Hardware Corporation
Directors' Deferral Option Plan

Pursuant to Section 7.1 of the Ace Hardware Corporation Directors' Deferral Option Plan (the "Plan"), effective March 23, 1999, the Company hereby amends and inserts the following paragraph as the third paragraph in Section 4.5 a) and Section 4.5 b).

        Upon the written request by a Participant, filed with the Committee at least
        three hundred sixty-seven (367) days prior to his/her Retirement Date, the
        Committee may, in its sole discretion, allow a Participant to change the
        number of years installment payments are paid. Any change in the number
        of years installment payments are to be paid shall apply to all installment
        payments due a Participant and still must be paid over no fewer than five
        (5) years and no greater than twenty (20) years.

Section 4.5 is the only Section affected by this Amendment.


Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO

SECOND AMENDMENT Ace Hardware Corporation
Directors' Deferral Option Plan
1997 Amendment and Restatement
(1995-2001 Plan)

Pursuant to Section 7.1 of the Ace Hardware Corporation Directors' Deferral Option Plan (the "Plan"), as amended and restated, effective January 1, 2002, the Company hereby amends and restates the following sections of the Plan to read as follows:

2.12 (a)   "Normal Retirement Interest Yield" means, (i) for a Participant prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) for a Participant after the Retirement Date or during a period of Disability, a rate of interest per annum as defined under the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan. The rate under Section 2.12 (a) (ii) shall be effective the first day of each calendar year.

2.12 (c)   "Death Interest Yield" means, (i) prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) after the Retirement Date, a rate of interest per annum, as defined under the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan. The rate under Section 2.12 (c) (ii) and is effective the first day of each calendar year. This rate of interest shall be fixed at the time of the Participant's death.

4.5 (a) (second paragraph only)    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. Installment payments for current Participants receiving payments as of January 1, 2002, shall be recomputed at the end of their current installment term. Thereafter, the amount of the installment payments shall be recomputed at the time of any change in the Interest Yield pursuant to Section 2.12 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.

4.5 (b) (second paragraph only)    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. Installment payments for current Participants receiving payments as of January 1, 2002, shall be recomputed at the end of their current installment term. Thereafter, the amount of the installment payments shall be recomputed at the time of any change in the Interest Yield pursuant to Section 2.12 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.

Sections 2.12 and 4.5 are the only Sections affected by this Amendment.



Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO


EXHIBIT F

EX-10

ACE HARDWARE CORPORATION RESTATED OFFICER INCENTIVE PLAN (Effective January 1, 1999) 1.       ESTABLISHMENT AND PURPOSE

The Officer Incentive Plan is hereby amended and restated effective January 1, 1999. Ace Hardware Corporation (the Corporation) has established this officer incentive program to provide officers and key employees 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 1999. The VA Plan is effective for the three-year period Fiscal Year 1997 through Fiscal Year 1999. 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 officers and 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 apply to all officers and key employees, as designated on Exhibit A. The President, may at any time recommend to the Board the addition or deletion of Plan 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 Plan are defined in this section:

a. "Participant" means any officer or key employee 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 Participant's compensation, before any deferrals and excluding any amounts paid under the VA Plan. Base Salary as relates to the VA Plan is a cumulative base salary of Participant's 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 including Ace Canada RSC sales and LBM sales. It specifically includes the following components:

     - Total Patronage Dividend,
     - International or Other Non-Patronage Income or Loss,
     - Paint International Non-Patronage Income or Loss,
     - Stop Handling Charge Subsidy,
     - Stop Freight Subsidy,
     - LTL Plus HC Subsidy,
     - All Non-Patronage Business Income or Loss,
     - Other Significant Nonrecurring Items.

e. "Total Gross Patronage Dividend Threshold" is the minimum acceptable dividend dollar amount derived from actual RSC sales and actual 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 Participant'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 Pro ram only, shall be defined as the first day of the month following the conclusion of a Participant's active employment on or after the Participant attains either (1) age 55 with 10 years of service, (2) age 60 with 5 years of service or (3) age 65.

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 Plan administration. The Committee is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, 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 Plan, but only to the extent not contrary to the express provisions of the Plan.

The Committee may request the assistance of the Board in making any determination under the Plan or in carrying out its duties hereunder. The Committee may also delegate selected responsibilities to Corporation officers to facilitate day-to-day Plan administration. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons whomsoever.

Amendment, Modification, and Termination of the Plan: The Board, or if designated the Committee, may at any time terminate, and from time to time may amend or modify the Plan to meet the best interests of the Corporation (e.g., to modify the incentive pool calculation formula in light of a major acquisition or merger). Amendments to the Plan will only be made in light of extraordinary events, under which a failure to amend would result in a performance award not consistent with the stated purpose of the Plan.

6.   ST PLAN DESIGN

Performance Measure: The President and/or the Reporting Officer will, on a periodic basis, develop individual and team business objectives for eligible participants. Once approved, these objectives will become the basis for assessing performance and assigning awards under the ST Plan. The 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 as set forth on Exhibit A. Exhibit B sets forth the multiplier matrix for the team portion of the short term goal.

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 ratios in effect as of January 1, 1999 pertaining to the VA Plan. These ratios may be adjusted from time to time by the Board (as set forth on Exhibit A):

     * Gross Patronage Dividend Threshold for actual RSC sales is 5.4 percent
     * Gross Patronage Dividend Threshold for actual LBM sales is 0.45 percent
     * Permanent Sharing Ratio is 4.96 percent.
     A financial model which supports the VA Plan is presented in Exhibit C.

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 as set forth on Exhibit A. These targets are reflected in the present 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

Tier A Participants immediately vest 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, at employee's option, may be invested in the Pacific Mutual or Metropolitan supplemental life insurance plans (if Participant is participating in such plans) or deferred (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 1997-1999 VA Plan will become vested as of the end of Fiscal Year 2000.

Tier B Participants are immediately vested in their entire award which will be paid in cash within the first quarter of the subsequent Fiscal Year.

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 Plan 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 (a) Participant's Account including any portion of an award subject to the one year deferral period for vesting, and (b) all sums accrued towards his/her Account for the next two year rolling periods. In the case of a voluntary or an involuntary termination, the Participant will forfeit (a) any portion of an award that is subject to the required one year deferral period and not vested, and (b) all sums accrued towards his/her Account for the next two year rolling periods. The Participant's Account shall be immediately payable unless otherwise deferred by the Participant (See Section 10).

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 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 cash 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 event there is no such surviving spouse, to the estate of the Participant.

16.  NON-ALIENATION

A Participant shall have no fight 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 and restated ACE HARDWARE CORPORATION OFFICER INCENTIVE PLAN as of December 8, 1998.
ACE HARDWARE CORPORATION,
A Delaware corporation
By: Howard Jung
       Chairman of the Board of Directors
and
By: David F. Hodnik
       President and CEO

EXHIBIT A
                                                                PARTICIPANTS


Tier A:        David F. Hodnik
                  William A. Loftus
                  Paul M. Ingevaldson
                  Rita D. Kahle
                  Michael C. Bodzewski
                  Lori L. Bossmann
                  Ray A. Griffith
                  David W. League
                  David F. Myer
                  Fred J. Neer
                  Donald L. Schuman




Tier B:    William J. Bauman                 (The VA Plan Only)
              Kennith L. Nichols                 (The VA Plan Only)
              Daniel C. Prochaska              (The VA Plan Only)
              Wayne E. Wiggleton              (The VA Plan Only)




                                                        AWARD OPPORTUNITIES

                                                                                                    ST Plan
                Tiers and Participation                                    Award Opportunities

                                                                                                                 Individual        Team
Tier I                                                                                                              15%                25%
            Rita D. Kahle
            William A. Loftus                                                                            

Tier II                                                                                                             15%                20%
            Michael C. Bodzewski
            Paul M. Ingevaldson
            David F. Myer

Tier III                                                                                                            15%               15%
            Lori L. Bossmann
            Ray A. Griffith
            David W. League
            Fred J. Neer
            Donald L. Schuman


                                                                                                                VA Plan
    Participant                                                                          Target Award Opportunity
                                
    David F. Hodnik                                                                                90%
    William A. Loftus                                                                               30%
    Paul M. Ingevaldson                                                                         30%
    Rita D. Kahle                                                                                     30%
    Michael C. Bodzewski                                                                     30%
    Lori L. Bossmann                                                                             30%
    Ray A. Griffith                                                                                    30%
    David W. League                                                                              30%
    David F. Myer                                                                                    30%
    Fred J. Neer                                                                                      30%
    Donald L. Schuman                                                                          30%

New participants beginning January 1, 1999:

    William J. Bauman                                                                           10%
    Kennith L. Nichols                                                                            10%
    Daniel C. Prochaska                                                                       10%
    Wayne E. Wiggleton                                                                        10%


The VA Plan is a rolling 3 year plan.  New participants beginning January 1, 1999 will have
prorated payments in the first two years, a 33% payment at the end of 1999 and a 66% payment
at the end of 2000.


                                                                        RATIOS

                - -  Gross Patronage Dividend Threshold for actual RSC sales is 5.4 percent.
                - -  Gross Patronage Dividend Threshold for actual LBM sales is 0.45 percent.
                - -  Permanent Sharing Ratio is 4.96 percent.










                                    EXECUTIVE SHORT-TEM INCENTIVE PLAN
        MULTIPLIER MATRIX - APPLIES TO TEAM PORTION OF SHORT TERM GOAL

                                RETURN ON SALES * * *

2.62% 2.67% 2.72% 2.77% 2.82% 2.87% 2.92%

	LT	4%	50%	60%	70%	100%	140%	170%	175%
		6%	40%	70%	80%	110%	130%	160%	175%
Wholesale		8%	30%	60%	100%	120%	130%	160%	175%
Sales		10%	25%	50%	100%	125%	130%	150%	160%
Increase		12%	25%	40%	100%	130%	140%	150%	160%
		14%	25%	30%	100%	140%	150%	150%	160%
	GT	15%	25%	25%	100%	150%	150%	150%	160%

*    For 1999, the target goal will be at 2.72% and for the year 2000, 2.74%.  At the end of the year 2000, the plan and the return on sales goal will be re-evaluated.  1999 and 2000 BLP will be calculated before the Paint Chip Rack subsidy.

           **   For return on sales component only - prorate between each goal based on
                 actual results.  

No proration based on sales growth. (Proration occurs only if > 2.72% and payout would be higher with proration.) The matrix is capped at +/- a 75% payout.

                      *** If retail sales growth is > wholesale sales growth, add 10% to subsequent year's
                           payment.  Retail sales growth % will be compiled from the Retail Profile report (from
                           retail financial statements) run in August of each subsequent year.

MULTIPLIER MATRIX CHART THAT WILL BE USED IN 1999 and 2000  

EX-10

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 waive r 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 T ermination 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: David F. Hodnik

Its: President & CEO



FIRST AMENDMENT
Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan
Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan (the "Plan"), effective December 5, 1995, the Company hereby amends and restates Section 3.2 of the Plan to read as follows:

3.2  Minimum and Maximum Deferral and Length of Participation. A Participant may elect to defer any amount of his/her Bonus including the non-vested portion, the immediate award portion and the PREP portion of Long-Term Incentive Compensation Plan award. The amount of each portion of the Bonus award which may be deferred shall be equal to 20% to 100% (in 20% increments) of the award granted. If a Bonus award is subject to a one year vesting provision under the Long-Term Incentive Compensation Plan, the same vesting requirements shall apply to Bonus awards deferred into this Plan.

A Participant shall make an annual election for the upcoming Deferral Year by December 15th of the year preceding the Deferral Year for which the election is being made.

Section 3.2 is the only Section affected by this Amendment.



Ace Hardware Corporation



By: David F. Hodnik

Its: President and Chief Executive Officer



SECOND
AMENDMENT
Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan

Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan (the "Plan"), effective March 23, 1999, the Company hereby amends and restates Section 4.6 of the Plan to read as follows:

4.6 Form of Benefit Payment. Upon the happening of an event described in Section 4.2, 4.4, or 4.5, the Company shall pay to the Participant or his/her Beneficiary, monthly installments payable in substantially equal amounts over the number of years elected by the Participant in accordance with his/her initial Agreement, except as otherwise provided in this Section 4.6. The number of years installment payments may be paid shall not be fewer than five (5) years, nor greater then twenty (20) years. Interest on the unpaid principal balance equal to the applicable Retirement Interest Yield in the event of a benefit payable pursuant to Section 4.2 or 4.5 or the Death Interest Yield in the event of a benefit payable pursuant to Section 4.4 will be added to the Deferred Benefit Account on each Determination Date.

Upon the written request by a Participant, filed with the Committee at least three hundred sixty-seven (367) days prior to his/her Retirement Date, the Committee may, in its sole discretion, allow a Participant to change the number of years installment payments are paid. Any change in the number of years installment payments are to be paid shall apply to all installment payments due a Participant and still must be paid over no fewer than five (5) years and no greater than twenty (20) years.

During the period a Participant is receiving installment payments, the amount of the installment payments shall be based on the prevailing Interest Yield applicable at the commencement of payments, projected into the future. The amount of the installment payments shall be recomputed every three (3) years and the installment payments shall be increased or decreased to reflect any changes in the applicable Interest Yield. Upon the death of a Participant after the commencement of benefits pursuant to Section 4.4, the remaining installment payments payable to the Beneficiary shall be fixed. The Interest Yield used to determine the installment payment amounts shall be the Death Interest Yield.

The Company may, in its sole discretion, elect to pay, at any time, a Participant's or Beneficiary's Deferred Benefit Account in a lump sum payment.

Section 4.6 is the only Section affected by this Amendment.



Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO
THIRD AMENDMENT Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan
Effective January 1, 1995

Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan (the "Plan"), effective January 1, 2002, the Company hereby amends and restates the following sections of the Plan to read as follows:

2.13 (a)  "Retirement Interest Yield" means, (i) for a Participant prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) for a Participant after the Retirement Date or during a period of Disability, a rate of interest per annum as approved annually under the Ace Hardware Corporation Restated Officers Incentive Plan. The rate under Section 2.13 (a) (ii) shall be effective the first day of each calendar year.

2.13 (c)  "Death Interest Yield" means, (i) prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) after the Retirement Date, a rate of interest per annum, as approved annually under the Ace Hardware Corporation Restated Officers Incentive Plan. The rate under Section 2.13 (c) (ii) shall be effective the first day of each calendar year. This rate of interest shall be fixed at the time of the Participant's death.

4.6 (third paragraph only) 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. Installment payments for current Participants receiving payments as of January 1, 2002, shall be recomputed at the end of their current installment term. Thereafter, the amount of the installment payments shall be recomputed at the time of any change in the Interest Yield pursuant to Section 2.13 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, and the Interest Yield used to determine these installment payment amounts shall be the Death Interest Yield.

Sections 2.13 and 4.6 are the only Sections affected by this Amendment.



Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO

EX-10

FIRST AMENDMENT

Ace Hardware Corporation
Directors' Deferral Option Plan
Effective January 1, 2001
Pursuant to Section 7.1 of the Ace Hardware Corporation Directors' Deferral Option Plan ("the "Plan"), effective January 1, 2002, the Company hereby amends and restates the following sections of the Plan to read as follows:

2.12 (a)  "Normal Retirement Interest Yield" means, (i) for a Participant prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) for a Participant after the Retirement Date or during a period of Disability, a rate of interest per annum as defined under the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan. The rate under Section 2.12 (a) (ii) shall be effective the first day of each calendar year.

2.12 (b)  "Death Interest Yield" means, (i) prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) after the Retirement Date, a rate of interest per annum, as defined under the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan. The rate under Section 2.12 (b) (ii) shall be effective the first day of each calendar year. This rate of interest shall be fixed at the time of the Participant's death.

4.5 (third paragraph only) 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. Installment payments for current Participants receiving payments as of January 1, 2002, shall be recomputed at the end of their current installment term. Thereafter, the amount of the installment payments shall be recomputed at the time of any change in the Interest Yield pursuant to Section 2.12 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.

Sections 2.12 and 4.5 are the only Sections affected by this Amendment.


Ace Hardware Corporation By: David F. Hodnik
Its: President & CEO
Dated: December 5, 2001



EXHIBIT F

EX-10

STANDARD TERMS AND CONDITIONS
Effective as of November 6, 2001
Under Ace Hardware Corporation's
INDUSTRIAL DISTRIBUTOR AGREEMENT
These terms and conditions apply, effective as of the date indicated above, under the Industrial Distributor Agreement (the "Agreement") entered into between Seller and Buyer, and to all orders accepted by Seller thereafter unless and until these Standard Terms and Conditions are changed as provided in the Agreement. Capitalized terms that are not otherwise defined in this document shall have the same meanings as those set forth in the Agreement.

A. TERMS AND CONDITIONS APPLICABLE TO ALL SALES

A1.       ADDITIONAL OR DIFFERENT TERMS. Any terms asserted by the Buyer in addition to or different from those set forth in the Agreement, whether contained in any purchase order form, or other document proposed by Buyer are hereby objected to and shall not become a part of the terms and conditions of purchase and sale between the parties unless Seller specifically assents in writing to their inclusion in accordance with the section governing amendments, modifications and waivers in the Agreement.

A2.       INSPECTIONS AND NONCONFORMING GOODS. Buyer shall inspect all merchandise with reasonable promptness upon delivery and shall notify Seller promptly in the event of nonconforming goods.

A3.       TAXES. Buyer shall file all applicable current resale tax exemption certificates with Seller. Unless otherwise specifically agreed between the parties with respect to particular goods or in the case of particular categories of goods designated otherwise by Seller, Buyer warrants to Seller that all merchandise ordered from Seller is purchased for resale by Buyer within the United States of America, its territories and possessions and not for export unless Buyer notifies Seller in advance of Seller's acceptance of the order. As an inducement to Seller to accept Buyer's orders, Buyer represents that such merchandise is not subject to the collection by Seller of any state or local sales, use or other taxes or impositions, except as specifically disclosed in advance by Buyer to Seller in writing prior to Seller's acceptance of the order. To the maximum extent permitted by law, any and all taxes, fees, imposts or stamps required by federal, state or municip al governments in the purchasing, selling or transmitting of goods by Seller to Buyer hereunder shall be assumed and paid by Buyer.

A4.       WARRANTIES AND LIMITATION OF DAMAGES. To the extent the same are legally assignable, Seller hereby assigns to Buyer all warranties, express or implied to which Seller would be entitled with respect to the goods sold hereunder. Seller expressly warrants that it has good title to the goods sold to Buyer hereunder. THE FOREGOING SETS FORTH THE SOLE RESPONSIBILITY OF SELLER CONCERNING WARRANTIES AND NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED ARE MADE BY SELLER IN CONNECTION WITH THE SALE OF GOODS TO BUYER HEREUNDER. SELLER HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY AND ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SUCH GOODS. IN NO EVENT SHALL SELLER BE LIABLE TO BUYER FOR ANY SPECIAL, INCIDENTAL CONSEQUENTIAL OR EXEMPLARY DAMAGES IN CONNECTION WITH THE PURCHASE AND SALE OF ANY GOODS HEREUNDER, EVEN IF SELLER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

A5.        SHIPMENT AND DELIVERY. Title to all goods purchased and sold hereunder and all risk of loss, delay or damage shall pass to the Buyer upon delivery if the goods are delivered by Seller, or upon the tender by Seller (or Seller's vendor or manufacturer) of such goods to any common or contract carrier that is a separate legal entity from Seller, if the goods are delivered by that method. If Seller agrees to expedited shipments or special routing of shipments at Buyer's request, any additional costs as a result thereof shall also be borne by Buyer.

A6.      PAYMENT TERMS AND FEES. Buyer agrees to pay Seller an industrial distributor application fee in the amount of $3000.00 upon Buyer's execution of the Agreement, which fee shall be refunded to Buyer in the event that Seller declines to accept Buyer's Agreement. Buyer also agrees to pay Seller an industrial distributor account fee, presently in the amount of $325.00 per month, payable as billed by Seller to Buyer's statement. The foregoing fees are in addition to the cost of any merchandise or services that Buyer may otherwise purchase from Seller. Except for special offers identified by Seller in advance in writing as having extended payment terms, the terms of payment for all warehouse merchandise purchased from Seller shall be net 30 days from the date of Seller's invoice. For any sums owing to Seller by Buyer that are not promptly paid when due, Buyer agrees, in addition, to pay Seller a past due service charge at the rate of 1.6683% per month of the past d ue balance (or if lower, the maximum rate permitted by the state where Buyer's business is operated).

A7.       FORCE MAJEURE. Neither party shall be liable to the other for defaults or delays in the performance of their respective obligations hereunder in any case where such performance is rendered commercially impractical by reason of any Acts of God, or the public enemy, acts or demands of any government or governmental agency, strikes, files, floods, accidents or other unforeseen causes beyond its reasonable control and not due to its fault or negligence. The party seeking relief hereunder by reason of such circumstances will promptly notify the other party in writing of the existence and expected duration thereof.

A8.       REMEDIES. Any remedies provided for in this Agreement shall be cumulative and in addition to any other remedies available under law or in equity.

B. TERMS AND CONDITIONS APPLICABLE TO ELECTRONIC COMMUNICATIONS. The following terms and conditions shall also apply to any purchases, sales, or related transactions conducted through any electronic or computerized communications network between the parties ("Electronic Transactions") or to other electronic communications.

B1. INCLUDED TERMS AND CONDITIONS. Any and all Electronic Transactions between the parties shall be made upon and subject to the terms and conditions of the Agreement to the same extent as if the same had been handled and processed by other than electronic means.

B2. WRITTEN STATUS OF TRANSACTIONS. All Electronic Transactions handled in conformity herewith shall be binding on the parties to the same extent as if the same had been handled and processed by other than electronic means, except that in the case of any matter as to which the Agreement expressly requires written notice or written notification, and fails to otherwise specifically provide for electronic notification, the same shall not be handled or issued via electronic communication. Each party shall adopt as its signature for purposes of Electronic Transactions appropriate electronic identification consisting of symbols or codes, which such party shall utilize in connection with electronic communications to the other party, and which shall be deemed sufficient to verify the identity of the party originating such communications. Electronic communications or Electronic Transactions bearing such identification shall constitute a sufficient signed writing or memorandum to the other party for a ll purposes under the applicable law governing contracts of sale, and when printed from the electronic files established and maintained in the normal course of business shall be deemed to constitute original documents.

B3.       COSTS, EXPENSES AND EQUIPMENT. Each party shall pay its own respective costs and expenses, including costs associated with hardware, software, online and telecommunications charges associated with Electronic Transactions, including but not limited to charges in connection with data transmissions or other communications issued by such party. Buyer agrees to acquire and maintain in good order at Buyer's sole and exclusive expense such hardware and software as shall be mutually agreed by the parties to be necessary to establish and maintain electronic communications and to conduct Electronic Transactions with Seller and to appropriately serve the industrial segment of the marketplace. Buyer understands and agrees that the foregoing includes, but is not limited to, the requirement that Buyer be capable of communicating with Seller's systems via the internet, file exchanges, XML, and other appropriate means as prescribed by Seller from time to time

B4.      ASSUMPTION OF RISK IN TRANSMISSIONS. Each party assumes the risk of acts or omissions of the network it utilizes for the transmission and receipt of communications in connection with Electronic Transactions and other electronic communications; provided that if both parties utilize the same network, then the originating party shall assume the risk for such acts or omissions.

B5.      REPORTING OBLIGATIONS AND RESENDS. The party receiving an electronic communication, including, but not limited to an Electronic Transaction shall promptly report to the originating party, if identifiable, any garbled transmissions or communications containing known errors in syntax, format or data, and shall request a resend of such transmission from the originating party. In the absence of a resend following the receipt of such a report, the records of the receiving party shall control in regard to the content of the communication.

B6.      SECURITY MEASURES. Each party shall adopt and utilize security methods and procedures which are reasonably sufficient to ensure that all electronic transmissions to the other party are authorized and to protect their respective business records and equipment from improper access. Buyer agrees to install and maintain in good order current appropriate anti-virus and security software on Buyer's computer systems at Buyer's sole and exclusive expense.

C. OTHER TERMS AND CONDITIONS.

C1.      NATIONAL ACCOUNTS. Buyer agrees to participate in and to support national account arrangements, including, but not limited to calling on and serving locations that are requested by Seller in connection therewith.

C2.      CATALOGS. Buyer agrees to purchase in minimum quantities from Seller a wide variety of paper and electronic catalogs as the same may be offered from time to time by Seller. The parties agree that 100 is the minimum annual number of catalogs that Buyer must purchase presently and such 100 catalogs may be either all of one type of catalog, or a combination of different types of catalogs to the extent the same shall be offered by Seller.

C3.      SALES SUPPORT. Buyer agrees to have one outside sales support employee for every $2-3 million in sales to end users, unless otherwise mutually agreed.

C4.      MAJOR SOURCE OF SUPPLY. Buyer agrees to use Seller as a major source of supply for Buyer's industrial business. Buyer shall consider Seller's program for Buyer's possible purchases to the maximum extent feasible, which shall be deemed to be satisfied, unless otherwise mutually agreed, if Buyer makes the following minimum percentages of possible purchases from Seller during the time periods indicated, provided that the Agreement remains in effect for such periods:
   a. 10% during the first year;
   b. 15% during the second year
   c. 20% during the third year and thereafter.
INDUSTRIAL DISTRIBUTOR AGREEMENT
This Agreement is made between Ace Hardware Corporation, a Delaware corporation with its principal place of business at 2200 Kensington Court, Oak Brook, Illinois 60523 ("Seller") and ___________________________ ___________________________, an independent distributor of industrial products with its principal place of business at the following address: ____________________________________________________________ ____________________________________________, ("Buyer").

In consideration of their respective obligations under this Agreement and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. TERM. This Agreement shall begin as of the date of acceptance by Seller indicated below. It shall continue indefinitely unless and until terminated by either party with or without cause upon thirty (30) days advance written notice to the other party unless sooner terminated in accordance with Paragraph 8 below.

2. PURCHASES. Merchandise sold by Seller to Buyer shall be in mutually agreed quantities at mutually acceptable prices, provided, however that Buyer understands and agrees that Buyer's failure to purchase the minimum annual volumes of merchandise from Seller as prescribed in Seller's then-current standard terms and conditions, shall constitute cause for the termination of this Agreement. All orders are subject to acceptance by Seller at its headquarters in Oak Brook, Illinois and transactions hereunder shall be upon and subject to Seller's then-current standard terms and conditions as they may be prescribed and amended by Seller from time to time upon advance written or electronic notice to Buyer during the term hereof. The parties agree that such amendments may, in Seller's sole and exclusive discretion, include but are not necessarily limited to the subjects and subject matter that are presently set forth in such standard terms and conditions, and that the Buyer's continuing to do business w ith Seller following the effective date of any such amendment shall constitute Buyer's express assent thereto. Buyer acknowledges receipt of a copy of Seller's standard terms and conditions as in effect on the date of Buyer's execution of this Agreement. Buyer represents and warrants to Seller that Buyer operates a business primarily engaged in the resale of merchandise to industrial accounts at the location identified above, and further represents, as an inducement to Seller to enter into this agreement, that Buyer's purchases of merchandise from Seller are either for its own consumption in the operation of such business or for rental or resale by Buyer to its customers in connection with Buyer's operation of such business from the location identified above.

3. ACE PRIVATE LABEL. Seller shall not be obligated to supply Buyer with any Ace private label merchandise, except as otherwise agreed in writing. Buyer shall at no time take any action to encourage or induce any other business, whether or not that business is under common ownership with Buyer to breach or terminate any agreements that such other business may have with Seller. Under no circumstances shall the placing of any order for private label merchandise by Buyer or the acceptance thereof by Seller be deemed to establish between the parties a course of dealing or usage of trade with regard to such merchandise.

4. CONFIDENTIAL INFORMATION . Each party agrees to comply with all instructions issued from time to time by the other party concerning their respective confidential or proprietary information. Each party shall keep such confidential or proprietary information of the other party in strict confidence. Confidential or proprietary information shall include, but not be limited to, all price lists and other pricing information, catalogs, order forms product databases, quoting tools and procedures and other documents and information furnished by Seller with respect to purchases of merchandise hereunder, and other non-public information designated confidential or proprietary by the party disclosing it hereunder, except for published materials from third party vendors, and information placed into the public domain by the party owning it. Each party shall return the confidential or proprietary information of the other party upon request. Each party agrees to at no time display, disclose, or use any such confi dential or proprietary information of the other party for any purpose other than their transactions with each other hereunder, or as otherwise specifically required by law or authorized in writing by the party owning such information. Neither party shall in any manner advertise or publish the fact of its business dealings with the other to the public or to the trade, without the express advance consent of the other party. The provisions of this paragraph shall survive the expiration or other termination of this Agreement.

5. RELATIONSHIP. The parties shall have the relationship of independent vendor and purchaser. Under this agreement, Buyer understands and agrees that no license or sublicense to use any trademarks, service marks, logotypes or commercial symbols of Seller or its parent company is hereby granted or implied. Seller may, but shall not be required to offer or continue to offer advertising, training or similar services.

6. BILLING AND PAYMENT. Buyer agrees to pay to Seller a standard monthly account service fee, in an amount established by Seller from time to time as part of Seller's standard terms and conditions applicable to that category of Seller's customers who are similarly situated to Buyer. Except for special offers that are specifically identified by Seller as having extended payment terms, the terms of payment for merchandise purchased from Seller shall be as set forth in Seller's current standard terms and conditions that are in effect at the time of acceptance by Seller of Buyer's order. Seller shall furnish Buyer with written or electronic notice of any changes in its standard terms and conditions in advance of the effective date of the change, as more fully provided in Paragraph 15 below. Subject to Buyer's right to withhold payment in good faith for disputed line items as more fully provided below, Buyer agrees to pay all amounts invoiced or shown as currently due on Seller's billing statements or invoices promptly on or before the due date. If this Agreement terminates, or if Buyer's account with Seller becomes past due, the entire balance remaining under any extended payment terms shall be automatically accelerated and become immediately due and payable by Buyer upon receipt of Seller's invoice therefor. Buyer agrees that all amounts not paid when due shall accrue a late payment service charge in accordance with Seller's then-current standard terms and conditions. Any credits issued by Seller to Buyer shall be processed in accordance with Seller's internal procedures and posted to Buyer s account and billing statements. Under no circumstances shall Buyer be entitled to take any offsets against or deduct any chargebacks from billing statements from Seller, except as follows in the case of a good faith billing dispute with respect to particular billing line items. In the case of such a dispute, Buyer shall promptly notify Seller of the details of the dispute. Following this notification, Buye r shall be entitled to withhold payment of the amount of the disputed billing line item(s) without penalty while Seller investigates the matter during the following sixty (60) days. Buyer shall cooperate in the investigation by allowing Seller to inspect any documents or merchandise relating to the dispute. At the conclusion of its investigation, Seller shall either adjust Buyer's account for the disputed items, or furnish Buyer with an explanation of the reasons if an adjustment will not be made.

7. RETURNED GOODS. Buyer agrees not to return any merchandise without the advance written approval of Seller. Buyer agrees to comply with all marking, shipping and other instructions issued by Seller in connection with any approved return of merchandise.

8. TERMINATION. Notwithstanding anything herein to the contrary, this Agreement may be terminated by Seller immediately upon written notice to Buyer in the event that any amounts owing from Buyer become past due (except for sums properly withheld by reason of a good faith billing dispute as provided in Paragraph 6 above) or by either party if the other party materially breaches this Agreement, including but not limited to any failure by such other party to observe its confidentiality obligations hereunder. Further, this Agreement shall be terminated automatically in the event that either party becomes insolvent, executes an assignment for the benefit of creditors, discontinues business, sells or disposes of substantially all of its assets, other than in the usual course of business, becomes the subject of voluntary or involuntary bankruptcy proceedings or has a trustee or receiver appointed for its business (but only to the extent that such a termination would not violate applicable law). If this Agre ement terminates under this Paragraph for any reason other than material breach by Seller, then Seller shall have the right to revoke acceptance of any undelivered orders, and Buyer shall be obligated to Seller for any and all costs, expenses, damages, losses and liability (including, without limitation, reasonable attorneys fees) incurred by Seller in connection therewith.

9. ASSIGNMENT . Buyer shall not assign or transfer this Agreement without the advance written consent of Seller, which consent may be granted or withheld in Seller's sole and exclusive discretion.

10. CREDITWORTHINESS. Buyer shall furnish Seller from time to time upon request with such reasonable information and documents as Seller deems necessary or desirable to establish Buyer's creditworthiness. If Buyer fails or refuses to comply with Seller's request for such information, or if Seller at any time reasonably believes that circumstances do not support the extension of requested credit to Buyer, then Seller may limit or deny such extension of credit, or may otherwise limit the manner or terms of payment applicable to orders that Seller elects to accept from Buyer.

11. INDEMNIFICATION. Buyer agrees to assume full responsibility for and to indemnify and hold Seller harmless from and against any and all claims or liabilities asserted by or against Seller or costs and expenses incurred by Seller as more fully set forth below to the extent that the same do not arise solely from the negligence or wrongful conduct of Seller. Included, without limitation, are all monetary obligations, all actual special, and consequential damages, punitive damages to the extent the indemnification thereof is not prohibited by applicable law or public policy, the reasonable fees of accountants, attorneys, paralegals and expert witnesses, the costs of investigation and proof of facts, court costs and any other litigation expenses or fees and any related travel and lodging expenses incurred by Seller in any of the following types of matters :

a) those based upon or arising out of any representation by Buyer, its employees or agents to end users that a product purchased from Seller can be used for a purpose for which the product was not intended by its manufacturer, or in a manner contrary to its labeling;

b) those based upon or arising out of any act, advice or assistance of the Buyer, its employees or agents in selecting or using a product purchased from Seller;

c) those arising out of services performed or merchandise sold to the Buyer by anyone other than Seller, or based upon allegations that the Buyer or its employees functioned as an agent of Seller, or that Seller is otherwise vicariously liable for the acts or omissions of Buyer, or which in any way involve the Buyer's operation of its business premises, the use or operation of any fixtures or equipment at the Buyer's business premises, or the sale of any services including, without limitation, installation services by the Buyer;

d) those arising out of the collection by or on behalf of Seller of any past due balances or other sums of money due and owing by the Buyer to Seller or its assignees;

e) those arising out of the failure by Buyer to conduct its activities in strict accordance with the requirements of any and all applicable federal state and local laws, regulations or ordinances;

f) those arising out of Seller's obtaining relief from the automatic stay provisions of the U.S. Bankruptcy Code or otherwise protecting any secured or unsecured interest of Seller in any property of the Buyer in the event that the Buyer becomes the subject of voluntary or involuntary bankruptcy or liquidation proceedings.

     The provisions of this Paragraph shall survive the termination of this Agreement.

12. CHANGES IN OWNERSHIP OR CONTROL. Buyer agrees to notify Seller promptly in writing of: 1) any changes in the legal form of ownership of the Buyer, or 2) the sale or disposition by the Buyer of its business or of substantially all of its assets. It is agreed that neither of these situations shall release Buyer from any of its obligations under this Agreement without the written consent of Seller. Buyer also agrees to promptly notify Seller of the death of any general partner in the event that Buyer is organized as a partnership, or the death of any stockholder owning 50% or more of the voting stock of Buyer, or the proposed sale, assignment or transfer of 50% or more of the voting stock of the Buyer, in the event that the Buyer is organized as a corporation or limited liability company.

13. NONEXCLUSIVITY. Buyer acknowledges that nothing contained in this Agreement shall be deemed to grant the Buyer any exclusive territory or exclusive rights to sell or distribute products purchased from Seller. Nothing shall limit, deny or otherwise restrict the right of either party to accept or establish additional accounts, or to engage in any business activities whatsoever, even if those accounts or business activities involve direct competition between them or their respective other suppliers or customers.

14. AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be amended or modified, nor shall any of its terms and conditions be waived verbally, by the actions of the parties, by the printed terms and conditions of any purchase order, acknowledgment or other document from Buyer, or by any course of dealing or usage of trade at variance with the terms and conditions hereof. The terms of this Agreement can only be changed by a written or electronic notification of a type that is expressly permitted hereunder, or by writing expressly referring to this Agreement and signed by the party against whom enforcement of such amendment, modification or waiver is sought. Neither party shall be deemed to have waived its future right to demand exact compliance with this Agreement by reason of any failure, refusal or omission in exercising any of its rights or in failing to insist on strict compliance by the other party. No waiver, forbearance, delay, failure, act or omission by either party with respect to e ach other or any other person or account shall be deemed to constitute a waiver of any of their respective rights hereunder. The acceptance of any payments by Seller from Buyer shall not be deemed a waiver by Seller of any breach of Buyer's obligations hereunder.

15. NOTIFICATIONS. All notices and notifications required or permitted to be given under this Agreement shall be personally delivered or mailed to the other party via registered, certified, or first class mail or via UPS, Federal Express or another similar delivery service, except in the case of notifications by Seller of changes in standard terms as expressly permitted hereunder, which in addition to the other manners of notice provided for above, may be communicated by posting in electronic format to a computerized network or system established for the placing of orders or transmission of communications between Seller and Buyer. Notices issued in paper format shall be directed to the address of the other party as set forth above, or to another address which the party has designated for the receipt of notices hereunder. All notices to Seller shall be marked "Attention: General Manager - Industrial Accounts." The effective date of notices shall be the date of delivery in the case of notices that are personally delivered, and the date of deposit in the U.S. mails or with the delivery service, or the date of confirmed electronic transmission, as the case may be, for other notices.

16. GOVERNING LAW. This Agreement shall be construed in accordance with the substantive laws of the State of Illinois governing contracts made and performed in that state.

17. CAPTIONS. The use of captions or headings are for the convenience of the parties only, and shall not be utilized in the interpretation or construction of this Agreement.

18. SEVERABILITY. The parties agree that if any provision of this Agreement is deemed invalid or unenforceable by any court of competent jurisdiction, the Agreement shall be deemed to be restricted in scope or otherwise reformed to the extent necessary to render it valid and enforceable. If any provision of this Agreement cannot be restricted or reformed so as to be valid and enforceable, then it shall be deleted from this Agreement and the Agreement shall be construed and enforced as if such provision had not originally been included.

19. ACE MEMBERS.    If Buyer has an Ace Hardware membership for the address set forth above, then, in additional to the foregoing provisions and Seller's standard terms and conditions, the following provisions shall apply: (i) this Agreement shall automatically terminate without notice upon the termination of the Ace Hardware Membership Agreement between Seller and Buyer; (ii) Buyer shall comply with Ace Vision 21 standards as may be established for Industrial Distributors or, if none are established, as may be in effect for Ace Hardware retail dealers; (iii) Buyer's retail sales to commercial/ industrial customers must be at least $1 million per year.

IN WITNESS WHEREOF, this Agreement has been executed on this _____ day of __________________ by the person(s) below, being duly authorized to enter into this Agreement on behalf of Buyer.

SELLER:
ACCEPTED for Ace Hardware Corporation at
Oak Brook, Illinois this _________ day of
______________________________, 20___ by:


Signature of Officer________________________

Title____________________________________

BUYER: EX-10 15 ex10a8.htm 10-A-8 FIRST AMEND. L/T INC. COMP. DEF. OPTION PLAN

FIRST AMENDMENT

Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan
Effective January 1, 2000 Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan (the "Plan"), effective January 1, 2002, the Company hereby amends and restates the following sections of the Plan to read as follows:
2.13 (a)  "Retirement Interest Yield" means, (i) for a Participant prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) for a Participant after the Retirement Date or during a period of Disability, a rate of interest per annum as approved annually under the Ace Hardware Corporation Restated Officers Incentive Plan. The rate under Section 2.13 (a) (ii) shall be effective the first day of each calendar year.
2.13 (b)  "Death Interest Yield" means, (i) prior to the Retirement Date, a rate of interest equal to 120 percent of Prime, and (ii) after the Retirement Date, a rate of interest per annum, as approved annually under the Ace Hardware Corporation Restated Officers Incentive Plan. The rate under Section 2.13 (c) (ii) shall be effective the first day of each calendar year. This rate of interest shall be fixed at the time of the Participant's death.
4.6 (third paragraph only) 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. Installment payments for current Participants receiving payments as of January 1, 2002, shall be recomputed at the end of their current installment term. Thereafter, the amount of the installment payments shall be recomputed at the time of any change in the Interest Yield pursuant to Section 2.13 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.

Sections 2.13 and 4.6 are the only Sections affected by this Amendment.


Ace Hardware Corporation

By: David F. Hodnik

Its: President & CEO                                                                        EXHIBIT F EX-10 16 ex10a9.htm 10-A-9 BALTIMORE FREIGHT CONSOLIDATION LEASE                             LEASE AGREEMENT        This lease, made this   19th   day of   October  , 2001, by and 
between   Bob's Transport and Storage Co., Inc.  , a Maryland Corporation 
with principal offices located at 820 South Oldham Street, Baltimore, 
Maryland 21224 ("Landlord") and  Ace Hardware Corporation , a Delaware 
Corporation, with principal offices located at 2200 Kensington Court, 
Oakbrook, Illinois  60523-2100 ("Tenant").
Witnesseth That:  1.    The Landlord, for and in consideration of the rentals and the
performance of the covenants and agreements contained in this Lease does hereby demise and Lease to Tenant, and Tenant does hereby rent and take from Landlord, the premises (the "Premises") comprised of and described as approximately 19,600 square feet +/- of building space comprised of offices, dock area, shop and guard shack.  The location of said property is as follows:  8130 Norris Lane in Baltimore County, Maryland 21222.  Together the properties comprise approximately 4.8 acres of land +/-.
Said space is 100% of the buildings and 100% of the land as shown in Exhibit I.  Tenant has rights of ingress and egress over the driveways and sidewalks leading to and from the "Buildings".
      1.01 Except as set forth below,  Tenant agrees to accept the
Premises, together with all improvements as now exist therein in "as is" condition but finds them acceptable for their use and care.
      At Tenants request, Landlord will make the following modifications and repairs to the building and grounds:
      Landlord will extend loading dock and walls to current edge of dock.  Install insulated roll up doors, repair light fixtures, repair parking lot pot holes, fence, replace swinging gate with non-powered rolling gate, clean and repair office areas and shop area where needed.  Will install 24, new 30,000 lb. Capacity edge of dock levelers in dock areas.
2.     To have and to hold the same for a term of seven (7) years commencing on January 1, 2002,(the "Commencement Date") and ending on     December 31, 2008. Security Deposit and First Month's Rent payable at the time of signing of Lease.  
      2.01 Security Deposit.   A Security Deposit in the amount
of $13,250.00 shall be paid to "Landlord" by "Tenant" at time of execution of this lease.  Said "Security Deposit" shall be non interest bearing and "Landlord" may commingle said money with "Landlord's" regular funds.
      2.02      Tenant shall have the right to renew this lease three times for a period of one year each on the expiration of the original term on the same terms and conditions except that the lease rate will be adjusted as shown in Schedule A of this lease.
3.     Tenant shall pay to the Landlord as Total Basic Rent each year 
as follows:
  Monthly Installment Basic Annual Rent Year 1         $13,250.00 NNN    $159,000.00  NNN  Year 2         $13,515.00 NNN    $162,180.00  NNN 
Year 3         $13,785.00 NNN    $165,424.00  NNN 
Year 4         $14,061.00 NNN    $168,732.00  NNN  Year 5         $14,342.00 NNN__  $172,107.00  NNN 
Year 6         $14,629.00 NNN      $175,549.00  NNN 
Year 7         $14,922.00 NNN      $179,060.00  NNN          Tenant shall pay the above outlined Total Basic Rent in monthly installments in advance throughout the term of this Lease commencing on  January 1, 2002,and on the first day of each month thereafter until the total rent is fully paid.  Rent shall be paid to the Landlord or its duly authorized agents at it's office during regular business hours.  If the Commencement Date of this Lease is other than the first day of the month, Rent shall be prorated.
      This is a Net, Net, Net Lease, All insurance, taxes, maintenance, and All other expenses will be paid by Tenant as additional rents.
4.     The Premises shall be used as a truck terminal facility, shop repair of transportation equipment and an office facility.
5.     This Lease shall be governed by the laws of the State of Maryland.
6.     This "Lease Agreement" consists of this Lease, the General Terms and Conditions, Exhibit A and A1,outlining the specifications of land and buildings, Schedule A outlining future basic rents for three one year options if exercised by tenant and any subsequent written Agreement(s) and Modification(s) of Lease executed by the parties.
      In Witness Whereof, the Landlord has caused its corporate seal to be affixed and it's proper and duly authorized officers to affix their signatures, and the Tenant has signed and sealed these presents, the day and year first written above.
ATTEST:                       TENANT:
(Affix Corporate Seal)        
    BY_David Myer_____________________ Witness_Rich Saulk_________        Title Sr. V.P., Retail Support & Logistics  ATTEST:                        LANDLORD:
(Affix Corporate Seal)         BOB'S TRANSPORT AND STORAGE CO., INC. 
WITNESS: Steven Pfeffer              BY Robert J. Pfeffer, Jr.                                     Robert J. Pfeffer, Jr. 
     Title        President                                                Schedule A 
                                   to
                             Lease Agreement
The following basic rental rates will apply if Tenant exercises the options allowed in Item #2 of the Lease Agreement.

        Monthly Installment Basic Annual Rent Option 1 Option 1
          $ 15,220  NNN     $ 182,641  NNN   Option 2 Option 2          $ 15,525  NNN           $ 186,294  NNN   Option 3 Option 3
          $ 15,835  NNN     $ 190,020  NNN  
TENANT'S ACKNOWLEDGEMENT STATE OF ____________________, COUNTY OF _________________ TO WIT:
     I HEREBY CERTIFY that on this ______ day of _____________, 2001,
Before me, the subscriber, a Notary Public of the State aforesaid, ____________ County, duly commissioned and qualified, personally appeared ___________________________, who acknowledged himself to be the ____________ of  ACE HARDWARE CORPORATION  , a _ Delaware __  corporation, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing, in my presence, the name of said corporation by himself as such officer.
     WITNESS my hand and Notarial Seal.
                         ____________________________________
                          Notary Public
                         My commission expires: _____________
LANDLORD'S ACKNOWLEDGEMENT STATE OF  __Maryland __, COUNTY OF __ Baltimore ____ TO WIT:
     I HEREBY CERTIFY that on this ______ day of _____________, 2001,
Before me, the subscriber, a Notary Public of the State aforesaid, _ Baltimore __ County, duly commissioned and qualified, personally appeared _ Robert J. Pfeffer, Sr. ____, who acknowledged himself to be the __ CEO__  of  BOB'S TRANSPORT AND STORAGE CO., INC.    , a __ Maryland   _ corporation, and that he, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing, in my presence, the name of said corporation by himself as such officer.
     WITNESS my hand and Notarial Seal.
                         ____________________________________
                          Notary Public
                         My commission expires: _____________
                BOB'S TRANSPORT AND STORAGE COMPANY, INC.                    GENERAL TERMS AND CONDITIONS OF LEASE  For   Ace Hardware Corporation        DATED__ October 19, 2001        
                            TABLE OF CONTENTS                  (TO BE ATTACHED TO AND FORM PART OF LEASE)
ARTICLE  PAGE 
ITEM                                                 NO.       NO.  DEFINITIONS                                                 1          2
WARRANTY OF TENANT IMPROVEMENTS                             2          2
PAYMENT                                                     3        2,3
TAXES AND ASSESSMENTS                                       4          3
ORDER OF PRECEDENCE OF DOCUMENTS                            5          3
UTILITIES                                                   6          3
RECORDATION OF LEASE: DOCUMENTARY AND TRANSFER TAXES        7          3
COMPLIANCE WITH REGULATIONS                                 8          4
MAINTENANCE AND REPAIRS                                     9        4,5
ACCESS BY LANDLORD                                         10          5
SUBORDINATION                                              11          5
LENDER'S CERTIFICATE                                       12          5
ASSIGNMENT OR SUBLETTING                                   13        5,6
ATTORNMENT                                                 14          6
ALTERATIONS AND CHANGES                                    15        6,7
RESTORATION                                                16        7,8
CONDEMNATION                                               17        8,9
INSURANCE                                                  18       9,10
QUIET ENJOYMENT                                            19         10
TENANT'S DEFAULT                                           20   10,11,12
WAIVER OF REDEMPTION                                       21         12
SUCCESSORS AND ASSIGNS                                     22         12
ASSIGNMENT OF LANDLORD'S INTEREST                          23         12
LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS             24         12
WAIVER OF BREACH                                           25         12
NOTICE                                                     26         13
SEVERABILITY                                               27         13
CAPTIONS AND HEADINGS                                      28         13
INDEMNIFICATION                                            29         13
RENEWAL OPTIONS                                            30         13
TIME                                                       31         13
ENVIRONMENTAL REQUIREMENTS                                 32         14
REAL ESTATE COMMISSIONS                                    33         14
VIDEO OF LEASE PROPERTY                                    34      14,15
TENANT:                                LANDLORD:  ACE HARDWARE CORPORATION              BOB'S TRANSPORT AND STORAGE CO., INC.  By  Dave Myer                          By Robert J. Pfeffer, Jr.                                       President                     GENERAL TERMS AND CONDITIONS
      ARTICLE 1.   DEFINITIONS:  For the purposes of this Lease, the following terms, when capitalized, shall have the following meaning:
1.01   "Rent" shall mean any and all sums due and/or payable to Landlord by Tenant under the terms and conditions of this Lease, including, without limitation, the Basic Annual Rent, the Adjusted Basic Annual Rent, and any Additional Rent.  All payments of "Rent" shall be subject to all Landlord's rights and remedies, whether under the terms of this Lease or by law, for non-payment of rent.
1.02   "Real Property" shall mean the Building, of which the Premises form a part, and the lot upon which the building is situated.
1.03   "Real Estate Taxes" shall mean all taxes, general and special, ordinary and extraordinary, in effect during the Base Year, which are levied or assessed upon or against the Real Property by any governmental or 
quasi-governmental authority having jurisdiction over the Real Property.
1.04   "Substitute Taxes" shall mean all new taxes, whether general or special, ordinary or extraordinary, imposed, levied or assigned against the Real Property consisting of, without limitation:  (i) a tax, assessment, levy, imposition or charge, wholly or partially as a capital levy or otherwise, on the rents received there from:  (ii) a tax, assessment, levy (including but not limited to any municipal, state, or federal levy), imposition or charge measured by, or based in whole or in part upon, the Premises and imposed upon the Landlord; or (iii) a license&nbs p;fee measured by the Rent payable under this Lease.
1.05   "Fractional Share" shall mean that fraction of the lot set forth in Paragraph 1 of this Lease.
1.06   "Proportionate Share" shall mean the share of Real Estate Taxes, utilities, or insurance premiums that are reasonably apportionable to Tenant based upon Tenant's use of the Premises.  In the case of Real Estate Taxes, water and insurance Tenants proportionate share shall be one hundred percent (100%), or such other percentage the numerator of which is the number of square feet in the Premises, and the denominator is the number of square feet in the building.
1.07   "Plans and Specifications" shall mean the plans (mechanical, architectural, electrical, and structural), drawings, and specifications, including any modifications, which describe the Tenant improvements to be constructed upon the Premises.  Plans and Specifications may include both outline specifications and final plans and 
specifications.
  ARTICLE 2.   WARRANTY OF LANDLORD IMPROVEMENTS:       2.01  Landlord will warrant that all mechanicals and electricals will be
in good working condition on date of Tenants occupancy.  It will be Tenant's responsibility to maintain them and obtain service contracts on such items as HVAC equipment, etc.
2.02   Landlord will warrant the improvements and modifications being installed at Tenant's request for a period of one year.  Said improvements are 24 new edge of dock levelers having a capacity of 30,000 lbs. And 24 insulated roll up doors.
ARTICLE 3.   PAYMENT:       3.01   Tenant covenants to pay when due, as Additional Rent, all obligations expressly undertaken by Tenant, including any improvements, alterations or changes to the Premises or to the Building made by Landlord at Tenant's request, and to promptly reimburse Landlord upon demand for any and all sums Landlord may advance for or on account of any of these obligations or expenses.
3.02   The Tenant shall pay the Rent as provided in this Lease, without deduction, counterclaim or set-off whatsoever, and without any obligation on the Landlord to demand payment.  Any installment of Rent accruing under this Lease not paid within five (5) days of due date, shall bear interest at the rate of eighteen percent (18%) per annum until paid.  Additionally, any installment of Rent not paid within ten (10) days of the due date shall be considered delinquent and subject to a late payment charge, for each occurrence of delinquency, of five percent&nbs p;(5%) of the Rent overdue and payable or Twenty-five Dollars ($25.00), whichever amount is greater.  This late payment charge shall be in addition to the interest provided for above and shall be due and payable with the succeeding monthly installment of Rent.  Notwithstanding the aforesaid Tenant shall be entitled to ten (10) days written notice before a late charge occurs for the first two times Tenant is late in making Rent payments in any lease year. 
      3.03   In addition to any other remedies available to the Landlord through this Lease or by law, in the event any check issued by Tenant for the payment of Rent is dishonored upon presentment due to insufficient funds or for any other reason, Landlord shall have the right to require that any and all future payments from Tenant be made by 
cashier's check(s) or by certified check(s).  This right shall be exercised by Landlord by giving written notice to Tenant in accordance with Article 26.  In the event this right is exercised, it may be subsequently waived by Landlord with similar notice to Tenant.
ARTICLE 4.   TAXES AND ASSESSMENTS:       4.01   If, during the term of this Lease, the system or method of taxation of the Real Property prevailing during the Tax Base Year is altered or varied, so that Substitute Taxes are levied, assessed, or imposed upon the Real Property, in lieu of, or as a supplement to or substitute for, the whole or any portion of the Real Estate Taxes, Tenant shall pay Landlord, as Additional Rent, its Proportionate Share of the sum of Real Estate Taxes and Substitute Taxes, to the extent that this sum exceeds the amount of Real Estate Taxes for the&nb sp;Tax Base Year.  Any Additional Rent due the Landlord under this paragraph shall be paid within thirty (30) days after the Landlord has submitted a written statement to the Tenant showing the amount due.
4.02   Any reasonable expense incurred by Landlord in contesting any tax alteration or increase shall be included as an item for the purpose of computing Additional Rent due the Landlord.
ARTICLE 5.   ORDER OF PRECEDENCE OF DOCUMENTS :   In the event of conflict between the terms or provisions of the Lease and the terms and conditions of any other referenced document, the following order of precedence shall apply:  First, this Lease; Second, referenced Specifications; and Third, referenced Plans; and Fourth, referenced Outline 
Specifications.
ARTICLE 6.   UTILITIES: 6.01   Landlord shall provide water through a utility meter applicable to the Building.  Tenant shall pay Landlord, as Additional Rent, its Proportionate Share of the total charges for water and sprinkler service including any and all taxes.
     Tenant shall also pay Landlord for its Proportionate Share for heat and lighting, both interior and exterior.  When Tenant takes full occupancy of the building Tenant will be responsible for 100% of all Utilities and related expenses.
ARTICLE 7.   RECORDATION OF LEASE:  DOCUMENTARY AND TRANSFER TAXES:   At the request of either party, this Lease Agreement, or a short form, may be recorded among the Land Records of the County in which the Premises are located.  All recording costs, including, but not limited to, all State and County documentary stamp taxes, recordation taxes, and transfer taxes, shall be borne by the party requesting recordation.
ARTICLE 8.   COMPLIANCE WITH REGULATIONS:   Tenant shall, at its sole expense, continually comply with all federal, state, and local laws, codes, ordinances, administrative and court orders and directives, rules, and regulations applicable to Tenant's use and occupancy of the Premises, as are now or may subsequently be in effect during the term.  Tenant shall also comply with all orders, rules, regulations, and requirements of any insurance company which may at any time have in force any policy of fire, public liability, or other insurance applicable to the 
Premises.
 ARTICLE 9.   MAINTENANCE AND REPAIRS:

     9.01   Tenant's Maintenance and Repair Obligations:  Subject to the
provisions of Articles 16 and 17, Tenant shall, at its sole expense throughout the term:  (1) maintain in good order and repair the interior of the Premises;  (2) maintain and repair when necessary all windows and doors (including glass), both interior and exterior, and all building service equipment in the Premises, including, but not limited to, electrical, plumbing, heating, air conditioning, sprinkler equipment, pipes, separate water meters, wires, ducts, fixtures, and appliances;  (3) keep the Premises in a safe, clean, and sanitary condition; (4)  provide for the remo val of trash and rubbish; and  (5)  surrender the Premises and all Tenant improvements at the end of the term in as good condition as first received, except for ordinary wear and use and those items of maintenance and repair expressly undertaken by Landlord.  Tenant shall not use vehicles in the Building or loading platform, unless they are equipped with nylon or rubber-surfaced wheels or tires.  No metal cleat inserts or chains shall be permitted.
      Tenant shall, at its sole expense throughout the term, carry and maintain a preventive maintenance service contract from a qualified service company, approved in advance by Landlord, covering the heating, ventilating, and air conditioning systems of the Premises, if any.  Tenant shall maintain all systems in a good condition during the term of this Lease and any renewal term and shall be responsible, at its sole expense, for all necessary repairs and replacements regardless of whether or not they are covered by the maintenance contract or which are necessitated by Tenant's failure to carry a maintenance contract.  Tenant shall submit a copy of the proposed maintenance contract at least thirty (30) days prior to the first to occur of the contract's commencement date or the Commencement Date of this Lease.  Landlord shall notify tenant within ten (10) days of receipt whether the service company is approved and the contract is acceptable.
Landlord  will split replacement costs of HVAC equipment if it is determined to be needed due to the age of the equipment and not due to neglect or improper maintenance or lack thereof.  Once the Landlord splits the cost of a given unit no further split of replacement cost will be borne by the Landlord.  Should the Tenant make changes in the building which will require additional HVAC equipment, Tenant will bear 
100% of such costs.
9.02   Grounds Care and Maintenance:  Tenant shall, at its sole expense, maintain the grounds of the lot upon which the Building is located. This obligation includes, but is not limited to:  the removal of snow from all paved surfaces on the lot;  the care, cutting, and maintenance of all lawns and shrubbery;  the cleaning, vacuuming, resealing, and restriping of all paved surfaces on the lot;  and the repair and maintenance of all exterior building-mounted and parking lot lighting, and all building identification signs.  Includes repairs to parking lot surface&nb sp;and paved areas.
      9.03   Damage Caused by Tenant:  Anything contained in this Article to
the contrary notwithstanding, Tenant shall be obligated to reimburse Landlord on demand for the cost of any repairs to the Premises or Building, necessitated by the negligence of Tenant, its agents, servants, employees, licensees, or guests, or by any contractor engaged by or on behalf of Tenant.  Tenant shall also be obligated to reimburse Landlord on demand for the cost of any repairs of damage to any paved surface or grounds on the lot which are caused by the excessive weight of 
vehicles or the use of chains on vehicles owned or operated by Tenant, its agents,
servants, employees, licensees, or guests or by any subcontractor engaged by or on behalf of Tenant.  The cost of these repairs shall be deemed Additional Rent.
      9.04  Landlord's Maintenance and Repair Obligations:   Landlord shall
be responsible to maintain and repair the structural components of the Premises including the roof, foundation, and exterior walls except if damaged by Tenant's use thereof.  Anything contained in this Lease to the contrary notwithstanding, Landlord shall not be obligated to make any repairs, nor shall it be liable to Tenant or any other person, for any claim or injury arising out of Landlord's failure to make any repairs under the terms of this Lease, unless Tenant gives Landlord prompt written notice of the condition requiring repair upon discovery and 
Landlord has not made a timely effort to effect the needed repair.  
ARTICLE 10.   ACCESS BY LANDLORD:   Landlord will give twenty-four (24) hours notice to Tenant prior to gaining access to the Premises, except in cases of emergency such as fire, hazardous material complaints, etc., for the purpose of inspecting the Building or performing maintenance and repairs.  Landlord may show both the interior and exterior of the Premises to prospective tenants or purchasers and place "For Rent" or "For Sale" signs on the Premises during the last twelve (12) months of the term.
ARTICLE 11.   SUBORDINATION: This Lease shall be subject to and subordinate at all times to the lien of any mortgage, deed of trust, or financing statement now or hereafter made on the Premises, and to all advances made or hereafter to be made.  This subordination provision shall be self-operative and no further instrument of subordination shall be required.
ARTICLE 12.   LENDER'S CERTIFICATE:   T enant shall, during the term of the Lease, execute, acknowledge and deliver to Landlord, or to any entity Landlord shall designate, within ten (10) days of written request by Landlord, a certified written statement concerning  (1)  whether this Lease is unmodified and in full force and effect, or, if there have been modifications, that this Lease is in full force and effect as modified and stating any modifications;  (2)  whether Tenant has accepted possession of the Premises, and whether any improvements required by the terms of this Lease to be made& nbsp;by the Landlord have been completed to the satisfaction of the Tenant;  (3)  whether, except for any Rent paid in advance in accordance with Paragraph 3 of this Lease, any Rent under this Lease has been paid more than thirty (30) days in advance of its due date;  (4)  the accuracy of the address to which notices to Tenant should be sent;  (5)  whether Tenant, as of the date of certification, has any charge, lien, or claim of set-off under this Lease, or otherwise, against the Rent or other charges due or to become due;  (6)  the&nbs p;commencement and expiration dates of the term of this Lease; and  (7)  whether or not, to the best of Tenant's knowledge, Landlord is in default in the performance of any covenant, agreement, or condition contained in this Lease, and if so, specifying any default of which Tenant may have knowledge.  Any statement delivered pursuant to this Article may be relied upon by any mortgagee or prospective mortgagee of the Building or of Landlord's interest, or any prospective assignee of any mortgagee.  If Tenant fails to deliver the statement to Landlord within ten (10) days&n bsp;of Landlord's request, Tenant shall be deemed to have acknowledged that this Lease is in full force and effect, without modification except as may be represented by Landlord and that there are no uncured defaults in Landlord's performance.  Furthermore, Tenant's failure to deliver the statement to Landlord within the ten (10) day period may, at Landlord's sole discretion, be deemed an event of default and Landlord shall have all rights and remedies available to it under this Lease.
ARTICLE 13.   ASSIGNMENT OR SUBLETTING:      13.01   Tenant shall not sublet or assign the Premises or permit the
Premises to be used by any person other than the Tenant or employees or
associates of the Tenant without the prior written consent of Landlord which 
consent shall not be unreasonably witheld.  In the event Landlord consents to 
an assignment or subletting, Tenant shall remain fully liable for the 
remaining term as principal, and not as guarantor or surety, for the payment 
of Rent as well as the performance of all conditions and covenants of this 
Lease for which Tenant is now obligated, even if Landlord accepts Rent from 
the assignee or subtenant or in any other manner deals with them.
13.02   In order for Tenant to obtain Landlord's consent, Tenant shall give Landlord prompt written notice of its intention to assign this Lease or sublet the Premises, which notice shall include the proposed assignment or sublease documents which are to be executed and which shall contain detailed information concerning:  (1)  the name(s) of the proposed assignee or sublessee (and if a private corporation, the names and percentage ownership of all stockholders);  (2)  the most recent financial statement of the proposed assignee or sublessee;  (3)  a description  of the nature of the business of the proposed assignee or sublessee; and  (4)  a description of all terms and conditions of the proposed assignment or sublease.  It is understood and agreed that Landlord shall be entitled to receive all monies paid to Tenant by sublessee or assignee in excess of the Rent due Landlord from Tenant.
     13.03   Any lawful levy or sale on execution or other legal processes shall be classified as an assignment within the meaning of this Lease, as shall be adjudication in bankruptcy, voluntary or involuntary, or an appointment of a receiver by a State or Federal Court, or insolvency of the Tenant, or the execution of a deed or other instrument for the benefit 
of creditors.
ARTICLE 14.   ATTORNMENT: In the event the Premises are sold due to any foreclosure sale or sales, by virtue of any judicial proceedings or otherwise, this Lease shall continue in full force and effect and Tenant agrees, upon request, to attorn to and acknowledge any foreclosure purchaser or purchasers as Landlord.
   ARTICLE 15.   ALTERATIONS AND CHANGES: 15.01   Tenant shall not make any alterations, improvements, or changes (collectively the "Changes") of any kind to the Premises subsequent to the Commencement Date without securing the prior written consent of the Landlord, in accordance with the procedure outlined below.  All Changes shall be completed in a prompt and workmanlike manner and shall not materially alter the character or use of the Building.
      It is understood and agreed that in making any permitted Changes as well as in its use of the Premises, Tenant shall, at its sole expense, fully comply with all applicable federal, state, and local laws, ordinances, and regulations, as well as any requirements imposed by Landlord's insurer.  Tenant shall save Landlord harmless for and on account of all charges or damages if it should fail to comply.  Tenant shall, at its sole expense, promptly comply with any notice from any federal, state, or local authorities, including the Health  Department and Building Engineer's Office, relating to the Premises or the Building which is served upon it or upon Landlord, where caused either by Tenant's use of the Premises or by any Changes made by Tenant.
     15.02    All Changes and all building service equipment made or
installed by or on behalf of Tenant shall, upon completion or installation, become the property of Landlord.  All machinery, equipment (other than building service equipment), trade fixtures, movable partitions, furniture, and furnishings (except any and all floor coverings installed by Tenant) shall remain the property of Tenant and the Tenant shall, if not in default, be entitled to remove these items immediately at the expiration of the Lease term.  Tenant shall, at its sole expense, repair any and all damage to the Premises resulting from or caused by the installation,& nbsp;use or removal of machinery, equipment or 
other property at or before the end of the term, or sooner if requested 
by Landlord.  Tenant shall perform all repairs necessary to restore the 
Premises to the condition existing at the beginning of the term, normal 
wear and tear excepted.  Any property of Tenant which is not removed within 
ten days after the end of the term shall, at Landlord's sole option, be 
removed at Tenant's expense or belong to Landlord at the end of the term.  
Landlord shall have the right to require Tenant to remove all Changes at the expiration of this Lease or any earlier termination.
      15.03   The following procedure shall govern the approval and construction of all Changes to the Premises by Tenant:
(a)   Tenant shall prepare and submit to Landlord two (2) complete sets of final plans and specifications for all Changes to the Premises, including all applicable architectural, mechanical, plumbing, sprinkler, and electrical drawings.  All drawings must be properly scaled, dimensioned, and sealed by a registered architect or professional engineer.
(b)   Landlord shall advise Tenant, in writing, of its approval or disapproval of the Changes within a reasonable time after receipt of the plans and specifications.  All proposed changes not approved within fifteen (15) days shall be deemed to be disapproved.
(c)   Prior to commencement of construction of the Changes, Tenant shall deliver to Landlord, insurance policies covering all subcontractors with whom Tenant enters into purchase orders or contracts.  These policies shall insure against claims for bodily injury, including death, and property damage occurring in or about the Premises and the adjoining driveways and passageways, and shall have a combined single limit of not less than Two Million Dollars ($2,000,000.00).  The policies shall name Landlord, Tenant, and the subcontractor or supplier as insured, as their respective interests& nbsp;may appear.
(d)   Tenant shall notify Landlord of the date construction is scheduled to begin and shall arrange for periodic inspections by Landlord of the job progress to insure compliance with the approved plans and specifications.
(e)   As a condition for approving any construction on the Premises by Tenant, Landlord shall have the right to require Tenant, or Tenant's contractor, to furnish bond in an amount equal to the estimated cost of construction with a corporate surety approved by Landlord for  (i)  completion of the construction and  (ii)  indemnification of Landlord and Tenant, as their interests may appear, against liens for labor and materials, which bond shall be furnished before any work is begun or any materials delivered.  Landlord shall also have the right at&nbs p;any time before, during, or after the construction to require Tenant to furnish further assurances against mechanics liens including, but not limited to, releases of liens signed by all contractors, subcontractors, and suppliers, and affidavits executed by Tenant, Tenant's contractor, or architect, that all charges for labor and materials have been paid.  Landlord may withhold any amount due Tenant under Articles 16 or 17 until these assurances are given.
15.04   If any Changes are made by Landlord at the request of Tenant, and the cost of the Changes is not paid to Landlord by Tenant within thirty (30) days after completion, Landlord shall have all rights and remedies enumerated in Article 20.
ARTICLE 16.  RESTORATION:
     16.01   If during the term the Premises are damaged by fire or other
casualty, but not to the extent that Tenant, in Landlord's reasonable opinion, is prevented from carrying on business in the Premises, Landlord shall promptly restore the Premises to the condition existing immediately prior to the casualty.  If the damage renders a substantial portion of the Premises unusable by Tenant, the Rent (except Tenant's share of the charge for metered water) shall be apportioned from and
reduced during the period unused by the same percentage by which the unusable area bears to the Premises.
     16.02   If, during the term, the Premises are destroyed or so damaged
by fire or other casualty that Tenant, in Landlord's reasonable opinion, is prevented from carrying on business, Landlord shall have the option either to restore the Premises or to terminate the Lease.  Landlord shall exercise this option by giving written notice to Tenant within thirty (30) days after the casualty.  In the event of termination, Tenant shall be required to surrender the Premises as soon as possible and Rent shall abate from and be apportioned to the date of the casualty.  Landlord shall, as soon as practicable after the fire or other cas ualty, be responsible for and pay the cost of removing any debris impeding Tenant's ingress and egress, and removal of its machinery, equipment, inventory, and other personality, from the Premises.  If the Landlord restores the Premises, the restoration shall be completed as promptly as reasonably possible and the Rent shall be apportioned from and abate during the period of restoration until the date when Tenant is able to make reasonable use of the Premises.  Notwithstanding the aforesaid, if repairs are expected to take more than forty-five (45) days to complete, or if less than  sixty (60) days remain in the term at the time of the damage, then Tenant may terminate the Lease as of the occurrence of damage to the Premises.
ARTICLE 17.   CONDEMNATION:       17.01   Except as provided in Article 17.04, if during the term, all or a substantial part of the Premises is taken by eminent domain, or if Tenant's use of the Premises is materially impaired by such taking, this Lease shall terminate as of, and the Rent (Basic and Additional) shall be apportioned to and abate from the date of taking.  Tenant shall have no right to participate in any award or damages for any taking and hereby assigns all of its right, title and interest therein to Landlord.  For purposes of this Article, "a substant ial part of the Premises" shall mean so much of the Premises as to render the remainder inadequate and not practicably capable of repair so as to permit Tenant to carry on its business to substantially the same extent and with substantially the same efficiency as before the taking.
17.02   Except as provided in Article 17.04, if, during the term, less than a substantial part of the Premises is taken by eminent domain, this Lease shall remain in full force and effect and Tenant shall have no right to participate in any award or damages for the taking.  Tenant hereby assigns all of its right, title, and interest in any award to Landlord.  Landlord shall, at its expense, up to but not in excess of the amount of the award or damages received, promptly make all necessary repairs and improvements needed to make the r emainder of the Premises adequate to permit Tenant to carry on its business to substantially the same extent and with substantially the same efficiency as before the taking.  If, as a result of any taking, a part of the Building is rendered permanently or temporarily unusable, the Basic Annual Rent shall be reduced by a fair and reasonable amount; not to exceed the proportion by which the portion of the Premises taken or made unusable bears to the entire Premises.  If the un-usability is temporary, the rental abatement shall be apportioned from the date of taking to& nbsp;the date when full usability is restored.  If the taking does not render any part of the Premises unusable, there shall be no abatement of Rent.
17.03   For the purpose of the Article, "taking under the power of eminent domain" shall include a negotiated sale or lease and transfer of possession to a condemning authority under bona fide threat of condemnation for public use.  Landlord alone shall have the right to negotiate with the condemning authority and conduct and settle all litigation connected with the condemnation.  As used in this Article, the words "award or damages" shall, in the event of such sale or settlement, include the purchase or settlement price.
17.04   Nothing shall prevent Tenant from claiming and receiving from the condemning authority, compensation for the taking of Tenant's own tangible property and damages for Tenant's loss of business, business interruption, or removal and relocation.

        ARTICLE 18.   INSURANCE:        18.01  Tenant shall, at its expense throughout the term, maintain in force public liability insurance insuring against claims for bodily injury, including death, and property damage occurring in or about the Premises and on, in, or about the adjoining driveways and passageways, with a combined single limit of not less than Two Million Dollars ($2,000,000.00) per occurrence.
      18.02    All required insurance shall be effected with an insurer
approved by Landlord, and all policies shall name Landlord as an additional insured and Tenant as the insured, as their respective interests may appear. Each of these policies shall provide that notwithstanding any act or negligence of Tenant which might otherwise result in its forfeiture, the policy shall not be cancelled without at least thirty (30) days written notice to each additional insured.
18.03   Upon the commencement of the term, and thereafter not less than thirty (30) days prior to the expiration dates of expiring policies, the originals or certificates of each policy and endorsement shall be delivered to Landlord, together with satisfactory proof of the payment of the premiums.
  18.04   Throughout the term, Tenant shall pay its share of fire and extended coverage insurance on the Premises based on the square footage it occupies.
18.05   LANDLORD'S EXONERATION:  Except with respect to claims arising from Landlord's negligence or that of its agents, servants or employees, or from Landlord's failure to make repairs required of it to be made pursuant to Paragraph 9.04 of this Lease, Tenant covenants to save harmless, protect and indemnify the Landlord from and against any and all losses, damages, claims, suits or actions, judgments and costs, which may arise or grow out of any injury to or death of any person or damage to any property, (including, but not by way of limitation, Tenant and employees of Tenant  ;and their property) which is caused by the fault or negligence of the Tenant, its agents or servants, sub-lessees and assigns, the use and possession of the leased premises and the equipment thereon by Tenant, or by the operation of the business conducted by Tenant on the said premises.
18.06   INDEMNIFICATION OF LANDLORD:  Tenant covenants and agrees to indemnify and save harmless Landlord from all liability, damages or loses arising out of violations or alleged violations of any laws, health or police regulations with respect to the leased premises, or out of any neglect to perform any of the within agreements or covenants, or out of any negligent or wrongful act or negligent act of Tenant its agents, servants, employees or guests injuring or wronging (including guests or invitees of Tenant);  and for the purpose of better assuring this undertaking of indemnification, Tenant covenants& nbsp;and agrees to carry public liability insurance at its own expense, protecting the respective parties as their interests may appear, in a company or companies acceptable to Landlord.  Such insurance shall be in an amount as may be reasonably requested by Landlord from time to time, but not less than Two Million Dollars ($2,000,000.00) in respect of bodily injury or death any one person and Two Million Dollars ($2,000,000.00) in respect of any one occurrence, with property damage coverage to a limit of not less than One Hundred Thousand Dollars ($100,000.00).
Landlord shall have the option to terminate this Lease if any violation of this provision results in either the cancellation of any insurance on the Premises or the refusal by an insurance carrier to insure the Premises.  If Landlord elects not to terminate this Lease, Landlord may take any available legal action to enjoin Tenant from continuing the acts or conduct detrimental to the present insurance rate.
ARTICLE 19.   QUIET ENJOYMENT:   Upon payment of Rent and performance by Tenant of all covenants, Tenant shall have and hold the Premises, free from any interference from the Landlord except as may be otherwise provided.
ARTICLE 20.   TENANT'S DEFAULT:       20.01   The Tenant shall be considered in default of this Lease upon the happening of any one of the following:
(a)   Failure to pay in full within fifteen (15) days of receiving written notice that any and all installments of Rent or any other sum required by the terms of this Lease are due;
      (b)   Violation of or failure to perform any term, covenant or
condition of this Lease provided, however, Tenant shall have thirty (30) days from the date of notice from Landlord within which to cure a non-monetary default, or if said default cannot be cured within thirty (30) days and Tenant diligently attempts to cure the default, Tenant shall not be in default hereunder.   
 (c)   The commencement of any action or proceeding under any section or chapter of the Federal Bankruptcy Act or under any similar law or statute of the United States or any state, or the adjudication of Tenant as a bankrupt or insolvent by any court of competent jurisdiction or if any such court enters any order, judgment or decree finally approving any petition against Tenant seeking reorganization, liquidation, dissolution or similar relief, or if Tenant files a voluntary petition in bankruptcy or insolvency;
(d)   The appointment of a receiver or trustee for all or substantially all of the assets of Tenant;
(e)   The making of any assignment for the benefit of creditors by Tenant or if Tenant admits in writing its inability to pay its debts generally as they come due or files Articles of Dissolution with the appropriate authority of the place of its incorporation;
(f)   The attachment, execution or other judicial seizure of substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease;
(g)   The suspension of business by Tenant;
 (h)   The abandonment of the Premises by the Tenant unless prior notice is given to Landlord and all Rent is kept current.
      (i)   Products or goods in transit located on the premises that are
not Tenants assets are not subject to any of the forgoing provisions in this Article 20.
       20.02   Upon the occurrence of any event of default, Landlord shall, without any notice or demand, in addition to, and not in limitation of, any other remedy permitted by law or this Lease, have the option to do any one or more of the following:
     (a)   Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord.  Should Tenant fail to surrender the 
Premises, Landlord may, without notice and without prejudice to any other remedy available, re-enter and take possession of the Premises and remove Tenant or anyone occupying the Premises and all property from the Premises,
which property may be removed and stored in any other place in the Building in which the Premises are situated, or in any other place, for the account of, and at the expense and risk of Tenant.  Tenant waives all claims for damages which may be caused by Landlord's reentry and taking possession of the Premises or removing or storing the furniture and property as provided. Tenant shall save Landlord harmless from any loss, fees, costs or damages suffered by Landlord because of any termination and reentry.  No reentry shall be considered or construed& nbsp;to be an illegal forcible entry.
 (b)   Without terminating this Lease, declare the entire amount of all Rent which would have become due and payable during the remainder of the term of this Lease to be due and payable immediately, in which event Tenant agrees to immediately pay the same to Landlord.  This payment shall constitute payment in advance of the Rent stipulated for the remainder of the Lease term.  Acceptance by Landlord of the payment of this Rent shall not constitute a cure or waiver of any then existing default or any subsequent default.
     (c)     Enter upon and take possession of the Premises, without
terminating this Lease and without being liable to prosecution or any claims for damages.  Landlord may then re-let all or any portion of the Premises 
for any term or terms and at any rental or rentals and upon any other terms and conditions as Landlord, in its sole discretion, may deem advisable, with the right to make alterations and repairs to the Premises.  In the event of any re-letting, rentals received by Landlord from re-letting shall be applied:  First, to the payment of any indebtedness, other than Rent, due from Tenant to Landlord;  Second, to the payment of the Rent due and unpaid; Third, to the payment of any cost of re-letting;  Fourth, to the payment of the cost of&nb sp;any alterations and repairs to the Premises:  and the residue, if any, shall be held by Landlord and applied in payment of future Rent as the same may become due and payable.  Should rentals received from re-letting during any month be less than the Rent required to be paid by Tenant herein, then Tenant shall immediately pay any deficiency to Landlord.  Deficiencies shall be calculated and paid monthly.  No reentry on or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless either a written notice of this intention is given to Tenant or the termination of this Lease be decreed by a court of competent jurisdiction.  Notwithstanding any re-letting without termination, Landlord may at any time elect to terminate this Lease for any previous breach or act of default.  Should Landlord at any time terminate this Lease for any breach or act of default, in addition to any other remedy it may have, Landlord may recover from Tenant all damages it may incur by reason of any breach or act of default.  Landlord's recovery shall include the cost of recovering the  Premises, legal fees, and the worth, at the time of the termination, of the excess, if any, of the amount of Rent reserved in this Lease for the remainder of the stated term.
(d)   Upon failure by the Tenant to pay the Rent, Landlord shall have the right to make distress, and upon distress, this tenancy, at the option of the Landlord, shall terminate.
20.03   Should Tenant contest (including all appeals) any action of Landlord to recover the Premises following any breach or act of default, and Landlord is ultimately successful in receiving a determination that its action was legal and proper, then, in that event, Tenant, recognizing certain intangible detriments to Landlord caused by the delay in recovering the Premises, such as losing a valuable prospective tenant, agrees to pay to Landlord 150% of the stated monthly Rent during the period of holding over.
     20.04   All remedies available to Landlord under this Lease and at law
and in equity shall be cumulative and concurrent.  No termination of this Lease, taking or recovering possession of the Premises, nor acceptance of Rent by Landlord with knowledge of the breach of any covenant or condition,
shall act as a waiver of the breach or deprive Landlord of any remedies or actions against Tenant for Rent, for charges, or for damages for the breach of any covenant or condition.  Nor shall the bringing of any action for Rent, charges or breach of covenant or condition, or the resort to any other remedy or fight for the recovery of Rent, charges or damages for breach, be construed as a waiver or release of the right to insist upon the forfeiture and to obtain possession of the Premises.
20.05  Tenant shall be considered in "Habitual Default" of this Lease upon  (1)  Tenant's failure, on three or more occasions during any leasehold year, to pay, when due, any installment of Rent or any other sum required by the terms of this Lease, or  (2)  Tenant's repeated violation of, or failure to comply with, any term, covenant or condition of this Lease after written notice of such violation or failure to comply has been given by Landlord to Tenant.  Upon the occurrence of an event of Habitual Default on the part of  Tenant, Tenant shall immediately be deemed to have released any and all options or rights granted, or to be granted to Tenant under the terms of this Lease (including, without limitation, rights of renewal, rights to terminate, or rights of first refusal).
     
ARTICLE 21.   WAIVER OF REDEMPTION:       Tenant hereby expressly waives (to the extent legally permissible) for itself and all persons claiming by, through or under it, any right of  
redemption or right for the restoration of the operation of this Lease under any present or future law in case Tenant shall be dispossessed for any cause, or in case Landlord shall obtain possession of the Premises as provided in this Lease.  Tenant understands that the Premises are leased exclusively for business, commercial, and mercantile purposes and, therefore, shall not be redeemable under any provision of law.
ARTICLE 22.   SUCCESSORS AND ASSIGNS: Except as expressly otherwise provided, this Lease shall bind and inure to the benefit of the parties and their respective successors and assigns.
ARTICLE 23.   ASSIGNMENT OF LANDLORD'S INTEREST:   The Landlord shall have the right to assign this Lease to another entity.  In the event of an assignment, Tenant agrees to recognize the assignee as Landlord and shall execute, upon Landlord's request, an instrument certifying the existence and good standing of this Lease and an Agreement and Modification of Lease documenting the assignment.
      If Landlord should ever assign this Lease or the Rents to a creditor as security for a debt, Tenant shall, after notice of assignment and upon demand by Landlord or the assignee, pay all Rent subsequently coming due to the assignee and give all required notices under this Lease, both to Landlord and the assignee.  Tenant shall also have all required policies of insurance endorsed so as to protect the assignee's interest as it may appear and deliver the policies or certificates to the assignee.
ARTICLE 24.   LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS:       If Tenant fails to perform any covenant or duty required of it by this Lease or by law, Landlord shall have the right, but not the duty, to perform these obligations without notice, by entering the Premises, if necessary.  Tenant shall reimburse Landlord for all sums incurred by Landlord in performance of these obligations within ten (10) days after written request.
ARTICLE 25.   WAIVER OF BREACH: The failure of the Landlord to insist upon a strict performance of any of the Lease terms, conditions, or covenants shall neither be deemed a waiver of any rights or remedies that the landlord may have nor be deemed a waiver of any subsequent breach or default.  This instrument may not be changed, modified, or discharged orally.
ARTICLE 26.   NOTICE:       Any notice by either party to the other shall be in writing and shall be deemed duly given only if delivered personally or sent by registered or certified mail return receipt requested, or overnight delivery service, to the following:
If to Tenant:
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, IL  60523-2100
Attention:  Corporate Property Manager
If to Landlord:
Bob's Transport and Storage Company, Inc.
P.O. Box 26043
820 South Oldham Street
Baltimore, MD  21224
Attention:  Robert J. Pfeffer, Jr.
            President
Notice shall be deemed to have been given on the date received or refused.
     ARTICLE  27.   SEVERABILITY: Each and every covenant, agreement, obligation or other provision contained in this Lease is, and shall be construed to be, a separate and independent covenant and agreement of the party bound by, undertaking or making the same, and shall not be construed 
to be dependent on any other provision of this Lease unless expressly provided.  If any term or provision of this Lease shall, to any extent, be declared invalid or unenforceable, the remainder of this Lease, including the application of any term or provision, to persons or circumstances other than those as to which the application is declared invalid or unenforceable, shall not be affected.
ARTICLE 28.   CAPTIONS AND HEADINGS: The captions and headings throughout this Lease are for convenience and reference only and shall in no way be held or deemed to affect this Lease or define, limit, describe, explain, modify, amplify, or add to the interpretation, construction, or meaning of any provision of or the scope or intent of this Lease. 
      ARTICLE 29.   INDEMNIFICATION: Except for claims arising from the negligence of Landlord, its agents, servants, or employees, Tenant covenants to defend, indemnify, and save Landlord harmless from any and all third party claims for liability of any nature arising from any use, occupancy, construction, repairs, or other work or activity done in, on, or about the Premises during the term, or from any condition of the Premises during the term, including all Landlord's costs, expenses and counsel fees in connection with any claim.
ARTICLE 30.   RENEWAL OPTIONS:       Tenant shall have three time options to renew this lease for an
Additional term of one (1) year, under the same terms and conditions contained herein except that the basic annual rental rate will be that shown in Schedule A to this lease agreement.  

      ARTICLE 31.   TIME: Time is of the essence of this lease.
      ARTICLE 32.   ENVIRONMENTAL REQUIREMENTS:      32.00     HAZARDOUS MATERIALS:   Lessor acknowledges that Lessee in the
regular course of its business receives, stores, and distributes various Hazardous Materials in household quantities and in original closed containers.
     32.01       Tenant hereby represents and warrants to Landlord that during
the Term of this Lease no materials, except for the hazardous materials referred to in Article 32.00, will be located on the premises which, under Federal, State, or Local Law, statute ordinance or regulations; or court or administrative order or decree; or private agreement (hereinafter collectively known as "Environmental Requirements"), require special handling in collection, storage, treatment, or disposal, including but not limited to, any asbestos, PCB transformers, or other toxic, hazardous or contaminated substances (hereinafter collectively called "Hazardous Substances").  Tenant hereby&nb sp;indemnifies and saves Landlord harmless from all liabilities and claims arising from the use, storage or placement of any Hazardous Substances upon the premises or elsewhere within the building or property of Landlord (if brought or placed thereon by Tenant, its agents, employees, contractors or invitees), and Tenant shall (a) within fifteen (15) days after written notice thereof, take or cause to be taken, at its sole expense, such actions as may be necessary to comply with all Environmental Requirements and (b) within fifteen (15) days after written demand therefore, reimburse Landlord for any amounts expended by Landlord to comply with any Environmental Requirements with respect to any other portions of Landlord's building or property as the result of the placement or storage of Hazardous Substances by Tenant, its agents, employees, contractors or invitees, or in connection with any judicial or administrative investigation or proceeding relating thereto, including, without limitation, reasonable attorney's fees, fines or other penalty payments.  If Tenant shall fail to take such actions, Landlord&n bsp;may make advances or payments towards performance or satisfaction of the same but shall be under no obligation to do so; and all sums so advanced or paid, including all sums advanced or paid in connection with any judicial or administrative investigation or proceeding relating thereto, including, without limitation, reasonable attorney's fees, fines, or other penalty payments, shall be at once repayable by Tenant and shall bear interest at the rate of four percent (4%) per annum above the Prime rate from time to time as set by Bank of America, from the date the same shall& nbsp;become due and payable until the date paid.  Failure of Tenant to comply with all Environmental requirements shall constitute and be a default under this Lease Agreement.
     32.02   Tenant hereby grants Landlord, and Landlord's agents and
employees (including but not limited to, any engineers or other parties engaged in the testing of Hazardous Substances) the right to enter upon the premises upon reasonable notice for the purpose of determining whether the Premises are, or have been, contaminated.
     32.03   Landlord represents and warrants to Tenant that it has not
received any notice that it is in violation of any environmental law, regulation, ordinance or rule from any local, state, or federal environmental or governmental agency as of the date of the execution of this lease.  
     ARTICLE 33.   REAL ESTATE COMMISSIONS:  C B Richard Ellis is the sole broker involved in this Lease transaction.  Landlord will be solely responsible for Real Estate Commissions pursuant to separate agreement between C B Richard Ellis and Landlord.  Tenant has no obligations to pay any commission fees.
     ARTICLE 34.   VIDEO OF LEASE PROPERTY: At Lessee's cost, a videotape of the leased Premises shall be taken at the commencement of the Lease Term, copies of which will be held by Lessee and by Lessor.  Lessee will notify Lessor as to when the videotape will be made and Lessor may be in attendance at that time.  This videotape will be used to document any deficiencies in the condition of the Premises and its Improvements, and will be used in lieu of a written description or list of such deficiencies.  It is understood by Lessor that Lessee shall have no responsibility or liability with respect to repair or replacement of any such deficiency, unless the same shall have been repaired or replaced by Lessor during the Term hereof. EX-10 17 ex10a10.htm 10-A-10 AMEND. NOTE PURCHASE AND PRIV. SHELF AGREE. April 24, 2001
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521

Ladies and Gentlemen:

       Reference is made to (a) the Note Purchase and Private Shelf Agreement dated as of September 27, 1991 (the "1991 Note Agreement") between Ace Hardware Corporation (the "Company") and The Prudential Insurance Company of America ("Prudential") pursuant to which the Company issued and sold and Prudential purchased the Company's 8.47% Senior Notes in the original principal amount of $20,000,000 due July 1, 2003 and (b) the Amended and Restated Note Purchase and Private Shelf Agreement dated as of September 22, 1993, as amended and restated on August 23, 1996 (the "1996 Note Agreement", together with the 1991 Note Agreement, the "Note Agreements") between the Company and Prudential pursuant to which the Company issued and sold and Prudential purchased the Company's (i) 6.47% Senior Series A Notes in the original principal amount of $30,000,000 due June 22, 2008; (ii) 7.49% Senior Series B Notes in the original principal am ount of $20,000,000 due June 15, 2011; (iii) 7.55% Senior Series C Notes in the original principal amount of $20,000,000, due March 25, 2009 and; (iv) 6.61% Senior Series D Notes in the original principal amount of $20,000,000 due February 9, 2010. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the 1996 Note Agreement. Pursuant to the request of the Company and in accordance with the provisions of paragraph 11C of each Note Agreement, the parties hereto agree as follows:

       SECTION 1. Amendments to the Note Agreements. From and after the date this letter becomes effective in accordance with its terms, each of the Note Agreements is amended as follows:

  1.1 Clause (iii) of Paragraph 7A of the respective Note Agreements is amended and restated in its entirety to read as follows:

"(iii) (A) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or (B) the Company or any Subsidiary is in default in the performance of or compliance with any term or condition contained in any agreement under which such obligation is created or if any other event thereunder or under any such agreement shall occur and be continuing , and as a consequence of such default or condition such obligation has become, or has been declared (or one or more Perso ns are entitled to declare such obligation to be), due and payable before its stated maturity or before its regularly scheduled dates of payment or (C) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of such obligation to convert such obligation into equity interests), (x) the Company or any Subsidiary has become obligated to purchase or repay such obligation before its regular maturity or before its regularly scheduled dates of payment , or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such obligation; provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or obligating repurchase or repayment by the Company or any Subsidiary before regular maturity or before regularly scheduled dates of payment) shall occur and be continuing exceeds $25,000,000, or"

     SECTION 2. Condition Precedent. This letter shall become effective as of the date hereof upon the return by the Company to Prudential of a counterpart hereof duly executed by the Company. This letter should be returned to: Prudential Capital Group, Two Prudential Plaza, Suite 5600, Chicago, Illinois 60601, Attn.: Kira E. Druyan.

     SECTION 3. Reference to and Effect on Note Agreements. Upon the effectiveness of this letter, each reference to either Note Agreement in any other document, instrument or agreement shall mean and be a reference to such Note Agreement as modified by this letter. Except as specifically set forth in Section 1 hereof, each Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

     SECTION 4. Governing Law. THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.

     SECTION 5. Counterparts; Section Titles. This letter may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The section titles contained in this letter are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

  Very truly yours,

THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA

By:                                    

Vice President

Agreed and accepted:

ACE HARDWARE CORPORATION

By:  SANDRA K. BRANDT
Title:    Treasurer EX-10 18 ex10a16.htm 10-A-16 ROCKLIN, CALIFORNIA WAREHOUSE LEASE LEASE
FROM
TOWNSEND ROCKLlN, LLC
LANDLORD
TO
ACE HARDWARE CORPORATION
TENANT

PREMISES: A portion of 3301 Industrial Avenue
                       Rocklin, CA

DATED: June 30, 2000


LEASE
          THIS LEASE made this 30^th day of June, 2000 between TOWNSEND ROCKLIN, LLC ("Landlord"), a Delaware limited liability company, and ACE HARDWARE CORPORATION ("Tenant"), a Delaware corporation.
          
W I T N E S S E T H:
1. Premises. Landlord leases to Tenant approximately 75,000 rentable square feet (the "Premises"), as outlined on the plan attached as Exhibit "A " (the "Plan") located in the warehouse building designated "Warehouse" on the Plan (the "Building") on the land described in Exhibit "B" attached hereto located at 3301 Industrial Avenue, Rocklin, California (the "Land"). The Building and Land are collectively referred to herein as the "Property."

2. Term. The term ("Term") of this Lease shall commence upon full execution and delivery of this Lease (the "Commencement Date") and end on the last day of the twenty-fourth (24^th) full calendar month following the Commencement Date, unless earlier terminated or extended in accordance with this Lease. Landlord and Tenant agree, that within ten (10) days of written demand of the other, to execute a declaration certifying the Commencement Date and termination date of the Term as soon as the Commencement Date has been determined.
          
3. Rent.    (a) Tenant shall pay to Landlord fixed rent ("Fixed Rent") in advance in monthly installments on the first day of each month, without prior notice, demand, deduction, offset or counterclaim, according to the following rent schedule:
          

Months	Annual Fixed Rent	Monthly Fixed Rent	Per Rentable Square Foot Per Annum
Commencement Date - 6	N/A	$14,500.00*	$3.48
7 - 12	N/A	$21,750.00	$3.48
13 - 24	$270,000.00	$22,500.00	$3.60

* Calculated based on 50,000 rentable square feet.

Tenant shall also pay all other sums of money that shall become due from Tenant under this Lease other than Fixed Rent (" Additional Rent"). As used in this Lease, "Rent" shall mean Fixed Rent and Additional Rent. Rent for any month's partial occupancy shall be prorated.

(b)      If Landlord does not receive any payment of Rent within five (5) days after the due date, Tenant shall pay Landlord a late charge equal to five (5%) percent of the overdue amount, which charge Landlord and Tenant agree represents a fair and reasonable estimate of the cots Landlord will incur by reason of late payment. Landlord's acceptance of the late charge shall in no event constitute a waiver of Tenant's default with respect to any overdue amount nor prevent Landlord from exercising any other rights or remedies granted under, this Lease and/or applicable law.

4. Tenant's Improvements and Possession. (a) Landlord shall deliver possession of the Premises to Tenant " AS IS"; provided, however. Landlord shall cause those improvements described on Exhibit "C-1" attached hereto and by this reference incorporated herein ("Landlord Improvements") to be made to the Building and the Premises prior to the Commencement Date or within a reasonable amount of time thereafter, but in no event later than the date any other tenant occupies the northern side of the Building as partitioned by the existing demising wall. If Landlord, for any reason beyond its control, cannot deliver possession of the Premises as required under this Lease, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom; provided, however, that in such event the Commencement Date shall be deferred to the date that possession of the Premises is delivered to Tenant. Tenant shall, at its sole cost and expense, construct its own tenant improvements (the "Tenant Improvements"), if any, in the Premises pursuant to Exhibit "C-2" attached hereto and by this reference incorporated herein. The Tenant Improvements, if any, shall be completed in a first class and workmanlike manner, in compliance with all certificates, permits, and required approvals, applicable laws, statutes, ordinances, orders, codes, roles and regulations of all federal, state, county, city and local departments and agencies, including, without limitation, the Americans with Disabilities Act of 1990 (as amended) (collectively, the "Legal Requirements") and free of all construction liens and claims. All materials used by Tenant shall be new and of first class quality. Tenant shall submit all plans for the Tenant Impr ovements to Landlord for Landlord's review and approval. Tenant shall be responsible for obtaining all certificates of occupancy for the Premises.

(b)    By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good and satisfactory order, condition and repair for the use intended under this Lease. Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair (subject to Landlord's maintenance obligations contained in this Lease). Landlord shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof except as otherwise expressly provided herein or agreed upon in writing by Landlord, and the parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises; the Building or the Property except as specifically herein set forth in writing.

5. Use .

(a)  The Premises shall be used and occupied by Tenant during the entire Term hereof subject to the other terms and conditions of this Lease for the warehousing and distribution of hardware and related products and paint products and related uses incident thereto (the "Permitted Use") and for no other purpose. Landlord acknowledges that Tenant, in the regular course of its business, receives, stores and distributes various hazardous materials and Tenant's storage of same on the Premises shall not be deemed a violation of this Lease, provided Tenant, at all times, complies with all Legal Requirements and Environmental Provisions (hereinafter defined).

(b)  Tenant further agrees that in the use and occupation of the Premises and m the prosecution or conduct of its business therein, Tenant will comply with all requirements of all laws, ordinances, orders and regulations of the federal, state, county and municipal authorities now in force , or which hereinafter may be in force, and with any direction or certificate of occupancy issued pursuant to any law by any public officer or officers. Tenant covenants and agrees that it will not use or permit to be used any pan of tile Premises for any dangerous, noxious or offensive trade or business, will not cause or maintain any nuisance in, at or on the Premises, and the land upon which it is situated, and will not use the Premises in any fashion so as to make void or voidable any insurance then in force with respect to the Premises, or render it impossible to obtain fire or other insurance thereon required to be furnished by Landlord or Tenant under this Lease.

(c)  Tenant shall use and occupy the Premises in a careful, safe and proper manner and shall keep the Premises in a clean and safe condition in accordance with this Lease and Ioca1 ordinances and the lawful directions of proper public officers. Tenant shall not use or permit the Premises to be used for any disreputable or immoral purpose.

(d)  Tenant shall not obstruct the common areas and shall refrain from committing any act or thing upon the Premises or the common areas which disturbs the quiet enjoyment of any other tenant or occupant of the Building or Land.

(e)  Tenant shall comply with any and all rules and regulations now or hereafter adopted by Landlord provided that such rules and regulations are of general applicability to all tenants of the Property and shall not materially interfere with the permitted uses hereunder.

6. Compliance with Legal Requirements. Tenant shall comply with all Legal Requirements that pertain to the, particular manner in which Tenant uses the Premises. Subject to Exhibit C-l, Tenant shall, at Tenant's sole expense, be responsible to ensure that the existing sprinkler and fire system satisfies local building code for Tenant's proposed use of the Premises. Landlord shall comply with all other Legal Requirements, including legally required repairs and alterations not triggered by the Tenant Improvements or due to Tenant's particular use of the Premises.

7. Environmental Compliance

               (a)   Tenant shall promptly comply with all Legal Requirements applicable to said Premises for the correction, prevention and abatement of nuisances, violations or other grievances, in, upon or connected with the Premises during the Term of this Lease; and shall also promptly comply with and execute all rules, orders and regulations of the Board of Fire Underwriters for the-prevention of fires, at the Tenant's own cost and expense. Provided specifically that it shall be Tenant's sole responsibility to comply with any and all present and future environmental statutes and any regulations promulgated thereunder (hereinafter collectively referred to as "Environmental Provisions"), which apply to the Premises as a result of the existence of this Lease, its termination or expiration or which apply to the property upon which the Premises is located as a consequence of Tenant's use thereof or any environment al condition developing or coming into existence, during the Term of this Lease, on the Premises or Land if caused by Tenant, Tenant's employees, contractors, invitees, agents or others for whom Tenant is legally responsible. This responsibility shall include, but not be limited to, the submission of all information required thereunder by any governmental authority and development and implementation of any cleanup plan required because of any spill or discharge of a hazardous substance or waste on the Premises which occurs during the Term of this Lease including, without limitation, the leakage of gasoline or other substances from any tanks or other vessels used for the storage thereof which are placed upon under the Premises by, for or at the request of Tenant. Tenant agrees to indemnify and hold Landlord, its successors and assigns, completely harmless with respect to all direct damages, indirect damages, consequential and incidental damages, costs, liability or potential liability, whether statutory or o therwise, in connection with any environmental condition occurring at the Premises during the Term of this Lease if caused by Tenant or Tenant's agents, employees, officers, invitees or contractors, or others for whom Tenant is legally responsible. Tenant's indemnification shall include all costs, fines, penalties, cleanup costs, consultants' fees, experts' fees, attorneys' fees and any other reasonable expenses incurred by Landlord. In the event that Tenant's obligations with respect to its duty to comply with the requirements of any Environmental Provision as it applies to the Premises are not fully and completely discharged as of the expiration or effective date of termination of this Lease, Landlord shall have the right to terminate this Lease and hold Tenant financially responsible for the cost of discharging Tenant's obligations hereunder.

               (b)  Notwithstanding any other provision of this Lease to the contrary, Tenant shall not, without the prior written consent of Landlord, install any underground or above ground tanks or other vessels for the purpose of storing gasoline or similar substances on or about the Premises.

               (c)  Tenant acknowledges that Section 25359.7 of the California Health & Safety Code requires a tenant of nonresidential property who knows or has reason to know that a material amount of a hazardous substance has been released on or beneath its premises to promptly notify the landlord. Failure to provide such notice to Landlord shall constitute a material default under this Lease. Tenant shall promptly advise Landlord in writing of, and provide Landlord with a copy of: (i) any notices of violation or potential or alleged violation of any Environmenta1 Provision which are received by Tenant with respect to the Premises or the Building from any governmental agency; (ii) any and all inquiry, investigation, enforcement, a clean-up, removal or other governmental or regulatory actions instituted or threatened, notice of which is received by Tenant, relating to the Premises, Building or Land; and (iii) all claims made or threatened by any third party against Tenant with respect to the Premises, Building or Land relating to any hazardous substances.

               (d)   The parties hereby acknowledge and agree tl1at the provisions of this Paragraph 7 shall survive the termination or expiration of this Lease and shall remain enforceable in accordance with the terms hereof.

8. Repairs and Maintenance

               (a)  During the Term, Landlord shall, at its sole expense, perform diligently, promptly and in a good and workmanlike manner all maintenance, repairs and replacements to (i) the structural components of the Building, including without limitation the roof, roofing system, exterior walls, bearing walls, support beams, foundations, columns, exterior doors and windows and lateral support to the Building; (ii) assure watertightness of the Premises (including caulking of the flashings) and repairs to the roof, roofing system, curtain walls, windows, and skylights if required to assure watertightness; (iii) the plumbing in the common areas of the Property; (iv) common areas of the Land and Building (excluding areas within the Property reserved for the exclusive use of Tenant, such as parking and loading areas), including their lighting systems; and (v) exterior improvements to the Building, including walkways, shrubbery and landscaping.

               (b)  During the Term, Tenant shall, at its sole expense. (i) do its own redecorating of the interior of the Premises, subject to the provisions set forth in Paragraph 14 of this Lease; (ii) be responsible for normal, routine maintenance and care of the interior of the Premises, such as changing filters and light bulbs, and for pest control; (iii) maintenance and repair and replacement of the plumbing, electrica1, fire and security monitoring and heating, ventilation and air condition ("HVAC") systems and all other Building systems within the Premises; and (iv) make all repairs caused by the negligence or willful misconduct of Tenant, its agents, contractors, representatives, employees, and others for whom Tenant is legally responsible.

               (c)  Tenant waives all rights under, and benefits of, subsection 1 of Section 1932, and Sections 1941 and 1942, of the California Civil Code and under any similar law or ordinance now or hereafter in effect.

9. Operating Expenses.

               (a)  For purposes of Paragraphs 9 and 10, the following definitions shall apply:

                     (i)  "Expense Year" shall mean (I) the Partial year commencing on the Commencement Date and ending on December 31, 2000, (2) each full calendar year during the Term thereafter, and (3) the partia1 year (if any) in which the Term hereof expires.

                     (ii)   "Landlord's Statement" shall mean a statement furnished by Landlord to Tenant containing a computation or information relating to any Additional Rent asserted by Landlord to be due pursuant to the provisions of this Lease, and containing back up data reasonably sufficient for Tenant to verify the computation of Additional Rent.

                     (iii)  "Tenant's Proportionate Share" shall be based on 75,000 rentable square feet in the Premises compared to the total rentable square feet of 585,413 rentable square feet in the Building. If either of these figures shall vary during the Term, Tenant's Proportionate Share shall be appropriately adjusted. In addition, Tenant's Proportionate Share may be adjusted to compensate Landlord for additional Operating Expenses incurred by Landlord due to Tenant's operation of the Premises beyond normal business hours.

                     (iv) "Operating Expenses" shall

                           (1)  include all costs and expenses (including taxes and insurance thereon) paid by or on behalf of Landlord in respect of the operation, cleaning, repair, safety, management, security and maintenance of the Property, and the sidewalks, curbs, plazas and other areas thereon, and in respect of the services provided to tenants, which are reasonable, allocable and directly attributable to the operation of the Property, including, without limitation, (i) salaries, wages and bonuses paid to, and the cost of any hospitalization, medical, surgical, union and general welfare benefits (including group life insurance), any pension, retirement or life insurance plan and other benefits or similar expenses relating to, employees of Landlord (provided not higher than Property manager) engaged full-time (or part-time but only with respect to the time worked at the Property) in the operation, cleaning, repair, safety, management, security or maintenance of the Property; (ii) social security, unemployment and other payroll taxes, the cost of providing disability and worker's compensation coverage imposed by any law or regulation, union contract or otherwise in respect of said employees; (iii) the cost of electricity, gas, steam, water, air conditioning and other fuel and utilities not the obligation of any particular tenant; (iv) the cost of casualty, rent, liability, fidelity, plate glass and any other similar insurance, but only to the extent a prudent landlord of a comparable building would carry the type and amounts of such insurance; (v) the cost of repairs, maintenance and painting; (vi) me cost or rental of all building and cleaning supplies, tools, materials and equipment; (vii) the cost of supplies; (viii) window cleaning, guard, watchman or other security personnel, service or system; (ix) management fees not in excess of then prevailing market rates for management fees payable for similar properties in Rocklin, California and adjacent cities; (x) charges of independent contractors perfom1ing work included within this definition of Operating Expenses; (xi) telephone and stationery; (xii) legal, accounting and other professional fees and disbursements incurred in connection with the operation and management of the Property; (xiii) association fees and dues; (xiv) decorations; (xv) depreciation of hand tools and other movable equipment used in the operation, cleaning, repair, safety, management, security or maintenance of the Property provided the original cost of such equipment did not constitute an Operating Expense; (xvi) exterior and interior landscaping and (xvii) Taxes; and

                           (2)  exclude (i) the amount of any insurance actually received by Landlord for any insured casualty with respect to me Property; (ii) the amount of any uninsured loss with respect to the Property; (iii) costs attributable to violation of laws by Landlord; (iv) principal or interest on any debt of Landlord, or ground lease payments; (v) wages for personnel to the extent allocable to other properties of Landlord; (vi) all expenses for which Landlord is reimbursed (either by an insurer, condemnor or other: person or entity), bur only to the extent of such reimbursement and any and all expenses for which Landlord is reimbursed by another tenant of the Building pursuant to such tenant's lease; (vii) depreciation of the Building; (viii) sa1aries of personnel above the grade of senior property manager, senior controller, senior accountant and senior engineer; (ix) costs in connection with services or benefits of a type which are not provided to Tenant, but which are provided to another tenant or occupant of t he Building; (x) mark-ups on electricity and condenser cooling water for heat pumps in excess of Landlord's cost therefor; (xi) cost to defend lawsuits brought by Landlord to enforce leases with other- tenants; and (xii) costs of negotiation of leases, tenant improvements, marketing expenses, finder's fees and real estate broker commissions.

                     (v) "Taxes" shall

                           (1)   include (i) all real estate taxes, assessments special or otherwise), sewer and water rents, rates and charges, and any other governmental levies, impositions and charges of a similar nature ("Impositions"), which may be levied, assessed or imposed on or in respect of all or any part of the Property, whether or not the same constitute one or more tax lots; and (ii) any reasonable and appropriate expenses incurred by Landlord in contesting any of the foregoing or the assessed valuation of all or any pan of the Property; and

                           (2)  not include any of the following: Impositions upon improvements or alterations made by the Landlord or other tenants outside of the Premises, or upon additions to the Property or Building; or penalties; or interest paid by the Landlord on account of taxes.
           
           If at any time during the Term the methods of taxation prevailing at the date hereof shall be altered so that in lieu of or as a substitute for the whole or any part of the Impositions now levied, assessed or imposed on all or any part of the Property, there shall be levied, assessed or imposed (i) an Imposition based on the income or rents received therefrom whether or not wholly or partially as a capital levy or otherwise, or (ii) an Imposition measured by or based in whole or in part upon all or any part of the Property and imposed on Landlord, then all Impositions shall be deemed to be Taxes.

10. Payment of Operating Expenses .

             (a)  Landlord shall advise Tenant in writing of Tenant's estimated Proportionate Share of the total Operating Expenses for the upcoming Expense Year, along with the estimated monthly amount based on the number of months in such Expense Year. Tenant shall pay such estimated monthly amount on the first day of each month during such Expense Year concurrently with the monthly Fixed Rent payment.

             (b)  Within ninety (90) days after me close of each Expense Year, Landlord shall deliver to Tenant an itemized statement ("Landlord's Statement") showing in reasonable detail the (i) accrual Operating Expenses for such Expense Year broken down by component expenses; (ii) Tenant's Proportionate Share of such Operating Expenses; (iii) the amount paid by Tenant during the Expense Year towards the Operating Expenses; and (iv) the amount Tenant owes to Landlord, or the amount of the refund Landlord owes to Tenant. Any amount due from Landlord to Tenant under Paragraph l0(b)(iv) shall be credited against the next due payment of Additional Rent, or, if at the end of the Term, paid directly to Tenant. Any such amount due from Tenant to Landlord shall be paid by Tenant to Landlord within ten (10) days after receipt of Landlord's Statement.
                
             (c)  The obligations of Landlord and Tenant with respect to any Additional Rent shall survive the expiration or any sooner termination of the Term.

             (d)  Landlord agrees to maintain complete records of all costs reimbursable by Tenant under the terms of this Lease. All such records shall be maintained in accordance with generally accepted accounting practices and shall be retained for a period of one (1) year following the date on which such costs were charged to Tenant. Tenant shall have the right, through itself or its representatives, to examine, copy and audit such records at all reasonable times at Landlord's office during business hours. Each Landlord's Statement shall be conclusive and binding upon Tenant un1ess, within one (1) year after the date of such Landlord's Statement. Tenant shall notify Landlord that it disputes the correctness of Landlord's Statement. Pending the determination of such dispute by agreement or otherwise, Tenant shall pay Additional Rent in accordance with the applicable Landlord's Statement, and such payment shall be without prejudice to the position of Tenant.

11. Insurance .

               (a)  Tenant shall maintain, at its expense, during the Term, comprehensive general liability insurance for the Premises in a combined coverage for bodily injury and property damage in an amount not less than Three Million Dollars ($3,000,000). Tenant shall name Landlord, Townsend Capital, LLC and any mortgagee of which Landlord has advised Tenant, as additional insureds under such policy. Tenant shall also keep all of Tenant's fixtures, furniture, furnishings, equipment and stock insured against all loss or damage by fire or other casualty, with standard "all-risk coverage", in an amount not less than one hundred percent (100%) of the full insurable replacement thereof, without deduction for depreciation, but in any event in an amount sufficient to prevent Tenant from becoming a co-insured under the applicable policies.

               (b)  Landlord shall maintain, as included in the Operating Expenses, during the Term, with solvent and responsible companies, fire insurance, with standard "all risk" coverage for the Property. Such coverage shall equal one hundred percent (100%) of the replacement cost of the Building and any parking facility, exclusive of excavation, footings and foundations. Landlord shall maintain, at its expense, during the Term, with solvent and responsible companies, comprehensive general liability insurance covering injuries occurring on the Property, which shall provide for a combined coverage for bodily injury and property damage in an amount not less than One Million Dollars ($1,000,000).

                (c)  Landlord shall not be liable for any damage or loss to fixtures, equipment, merchandise or other personal property of Tenant located anywhere in or on the Premises caused by fire. Water, explosion, sewer backup or any other insurable hazards, even if caused by tile negligence of Landlord, its agents, representatives or contractors, and Tenant does hereby expressly release Landlord of and from any and all liability for such damages or loss. Landlord shall not be liable for any damage or 1oss resulting from business interruption at the Premises arising our of or incidental to the occurrence of any of the perils which can be covered by a business interruption policy and Tenant does hereby expressly release Landlord of and from any liability for such damage or loss. To the extent that any of the risks or perils described in this Paragraph are in fact covered by insurance, each party shall cause its insurance carriers to waive all rights of subrogation against the other party.

12. Indemnity .

                (a)  Tenant does hereby agree to defend, indemnify and hold Landlord harmless from and against any and all liability for any injury to or death of any person or persons or any dam age to property in any way arising out of or in connection with the condition (except for conditions proven to be existing on the date hereof), use or occupancy of the Premises, or in any way arising out of any activities in or about the Premises, the Building or other portions of the property, of Tenant, its assignee, or subtenants or of the respective agents, employees, licensees, contractors or invitees of Tenant or its assignees or subtenants, and from all costs, expenses and liabilities (including, but not limited to, court costs and reasonable attorneys' fees) incurred by Landlord in connection therewith, excepting however, liability caused by or resulting from the negligence or willful misconduct of Landlord or its agents, employees, licensees or contractors.
                
               (b)  Tenant covenants and agrees that Landlord shall not be liable to Tenant for any injury to or death of any person or persons or for damage to any property of Tenant, or any person claiming through Tenant, arising out of any accident or occurrence in or about the Premises or other portions of the Building or the Property including, but not limited to, injury, death or damage caused by tile Premises or other portions of the Building becoming out of repair or caused by any defect in or failure of equipment, pipes or wiring, or caused by broken glass, or caused by the backing up of drains, or caused by gas, water, steam, electricity, or oil leaking, escaping or flowing into the Premises, or caused by fire or smoke or caused by the acts or omissions of other tenants and occupants of the Building.

               (c)   Tenant agrees to report in writing to Landlord any defective condition in or about the Premises known to Tenant, and further agrees to attempt to contact Landlord by telephone promptly in such instance.
                
               (d)   Landlord does hereby agree to defend, indemnify and hold Tenant harm1ess from and against any and all liability for any injury to or death of any person or persons to the extent arising out of or in connection with the condition, use or occupancy of the common areas of the Property, or to the extent arising out of the activities in or about the common areas of the Property, of Landlord, its agents, employees, contractors or invitees, and from all cost, expenses and liabilities including, but not limited to, court costs and reasonable attorneys' fees), incurred by Tenant in connection therewith, excepting, however, liability caused by or resulting from the negligence or willful misconduct of Tenant, its agents, employees, licensees, contractors or invitees.
                
13. Services and Utilities .

               (a)  Landlord shall provide all utility services for the Building up to the point of distribution to the Premises.                
               
               (b)  Tenant shall obtain all utility services for the Premises, including, without limitation, electricity, water, gas, telephone and other utilities and communications services, pest control, security monitoring, janitorial and garbage collection in its own name effective as of the Commencement Date and shall pay all costs for the use of such services directly to the applicable utility, including any fine, penalty, interest or cost which may be added hereto for non-payment thereof. Notwithstanding the foregoing, if during the Term any utilities are separately metered in the Premises, Tenant shall reimburse Landlord on a monthly basis for such utilities promptly after receipt by Tenant of an invoice therefor from Landlord, which reimbursement shall constitute Additional Rent hereunder. In the event any utility serving the Premises during the Term is not separately submetered. Tenant shall reimburse Landlord on a monthly basis as Additional Rent for Tenant's proportionate share of the cost of such utility service, which proportionate share shall be calculated as a fraction, the numerator of which shall be the number of rentable square feet leased in the Building by Tenant, at the time of such calculation and the denominator of which shall equal the total number of rent1ble square feet in the Building leased to tenants (including Tenant) which share utility meters at the time of such calculation. In the event Landlord leases space to other tenants which share Tenant's electricity meter, which other tenants have dissimilar uses to Tenant's Permitted Use, Landlord shall adjust Tenant's proportionate share accordingly to reflect actual usage to the extent possible in Landlord's reasonable judgment.

               (c)  In the event of any failure or interruption in any service or utility whether caused by breakage, accident, strikes, repairs, failure of fuel supply, or for any other cause or causes, Tenant shall not be entitled to abate Fixed Rent payable hereunder except if, and only if, (i) any such failure or interruption in service was caused solely by the negligence or willful misconduct of Landlord, (ii) such failure continues for seven (7) business days after Landlord's receipt of written notice thereof from Tenant, and (iii) such failure materially interferes with Tenant's occupancy. Any abatement available to Tenant pursuant to this Paragraph shall be limited to the portion of the Premises affected. However, in no event shall Landlord be liable to Tenant for any indirect or consequential damages. Notwithstanding the foregoing, Landlord shall use reasonable efforts to restore interrupted service.
                
14. Alterations .

               (a)  Tenant may, at its own expense, make such decorative and/or cosmetic changes or alterations to the Premises as will, in the reasonable judgment of Tenant, better adapt the same for its needs, provided that Tenant must obtain Landlord's prior written consent, which shall not be unreasonably witbhe1d, for any other kinds of alterations, changes, additions or improvements, including, without limitation, any structural alterations or changes which would affect any utilities or Building systems.

               (b)  Tenant agrees that all its alterations (including, without limitation, the initial tenant improvements) shall comply with all laws, will be constructed in a good and workmanlike manner, and that Tenant will carry all insurance required by this Lease covering the alterations, and Tenant shall indemnify Landlord against liability for any and all mechanics' and other liens flied in connection with Tenant's alterations.

               (c)  Except for items constituting Tenant's personal property and trade fixtures, all alterations shall be and remain a part of the Premises, shall be deemed the property of Landlord as of the date such alterations are completed, attached to or built into the Premises and Tenant shall not remove any alterations unless directed to do so by Landlord, in which event Tenant shall pay for and repair any damage to the Premises caused by such removal.

15. Assignment and Sublease .

               (a)  Tenant shall not sublet any part of the Premises, nor assign, pledge or encumber this Lease or any interest herein, without the prior written consent of Landlord, which consent may not be unreasonably withheld by Landlord. Landlord shall be entitled to deny consent to an assignment or sublease if, by way of illustration but not limitation, the rate of compensation, including, but not limited to, all rent, requested by Tenant for the portion of the Premises to be subleased or for the assignment of the Lease would impact upon or impair Landlord's ability to rent space in the Building at the then market rate as offered by Landlord or if the financial statements of the proposed assignee or sublessee are unsatisfactory. Consent by Landlord to one assignment or sublease shall not destroy or waive this provision, and all later assignments and subleases shall likewise be made only upon prior written consent of Landlord. In the event a sublease or assignment is consented to by Landlord any sublessees or assignees shall become liable directly to Landlord for all obligations of Tenant hereunder without relieving or in any way modifying Tenant's liability hereunder, but rather Tenant and its transferee shall be jointly and severally liable therefor. In the event Landlord gives its consent to any such assignment or sublease, fifty percent (50%) of any rent or other cost to the assignee or subtenant for all or any portion of the Premises over and above the Rent payable by Tenant for such space shall be due and payable, and shall be paid, to Landlord. In the event a sublease or assignment is made as herein provided, Tenant shall pay Landlord a charge equal to the actual costs incurred by Landlord, in Landlord's reasonable judgment (including, but not limited to, the use and time of Landlord's personnel), for all of the necessary legal and accounting services required to accomplish such assignment or subletting, as the case may be. Any transfer, assignment or sublease of all or any portion of the Premises or Tenant's interest under this Lease made without Landlord's consent shall be void and of no force or effect. Landlord's consent to any sublease or assignment hereunder shall not waive Landlord's rights as to any subsequent sublease or assi gnment.

               (b)  Landlord may, within thirty (30) days after submission of Tenant's written request for Landlord's consent to an assignment or subletting, cancel this Lease as to the portion of the Premises proposed to be sublet or assigned as of the date such proposed transfer is to be effective. If Landlord cancels this Lease as to any portion of the Premises, then this Lease shall cease for such portion of the Premises and Tenant shall pay to Landlord all Rent accrued through the Cancellation date relating to the portion of the Premises covered by such proposed transfer. Thereafter. Landlord may lease such portion of the Premises to the prospective transferee (or to any other person) without liability to Tenant.

               (c)  The sale or transfer of Tenant's voting stock (if a corporation) or partnership interest (if a partnership) resulting in the transfer of control of a majority of such stock or interest, or the occupancy of the Premises by any successor firm of Tenant or by any firm into which or with which Tenant may become merged or consolidated shall be deemed an assignment of this Lease requiring the prior written consent of Landlord.

               (d)  Any assignment or sublease by Tenant to a Tenant Affiliate (as such term is defined below) shall be made on prior notice to Landlord but shall not require the consent of Landlord. Any such sublease or assignment shall otherwise be subject to all of the terms and conditions of this Section 11. For purposes of this Lease, the term "Tenant Affiliate" shall mean any trust, corporation, partnership, limited liability company or other entity in which Tenant owns not less than 51% of the ownership interests and of which Tenant controls.

               (e)  In the event of any assignment of this Lease or sublease of all or part of the Premises, Tenant shall not be released from any of its obligations under this Lease.

16. Casualty and Condemnation. 

               (a)  (i) If the Premises become untenantable in whole or in part by reason of damage or destruction by fire or other casualty covered by the fire insurance policies required to be carried by Landlord pursuant to the provisions of this Lease, Tenant shall immediately give written notice thereof to Landlord and, unless this lease be terminated as hereinafter provided, Landlord shall, at its own expense, repair or rebuild the Premises with reasonable dispatch so as to restore the Premises to substantially the same condition as existed on the date of such casualty (with the exception of the Tenant improvements and the furniture, fixtures and furnishings and other personal property of Tenant, which shall be solely Tenant's responsibility), subject, however, to rights of mortgagees, zoning laws and building codes then in existence; provided, however , that Landlord shall not be required to expend in such repair or rebuilding any amount in excess of the net insurance proceeds received by Landlord with respect to such damage. "Net insurance proceeds" shall mean the "amount of the insurance proceeds less all costs and expenses, including adjusters and reasonable attorneys' fees, of obtaining the same.

                     (ii)   If the Premises or the Building shall be damaged or destroyed to the extent of ten percent (10%) or more of its insurable value by any cause, or if the Premises or Building are damaged or destroyed by a risk not covered by Landlord's insurance, or if any such damage or destruction (regardless of amount) occurs during the last two (2) years of the Term. Landlord may elect by written notice to Tenant within thirty (30) days after the damage or destruction has occurred to terminate this Lease.

                     (iii)      In the event any casualty damage renders more than fifty percent (50%) of the Premises unusable, and the restoration of the Premises will take, in the reasonable estimation of Landlord's architect, longer than one hundred twenty (120) days, then Tenant shall have the right to terminate this Lease effective as of the date of the casualty by written notice to Landlord no later than the earlier to occur of (A) thirty (30) days after notice from Landlord that the restoration will take longer than one hundred twenty (120) days, and (B) two hundred seventy (270) days after the date of the casua1ty. In addition, if any such damage or destruction (regardless of amount) occurs during the last six (6) months of the Term, Tenant may elect by written notice to Landlord within thirty (30) days after the damage or destruction has occurred to terminate this Lease.

                     (iv)   If this Lease is not terminated as set forth above, the Fixed Rent and Tenant's Proportionate Share shall be reduced proportionately based on the area of the Premises damaged until Landlord's restoration is complete.

               (b)  If all of the Premises are taken by exercise of the power of eminent domain (or conveyed by Landlord in lieu of such exercise), this Lease will terminate on a date (the "Termination Date") which is the earlier of the date upon which the condemning authority takes possession of the Premises or the date on which title to the Premises is vested in the condemning authority. If more than twenty-five percent (25%) of the Premises is taken, either Landlord or Tenant may terminate this Lease by notice to the other within thirty (30) days of the taking. If less than twenty-five percent (25%) of the Premises is so taken, or if neither Landlord nor Tenant cancels this Lease according to the preceding sentence), the Fixed Rent and Additional Rent will be abated in the proportion of the rentable area of the Premises so taken to the rentable area of the Premises immediately before such taking and any prepaid Rent for the period of such taking shall be appropriately apportioned between Landlord and Te nant. In the event of any taking), the entire award will be paid to Landlord, and Tenant will have no right or claim to any part of such award; provided, however, Tenant will have the right to assert a claim against the condemning authority, so long as Landlord's award is not reduced as a consequence of such claim, for Tenant's moving expenses, Tenant's property and interruption to Tenant's business. If this Lease is not terminated pursuant to this Paragraph and if the Landlord's mortgagee makes the net condemnation award available to Landlord for restoration, Landlord, to the extent Landlord reasonably determines that it is reasonably feasible to do so, shall use the net condemnation award made available to Landlord to restore the Premises or parking areas not so taken.

17. Subordination and Non-Disturbance .

               (a)  This Lease is and shall be subject and subordinate to all ground leases, deeds of trust and mortgages (collectively "Mortgages") which may now or hereafter affect the Premises and to all renewals) modifications, consolidations) replacements, and extensions of such Mortgages; provided that at Landlord's election, this Lease shall be superior to any or all Mortgages. This provision is self-executing and no further instrument shall be required to establish such subordination or superiority; provided, Landlord shall obtain and deliver to Tenant from any present or future mortgagee, trustee, fee owner, prime lessor or any person having an interest in the Premises superior to this Lease ("Mortgagee") such Mortgagee's customary form of written subordination, non-disturbance and attornment agreement in recordable form providing, among other things, that so long as Tenant performs all of the terms, covenants and conditions of this Lease and agrees to attorn to the mortgagee, beneficiary of the deed of trust, purchaser at a foreclosure sale, prime lessor or fee owner or such customary terms and conditions as such Mortgagee may reasonably require, Tenant's rights under this Lease shall not be disturbed and shall remain in full force and effect for the Term, and Tenant shall not be joined by the holder of any mortgage or deed of trust in any action or proceeding to foreclose thereunder.

               (b)  After receiving notice and a notice address from Mortgagee, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such Mortgagee. Any such Mortgagee shall have thirty (30) days for the cure of any such default and if such default cannot reasonably be cured within such thirty (30) days, then Mortgagee shall have thirty (30) days from within which to commence a cure and provided such Mortgagee is proceeding diligently, such longer period as may be reasonably necessary to complete such cure. The curing of any of Landlord's defaults by such Mortgagee shall be treated as performance by Landlord.
                
               (c)  With respect to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to any Mortgagee, Tenant agrees that the execution thereof by Landlord, and the acceptance thereof by the Mortgagee, shall never be deemed an assumption by such Mortgagee of any of the obligations of Landlord hereunder, unless such Mortgagee shall, by written notice sent to Tenant, specifically elect, or unless such Mortgagee shall foreclose the Mortgage and take possession of the Premises, Tenant, upon receipt of written notice from a Mortgagee that such Mortgagee is entitled to collect Rent hereunder may in good faith remit such Rent to Mortgagee without incurring liability to Landlord for the non-payment of such Rent.
                
               (d)  If the Mortgagee, or any party deriving its interest therefrom shall succeed to the rights of Landlord in the Premises or under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then Tenant shall attorn to and recognize such party succeeding to Landlord's rights (the party so succeeding to Landlord's rights herein sometimes called the "Successor Landlord") as Tenant's landlord under this Lease, and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to confirm such attornment. This Lease shall continue in full force and effect as, or as if it were, a direct lease between the Successor Landlord and Tenant, and all of the terms, conditions and covenants set forth in this Lease shall be applicable after such attornment, except that the Successor Landlord shall not:
                
                (i)  be liable for any previous act or omission of Landlord under this Lease;
                
                (ii) be subject to any offset that shall have theretofore accrued to Tenant against Landlord; or
                
                (iii) be bound by:
                

(A)  any previous modification of this Lease, not expressly provided for in this Lease unless consented to by such Successor Landlord; or

(B)  any previous prepayment of more than one (I) month's Rent or any Additional Rent then due, unless such prepayment shall have been expressly approved in writing by the Mortgagee through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease.

The provisions for attornment set forth in this Paragraph 17(d) shall be self-operative and shall not require the execution of any further instrument. However, any Mortgagee and/or any other party to whom Tenant agrees to attorn as aforesaid reasonably requests a further instrument confirming such attormnent, Tenant agrees to execute and deliver the same within twenty (20) days after a request is made to do so in accordance with the provisions of this Lease.
                
18. Landlord's Right of Entry . Landlord has the right to enter the Premises at any reasonable time upon twenty-four (24) hours prior written notice to Tenant, or without notice in case of emergency, for the purpose of performing maintenance, repairs, and replacements to the Premises as are permitted under this Lease. During business hours and upon reasonable notice to Tenant, Landlord may, during the Term, show the Premises to prospective purchasers and mortgagees, and, during the nine (9) months prior to expiration of this Lease, to prospective tenants. Landlord shall use reasonable efforts not to unreasonably interfere with or disrupt the normal operation of Tenant's business. Landlord shall repair any damage to the Premises to the extent caused by Landlord while in the Premises.
                
19. Common Areas and Access. Tenant shall have full and unimpaired access to the Building and the Premises at all times, and if access to a public road is via private roads or streets, Tenant shall have the right to use such roads and streets for ingress and egress to the Building and the Premises. Tenant shall have the right to use the stairways, halls, entrances, rest rooms, and other facilities in and about the Property in common with the Landlord's other tenants.

20. Tenant's Defaults.

               (a)  The occurrence of any of the following shall constitute an event of default:
                
                      (i)  Any installment of Fixed Rent or any other sums required to be paid by Tenant hereunder, or any part thereof shall at any time be in arrears and unpaid for ten (10) days after the date due, or

                      (ii) There is any default or breach on the part of Tenant in the observance or performance of any of the other covenants, agreements, or conditions of this Lease on the part of Tenant to be kept and performed and said default or breach shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant (unless such default cannot reasonably be cured within thirty (30) days and in such case, Tenant shall have commenced to cure said default within said thirty {30) days and thereafter continue diligently to pursue to completion the curing of same, but in no event to exceed sixty (60) days after notice from Landlord to Tenant), or

                      (iii) Tenant shall file a petition in bankruptcy or be adjudicated a bankrupt, or file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation, or make an assignment for the benefit of creditors, or

                      (iv) Any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties shall be appointed in any action, suit or proceeding by or against Tenant and such proceeding or action shall not have been dismissed within ten (10) days after such appointment, or

                      (v) Tenant shall attempt to assign this Lease or sublet any portion of the Premises without the consent of Landlord except as permitted by Paragraph 15 hereof, or

                      (vi) Tenant shall fail to deliver within twenty (20) days after a request therefor any document described in Paragraphs 11 or 17 hereof.

               (b)  If and whenever any event of default as defined above or elsewhere in this Lease shall occur and is continuing, Landlord shall have the right at its election then or at any time thereafter to pursue any one or more of the following remedies in addition to all other rights or remedies provided herein or at law or in equity:
                
                      (i)  In the event that Landlord elects, upon occurrence of an event of default, to declare a breach of this Lease, then Landlord shall have the right to give Tenant seven (7) days' notice of its intention to terminate this Lease and Tenant's right to possession of the Premises and, at the expiration of said seven (7) day period, the Term shall expire as fully and completely as if that day were the day specified in this Lease for the expiration of the Term and Tenant shall vacate and deliver possession of the Premises to Landlord, but Tenant shall remain liable as hereafter provided. If Tenant fails to so vacate and deliver the Premises, Landlord shall have the right, subject to applicable law, to re-enter the Premises and dispossess Tenant and the legal representatives of Tenant and all other occupants of the Premises by unlawful detainer or other summary proceedings, and remove their effects and regain possession of the Premises (but Landlord shall not be obligated to effect such removal).
                
                      (ii)  In the event of termination of this Lease or termination of right to possession (as a result of Tenant's breach of this Lease). Landlord shall have:
                
                            (1)  The right to remove any and all persons and property from the Premises, in accordance with applicable law, but Landlord shall not be obligated to effect such removal. Said property may, at Landlord's option, be stored or otherwise dealt with as provided within this Lease or as applicable law may then provide or permit, including but not limited to the right of Landlord to sell or otherwise dispose of the same or to store the same, or any part thereof, in a warehouse or elsewhere at the expense and risk of and for the account of Tenant;
                
                            (2)  The rights and remedies provided by California Civil Code Section 1951.2 to recover from Tenant upon termination of the Lease:
                
               (a)  the worth at the time of award of the unpaid Fixed Rent and Additional Rent or other charges which had been earned at the time of termination;
                
               (b)   the worth at the time of award of the amount by which the unpaid Fixed Rent and Additional Rent and other charges which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;
                
               (c)  subject to Subdivision (c) of California Civil Code Section 1951.2, the worth at the time of award of the amount by which the unpaid Fixed Rent, Additional Rent and other charges for the balance of the Term after the time of award exceeds the amount of Rent loss that Tenant proves could be reasonably avoided; and
                
               (d)  any other amount necessary to compensate Landlord for all the detriment proximate1y caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom.
                
The "worth " at the time of award of the amounts referred to in clause (b)(ii)(2)(a) and (b) of this Paragraph sha1l be computed by allowing interest at a rate equal to the Prime Rate of interest announced from time to time by the Wall Street Journal plus two percent (2%). That worth at the time of the award of the amount referred to in clause (b)(ii)(2)(c) of this Paragraph shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (I %).

                            (3)  The right to enforce, to the extent permitted by the laws of the State of California then in force and effect, any other rights or remedies set forth in this Lease: or otherwise applicable hereto by operation of law or contract.

                      (iii) In the event of any breach of this Lease by Tenant (and regardless of whether or not Tenant has abandoned the Premises), this Lease shall not terminate unless Landlord, at Landlord's option, elects at any time after occurrence of any event of default to terminate Tenant's right to possession as provided in clause (b)(1) of this Paragraph or, at Landlord's further option, by the giving of any notice (including but not limited to any notice preliminary or prerequisite to the bringing of legal proceedings in unlawful detainer) which terminates Tenant's right to possession. As long as this Lease continues in effect, Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover all Rent as it becomes due hereunder. For the purpose of this Paragraph, the following shall not constitute termination of Tenant's right to possession: (1) acts of maintenance or preservation or efforts to relet the Premises, or (2) the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease.

                      (iv) In the event of a breach or threatened breach by Tenant of any of the terms, covenants, conditions, provisions or agreements of this Lease, Landlord shall additionally have the right of injunction and Tenant agrees to pay the premium for any bond required in connection with such injunction. Provision in this Lease of any particular remedy sha11 not preclude Landlord from any other remedy, at law or in equity. All rights and remedies of Landlord herein enumerated shall be cumulative, and the exercise by Landlord of any right or remedy provided for herein or allowed by law or equity shall not be to the exclusion of any other right or remedy.

21. Reserved.

22. Holding Over . Should Tenant remain in possession of the Premises after the expiration of this Lease, such holding over shall not be deemed to create any tenancy at will, but Tenant shall be a Tenant at sufferance only under all the terms and conditions of this Lease, except that the Fixed Rent shall be 150% of the Fixed Rent in existence upon the expiration of this Lease or any extension term.
           

23. Quiet Enjoyment . Landlord covenants and warrants that (a) it has lawful title to the Property and (b) that if and for so long as Tenant pays the Rent and performs the covenants and conditions hereof, Tenant shall peaceably and quietly have, hold and enjoy the Premises for the Term without interference from Landlord or any person claiming through Landlord.
           
24. Representation of Authority . Landlord and Tenant represent and warrant to each other that they have full right, power and authority to enter into this Lease without the consent or approval of any other entity or person. The signatories on behalf of Landlord and Tenant represent and Warrant that each has full right, power and authority to act for and on behalf of Landlord and Tenant in entering into this Lease, but no personal liability therefore.
           
25. Landlord's Claims . All obligations of Tenant which by their nature involve performance, in any particular, after the end of the Term of this Lease or which cannot be ascertained to have been fully performed until after the end of the Term of the Lease, shall survive the expiration or sooner termination of the Term of this Lease.
           
26. Brokers . Landlord and Tenant represent that each has dealt directly with and only with C.B. Richard Ellis, Inc. (the "Broker"), in connection with this Lease. Landlord shall pay the commission due to the Broker, pursuant to a separate agreement. Tenant represents and warrants to Landlord that Tenant has dealt with no other broker and agrees to defend, indemnify and save harmless Landlord against all claims, liabilities, losses, damages, costs and expenses (including reasonable attorneys' fees and other costs of defense) arising from Tenant's breach of this representation.
           
27. Attornevs' Fees . In the event either party institutes legal proceedings against the other for breach of or interpretation of any of the terms, conditions or covenants of this Lease, the party against whom a judgment is entered shall pay all reasonable costs and expenses relative thereto, including reasonable attorneys' fees of the prevailing party.

28. Reserved.

29. Notices . Any notice by either party to the other shall be in writing and shall be deemed to be duly given only if delivered personally or sent by registered or certified mail return receipt requested, or overnight delivery service, to the following:

If to Tenant:

Ace Hardware Corporation
2200 Kensington Court
Oak Brook, IL 60523-2134
Attention: Corporate Property Manager
If to Landlord:

Townsend Rocklin, LLC
c/o Townsend Capital, LLC
210 West Pennsylvania Avenue
Suite 700
Towson, MD 21204
Attention: General Counsel

Notice shall be deemed to have been given on the date received or refused.

30. Reserved.

31. Surrender of Premises . At the expiration of the Term of this Lease, whether by forfeiture or expiration of time, Tenant shall surrender the Premises to Landlord in as good condition as when received by Tenant from Landlord except for reasonable wear and tear and damage by fire or other casualty insured, or required to be insured, by Landlord hereunder. Tenant shall not be required to remove its leasehold improvements except as otherwise provided herein. Tenant waives the provisions of subsection 2 of Section 1932 and subsection 4 of Section 1933 of the California Civil Code. Tenant may, at its sole cost and expense, videotape the Premises prior to its occupancy to establish the baseline condition of the Premises. Tenant shall give Landlord reasonable advanced notice of its intention to videotape the Premises and Landlord may attend such videotaping if it so elects. Landlord agrees that Tenant shall have no responsibility or liability with respect to any deficiencies in the Premises to the e xtent they are evidenced on the videotape; provided, however, Tenant shall be responsible for any deficiencies which Landlord repaired or replaced during the Term subsequent to the videotaping.
           
32. Limitation of Landlord's Liability . The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owners at the time in question of the fee simple title to the Building and Premises, and in the event of transfer of said fee simple estate, then the party conveying said fee simple estate shall be automatically relieved after the date of such transfer, of all personal liability as respects the performance of any obligations on the part of Landlord contained in this Lease. Tenant acknowledges and agrees that the liability of Landlord under this Lease shall be limited to its interest in the Building and any judgments rendered against Landlord shall be satisfied solely from its equity in the Building. No personal judgment shall lie against Landlord upon extinguishment of its rights in the Building and any judgment rendered shall not give rise to any right of execution or levy against Landlord's assets. The provisions hereof shall inu re to Landlord's successors and assigns including any mortgagee.
           
33. Bankruptcy . Neither this Lease, nor any interest therein nor any estate hereby created shall pass to any trustee or receiver in Bankruptcy, or to any other receiver or assignee for the benefit of creditors or otherwise by operation of law.
           
34. Entire Agreement . This Lease constitutes the entire agreement between the parties, there being no other terms, oral or written, except as herein expressed. No modification of this Lease shall be binding on the parties unless it is in writing and signed by both parties hereto.
           
35. Severability and Interpretation .
           
               (a)  If any clause or provision of this Lease shall be deemed illegal, invalid or unenforceable under present or future laws effective during the Term, the remainder of this Lease shall not be affected by such illegality, invalidity or unenforceability, and in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there shall be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable.
           
               (b)  Should any provisions of this Lease require judicial interpretation, it is agreed that the court interpreting or construing the same shall not apply a presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the role of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties hereto have participated in the preparation of this Lease.

36. Force Majeure . Landlord and Tenant shall be excused for the period of any delay and shall not be deemed in default with respect to the performance of any of the terms, covenants, and conditions of this Lease (specifically excluding Tenant's obligation to pay Rent or any other amounts under this Lease or to a third party) when prevented from so doing by causes beyond the non-performing party's control, which shall include, but not be limited to, all labor disputes, governmental regulations or controls, fire or other casualty, litigation, inability to obtain any material or services, or acts of God. Notwithstanding the foregoing, in no event shall the provisions of this Paragraph extend the notice and cure periods provided under Paragraph 20(a).
           
37. Original Instrument. Any number of counterparts of this Lease may be executed, and each such counterpart shall be deemed to be an original instrument.
           
38. California Law . This Lease has been made under and shall be construed and interpreted under and in accordance with the laws of the State of California.
           
39. No Recordation of Lease . Without the prior written consent of Landlord, neither this Lease, nor any memorandum thereof shall be recorded or placed on public record.
           
40. Lease Binding upon Delivery: No Option . Submission of this Lease for examination and negotiation does not constitute an option to lease or reservation of space for the Premises. This Lease shall be effective only when executed by both parties and received by Landlord. If this Lease has been submitted to Tenant in form already signed by Landlord, it evidences only Landlord's offer to enter into this Lease on the exact terms provided as delivered, which offer may be revoked at any time and which may additionally expire at any certain time established by Landlord in writing.
           
41. Jurisdiction: Service: Waivers . Tenant hereby consents to the jurisdiction of the courts of the State of California or of the United States District Courts of California. Tenant hereby waives the requirement of service pursuant to the applicable rules of such courts, and consents to accept service by certified mail, return receipt requested, to the address set forth in Paragraph 29 above.
           
LANDLORD AND TENANT EACH HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY CLAIM, ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OR INJURY OR DAMAGE, TENANT HEREBY WAIVES ANY RIGHT TO FILE A NON-MANDATORY COUNTERCLAIM AGAINST LANDLORD IN ANY SUMMARY DISPOSSESS OR SIMILAR PROCEEDING.
           
42. Relocation . Landlord may relocate Tenant and/or reconfigure Tenant's Premises within the Building. If Landlord so relocates/reconfigures Tenant, Landlord shall reimburse Tenant for the reasonable: costs of Tenant's move, including the reasonable cost of relocating Tenant's computer and telephone lines. Upon such relocation, the relocation space shall be deemed to be the Premises and the terms of the Lease shall remain in full force and shall apply to such relocation space.
           
43. Survival . Except as otherwise set forth herein, any obligations of Tenant and Landlord, as set forth herein (including, without limitation, Tenant's rental and other monetary obligations, repair obligations, and obligations to indemnify Landlord), shall survive the expiration or earlier termination of this Lease.
           
44. Time of the Essence . All time for payments and performance herein and all notice and cure periods are of the essence of the agreement between the parties hereto.
           
45. Signage . Tenant may place one (1) sign on or about the entrance to the Premises identifying its tenancy at the Building, Tenant's sign shall be placed and maintained in accordance with all guidelines/ordinances of Placer County and with plans approved in writing by Landlord, which approval shall not be unreasonably withheld, delayed or conditioned, and shall include, without limitation, approval of the lettering, size, style, color and exact location of such sign on the Property. Upon expiration of the Term, or early termination thereof, Tenant shall remove any signs placed in accordance herewith and shall repair any resulting damage therefrom such that the "sign" areas shall be in the same condition as existed as of the date hereof.
           
46. Parking . Tenant shall have the exclusive right for the first sixty (60) days of the Term only to use, at no additional cost, parking spaces for the parking area associated with the Building (the "Parking Area") for trailer parking subject to such terms, conditions and regulations as are from time to time reasonably imposed by Landlord. Upon the expiration of the sixty (60) period set forth herein, Landlord sha1l provide an area on the Property for parking ten (10) trailers, which area Landlord may relocate from time to rime. If Tenant exceeds ten (10) trailers at any time after the initial sixty (60) day period, Tenant shall pay to Landlord a trailer fee, as Additional Rent, in the amount of One Hundred ($100.00) Dollars a month per trailer. By way of example, if Tenant parks eleven (11) trailers during any portion of the third (3rd) full month of the Term, Tenant shall pay Landlord a trailer fee in the amount of One Thousand One Hundred ($1,100.00) Dollars.
           
            IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written.

                                     LANDLORD:

                                     TOWNSEND ROCKLIN, LLC

                                     By: __________________________________
                                     Name: David Townsend
                                     Title: Vice President



                                     TENANT:
ACE HARDWARE CORPORATION
                                     By: David F. Myer
                                     Title: Vice President, Retail Support

EXHIBIT B

THE LAND B-1
EXHIBIT B
(Rocklin)


ALL THAT PORTION OF SECTIONS 3 AND 4, TOWNSHIP 11 NORTH, RANGE 6 EAST, MDB&M, DESCRIBED AS FOLLOWS:

BEGINNING AT THE SECTION CORNER COMMON TO SECTIONS 3 AND 4 9 AND 10, TOWNSHIP 11 NORTH, RANGE 6 EAST, MDB&M; THENCE FROM SAID POINT OF BEGINNING ALONG THE SOUTH LINE OF SAID SECTION 4, SOUTH 89° - 15' 18" WEST 1136.20 FEET TO A PINT LOCATED ON THE ESTERLY RIGHT OF WAY LINE INDUSTRIAL BOULEVARD, FORMERLY STATE HIGHWAY NO. 65; THENCE ALONG SAID EASTERLY RIGHT OF WAY LINE NORTH 00° 05' 13" EAST 2458.95 FEET TO A REINFORCING BAR TAGGED "R.C.E. 9033"; THENCE CURVING TO THE RIGHT ON AN ARC OF 20.00 FEET RADIUS, SAID ARC BEING SUBTENDED BY A CHORD BEARING NORTH 45° 04' 21" EAST 28.28 FEET TO A ONE AND ONE QUARTER INCH IRON PIPE TAGGED "L.S. 31895"; THENCE SOUTH 89° 56' 30" EAST 780.86 FEET TO A SIMILAR IRON PIPE MONUMENT LOCATED ON THE WESTERLY RIGHT OF WAY LINE OF STATE HIGHWAY NO. 65; THENCE ALONG SAID WESTERLY RIGHT OF WAY LINE THE FOLLOWING FIVE (5) COURSES AND DISTANCES: (1) SOUTH 00° 03' 30" WEST 15.00 FEET TO A SIMILAR IRON PIPE MONUM ENT, (2) SOUTH 76° 26' 45" WEST 290.13 FEET TO A SIMILAR IRON PIPE MONUMENT, (3) CURVIN TO THE RIGHT ON AN ARC OF 925.00 FEET RADIUS, SAID ARC BEING SUBTENDED BY A CHORD BEARING SOUTH 38° 32' 12" EAST 1136.66 FEET TO A SIMILAR IRON PIPE MONUMENT, (4) SOUTH 00° 37" 38" EAST 566.13 FEET TO A SIMILAR IRON PIPE MONUMENT AND (5) SOUTH 00° 04' 32" WEST 918.18 FEET TO A POINT LOCATED ON THE SOUTH LINE OF SAID SECTION 3; THENCE ALONG SAID SOUTH LINE SOUTH 89° 23' 56" WEST 663.73 FEET TO THE POINT OF BEGINNING.

EXCEPTING THEREFROM ALL THAT PORTION LYING WITHIN THE PROPERTY CONVEYED TO PACIFIC TELESIS BY GRANT DEED RECORDED JANUARY 4, 1985 IN BOOK 2655 AT PAGE 198, OFFICIAL RECORDS OF PLACER COUNTY.

ASSESSOR'S PARCEL NUMBER:    017-081-007-000
ASSESSOR'S PARCEL NUMBER:    017-081-008-000
ASSESSOR'S PARCEL NUMBER:    017-061-015-000
ASSESSOR'S PARCEL NUMBER:    017-061-034-000

EXHIBIT C-1

LANDLORD IMPROVEMENTS

- -Install eight foot high chain link fence with barb/razor wire cap to serve as demising wall of Premises.
- -Ensure the Premises complies with the-Placer County Fire Protection Code, which may include, by limitation the   following:
- -installing an exit through a designated and approved fire corridor in the southeast corner of the Premises
-if fence installed, the exit door assembly must be provided
-resolve any fire alarm delay problems between Landlord and Placer County Fire Co.
-ensure access for Placer Fire County Co. to all fire alarms via a Knox Box or dual key system

EXHIBIT C-2TENANT'S WORK LETTER

          It is the intent of this Exhibit that Tenant shall be permitted access to the Premises to construct the Tenant Improvement in accordance with the terms of this Work Letter and subject to all applicable terms and provisions of the Lease and applicable building codes and Legal Requirements and consistent with sound architectural and construction practices in first class office buildings, provided that no unreasonable interference is caused to the operation of the Building's mechanical, heating, cooling or electrical systems or other building operations or functions.

A. IMPROVEMENTS

          All Tenant Improvement by Tenant in the Premises shall be completed at Tenant's sole cost and expense in accordance with plans ("Tenant's Plans and Specifications") to be prepared by an architect selected by Tenant and approved by Landlord ("Tenant's Architect"), and may be commenced at any time after the Commencement Date.

B. PLANS AND SPECIFICATIONS

           Tenant, at its expense, shall cause Tenant's Architect to prepare Tenant's Plans and Specifications for Landlord's approval, which approval shall not be unreasonably withheld.

C. CONSTRUCTION

           1.   All Tenant Improvements in the Premises shall be constructed by Tenant and in compliance with the following:

                (a)  No such work shall proceed without Landlord's prior written approval of (i) Tenant's Plans and Specifications; (ii) Tenants contractors and subcontractors; (iii) a certificate of worker's compensation insurance in an amount and with a company and on a form acceptable to Landlord; and (iv) a certificate of insurance in form and from an insurer acceptable to Landlord, showing Tenant or Tenant's contractors to have in effect commercial general liability and property damage insurance with limits of not less than $3,000,000 respectively. All such certificates except worker's compensation shall be endorsed to show Landlord as an additional insured and such insurance shall be maintained by Tenant or Tenant's contractor at all times during the construction of the Tenant Improvements.
               
                (b)  All such work shall be done in conformity with Tenant's Plans and Specifications and with applicable codes and regulations of governmental authorities having jurisdiction over the Premises and with valid building permits. Such permits and other authorizations from appropriate governmental agencies, when required, shall be obtained by Tenant's representative at Tenant's sole expense. Any Tenant related work not acceptable to the appropriate govemmenta1 agencies or Landlord, shall be promptly replaced at Tenant's sole expense. Notwithstanding any failure by Landlord to object to any such work, Landlord shall have no responsibility therefor. Tenant agrees to save and hold Landlord ham1less as provided in the Lease for said work.
               
                (c)  Tenant and Tenant's contractors shall abide by all Legal Requirements, including without limitation, all safety and construction laws, ordinances, rules and regulations. All work and deliveries shall be scheduled through Landlord. Entry by Tenant's contractors shall be deemed to be under all the terms, covenants, provisions and conditions of the Lease. All Tenant's materials, work, installations and decorations of any nature brought upon or installed in the Premises shall be at Tenant's risk, and neither Landlord nor any party acting on Landlord's behalf shall be responsible for any damage thereto or loss or destruction thereof unless due to Landlord's negligence or willful misconduct. Tenant shall not employ any contractor who in Landlord's reasonable opinion may prejudice Landlord's negotiations or relationships with Landlord's contractors, subcontractors, or employees, or the negotiations or relationship of those contractors or subcontractors with their employees, or as may disturb harmonious la bor relations. Tenant shall promptly remove any lien or claim of lien for material or labor claimed against the Premises or Building, or both, by such Contractors or workmen if such claim should arise, and hereby indemnifies and holds Landlord harmless from and against any and all losses, costs, damages, expenses or liabilities including, but not limited to, attorney's fees, incurred by Landlord, as a result of or in any way related to such claims or such liens.
               
                (d)  Tenant shall reimburse Landlord for any extra reasonable out of the pocket expenses incurred by Landlord by reason of faulty work done by Tenant or Tenant's contractors, or by reason of delays caused by such work, or by reason of cleanup which fails to comply with Landlord's rules and regulations, or by reason of use of elevators or other Building services outside normal working hours, or by reason of security measures taken by Landlord (after notice to Tenant) to safeguard the Premises prior to the Commencement Date.
               
                (e)  Tenant's contractor's shall not post any signs on any part of the Building or the Premises.

                (f)  Landlord may make periodic inspections of the Premises during construction and at completion, and shall advise Tenant of any objection to the Tenant Improvements. Tenant shall be responsible for obtaining a permanent certificate of occupancy for the Premises and delivering a copy to Landlord.
               
           2.   Changes: If Tenant requests any changes after Landlord's approval of Tenant's Plans and Specifications. Tenant shall be responsible for all reasonable costs including but not limited to architectural, engineering and related design expenses resulting from such changes. No such changes shall be made without prior written approval of Landlord which approval shall not be unreasonably withheld or delayed. Landlord shall not be responsible for delay in occupancy by Tenant, including because of changes requested by Tenant.
          
D.   RESPONSIBILITY FOR DELAYS
    
           If there shall occur any delay in the construction of the Premises, including, without limitation, by reason of any failure by Tenant to comply with the applicable rime schedule or by Tenant's requirement of specialty materials or installations or by delays in performance of completion by a party employed by Tenant, or by reason of building code problems arising from Tenant's design, or by reason of changes in the Tenant Improvement Work ordered by Tenant, then notwithstanding the provisions of the Lease or any other provision of this Exhibit, any such delay in completing the Premises shall not in any manner affect the Commencement Date or Tenant's liability for the payment of Rent as set forth in the Lease.
           
E.     INCORPORATION IN LEASE

           This Work Letter is and shall be incorporated by reference in the Lease, and all of the terms and provisions of said Lease are and shall be incorporated herein by this reference. Unless specifically defined in this Work Letter, any capitalized terms used herein shall have the meanings given to them in the Lease.
          
          

FIRST AMENDMENT OF AGREEMENT OF LEASE
     THIS FIRST AMENDMENT OF AGREEMENT OF LEASE (hereinafter referred to as "this Amendment") made as the 18^th day of September 2000, by and between TOWNSEND ROCKLIN, LLC, a limited liability company organized and existing under the law of Delaware (hereinafter referred to as "the Landlord"), and ACE HARDWARE CORPORATION, a corporation organized and existing under the law of Delaware (hereinafter referred as "the Tenant"),
     
     WITNESSETH, THAT WHEREAS by an Agreement of Lease dated June 30, 2000, by and between the Landlord and the Tenant (hereinafter referred to as "the Lease"), the Landlord has leased to the Tenant all of that real property consisting of approximately 75,000 rentable square feet in the warehouse building located at 3301 Industrial Avenue, Rocklin, California, which is described therein; and
     
     WHEREAS the parties hereto desire by this Amendment to amend the provisions of the Lease.
     
     NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual entry into this Amendment by the parties hereto, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each party hereto, the parties hereto hereby agree as follows:
     
     Section 1. Amendment of Lease. The provisions of the Lease are hereby amended in the following manner: Notwithstanding anything in the Lease to the contrary, the Commencement Date shall be July 11, 2000 and the Term of the Lease shall end on July 31, 2002, unless earlier terminated or extended in accordance with the Lease.
     
     Section 2. Effect of this Amendment. Except as is hereinabove set forth, the provisions of the Lease shall hereafter remain in full force and effect, as if this Amendment had not been entered into. Capitalized terms used but not defined herein shall have the meaning given them in the Lease.
     
     Section 3. Representations. The Landlord and the Tenant hereby represent and warrant to each other that, as of the date hereof, it (a) is the sole legal and beneficial owner of all of the right, title and interest reserved by it (in the case of the Landlord) or granted to it (in the case of the Tenant) by the provisions of the Lease, (b) except with respect to Landlord's lenders, has not sold, transferred or encumbered any or all of such right, title or interest, and (c) has the full and sufficient right at law and in equity to execute and deliver this Amendment as the owner of such right, title and interest, without the necessity of obtaining any other person's consent thereto or joinder therein.
     
     IN WITNESS WHEREOF, each party hereto has executed and ensealed this Amendment or caused it to be executed and ensealed on its behalf by its duly authorized representatives, the day and year first above written
     
WITNESS:                      TOWNSEND ROCKLIN, LLC



______________________             By: James R. Berens___________________(SEAL)
                                                                       James R. Berens
                                                                       Vice President



R. Sauck_______________             By: D. Myer_________________________(SEAL)
R. Sauck                                                       D. Myer
Corp. Property Mgr.                                  VP - Retail Support


SECOND AMENDMENT OF AGREEMENT OF LEASE
      THIS SECOND AMENDMENT OF AGREEMENT OF LEASE (hereinafter referred to as this "Second Amendment), made as of the 7th day of December, 2001, by and between TOWNSEND ROCKLIN, LLC, a limited liability company organized and existing under the law of Delaware (hereinafter referred to as the '"Landlord"), and ACE HARDWARE CORPORATIQN, a corporation organized and existing under the law of Delaware (hereinafter referred as the "Tenant"),

      WITNESSETH, THAT WHEREAS by an Agreement of Lease dated June 30, 2000, ("Original Lease") by and between the Landlord and the Tenant as amended by a First Amendment of Agreement of Lease dated September 18,2000 (the "First Amendment") (hereinafter the Original Lease and the First Amendment are referred to collectively as the "Lease") the Landlord has leased to the Tenant all of that real property consisting of approximately 75,000 rentable square feet in the warehouse building located at 3301 Industrial Avenue, Rock1n, California, which is described therein; and

      WHEREAS the parties hereto desire by this Second Amendment to further amend the provisions of the Lease.

     NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual entry into this Second Amendment by the parties hereto, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each party hereto, the parties hereto hereby agree as follows:

     Section 1. Amendment of Lease . The provisions of the Lease are hereby amended as follows:

A.   The Term of the Lease (as set forth in Section 2 of the Lease and modified by the First Amendment) shall be extended through 11:59 p.m. (local time) on July 31, 2003, unless earlier terminated or extended in accordance with the Lease.

B.   The Fixed Rent schedule set forth in Section 3 of the Original Lease is hereby deleted in its entirety and replaced by the following:

PERIOD	ANNUAL FIXED RENT	MONTHLY FIXED RENT	PER RSF PER ANNUM
July 11, 2000 - January 10, 2001	N/A	$14,500.00*	$3.48
January 11, 2001 - July 10, 2001	N/A	$21,750.00	$3.48
July 11, 2001 - July 31, 2002	$270,000.00	$22,500.00	$3.60
August 1, 2002 - July 31, 2003	$278,100.00	$23, 175.00	$3.71

*Calculated based on 50,000 rentable square feet.

C.   Provided there is no uncured Event of Default under this Lease at the time of giving the Option Notice (defined below) for each Renewal Term (as hereinafter defined) and at the commencement date of each Renewal Term, Tenant shall have the option to renew this Lease for two (2) additional terms of six months each (each a "Renewal Term") by giving Landlord written notice (the "Option Notice") at least (i) six (6) months prior to the expiration date of the Term in order to exercise the first Renewal Term, and (ii) 90 days prior to the expiration of the first Renewal Term in order to exercise the second Renewal Term. Upon the exercise by Tenant of a Renewal Term option, all references in the Lease to the "Term " shall also include the then-current Renewal Term. If Tenant fails to deliver to Landlord an Option Notice on or before the dates set forth above, time being of the essence hereunder, the option to renew the Lease for the Renewal Term shall terminate and be of no further force or effect and Tenant shall have no further right to extend or renew the Lease. Each Renewal Term shall be on all of the same terms and conditions as set forth in this Lease, except that: (x) the first Renewal Term shall commence on August 1, 2003 and shall expire on January 31, 2004, and (y) the second Renewal Term shall commence on February 1, 2004 and shall expire on July 31, 2004; following the Second Renewal Term, Tenant shall have no further rights to renew the Lease; and the Fixed Rent for each Renewal term shall be in the amounts set forth below, but otherwise due and payable at the time and in the manner set forth in the Lease.

PERIOD	ANNUAL FIXED RENT	MONTHLY FIXED RENT	PER RSF PER ANNUM
First Renewal Term (8/1/03 - 1/31/04)	$292,005.00	$24,333.75	$3.89
Second Renewal Term (2/1/04 - 7/31/04)	$292,005.00	$24,333.75	$3.89

    
     Section 2. Effect of this Second Amendment . Except as is hereinabove set forth the provisions of the Lease shall hereafter remain in full force and effect, as if this Second Amendment had not been entered into. Capitalized terms used but not defined herein shall have the meaning given them in the Lease.
     
     Section 3. Representations. The Landlord and the Tenant hereby represent and warrant to each other that, as of the date hereof, it (a) is the sole legal and beneficial owner of all of the
right, title and interest reserved by it (in the case of the Landlord) or granted to it (in the case of the Tenant) by the provisions of the Lease) (b) except with respect to Landlord's lenders, has not sold, transferred or encumbered any or all of such right, title or interest and (c) has the full and sufficient right at law and in equity to execute and deliver this Second Amendment as the owner of such right, title and interest, without the necessity of obtaining any other person's consent thereto or joinder therein.
     
     IN WITNESS WHEREOF, each party hereto has executed and ensealed this Second Amendment or caused it to be executed and ensealed on its behalf by its duly authorized representatives, the day and year first above written.
         
WITNESS:                      TOWNSEND ROCKLIN, LLC

MARIA S. RUBI                                By: DAVID TOWNSEND
Maria S. Rubi                                 Name: David Townsend
                                                           Title: Vice President

RICH SAUCK                                    By: DAVID F. MYER
Rich Sauck                                    Name: David F. Myer
                                                          Title:  Sr. VP - Retail Support & Logistics EX-10 19 ex10a17.htm 10-A-17 SUMMIT, ILLINOIS WAREHOUSE LEASE LAND LEASE AGREEMENT     This Lease Agreement made and entered into by and between FINCH & BARRY PROPERTIES, LLC, of Schaumburg, Illinois, as agent for Summit Terminal LLC hereinafter collectively referred to as "Landlord" and Ace Hardware Corporation , a corporation of Delaware , hereinafter referred to as "Tenant":
WITNESSETH:     Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord that portion of the land consisting of 109 trailer parking spaces and 58 car parking spaces comprising the property commonly known as 5151 S. Lawndale Ave., Summit Illinois , as delineated in yellow on Exhibit "A" attached hereto, (the property leased by Tenant is referred to herein as the "Premises" or the "Leased Premises" and the entire property consisting of 15.3 acres which includes a building, the grounds surrounding the building, parking areas, driveways and dock areas located at 5151 S. Lawndale Ave., Summit Illinois is referred to herein as the "Entire Facility").
    To have and to hold the same for the period beginning on the same date (the "Commencement Date") as the date of commencement of that certain Building Lease Agreement of even date herewith by and between the Landlord and Tenant for the lease of certain space in the building situated on the Entire Facility (the "Building Lease"), and ending on the same date as the Building Lease ends, (the "Initial Term" and along with any renewal or extension hereof the "Lease Term") upon the following terms, conditions, and covenants:
    The Leased Premises (as defined herein) and the property leased to Tenant pursuant to the Building Lease, shall consist of a portion of the property located at 5151 S. Lawndale Ave., Summit Illinois , including but not limited to, a building, the grounds surrounding the building, driveways and dock areas, paved equipment parking, maneuvering spaces and areas, and all employee parking areas.
1. RENTAL RATES:
    A. Tenant agrees to pay Landlord without any prior demand therefore and without any deduction or set-off whatsoever, and at a Fixed Minimum Rent, as shown in Section B below, plus applicable lease tax, if any, in advance on the first day of each calendar month. If the Commencement Date shall be a date other than the first day of a calendar month, then Tenant shall pay on the Commencement Date, a pro rata portion of the monthly Fixed Minimum Rent, prorated on a per diem basis with respect to such fractional calendar month. First month's rent shall be paid immediately upon execution of this Lease. If possession is before the Commencement Date, rent will be paid on a pro-rata basis in advance.
    B. During the Lease Term the monthly "Fixed Minimum Rent" shall be as follows:                                           
Period
From 03/01/02 to 02/28/03 in Monthly Installments of $15,300.00
From 03/01/03 to 02/29/04 in Monthly Installments of $15,720.00
From 03/01/04 to 02/28/05 in Monthly Installments of $16,200.00
From 03/01/05 to 02/28/06 in Monthly Installments of $16,680.00
From 03/01/06 to 02/28/07 in Monthly Installments of $17,160.00
From 03/01/07 to 02/29/08 in Monthly Installments of $17,700.00
From 03/01/08 to 02/28/09 in Monthly Installments of $18,240.00
From 03/01/09 to 02/28/10 in Monthly Installments of $18,780.00
From 03/01/10 to 02/28/11 in Monthly Installments of $19,320.00
From 03/01/11 to 02/29/12 in Monthly Installments of $19,920.00
From 03/01/12 to 02/28/13 in Monthly Installments of $20,520.00
From 03/01/13 to 02/28/14 in Monthly Installments of $21,180.00
From 03/01/14 to 02/28/15 in Monthly Installments of $21,840.00
From 03/01/15 to 02/29/16 in Monthly Installments of $22,500.00
From 03/01/16 to 02/28/17 in Monthly Installments of $23,160.00
    Fixed Minimum Rent is an absolute amount and has been determined independently of the square footage of the Leased Premises.
    C. The term "Lease Year" shall mean each twelve (12) consecutive calendar month period of the Lease Term, however, the first Lease Year shall commence on the Commencement Date, provided that if the Commencement Date shall be on any day other than the first of the month the first Lease Year shall include said partial month and the twelve (12) succeeding calendar months.
    D.   Additional rent and Fixed Minimum Rent are sometimes collectively referred to herein as "Rent."
    E.   The purpose and intent of this Lease is that the rental provided for in this section shall be an absolute net return to the Landlord, except for payments of Rent which are set forth in the Building Lease, and that all taxes shall be paid by Tenant, except income taxes and inheritance taxes levied against the Landlord's income or assets. Tenant shall pay all payments, expenses, costs, and charges of every kind and nature in connection with the operation, maintenance, upkeep, and preservation of the Leased Premises and of said leasehold interest and lease, including any lease tax or tax on rents and all payments required to be made and to keep said Lease free and clear of and from all liens and encumbrances of every description, and the preservation and maintenance of the Leased Premises and every part thereof in as good a condition and repair as of the date of execution of this lease shall be borne and paid by Tenant during the entire Lease Term, or any extension thereof.
    F.   The real estate tax, operating expense and insurance obligations of the Tenant under the Land Lease are included within the payments for such expense provided for under the Building Lease.
2.  ACCEPTANCE OF PREMISES:
    Tenant acknowledges that it has fully inspected the Leased Premises and Tenant hereby accepts the Leased Premises, subject to the Landlord's completion of the work described on Exhibit "B", if any, and the buildings and improvements situated thereon, as suitable for the purposes for which the same are leased. Landlord is not obligated hereunder to perform any construction or "build-out" for Tenant, other than what is described on said Exhibit "B," if any.
3.   USE OF PREMISES:
    The Leased Premises shall be used and occupied only for the purpose of: truck and trailer parking area. 4.   COMPLIANCE WITH LAW:
    Tenant, at its sole cost and expense, shall comply with all governmental laws, ordinances, and regulations applicable to the use of the Leased Premises, and at its sole cost and expense shall promptly comply with all governmental orders and directives for the correction, prevention, and abatement of nuisances in or upon, or connected with the Leased Premises.
5.   MAINTENANCE:
    A.   Except as specifically set forth herein, all maintenance of the Leased Premises shall be done by Tenant at Tenant's sole cost and expense.
    B.   Tenant shall at its sole cost and expense and risk maintain all parts of the Leased Premises and the grounds as delineated on Exhibit "A" in no poorer condition and repair than as of the date of execution of this lease, (as subsequently improved by Landlord's completion of the improvements set forth on Schedule B, if any).     Tenant shall provide Landlord with copies of any and all inspections and reports of maintenance upon reasonable request.
    Tenant shall be liable to Landlord for any and all damage caused by Tenant, its employees, agents or its invitees to the Leased Premises, including but not limited to the parking lot area.
    C.   Tenant shall, throughout the Lease term, take good care of the Leased Premises and keep it free from waste and nuisance; and shall deliver up the premises clean and neat at the termination of this Lease in as good repair and condition as of the date of execution of this lease, (as subsequently improved by Landlord's completion of the improvements set forth on Schedule B, if any), damage by fire, tornado, or other casualty excepted. Tenant shall maintain and repair all aspects of the Leased Premises i ncluding but not limited to light poles, driveways, asphalt, as well as snow removal from all driveways, sidewalks and other paved areas and maintenance of the driveway, gravel, sidewalks, truck aprons, exterior fencing, dolly pads and paved areas including asphalt resurfacing and seal coating as may be required, debris removal, concrete repair, and all landscaping and weed control and any underground utilities and detention pond repairs.     D.   In the event Tenant should neglect to maintain the Premises as set forth herein, and fails to commence repairs within 14 days after written notice, the Landlord shall have the right (but not the obligation) to cause repairs or corrections to be made and any reasonable costs therefore, plus fifteen percent overhead, shall be payable by Tenant to Landlord as additional rental on the next rental installment date.

    E.  Landlord's Maintenance. Except as otherwise provided herein, Landlord shall be responsible for maintenance and repair of the roof and structural system of the Building except for damage caused by Tenant or its employees, licensees, or invitees. Landlord shall be responsible for maintenance and repair of the building structure of the Entire Facility
6. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS:
    A.  No additional alternations, additions or improvements shall be made by Tenant without Landlord's written approval, which approval shall not be unreasonably withheld or delayed
    B.   Tenant, at its sole cost and expense, shall complete all of Tenant's improvements subject to Landlord's written approval. Tenant's improvements shall be done in a good and workmanlike manner with materials of good quality and pursuant to appropriate governmental permits and in compliance with applicable laws and insurance requirements. Tenant's construction shall not interfere with the conducting of business by other tenants. During the Lease Term, Tenant shall provide Landlord with waivers of liens for any improvements done by Tenant or Tenant's contractors to the Leased Premises or shall bond or insure over any mechanic's liens with bonding or insurance companies reasonably acceptable to Landlord. In the event Tenant fails to provide said lien waivers or bond or insurance and Landlord is required to pay for such improvements in order to remove or avoid the filing of liens, then any such sums paid by Landlord shall be conside red as additional rent and shall be payable by Tenant to Landlord on demand.
    C.   During the course of construction of the improvements, Landlord and its representative may, upon reasonable prior notice of Tenant, inspect (but shall have no duty or obligation to inspect) Tenant's construction of improvements and the materials being used. If as a result of such inspection, Landlord, or its representative shall determine that any materials do not substantially conform to, or that the improvements are not being constructed in accordance with the terms of this Lease, prompt notice thereof may be given by Landlord to Tenant specifying the nature of the deficiency or defect or omission. Upon the receipt of any such notice, Tenant shall promptly take such steps as may be necessary to correct such defect. In the event that Tenant fails to correct said defect, or commence to cure said defect within thirty (30) days after Landlord's notice (or immediately, if an emergency) Landlord shall have the right, but not the obligation, in addition to any other remedies available to Landlord, to undertake same at Tenant's expense. In such event, Tenant shall pay as additional rent to Landlord for the cost of such work immediately upon receipt of an invoice therefore together with interest thereon at the annual rate of eighteen percent (18%) from the date expended by Landlord until paid in full.
    D.   All of Tenant's contractors and subcontractors of its contractors shall carry public liability insurance with at least $1,000,000 single limit broad form coverage and worker's compensation insurance, and each such insurance policy shall name Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members as additional insureds. Each such contractor and subcontractor shall submit to Landlord proof of such insurance before they may begin work on the Leased Premises.
    E.   During construction of improvements, Tenant shall carry builder's risk insurance, public liability insurance and worker's compensation insurance, in such amounts as are reasonably acceptable to Landlord, provided that the builder's risk policy coverage shall be at least in an amount sufficient to cover all so-called "hard costs" of construction of Tenant's improvements, together with adequate soft cost coverage. Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members shall be named as additional insureds under said policies. Tenant shall deliver certificates of insurance to Landlord prior to commencement of construction reflecting the coverage thereunder and showing the additional insureds required hereunder.
    F.  All alterations, additions, or improvements made by Tenant shall become the property of Landlord at the termination of this Lease, except trade fixtures. Tenant may remove trade fixtures belonging to Tenant at the expiration of the Lease Term, provided that any damage or injury caused to the real estate by reason of the removal shall be repaired by Tenant at its sole cost and expense. Notwithstanding anything herein to the contrary, affixed dock plates and dock lights are to become realty and not personalty, and may not be removed by Tenant.

7. INSURANCE:

    Tenant agrees that it will at all times during the term hereof carry and maintain, for the mutual benefit of the Landlord and of the Tenant, general public liability insurance with an insurance company reasonably acceptable to Landlord against claims for personal injury, death, or property damage, occurring in, on or about the Leased Premises or premises adjacent to the Leased Premises, such insurance to afford protection to the limit of no less than Five Million Dollars ($5,000,000.00) in respect to injury or death of a single person, and to the limit of not less than Five Million Dollars ($5,000,000.00) in respect to any one accident. Tenant shall furnish Landlord with a duplicate certificate or certificates of its liability insurance policy or policies and shall from time to time whenever required, satisfy Landlord that such policy or policies is or are, in full force and effect. All insurance policies which Tenant is required to maintain shall name, "Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders , Managers and Members" as additional insureds, and Landlord shall be given certificates of all insurance.

    In addition to any additional rent Tenant is to pay for Landlord's maintenance of insurance, Tenant shall pay Landlord, upon demand, as additional rent, an amount equal to the increase in the premiums of Landlord's fire, malicious mischief, vandalism, and extended coverage insurance covering the building and surrounding land which is directly attributable to occupancy of the Leased Premises by Tenant including the use specified herein. If Tenant installs any electrical equipment that overloads the lines in the Leased Premises, Tenant shall, at its own expense, make whatever changes are necessary to comply with the requirements of the insurance underwriters and governmental authorities having jurisdiction.
8.   WAIVER OF SUBROGATION:
    Each party hereto waives any and every claim which arises or may arise in its favor and against the other party hereto during the Term of this Lease or any renewal or extension thereof for any and all loss of, or damage to, and of its property located within or upon, or constituting a part of, the premises leased to Tenant hereunder which loss or damage is covered or would have been covered if such party had complied with this Lease, by valid and collectable fire and extended coverage insurance policies, to the extent such loss or damage is recoverable under said insurance policies. Said mutual waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other person), each party hereto agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of said mutual waivers, and to have said ins urance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of such waivers.
9.   LANDLORD'S RIGHT OF ENTRY:
    Landlord and its authorized agents shall have the right to enter the Leased Premises during normal working hours for the following purposes: (a) inspecting the general conditions and state of repair of the Leased Premises; (b) if Landlord is required to make any repairs hereunder that necessitate entry into the Leased Premises, the making of repairs required of Landlord; (c) the showing of the Leased Premises to any prospective Tenants or purchasers; or (d) as provided elsewhere in this Lease. In the event of an emergency, Landlord and its authorized agents shall have the right to enter the Leased Premises at any time to remedy such emergency.
    If Tenant and Landlord have not agreed to a renewal or extension of this Lease prior to the final one hundred and eighty (180) day period of the Lease Term, Landlord and its authorized agents shall have the right to erect on or about the Leased Premises Landlord's signage advertising the Leased Premises for lease or for sale.
10.  UTILITY SERVICES:

    Tenant shall pay the cost of all utility services during the Lease Term as well as during any period in which Tenant is in possession of the Leased Premises, including but not limited to initial connection charges and all charges for gas, water, and electricity used on the Leased Premises, and for all electric light lamps or tubes. In the event no direct meter to a utility company is available, then Tenant shall pay Landlord for its Proportionate Share of the cost of such utility (i.e. gas, electric or water) as additional rent.
11.  ASSIGNMENT AND SUBORDINATION TO MORTGAGES:
    A.   This lease may not be assigned by Tenant and Tenant may not sublet the Leased Premises, except to an affiliate or subsidiary, without Landlord's written consent, but Landlord shall not unreasonably withhold or delay its consent so long as the Leased Premises shall be used for the same use as specified in this Lease. Tenant shall not permit to take place by any act of default of himself or any person within his control any transfer by operation of law of Tenant's interest created hereby. Tenant may not post rental notices or signs or any other similar signs or notices anywhere, or advertise the Leased Premises as being for lease or sublease in any publication or other source of advertisement whatsoever without first obtaining, the written consent of Landlord.
    B.   If Tenant is a corporation, Tenant shall not transfer twentyfive percent (25%) or more of the stock thereof without Landlord's prior written consent.
    C.   Tenant shall, in the event that any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Landlord covering the Leased Premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease provided that such purchaser or mortgagee shall recognize Tenant's Lease as remaining in full force and effect so long as Tenant is not in default hereunder.
    D.   Landlord is hereby irrevocably vested with full power and authority to subordinate Tenant's interest hereunder to any mortgage, deed of trust, or other lien hereafter placed on the Leased Premises, and Tenant agrees upon demand to execute such further instruments subordinating this Lease as Landlord may request, provided such further subordination shall be upon the express condition that this Lease shall be recognized by the mortgages and that the rights of Tenant shall remain in full force and effect during the Lease Term, so long as Tenant shall continue to perform all of the covenants of this Lease.

12. LIABILITY:
    Tenant agrees to indemnify, defend and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members, harmless against and from any and all claims by or on behalf of any person or entity, arising from the conduct or management of the business conducted on the Leased Premises or from any work or thing done by or on behalf of Tenant or its subtenants, agents, employees, contractors, officers, directors, licensees or sublicensees on or about the Leased Premises and/or the Building, and will further indemnify and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members harmless against and from any and all claims arising during or after the Lease Term from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act of negligence or willful misconduct of Tenant, or any of its subtenants, agents, contractors, employees, officers, directors, licensees or sublicensees, and from and against all costs, counsel fees, expenses and liabilities arising from any such claim or action or proceeding brought thereon. If any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon request of Landlord, shall defend such action or proceeding by counsel reasonably satisfactory to Landlord.
13.  CONDEMNATION:
    A. If, during the Lease Term or any extension or renewal thereof, all or a substantial part of the Leased Premises as would prohibit Tenant from engaging in its business should be taken for any public or quasipublic use under any governmental law, ordinances or regulation or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this Lease shall terminate effective as of the date of said taking and Tenant shall be liable for all Fixed Minimum Rent and all additional rent due hereunder through such date and the rent shall be abated during the unexpired portion of this Lease.
    B.   If such a portion of the Leased Premises as would still permit Tenant to engage in its business shall be taken for any public or quasipublic use under any governmental law, ordinance, or regulation, or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this Lease shall not terminate but Landlord shall forthwith at its sole expense restore the remaining portion of the Leased Premises provided such restoration and reconstruction shall make the same reasonably tenantable and suitable for the uses for which the Leased Premises are leased as defined above and provided that Landlord shall not be obligated to undertake repairs and alterations if the cost thereof exceeds the award Landlord received as a result of the condemnation. The rent payable hereunder during the Landlord's restoration of the Leased Premises and during the remainder of the Lease Term shall be adjusted equita bly based on the remaining tenantable area.
    C.   Landlord and Tenant shall each be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings.

14.  HOLDING OVER:
    Tenant shall pay Landlord double the latest Adjusted fixed minimum rent then applicable for each month or portion thereof Tenant retains possession of the Premises, or any portion thereof, after the expiration or termination of this Lease, and also shall pay all damages sustained by Landlord by reason of such retention of possession. The provisions of this Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord hereinbefore or by law provided . If Tenant retains possession of the Premises, or any part thereof, for ten (10) days after the expiration or termination of this Lease, then at the sole option of Landlord expressed by written notice to Tenant, but not otherwise, such holding over shall constitute a renewal of this Lease for a period of one year (or less if specified by Landlord at Landlord's option) on the same terms and conditions, except that the fixed minimum rent shall be increased to one hundred and twenty-five percent (125%) of the latest fixed minimum rent, plus any additional rent.
15.  DEFAULT BY TENANT:
    A.   The following events shall be deemed to be events of default by Tenant under this Lease:
    (1)  Tenant shall fail to pay any installment of Fixed Minimum Rent or additional rent on the date that same is due and such failure shall continue for a period of five (5) days after Landlord delivers written notice to Tenant.
    (2)  Tenant shall fail to comply with any term, condition or covenant of this Lease, other than the payment of rent, and shall not cure such failure within ten (10) days of delivery of written notice provided however that if the Default cannot with due diligence be cured prior to the expiration of said ten (10) day period and if Tenant commences within ten (10) days from the date of delivery of said notice to eliminate the cause of such Default and proceeds diligently and with reasonable dispatch to take all steps and do all work required to cure such Default, then Tenant shall not be in Default.
    (3)  If an event of Default occurs by Tenant under the Building Lease, it shall also be deemed an event of Default by Tenant under the Land Lease. if an event of Default occurs by Tenant under this Lease.
    (4)  Tenant shall make an assignment for the benefit of creditors, or shall be ajudged a bankrupt.
    B.   Upon the occurrence of a Default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever:
    (1)  Landlord shall have the immediate right of reentry and may remove all persons and property from the Leased Premises, and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant, with or without process of law, without being deemed guilty of trespass, or becoming liable to any party for any loss or damage which may be occasioned thereby;
    (2)  Landlord may from time to time without terminating this Lease, and without releasing Tenant in whole or in part from Tenant's obligation to pay rent and perform any of the covenants, conditions and agreements to be performed by Tenant as provided in this Lease, make such alterations and repairs to the Leased Premises as may be necessary in order to relet the Leased Premises. Landlord may relet the Leased Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its discretion may deem advisable. Upon each such reletting if all rentals received by the Landlord from such reletting during any month shall be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Notwithstanding a ny such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Tenant shall also be liable to Landlord for all costs of reletting, including, but not limited to, alterations and repairs of the Leased Premises for a new tenant, brokerage commissions, attorneys fees, advertising and any other expenses incurred by Landlord in connection therewith and said costs shall be due upon demand (collectively, the "Reletting Costs");
    (3)  Landlord may terminate this Lease, and with or without process of law may remove all persons, fixtures and property from the Leased Premises, and Landlord shall be entitled to receive as damages all Fixed Minimum Rent, all additional rent and all other sums payable by Tenant as of the date of termination, plus all Reletting Costs plus (1) a sum of money equal to the sums reserved for the balance of the Term for all Fixed Minimum Rent, all additional rent and other sums provided in this Lease to be paid by Tenant to Landlord for the remainder of the Lease Term, less the fair rental value of the Leased Premises for the period, (2) the cost of performing any other covenant to be performed by Tenant, and (3) all costs and attorneys' fees incurred by Landlord in connection with any action taken against Tenant; and
    (4)  Enter upon the Leased Premises by force if necessary without being liable for prosecution of any claim for damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for expenses, which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action whether caused by the negligence of Landlord or otherwise.
    C.   Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by Law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, conditions, and covenants herein contained.
16. TERMINATION
    In the event this Lease or the Building Lease terminates for any reason, the other lease shall terminate simultaneously. In no event shall this Lease be in effect without the Building Lease in effect, and in no event shall the Building Lease be in effect without this Lease being in effect.
17. ATTORNEY'S FEES:
    Tenant shall pay all reasonable attorneys' fees and all costs incurred by Landlord in enforcing any of the covenants and obligations of Tenant under this Lease.  
18. QUIET ENJOYMENT:
    Landlord warrants that it has full right and power to execute and perform this Lease and to grant the estate demised herein and that Tenant, on payment of all Fixed Minimum Rent and additional rent and performing the covenants herein contained, shall peaceably and quietly have, hold and enjoy the Leased Premises during the full term of this Lease and any extension or renewal hereof, provided that this Lease shall be subject and subordinate to any recorded mortgage, deed of trust or lien presently existing or hereafter placed on the Leased Premises.
19. WAIVER OF DEFAULT:
    The waiver by the parties hereto of any default or breach of any term, condition, or covenant of this Lease shall not be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition, or covenant contained herein.
20. FORCE MAJEURE:
    Landlord shall be allowed to delay the performance of any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean delays occasioned or caused by tenant preventing Landlord making Schedule "B" improvements, Act of God, strikes, lockouts, material or labor restrictions by any governmental authority, civil riot, floods, and any other cause not reasonably within the control of Landlord or Tenant and which by the exercise of due diligence Landlord is unable, wholly or in part, to prevent or overcome.
21.  ESTOPPEL CERTIFICATE BY TENANT:
    Tenant agrees that at any time and from time to time, upon not less than five (5) days prior written request by Landlord, to execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the rental and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective lender or purchaser of the fee of the Leased Premises.
22.   ENVIRONMENTAL:
    A. Tenant, in the regular course of its business on the Leased Premises, will receive and distribute merchandise containing Hazardous Materials (as defined herein) in household quantities and in original closed containers. Tenant will indemnify, defend and save Landlord Tenant agrees that it, its agents employees and contractors will not use, handle, generate, treat, store or dispose of, or permit the use, handling, generation in, on, under, around or above the Leased Premises now or at any future time Hazardous Materials (as defined herein) and will indemnify, defend and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members harmless from any and all actions, proceedings, claims, costs, expenses and losses of any kind, including, but not limited to, those arising from injury to any person, including death, damage to or loss of use or value of real or personal property, and costs of investigation and cleanup or other environmental remedial work, which may rise in connection with the existence of Hazardous Materials brought on to the Leased Premises since the Commencement Date. The term "Hazardous Materials" when used herein, shall include, but shall not be limited to any substances, materials or wastes that are regulated by any local governmental authority, the state where the Leased Premises is located, or the United States of America beca use of toxic, flammable, explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human health or the environment, including asbestos and including any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table, as amended 49 CFR 172.101, or in the Comprehensive Environmental Response, Compensation and Liability Act, as amended 42 USC sections 9601 et seq., or the Resources Conservation and Recovery Act, as amended, 42 USC sections 6901 et seq., or any other applicable governmental regulation imposing liability or standards of conduct concerning any hazardous, toxic or dangerous substances, waste or material, now or hereafter in effect. Tenant shall comply with applicable laws related to any fuel and oil leakage or spills and disposal of any solvents, soaps and chemicals used in truck washing operations, arising from or out of Tenant's use of the Leased Premises. For the purposes of this Environmental section, the Premis es or Leased Premises shall include all buildings and improvements, all loading platform areas, all parking and driveway areas, any sidewalks adjacent to the Leased Premises or any streets in front of or appurtenant thereto, all adjoining property and property affected in any way by the operations of the Tenant upon the Leased Premises or upon the foregoing, the subsurface of the Leased Premises or the forgoing, including without limitation, the ground water, the Entire Facility and Leased Premises.
    B.   Tenant does hereby indemnify, defend and hold harmless the Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members from all fines, suites, procedures, claims and actions of every kind, and all costs associated therewith (including attorneys' and consultants' fees) arising out of or in any way connected with any deposit, spill, discharge or release of Hazardous Materials that occurs during the Lease Term, at or from the Leased Premises, or which arises at any time from Tenant's or Tenant's agents, employees or contractor's use or occupancy of the Leased Premises, or from Tenant's or Tenant's agents, employees or contractor's failure to provide all information, make all submissions, and take all steps required by all applicable governmental authorities. Tena nt's obligations and liabilities under this paragraph shall survive the expiration of the Lease Term.
    C.   Tenant shall promptly advise Landlord in writing as to any deposit, spill, discharge or release of Hazardous Materials that occurs or which arises from Tenant's use or occupancy of the Leased Premises.
    D.   Tenant will use the Leased Premises in accordance with all applicable federal, state and local laws and regulations, including but not limited to the storm water discharge rules and permits. This will include registration fees, monitoring, and all improvements, alterations and devices as may be required by the governmental authorities responsible for monitoring and controlling said regulations and laws.

23. EXHIBITS:

All exhibits, attachments, annexed instruments, and addenda referred to herein shall be considered a part hereof for all purposes with the same force and effect as if copied at full length herein.
EXHIBIT "A" -- SITE PLAN 24.  USE OF LANGUAGE:
    Words of any gender used in the Lease shall be held and construed to include any other gender, and words in the singular shall be held to include the plural, unless the context otherwise requires.
25.  CAPTIONS:
    The captions or headings of paragraphs in this Lease are inserted for convenience only and shall not be considered in construing the provisions hereof if any questions of intent should arise.
26.  SUCCESSORS:
    The terms, conditions, and covenants contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and their respective successors in interest and legal representatives except as otherwise herein expressly provided. All rights, powers, privileges, immunities and duties of Landlord under this Lease, including but not limited to any notices required or permitted to be delivered by Landlord to Tenant hereunder, may, at Landlord's option, by exercised or performed by Landlord's agent or attorney.
27.  NOTICES:
    Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not the day after said notice is deposited for overnight delivery with an overnight delivery service or three (3) days after said notice is deposited in the United States mail, postage prepaid, certified mail addressed to the parties hereto at the respective addresses set out opposite their names below (on the last page), or at such other address as they have heretofore or hereafter specify by written notice delivered in accordance herewith. Five day notices may be delivered by certified mail or any other means permissible under the forcible entry and detainer act.
28.  SEVERABILITY:
    If any term or provision of this Lease shall to any extent be held to be invalid or unenforceable, the remaining terms and provisions 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.
29.   LATE CHARGE:
     In the event Landlord does not receive from Tenant any installment of rent or additional rent due hereunder on or before the fifth day after such payment is due, Tenant shall be liable for a late charge in an amount equal to five percent (5%) of the amount past due. If said rental payment is not paid by the fifteenth (15) day of the month due an additional ten percent (10%) late fee as additional rent will be due.
30.  JURY TRIAL WAIVER:
     LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, OR TENANT'S USE OR OCCUPANCY OF THE LEASED PREMISES.
31.  RULES AND REGULATIONS:
     Landlord may attach hereto as an exhibit a copy of the current rules and regulations of the Building. Landlord shall have the right to adopt such additional rules and regulations for the Building, as Landlord shall determine to be appropriate for the enjoyable use thereof by all tenants. Tenant shall comply with all rules and regulations of Landlord.
36.  NO WAIVER OF RIGHTS:
     Landlord's delay in enforcing any of its rights and remedies hereunder shall not be deemed a waiver of said rights and remedies and shall not preclude Landlord form enforcing any of said rights and remedies at a later date.

Dated: 1/16/02
Landlord:                                                 Tenant:
Summit Terminal LLC By: Finch & Barry Properties, LLC     Ace Hardware Corporation
436 E. State Parkway, Suite 222            2200 Kensington Court            
Schaumburg, IL 60173                           Oak Brook, IL 60523 
By:                                                            By: David Myer
Its:  Member                                            Its: Sr. V.P., Retail Support & Logistics





BUILDING LEASE AGREEMENT
     This Lease Agreement made and entered into by and between FINCH & BARRY PROPERTIES, LLC, of Schaumburg, Illinois, as agent for Summit Terminal LLC hereinafter collectively referred to as "Landlord" and Ace Hardware Corporation , a Delaware corporation , hereinafter referred to as "Tenant":
WITNESSETH:
     Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord 60 doors (consisting of doors number 1 through 60) of a 122 -door truck terminal facility and accompanying dock facilities comprising approximately 37,236 square feet, and that portion of the land comprising the property commonly known as 5151 S. Lawndale Ave., Summit , Illinois, as delineated in yellow on Exhibit "A" (1 & 2) attached hereto, (the property leased by Tenant is referred to herein as the "Premises" or the "Leased Premises" . and T he entire property consisting of 15.3 acres which includes a building, the grounds surrounding the building, parking areas, driveways, access to said driveways and dock areas located at 5151 S. Lawndale Ave., Summit , Illinois is referred to herein as the "Entire Facility").
     To have and to hold the same for the period beginning March 1, 2002 , or such later date after the construction of the Leased Premises is substantially complete (the "Commencement Date"), and ending February 28, 2017 (the "Initial Term" and along with any renewal or extension hereof the "Lease Term") upon the following terms, conditions, and covenants:
1.  RENTAL RATES:
     A.   Tenant agrees to pay Landlord without any prior demand therefore and without any deduction or set-off whatsoever, and at a Fixed Minimum Rent, as shown in Section B below, plus applicable lease tax, if any, in advance on the first day of each calendar month. If the Commencement Date shall be a date other than the first day of a calendar month, then Tenant shall pay on the Commencement Date, a pro rata portion of the monthly Fixed Minimum Rent, prorated on a per diem basis with respect to such fractional calendar month. First month's rent shall be paid immediately upon execution of this Lease. If possession is before the Commencement Date, rent will be paid on a pro-rata basis in advance.

     B.   During the Lease Term the monthly "Fixed Minimum Rent" shall be as follows:
Period
From 03/01/02 to 02/28/03 in Monthly Installments of $8,400.00
           From 03/01/03 to 02/29/04 in Monthly Installments of $8,700.00
           From 03/01/04 to 02/28/05 in Monthly Installments of $9,000.00
           From 03/01/05 to 02/28/06 in Monthly Installments of $9,300.00
           From 03/01/06 to 02/28/07 in Monthly Installments of $9,600.00
           From 03/01/07 to 02/29/08 in Monthly Installments of $9,900.00
           From 03/01/08 to 02/28/09 in Monthly Installments of $10,200.00
           From 03/01/09 to 02/28/10 in Monthly Installments of $10,560.00
           From 03/01/10 to 02/28/11 in Monthly Installments of $10,960.00
           From 03/01/11 to 02/29/12 in Monthly Installments of $11,280.00
           From 03/01/12 to 02/28/13 in Monthly Installments of $11,640.00
           From 03/01/13 to 02/28/14 in Monthly Installments of $12,000.00
           From 03/01/14 to 02/28/15 in Monthly Installments of $12,360.00
           From 03/01/15 to 02/29/16 in Monthly Installments of $12,780.00
           From 03/01/16 to 02/28/17 in Monthly Installments of $13,200.00
     Fixed Minimum Rent is an absolute amount and has been determined independently of the square footage of the Leased Premises.
     C.   The term "Lease Year" shall mean each twelve (12) consecutive calendar month period of the Lease Term, however, the first Lease Year shall commence on the Commencement Date , provided that if the Commencement Date shall be on any day other than the first of the month the first Lease Year shall include said partial month and the twelve (12) succeeding calendar months.
2.   ADDITIONAL RENT:
     A.   Tenant agrees to pay to Landlord as additional rent, Tenant's Proportionate Share of "Ownership Taxes," (as hereinafter defined). Based upon the area of the Leased Premises, Tenant's Proportionate Share is 49.18% (hereinafter referred to as Tenant's "Proportionate Share") which has been determined by a fraction, the numerator of which is the number of doors of the Leased Premises situated on the Entire Facility leased to Tenant hereunder, and the denominator of which is the total number of doors of the building situated on the Entire Facility. Tenant's proportionate share of the base real estate Ownership T axes shall be $6,361.00 per month.
     B.    "Ownership Taxes" shall mean real estate taxes, assessments (whether they be general or special), sewer rents, rates and charges, transit taxes, taxes based upon the receipt of rent, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary but not including income or franchise taxes, capital stock, inheritance, estate, gift, or any other taxes imposed upon or measured by Landlord's income or profits, unless the same shall be imposed in lieu of real estate taxes or other ad valorem taxes, which may now or hereafter be levied, assessed or imposed against the Entire Facility or the land underlying the Entire Facility (hereinafter referred to as the "Land").


     C.   Notwithstanding anything contained in this Section 2 to the contrary, if at any time during the Lease Term (or any renewal or extension thereof) the method of taxation prevailing at the Commencement Date shall be altered so that any new tax, assessment, levy, imposition or charge, or any part thereof, shall be measured by or be based in whole or in part upon this Lease, or the Land, or the building situated on the Land, or the Leased Premises, or the Fixed Minimum Rent, Additional Rent or other income from any or all of the foregoing and shall be imposed upon Landlord, then all such taxes, assessments, levies, impositions or charges, or the part thereof, to the extent that they are so measured or based, shall be deemed to be included within the term Ownership Taxes for the purposes hereof to the extent that such Ownership Taxes would be payable if the property were the only property of Landlord subject to such Ownership Taxes. It is agreed that Tenant will be resp onsible for taxes on its personal property.

     D.   The Landlord reserves the right to cause the Ownership Taxes to be paid under protest and to retain attorneys of its choice (hereinafter referred to as "Tax Counsel") to contest the amount of Ownership Taxes imposed. Tax Counsel shall be retained on a contingency basis, whereby Tax Counsel is paid a percentage of the tax savings achieved as a result of such representation. The Tenant agrees to pay Tenant's Proportionate Share of Tax Counsel's reasonable fees, provided a reduction is obtained. In no event shall the Tenant's liability for Ownership Taxes and Tax Counsel fees be greater than the Ownership Taxes, which would have been due to the Landlord, from Tenant, in absence of the retention of Tax Counsel.

     E.   [INTENTIONALLY OMITTED]

     F.   Tenant shall also reimburse Landlord, as additional rent, for Tenant's Proportionate Share of the premiums for insurance paid by Landlord covering the Entire Facility. Tenant's proportionate share of insurance premiums are estimated to be $ 123.00 per month for year one and insurance may vary from year to year and Tenant shall pay insurance current in accordance with section 3. Said insurance may include, but is not limited to, coverage for fire, extended coverage, general public liability coverage, vandalism and malicious mischief, 12 months' rent loss coverage, and insurance against flood, if required by the Federal Flood Disaster Protection Act of 1993 and regulations issued thereunder, and such other or special or increased coverages as Landlord may reasonably require or as Landlord's mortgagee may reasonably require, including, without limitation, boiler explosion coverage and sprinkler leakage coverage.

     In addition to Tenant's Proportionate Share of Premiums for insurance paid by Landlord covering the Entire Facility (including increases in said premiums), Tenant shall pay to Landlord, upon demand as additional rent an amount equal to any increase in the premiums of Landlord's fire, malicious mischief, vandalism, and extended coverage insurance covering the building or the Entire Facility which is directly attributable to the specific manner of use by Tenant.

3.    PAYMENT OF ADDITIONAL RENT:

A.  Insurance. Tenant covenants and agrees to pay Landlord monthly in advance as additional rent simultaneously with the payment of each month's installment of Fixed Minimum Rent, onetwelfth (1/12) of the amount of Landlord's reasonable estimate of Tenant's liability for insurance as determined in Section 2 herein for the calendar year in which such payment becomes due. Such insurance premium shall be estimated from time to time by Landlord and set forth in written notices to Tenant. After the expiration of each calendar year, Landlord shall prepare, and shall forward to Tenant, a statement in writing and certified by Landlord setting forth, for the most recently ended calendar year, Landlord's actual insurance liability and Tenant's Proportionate Share thereof, provided that Landlord's failure to notify Tenant within said time period shall not effect Tenant's obligation to pay its Proportionate Share of Landlord's insurance liability. If, after preparation of such statement, Landlord finds that Tenant shall have paid to Landlord an amount less than Tenant's actual Proportionate Share of Landlord's liability for insurance for such calendar year, Tenant shall pay to Landlord the amount of such deficiency within thirty (30) days after receipt of an invoice therefor from Landlord. If Tenant has paid an amount greater than its Proportionate Share of Landlord's insurance liability, said excess shall be applied towards Tenant's obligation for Landlord's insurance liability for the next calendar year or, at Landlord's election, to any other amount due under the terms of this Lease, or if such excess is attributable to the final Lease Year of the Lease Term, such excess shall be refunded to Tenant within thirty (30) days of Landlord's determination of Landlord's actual liability for insurance for the applicable year, so long as Tenant does not owe Landlord any amount pursuant to the terms of this Lease. If the Lease Term shall begin or end other than on the first or last day of a calendar year, these charges shall be billed and adjusted on the basis of such fraction of a calendar year. Expiration of the Lease Term shall not effect Tenant's obligation to pay its Proportionate Share of Landlord's liability for insu rance with respect to any deficiency in payment for the final calendar year, or portion thereof, of the Lease Term. Any payment, refund or credit made pursuant to this Section shall be made without prejudice to any right of Landlord to correct any items as billed pursuant to the provisions hereof.
     B.   Ownership Taxes. Tenant covenants and agrees to pay Landlord monthly in advance as additional rent simultaneously with the payment of each month's installment of Fixed Minimum Rent, onetwelfth (1/12) of the amount of Landlord's reasonable estimate of Tenant's liability for Ownership Taxes as determined in Section 2 herein for the calendar year in which such payment becomes due. Such Ownership Taxes shall be estimated from time to time by Landlord and set forth in written notices to Tenant. Within thirty (30) days prior to Landlord's payment of the Real Estate Taxes for a calendar year, Landlord shall prepare, and shall forward to Tenant, a statement in writing and certified by Landlord setting forth, for the most recently ended calendar year, actual Ownership Taxes and Tenant's Proportionate Share thereof, provided that Landlord's failure to notify Tenant within said time period shall not effect Tenant's obligation to pay its Proportionate Share of Ownership Taxes. If, after preparation of such statement, Landlord finds that Tenant shall have paid to Landlord an amount less than Tenant's actual Proportionate Share of Ownership Taxes for such calendar year, Tenant shall pay to Landlord the amount of such deficiency within five (5) thirty (30) days after receipt of an invoice therefore from Landlord. If Tenant has paid an amount greater than its Proportionate Share of Ownership Taxes, said excess shall be applied towards Tenant's obligation for Ownership Taxes for the next calendar year or, at Landlord's election, to any other amount due under the terms of this Lease, or if such excess is attributable to the final Lease Year of the Lease Term, such excess shall be refunded to Tenant within thirty (30) days of Landlord's determination of the actual Ownership Taxes for the applicable year, so long as Tenant does not owe Landlord any amount pursuant to the terms of this Lease. If the Lease Term shall begin or end other than on the first or last day of a calendar year, these charges shall be billed and adjusted on the basis of such fraction of a calendar year. Expiration of the Lease Term shall not effect Tenant's obligation to pay its Proportionate Share of Ownership Taxes with respect to any deficiency in payment for the final calendar year, or portion thereof, of the Lease Term. Any payment, refund or credit made pursuant to this Section shall be made without prejudice to any right of Landlord to correct any items as billed pursuant to the provisions hereof.

     In the event that Tenant makes improvements which causes an increase in the real estate taxes which can be attributed to said improvements, Tenant shall pay as additional rent the amount of real estate taxes attributable to its improvements.

     C.  Additional rent and Fixed Minimum Rent are sometimes collectively referred to herein as "Rent."

     D.   The purpose and intent of this Lease is that the rental provided for in this section shall be an absolute net return to the Landlord, and that all taxes, as set forth in Section 2 of this Lease, shall be paid by Tenant, except income taxes and inheritance taxes levied against the Landlord's income or assets. Tenant shall pay all payments, expenses, costs, and charges of every kind and nature in connection with the operation, maintenance, upkeep, and preservation of the Leased Premises and of said leasehold interest and lease, including any lease tax or tax on rents and all payments required to be made and to keep said Lease free and clear of and from all liens and encumbrances of every description, and the preservation and maintenance of the Leased Premises and every part thereof in as good a condition and repair as of the date of execution of this lease shall be borne and paid by Tenant during the entire Lease Term, or any extension thereof.
     
4.   ACCEPTANCE OF PREMISES:

     Tenant acknowledges that it has fully inspected the Leased Premises and Tenant hereby accepts the Leased Premises; subject to the Landlord's completion of the work described on Exhibit "B", if any, and the buildings and improvements situated thereon, as suitable for the purposes for which the same are leased. Landlord is not obligated hereunder to perform any construction or "build-out" for Tenant, other than what is described on said Exhibit "B," if any.

5.   USE OF PREMISES:

     The Leased Premises shall be used and occupied only for the purpose of: a truck terminal facility . Floor load is limited to 2,800 pounds per square foot .

6.   SECURITY DEPOSIT:
     
     Tenant has deposited with Landlord the sum of $ -0- as a Security Deposit on the understanding; (a) that in the event Tenant does not perform the required repairs and maintenance as per paragraph 8 within 60 days of written notice then the Tenant shall promptly supply Landlord with a Security Deposit of $42,844.00; (b) that such deposit or any portion thereof may be applied to the curing of any Default by Tenant that may exist, without prejudice to any other remedy or remedies which the Landlord may have on account thereof, and upon such application Tenant shall deposit with Landlord on demand the amount so applied which shall be added to the Security Deposit so the same will be restored to its original amount; (c) that should the Leased Premises be conveyed by Landlord, the Security Deposit or any portion thereof may be turned over to Landlord's grantee, and if the same be turned over as aforesaid, Tenant agrees to look to such grantee for such application or return; (d) that if Tenant shall faithfully perform all of the covenants and agreements in this Lease contained on the part of Tenant to be performed, and if Tenant is not in Default hereunder, the sum deposited or the part of portion thereof not previously applied, shall be returned to Tenant no later than thirty (30) days af ter the expiration of the Lease Term or any renewal or extension thereof, provided Tenant has vacated the Leased Premises and surrendered possession thereof to Landlord.

7.   COMPLIANCE WITH LAW:

Prior to the lease commencement date, Landlord represents, to the best of Landlord's knowledge, that the leased premises complies with the then enacted governmental laws, ordinances, and regulations applicable to the use of the Leased Premises. As of the lease commencement date and thereafter, Tenant, at its sole cost and expense, shall comply with all governmental laws, ordinances, and regulations applicable to the use of the Leased Premises, and at its sole cost and expense shall promptly comply with all governmental orders and directives for the correction, prevention, and abatement of nuisances in or upon, or connected with the Leased Premises.

8.   MAINTENANCE:

     A.   Except as specifically set forth herein, all maintenance of the Leased Premises and the Entire Facility shall be done by Tenant at Tenant's sole cost and expense.

     B. Immediately prior to the commencement of this Lease a videotape will be taken by Tenant of the then condition of the Leased Premises, a copy of which will be provided to Landlord. If this videotape discloses defects in or damage to the Leased Premises, it is understood that Tenant shall have no responsibility or liability under this Lease to repair or replace said defects or damage, unless the same shall have been repaired or replaced by Landlord during the term of this Lease. Tenant shall at its sole cost and expense and risk maintain all parts of the Leased Premises in no poorer condition and repair than as of the date of execution of this lease, (as subsequently improved by Landlord's completion of the improvements set forth on Schedule B, if any), including but not limited to interior lighting fixtures, floors, windows, window glass, plate glass, overhead doors, overhead door weather guards, door railings, dock plates, dock bumpers, bollards, exterior and interior lighting, telephones, alarm systems, sprinkler systems, if any, electrical system, demising walls, existing heating and air conditioning equipment and the building in general, including but not limited to light poles, driveways, asphalt, as well as snow removal from all driveways, sidewalks and other paved areas and maintenance of the driveway, gravel, sidewalks, truck aprons, exterior fencing, dolly pads and paved areas including asphalt resurfacing and seal coating as may be required, debris removal, concrete repair, and all landscaping and weed control and any underground utilities and detention pond repairs.

     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 Tenant.

     Tenant shall provide Landlord with copies of any and all inspections and reports of maintenance upon reasonable request.

     Tenant shall be liable to Landlord for any and all damage caused by Tenant, its employees, agents or its invitees to the Leased Premises, including but not limited to the parking lot area, the dock area, the building, fixtures, overhead doors, door railings, and dock equipment. At Landlord's option, Tenant agrees to conduct a walk through inspection of the Leased Premises with Landlord on or about the beginning of each Lease Year as well as at the expiration of this Lease or any extension or renewal thereof. Tenant shall repair at its sole cost and expense any damage caused by Tenant, its employees, agents or its invitees to the interior and exterior of the Entire Facility, and the HVAC equipment and restore the Leased Premises to its condition as of the commencement date of execution of this lease (as subsequently improved by Landlord's completion of the improvements set forth on Schedule B, if any) , ordinary wear and tear, damage by fire, tornado or other casualty excepted.

     C.    Tenant, at its expense, agrees to install portable fire extinguishers on the Leased Premises as required by the insurance companies or municipal authorities due to Tenant's use of the Leased Premises.

     D.   Tenant shall, throughout the Lease term, take good care of the Leased Premises and keep it free from waste and nuisance; and shall deliver up the Leased Premises clean and neat at the termination of this Lease in as good repair and condition as of the commencement date of execution of this lease, (as subsequently improved by Landlord's completion of the improvements set forth on Schedule B, if any ), ordinary wear and tear, damage by fire, tornado, or other casualty excepted.

     E.   In the event Tenant should neglect to maintain the Leased Premises as set forth herein, and fails to commence repairs within 14 days after written notice, the Landlord shall have the right (but not the obligation) to cause repairs or corrections to be made and any reasonable costs therefore, plus ten fifteen percent overhead, shall be payable by Tenant to Landlord as additional rental on the next rental installment date.

F.  Landlord's Maintenance. Except as otherwise provided herein, Landlord shall be responsible for maintenance and repair of the roof and the structural system for the building except for damage caused by Tenant or its employees, licensees, or invitees, Landlord shall be responsible for maintenance and repair of the building structure of the Entire Facility.

     Landlord shall make regularly scheduled maintenance and repairs to the HVAC and Tenant shall reimburse Landlord for such repairs in accordance with paragraph 2.E.

9.   ALTERATIONS, ADDITIONS, AND IMPROVEMENTS:

     A.    Except for minor decorative alterations, no additional alternations, additions or improvements shall be made by Tenant without Landlord's written approval, which approval shall not be unreasonably withheld or delayed.

     B.   Tenant, at It's sole cost and expense, shall complete all of Tenant's interior improvements subject to Landlord's written approval. Tenant's improvements shall be done in a good and workmanlike manner with materials of good quality and pursuant to appropriate governmental permits and in compliance with applicable laws and insurance requirements. Tenant's construction shall not interfere with the conducting of business by other tenants in the building. During the Lease Term, Tenant shall provide Landlord with waivers of liens for any improvements done by Tenant or Tenant's contractors to the Leased Premises or shall bond or insure over any mechanic's liens with bonding or insurance companies reasonably acceptable to Landlord. In the event Tenant fails to provide said lien waivers or bond or insurance and Landlord is required to pay for such improvements in order to remove or avoid the filing of liens, then any such sums paid by Landlord shall be considered as ad ditional rent and shall be payable by Tenant to Landlord on demand.

     C.   During the course of construction of the improvements, Landlord and its representative may, upon reasonable prior notice of Tenant, inspect (but shall have no duty or obligation to inspect) Tenant's construction of improvements and the materials being used. If as a result of such inspection, Landlord, or its representative shall determine that any materials do not substantially conform to, or that the improvements are not being constructed in accordance with the terms of this Lease, prompt notice thereof may be given by Landlord to Tenant specifying the nature of the deficiency or defect or omission. Upon the receipt of any such notice, Tenant shall promptly take such steps as may be necessary to correct such defect. In the event that Tenant fails to correct said defect, or commence to cure said defect within thirty (30) days after Landlord's notice (or immediately, if an emergency) Landlord shall have the right, but not the obligation, in addition to any other remedies available to Landlord, to undertake same at Tenant's expense. In such event, Tenant shall pay as additional rent to Landlord for the cost of such work immediately upon receipt of an invoice therefore together with interest thereon at the annual rate of eighteen percent (18%) from the date expended by Landlord until paid in full.

     D.   All of Tenant's contractors and subcontractors of its contractors shall carry public liability insurance with at least $1,000,000 single limit broad form coverage and worker's compensation insurance, and each such insurance policy shall name Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members as additional insureds. Each such contractor and subcontractor shall submit to Landlord proof of such insurance before they may begin work on the Leased Premises.

E.  During construction of improvements, Tenant shall carry builder's risk insurance, public liability insurance and worker's compensation insurance, in such amounts as are reasonably acceptable to Landlord, provided that the builder's risk policy coverage shall be at least in an amount sufficient to cover all so-called "hard costs" of construction of Tenant's improvements, together with adequate soft cost coverage. Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members shall be named as additional insureds under said policies. Tenant shall deliver certificates of insurance to Landlord prior to commencement of construction reflecting the coverage thereunder and showing the additional insureds required he reunder.

     F.  All alterations, additions, or improvements made by Tenant shall become the property of Landlord at the termination of this Lease, except trade fixtures. Tenant may remove trade fixtures belonging to Tenant at the expiration of the Lease Term, provided that any damage or injury caused to the real estate by reason of the removal shall be repaired by Tenant at its sole cost and expense. Notwithstanding anything herein to the contrary, affixed dock plates and dock lights are to become realty and not personalty, and may not be removed by Tenant.

10.  SIGNS:

     Tenant shall have the right, subject to Landlord's reasonable approval, to erect signs, at Tenant's expense, on the exterior walls of Tenant's portion of the building, securely attached to and parallel to said walls, subject to applicable laws, approvals of applicable government authorities, and deed restrictions. Signs shall conform to Landlord's plan for the building. Tenant shall obtain, at its sole cost and expense, all permits required for erection of its signs. Tenant shall not erect any signs other than customary trade signs identifying its business, and shall not erect any signs on the roof of the building. Tenant shall remove all signs at the termination of this Lease, and shall repair any damage and close any holes caused by such removal. Tenant agrees to indemnify and save Landlord harmless from any and all losses, claims, and suits for injury to person or property caused by any sign installed or maintained by Tenant. Letters of sign shall be no larger than 8" ; high.

11. INSURANCE:

     Tenant agrees that it will at all times during the term hereof carry and maintain, for the mutual benefit of the Landlord and of the Tenant, general public liability insurance with an insurance company reasonably acceptable to Landlord against claims for personal injury, death, or property damage, occurring in, on or about the Leased Premises or premises adjacent to the Leased Premises, such insurance to afford protection to the limit of no less than Five Million Dollars ($5,000,000.00) in respect to injury or death of a single person, and to the limit of not less than Five Million Dollars ($5,000,000.00) in respect to any one accident. Tenant shall furnish Landlord with a duplicate certificate or certificates of its liability insurance policy or policies and shall from time to time whenever required, satisfy Landlord that such policy or policies is or are, in full force and effect. All insurance policies which Tenant is required to maintain shall name, "Landlord and the owner and, their beneficiaries, officers, directors, shareholders , Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders , Managers and Members" as additional insureds, and Landlord shall be given certificates of all insurance.

     Landlord shall maintain in effect throughout the term of this Lease policies of insurance covering the building and the improvements on the Leased Premises owned by Landlord, in an amount equal no less than 80% of their full replacement value, providing protection against any peril included under a standard form of insurance policy used in Illinois for fire and extended coverage, together with insurance against vandalism and malicious mischief.

     In addition to any additional rent Tenant is to pay for Landlord's maintenance of insurance, Tenant shall pay Landlord, upon demand, as additional rent, an amount equal to the increase in the premiums of Landlord's fire, malicious mischief, vandalism, and extended coverage insurance covering the building and surrounding land which is directly attributable to occupancy of the Leased Premises by Tenant including the use specified herein. If Tenant installs any electrical equipment that overloads the lines in the Leased Premises, Tenant shall, at its own expense, make whatever changes are necessary to comply with the requirements of the insurance underwriters and governmental authorities having jurisdiction.

12.  WAIVER OF SUBROGATION:

     Each party hereto waives any and every claim which arises or may arise in its favor and against the other party hereto during the Term of this Lease or any renewal or extension thereof for any and all loss of, or damage to, any of its property located within or upon, or constituting a part of, the premises leased to Tenant hereunder which loss or damage is covered or would have been covered if such party had complied with this Lease, by valid and collectable fire and extended coverage insurance policies, to the extent such loss or damage is recoverable under said insurance policies. Said mutual waivers will preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or any other person), each party hereto agrees immediately to give to each insurance company which has issued to it policies of fire and extended coverage insurance, written notice of the terms of said mutual waivers, and to have said insurance policies properly endor sed, if necessary, to prevent the invalidation of said insurance coverage by reason of such waivers.

13.  LANDLORD'S RIGHT OF ENTRY:

Upon one hour's telephone notice, except in case of emergency, Landlord and its authorized agents shall have the right to enter the Leased Premises during normal working hours for the following purposes: (a) inspecting the general conditions and state of repair of the Leased Premises; (b) if Landlord is required to make any repairs hereunder that necessitate entry into the Leased Premises, the making of repairs required of Landlord; (c) the showing of the Leased Premises to any prospective Tenants or purchasers; or (d) as provided elsewhere in this Lease. In the event of an emergency, Landlord and its authorized agents shall have the right to enter the Leased Premises at any time to remedy such emergency.

     If Tenant and Landlord have not agreed to a renewal or extension of this Lease prior to the final one hundred and eighty (180) day period of the Lease Term, Landlord and its authorized agents shall have the right to erect on or about the Leased Premises Landlord's signage advertising the Leased Premises for lease or for sale.

14.  UTILITY SERVICES:

     Tenant shall pay the cost of all utility services during the Lease Term as well as during any period in which Tenant is in possession of the Leased Premises, including but not limited to initial connection charges and all charges for gas, water, and electricity used on the Leased Premises (including costs of operating the HVAC system), and for all electric light lamps or tubes. In the event no direct meter to a utility company is available, then Tenant shall pay it's Proportionate Share to Landlord for the cost of such utility (i.e. gas, electric or water) as additional rent.

15.  ASSIGNMENT AND SUBORDINATION TO MORTGAGES:

     A.   This lease may not be assigned by Tenant and Tenant may not sublet the Leased Premises, except to an affiliate or subsidiary, without Landlord's written consent, but Landlord shall not unreasonably withhold or delay its consent so long as the Leased Premises shall be used for the same use as specified in this Lease. Tenant shall not permit to take place by any act of default of himself or any person within his control any transfer by operation of law of Tenant's interest created hereby. Tenant may not post rental notices or signs or any other similar signs or notices anywhere, or advertise the Leased Premises as being for lease or sublease in any publication or other source of advertisement whatsoever without first obtaining, the written consent of Landlord.

     B.   If Tenant is a corporation, Tenant shall not transfer twentyfive percent (25%) or more of the stock thereof without Landlord's prior written consent.

     C.   Tenant shall, in the event that any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage made by the Landlord covering the Leased Premises, attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease provided that such purchaser or mortgagee shall recognize Tenant's Lease as remaining in full force and effect so long as Tenant is not in default hereunder.

     D.   Landlord is hereby irrevocably vested with full power and authority to subordinate Tenant's interest hereunder to any mortgage, deed of trust, or other lien hereafter placed on the Leased Premises, and Tenant agrees upon demand to execute such further instruments subordinating this Lease as Landlord may request, provided such further subordination shall be upon the express condition that this Lease shall be recognized by the mortgages and that the rights of Tenant shall remain in full force and effect during the Lease Term, so long as Tenant shall continue to perform all of the covenants of this Lease.

16.  FIRE AND CASUALTY DAMAGE:

     A.   If the building or other improvements on the Leased Premises should be damaged or destroyed by fire, tornado, or other casualty, Tenant shall give prompt written notice thereof to Landlord.

     B.   Total Destruction: If the building should be destroyed by fire, tornado, or other casualty, so that rebuilding or repairs cannot reasonably be completed within 180 working days from the earlier of the date of Tenant's delivery of written notification to Landlord of the happening of the damage or the date Landlord has actual knowledge of the damage, this Lease shall terminate and rent shall be abated for the unexpired portion of this Lease, effective as of the date the space becomes uninhabitable, except Tenant shall be liable for all Fixed Minimum Rent and all additional rent due hereunder through such date.

C.  Partial Damage: If this Lease is not terminated pursuant to Paragraph B. above, Landlord shall, if the casualty has occurred prior to the final eighteen (18) months of the Lease Term, at its sole cost and risk proceed forthwith to rebuild or repair the building and other improvements substantially to the condition in which they existed prior to such damage, provided that Landlord shall not be obligated to expend for such rebuilding or repair an amount in excess of the insurance proceeds recovered as a result of such damage and in no event shall Landlord be required to repair or replace Tenant's stock in trade, fixtures, furnishings floor coverings or equipment. If the casualty occurs during the final eighteen (18) months of the Lease Term, Landlord shall not be required to rebuild or repair such damage unless the Lease is Renewed Pursuant to the Renewal Term (if any is contained h erein) within thirty (30) days from the date of Tenant's delivery of Tenant's written notification of the happening of the damage or within thirty (30) days from the date Landlord has actual knowledge of the damage, whichever comes first. Whereupon, Landlord shall, at its sole cost and risk, proceed forthwith to rebuild or repair such damage, provided that Landlord shall not be obligated to expend for such rebuilding or repair an amount in excess of the insurance proceeds recovered as a result of such damage and in no event shall Landlord be required to repair or replace Tenant's stock in trade, fixtures, furnishings floor coverings or equipment. If the casualty has occurred during the final eighteen (18) months of the Lease Term and if the Lease is not renewed pursuant to the Renewal Term (if any is contained herein), within said thirty (30) day time frame, this Lease shall terminate, at the option of Landlord, and rent shall be abated for the unexpired portion of this Lease, effective as of the date the Leased Premises becomes uninhabitable and Tenant shall be liable for all Fixed Minimum Rent and all additional rent due hereunder through such date. If the Leased Premises and other improvements are to be rebuilt or repaired and are untenantable in whole or in part following such damage, the rent payable hereunder during the period in which they are untenantable shall be adjusted equitably based on the portions of the space that are tenantable and untenantable. In the event that Landlord should fail to substantially complete such rebuilding or repairs within one hundred eighty (180) days from the date of written notification by Tenant to Landlord of the happening of the damage or one hundred eighty (180) days from the date Landlord has actual knowledge of the damage, whichever comes first, Tenant may at its option terminate this Lease by written notification at such time to Landlord, whereupon all rights and obligations hereunder shall cease except that Tenant shall be liable for all Fixed Minimum Rent and all additional rent due hereunder through the date of termination. During the period when the Leased Premises are untenantable, rent shall abate for such period.

17.  LIABILITY:

Tenant agrees to indemnify, defend and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members, harmless against and from any and all claims by or on behalf of any person or entity, arising from the conduct or management of the business conducted on the Leased Premises or from any work or thing done by or on behalf of Tenant or its subtenants, agents, employees, contractors, officers, directors, licensees or sublicensees on or about the Leased Premises and/or the Building, and will further indemnify and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members harmless against and from any and all claims arising during or after the Lease Term from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act of negligence or willful misconduct of Tenant, or any of its subtenants, agents, contractors, employees, officers, directors, licensees or sublicensees, and from and against all costs, reasonable counsel fees, expenses and liabilities arising from any such claim or action or proceeding brought thereon. If any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon request of Landlord, shall defend such action or proceeding by counsel reasonably satisfactory to Landlord.

18.  CONDEMNATION:

     A.   If, during the Lease Term or any extension or renewal thereof, all or a substantial part of the Leased Premises as would prohibit Tenant from engaging in its business should be taken for any public or quasipublic use under any governmental law, ordinances or regulation or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this Lease shall terminate effective as of the date of said taking and Tenant shall be liable for all Fixed Minimum Rent and all additional rent due hereunder through such date and the rent shall be abated during the unexpired portion of this Lease.

     B.   If such a portion of the Leased Premises as would still permit Tenant to engage in its business shall be taken for any public or quasipublic use under any governmental law, ordinance, or regulation, or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this Lease shall not terminate but Landlord shall forthwith at its sole expense restore the remaining portion of the Leased Premises provided such restoration and reconstruction shall make the same reasonably tenantable and suitable for the uses for which the Leased Premises are leased as defined above and provided that Landlord shall not be obligated to undertake repairs and alterations if the cost thereof exceeds the award Landlord received as a result of the condemnation. The rent payable hereunder during the Landlord's restoration of the Leased Premises and during the remainder of the Lease Term shall be adjusted equitably based on the remaining ten antable area.

     C.   Landlord and Tenant shall each be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings.

19.  HOLDING OVER:

      Tenant shall pay Landlord double the latest Adjusted fixed minimum rent then applicable for each month or portion thereof Tenant retains possession of the Premises, or any portion thereof, after the expiration or termination of this Lease, and also shall pay all damages sustained by Landlord by reason of such retention of possession. The provisions of this Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord hereinbefore or by law provided. If Tenant retains possession of the Premises, or any part thereof, for ten (10) days after the expiration or termination of this Lease, then at the sole option of Landlord expressed by written notice to Tenant, but not otherwise, such holding over shall constitute a renewal of this Lease for a period of one year (or less if specified by Landlord at Landlord's option) on the same terms and conditions, except that the fixed minimum rent shall be increased to one hundred and twenty-five percent (125%) of the latest fixed minimum rent, plus any additional rent.

20.  DEFAULT BY TENANT:

     A.   The following events shall be deemed to be events of default by Tenant under this Lease:

     (1)  Tenant shall fail to pay any installment of Fixed Minimum Rent or additional rent on the date that same is due and such failure shall continue for a period of five (5) days after Landlord delivers written notice to Tenant.

     (2)  Tenant shall fail to comply with any term, condition or covenant of this Lease, other than the payment of rent, and shall not cure such failure within ten (10) days of delivery of written notice provided however that if the Default cannot with due diligence be cured prior to the expiration of said ten (10) day period and if Tenant commences within ten (10) days from the date of delivery of said notice to eliminate the cause of such Default and proceeds diligently and with reasonable dispatch to take all steps and do all work required to cure such Default, then Tenant shall not be in Default.
     
     (3)  Tenant shall make an assignment for the benefit of creditors, or shall be adjudged a bankrupt.

     (4)  If an event of Default occurs by Tenant under the Land Lease, it shall also be deemed an event of Default by Tenant under the Building Lease. if an event of Default occurs by Tenant under this Lease.

     B.   Upon the occurrence of a Default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever:

     (1)  Landlord shall have the immediate right of re-entry and may remove all persons and property from the Leased Premises, and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant, with or without process of law, without being deemed guilty of trespass, or becoming liable to any party for any loss or damage which may be occasioned thereby;

     (2)  Landlord may from time to time without terminating this Lease, and without releasing Tenant in whole or in part from Tenant's obligation to pay rent and perform any of the covenants, conditions and agreements to be performed by Tenant as provided in this Lease, make such alterations and repairs to the Leased Premises as may be necessary in order to relet the Leased Premises. Landlord may relet the Leased Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its discretion may deem advisable. Upon each such reletting if all rentals received by the Landlord from such reletting during any month shall be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Notwithstanding any such reletting without term ination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Tenant shall also be liable to Landlord for all costs of reletting, including, but not limited to, alterations and repairs of the Leased Premises for a new tenant, brokerage commissions, attorneys fees, advertising and any other expenses incurred by Landlord in connection therewith and said costs shall be due upon demand (collectively, the "Reletting Costs");

     (3)  Landlord may terminate this Lease, and with or without process of law may remove all persons, fixtures and property from the Leased Premises, and Landlord shall be entitled to receive as damages all Fixed Minimum Rent, all additional rent and all other sums payable by Tenant as of the date of termination, plus all Reletting Costs plus (1) a sum of money equal to the sums reserved for the balance of the Term for all Fixed Minimum Rent, all additional rent and other sums provided in this Lease to be paid by Tenant to Landlord for the remainder of the Lease Term, less the fair rental value of the Leased Premises for the period, (2) the cost of performing any other covenant to be performed by Tenant, and (3) all costs and reasonable attorneys' fees incurred by Landlord in connection with any action taken against Tenant; and

     (4)  Enter upon the Leased Premises by force if necessary without being liable for prosecution of any claim for damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for expenses, which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action whether caused by the negligence of Landlord or otherwise.
     
     C.   Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by Law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, conditions, and covenants herein contained.

21.  ATTORNEY'S FEES:

     Non-prevailing party shall pay all reasonable attorney's fees and all costs incurred by prevailing party in enforcing any of the covenants and obligations of non-prevailing party under this Lease.  

22.  QUIET ENJOYMENT:

     Landlord warrants that it has full right and power to execute and perform this Lease and to grant the estate demised herein and that Tenant, on payment of all Fixed Minimum Rent and additional rent and performing the covenants herein contained, shall peaceably and quietly have, hold and enjoy the Leased Premises during the full term of this Lease and any extension or renewal hereof, provided that this Lease shall be subject and subordinate to any recorded mortgage, deed of trust or lien presently existing or hereafter placed on the Leased Premises.

23.  WAIVER OF DEFAULT:

     The waiver by the parties hereto of any default or breach of any term, condition, or covenant of this Lease shall not be deemed to be a waiver of any subsequent default or breach of the same or any other term, condition, or covenant contained herein.

24.  FORCE MAJEURE:

     Landlord shall be allowed to delay the performance of any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean delays occasioned or caused by tenant preventing Landlord making Schedule "B" improvements, Act of God, strikes, lockouts, material or labor restrictions by any governmental authority, civil riot, floods, and any other cause not reasonably within the control of Landlord or Tenant and which by the exercise of due diligence Landlord is unable, wholly or in part, to prevent or overcome.

25.  ESTOPPEL CERTIFICATE BY TENANT:

     Tenant agrees that at any time and from time to time, upon not less than five (5) days prior written request by Landlord, to execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the rental and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective lender or purchaser of the fee of the Leased Premises.

26. ENVIRONMENTAL

     A. Tenant, in the regular course of its business on the Leased Premises, will receive and distribute merchandise containing Hazardous Materials (as defined herein) in household quantities and in original closed containers. Tenant will indemnify, defend and save Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members harmless from any and all actions, proceedings, claims, costs, expenses and losses of any kind, including, but not limited to, those arising from injury to any person, including death, damage to or loss of use or value of real or personal property, and costs of investigation and cleanup or other environmental remedial work, which may rise in connection with the existence of Hazardous Materials brought on to the Leased Premises since the Commencement Date. The term "Hazard ous Materials" when used herein, shall include, but shall not be limited to any substances, materials or wastes that are regulated by any local governmental authority, the state where the Leased Premises is located, or the United States of America because of toxic, flammable, explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human health or the environment, including asbestos and including any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table, as amended 49 CFR 172.101, or in the Comprehensive Environmental Response, Compensation and Liability Act, as amended 42 USC sections 9601 et seq., or the Resources Conservation and Recovery Act, as amended, 42 USC sections 6901 et seq., or any other applicable governmental regulation imposing liability or standards of conduct concerning any hazardous, toxic or dangerous substances, waste or material, now or hereafter in effect. Tenant shall comply with applica ble laws related to any fuel and oil leakage or spills and disposal of any solvents, soaps and chemicals used in truck washing operations, arising from or out of Tenant's use of the Leased Premises. For the purposes of this Environmental section, the Premises or Leased Premises shall include all buildings and improvements, all loading platform areas, all parking and driveway areas, any sidewalks adjacent to the Leased Premises or any streets in front of or appurtenant thereto, all adjoining property and property affected in any way by the operations of the Tenant upon the Leased Premises or upon the foregoing, the subsurface of the Leased Premises or the forgoing, including without limitation, the ground water, the Entire Facility and Leased Premises.

     B.   Tenant does hereby indemnify, defend and hold harmless the Landlord and the owner and, their beneficiaries, officers, directors, shareholders, Managers and Members, the agents of Landlord and the owner and their agents' beneficiaries, officers, directors, shareholders, Managers and Members from all fines, suits, procedures, claims and actions of every kind, and all costs associated therewith (including attorneys' and consultants' fees) arising out of or in any way connected with any deposit, spill, discharge or release of Hazardous Materials that occurs during the Lease Term, at or from the Leased Premises, or which arises at any time from Tenant's or Tenant's agents, employees or contractor's use or occupancy of the Leased Premises, or from Tenant's or Tenant's agents, employees or contractor's failure to provide all information, make all submissions, and take all steps required by all applicable governmental authorities. Tenant's obligations and liabilitie s under this paragraph shall survive the expiration of the Lease Term.

     C.   Tenant shall promptly advise Landlord in writing as to any deposit, spill, discharge or release of Hazardous Materials that occurs or which arises from Tenant's use or occupancy of the Leased Premises.

     D.   Tenant will use the Leased Premises in accordance with all applicable federal, state and local laws and regulations, including but not limited to the storm water discharge rules and permits. This will include registration fees, monitoring, and all improvements, alterations and devices as may be required by the governmental authorities responsible for monitoring and controlling said regulations and laws.

27.  EXHIBITS:

     All exhibits, attachments, annexed instruments, and addenda referred to herein shall be considered a part hereof for all purposes with the same force and effect as if copied at full length herein.
     
      EXHIBIT "A-1 & A-2" -- SITE PLAN
            EXHIBIT "B" -- LANDLORD'S WORK
          
28.  USE OF LANGUAGE:

     Words of any gender used in the Lease shall be held and construed to include any other gender, and words in the singular shall be held to include the plural, unless the context otherwise requires.

29.  CAPTIONS:

     The captions or headings of paragraphs in this Lease are inserted for convenience only and shall not be considered in construing the provisions hereof if any questions of intent should arise.

30.  SUCCESSORS:

     The terms, conditions, and covenants contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and their respective successors in interest and legal representatives except as otherwise herein expressly provided. All rights, powers, privileges, immunities and duties of Landlord under this Lease, including but not limited to any notices required or permitted to be delivered by Landlord to Tenant hereunder, may, at Landlord`s option, by exercised or performed by Landlord's agent or attorney.

31.  NOTICES:

     Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not the day after said notice is deposited for overnight delivery with an overnight delivery service or three (3) days after said notice is deposited in the United States mail, postage prepaid, certified mail addressed to the parties hereto at the respective addresses set out opposite their names below (on the last page), or at such other address as they have heretofore or hereafter specify by written notice delivered in accordance herewith. Five-day notices may be delivered by certified mail or any other means permissible under the forcible entry and detainer act.

32.  SEVERABILITY:

     If any term or provision of this Lease shall to any extent be held to be invalid or unenforceable, the remaining terms and provisions 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.

33.  LATE CHARGE:

     In the event Landlord does not receive from Tenant any installment of rent or additional rent due hereunder on or before the fifth day after such payment is due, Tenant shall be liable for a late charge in an amount equal to five percent (5%) of the amount past due. If said rental payment is not paid by the fifteenth (15) day of the month due an additional ten percent (10%) late fee as additional rent will be due.

34.  JURY TRIAL WAIVER:

     LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, OR TENANT'S USE OR OCCUPANCY OF THE LEASED PREMISES.
     
35.  RULES AND REGULATIONS:

     Tenant shall comply with all reasonable rules and regulations of Landlord not inconsistent with the terms of this Lease.

36.  NO WAIVER OF RIGHTS:

     Landlord's delay in enforcing any of its rights and remedies hereunder shall not be deemed a waiver of said rights and remedies and shall not preclude Landlord from enforcing any of said rights and remedies at a later date.

37. CANCELLATION:

     Tenant may cancel this Lease on February 29, 2012 by Tenant serving six (6) months prior written notice and the payment of $122,150.00 to Landlord concurrent with service of said notice. If notice is not served in strict accordance with this paragraph this provision is in no further force or effect and is null and void.

38. EXISTING LEASE OBLIGATION:

Upon commencement, Landlord will assume Tenant's (Ace Hardware's) existing lease obligation at 4300 West 35 ^th Place, Chicago, Illinois through May 31, 2002 at a cost of $22,858.44 per month, with a maximum aggregate cost of $ 68,575.32 . Tenant represents to Landlord that its existing lease obligation is, in fact, at least $20,000 per month.

Dated:

Landlord:
Summit Terminal, LLC                         Tenant:
By: Finch & Barry Properties, LLC       Ace Hardware Corporation
436 E. State Parkway                                2200 Kensington Court
Suite 222                                                    Oak Brook, IL 60523-2100
Schaumburg, IL 60173                    

By:                                                              By: David Myer
Its: Member                                               Its: Sr. V.P., Retail Support & Logistics




EXHIBIT B
     Landlord's Work for Ace Hardware Corporation

Landlord, at its expense except where noted, shall substantially complete the construction of the following improvements:

1. Truck Loading - New Dock Doors with appropriate seals and wall mounted dock lights. A ramped drive-in door will be installed.
2. Floors - Repair floors where needed and apply sealer.
3. Fencing - The front and rear yards will be fenced off per the attached drawing giving Ace the appropriate reserved parking and secured
    access.
4. Guard Shack - Allowable, at Ace's sole expense.
5. Office Area - The upstairs office area will be demised according to the Exhibit A-2 . In addition, the ceiling tiles will be replaced and new  recessed lighting installed.
Bathrooms - Two new bathrooms will be constructed on the second floor for Ace's exclusive use. EX-10 20 ex10a18.htm 10-A-18 AMEND. NOTE PURCHASE AND PRIV. SHELF AGREE. September 10, 2001 Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521
Ladies and Gentlemen:
    Reference is made to (a) the Note Purchase and Private Shelf Agreement dated as of September 27, 1991 (the " 1991 Note Agreement ") between Ace Hardware Corporation (the " Company ") and The Prudential Insurance Company of America (" Prudential ") pursuant to which the Company issued and sold and Prudential purchased the Company's 8.47% Senior Notes in the original principal amount of $20,000,000 due July 1, 2003 and (b) the Amended and Restated Note Purchase and Private Shelf Agreement dated as of September 22, 1993, as amended and restated on August 23, 1996 (the " 1996 Note Agreement ", together with the 1991 Note Agreement, the " Note Agreements ") between the Company and Prudential pursuant to which the Company issued and sold and Prudential purchased the Company's (i) 6.47% Senior Series A Notes in the original principal amount of $30,000,000 due June 22, 2008; (ii) 7.49% Senior Series B Notes in the original principal amount of $20,000,000 due June 15, 2011; (iii) 7.55% Senior Series C Notes in the original principal amount of $20,000,00, due March 25, 2009 and; (iv) 6.61% Senior Series D Notes in the original principal amount of $20,000,000 due February 9, 2010. Capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the 1996 Note Agreement.
    Pursuant to the request of the Company and in accordance with the provisions of paragraph 11C of each Note Agreement, the parties hereto agree as follows:
SECTION 1.      Amendments to Note Agreements . From and after the date this letter becomes effective in accordance with its terms, Paragraph 6G of each Note Agreement is deleted in its respective entirety.
SECTION 2.      Condition Precedent . This letter shall become effective as of the date hereof upon the return by the Company to Prudential of a counterpart hereof duly executed by the Company. This letter should be returned to: Prudential Capital Group, Two Prudential Plaza, Suite 5600, Chicago, Illinois 60601, Attn.: Kira E.Druyan.
SECTION 3.      Reference to and Effect on Note Agreements . Upon the effectiveness of this letter, each reference to either Note Agreement in any other document, instrument or agreement shall mean and be a reference to such Note Agreement as modified by this letter. Except as specifically set forth in Section 1 and 2 hereof, each Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.
SECTION 4.      Governing Law . THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
    SECTION 5.      Counterparts; Section Titles. This letter may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The section titles contained in this letter are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.
                             Very truly yours,
THE PRUDENTIAL INSURANCE      
                              COMPANY OF AMERICA
By:_______________________________
                                    Vice President
Agreed and accepted:
ACE HARDWARE CORPORATION
By: Sandra K. Brandt
Title: Treasurer EX-10 21 ex10a19.htm 10-A-19 NOTE PURCHASE AGREEMENT

CONFORMED COPY

ACE HARDWARE CORPORATION



$100,000,000
Senior Notes Issuable In Series



$70,000,000
7.27% Senior Notes, Series 2001-A
due April 30, 2013



_________

NOTE PURCHASE AGREEMENT
_________



Dated as of April 15, 2001

PPN: 00440* AG 3

TABLE OF CONTENTS

Section                                                          

1.AUTHORIZATION OF NOTES

1.1.Amount; Establishment of Series
1.2.The Series 2001-A Notes


2. SALE AND PURCHASE OF SERIES 2001-A NOTES.

3. CLOSING

4. CONDITIONS TO CLOSING

   4.1.Representations and Warranties
   4.2.Performance; No Default
   4.3.Compliance Certificates
   4.4.Opinions of Counsel
   4.5.Purchase Permitted By Applicable Law, etc
   4.6.Sale of Other Notes
   4.7.Payment of Special Counsel Fees
   4.8.Private Placement Number
   4.9.Changes in Corporate Structure
   4.10.Proceedings and Documents.


5.REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   5.1.Organization; Power and Authority
   5.2.Authorization, etc
   5.3.Disclosure
   5.4.Organization and Ownership of Shares of Subsidiaries
   5.5.Financial Statements
   5.6.Compliance with Laws, Other Instruments, etc
   5.7.Governmental Authorizations, etc.
   5.8.Litigation; Observance of Statutes and Orders
   5.9.Taxes
   5.10.Title to Property; Leases
   5.11.Licenses, Permits, etc
   5.12.Compliance with ERISA
   5.13.Private Offering by the Company
   5.14.Use of Proceeds; Margin Regulations
   5.15.Existing Debt
   5.16.Foreign Assets Control Regulations, etc
   5.17.Status under Certain Statutes


6.REPRESENTATIONS OF THE PURCHASERS

   6.1.Purchase for Investment
   6.2.Source of Funds


7.INFORMATION AS TO COMPANY

   7.1.Financial and Business Information
   7.2.Officer's Certificate
   7.3.Inspection


8.PREPAYMENT OF THE NOTES.

   8.1.Required Prepayments
   8.2.Optional Prepayments with Make-Whole Amount
   8.3.Allocation of Partial Prepayments
   8.4.Maturity; Surrender, etc
   8.5.Purchase of Notes
   8.6.Make-Whole Amount


9.AFFIRMATIVE COVENANTS

   9.1.Compliance with Law
   9.2.Insurance
   9.3.Maintenance of Properties
   9.4.Payment of Taxes and Claims
   9.5.Corporate Existence, etc
   9.6.Cooperative Status


10.NEGATIVE COVENANTS21

   10.1.Consolidated Debt; Priority Debt.
   10.2.Fixed Charge Coverage Ratio
   10.3.Liens.
   10.4.Sale of Assets.
   10.5.Mergers, Consolidations, etc.
   10.6.Disposition of Stock of Subsidiaries.
   10.7.Nature of Business.
   10.8.Transactions with Affiliates
   10.9.Subordination of Patronage Debt; Modification of Governing Documents; Restriction on Certain Cash Payments


11.EVENTS OF DEFAULT

12.REMEDIES ON DEFAULT, ETC

   12.1.Acceleration
   12.2.Other Remedies
   12.3.Rescission
   12.4.No Waivers or Election of Remedies, Expenses, etc


13.REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES

   13.1.Registration of Notes
   13.2.Transfer and Exchange of Notes
   13.3.Replacement of Notes


14.PAYMENTS ON NOTES

   14.1.Place of Payment
   14.2.Home Office Payment


15.EXPENSES, ETC

   15.1.Transaction Expenses
   15.2.Survival


16.SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT

17.AMENDMENT AND WAIVER

   17.1.Requirements
   17.2.Solicitation of Holders of Notes
   17.3.Binding Effect, etc
   17.4.Notes held by Company, etc


18.NOTICES

19.REPRODUCTION OF DOCUMENTS

20.CONFIDENTIAL INFORMATION

21.SUBSTITUTION OF PURCHASER

22.MISCELLANEOUS

   22.1.Successors and Assigns
   22.2.Payments Due on Non-Business Days
   22.3.Severability
   22.4.Construction
   22.5.Counterparts
   22.6.Governing Law Page

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SCHEDULE A	--	Information Relating to Purchasers
SCHEDULE B	--	Defined Terms
SCHEDULE B-1	--	Satisfactory Subordination Language
SCHEDULE 4.9	--	Changes in Corporate Structure
SCHEDULE 5.3	--	Disclosure Materials
SCHEDULE 5.4	--	Subsidiaries of the Company and Ownership of Subsidiary Stock
SCHEDULE 5.5	--	Financial Statements
SCHEDULE 5.11	--	Licenses, Permits, etc.
SCHEDULE 5.15	--	Debt
SCHEDULE 10.3	--	Liens
SCHEDULE 10.9	--	Article 12 of the Company's By-Laws
EXHIBIT 1.1(a)	--	Form of Senior Note
EXHIBIT 1.1(b)	--	Form of Supplement
EXHIBIT 1.2	--	Form of Series 2001-A Senior Note
EXHIBIT 4.4(a)	--	Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b)	--	Form of Opinion of Special Counsel for the Purchasers

ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60523-2100
(630) 990-6600
Fax: (630) 572-6389


$100,000,000
Senior Notes Issuable In Series


$70,000,000
7.27% Senior Notes, Series 2001-A
due April 30, 2013


                                                                                                         Dated as of April 15, 2001

TO EACH OF THE PURCHASERS LISTED IN
         THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

ACE HARDWARE CORPORATION, a Delaware corporation (the "Company"), agrees with you as follows:

1. AUTHORIZATION OF NOTES.

1.1. Amount; Establishment of Series.

     The Company is contemplating the issue and sale of up to $100,000,000 aggregate principal amount of its Senior Notes issuable in series (the "Notes", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes will be substantially in the form set out in Exhibit 1.1(a), with such changes therefrom, if any, as may be approved by the purchasers of such Notes, or series thereof, and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. Each series of Notes, other than the initial series, will be issued pursuant to a supplement to this Agreement (a "Supplement") in substantially the form of Exhibit 1.1(b), and will be subject to the following terms and conditions:

          (a) the designation of each series of Notes shall distinguish the Notes of one series from the Notes of all other series;

          (b) the Notes of each series shall rank pari passu with the Notes of all other series and the Company's other outstanding unsecured senior Debt;

          (c) each series of Notes shall be dated the date of issue, bear interest at such rate or rates, mature on such date or dates, be subject to such mandatory prepayments on the dates and with the Make-Whole Amounts, if any, as are provided in the Supplement under which such Notes are issued, and shall have such additional or different conditions precedent to closing and such additional or different representations and warranties or, subject to Section 1.1(d), other terms and provisions as shall be specified in such Supplement;

          (d) any additional covenants, Defaults, Events of Default, rights or similar provisions that are added by a Supplement for the benefit of the series of Notes to be issued pursuant to such Supplement shall apply to all outstanding Notes, whether or not the Supplement so provides; and

          (e) except to the extent provided in foregoing clause (c), all of the provisions of this Agreement shall apply to the Notes of each series.
The Purchasers of the Series 2001-A Notes need not purchase subsequent series of Notes.

1.2. The Series 2001-A Notes.

          The Company has authorized, as the initial series of Notes hereunder, the issue and sale of $70,000,000 aggregate principal amount of 7.27% Senior Notes, Series 2001-A, due April 30, 2013 (the "Series 2001-A Notes," such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Series 2001-A Notes shall be substantially in the form set out in Exhibit 1.2, with such changes therefrom, if any, as may be approved by you and the Company.

2. SALE AND PURCHASE OF SERIES 2001-A NOTES.

          Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and each of the other purchasers named in Schedule A (the "Other Purchasers"), and you and the Other Purchasers will purchase from the Company, at the Closing provided for in Section 3, Series 2001-A Notes in the principal amount specified opposite your names in Schedule A at the purchase price of 100% of the principal amount thereof. Your obligation hereunder and the obligations of the Other Purchasers are several and not joint obligations and you shall have no liability to any Person for the performance or non-performance by any Other Purchaser hereunder.

3. CLOSING.

          The sale and purchase of the Series 2001-A Notes to be purchased by you and the Other Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "Closing") on April 25, 2001 or on such other Business Day thereafter on or prior to April 30, 2001 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Series 2001-A Notes to be purchased by you in the form of a single Series 2001-A Note (or such greater number of Series 2001-A Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds f or the account of the Company to account number 94064 at The Northern Trust Company, 50 South LaSalle Street, Chicago, IL 60675, ABA No. 071000152. If at the Closing the Company fails to tender such Series 2001-A Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment.

4. CONDITIONS TO CLOSING.

          Your obligation to purchase and pay for the Series 2001-A Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions:

4.1. Representations and Warranties.

          The representations and warranties of the Company in this Agreement shall be correct when made and correct in all material respects at the time of the Closing.

4.2. Performance; No Default.

          The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Series 2001-A Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. 

4.3. Compliance Certificates.

          (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

          (b) Secretary's Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and any other corporate proceedings relating to the authorization, execution and delivery of the Series 2001-A Notes and this Agreement.

4.4. Opinions of Counsel.

          You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from McDermott, Will & Emery, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company instructs its counsel to deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request.

4.5. Purchase Permitted By Applicable Law, etc.

          On the date of the Closing your purchase of Series 2001-A Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you at least three Business Days prior to the Closing, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted.

4.6. Sale of Other Notes.

          Contemporaneously with the Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Series 2001-A Notes to be purchased by them at the Closing as specified in Schedule A.

4.7. Payment of Special Counsel Fees.

          Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing.

4.8. Private Placement Number.

          A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained by Gardner, Carton & Douglas for the Series 2001-A Notes.

4.9. Changes in Corporate Structure.

          Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 

4.10. Proceedings and Documents.

          All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request.

5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

          The Company represents and warrants to you that:

5.1. Organization; Power and Authority.

          The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Series 2001-A Notes and to perform the provisions hereof and thereof.

5.2. Authorization, etc.

          This Agreement and the Series 2001-A Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Series 2001-A Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3. Disclosure.

          The Company, through its agent, Banc of America Securities, Inc., has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated March 2001 (the "Memorandum"), relating to the transactions contemplated hereby. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings identified in Schedule 5.3 and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 30, 2000, there has been no change in the financial condition, operation s, business or properties of the Company or any Subsidiary except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. 

5.4. Organization and Ownership of Shares of Subsidiaries.

          (a) Schedule 5.4 is (except as noted therein) a complete and correct list of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary.

          (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

          (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

5.5. Financial Statements.

          The Company has delivered to you and each Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial condition of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments).

5.6. Compliance with Laws, Other Instruments, etc.

          The execution, delivery and performance by the Company of this Agreement and the Series 2001-A Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other Material agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.

5.7. Governmental Authorizations, etc.

          No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes.

5.8. Litigation; Observance of Statutes and Orders.

          (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

          (b) Neither the Company nor any Subsidiary is in default under any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

5.9. Taxes.

          The Company and its Subsidiaries have filed all income tax returns that are required to have been filed in any jurisdiction (or the time period for filing has not expired or has been extended), and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 1995.

5.10. Title to Property; Leases.

          The Company and its Subsidiaries have good and sufficient title to their respective Material properties, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement, except for those defects in title and Liens that, individually or in the aggregate, would not have a Material Adverse Effect. All Material leases are valid and subsisting and are in full force and effect in all material respects. 

5.11. Licenses, Permits, etc.

          Except as disclosed in Schedule 5.11, the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that are Material, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, would not have a Material Adverse Effect.

5.12. Compliance with ERISA.

          (a) The Company and each ERISA Affiliate have fulfilled in all material respects their respective obligations under ERISA and the Code with respect to each Plan and each Plan is in material compliance with the applicable provisions of ERISA and the Code.

          (b) With respect to each Plan, there has been no (i) "reportable event" within the meaning of Section 4043 of ERISA and the regulations thereunder which is not subject to the provision for waiver of the 30-day notice requirement to the PBGC; (ii) failure to make or properly accrue any contribution which is due to any Plan; (iii) except as set forth on Schedule 5.12(b), action under Section 4041 of ERISA to terminate any Pension Plan; (iv) withdrawal from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability pursuant to Section 4062(e), 4069 or 4212 of ERISA; (vii) complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Pension Plan which is a Multiemployer Plan that it is in reorganization or insolvency pursuant to Sections 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Sections 4041A or 4042 of ERISA; (viii) prohibited transaction described in Section 406 of ERISA or 4975 of the Code which could give rise to the imposition of any material fines, penalties, taxes or related charges; (ix) assertion of a material claim (other than routine claims for benefits) against any Plan (other than a Multiemployer Plan) which could reasonably be expected to be successful; (x) receipt from the Internal Revenue Service of notice of the failure of any Plan to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any Plan to qualify for exemption from taxation under Section 501(a) of the Code, if applicable; or (xi) imposition of a lien pursuant to Section 401(a)(29) of the Code or 412(n) of the Code or Section 302(f) of ERISA.

          (c) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material or has been disclosed in the most recent audited consolidated financial statements of the Company and its Subsidiaries.

          (d) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax would be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(d) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you.

5.13. Private Offering by the Company.

          Neither the Company nor anyone acting on its behalf has offered the Series 2001?A Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than 36 other Institutional Investors, each of which has been offered the Series 2001-A Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Series 2001-A Notes to the registration requirements of Section 5 of the Securities Act.

5.14. Use of Proceeds; Margin Regulations.

          The Company will apply the proceeds of the sale of the Series 2001-A Notes for general corporate purposes (which may include repayment of Debt of the Company and its Subsidiaries). No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As use d in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation U.

5.15. Existing Debt.

          Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Debt and Patronage Debt of the Company and its Subsidiaries as of December 30, 2000 (except as otherwise indicated), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Debt of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Debt of the Company or such Subsidiary the outstanding principal amount of which exceeds $10,000,000 and no event or condition exists with respect to any Debt of the Company or any Subsidiary the outstanding principal amount of which exceeds $10,000,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. All Patronage Debt, including that identified as "Patronage refund certificates payable" on the most recent balance sheet referred to in Section 5.5, is effectively subordinated to the Notes pursuant to subordination language substantially identical to that set forth in Schedule B-1.

5.16. Foreign Assets Control Regulations, etc.

          Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

5.17. Status under Certain Statutes.

          Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended by the ICC Termination Act, as amended, or the Federal Power Act, as amended.

6. REPRESENTATIONS OF THE PURCHASERS.

6.1. Purchase for Investment.

          You represent that (i) you are an "accredited investor" as defined in Rule 501(a) under the Securities Act and (ii) you are purchasing the Series 2001-A Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Series 2001-A Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 

6.2. Source of Funds.

          You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Series 2001-A Notes to be purchased by you hereunder:

          (a) the Source is an "insurance company general account" as such term is defined in the Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) ("PTE 95-60") and as of the date of this Agreement there is no "employee benefit plan" with respect to which the aggregate amount of such general account's reserves and liabilities for the contracts held by or on behalf of such employee benefit plan and all other employee benefit plans maintained by the same employer (and affiliates thereof as defined in Section V(a)(1) of PTE 95-60) or by the same employee organization (in each case determined in accordance with the provisions of PTE 95-60) exceeds 10% of the total reserves and liabilities of such general account (as determined under PTE 95-60) (exclusive of separate account liabilities) plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with your state of domicile; or
          (b) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

          (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all empl oyee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or

          (d) the Source is a governmental plan; or

          (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or

          (f) the Source is the assets of one or more employee benefit plans that are managed by an "in-house asset manager," as that term is defined in PTE 96-23 and such purchase and holding of the Notes is exempt under PTE 96-23; or          

          (g) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA.

7. INFORMATION AS TO COMPANY.

7.1. Financial and Business Information 
         
          The Company will deliver to each holder of Notes that is an Institutional Investor:

          (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

          (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

          (ii) consolidated statements of income and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial condition of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q (if any) prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a);

          (b) Annual Statements -- within 120 days after the end of each fiscal year of the Company, duplicate copies of,

          (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and

          (ii) consolidated statements of income, changes in member dealers' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by 

          (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and

          (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), 

provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K (if any) for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b);

          (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement that shall have become effective (without exhibits except as expressly requested by such holder), and each final prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission;

          (d) Notice of Default or Event of Default -- promptly, and in any event within five Business Days after a Responsible Officer obtains actual knowledge of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

          (e) ERISA Matters -- promptly, and in any event within five Business Days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

                    (i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

                    (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

                    (iii) any event, transaction or condition that would result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect; 

          (f) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes; and

          (g) Supplements to Agreement -- in the event an additional series of Notes is, or is proposed to be, issued under this Agreement, promptly, and in any event within 10 Business Days after execution and delivery thereof, a true copy of the Supplement pursuant to which such Notes are to be, or were, issued. 

7.2. Officer's Certificate.

          Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of a Senior Financial Officer setting forth:

          (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.9, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and

          (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

7.3. Inspection.

          The Company will permit the representatives of each holder of Notes that is an Institutional Investor:

          (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and, with the consent of the Company (which consent will not be unreasonably withheld), to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and

          (b) Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances, and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested.

8. PREPAYMENT OF THE NOTES.

8.1. Required Prepayments.

          (a) Required Prepayments. On April 30, 2009 and on each April 30 thereafter to and including April 30, 2012, the Company will prepay $14,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Series 2001-A Notes at par and without payment of the Make-Whole Amount or any premium, provided that upon any partial prepayment of the Notes pursuant to Section 8.1(b) or 8.2 or purchase of the Notes permitted by Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1(a) on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase.

          (b) Change of Control Prepayments. Upon the occurrence of a Change of Control Event, the Company, upon notice as provided below, shall offer to prepay the entire principal amount of the Notes at 100% of the principal amount thereof, plus accrued interest, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company shall give notice of any offer to prepay the Notes to each holder of the Notes promptly, but in no event later than 15 Business Days, after any Responsible Officer has actual knowledge of a Change of Control Event. Such notice shall specify (i) the nature of the Change of Control Event in reasonable detail, (ii) the date fixed for prepayment, which, to the extent practicable, shall be not less than 30 or more than 60 calendar days after the date of such notice, but in any event shall not be later than the Effective Date of the Change of Control if it has not occurred or 15 Business D ays thereafter if it has occurred, (iii) the estimated Effective Date of the Change of Control if it has not occurred, (iv) the interest to be paid on the prepayment date with respect to such principal amount being prepaid and (v) the date by which any holder of a Note that wishes to accept such offer must deliver notice thereof to the Company, which shall not be later than 30 calendar days after the date of such notice. The notice shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Failure by a holder of Notes to respond to an offer made pursuant to this Section 8.1(b) shall be deemed to constitute acceptance of such offer by such holder. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the ca lculation of the Make-Whole Amount as of the specified prepayment date.

          The obligation of the Company to prepay Notes pursuant to the offers required by, and accepted in accordance with, this Section 8.1(b) is subject to the effectiveness of the Change of Control Event in respect of which such offers and acceptances shall have been made. In the event that the Effective Date of the Change of Control does not occur on the proposed prepayment date in respect thereof, the prepayment shall be deferred until and shall be made on the Effective Date of the Change of Control. The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the expected Effective Date of the Change of Control and (iii) any determination by the Company that efforts to consummate the change of control constituting the Change of Control Event have ceased or been abandoned (in which case the offers and acceptances made pursuant to this Section 8.1(b) shall be deemed rescinded).

8.2. Optional Prepayments with Make-Whole Amount.

          The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes of any series, including the Series 2001-A Notes, in an amount not less than $2,000,000 in the aggregate in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes of the series to be prepaid written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amo unt being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

8.3. Allocation of Partial Prepayments.

          In the case of each partial prepayment of the Notes of a series pursuant to Section 8.2, the principal amount of the Notes of such series to be prepaid shall be allocated among all of the Notes of such series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 

8.4. Maturity; Surrender, etc.

          In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

8.5. Purchase of Notes.

          The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 30 days. If the holders of more than 25% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining h older at least ten Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.

8.6. Make-Whole Amount.

          The term Make-Whole Amount means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

          Called Principal means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.1(b) or Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

          Discounted Value means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.

          Reinvestment Yield means, with respect to the Called Principal of any Note, .50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as the "PX Screen" on the Bloomberg Financial Market Service (or such other display as may replace the PX Screen on Bloomberg Financial Market Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable success or publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life.

          Remaining Average Life means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

          Remaining Scheduled Payments means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.1(b), 8.2 or 12.1.

          Settlement Date means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.1(b) or 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

9. AFFIRMATIVE COVENANTS.

          The Company covenants that so long as any of the Notes are outstanding:

9.1. Compliance with Law.

          The Company will, and will cause each Subsidiary to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not, individually or in the aggregate, reasonably be expected to have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.

9.2. Insurance.

          The Company will, and will cause each Subsidiary to, keep all of its property and business adequately insured by financially sound and reputable insurers in accordance with prudent business practices and will carry such other insurance as is customarily maintained in accordance with prudent business practices.

9.3. Maintenance of Properties.

          The Company will and will cause each Subsidiary to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.

9.4. Payment of Taxes and Claims.

          The Company will, and will cause each Subsidiary to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies payable by any of them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate would not reasonably be expected to have a materially adverse ef fect on the business, operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.

9.5. Corporate Existence, etc.

          The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.4 and 10.5, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect a particular corporate existence, right or franchise would not, individually or in the aggregate, have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.

9.6. Cooperative Status.

          The Company will at all times maintain its status as a cooperative for purposes of Subchapter T of the Code.

10. NEGATIVE COVENANTS.

          The Company covenants that so long as any of the Notes are outstanding:

10.1. Consolidated Debt; Priority Debt.
          The Company will not permit:

          (a) the ratio (as calculated as of the last day of each fiscal quarter of the Company) of Consolidated Debt to EBITDA (for the Company's then most recently completed four fiscal quarters) to be greater than 3.25 to 1.0 at any time; or

          (b) Priority Debt to exceed 25% of Member Dealers' Equity at any time.

10.2. Fixed Charge Coverage Ratio.

          The Company will not permit the ratio (calculated as of the last day of each fiscal quarter of the Company) of Consolidated Income Available for Fixed Charges to Fixed Charges for the period of four fiscal quarters then ending to be less than 1.60 to 1.00.

10.3. Liens.

          The Company will not, and will not permit any Subsidiary to, permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired (unless, concurrently with the incurrence, assumption or creation of such Lien, the Company makes, or causes to be made, effective provision whereby the Notes are equally and ratably secured by a Lien on the same property or assets, including the execution of an intercreditor agreement, in form and substance satisfactory to holders of the Notes, between such holders and the holders of other Debt secured by a Lien in such property), except:

          (a) Liens for taxes, assessments or governmental charges not then due and delinquent or the nonpayment of which is permitted by Section 9.4;

          (b) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords', lessors', carriers', warehousemen's, mechanics', materialmen's and encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights of way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto or which relate only to assets that in the aggregate are not material) and Liens to secure the performance of bids, tenders, leases or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and no t in connection with the borrowing of money;

          (c) any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay;

          (d) Liens securing Debt of a Subsidiary to the Company or to another Subsidiary;

          (e) Liens existing on property or assets of the Company or any Subsidiary as of the date of this Agreement that are described in Schedule 10.3;

          (f) Liens (i) existing on property at the time of its acquisition by the Company or a Subsidiary and not created in contemplation thereof, whether or not the Debt secured by such Lien is assumed by the Company or a Subsidiary; or (ii) on property created contemporaneously with its acquisition or within 365 days of the acquisition or completion of construction or improvement thereof to secure or provide for all or a portion of the purchase price or cost of construction or improvement of such property after the date of Closing; or (iii) existing on property of a Person at the time such Person is merged or consolidated with, or becomes a Subsidiary of, or substantially all of its assets are acquired by, the Company or a Subsidiary and not created in contemplation thereof; provided that in the case of clauses (i), (ii) and (iii) such Liens do not extend to additional property of the Company or any Subsidiary (other than property that is an improvement to or is acquired for specific use in connection with the subject property) and, in the case of clause (ii) only, that the aggregate principal amount of Debt secured by each such Lien does not exceed the lesser of the fair market value (determined in good faith by one or more officers of the Company to whom authority to enter into such transaction has been delegated by the board of directors of the Company) or cost of acquisition or construction of the property subject thereto;

          (g) Liens resulting from extensions, renewals or replacements of Liens permitted by paragraphs (d) and (e), provided that (i) there is no increase in the principal amount or decrease in maturity of the Debt secured thereby at the time of such extension, renewal or replacement, (ii) any new Lien attaches only to the same property theretofore subject to such earlier Lien and (iii) immediately after such extension, renewal or replacement no Default or Event of Default would exist; and

          (h) Liens securing Debt not otherwise permitted by paragraphs (a) through (g) above, provided that, at the time of creation, assumption or incurrence thereof and immediately after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding does not exceed 25% of Member Dealers' Equity.

10.4. Sale of Assets.

          Except as permitted by Section 10.5, the Company will not, and will not permit any Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger (collectively a "Disposition"), any assets, including capital stock of Subsidiaries, in one or a series of transactions, to any Person, other than:

          (a) Dispositions in the ordinary course of business (including inventory and used, worn-out or surplus equipment); 

          (b) Dispositions by the Company to a Subsidiary or by a Subsidiary to the Company or another Subsidiary:

          (c) Dispositions consisting of the sale of accounts and notes receivable, on a non-recourse or limited recourse basis, provided that such Disposition constitutes a sale under GAAP and that the principal amount of all financings in connection with which such Dispositions are made does not exceed $200,000,000 at any time; or

          (d) Dispositions not otherwise permitted by Section 10.4(a), (b) or (c), provided that the aggregate net book value of all assets so disposed of in any fiscal year pursuant to this Section 10.4(d) does not exceed 10% of Consolidated Total Assets as of the end of the immediately preceding fiscal year. Notwithstanding the foregoing, the Company may, or may permit any Subsidiary to, make a Disposition and the assets subject to such Disposition shall not be subject to or included in the foregoing limitation and computation contained in this Section 10.4(d) to the extent that (i) such assets were acquired or constructed not more than 365 days prior to the date of Closing and are leased back by the Company or any Subsidiary, as lessee, within 365 days of the acquisition or construction thereof, or (ii) the net proceeds from such Disposition are within 180 days of such Disposition (A) reinvested in productive assets by the Company or a Subsidiary or (B) applied to the payment or prepayment of any outstanding Debt of the Company or any Subsidiary that is not subordinated to the Notes. Any prepayment of Notes pursuant to this Section 10.4(d) shall be in accordance with Sections 8.2 and 8.3, without regard to the minimum prepayment requirements of Section 8.2.

10.5. Mergers, Consolidations, etc.

          The Company will not, and will not permit any Subsidiary to, consolidate with or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person except that:

          (a) the Company may consolidate or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, provided that:

                    (i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, is a solvent corporation organized and existing under the laws of the United States or any state thereof (including the District of Columbia), and, if the Company is not such corporation, such corporation shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes ; and

                    (ii) immediately before and after giving effect to such transaction, no Default or Event of Default shall exist; and

          (b) Any Subsidiary may (x) merge into the Company (provided that the Company is the surviving corporation) or another Subsidiary or (y) sell, transfer or lease all or any part of its assets to the Company or another Subsidiary, or (z) merge or consolidate with, or sell, transfer or lease all or substantially all of its assets to, any Person in a transaction that is permitted by Section 10.4(d) or, as a result of which, such Person becomes a Subsidiary; provided in each instance set forth in clauses (x) through (z) that, immediately before and after giving effect thereto, there shall exist no Default or Event of Default.

No such conveyance, transfer, sale or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.5 from its liability under this Agreement or the Notes.

10.6. Disposition of Stock of Subsidiaries.

          The Company will not permit any Subsidiary to issue its capital stock, or any warrants, rights or options to purchase, or securities convertible into or exchangeable for, such capital stock, to any Person other than the Company or another Subsidiary (other than directors' qualifying shares), unless, after giving effect thereto, the Company and its Subsidiaries continue to own at least a majority of the issued and outstanding capital stock of each class of such Subsidiary. The Company will not, and will not permit any Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock of a Subsidiary if such sale would be prohibited by Section 10.4. If a Subsidiary at any time ceases to be such as a result of a sale or issuance of its capital stock, any Liens on property of the Company or any other Subsidiary securing Debt owed to such Subsidiary, which is not contemporaneously repaid, together with such Debt, shall be deemed to have been incurred by the Company or such other Subsidiary, as the case may be, at the time such Subsidiary ceases to be a Subsidiary.

10.7. Nature of Business.

          The Company will not, and will not permit any Subsidiary to, engage in any business if, as a result, the general nature of the business in which the Company and its Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business and related services in which the Company and its Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum.

10.8. Transactions with Affiliates.

          The Company will not, and will not permit any Subsidiary to, directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property (other than shares of stock of Company) to, or otherwise deal with, in the ordinary course of business or otherwise (a) any Affiliate, or (b) any corporation in which an Affiliate or the Company (either directly or through Subsidiaries) owns 10% or more of the outstanding Voting Stock, except that (i) any Affiliate may be a director, officer or employee of the Company or any Subsidiary and may be paid reasonable compensation in connection therewith and (ii) such acts and transactions prohibited by this Section 10.8 may be performed or engaged in if (A) specifically authorized by the Company's Board of Directors (exclusive of any Affiliate who is a director and who has a direct or indirect interest in such transaction) or pursuant to any unrescinded general resolution of such Board or the By-laws of the Company or (B) upon terms not less favorable to the Company or a Subsidiary (as the case may be) than if no such relationship described in clauses (a) or (b) above existed.

10.9. Subordination of Patronage Debt; Modification of Governing Documents; Restriction on Certain Cash Payments.

          The Company will not:

          (a) amend, modify or re-issue any certificate evidencing Patronage Debt with the effect of eliminating or in any way altering the subordination language appearing therein;

          (b) amend its by-laws, certificate of incorporation or other governing document or enter into any agreement with any stockholder of the Company, the effect of which would be to entitle such stockholder, upon termination of such stockholder's membership in any of the circumstances described in Section 12(a) of Article XVI of the by-laws of the Company as in effect on the date hereof (a copy of which Article is attached as Schedule 10.9) to receive as consideration for such stockholder's shares anything other than a promissory note of the Company with a term of not less than four years providing for the payment of equal annual installments of principal, except to the extent specifically provided in clauses (7) and (8) of Section 12(b) of Article XVI of the by-laws of the Company as in effect on the date hereof; or

          (c) Anything in Section 10.9(b) to the contrary notwithstanding, in any fiscal year make cash payments in excess of $10,000,000 in the aggregate under the circumstances described in clauses (7) and (8) of Section 12(b) of Article XVI of the by-laws of the Company.

11. EVENTS OF DEFAULT.

          An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing:

          (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

          (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or

          (c) the Company defaults in the performance of or compliance with any term contained in any of Sections 10.1 through 10.9; or

          (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or

          (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or

          (f) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Debt beyond any period of grace provided with respect thereto that individually or together with such other Debt as to which any such default exists is outstanding in an aggregate principal amount in excess of $25,000,000, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Debt that individually or together with such other Debt as to which any such default exists is outstanding in an aggregate principal amount in excess of $25,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Debt has become, or has been declared (or one or more Persons are entitled to declare such Debt to be), due and payable before its stated maturity or before its regularly scheduled dates of payment or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Debt to convert such Debt into equity interests), (x) the Company or any Subsidiary has become obligated to purchase or repay Debt before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $25,000,000, or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Debt; or

          (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or

          (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Subsidiary, or any such petition shall be filed against the Company or any Subsidiary and such petition shall not be dismissed within 60 days; or

          (i) a final judgment or judgments for the payment of money aggregating in excess of $25,000,000 are rendered against one or more of the Company and its Subsidiaries, which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or

          (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans determined in accordance with Title IV of ERISA, shall exceed $25,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERI SA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, would reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA.

12. REMEDIES ON DEFAULT, ETC.

12.1. Acceleration.

          (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

          (b) If any other Event of Default has occurred and is continuing, any holder or holders of a majority or more in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

          (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

12.2. Other Remedies.

          If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3. Rescission.

          At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than a majority in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monie s due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

12.4. No Waivers or Election of Remedies, Expenses, etc.

          No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements.

13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1. Registration of Notes.

          The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.

13.2. Transfer and Exchange of Notes.

          Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same series in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Note established for such series. Each such new Note shall be dated and bear interest from the date to which interest sha ll have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.

13.3. Replacement of Notes.

          Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

          (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another Institutional Investor holder of a Note with a minimum net worth of at least $100,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or

          (b) in the case of mutilation, upon surrender and cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

14. PAYMENTS ON NOTES.

14.1. Place of Payment.

          Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of Bank of America in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

14.2. Home Office Payment.

          So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. P rior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2.

15. EXPENSES, ETC.

15.1. Transaction Expenses.

          Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of one special counsel for you and the Other Purchasers collectively and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you).

15.2. Survival.

          The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.

16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

          All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.

17. AMENDMENT AND WAIVER.

17.1. Requirements.

          This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.

17.2. Solicitation of Holders of Notes.

          (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.

          (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.

          (c) Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17 by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder.

17.3. Binding Effect, etc.

          Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.

17.4. Notes held by Company, etc.

          Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.

18. NOTICES.

          All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

          (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing,

          (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or

          (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Office of the Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

19. REPRODUCTION OF DOCUMENTS.

          This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admiss ible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it would contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

20. CONFIDENTIAL INFORMATION.

          For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified in writing when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you (other than from a Person known to you to be subject to a confidentiality obligation to the Company) prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or a Person known to you to be subject to a confidentiality ob ligation to the Company or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of suc h Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20.

21. SUBSTITUTION OF PURCHASER.

          You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be dee med to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement.

22. MISCELLANEOUS.

22.1. Successors and Assigns.

          All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.

22.2. Payments Due on Non-Business Days.

          Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day.

22.3. Severability.

          Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

22.4. Construction.

          Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

22.5. Counterparts.

          This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

22.6. Governing Law.

          This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company.
	Very truly yours, ACE HARDWARE CORPORATION By:             /s/ Sandra Brandt          Name:        Sandra Brandt               Title:           Treasurer

The foregoing is agreed 
to as of the date thereof.

TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY

By:                  /s/ Bill Henricksen         
Name:                 Bill Henricksen          
Title:                    Vice President          

GOLDEN AMERICAN LIFE INSURANCE COMPANY
By: ING Investment Management LLC, as Agent

By:            /s/ Fred C. Smith                      
Name:            Fred C. Smith                     
Title:              Executive Vice President      


AMERIBEST LIFE INSURANCE COMPANY
By: ING Investment Management LLC,
as Agent

By:            /s/ Fred C. Smith                      
Name:            Fred C. Smith                     
Title:              Executive Vice President      


AETNA LIFE INSURANCE & ANNUITY COMPANY
By: ING Investment Management LLC, as Agent

By:            /s/ Fred C. Smith                      
Name:            Fred C. Smith                     
Title:              Executive Vice President      

MODERN WOODMEN OF AMERICA

By:            /s/ Clyde C. Schoeck                     
Name:            Clyde C. Schoeck                     
Title:              President                                    

BERKSHIRE LIFE INSURANCE COMPANY

By:            /s/ Ellen I. Whittaker                     
Name:            Ellen I. Whittaker                     
Title:              Senior Investment Officer         

SCHEDULE A

(1) All payments on the account of TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY shall be made by wire transfer of immediately available funds to:

      Boston Safe Deposit Trust
      ABA #011001234
      Credit DDA Account #125261
      Attn: MBS Income, cc1253
      Custody account #TRAF1505252

for credit to the account of TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY providing sufficient information with description, PPN#, principal and interest with such wire transfer to identify the source and application of funds.

(2) Payment advice and original Note:

All notice of and confirmation of payment information and the original note should be send to the following address stating that the certificate is registered in the name of Transamerica Occidental Life Insurance Company:

      AEGON USA Investment Management, Inc.
      Attn: Neil Joss
      4333 Edgewood Road N.E.
      Cedar Rapids, IA 52499-5113
      Fax: (319) 247-6495

(3) All other communications, including financial statement/reporting documents should be directed to:

      AEGON USA Investment Management, Inc.
      Attn: Director of Private Placements
      4333 Edgewood Road N.E.
      Cedar Rapids, Iowa 52499-5335
      Fax: (319) 369-2666

AND

      AEGON USA Investment Management, Inc.
      Attn: Liz Taylor - Private Placements
      400 West Market Street
      Louisville, KY 40202
      Fax: (502) 560-2030

(4) All closing documents should be sent to:

      AEGON USA Investment Management, Inc.
      Attn: Director of Private Placements
      4333 Edgewood Road N.E.
      Cedar Rapids, Iowa 52499-5335
      Fax: (319) 369-2666


Tax ID No. 95-1060502

INFORMATION RELATING TO PURCHASERS
Name of Purchaser TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY	Principal Amount of  Notes to be Purchased $35,000,000

SCHEDULE A

(1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:

     The Bank of New York
     ABA #021000018
     BNF: IOC566- Income Collections 
     Attn: William Cashman
     Ref: Golden American Life Insurance Company (MVA Acct.),
     Account #136374 and Cusip No.: 00440* AG 3

Each such wire transfer shall set forth the name of the Corporation, the full title (including the Coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, a reference to the PPN, and the due date and application (as among principal, premium and interest) of the payment being made.

(2) Address for all notices relating to payments:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attention: Securities Accounting
     Fax: (770) 690-4899

(3) Address for all other communications and notices:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attn: Private Placements
     Phone: 770-690-4600
     Fax: 770-690-4899


Tax ID No. 41-0991508

INFORMATION RELATING TO PURCHASERS
Name of Purchaser GOLDEN AMERICAN LIFE INSURANCE COMPANY	Principal Amount of  Notes to be Purchased $5,000,000

SCHEDULE A

INFORMATION RELATING TO PURCHASERS

Name of Purchaser
AMERIBEST LIFE INSURANCE COMPANY

Principal Amount of 
Notes to be Purchased
$9,000,000

(1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:

     The Bank of New York
     ABA #021000018
     BNF: IOC566 
     Ref: Ameribest Life Insurance Company
     Acct. # 005018 and Cusip No. 00440* AG 3

Each such wire transfer shall set forth the name of the Corporation, the full title (including the Coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, a reference to the PPN, and the due date and application (as among principal, premium and interest) of the payment being made.

(2) Address for all notices relating to payments:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attention: Securities Accounting
     Fax: (770) 690-4899

(3) Address for all other communications and notices:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attn: Private Placements
     Phone: 770-690-4600
     Fax: 770-690-4899


Tax ID No. 36-2542311

SCHEDULE A

INFORMATION RELATING TO PURCHASERS

Name of Purchaser
AETNA LIFE INSURANCE & ANNUITY COMPANY

Principal Amount of 
Notes to be Purchased
$14,000,000

(1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:

     The Bank of New York
     ABA #021000018
     BNF: IOC566 
     Attn: P&I Department
     Ref: Aetna Life Insurance & Annuity Company
     Acct. # 216101 and Cusip No. 00440* AG 3

Each such wire transfer shall set forth the name of the Corporation, the full title (including the Coupon rate, issuance date, and final maturity date) of the Notes on account of which such payment is made, a reference to the PPN, and the due date and application (as among principal, premium and interest) of the payment being made.

(2) Address for all notices relating to payments:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attention: Securities Accounting
     Fax: (770) 690-4899

(3) Address for all other communications and notices:

     ING Investment Management LLC
     5780 Powers Ferry Road, NW, Suite 300
     Atlanta, Georgia 30327-4349
     Attn: Private Placements
     Phone: 770-690-4600
     Fax: 770-690-4899


Tax ID No. 71-0294708

SCHEDULE A

INFORMATION RELATING TO PURCHASERS

Name of Purchaser
MODERN WOODMEN OF AMERICA

Principal Amount of 
Notes to be Purchased
$5,000,000

(1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to:

     The Northern Trust Company
     50 South LaSalle Street
     Chicago, IL 60675
     ABA No. 071-000-152
     Account Name: Modern Woodmen of America
     Account No. 84352

Each such wire transfer shall set forth the name of the Company, the full title (including the applicable coupon rate and final maturity date) of the Notes, a reference to PPN No. 00440* AG 3 and the due date and application (as among principal, premium and interest) of the payment being made.

(2) Address for all notices relating to payments: 

     Modern Woodmen of America
     Attn: Investment Accounting Department
     1701 First Avenue
     Rock Island, IL 61201

(3) Address for all other communications and notices:

     Modern Woodmen of America
     Attn: Investment Department
     1701 First Avenue
     Rock Island, IL 61201






Tax ID No. 36-1493430

SCHEDULE A

INFORMATION RELATING TO PURCHASERS

Name of Purchaser
BERKSHIRE LIFE INSURANCE COMPANY

Principal Amount of 
Notes to be Purchased
$2,000,000

1) All payments on account of the Notes in accordance with the provisions thereof and of this Agreement shall be transmitted by bank wire transfer of Federal or other immediately available funds for credit to:

     Berkshire Life Insurance Company
     Account Number 002-4-020877
     The Chase Manhattan Bank, N. A.
     ABA #021000021

With sufficient information (including issuer, PPN number, interest rate, maturity and whether payment is of principal, premium or interest) to identify the source and application of such funds.

(2) Copies of all notices and confirmations of payments and all other communications shall be delivered or mailed to:

     Berkshire Life Insurance Company
     Attention: Securities Department
     700 South Street
     Pittsfield, MA 01201

     Fax Number: (413) 442-9763
     Phone Number: (413) 499-4321


Tax ID No. 04-1083480

SCHEDULE B

DEFINED TERMS

     As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

          Affiliate means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company.

          Business Day means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or New York City are required or authorized to be closed.

          Capital Lease means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

          Capital Lease Obligation means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person.

          Change of Control Event means, the (i) acquisition through purchase or otherwise by any Person, or group of Persons acting in concert, directly or indirectly, in one or more transactions, of beneficial ownership or control of securities representing more than 50% of the combined voting power of the Company's Voting Stock (including the agreement to act in concert by Persons who beneficially own or control securities representing more than 50% of the combined voting power of the Company's Voting Stock), or (ii) entering into by the Company of a written agreement providing for or contemplating an acquisition described in clause (i) hereof. The date on which the acquisition described in clause (i) of the first sentence occurs is referred to as the "Effective Date of the Change of Control."

          Closing is defined in Section 3.

          Code means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

          Company means Ace Hardware Corporation, a Delaware corporation, together with its successors and assigns.

          Confidential Information is defined in Section 20.

          Consolidated Debt means, as of any date, outstanding Debt of the Company and its Subsidiaries as of such date determined on a consolidated basis in accordance with GAAP.

          Consolidated Income Available for Fixed Charges means, for any period, Consolidated Net Income for such period, plus, to the extent deducted in determining such Consolidated Net Income, (i) depreciation and amortization expense, (ii) all provisions for federal, state and other income taxes and (iii) lease expense.

          Consolidated Net Income means, for any period, the net income (or deficit) of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, but excluding in any event (a) the excess of any extraordinary gains (net of expenses and applicable taxes) on the sale or disposition of fixed or capital assets over any extraordinary losses on the sale or disposition of fixed or capital assets; (b) any gains resulting from any reappraisal, revaluation or write-up of any assets; (c) net earnings and losses of any Person accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any Person (other than a Subsidiary), substantially all the assets of which have been acquired in any manner, realized by such other Person prior to the date of such acquisition; (e) net earnings and losses of any Person (other than a Subsidiary) with which the Company or a Subsidiary shall have consolidated or which shall have merged into or with the Company or a Subsidiary prior to the date of such consolidation or merger; and (f) any deferred or other credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary.

          Consolidated Total Assets means, as of any date, the total assets and properties of the Company and its Subsidiaries as of such date determined on a consolidated basis in accordance with GAAP.

          Debt with respect to any Person means, at any time, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into, and accruals (including accruals for patronage dividends payable in cash) arising, in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller under such agreement i n the event of default are limited to repossession or sale of such property, in which case the amount of the Debt with respect thereto shall be equal to the fair market value of such property); (f) all Capital Lease Obligations; (g) all indebtedness referred to in foregoing clauses (a) through (f) secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt; provided, the amount of such Debt for this purposes of this clause (g) shall be the amount stipulated in any agreement or instrument evidencing such Person's obligation); (h) obligations arising in connection with the transfer of an interest in accounts or notes receivable which transfer constitutes a true sale, including securitizations, and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above. "Debt" of the Company and its Subsidiaries shall not, in any case, include Patronage Debt.

          Default means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

          Default Rate means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by Bank of America in Chicago, Illinois as its "base" or "prime" rate.

          EBITDA means, for any period, Consolidated Net Income for such period, plus, to the extent deducted in calculating Consolidated Net Income, (i) interest expense, (ii) all provisions for federal, state and other income taxes and (iii) depreciation and amortization expense.

          Environmental Laws means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

          ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. 

          ERISA Affiliate means any corporation or trade or business that is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or is under common control (within the meaning of Section 414(c) of the Code) with the Company.

          "Event of Default" is defined in Section 11.

          Exchange Act means the Securities Exchange Act of 1934, as amended.

          Fixed Charges means, for any period, the sum of (i) interest expense of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, (ii) lease expense of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, and (iii) all scheduled payments of principal on Consolidated Debt and Patronage Debt made by the Company and its Subsidiaries during such period.

          GAAP means generally accepted accounting principles as in effect from time to time in the United States of America.

          Governmental Authority means

           (a) the government of

                    (i) the United States of America or any State or other political subdivision thereof, or

                    (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or

          (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

          Guaranty Obligation means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, without duplication, with respect to any Debt, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (a) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (b) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligations shall be deemed to be the lower of (y) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made and (z) the maximum amount for which such guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Guaranty Obligation, unless such primary obligation and the maximum amount for which such guaranteeing Person may be liable are not stated or determinable, in which case the amount of such Guaranty Obligation shall be such guaranteeing Person's reasonably anticipated liability in respect thereof; provided that any determination of the amount of the Guaranty Obligations of the Company and its Subsidiaries shall exclude the following: (i) standby letters of credit issued at the request of the Company having an aggregate face amount not in excess of $20,000,000, (ii) any obligation of the Company or any Subsidiary arising from the guaranty or discount or sale with the guaranty or endorsement of the Company or any Subsidiary of any obligation evidenced by or contained in a note payable to the order of the Company, any Subsidiary or third party lender which has been executed and delivered by a dealer-member of the Company or any Subsidiary to the extent that the aggregate amount of such obligations referred to in this clause (ii) does not at any time exceed $50,000,000, and (iii) any obligation of the Company or any Subsidiary arising from the guaranty or the discount or sale with the guaranty or endorsement of the Company or any Subsidiary of any obligation evidenced by or contained in a note payable to the order of the Company, any Subsidiary or third party lender which has been executed and delivered by a franchisee of the Company or any Subsidiary to the extent that the aggregate amount of such obligations referred to in this clause (iii) does not at any time exceed $10,000,000.

          holder means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1.

          Institutional Investor means (a) any original purchaser of a Note, (b) any holder of a Note holding more than $2,000,000 of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form.

          Lien means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance similar to the foregoing, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease.

          Make-Whole Amount is defined in Section 8.6.

          Material means material in relation to the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole.

          Material Adverse Effect means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes.

          Member Dealers' Equity means, as of any date, the total of (a) the par value (or stated value on the books of the Company) of the capital stock of all classes of the Company, plus (or minus in the case of a surplus deficit) (b) the amount of the consolidated surplus, whether capital or earned, of the Company and its Subsidiaries; provided, that in no event shall amounts attributable to treasury stock be included in Member Dealers' Equity.

          Memorandum is defined in Section 5.3.

          Multiemployer Plan means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA).

          Notes is defined in Section 1.1.

          Officer's Certificate means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.

          Other Purchasers is defined in Section 2.

          PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

          Patronage Debt means subordinated indebtedness of the Company issued to its members as all or part of a patronage dividend and evidenced by a patronage refund certificate bearing subordination language substantially the same as that set forth in the attached Schedule B-1.

          Pension Plan means any Plan that is a "defined benefit plan" within the meaning of Section 3(35) of ERISA.

          Person means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof.

          Plan means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

          Priority Debt means, as of any date, the sum (without duplication) of (a) Debt of Subsidiaries (other than Debt owed to the Company or another Subsidiary and Debt of a Subsidiary outstanding on the date it became a Subsidiary), (b) Debt of the Company guaranteed by any Subsidiary and (c) Debt of the Company secured by Liens not otherwise permitted by Sections 10.3(a) through (g) on such date.

          Property or properties means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

          Purchaser means each purchaser listed in Schedule A.

          QPAM Exemption means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.

          Required Holders means, at any time, the holders of at least a majority in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates).

          Responsible Officer means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement.

          Securities Act means the Securities Act of 1933, as amended from time to time.

          Senior Financial Officer means the chief financial officer, principal accounting officer, treasurer or controller of the Company.

          Series 2001-A Notes is defined in Section 1.2.

          Source is defined in Section 6.2.

          Subsidiary means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership, limited liability company or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company.

          Supplement is defined in Section 1.1.

          This Agreement is defined in Section 17.3.

          Voting Stock means securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions).

SCHEDULE B-1

SATISFACTORY SUBORDINATION LANGUAGE

See attached Specimen Patronage Refund Certificate

SCHEDULE 4.9

CHANGES IN CORPORATE STRUCTURE

None.

DISCLOSURE MATERIALS

SCHEDULE 5.3

None.

SCHEDULE 5.4

SUBSIDIARIES AND OWNERSHIP
OF SUBSIDIARY STOCK

As of December 30, 2000

Wholly Owned Subsidiary Jurisdiction of Incorporation Domestic:   Ace Insurance Agency, Inc. Illinois AHC Realty Corporation Illinois Ace Hardware Foundation Illinois Loss Prevention Services, Inc. Illinois A.H.C. Store Development Corp. Illinois National Hardlines Supply, Inc. Illinois Ace Corporate Stores, Inc. Illinois Foreign:   Ace Hardware Canada Limited Canada Ace Hardware de Mexico, S.A. de C.V. Mexico Ace International Hardware, Inc. Barbados New Age Insurance, Inc. Bermuda Joint Ventures:   Rocky's Ace Hardware, LLC The Company owns 50% of the LLC. Sunshine Ace Hardware, LLC The Company owns 25% of the LLC. Ace Hardware Northwest, LLC The Company owns 40% of the LLC. Sunshine Ace Hardware II, LLC The Company owns 40% of the LLC. Southern Hardlines Ace Hardware, LLC The Company owns 45% of the LLC. Other:   Builder Marts of America, Inc Ace is a minority stockholder (Approx 28%) OurHouse, Inc Ace is a minority stockholder (Approx 19%)

SCHEDULE 5.5

FINANCIAL STATEMENTS

Ace Hardware Corporation Annual Report for the fiscal year ended December 30, 2000. 

Ace Hardware Corporation Form 10-K for the fiscal year ended December 30, 2000.

Ace Hardware Corporation Form 10-K for the fiscal year ended January 1, 2000.

Ace Hardware Corporation Form 10-K for the fiscal year ended January 2, 1999.

Ace Hardware Corporation Form 10-K for the fiscal year ended December 31, 1997.

Ace Hardware Corporation Form 10-K for the fiscal year ended December 31, 1996.

SCHEDULE 5.11

LICENSES, PERMITS, ETC.

None.

SCHEDULE 5.15

EXISTING DEBT and PATRONAGE DEBT
As of December 30, 2000

Existing Debt  Balance $20,000,000 8.74% Series A Senior Notes due July 1, 2003 
under the Note Purchase and Private Shelf Agreement 
dated September 27, 1991 between Ace Hardware Corporation
and The Prudential Insurance Company of America $5,946,000 $30,000,000 6.47% Series A Senior Notes due June 22, 2008 
under the Note Purchase and Private Shelf Agreement
dated September 22, 1993 between Ace Hardware Corporation
and The Prudential Insurance Company of America $30,000,000 $20,000,000 7.49% Series B Senior Notes due June 15, 2011 
under the Note Purchase and Private Shelf Agreement
dated August 23, 1996 between Ace Hardware Corporation
and The Prudential Insurance Company of America $20,000,000 $30,000,000 7.55% Series C Senior Notes due March 25, 2009 
under the Note Purchase and Private Shelf Agreement
dated March 25, 1997 between Ace Hardware Corporation
and the Prudential Insurance Company of America $30,000,000 $25,000,000 6.61% Series D Senior Notes due February 9, 2010 
under the Note Purchase and Private Shelf Agreement
dated February 9, 1998 between Ace Hardware Corporation
and The Prudential Insurance Company of America $25,000,000 Liabilities under capitalized leases  $83,000 Installment notes with maturities through 2004 with various interest rates $1,761,000 Credit Agreement $175,000,000 Revolving Credit Agreement dated as of May 2, 2000 among 
the Company, the Banks as party thereto and The Northern Trust Company, 
as Agent  $81,500,000 Patronage Refund Certificates Payable $73,180,000 Guaranty/Contingent Obligations $22,000,000 Note Purchase Agreement dated December 29,1994 among the 
Company and SunTrust Bank Atlanta $9,304,125 $25,000,000 Loan Facility Agreement and Guarantee dated June 3,1999 
as amended August 31, 2000, by and among the Company, as sponsor 
and SunTrust Bank, Atlanta  $15,756,027 Standby Letter of Credit in favor of St. Paul Fire & Marine in the principal 
amount of  $5,000,000 Standby Letter of Credit in favor of Insurance Company of North America in the 
principal amount of  $553,709 Standby Letter of Credit in favor of New Age Insurance Ltd. in the principal 
amount of $2,000,000 Standby Letter of Credit in favor of St. Paul Fire & Marine in the principal 
amount of $4,300,766 Standby Letter of Credit in favor of Panattoni/Woods Road-Richmond, VA in the
principal amount of  $25,000,000 Lease Guarantees Mar-Del, Inc. Expires 4/1/2001 $75,000 Cascade Ace Hardware  
of Milwaukee Expires 3/1/2003 $405,000 Rocky's Ace Hardware Expires 3/1/2002 $130,208 Rocky's Ace Hardware Expires 2/1/2002 $63,656 B & G Investments Inc. Expires 3/1/2003 $180,583

SCHEDULE 10.3

EXISTING LIENS

Capitalized leases with a remaining balance of less than $100,000 in the aggregate.

In addition, the Company leases vehicles and equipment under operating leases, the lessors of which have filed protective filings.

SCHEDULE 10.9

ARTICLE XVI OF THE COMPANY'S BY-LAWS


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 t o be offset by the amount of any indebtedness payable to the corporation by such holder or subscriber. In no event shall any transfer of any of the shares owned by any holder or any transfer of the stock subscription account of any subscriber for shares of stock of the corporation be made unless and until the stockholder whose shares are being transferred or the subscriber whose subscription account is being transferred is free from all indebtedness to the corporation.

          SECTION 6. No certificate representing any issued and outstanding share or shares of any class of stock of the corporation shall be pledged, mortgaged, hypothecated, sold, assigned or transferred without the prior consent of the Board of Directors of the corporation. In the event that the Board of Directors shall refuse to consent to any transfer or assignment of any certificate or certificates representing any share or shares of issued and outstanding stock of the corporation of any class, then the corporation shall have the right and shall be obligated to purchase from the owner thereof all of the shares of its stock of any class held for the store or other retail business unit with respect to which the corporation issued the share or shares as to which such consent has been refused and the franchise granted by this corporation with regard to the operation of such retail business unit shall thereby be terminated. In no event shall any transfer or assignment of shares of any class of stock of the corporation be made to any transferee who is not eligible to be a holder of such shares under the provisions of Article Fourth of the restated Certificate of Incorporation of the corporation. In the case of a proposed transfer of ownership of a store or other retail business unit owned by a holder of shares of stock of the corporation to a transferee which the corporation has accepted or is willing to accept as a franchised Ace Hardware dealer, then the owner of such stock shall have the option of either (a) selling or otherwise transferring to such transferee such number of shares of stock of this corporation of any class which the corporation would otherwise have been required to offer to such transferee in connection with the franchise granted to such transferee with respect to such store or other retail business unit, or (b) selling such shares to the corporation. In any case where the holder or holders of 50% or more of the outstanding voting stock of a corporation having a franchise from this corporation for one or more retail business outlets, or the holder or holders of 50% or more of the outstanding voting stock of a corporation owning 80% or more of the outstanding voting stock of a corporation having such a franchise, propose to sell or otherwise transfer all of the shares of capital stock (both voting and non-voting) of such corporation held by them, written notice of such proposal shall be given to this corporation, and upon the consummation of any such sale or transfer, such corporation shall have the option of either (a) retaining all of the shares of the capital stock of this corporation then held by it or (b) selling such shares to this corporation, but in the case of such a sale of said shares to this corporation, the franchise granted to said corporation by this corporation for each retail business unit operated by said corporation shall thereupon be deemed to have terminated by the voluntary action of said corporation and no such retail busi ness 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 t ermination 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 i ndividual proprietorship);

          (c) An adjudication of the insolvency of the dealer or of the store or other retail business unit for which the shares of stock of this corporation are held, or the making of an assignment for the benefit of creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code by or on behalf of such dealer or retail business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code against the dealer or against said retail business unit.

          SECTION 8. A transfer of shares of stock of the corporation requiring the consent of the Board of Directors shall not be deemed to have occurred upon the death of a person who is the holder of shares of stock of the corporation jointly with one or more other persons under circumstances whereby ownership of such shares passes automatically by operation of law to the surviving holder or holders of such shares, nor shall the corporation become obligated to purchase such shares upon the death of such person unless the store or other retail business unit with respect to which such shares are held either (a) closes down, or (b) ceases to be operated under a franchise from this corporation.

          SECTION 9. The Board of Directors may delegate to a committee composed of two (2) or more members of the Board authority to act on its behalf with respect to all matters where the consent of the Board is required in connection with the transfer or assignment of any shares of any class of stock of the corporation.

          SECTION 10. The price to be paid by the corporation in connection with the purchase by it of any shares of its stock shall be as follows:

          (a) in the case of Class A stock, the par value of the shares;

          (b) in the case of Class B stock, an amount per share equal to the per share price last established by the Board of Directors as the price to be paid by the corporation in the event of redemption of shares of its Class B stock, which shall in no event be less than twice the par value of the Class B stock and shall also at all times be equal to twenty (20) times the per share purchase price last established by the Board of Directors with respect to purchases by it of Shares of its Class C Stock;

          (c) in the case of Class C stock, an amount per share equal to the per share price last established by the Board of Directors as the purchase price to be paid by the Corporation for shares of its Class C stock, which price shall in no event be less than the par value thereof.

          SECTION 11. Any shares of any class of stock of the corporation which are purchased by it from any stockholder shall become treasury shares which shall be eligible for sale to any other person, persons or firm which shall be qualified to hold such shares.

          SECTION 12. Effective with respect to all purchases and redemptions of shares of its capital stock made by the corporation from its stockholders on or after December 31, 1981, the entire purchase or redemption price to be paid by the corporation for such shares shall be paid in cash except that, in any of the situations described in subsection (a) hereof, the purchase or redemption price for such shares shall be paid in the manner set forth in subsection (b) hereof.

          (a) The situations in which such price shall be paid in the manner set forth in subsection (b) of this Section are as follows:

          (1) the voluntary termination by a stockholder of this corporation of the franchise from this corporation held by such stockholder for a retail business outlet under circumstances whereby such outlet continues to engage in substantially the same business under the corporation that owned or controlled it immediately prior to such termination; for purposes of this paragraph:

          (A) control of an outlet owned by an unincorporated person or partnership shall be deemed to be the same if more than fifty percent (50%) of the assets or profit shares therein, or more than fifty percent (50%) of the capital stock of a corporation becoming the owner of such outlet, continues to be legally or equitably owned by the same person, partnership or corporation; and

          (B) control of an outlet owned by a corporation shall be deemed to be the same if more than fifty percent (50%) of the capital stock of said corporation, or more than fifty percent (50%) of the assets or profit shares of an unincorporated person or partnership becoming the owner of such outlet, continues to be owned by the same person, partnership or corporation.

          (2) the termination by this corporation of the franchise from this corporation for a retail business outlet pursuant to the provisions of the Ace Dealer Franchise Agreement authorizing such termination by reason of:

          (A) the failure of such retail business outlet to make any payment owing to the corporation for merchandise or services supplied by it within the time period specified in such provisions; or

          (B) any default of such retail business outlet in performing any obligation of such outlet under the Ace Dealer Franchise Agreement of such outlet other than the obligation to pay for merchandise or services supplied by the corporation, provided that such default is described in the corporation's notice of termination in such a manner as to reasonably apprise such retail business outlet as to the nature of such default.

          (b) In each of the situations described in subsection (a) above, the purchase or redemption price to be paid by the corporation for the shares of its stock being purchased or redeemed by it shall be paid in the following manner:

          (1) in the case of Class A stock, the entire price shall be paid by the corporation in cash;

          (2) in the case of Class B stock or Class C stock purchased by a stockholder as part of the shares of capital stock of the corporation subscribed for in connection with the granting of a franchise by the corporation for a retail business outlet, that portion of the purchase or redemption price to be paid by the corporation which equals the amount paid to the corporation pursuant to such subscription shall be paid by the corporation in cash and any remaining balance of the price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years;

          (3) in the case of Class C stock received by a stockholder as part of the patronage dividends distributed by the corporation for a retail business outlet, the entire price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years;

          (4) if the total portion of the purchase or redemption price which would otherwise be payable under the foregoing paragraphs in equal annual installments over a period of four years is less than $5,000, the entire purchase or redemption price shall be paid by the corporation in cash, notwithstanding the installment provisions of said paragraphs;

          (5) in any situation where a stockholder whose shares of capital stock of the corporation are to be purchased or redeemed by it is indebted to the corporation at such time, then, in accordance with the corporation's first lien and offset rights under Article XVI, Section 5, of these By-laws and Article Fourth (1) of the restated Certificate of Incorporation of the corporation, the purchase or redemption price shall in all cases be applied against such indebtedness to the extent thereof, with the portion of such price which would otherwise have been payable in cash being first applied for such purpose and, if any indebtedness to the corporation still remains, the portion of the price which would otherwise have been payable in equal annual installments then being applied for such purpose to the extent of any such remaining indebtedness;

          (6) the corporation's obligation to pay any portion of the purchase or redemption price of its shares in equal annual installments shall be evidenced by an installment promissory note of the corporation delivered to the stockholder whose shares are being purchased or redeemed, which note shall provide for the payment of the principal thereof in four equal annual installments commencing one year from the date of the repurchase or redemption of the shares and for the payment of interest with each annual installment payment of principal on the unpaid balance of principal from time to time at such rate as shall have been established by the Board of Directors as of the date of issuance thereof, provided, however, that said rate of interest shall in no event be less than the greater of (A) the latest interest rate as of the date of issuance of such note determined by the Board of Directors as the rate to be paid on patronage refund certificates distribut ed 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.

EXHIBIT 1.1(a)

[FORM OF NOTE]


ACE HARDWARE CORPORATION

[____]% SENIOR NOTE DUE [__________, ____]

No. [_____] 
$[_______] [Date]
PPN[______________]

 

          FOR VALUE RECEIVED, the undersigned, ACE HARDWARE CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on [ ], with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of [____]% per annum from the date hereof, payable semiannually, on [ ] and [ ] in each year, commencing with the [ ] or [ ] next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the o ption of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) [ ]% or (ii) 2% over the rate of interest publicly announced by Bank of America (or its successor) from time to time in Chicago, Illinois as its "base" or "prime" rate.

          Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

          This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement dated as of [ ], 2001 [and a Supplement thereto dated as of [ ]](as from time to time further amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representations set forth in Section 6 of the Note Purchase Agreement.

          This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

          [The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreement.] This Note [also] is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements but not otherwise.

          If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

          This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

ACE HARDWARE CORPORATION


By: ___________________________
Name: _________________________
Title:___________________________ 

EXHIBIT 1.1(b)

[FORM OF SUPPLEMENT]


SUPPLEMENT TO NOTE PURCHASE AGREEMENT

          THIS SUPPLEMENT is entered into as of [ ] (this "Supplement") between ACE HARDWARE CORPORATION, a Delaware corporation (the "Company"), and the Purchasers listed in the attached Schedule A (the "Purchasers").

R E C I T A L S

          A. The Company has entered into a Note Purchase Agreement dated as of April 15, 2001 with the purchasers listed in Schedule A thereto [and one or more supplements or amendments thereto] (as heretofore amended and supplemented, the "Note Purchase Agreement"); and

          B. The Company desires to issue and sell, and the Purchasers desire to purchase, an additional series of Notes (as defined in the Note Purchase Agreement) pursuant to the Note Purchase Agreement and in accordance with the terms set forth below;

          NOW, THEREFORE, the Company and the Purchasers agree as follows:

          1. Authorization of the New Series of Notes. The Company has authorized the issue and sale of $[ ] aggregate principal amount of Notes to be designated as its [__]% Senior Notes, Series [ ], due [ ] (the "Series [ ] Notes", such term to include any such Notes issued in substitution therefor pursuant to Section 13 of the Note Purchase Agreement). The Series [ ] Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company.

          2. Sale and Purchase of Series [ ] Notes. Subject to the terms and conditions of this Supplement and the Note Purchase Agreement, the Company will issue and sell to each of the Purchasers, and the Purchasers will purchase from the Company, at the Closing provided for in Section 3, Series [ ] Notes in the principal amount specified opposite their respective names in Schedule A at the purchase price of 100% of the principal amount thereof. The obligations of the Purchasers hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non-performance by any other Purchaser hereunder.

          3. Closing. The sale and purchase of the Series [ ] Notes to be purchased by the Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "Closing") on [ ], [ ] or on such other Business Day thereafter on or prior to [ ], [ ] as may be agreed upon by the Company and the Purchasers. At the Closing the Company will deliver to each Purchaser the Series [ ] Notes to be purchased by it in the form of a single Note (or such greater number of Series [ ] Notes in denominations of at least $500,000 as such Purchaser may request) dated the date of the Closing and registered in its name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately avail able funds for the account of the Company to account number [ ] at [Name and Address of Bank], ABA No. [ ]. If at the Closing the Company shall fail to tender such Series [ ] Notes to a Purchaser as provided above in this Section 3, or any of the conditions specified in Section 4 of the Note Purchase Agreement, as modified or expanded by Section 4 hereof, shall not have been fulfilled to such Purchaser's satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights it may have by reason of such failure or such nonfulfillment.

          4. Conditions to Closing. Each Purchasers obligation to purchase and pay for the Series [ ] Notes to be sold to it at the Closing is subject to the fulfillment to its satisfaction, prior to or at the Closing, of the conditions set forth in Section 4 of the Note Purchase Agreement, as hereafter modified, and to the following additional conditions:

                              [Set forth any modifications and additional conditions.]

          5. Representations and Warranties of the Company. The Company represents and warrants to the Purchasers that each of the representations and warranties contained in Section 5 of the Note Purchase Agreement is true and correct as of the date hereof (i) except that all references to "Purchaser" and "you" therein shall be deemed to refer to the Purchasers hereunder, all references to "this Agreement" shall be deemed to refer to the Note Purchase Agreement as supplemented by this Supplement, all references to "Notes" therein shall be deemed to include the Series [ ] Notes, and (ii) except for changes to such representations and warranties or the Schedules referred to therein, which changes are set forth in the attached Schedule 5.

          6. Representations of the Purchasers. Each Purchaser confirms to the Company that the representations set forth in Section 6 of the Note Purchase Agreement are true and correct as to such Purchaser.

          7. Mandatory Prepayment of the Series [ ] Notes. [The Series [ ] Notes are not subject to mandatory prepayment by the Company.] [On [ ] and on each [ ] thereafter to and including [ ] the Company will prepay $[ ] principal amount (or such lesser principal amount as shall then be outstanding) of the Series [ ] Notes at par and without payment of the Make-Whole Amount or any premium.]

          8. Applicability of Note Purchase Agreement. Except as otherwise expressly provided herein (and expressly permitted by the Note Purchase Agreement), all of the provisions of the Note Purchase Agreement are incorporated by reference herein and shall apply to the Series [ ] Notes as if expressly set forth in this Supplement.

          IN WITNESS WHEREOF, the Company and the Purchasers have caused this Supplement to be executed and delivered as of the date set forth above.

ACE HARDWARE CORPORATION

By:___________________________ 
Title___________________________: 

[ADD PURCHASER SIGNATURE BLOCKS]

Schedule A
to Supplement

INFORMATION RELATING TO PURCHASERS

Name and Address of Purchaser  Principal Amount of Series
[ ] Notes to be Purchased

[NAME OF PURCHASER] $

(1) All payments by wire transfer
                    of immediately available
                    funds to:



                   with sufficient information
                    to identify the source and
                   application of such funds.

(2) All notices of payments and
                 written confirmations of such
                  wire transfers:

(3) All other communications:

Schedule 5
to Supplement

EXCEPTIONS TO REPRESENTATIONS
AND WARRANTIES

Exhibit 1 to
Supplement

[FORM OF SERIES [ ] NOTE]

EXHIBIT 1.2

[FORM OF SERIES 2001-A SENIOR NOTE]


ACE HARDWARE CORPORATION

7.27% Senior Note, Series 2001-A 
due April 30, 2013

No. [_____]
$[_______] April 26, 2001
PPN: 00440* AG 3

 

          FOR VALUE RECEIVED, the undersigned, ACE HARDWARE CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Delaware, promises to pay to [ ], or registered assigns, the principal sum of $[ ] on April 30, 2013, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.27% per annum from the date hereof, payable semiannually, on April 30 and October 30 in each year, commencing with the April 30 or October 30 next succeeding the date hereof [(except that no interest payment shall be made on April 30, 2001)], until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.27% or (ii) 2% over the rate of interest publicly announced by Bank of America (or its successor) from time to time in Chicago, Illinois as its "base" or "prime" rate.

          Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of Bank of America in Chicago, Illinois or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

          This Note is one of a series of Notes (herein called the "Notes") issued pursuant to a Note Purchase Agreement, dated as of April 15, 2001 as from time to time amended and supplemented, the "Note Purchase Agreement"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreement and (ii) to have made the representations set forth in Section 6 of the Note Purchase Agreement.

          This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

          The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note also is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise.

          If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreement.

          This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

ACE HARDWARE CORPORATION


By:___________________________ 
Name:_________________________ 
Title:___________________________

EXHIBIT 4.4(a)

FORM OF OPINION OF COUNSEL
FOR THE COMPANY

         The opinion of McDermott, Will & Emery, counsel for the Company, shall be to the effect that:

         1. Each of the Company and each Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted, and, in the case of the Company, to enter into and perform the Note Purchase Agreement and to issue and sell the Series 2001-A Notes.

         2. The Note Purchase Agreement and the Series 2001-A Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law.

         3. The offering, sale and delivery of the Series 2001-A Notes do not require the registration of the Series 2001-A Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended.

         4. No authorization, approval or consent of, and no designation, filing, declaration, registration and/or qualification with, any Governmental Authority is necessary or required in connection with the execution, delivery and performance by the Company of the Note Purchase Agreement or the offering, issuance and sale by the Company of the Series 2001-A Notes.

         5. The issuance and sale of the Series 2001-A Notes by the Company, the performance of the terms and conditions of the Series 2001-A Notes and the Note Purchase Agreement and the execution and delivery of the Note Purchase Agreement do not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation or imposition of any Lien on, the property of the Company or any Subsidiary pursuant to the provisions of (i) the certificate or articles of incorporation or bylaws of the Company or any Subsidiary, (ii) any loan agreement known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound, (iii) any other Material agreement or instrument known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound, (iv) any law (including usury laws) or regulation applicable to the Company, or (v) to the knowledge of such counsel, any order, writ, injunction or decree of any court or Governmental Authority applicable to the Company.

         6. To such counsel's knowledge there are no actions, suits or proceedings pending, or threatened against, or affecting the Company or any Subsidiary, at law or in equity or before or by any Governmental Authority, that are likely to result, individually or in the aggregate, in a Material Adverse Effect.

         7. Neither the Company nor any Subsidiary is (i) a "public utility company" or a "holding company," or a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" or a company "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended.

         8. The issuance of the Series 2001-A Notes and the intended use of the proceeds of the sale of the Series 2001-A Notes do not violate or conflict with Regulation U, T or X of the Board of Governors of the Federal Reserve System.
The opinion of McDermott, Will & Emery shall cover such other matters relating to the sale of the Series 2001-A Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company and with respect to matters governed by the laws of any jurisdiction other than the United States of America, the laws of the State of Illinois or the Delaware General Corporation Law, such counsel may rely upon the opinions of counsel deemed (and stated in their opinion to be deemed) by them to be competent and reliable. 

EXHIBIT 4.4(b)

FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS

          The opinion of Gardner, Carton & Douglas, special counsel to the Purchasers, shall be to the effect that:

          1. The Company is a corporation organized and validly existing in good standing under the laws of the State of Delaware, with requisite corporate power and authority to enter into the Agreement and to issue and sell the Series 2001-A Notes.

          2. The Agreement and the Series 2001-A Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law.

          3. Based upon the representations set forth in the Agreement, the offering, sale and delivery of the Series 2001-A Notes do not require the registration of the Series 2001-A Notes under the Securities Act of 1933, as amended, nor the qualification of an indenture under the Trust Indenture Act of 1939, as amended.

          4. The issuance and sale of the Series 2001-A Notes and compliance with the terms and provisions of the Series 2001-A Notes and the Agreement will not conflict with or result in any breach of any of the provisions of the Certificate of Incorporation or By-Laws of the Company.

          5. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Purchase Agreement or the Series 2001?A Notes.

          The opinion of Gardner, Carton & Douglas also shall state that the opinion of counsel for the Company, delivered to you pursuant to the Agreement, is satisfactory in form and scope to Gardner, Carton & Douglas, and, in its opinion, the Purchasers are justified in relying thereon and shall cover such other matters relating to the sale of the Series 2001-A Notes as the Purchasers may reasonably request.

CH01/12137662.7

EX-23

AUDITORS' CONSENT

The Board of Directors
Ace Hardware Corporation:


We consent to the use of our report included herein.


KPMG LLP

Chicago, Illinois
March 22, 2002

EX-24

ACE HARDWARE CORPORATION: POWER OF ATTORNEY      KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors of ACE HARDWARE CORPORATION, a Delaware corporation, hereby constitutes and appoints DAVID F. HODNIK and RITA D. KAHLE, and each of them, his true and lawful attorneys-in-fact and agents, each with full power to act without the other, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K, 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, o r 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, 2002.

JENNIFER C. ANDERSON Jennifer C. Anderson	D. WILLIAM HAGAN D. William Hagan
RICHARD F. BAALMANN, JR. Richard F. Baalmann, Jr.	HOWARD J. JUNG Howard J. Jung
ERIC R. BIBENS II Eric R. Bibens II	RICHARD A. KARP Richard A. Karp
JAMES T. GLENN James T. Glenn	RICHARD W. STINE Richard W. Stine
DANIEL L. GUST Daniel L. Gust	DAVID S. ZIEGLER David S. Ziegler