-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KhBZZKXQZnC6VNJNIg5ZYH1zPVUMBle06naPTyR4UQT6V4kRq0J9/Y8zlaEOPu9t AsPrcf1rJJXNTS4aKiSyfA== 0000002024-96-000013.txt : 19960312 0000002024-96-000013.hdr.sgml : 19960312 ACCESSION NUMBER: 0000002024-96-000013 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19960311 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE HARDWARE CORP CENTRAL INDEX KEY: 0000002024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 360700810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-58191 FILM NUMBER: 96533579 BUSINESS ADDRESS: STREET 1: 2200 KENSINGTON COURT CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7089906600 MAIL ADDRESS: STREET 1: 1300 KENSINGTON RD CITY: OAKBROOK STATE: IL ZIP: 60521 POS AM 1 POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-2 As filed with the Securities and Exchange Commission-subject to change. Registration No. 33-58191 SECURITIES AND EXCHANGE COMMISSION Post-Effective Amendment No. 1 To Form S-2 REGISTRATION STATEMENT Under the SECURITIES ACT OF 1933 Ace Hardware Corporation (Exact Name of Registrant as Specified in its Charter) Delaware (State of Incorporation) 36-0700810 (I.R.S. Employer Identification No.) 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 (Address and telephone number of registrant's principal executive offices) David W. League Vice President, General Counsel Ace Hardware Corporation 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 (Name, address and telephone number of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Post-Effective Amendment to the Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1) of this form, check the following box. ACE HARDWARE CORPORATION Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Between Items in Part I of Form S-2 and the Prospectus Item Number and Caption Heading in Prospectus 1. Forepart of the Registration Statement Outside Front Cover Page and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Inside Front and Outside Pages of Prospectus Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges Factors To Be Considered; Summary 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Not Applicable 8. Plan of Distribution Distribution Plan and Offering Terms 9. Description of Securities to Outside Front Cover Page; be Registered Description of Capital Stock 10. Interests of Named Experts and Counsel Opinions of Experts 11. Information with Respect to the The Company's Business; Registrant Properties; Index to Financial Statements; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Management. 12. Incorporation of Certain Information Documents Incorporated by by Reference Reference 13. Disclosure of Commission Position on Indemnification Indemnification for Securities Act Obligations Liabilities of Company and S.E.C. Position on Securities Act Indemnification PROSPECTUS ACE HARDWARE CORPORATION 2200 Kensington Court Oak Brook, Illinois 60521 (708) 990-6600 1,852 Shares Class A (Voting) Stock, $1,000 par value 77,750 Shares Class C (Non-Voting) Stock, $100 par value Class A Stock is offered only in combination with Class C Stock to retailers of hardware and related or similar merchandise in connection with their initial business outlets that become members of the Company. Class C Stock is also offered separately to such retailers in connection with each additional business outlet that becomes a member of the Company. (See "Distribution Plan and Offering Terms" herein) There is no existing market for the Capital Stock offered hereunder, and there is no expectation that any market will develop. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Underwriting Price to Discounts and Proceeds to Public Commissions(5) Company Class A Stock Per share(1)(2) $ 1,000 None $ 1,000 Total $ 1,852,000 None $ 1,852,000 Class C Stock Per Share(1)(3)(4)(6) $ 100 None $ 100 Total $ 7,775,000 None $ 7,775,000 (1) The shares are offered in a unit of $5,000 to each retail dealer, with 1 share of Class A Stock being included only in the unit offered to dealers having no retail business outlet that is already a member of the Company. (2) 1 share (with 40 shares of Class C Stock) to each retail dealer in connection with such dealer's first retail business outlet which becomes a member of the Company. (3) 40 shares (with 1 share of Class A Stock) to each retail dealer for such dealer's first member outlet. (4) 50 shares to each member dealer for each of such dealer's retail business outlets, over and above the first such outlet, which become a member of the Company. (5) There will be no underwriters. The subject stock will be offered for sale directly by the Company. Applicants for new memberships are charged $400 to defray estimated costs of processing their membership applications. Assuming the sale of all of the stock offered hereunder, and before deduction of approximately $28,000 estimated expenses in connection with this offering, the total proceeds will be as shown above. (6) All of the shares of Class C Stock included in this offering have been reserved for sale for cash but, unless the purchaser elects to prepay the purchase price, such price is to be paid in bi-weekly installments. However, the Company also intends to issue additional authorized shares of Class C Stock each year to its member dealers as a part of patronage dividends with respect to business done with dealers in 1995 and subsequent years. This offering is exempt from the registration provisions of the New York Franchise/Disclosure Statute. The Company's agent for service of process in connection with the offering pursuant to such exemption is C T Corporation, 1633 Broadway, New York, New York 10019. See back cover page regarding revocation rights of Florida purchasers. REFERENCE IS MADE TO FACTORS TO BE CONSIDERED ON PAGE 2 OF THIS PROSPECTUS. This is a continuous offering terminating not later than April 30, 1997. The date of this Prospectus is , 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of Section 15(d) of the Securities Exchange Act of 1934. Accordingly, it files annual and quarterly reports and other information with the Securities and Exchange Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 5th Street, N.W., Judiciary Plaza, Washington, D. C. 20549, and copies of such material can be obtained from the Public Reference Section of the Commission, Washington, D. C. 20549 at prescribed rates. The material can also be inspected and copied at the following Regional Offices of the Commission: 219 South Dearborn Street, Room 1204, Chicago, Illinois 60604; 26 Federal Plaza, Room 1028, New York, New York 10278; and 5757 Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036. REPORTS TO SECURITY HOLDERS Within a reasonable time following the end of each calendar year, the Company furnishes to its stockholders an annual report containing financial information that has been examined and reported upon, with an opinion expressed by, a certified public accounting firm. DOCUMENTS INCORPORATED BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1995 filed pursuant to Section 15(d) of the Exchange Act is incorporated herein by reference. The Company will provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the documents incorporated by reference in the Registration Statement (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the documents that the Registration Statement incorporates). Requests for such copies should be directed to David League, Vice President, General Counsel and Secretary, Ace Hardware Corporation, 2200 Kensington Court, Oak Brook, Illinois 60521, (708) 990- 6600. FACTORS TO BE CONSIDERED Limitations on Value and Marketability of Stock Although Ace Hardware Corporation ("the Company") is obligated to pay patronage dividends to its stockholders in proportion to the respective purchases of merchandise made by them from the Company, the payment of dividends on shares of the Company's capital stock is prohibited and transfer of the shares is limited so that no trading market for them exists. The shares can be sold only to another retail hardware dealer whom the Company has approved as a member for the retail outlet for which the shares were purchased or to the Company which must repurchase the shares if said retail outlet closes down or if its Company membership is otherwise terminated. (See the heading "Description of Capital Stock".) However, no amounts to fund repurchase of shares by the Company are expressly set aside for such purpose and repurchases can be made only as permitted under the General Corporation Law of Delaware. (See the heading "Summary," subheading "Repurchase of Shares by Company".) Accordingly, except for the voting rights attached to the Class A Stock, the stock has value to a purchaser thereof only in the event of the liquidation of the Company or upon termination of the Company membership for the retail outlet for which the stock has been purchased. Income Tax Liability Incidental to Patronage Dividends A purchaser of shares will be required to report as gross income for federal income tax purposes the total amount of patronage dividends distributed by the Company to such purchaser, including shares of Class C Stock and patronage refund certificates distributed in the form of written notices of allocation at their stated dollar amounts. Patronage refund certificates are non-negotiable having a maturity date and bearing interest at an annual rate to be determined by the Board of Directors prior to issuance. Although a minimum of 20% of each recipient's total annual patronage dividends is required to be paid in cash in all cases except those in which the cash portion has been applied against indebtedness owed to the Company by a stockholder whose Company membership has terminated and who has not requested payment of such 20% minimum portion in cash, the cash portion may be insufficient, depending upon the income tax bracket of each recipient, to provide funds for the full payment of the federal income tax liability incurred by the recipient with respect to such patronage dividends. (See the heading "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends".) Sale of All Shares Offered Not Assured Since the shares offered hereby are available for purchase only by retailers of hardware and related merchandise with respect to particular retail outlets for which a Company membership is approved, it is not certain that all of the shares offered will be sold. Company's First Lien Rights on Shares The shares held by any purchaser, including any shares of Class C Stock distributed as patronage dividends, will be subject to a first lien in favor of the Company for the amount of any indebtedness payable to the Company by such holder. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights".) Any patronage refund certificates which are distributed as patronage dividends will also be subject to a similar first lien. (See the heading "The Company's Business", subheading "Forms of Patronage Dividend Distributions".) Full Payment Required for Issuance of Shares Unless a purchaser of shares chooses to prepay the purchase price of the shares, the purchase price is to be paid by charges added to the purchaser's bi-weekly billing statements from the Company for merchandise and services. A purchaser will receive a certificate for each class of stock included in his subscription for shares only upon the completion of payment of the purchase price for the share or shares of that class. (See the heading "Distribution Plan and Offering Terms".) By-law Provisions Constitute a Legal Contract with the Company It is provided in Article XXVI of the By-laws of the Company that said By-laws shall constitute a legal contract between the Company and its stockholders. A copy of the By-laws of the Company, as amended as of September 19, 1995, is attached to this Prospectus as Appendix A. Those By-law provisions having special significance with respect to the operations of the Company include Sections 5 through 12 of Article XVI which set forth limitations on the transfer of the Company's stock and the circumstances under which shares thereof will be repurchased by the Company; Article XXIV entitled "Members' Patronage Dividends"; and Article XXV dealing with the membership rights and obligations of the Company's dealers. Documents Accompanying Prospectus The Company's most recent annual report to security holders and Company's current standard form of Membership Agreement accompany this Prospectus. (See the heading "The Company's Business," subheading "Membership Agreement.") SUMMARY The Company and Its Business The mailing address and telephone number of the Company's principal executive offices are: 2200 Kensington Court, Oak Brook, Illinois 60521, (708) 990-6600. The Company is a wholesaler of hardware and related products, and manufactures paint products. Sales of such products are made almost exclusively to retail hardware dealers having Membership Agreements with the Company entitling them to purchase merchandise and services from it and to use the Company's marks as provided in the Membership Agreement. (See the heading "The Company's Business," subheading "Membership Agreement.") Also see further description under "The Company's Business" for a discussion of member operational requirements and material requirements on purchases of the Company's securities. The number of retail business outlets for which Membership Agreements have been executed as of December 31, 1995 were 5,007. (See the heading "The Company's Business.") Basic Distinctions Between Classes of Stock The issued and outstanding shares of capital stock of the Company are divided into three classes. Class A Stock is the only class of stock having voting rights with respect to the election of directors and most other matters. Class B Stock had been offered to retail dealers with respect to each business outlet owned or controlled by them for which a membership was granted by the Company on or before February 20, 1974, but the offering of Class B Stock terminated on March 31, 1979 and no shares of such stock are being offered by this Prospectus. The Board of Directors has authority to redeem the whole or any part of the outstanding shares of Class B Stock, or the whole or any part of the outstanding shares of Class C Stock which have been issued to the Company's member dealers in partial payment of their patronage dividend distributions from the Company. In the event of the Company's liquidation, the outstanding shares of Class B Stock and Class C Stock have priority over the outstanding shares of Class A Stock in the distribution of the Company's net assets to the extent of an amount equal to the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock. If the net assets of the Company exceed the total amount which the Company would have been required to pay for such purpose, such excess is to be distributed in equal portions to each holder of an outstanding share of Class A Stock up to an amount equal to the par value of the Class A Stock. Any net assets still remaining are to be distributed among the holders of all three classes of issued and outstanding stock of the Company. Each share of Class A Stock will participate in such distribution in the proportion which the par value of such share bears to the sum of the total par value of the outstanding shares of Class A Stock and the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock. Each share of Class B Stock and Class C Stock will participate in such distribution in the proportion which the then applicable purchase or redemption prices thereof bear to the aforementioned sum. (See the heading "Description of Capital Stock", subheadings "Voting Rights","Liquidation Rights", and "Redemption Provisions.") By virtue of express prohibitions contained in the Company's Certificate of Incorporation and Bylaws, no dividends can be declared on any of the shares of any class of stock of the Company. (See the heading "Description of Capital Stock", subheading "Dividend Rights.") Basic Features of Offering The shares of the Company's stock being offered hereby are offered only to approved retail and other dealers in hardware and related products who submit applications for Ace Hardware Corporation memberships. The offering price for each share of Class A Stock is $1,000 and the offering price for each share of Class C Stock is $100. The offering enables dealers in hardware or similar merchandise to obtain membership in the Company. Membership entitles a dealer to use the Company's marks as provided in the Membership Agreement, to purchase merchandise from the Company under the various sales classes and programs described under the heading "The Company's Business," and also to receive patronage dividends based upon the dealer's purchases from the Company. A dealer who applies for an initial Company membership must subscribe for a combination of 1 share of Class A Stock plus 40 shares of Class C Stock. If a membership is applied for with respect to an additional outlet owned or controlled by the same dealer, the dealer must subscribe for 50 shares of Class C Stock for such outlet. Any application for a membership must be accompanied by a $400 payment constituting a handling charge to defray the estimated cost of processing such application. The shares subscribed for by a dealer are to be paid for by means of charges to be added to the biweekly billing statements of the Company for merchandise and services purchased from it by its dealers. The dealer shall also have the right at any time to make prepayments on account of the purchase price. For a detailed explanation of the offering reference is made to the information set forth under the heading "Distribution Plan and Offering Terms". Repurchase of Shares by Company Upon termination of the Ace Hardware Corporation membership for any retail business outlet, all of the shares with respect to such outlet held by the dealer must be sold back to the Company, unless the shares are to be transferred to another party whom the Company agrees to accept as a member dealer with regard to such outlet. In any repurchase of its shares, the Company must pay a price equal to the $1,000 par value for Class A Stock, a price which cannot be less than twice the $1,000 par value for Class B Stock, and a price which cannot be less than the $100 par value for Class C Stock. (See the heading "Description of Capital Stock", subheading "Other Restrictions and Rights", paragraph (g)). A portion of the repurchase price to be paid by the Company will be paid by means of an interest-bearing 4-year installment note if the dealer's membership with the Company terminates in either of two basic types of situations. Reference is made to the heading "Description of Capital Stock", subheading "Other Restrictions and Rights", paragraph (h), of this Prospectus and to Section 12 of Article XVI of the By-laws, set forth in Appendix A of this Prospectus, for further details concerning the situations in which part of such repurchase price will be paid by means of an installment note and the terms and conditions which will be applicable to such notes. As of December 31, 1995 the number of outstanding shares of the Company's stock is Class A stock - 3,905 shares, Class B stock - 3,028 shares and Class C stock - 1,778,173 shares. As of the completion of this offering, assuming that all Class A stock is sold, the number of outstanding shares of the Company's stock will be Class A stock - 5,745 shares, Class B stock - 3,032 shares and Class C stock - 1,848,096 shares. Under the applicable provisions of the General Corporation Law of Delaware, however, the Company would be prohibited from repurchasing any of its shares at any time when its assets are less than the amount represented by the aggregate outstanding shares of its capital stock or would be reduced below said amount as a result of a repurchase of its shares. The number of shares of stock repurchased by the Company and the price per share paid by it during each of the past three calendar years were as follows:
Class of Stock A B C No. of Purchase No. of Purchase No. of Purchase Aggregate Shares Price Shares Price Shares Price Cost Year ended December 31, 1995 256 $1,000 440 $2,000 99,975 $100 $10,693,500 Year ended December 31, 1994 240 $1,000 168 $2,000 77,013 $100 $ 8,277,300 Year ended December 31, 1993 271 $1,000 164 $2,000 72,359 $100 $ 7,834,900
Patronage Dividends and Income Tax Treatment Thereof The Company operates on a cooperative basis with respect to purchases of merchandise made from it by its member dealers who are either the owners of shares of its capital stock or who are subscribers for shares which are being paid for by charges added to the Company's bi-weekly billing statements for merchandise purchased from it, and makes annual distributions of patronage dividends to such dealers in proportion to the amount of purchases made by each of them during the year. Reference is made to the table under the heading "The Company's Business," subheading "Distribution of Patronage Dividends" for information as to the percentages of sales of merchandise made by the Company during the years 1993 through 1995 which were distributed as patronage dividends. Under the Company's patronage dividend plan which is currently in effect, a portion of such patronage dividends (which can never be less than 20% nor more than 45% of the total annual patronage dividends distributed to each eligible and qualifying dealer) will be paid in cash, except that the portion of any patronage dividends which would otherwise have been paid in cash to a dealer whose membership with the Company has terminated will instead be applied against any indebtedness owing by such dealer to the Company to the extent of such indebtedness unless a timely request for the payment of the minimum 20% cash portion thereof is submitted to the Company by the dealer. The entire remaining portion will be paid in the form of shares of Class C Stock of the Company or non-negotiable patronage refund certificates, or in a combination of Class C shares and such patronage refund certificates. Those dealers whose volume of purchases entitles them to larger total annual patronage dividend distributions will receive larger percentages of their patronage dividends in cash. (See the heading "The Company's Business", subheadings "Distribution of Patronage Dividends", "Patronage Dividend Determinations and Allocations", and "Forms of Patronage Dividend Distributions.") The amount of patronage dividends allocated over the past five fiscal years is set forth in Note (C) to Selected Financial Data. The cash payments and the stated dollar amounts of shares of the Company's Class C Stock and of any patronage refund certificates which are distributed by the Company as a part of patronage dividends must all be taken into the gross income of each of the recipients thereof for federal income tax purposes in the taxable years in which they are received. (See the heading "The Company's Business", subheading "Federal Income Tax Treatment of Patronage Dividends.") In the case of member dealers whose places of business are located in foreign countries or Puerto Rico (except for unincorporated Puerto Rico dealers owned by individuals having U.S. citizenship) who are subject to the special 30% U.S. income tax imposed on nonresident alien individuals and foreign corporations (not including certain Guam, American Samoa, Northern Mariana Islands, or U.S. Virgin Islands corporations) receiving fixed or determinable annual income from sources within the United States, the minimum portion of the annual patronage dividends to be distributed in cash is 30%, and that amount will be withheld by the Company for payment of the U.S. income tax imposed on such dealers. (See the heading "The Company's Business", subheadings "Forms of Patronage Dividend Distributions", and "Federal Income Tax Treatment of Patronage Dividends.") USE OF PROCEEDS The proceeds to be received from the shares of stock of the Company offered hereby will be used by the Company primarily for general working capital purposes (including the purchase of merchandise to be resold by the Company to its member dealers and the maintenance of adequate inventories of such merchandise) and also for capital expenditures as required in order to serve the Company's retail business outlets. The Company has no current specific plan for the proceeds or a significant portion thereof. The Company has no plan if less than all shares offered are sold, as the principal reason for the offering is to enable the Company to accept new dealer outlets in accordance with the Company's By- laws. See the heading "The Company's Business," subheadings "Patronage Dividend Determinations and Allocations" and "Forms of Patronage Dividend Distributions", for a description of the method by which the Company will obtain most of the balance of its operating capital. (See the heading "Factors to be Considered," subheading "Sale of All Shares Offered Not Assured.") DISTRIBUTION PLAN AND OFFERING TERMS Offering Made Through Company Officers Sales of each class of stock offered by the Company are made by the officers of the Company to dealers whose applications for Ace memberships have been accepted by the Company. The Company also employs approximately 182 field sales personnel including retail consultants, management and retail development personnel whose duties include initial contact with potential new retail dealer outlets and promotion of the Company's business and the dealer services offered by it. The field sales personnel, however, do not and are not empowered to accept new dealer outlets on behalf of the Company, nor are they authorized to make sales of any shares of the stock offered by the Company. Also, no commission, bonus or other separate compensation is to be paid to any officer, field sales personnel, or other employee of the Company in connection with the sale of its stock. Limitation of Offering to Applicants for Ace Dealer Memberships The offering of the Company's stock being made by this Prospectus is limited to dealers in hardware or similar merchandise who submit membership applications to the Company with respect to designated retail outlets which are accepted by the Company. In connection with each such application with respect to any retail outlet owned or controlled by a dealer, there must be submitted to the Company: 1. A membership agreement executed by the applicant in the form submitted by the Company; 2. A check in the sum of $400 in payment of a processing charge which is imposed to defray the estimated cost of processing the application; and 3. An executed Subscription Agreement for the purchase of shares of the Company's stock. Offering Price and Terms of Payment Each retail dealer who applies for Ace membership privileges with respect to any retail business outlet must subscribe for shares of the Company's stock having a total purchase price of $5,000. In the case of a dealer who does not already have a Membership Agreement with the Company with respect to any retail outlet, the shares to be subscribed for on behalf of such dealer's first retail outlet will include 1 share of Class A Voting Stock at a price of $1,000 per share plus 40 shares of Class C Non-voting Stock at a price of $100 per share. The shares of stock to be subscribed for by a dealer on behalf of each additional retail outlet owned or controlled by the same dealer will consist entirely of 50 shares of Class C Non- voting Stock at a price of $100 per share. Unless the right of prepayment described below is exercised, the entire purchase price of all shares of stock of the Company subscribed for by a dealer for any retail business outlet owned or controlled by such dealer shall be paid by means of a stock subscription payment charge to be added to such outlet's bi-weekly billing statement from the Company in the amount of $40 or in an amount equal to 2% of the purchase price of the merchandise and services purchased by such outlet from the Company during each bi-weekly period (if such percentage amount is greater than $40). Such charge shall be continued until the full purchase price for all shares of the stock of the Company subscribed for with respect to such outlet has been paid. Upon the acceptance by the Company of the Membership Agreement and the Stock Subscription Agreement executed by a dealer for a prospective member outlet, such outlet will be entitled to participate in the patronage dividend distributions made by the Company even though the full purchase price for the shares of stock subscribed for has not yet been paid. Right of Prepayment All dealers subscribing for shares of any class of stock of the Company shall also have the right at any time to pay all or any portion of the then unpaid balance of the purchase price payable by them for the shares of any class of the stock of the Company subscribed for by them with respect to any member business outlet. However, no interest or other finance charge shall accrue upon or be added to the unpaid balance so long as all payments are made when the same are due in accordance with the terms described above. Time of Issuance of Stock Certificates Immediately upon the completion of the payment by a dealer of the full purchase price of $1,000 for the 1 share of Class A Voting Stock of the Company subscribed for by such dealer, a certificate for such share will be issued to him. In the case of a dealer whose subscription for shares includes 1 share of Class A Stock, all payments made by him under his Stock Subscription Agreement will be applied first toward the $1,000 purchase price for such Class A Stock. No dealer shall have any voting rights until such share of Class A Voting Stock has been issued to him. Certificates for the shares of Class C Stock of the Company subscribed for by a dealer with respect to any member business outlet owned or controlled by such dealer will be issued to him only upon the completion of the payment by him of the full purchase price of all of the Class C shares subscribed for by him with respect to such outlet. If any store or other business outlet with respect to which a dealer has subscribed for shares of stock of the Company ceases to be a member business outlet of the Company before such shares have been issued and paid for in full, the amount paid in by such dealer on account of the purchase price of such shares will thereupon be refunded to him. Termination of Membership Upon Transfer or Repurchase of Shares Unless the Company expressly consents at such time to the continuation of such membership, the Ace Hardware Membership Agreement for any store or other business outlet shall automatically be deemed to have terminated as of the time when any of the shares of capital stock of the Company owned for such outlet by a dealer (regardless of whether the shares were purchased by the dealer or were received by him as patronage dividends) are transferred by him to another eligible holder or are purchased from him by the Company. Federal Income Tax Status of Class A and Class C Shares (See the Heading "Opinions of Experts"). If the Ace Hardware Corporation membership for a particular business outlet owned by a dealer who has only one member outlet is terminated, or if the memberships for all of a dealer's business outlets having memberships with the Company are terminated, and the shares of the Company's stock owned by such dealer are then repurchased by the Company, such dealer's 1 share of Class A Stock would be included among the shares so repurchased. Since the Class A Stock can never be repurchased by the Company at a price other than the $1,000 par value, no taxable income would be realized by a dealer upon the Company's repurchase of his share of Class A Stock. Upon the purchase by the Company of shares of Class C Stock previously sold or distributed to a dealer, taxable income would be realized by such dealer under the present provisions of the U.S. Internal Revenue Code to the extent that the price to be paid by the Company for such shares is established by the Board of Directors at some time in the future at a figure in excess of the $100 par value offering price of the shares. Unless the dealer whose shares of Class C Stock are purchased by the Company still owns shares of the Company's stock in connection with one or more other outlets that are members of the Company, the taxable income realized by such dealer at the time of the Company's purchase of Class C shares from him would probably qualify for capital gain treatment. In the case of a dealer who continues to own shares of the Company's stock for one or more other member outlets after his shares with respect to a member outlet have been purchased or redeemed by the Company, the entire amount paid to such dealer for the shares purchased by the Company might be treated under applicable provisions of the Internal Revenue Code as a distribution essentially equivalent to a dividend which would be taxable to the dealer as ordinary income. In such case the income tax basis of the shares of the Company's stock still held by such dealer would be increased by an amount equal to the original basis of the shares purchased from him by the Company. The provisions of Section 483 of the U.S. Internal Revenue Code may be applicable to sales of the Company's stock to dealers who make payment for said shares in periodic installments extending more than 1 year after the date of the sale. In any such case, all payments which are due to be made by a dealer more than 6 months after the date of the sale may be deemed to include "unstated interest" which would be tax deductible by the dealer, but would also reduce the cost basis of his shares. "Unstated interest" constituting taxable income may be imputed under Section 483 of the U.S. Internal Revenue Code to a dealer whose Company membership is terminated and who receives a 4-year installment note (See the heading "Description of Capital Stock," subheading "Other Restrictions and Rights," subparagraph (h)) in partial payment of the repurchase price of his Company stock if the sum of the total payments to be made to the dealer by the Company with respect to such repurchase exceeds the sum of the present values of such payments and the present values of any interest payments due under the note. For this purpose, the present value of a payment is to be determined by using a discount rate equal to the applicable Federal rate in effect as of the date of the note, compounded semi-annually. DESCRIPTION OF CAPITAL STOCK Dividend Rights The Company's Certificate of Incorporation and By-laws prohibit the declaration of dividends on any of the shares of any class of stock of the Company. However, the Company may distribute shares of its Class C Stock as a part of the annual patronage dividends to be paid to its eligible and qualifying dealers. (See the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions," as well as Note 5 to Financial Statements, and Note (B) to "Selected Financial Data"). Voting Rights All rights to vote and all voting powers are vested solely in the Class A Stock, provided, however, that holders of shares of $1,000 par value Class B Stock and shares of $100 par value Class C Stock shall be entitled to vote separately as a class upon any proposed amendment to the Company's Certificate of Incorporation which would increase or decrease the number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the power, preferences or special rights of the shares of such class so as to affect them adversely. Each holder of any class of stock having the right to vote at any meeting of the stockholders of the Company shall be entitled to one vote for every share of such stock standing in the name of such holder on the books of the Company. Cumulative voting of shares with respect to the election of directors or otherwise is expressly prohibited. Liquidation Rights In the event of any liquidation or winding up of the affairs of the Company, whether voluntary or involuntary, the net assets of the Company shall be distributed among the holders of all classes of issued and outstanding stock of the Company. In such event, there shall first be distributed to the holders of outstanding shares of Class B Stock and Class C Stock amounts equal to the total amounts which the Company would have been required to pay to them to purchase or redeem all of their outstanding shares of such stock in accordance with the purchase or redemption prices for said shares as last determined by the Board of Directors, but if the net assets are insufficient to pay such amounts to the holders of said shares, each outstanding share of Class B Stock and each outstanding share of Class C Stock shall share in the distribution of the Company's net assets in the proportion which its purchase or redemption price bears to such total amount (See the subheading "Redemption Provisions" below). If the net assets exceed said total amount, the excess is to be distributed in equal portions to each holder of an outstanding share of Class A Stock, but the amount so distributed to each holder of a share of Class A Stock cannot exceed such share's $1,000 par value. Any net assets still remaining are to be distributed among the holders of all classes of issued and outstanding shares of stock of the Company pursuant to the following procedure: (a) there shall first be determined the sum of the total $1,000 par value of all of the outstanding shares of Class A Stock and the total amount which the Company would have been required to pay to purchase or redeem all of its outstanding shares of Class B Stock and Class C Stock in accordance with the purchase or redemption price thereof last determined by the Board of Directors; (b) each outstanding share of Class A Stock shall share in said remaining net assets in the proportion which the $1,000 par value thereof bears to the sum determined in the foregoing manner; and (c) each outstanding share of Class B Stock and each outstanding share of Class C Stock shall share in said remaining net assets in the proportion which the purchase or redemption prices thereof last determined by the Board of Directors bear to said sum. Preemptive Rights No stockholder of the Company shall, by reason of his holding shares of any class of stock of the Company, have any preemptive or preferential right to purchase or to subscribe to any shares of any class of the Company, now or to be hereafter authorized, or any notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase any shares of any class, now or hereafter to be authorized. Redemption Provisions There are no redemption provisions applicable to any of the shares of Class A Stock or to any of the shares of Class C Stock other than shares of Class C Stock which have been issued to the Company's member dealers in partial payment of their annual patronage dividends. The Company may, at the option of its Board of Directors, redeem the whole or any part of the outstanding shares of its Class B Stock or the whole or any part of the outstanding shares of its Class C Stock which have been issued as patronage dividend distributions. Such redemptions may be made at any time or from time to time. The redemption price in each instance shall be determined by the Board of Directors, but the redemption price to be paid for Class C Stock shall in no event be less than the $100 par value of such stock and the redemption price to be paid for Class B Stock shall at all times be no less than twice the $1,000 par value of the Class B Stock and shall always be equal to twenty times the per share price last established by the Board of Directors with respect to purchases or redemptions by the Company of its Class C Stock. Notice of any election to redeem shall be mailed to each holder of the class of stock so to be redeemed at his address as it appears on the books of the Company not less than 30 days prior to the date upon which the stock is to be redeemed. In case less than all of the outstanding shares of Class B Stock are redeemed, or in case less than all of the eligible outstanding shares of Class C Stock are redeemed, the number of shares to be redeemed and the method of effecting such redemption, whether by lot or prorata or otherwise, may be determined by the Board of Directors. Other Restrictions and Rights (a) There are no conversion rights, sinking fund provisions, or liability to further calls or assessment by the Company in regard to any of its shares of stock. (b) As security for the payment of any indebtedness owing to the Company by any stockholder or any subscriber for shares of the Company's stock, the Company retains a first lien upon all shares of its stock held by each stockholder and upon all amounts which have been paid to the Company pursuant to a Stock Subscription agreement for shares to be issued upon the completion of payment of the purchase price of the shares. The interest of each holder of shares of the Company's stock in and to the shares issued to such holder and the interest of each subscriber for shares of the Company's stock in and to the funds paid to the Company by such subscriber shall at all times be deemed to be offset by the amount of any indebtedness payable to the Company by such holder or subscriber. In no event shall any transfer of the shares owned by any stockholder or any transfer of the stock subscription account of any subscriber for shares be made unless and until the stockholder whose shares are being transferred or the subscriber whose subscription account is being transferred is free from all indebtedness to the Company. If an installment note would be issuable in payment of a portion of the total purchase price to be paid by the Company for shares of its capital stock held by a dealer for a retail outlet whose Company membership is terminated in one of the situations described in subparagraph (h) below, the cash portion of the purchase price of said shares will be applied first toward any indebtedness payable to the Company by such dealer and the portion of the purchase price which would otherwise be paid by the issuance of an installment note will then be applied against any such indebtedness which still remains. (c) From and after the date on which shares of the Company's stock are first issued to its member dealers who subscribe for such shares, ownership of the shares of all classes of stock of the Company shall be limited to approved retail or other dealers in hardware and related products having membership agreements with the Company, and ownership of shares of Class B Stock shall be limited to dealers having membership agreements with the Company which were entered into on or before February 20, 1974. No certificate representing any issued and outstanding share or shares of any class of stock of the Company shall be pledged, mortgaged, hypothecated, sold, assigned or transferred without the prior consent of the Board of Directors of the Company. In the event that the Board of Directors shall refuse to consent to any transfer or assignment of any certificate or certificates representing any share or shares of issued and outstanding stock of the Company of any class, then the Company shall have the right and shall be obligated to purchase such stock from its owner at a price determined in accordance with the provisions of subparagraph (g) below. In no event shall any transfer or assignment of shares of any class of stock of the Company be made to any transferee who is not eligible to be a holder of such shares, that is, a dealer having a membership agreement with the Company. In the case of a proposed transfer of ownership of a store or other business outlet owned by a holder of shares of stock of the Company to a transferee which the Company has accepted or is willing to accept as a member Ace Hardware dealer, then the owner of such stock shall have the option of either (i) selling or otherwise transferring to such transferee such number of shares of stock of the Company of any class which the Company would otherwise have been required to offer to such transferee in connection with the membership granted to such transferee with respect to such store or other business outlet, or (ii) selling such shares to the Company. However, the following types of transfers of ownership of a store or other business outlet will not be recognized for purposes of determining the availability of the option of selling to the Company shares of its capital stock: (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which the transferor retains an ownership interest; or (iii) any transfer to the spouse of the transferor. (d) Subject to the Company's first lien and set-off rights as described in subparagraph (b) above, in the event of the termination of the Company membership granted for a retail hardware store or other business unit for which shares of stock of the Company are held, the Company shall be obligated to purchase such shares. The Company shall also be obligated to refund all amounts which have been paid to it pursuant to a Stock Subscription Agreement for the purchase of shares which have not as yet been issued to the subscriber, subject only to the Company's first lien and set-off rights as described in subparagraph (b) above. Termination of the membership granted for a particular retail hardware store or other business outlet shall include not only any termination pursuant to a formal notice of termination given by either the Company or the holder of the membership but shall also include each of the following situations which shall be deemed to constitute such a termination: (i) The closing down of the store or other business unit with respect to which such shares of stock of the Company are held, unless such store or other business unit is merely being moved, with the Company's consent and approval, to another location or is being acquired by another dealer which the Company has accepted or is willing to accept as a member dealer for operation pursuant to the same membership at another location; (ii) The death of an individual holder of the shares of stock of the Company held for such retail store or other business unit, or of a member of a partnership which is a holder of such shares, except in a case where the store or other business unit with respect to which such shares are held continues, with the approval of the officers of the Company (which approval shall not be unreasonably withheld), to be operated under a membership from the Company by the decedent's estate or by the person or persons to whom such shares are to be distributed by the decedent's estate or by the successor or successors to the decedent's interest in the partnership holding such shares (it being immaterial for this purpose that, in connection with such continuation of operation, the legal form of ownership of the member dealer has been changed from an individual proprietorship or partnership to a corporation or from a partnership to an individual proprietorship); (iii) An adjudication of the insolvency of the dealer or of the store or other business unit for which the shares of stock of the Company are held, or the making of an assignment for the benefit of creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U. S. Bankruptcy Code by or on behalf of such dealer or retail business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U. S. Bankruptcy Code against the dealer or against said business unit. (e) A transfer of shares of stock of the Company requiring the consent of the Board of Directors shall not be deemed to have occurred upon the death of a person who is the holder of shares of stock of the Company jointly with one or more other persons under circumstances whereby ownership of such shares passes automatically by operation of law to the surviving holder or holders of such shares, nor shall the Company become obligated to purchase such shares upon the death of such person unless the store or other business outlet with respect to which such shares are held either (i) closes down, or (ii) ceases to be operated under a membership from the Company. (f) In any case where the holder or holders of 50% or more of the outstanding voting stock of a corporation having a membership from the Company for one or more business outlets, or the holder or holders of 50% or more of the outstanding voting stock of a corporation owning 80% or more of the outstanding stock of a corporation having such a membership, propose to sell or otherwise transfer all of the shares of capital stock (both voting and non- voting) of such corporation held by them, written notice of such proposal shall be given to the Company. Upon the consummation of such sale or transfer, the corporation whose shares have been sold or transferred shall have the option of either retaining all the shares of the capital stock of the Company then held by it with respect to each member business outlet operated by it or of selling such shares to the Company and having each Company membership held by it deemed to have been terminated by the voluntary action of said corporation, in which case no business unit for which said corporation has held a Company membership shall thereafter operate as a member of the Company unless said corporation submits a new application for a membership for such business unit and such application is accepted by the Company. However, the following types of transfers of ownership of shares of the capital stock of a corporation having a membership from the Company will not be recognized for purposes of determining the availability of the option of selling to the Company shares of its capital stock: (i) any transfer which is not complete, unconditional and irrevocable; (ii) any transfer to an entity in which the transferor retains an ownership interest; or (iii) any transfer to the spouse of the transferor. (g) The price to be paid by the Company in connection with the purchase by it of any shares of its stock shall be as follows: (i) in the case of Class A Stock, the $1,000 par value of the shares; (ii) in the case of Class B Stock, an amount per share equal to the per share price last established by the Board of Directors as the price to be paid by the Company in the event of redemption of shares of its Class B Stock (currently $2,000 per share), which price shall in no event be less than twice the $1,000 par value of the Class B Stock and shall also at all times be equal to twenty times the per share purchase price last established by the Board of Directors with respect to purchases by it of shares of its Class C Stock; (iii) in the case of Class C Stock, an amount per share equal to the per share price last established by the Board of Directors as the purchase price to be paid by the Company for shares of its Class C Stock (currently $100 per share), which price shall in no event be less than the $100 par value thereof. There is no market for the Company's stock. The redemption prices last established by the Board of Directors for Class A, B and C stock have not been adjusted since 1974 when the Company first became a cooperative organization. (h) In case of the purchase by the Company of the shares of its stock held by a dealer for a business outlet whose Company membership is terminated in either of the following situations, a portion of the purchase price will be paid in the form of an installment note payable in four equal annual installments plus accrued interest: (i) voluntary termination of the membership by the dealer under circumstances whereby the member outlet continues to engage in substantially the same business and continues to be controlled to the extent of more than 50% by the same person, partnership or corporation; (ii) termination of the membership by the Company due to a delinquency on the dealer's part in paying for goods or services supplied by the Company or due to a default on the dealer's part in performing some other obligation under his membership agreement with the Company. Even in the above situations, though, the portion of the total purchase price represented by the amount actually paid in by the dealer under a Stock Subscription Agreement for Class A Stock, Class B Stock and Class C Stock will be paid in cash, and the entire remaining portion of the total purchase price for the shares being purchased by the Company from the dealer will also be paid in cash if such remaining portion is less that $5,000. Where such remaining portion of the total purchase price is $5,000 or more in any of the above situations, then only the amount actually paid in by the dealer under the dealer's Stock Subscription Agreement will be paid in cash and the entire remaining portion of the purchase price will be paid by means of an installment note as described above. The interest rate on any such installment note will be such rate as shall have been established by the Company's Board of Directors for such purpose as of the date of the issuance of the note, but the interest rate shall in no event be less than the latest interest rate established for patronage refund certificates to be issued as a part of the annual patronage dividends payable to the Company's dealers, nor shall the interest rate ever be less than 6% per annum. After considering the financial condition and requirements of the Company, the Company's Board of Directors may authorize that payment be made in cash of all or any portion of the total purchase price which would otherwise be payable by means of such an installment note if the Board determines that the installment payment method would impose an undue hardship on the dealer. (i) There is no restriction on the repurchase or redemption of any of its shares of stock by the Company in the event that the Company shall at any time be in arrears in making any sinking fund installment payments which it may hereafter incur an obligation to make. Since the Company is prohibited from paying dividends on any of its shares of stock, there can be no arrearage in the payment of any such dividends which would impose any restriction on the repurchase or redemption of any of its shares of stock by the Company. Under the General Corporation Law of Delaware, the Company cannot repurchase any of its shares at any time when its assets are less than the amount represented by the aggregate outstanding shares of its capital stock or would be reduced below said amount as a result of a repurchase of its shares. OPINIONS OF EXPERTS The validity of shares of stock of the Company offered hereby will be passed upon for the Company by the Company's Vice President, General Counsel, David W. League. The statements made under the subheadings "Federal Income Tax Status of Class A and Class C Shares," "Federal Income Tax Treatment of Patronage Dividends," "Income Tax Liability Incidental to Patronage Dividends" and "Patronage Dividends and Income Tax Treatment Thereof" are also his opinions. Said counsel has also passed upon legal questions relating to the effect upon the surplus or retained earnings of the Company of the fact that, in the event of the involuntary liquidation of the Company, shares of its Class B stock will have a preference exceeding the par value of said shares in the distribution of the net assets of the Company. The financial statements of Ace Hardware Corporation as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995, included herein and elsewhere in the Registration Statement have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing. THE COMPANY'S BUSINESS Ace Hardware Corporation was formally organized as a Delaware corporation in 1964. In 1973, by means of a corporate merger, it succeeded to the business of Ace Hardware Corporation, an Illinois corporation organized in 1928. Until 1973, the business now being engaged in by the Company had been conducted by the Illinois corporation. The Company's principal executive offices are located at 2200 Kensington Court, Oak Brook, Illinois 60521. Its telephone number is (708) 990-6600. The Company functions as a wholesaler of hardware and related products, and manufactures paint products. Sales of the products distributed by it are presently made primarily to individuals, partnerships or corporations who are engaged in business as dealers in hardware or related items and who have entered into Membership Agreements with the Company. The Membership Agreements entitle members to purchase merchandise and services from the Company and to use the Company's trademarks and trade names. (See the heading "Factors To Be Considered," subheading "Documents Accompanying Prospectus," and the heading "The Company's Business" subheading "Membership Agreement"). The Company operates on a cooperative basis and distributes patronage dividends to its eligible member dealers each year in proportion to the amount of their annual purchases of merchandise from it. (See the subheading "Distribution of Patronage Dividends"). At December 31, 1995 there were 5,007 retail business outlets with respect to which such Membership Agreements had been entered into. Those States having the largest concentration of member outlets are California (approximately 10%), Illinois (approximately 8%), Texas (approximately 7%), Florida (approximately 6%), Michigan and Georgia (approximately 4% each). States into which were shipped the largest percentages of the merchandise sold by the Company in 1995 are California (approximately 11%), Illinois (approximately 8%), Florida and Texas (approximately 6% each), Michigan (approximately 5%) and Georgia (approximately 4%). Approximately 3% of the Company's sales are made to outlets located outside of the United States or its territories. Information as to the number of the Company's member outlets during each of the past three calendar years is set forth in the following table:
1995 1994 1993 Member outlets at beginning of period 4,940 4,921 4,986 New member outlets 285 198 158 Member outlets terminated 218 179 223 Member outlets at end of period 5,007 4,940 4,921 Dealers having one or more member outlets at end of period 4,055 4,054 4,045
The Company services its dealers by purchasing merchandise in quantity lots, primarily from manufacturers, by warehousing substantial quantities of said merchandise and by selling the same in smaller lots to the dealers. Most of the products that the Company distributes to its dealers from its regional warehouses are sold at a 10% markup. In 1995 warehouse sales accounted for 62% of total sales and bulletin sales accounted for 3% of total sales with the balance of 35% representing direct shipment sales, including lumber and building material. The proportions in which the Company's total warehouse sales were divided among the various general classes of merchandise sold by it during each of the past three calendar years are as follows:
Class of Merchandise 1995 1994 1993 Paint, cleaning and related supplies 19% 19% 19% Plumbing and heating supplies 16% 16% 15% Hand and power tools 14% 14% 14% General hardware 13% 13% 12% Electrical supplies 13% 12% 12% Garden, rural equipment and related supplies 13% 11% 12% Sundry 7% 9% 9% Housewares and appliances 5% 6% 7%
The Company sponsors two major conventions annually (one in the Spring and one in the Autumn) at various locations. Dealers and vendors are invited to attend, and dealers generally place orders for delivery during the period prior to the next convention. During the convention regular merchandise, new merchandise and seasonal merchandise for the coming season are displayed to attending dealers. Lawn and garden supplies, building materials and exterior paints are seasonal merchandise in many parts of the country, as are certain sundries such as holiday decorations. Warehouse sales involve the purchase of merchandise from the Company that is maintained in inventory by the Company at its warehouses. Direct shipment sales involve the purchase of merchandise from the Company with shipment directly from the vendors. Bulletin sales involve the purchase of merchandise from the Company pursuant to special bulletin offers by the Company. Direct shipment sales are orders placed by dealers directly with vendors, using special purchase orders. Such vendors bill the Company for such orders, which are shipped directly to dealers. The Company, in turn, bills the ordering dealers at a markup. The markup on this category of sales varies with invoice amounts in accordance with the following schedule and is exclusive of sales under the LTL Plus program discussed below. Invoice Amount Handling Charge (Markup) $ 0 to $ 999.99 2.00% or $1.00 whichever is greater $1,000.00 to $1,999.99 1.75% $2,000.00 to $2,999.99 1.50% $3,000.00 to $3,999.99 1.25% $4,000.00 to $4,999.99 1.00% $5,000.00 to $5,999.99 .75% $6,000.00 to $6,999.99 .50% $7,000.00 to $7,999.99 .25% $8,000.00 and over .00% Bulletin sales are made based upon notification from dealers of their participation in special bulletins offered by the Company. Generally, the Company will give notice to all members of its intention to purchase certain products for bulletin shipment and then purchases only so many of such products as the members order. When the bulletin shipment arrives at the Company, it is not warehoused, but is broken up into appropriate quantities and deliveried to members who placed orders. A 6% markup is generally applied to this category of sales. An additional markup of 3% applies to various categories of sales of merchandise exported to certain dealers located outside of the United States and its territories and possessions. Ace dealers located outside of the United States and its territories and possessions not subject to the additional 3% markup are assessed a flat 2% markup on all direct shipment sales. The Company maintains inventories to meet only normal resupply orders. Resupply orders are orders from members for merchandise to keep inventories at normal levels. Generally, such orders are filled within one week of receipt. Bulletin orders (which are in the nature of resupply orders) may be for future delivery. The Company does not backlog normal resupply orders and, accordingly, no significant backlog exists at any point in time. The Company also has established special sales programs for lumber and building materials products and for products assigned from time to time to an "extreme competitive price sales" classification and for products purchased from specified vendors for delivery to certain of the Company's dealers on a direct shipment basis (LTL Plus Program). Under its lumber and building materials ("LBM") program, the Company imposes no handling charge, markup or national advertising assessment on direct shipment orders for such products. The LBM program also enables the Company's dealers to purchase these products at net invoice prices which pass on to them important cost savings resulting from the Company's closely monitored lumber and building materials purchasing procedures. Additionally, the LBM program offers dealers the opportunity to order less-than-truckload quantities of many lumber and building materials products at economical prices under the LTL warehouse redistribution procedure which the Company has established with certain major vendors. The Store Traffic Opportunity Program ("STOP") established by the Company is a program under which certain stockkeeping units of specific products assigned to an "extreme competitive price sales" classification are offered for sale to its dealers for delivery from designated Company retail support centers. Sales under this program are made without the addition of freight charges and with such handling charge or markup (if any) of not more than 5% as shall be specified for each item. The Company's officers have authority to add items to, and to withdraw items from, the STOP program from time to time and to establish reasonable minimum or multiple item purchase requirements for the items offered under the program. No allocations or distributions of patronage dividends are made with respect to sales under the STOP program. Purchases under the STOP program are, however, deemed to be warehouse purchases or bulletin purchases, as the case may be, for purposes of calculating the form of patronage dividend distributions. (See the heading "The Company's Business" subheading, "Forms of Patronage Dividend Distributions"). The LTL Plus Program established by the Company is a program under which full or partial truckloads of products are purchased by certain of the Company's dealers from specified vendors for delivery to such dealers on a direct shipment basis. No markup, handling charge or national advertising assessment is imposed by the Company on sales under the LTL Plus Program, and the maximum amount of patronage dividends allocated or distributed to the Company's dealers with respect to their purchases of products in the LTL Plus category is .5% of such sales. (See heading "The Company's Business," subheading "Patronage Dividend Determinations and Allocations".) The Company, in addition to conducting semi-annual and other conventions and product exhibits for its dealers, also provides them with numerous special services (on a voluntary basis and at a cost to cover its related expenses), such as inventory control systems, price and bin ticketing and an electronic ordering system. In order for them to have on hand current pricing and other information concerning the merchandise obtainable from the Company, the Company further provides to each of its dealers either a catalogue checklist service or a microfiche film service (whichever the dealer selects), for either of which services the dealer must pay a monthly charge. The Company also provides on a full participation basis videotapes and related materials for educational and training programs for which dealers must pay an established monthly charge. (See the heading "The Company's Business," subheading "Special Charges and Assessments.") The Company has an ongoing strategic planning process and has focused its strategic plans around four cornerstones for future growth and success in this competitive industry. The four cornerstones are: Retail Success (store operations), Wholesale Success (distribution), International growth and new member growth. Dealer retail success is a primary objective since it drives both retail performance and wholesale growth of the Company. The Company has accellerated its efforts in assisting member dealers in "retail success initiatives" designed to document and improve their retail performance and competitiveness. The retail success initiatives include retail goals which each dealer should strive for within their store and local competitive environment, but do not dictate material restrictions or requirements on member dealers. Minimum requirements for acceptance of a member dealer by the Company are outlined only in the Membership Agreement and in the Member Operational Requirements under the Ace Hardware Membership Agreement. The Operational Requirements do require that, within one year from the Company's acceptance of the Agreement, the member dealer make Ace their primary source of supply and terminate participation in the program of any other major hardware wholesaler. There are currently no specific requirements as to percentage of purchases required through Ace or minimum retail performance which must be achieved (i.e. sales dollars per square foot). This strategic plan, referred to as "The New Age of Ace" is an extension of previous strategic efforts under Ace 2000 and is not in conflict with these efforts. Through its wholly-owned subsidiary, Ace Insurance Agency, Inc., the Company makes available to its dealers a Group Dealer Insurance Program under which they can purchase a package of insurance coverages, including "all risk" property insurance and business interruption, crime, liability and workers' compensation coverages, as well as medical insurance coverage for their employees. AHC Realty Corporation, another wholly-owned subsidiary of the Company, provides the services of a broker to those dealers who desire to sell or seek a new location for a presently owned store or to acquire an additional store. Loss Prevention Services, Inc., another wholly-owned subsidiary provides security training and services for all dealers desiring security assistance. In addition, the Company offers to its dealers retail computer systems consisting of computer equipment, maintenance service and certain software programs and services. These are marketed by the Company under its registered service mark "PACE". The Company manufactures paint and related products at facilities owned by it in Matteson and Chicago Heights, Illinois. These facilities now constitute the primary source of such products offered for sale by the Company to its dealers. The Company's paint manufacturing business is operated as a separate Division of the Company for accounting purposes. All raw materials used by the Company to manufacture paint are purchased from outside sources. The Company has had adequate sources of raw materials, and no shortages of any materials which would materially impact operations are currently anticipated. The manufacturing of paint is seasonal to the extent that greater paint sales are found in the months of April through September. Historically, compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had any material impact. The Company's business, either in hardware wholesaling or paint manufacturing activities is not dependent on any major suppliers and the Company feels that any seasonal fluctuations do not have a significant impact upon operations. For further discussion of the Company's business, see the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," which appears following the "Notes to Financial Statements" in this prospectus. The Company makes available some services to members which are related to the operation of their retail business. These services (such as advertising, store supplies and training programs) are provided in order to assist members and/or to utilize the centralized buying power of the Company. Members are rebilled in order to reimburse the Company for related expenses paid on their behalf. The special charges and assessments described below are similar in nature and are intended only to reimburse the Company for related expenses. Special Charges and Assessments The Company sponsors a national advertising program for which its dealers are currently assessed an amount equal to 1.25% of their purchases (exclusive of purchases of lumber, LTL, LTL Plus, building materials products and PACE hardware and software computer systems), with the current minimum annual assessment for each dealer location being established at $1,560.00 (or such greater amount as would be required to maintain such minimum assessment at 1.25% of the annual volume of purchases required in order for a retail outlet to avoid imposition of the low volume account service charge) for 1996 ($1,300.00 for 1995), subject to: 1) a maximum annual assessment for each dealer location for which a membership agreement has been entered into with the Company of $5,000.00 for 1996 ($4,750.00 for 1995); 2) a maximum total annual assessment for any one dealer determined by multiplying the number of such dealer's retail outlets supplied by the Company which serve the general public by $5,000.00 with certain exemptions from or adjustments to the national advertising assessment for dealer outlets located outside of the contiguous 48 states of the United States and the District of Columbia, based on the evaluation by the Company's management of the amount and nature of the television broadcasts received in the dealer's area. The percentage of bi-weekly purchases to be assessed for the Company's national advertising program and the amount of the maximum annual assessment for such program are both subject to being changed from time to time by action of the Board of Directors of the Company. The Company also has the authority, effective January 1, 1993 to impose a regional advertising assessment (for select geographic regions) not to exceed 2% of annual purchases with the same minimum and maximum assessments imposed by the National Advertising assessment. A special low volume account service charge of $30.00 per bi-weekly billing statement period is imposed on all stores whose purchases (exclusive of lumber and LTL purchases) during such period are less than $4,800.00 or, effective January 1, 1996 a $50.00 per bi-weekly billing statement on all stores whose annual purchases are less than $50,000. Any such charges imposed on a store during a specified year will be automatically refunded to the store if its total purchases (exclusive of lumber and LTL purchases) exceed $124,800 for 1996 ($104,000.00 for 1995) during the year. All stores are exempted from such special charge during the first 12 months from the date that they are affiliated as Ace dealers. Exceptions to the low volume account service charge are as follows: 1. when a dealer has purchased $124,800.00 for 1996 ($104,000.00 for 1995) of merchandise (exclusive of carload lumber purchases) during the applicable year, the dealer will be given credit on the next bi-weekly billing statement for any low volume charges which have been added to the account during such year and the low volume charge shall no longer be added on any of such dealer's bi-weekly billing statements during the remainder of such period even if the current purchases shown on the billing statement are less than $4,800.00; and 2. the low volume account service charge will not be billed on a bi-weekly basis to those accounts whose previous year's sales volume exceeded the low volume purchases minimum ($124,800.00 for 1996; $104,000.00 for 1995) for the previous year, but the full annual low volume account service charge will be billed on the last billing statement of the year to those accounts if the minimum purchases to avoid imposition of the charge have not been met for the current year. An Ace store that falls below minimum purchase levels may also be subject to termination. A late payment service charge is added on any past due balance owing by a dealer to the Company for purchases of merchandise and services or for the purchase price of the capital stock of the Company subscribed for by the dealer. The late payment service charge currently in effect is an amount equal to .77% per bi-weekly statement period, except in Texas where the charge is .384% and Georgia where the charge is .692%. A past due balance is created whenever payment of the amounts shown as due on any such statement is not received by the Company within 10 days following the date of the statement. The percentage for determining the amount of the late payment service charge may be changed from time to time by the Company. Subscriptions to a retail training program consisting of video tapes and related course materials (the "S.T.A.R. Program") are mandatory for all stores located in the United States and U.S. Territories. The initial monthly assessment imposed on such stores for such subscriptions is $16.00 for 1996 ($14.50 for 1995) for each single store or parent store and $11.00 for 1996 ($10.00 for 1995) for each branch store. A single store or parent store is an initial retail outlet for which a dealer owns, or has subscribed for, one (1) share of Class A stock and forty (40) shares of Class C stock of the Company. A branch store is an additional retail outlet for which a dealer owns, or has subscribed for, fifty (50) shares of Class C stock of the Company. (See Article XXV, Section 2 of the By-laws, set forth in Appendix A). Branch stores may, upon request, be granted an exemption from the monthly subscription fee. Subscriptions to a Material Safety Data Sheet information service are also mandatory for all stores located in the United States. The initial annual assessment imposed on such stores for such subscriptions is $32.00 for 1996 ($30.00 for 1995) for each single store or parent store and $16.00 for 1996 ($15.00 for 1995) for each branch store. Trademark and Service Mark Registrations The names "ACE HARDWARE" and "ACE" are used extensively by the Company and by its member-dealers in connection with the promotion, advertising and marketing of products and services sold by the Company. The Company holds the following Trademark and Service Mark Registrations issued by the U.S. Patent and Trademark Office for the marks used by it:
Registration Description of Mark Type of Mark Number Expiration Date "ACEHARDWARE" with winged emblem design Service Mark 840,176 December 5, 2007 "ACEHARDWARE" with winged emblem design Trademark 898,070 September 8, 2000 "WEATHER SHEDDER" Trademark 1,053,816 December 7, 1996 "THE HELPFUL HARDWARE MAN" Service Mark 1,055,741 January 4, 1997 "ACE IS THE PLACE WITH THE HELPFUL HARDWARE MAN" Service Mark 1,055,743 January 4, 1997 "BRIGHT & EASY" Trademark 1,058,117 February 8, 1997 "THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2000 "HARDWARE UNIVERSITY" with design Service Mark 1,180,539 December 1, 2001 "SUPER STRIKER" Trademark 1,182,330 December 15, 2001 "PACE" with design Service Mark 1,208,887 September 14, 2002 "ACE HARDWARE" with winged emblem design Trademark 1,277,581 May 15, 2004 "ACE HARDWARE" in slanted bar design Trademark 1,426,137 January 27, 2007 "ACE" in stylized lettering design Service Mark 1,464,025 November 3, 2007 "ACE HARDWARE" in stylized lettering design Service Mark 1,486,528 April 26, 2008 "ACE HARDWARE AND GARDEN CENTER" in stylized lettering design Service Mark 1,487,216 May 3, 2008 "ACE NEW EXPERIENCE" in stylized lettering design Trademark 1,554,322 September 5, 2009 "ACE SEVEN STAR" in stylized lettering design Trademark 1,556,389 September 19, 2009 "ACE BEST BUYS" in circle design Service Mark 1,560,250 October 10, 2009 "ACENET" Service Mark 1,574,019 December 26, 1999 "ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000 "LUB-E" Trademark 1,615,386 October 2, 2000 "ACE FIVE STAR" in stylized lettering design Trademark 1,627,887 December 18, 2000 "ACE THREE STAR" in stylized lettering design Trademark 1,631,237 January 15, 2001 "ACE PRO" Trademark 1,632,078 January 22, 2001 "ASK ACE" Service Mark 1,653,263 August 6, 2001 Christmas Elves design Trademark 1,669,306 December 24, 2001 "ACE 2000" Service Mark 1,682,467 April 7, 2002 "ACE" in stylized lettering design Trademark 1,683,538 April 21, 2002 "HARMONY" in stylized lettering design Trademark 1,700,526 July 14, 2002 "SEVEN STAR SATISFACTION GUARANTEED QUALITY ACE PAINTS" with design Service Mark 1,705,321 August 4, 2002 "THE OAKBROOK COLLECTION" in stylized lettering design Trademark 1,707,986 August 18, 2002 "ACE HARDWARE BROWN BAG BONANZA" with design Service Mark 1,761,277 April 13, 2003 "ACE HARDWARE COMMITTED TO A QUALITY ENVIRONMENT" design Service Mark 1,764,803 April 13, 2003 "THE OAKBROOK COLLECTION" in stylized lettering design Trademark 1,783,335 July 20, 2003 "STORE 2000 THE STORE OF THE FUTURE" Service Mark 1,811,032 December 14, 2003 "ENVIRO-CHOICE" Trademark 1,811,392 December 14, 2003 "CELEBRATIONS" Service Mark 1,918,785 September 12, 2005 Repetitive Stylized "A" design Service Mark 1,926,798 October 10, 2005 "The NEW AGE OF ACE" design Service Mark 1,937,008 November 21, 2005 "ACE RENTAL PLACE" in stylized lettering design Service Mark 1,943,140 December 19, 2005
Currently, the Company has a applications pending before the U.S. Patent and Trademark Office for Registration of "GREAT FINISHES" for paints, paint-like coatings, primers, lacquers, stains and varnishes, "WOOD ROYAL" for paint, exterior stains and wood cleaners, "ROYAL SHIELD" for paints, primers, stains, lacquers and varnishes, "ROYAL TOUCH" for paints, primers, stains, lacquers and varnishes and "SEALTECH" for acrylic waterproof coatings for porous surfaces. In addition, the Company also has service mark applications pending for "ACE HOME CENTER," "HELPFUL HARDWARE FOLKS," and Repeating "A" in stylized lettering design with "ACE" in stylized lettering design for retail stores services. Competition The competitive conditions in the wholesale hardware industry can be characterized as intensive and increasing due to the fact that independent retailers are required to remain competitive with discount stores and chain stores, such as Wal-Mart, Home Depot, Menard's, Sears, and Lowe's, and with other mass merchandisers. The gradual shift of retail operations to high rent shopping center locations and the trend toward longer store hours have also intensified pressures to obtain low cost wholesale supply sources. The Company directly competes in several U.S. markets with Cotter & Company, Servistar Corporation, Hardware Wholesalers, Inc., Our Own Hardware Company, and United Hardware Distributing Co., all of which companies are also dealer-owned wholesalers. Employees The Company employs 3,917 full-time employees, of which 1,194 are salaried employees. Collective bargaining agreements, covering one truck drivers' bargaining unit and four warehouse bargaining units are currently in effect at certain of the Company's distribution warehouses. The Company's employee relations with both union and non-union employees are considered to be good, and the Company has experienced no significant employee-related work stoppage in the past five years. All employees are covered either by negotiated or non-negotiated employee benefit plans which include hospitalization, death benefits and, with few exceptions, retirement benefits. Limitations on Ownership of Stock All of the issued and outstanding shares of capital stock of the Company are owned by its dealers. Only approved retail and other dealers in hardware and related products having Membership Agreements with the Company are eligible to own or purchase shares of any class of the Company's stock. No dealer, regardless of the number of member business outlets owned or controlled by the dealer, shall be entitled to own more than 1 share of Class A Stock, which is the only class of voting stock which can be issued by the Company. This ensures that each stockholder-dealer will have an equal voice in the management of the Company. An unincorporated person or partnership shall be deemed to be controlled by another person, partnership or corporation if 50% or more of the assets or profit shares therein are owned (i) by such other person, partnership or corporation or (ii) by the owner or owners of 50% or more of the assets or profit shares of another unincorporated business firm or (iii) by the owner or owners of 50% or more of the capital stock of an incorporated business firm. A corporation shall be deemed to be controlled by another person, partnership or corporation if 50% or more of the capital stock of said corporation is owned (i) by such person, partnership or corporation or (ii) by the owner or owners of 50% or more of the capital stock of another incorporated business firm or (iii) by the owner or owners of 50% or more of the assets or profit shares of an unincorporated business firm. Distribution of Patronage Dividends The Company operates on a cooperative basis with respect to purchases of merchandise made from it by those of its dealers who have become "members" of the Company as described below and in the Company's By-laws. In addition, the Company operates on a cooperative basis with respect to all dealers who have subscribed for shares but who have not as yet become "members" by reason of the fact that the payments made by them on account of the purchase price of their shares have not yet reached an amount equal to the $1,000 purchase price of 1 share of Class A Voting Stock. All member dealers falling into either of the foregoing classifications are entitled to receive patronage dividend distributions once each year from the Company in proportion to the amount of their annual purchases of merchandise from it. The patronage dividends distributed on wholesale warehouse, bulletin and direct shipment sales made by the Company and on total sales of products manufactured by the Paint Division represented the following percentages of each of said categories of sales during each of the past three calendar years: 1995 1994 1993 Warehouse Sales 4.42965% 4.64117% 4.94434% Bulletin Sales 2.0% 2.0% 2.0% Direct Shipment Sales 1.0% 1.0% 1.0% Paint Sales 6.8725% 8.2205% 7.9389% In addition to the dividends described above, patronage dividends are calculated separately and distributed on sales of lumber products, building material and millwork products and less-than-truckload (LTL) sales of lumber and building material products. Patronage dividends equal to .3560%, .4073% and .1763% of the total sales of these products (calculated separately by each of these three sales categories) were distributed to the Company's dealers who purchased these products in 1995, 1994 and 1993, respectively. Under the LTL Plus Program, patronage dividends are also calculated separately on sales of full or partial truckloads of products purchased by eligible dealers from specified vendors (see discussion of LTL Plus Program under the heading "The Company's Business.") The maximum amount of patronage dividends allocable to LTL Plus sales is .5% of such sales. The LTL Plus Program dividend was .5%, of such sales for 1995, 1994 and 1993. Patronage Dividend Determinations and Allocations The amounts distributed by the Company as patronage dividends consist of its gross profits on business done with dealers who qualify for patronage dividend distributions after deducting from said gross profits a proportionate share of the Company's expenses for administration and operations. Such gross profits consist of the difference between the price at which merchandise is sold to such dealers and the cost of such merchandise to the Company. All income and expenses associated with activities not directly related to patronage transactions are excluded from the computation of patronage dividends. Generally these include profits on business done with dealers who do not qualify for patronage dividend distributions and any income (loss) realized by the Company from the disposition of property and equipment (except that, to the extent that depreciation on such assets has been deducted as an expense during the time that the Company has been operating on a cooperative basis and is recaptured in connection with such a disposition, the income derived from such recapture would be included in computing patronage dividends). The By-laws of the Company provide that, by virtue of a dealer being a "member" of the Company (that is, by virtue of his ownership of 1 share of Class A Voting Stock), he will be deemed to have consented to include in his gross income for federal income tax purposes for the dealer's taxable year in which they are received by him all patronage dividends distributed to him by the Company in connection with his purchases of merchandise from the Company. A dealer who has not yet paid an amount which at least equals the $1,000 purchase price of the 1 share of Class A Voting Stock subscribed for by him will also be required to include all patronage dividends distributed to him by the Company in his gross income for federal income tax purposes in the year in which they are received by him. This is required by virtue of a provision in the Subscription Agreement executed by him under which he expressly consents to take all such patronage dividends into his gross income for such purposes. The amount of the patronage dividends which must be included in a dealer's gross income includes both the portion of such patronage dividends received by him in cash or applied against indebtedness owing by him to the Company in accordance with Section 7 of Article XXIV of the Company's By-laws and the portion or portions thereof which he receives in shares of Class C Nonvoting Stock of the Company or in patronage refund certificates. Patronage dividends on each of the Company's three basic categories of sales (warehouse sales, bulletin sales and direct shipment sales) are allocated separately, as are patronage dividends under the LTL Plus Program. However, the maximum amount of patronage dividends allocable to the LTL Plus Program is an amount no greater than .5% of such sales, the maximum amount of patronage dividends allocable to direct shipment sales exclusive of LTL Plus Program sales is an amount equal to 1% of such sales and the maximum amount of patronage dividends allocable to bulletin sales is an amount equal to 2% of that category of sales. All remaining patronage dividends resulting from sales made under these programs are allocated by the Company to warehouse sales. The Company feels that this allocation procedure provides a practical and understandable method for the distribution of these patronage dividends in a fair and equitable manner. Sales of lumber and building materials products are not included as part of warehouse sales, bulletin sales, or direct shipment sales for patronage dividend purposes. Patronage dividends are calculated separately and distributed to the Company's dealers with respect to their purchases within each of four sales categories involving these types of products. These four categories are (a) lumber products (other than less- than-truckload sales); (b) building materials products (other than less- than-truckload sales); (c) millwork products and (d) less-than-truckload ("LTL") sales of lumber and building material products. Patronage dividends are also calculated separately and distributed to the Company's dealers for full and partial truckloads of products purchased under the LTL Plus program. (See the heading "The Company's Business", discussion of LTL Plus program, and the subheading "Forms of Patronage Dividend Distributions", subparagraphs 2(a)-(b).) Any manufacturing profit realized on intracompany sales of the products manufactured by the Company's Paint Division is allocated among and distributed as patronage dividends to those member dealers who are eligible to receive patronage dividends from the Company in proportion to their respective annual dollar purchases of paint and related products manufactured by said Division. The earnings realized by the Company on wholesale sales of such products made by it to its member dealers are distributed as patronage dividends to all of its dealers who are eligible to receive patronage dividends from it as part of the patronage dividends which they receive each year with respect to the basic patronage dividend categories established for warehouse sales, bulletin sales, and direct shipment sales. Under Section 8 of Article XXIV of the Company's By-laws, if the Paint Division's manufacturing operations for any year result in a net loss, rather than a profit, to the Paint Division, such loss would be netted against the earnings realized by the Company from its other activities during the year, with the result that the earnings available from such other activities for distribution as patronage dividends for such year would be correspondingly reduced. Forms of Patronage Dividend Distributions Patronage dividend distributions will be made to the eligible and qualified member dealers of the Company in cash, shares of the Company's Class C stock and patronage refund certificates in accordance with the following plan which has been adopted by the Company's Board of Directors with respect to purchases of merchandise made by such dealers from the Company on or after January 1, 1995, and which will continue to be in effect until such time as the Board of Directors, in the exercise of their authority and discretion based upon business conditions from time to time and the requirements of the company, shall determine that such plan should be altered or amended: 1. With respect to each store owned or controlled by each eligible and qualifying dealer, such dealer shall receive a minimum cash distribution determined as follows: (a) an amount equal to 20% of the first $5,000 of the total patronage dividends allocated for distribution each year to such dealer in connection with the purchases made for such store; (b) an amount equal to 25% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $5,000 but does not exceed $7,500; (c) an amount equal to 30% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceed $7,500 but does not exceed $10,000; (d) an amount equal to 35% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $10,000 but does not exceed $12,500; (e) an amount equal to 40% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $12,500. 2. The portion of the total annual distribution allocated to any such dealer for each store owned or controlled by such dealer in excess of the amount to be distributed to such dealer for such store in cash shall be distributed to him each year in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share), valued at the par value thereof, until the total par value of all shares of all classes of capital stock of the corporation held by such dealer with respect to such store equals the greater of: (a) $20,000; or (b) a sum equal to the total of the following categories of purchases made by such dealer for such store during the most recent calendar year: (i) 15% of the volume of warehouse (including STOP and excluding Ace manufactured paint and related products) and bulletin purchases, plus (ii) 15% of the volume of Ace manufactured paint and related products purchases, plus (iii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured paint and related products), plus (iv) 4% of the volume of lumber and building material (excluding LTL) purchases, plus (v) 4% of the volume of LTL Plus purchases; provided, however, that no fractional shares of Class C Non-voting Stock shall be issued to any dealer and that any amount which would have otherwise been distributable as a fractional share of such stock shall instead be distributed to such dealer in cash. 3. The portion of the total patronage dividends allocated each year to any such dealer for each store owned or controlled by such dealer which exceeds the sum of (a) the amount to be distributed to such dealer for such store in cash pursuant to Paragraph 1., above and (b) any amount to be distributed to him in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share) pursuant to Paragraph 2. above shall be distributed to such dealer in cash; provided, however, that in no event shall the total amount distributed under this plan to any such dealer for any such store in cash exceed 45% of the total patronage dividends allocated for such store for such year, and to the extent that any distribution to be made to any such dealer for any store pursuant to this Paragraph 3. would otherwise cause the total cash distribution to such dealer for such store to exceed 45% of the total patronage dividends allocated for such store for such year, the distribution to be made under this Paragraph 3. shall instead be made in the form of a non-negotiable patronage refund certificate having such a maturity date and bearing interest at such an annual rate as shall be determined by the Board of Directors prior to the issuance thereof. Patronage dividend distributions will be made to the eligible and qualified member dealers of the Company in cash, shares of the Company's Class C stock and patronage refund certificates in accordance with the following plan which was adopted by the Company's Board of Directors with respect to purchases of merchandise made by such dealers from the Company on or after January 1, 1993, through and including December 31, 1994: 1. With respect to each store owned or controlled by each eligible and qualifying dealer, such dealer shall receive a minimum cash distribution determined as follows: (a) an amount equal to 20% of the first $5,000 of the total patronage dividends allocated for distribution each year to such dealer in connection with the purchases made for such store; (b) an amount equal to 25% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $5,000 but does not exceed $7,500; (c) an amount equal to 30% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceed $7,500 but does not exceed $10,000; (d) an amount equal to 35% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $10,000 but does not exceed $12,500; (e) an amount equal to 40% of the portion of the total patronage dividends allocated for distribution each year to such dealer for such store which exceeds $12,500. 2. The portion of the total annual distribution allocated to any such dealer for each store owned or controlled by such dealer in excess of the amount to be distributed to such dealer for such store in cash shall be distributed to him each year in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share), valued at the par value thereof, until the total par value of all shares of all classes of capital stock of the corporation held by such dealer with respect to such store equals the greater of: (a) $20,000; or (b) a sum equal to the total of the following categories of purchases made by such dealer for such store during the most recent calendar year: (i) 13% of the volume of warehouse (including STOP and excluding Ace manufactured paint and related products) and bulletin purchases, plus (ii) 10% of the volume of Ace manufactured paint and related products purchases, plus (iii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured paint and related products), plus (iv) 4% of the volume of lumber and building material (excluding LTL) purchases, plus (v) 4% of the volume of LTL Plus purchases; provided, however, that no fractional shares of Class C Non-voting Stock shall be issued to any dealer and that any amount which would have otherwise been distributable as a fractional share of such stock shall instead be distributed to such dealer in cash. 3. The portion of the total patronage dividends allocated each year to any such dealer for each store owned or controlled by such dealer which exceeds the sum of (a) the amount to be distributed to such dealer for such store in cash pursuant to Paragraph 1. above and (b) any amount to be distributed to him in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100 per share) pursuant to Paragraph 2. above shall be distributed to such dealer in cash; provided, however, that in no event shall the total amount distributed under this plan to any such dealer for any such store in cash exceed 49.9% of the total patronage dividends allocated for such store for such year, and to the extent that any distribution to be made to any such dealer for any store pursuant to this Paragraph 3. would otherwise cause the total cash distribution to such dealer for such store to exceed 49.9% of the total patronage dividends allocated for such store for such year, the distribution to be made under this Paragraph 3. shall instead be made in the form of a non- negotiable patronage refund certificate having such a maturity date and bearing interest at such an annual rate as shall be determined by the Board of Directors prior to the issuance thereof. With certain modifications, the above Plans are applied separately in determining the form in which patronage dividends accrued with respect to sales of lumber and building materials products are distributed. In this connection the combined patronage dividends allocated annually to a store from (a) sales of lumber products (other than LTL sales), (b) sales of building materials (other than LTL sales), (c) sales of millwork product and (d) LTL sales to the store are used in determining the minimum cash distribution percentages to be applied under Paragraph 1 of the above Plans. A store's patronage dividends from any other sales category with respect to which patronage dividends are distributed by the Company are not taken into account in determining either the minimum portion or any additional portion of the store's patronage dividends derived from its purchases of lumber and building materials products which is to be distributed in cash. Also, Paragraphs 2 and 3 of the above Plans are applied separately to patronage dividends on lumber and building materials sales and the requirements of Paragraph 2 of the Plans shall not be deemed to have been complied with in the cases of (a) purchases of lumber products (other than LTL purchases), (b) purchases of building materials products (other than LTL purchases) or (c) purchases of millwork product until the store's holdings of Class C Non-voting Stock of the Company resulting from patronage dividends on the Company's sales to it within the particular one of those two sales categories for which a patronage dividend distribution is to be made equal 4% of the volume of the store's purchases within such category during the most recent calendar year. However, no such special Class C Stock requirement applies to patronage dividends accrued on LTL purchases. Notwithstanding the provisions of the above-described Plans, however, under Section 7 of Article XXIV of the Company's By-laws the portion of any patronage dividends which would otherwise be distributable in cash with respect to a retail dealer outlet which is a member of the Company will instead be applied against any indebtedness owing by the dealer to the Company to the extent of such indebtedness in any case where the membership for such outlet is cancelled or terminated prior to the distribution of such patronage dividends except that an amount equal to 20% of the dealer's total annual patronage dividends for such outlet will be paid in cash if a timely request for the payment of such amount in cash is submitted to the Company by the dealer. Because of the requirement of the U. S. Internal Revenue Code that the Company withhold 30% of the annual patronage dividends distributed to member dealers of the Company whose places of business are located in foreign countries or Puerto Rico (except in the case of unincorporated Puerto Rico dealers owned by individuals who are U.S. citizens and certain dealers incorporated in Guam, American Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands, if less than 25% of its stock is owned by foreign persons, and at least 65% of the Corporation's gross income for the last three years has been effectively connected with the conduct of a trade or business in such possession or in the United States), the cashportion of the annual patronage dividends of such dealers shall in no event be less than 30%. It is anticipated that the terms of any patronage refund certificates issued pursuant to Paragraph 3. of the foregoing Plans would include provisions giving the Company a first lien thereon for the amount of any indebtedness owing to it at any time by the owner of any such certificate and provisions subordinating the certificates to all the rights and claims of secured, general and bank creditors against the Company. It is further anticipated that all such patronage refund certificates will have maturity dates which will be no later than five years from the dates of issuance thereof. In order to aid the Company's dealers in acquiring and installing standardized exterior signs identifying the retail stores operated by them as member outlets supplied by the Company, the Board of Directors of the Company has authorized a program under which a dealer may borrow from the Company within a range of $100 to $20,000 per location the funds required for such purpose. A dealer who obtains a loan under this program may either repay the loan in twelve substantially equal payments billed on such dealer's regular bi-weekly billing statement, or may execute a direction to have the portion of the dealer's annual patronage dividends which would otherwise be distributed under the above plan in a form other than cash from no more than the next three annual distributions of such dividends applied toward payment of the principal and interest on the loan. In order to aid the Company's dealers in acquiring and installing PACE and PAINTMAKER computer systems purchased from the Company, the Board of Directors of the Company has also authorized programs under which the Company will finance, for qualified dealers (but not to exceed 80% of the cost of any system), in the case of a PAINTMAKER computer, within the range of $1,000 to $15,000 per location repayable over a period of three (3) years, and in the case of a PACE computer, within the range of $5,000 to $50,000 per location repayable over a period of five (5) years, for such purpose. Dealers who obtain financing from the Company for these purposes direct the Company, during the financing term, to first apply toward the principal and interest due on such balances, the patronage dividends which would otherwise be payable in the form of patronage refund certificates for each year, and then to apply the patronage dividends which would otherwise be payable for the same year in the form of the Company's Class C stock. The aforementioned signage and computer financing programs may be revised or discontinued by the Board at any time. Federal Income Tax Treatment of Patronage Dividends (See Previous Heading "Opinions of Experts") Both the shares of Class C Non-voting Stock and the patronage refund certificates used by the Company to pay patronage dividends that accrue to its eligible and qualifying dealers constitute "qualified written notices of allocation" within the meaning of that term as used in Sections 1381 through 1388 of the U.S. Internal Revenue Code, which specifically provide for the income tax treatment of cooperatives and their patrons and which have been in effect since 1963. The stated dollar amounts of such qualified written notices of allocation must be taken into the gross income of each of the recipients thereof for the taxable years in which such written notices of allocation are received, notwithstanding the fact that the stated dollar amounts may not be received in such taxable years. In order for the Company to receive a deduction from its gross income for federal income tax purposes for the amount of any patronage dividends paid by it to a patron (that is, to one of its eligible and qualifying dealers) in the form of qualified written notices of allocation, it is necessary that the Company pay (or apply against indebtedness owing to the Company by such patron in accordance with Section 7 of Article XXIV of the Company's By-laws) not less than 20% of the total patronage dividends distributable to such patron in cash and that the patron consent to having the written notices of allocation, at their stated dollar amounts, included in his gross income for the taxable year in which they are received by him. It is also required under the Code that any patronage dividend distributions deducted by the Company on its federal income tax return with respect to business done by it with patrons during the year for which such deduction is taken must be made to the Company's patrons within 8 months after the end of such year. Dealers who have become "members" of the Company by owning 1 share of Class A Voting Stock are deemed under the U.S. Internal Revenue Code to have consented to take any written notices of allocation distributed to them into their gross income by their act of obtaining or retaining membership in the Company and by having received from the Company a written notification of the By-law provision providing that membership in the Company constitutes such consent. In accordance with another provision in the Internal Revenue Code, nonmember dealers who have subscribed for shares of the Company's stock will also be deemed to have consented, by virtue of the consent provisions included in their Subscription Agreements, to take any written notices of allocation distributed to them into their gross income. A dealer receiving a patronage refund certificate as part of the dealer's patronage dividends in accordance with the last clause of Paragraph 3 of the patronage dividend distribution plans previously described under the heading "The Company's Business," subheading, "Forms of Patronage Dividend Distributions," may be deemed to have received interest income in the form of an original issue discount to the extent of any excess of the face amount of the certificate over the present value of the stated principal and interest payments to be made by the Company under the terms of the certificate. Such income would be taxable to the dealer ratably over the term of the certificate under Section 7872(b) (2) of the U.S. Internal Revenue Code. The present value for this purpose is to be determined by using a discount rate equal to the applicable Federal rate in effect as of the day of issuance of the certificate, compounded semi-annually. The Company will be required to withhold for federal income tax on the total patronage dividend distribution which is made to a payee who has not furnished his taxpayer identification number to the Company or as to whom the Company has notice of the fact that the number furnished to it is incorrect. A cooperative organization may also be required to withhold on the cash portion of each patronage dividend distribution made to a payee who becomes a member of the cooperative if the payee fails to certify to the cooperative that he is not subject to backup withholding. It is the opinion of counsel for the Company that this provision is not applicable to any patronage dividend distribution to a payee unless 50% or more of the total distribution is made in cash. Since all of the Company's patronage dividends for a given year are distributed at the same time and the Company's currently effective patronage dividend plan does not permit any store which is a member of the Company to receive more than 45% of its patronage dividends for the year in the form of cash, it is said counsel's further opinion that such a certification failure would ordinarily have no effect on the Company or any of its dealers. Patronage dividends distributed by a cooperative organization to its patrons who are located in foreign countries or certain U.S. possessions have been held to constitute fixed or determinable annual or periodic income on which such patrons are required to pay a tax of 30% of the amount received in accordance with the provisions of Sections 871(a)(1)(A) and 881(a) (1) of the Internal Revenue Code, as do patronage dividends distributed to patrons which are incorporated in Puerto Rico or who reside in Puerto Rico but have not become citizens of the United States. With respect to its dealers who are subject to such 30% tax, the Company is also obligated to withhold from their patronage dividends and pay over to the U.S. Internal Revenue Service an amount equal to the tax. The foregoing provisions do not apply to a corporation organized in Guam, American Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands if less than 25% of its stock is owned by foreign persons and at least 65% of its gross income for the last three years has been effectively connected with the conduct of a trade or business in such possession or in the United States. The 20% minimum portion of the patronage dividends to be paid in cash to a patron with respect to whom the Company is neither required to withhold 30% of his total patronage dividend distribution nor permitted to apply such minimum portion against indebtedness owing to it by him may be insufficient, depending upon the income tax bracket of each individual patron, to provide funds for the full payment of the federal income tax for which such patron will be liable as a result of the receipt of the total patronage dividends distributed to him during the year, including cash, patronage refund certificates and/or Class C Non-voting Stock. In the opinion of the Company's management, payment in cash of not less than 20% of the total patronage dividends distributable each year to the Company's eligible and qualifying dealers will not have a material adverse effect on the operations of the Company or its ability to obtain adequate working capital for the normal requirements of its business. Membership Agreement In addition to signing a Subscription Agreement for the purchase of shares of the Company's stock, each retail dealer who applies to become an Ace dealer (excluding firms which are "International Retail Merchants" as discussed below under the subheading "International Retail Merchants") must sign the Company's customary Membership Agreement. A payment of $400 must accompany the signed Membership Agreement to defray the Company's estimated costs of processing the membership application. If the application is accepted, copies of both the Membership Agreement and the Stock Subscription Agreement, signed on behalf of the Company to evidence its acceptance, are forwarded to the dealer. No royalties are payable at any time by a dealer for an outlet which the Company accepts for affiliation into its dealer network. Membership may be terminated upon various notice periods and for various reasons (including voluntary termination by either party) as prescribed in the Membership Agreement, except to the extent that special laws or regulations applicable to specific locations may limit the Company's right to terminate memberships, or may prescribe greater periods of advance notice under particular circumstances. International Retail Merchants and Non-Member Accounts In 1989, the Company's Board of Directors authorized the Company to affiliate International Retail Merchants, who operate retail businesses outside the United States, its territories and possessions. International Retail Merchants do not sign the Company's regular Membership Agreement but may, depending on the circumstances, be granted a license to use certain of the Company's trademarks and service marks. They do not sign stock subscription agreements or become shareholders of the Company, nor do they receive distribution of patronage dividends. As of December 31, 1995, 1994 and 1993, International Retail Merchant volume accounted for approximately 3% of the Company's total sales in each such year. In 1995, the Company's Board of Directors authorized the Company to affiliate non- member retail accounts, which are not entitled to membership in the cooperative, and which therefore will neither own stock in the Company, nor receive partronage dividends. (See Appendix A, Article XXV, Sections 3 and 4 of the By-laws regarding International Retail Merchants and non- member accounts.) PROPERTIES The Company's general offices are located at 2200 Kensington Court, Oak Brook, lllinois 60521. Information with respect to the Company's principal properties follows:
Square Feet Owned Lease of Facility or Expiration Location (Land in Acres) Leased Date General Offices: Oak Brook, Illinois 206,030 Leased September 30, 2009 Oak Brook, Illinois (1) 70,508 Owned Markham, Ontario, Canada (2) 15,372 Leased February 28, 2006 Distribution Warehouses: Lincoln, Nebraska 346,000 Leased December 31, 2006 Arlington, Texas 313,000 Leased July 31, 1997 Perrysburg, Ohio 396,000 Leased November 1, 2004 Tampa, Florida 391,760 Owned Harmans, Maryland 277,000 Owned Yakima, Washington 502,400 Owned Maumelle, Arkansas 585,500 Owned LaCrosse, Wisconsin 363,000 Owned Bloomfield, Connecticut 449,820 Owned Huntersville, North Carolina 354,000 Owned Rocklin, California 470,000 Owned Gainesville, Georgia 478,000 Owned Prescott Valley, Arizona 633,000 Owned Princeton, Illinois 1,080,000 Owned Carol Stream, Illinois (3) 250,000 Leased September 30, 1999 Chicago, Illinois (4) 18,168 Leased May 31, 1997 Brantford, Ontario, Canada (5) 354,000 Leased March 31, 2006 Baltimore, Maryland (6) 158,485 Leased March 31, 1998 Print Shop Facility: Downers Grove, Illinois 41,000 Leased January 31, 1998 Paint Manufacturing Facilities: Matteson, Illinois 356,000 Owned Chicago Heights, Illinois 194,000 Owned Other Property: Aurora, Illinois 72 acres Owned
Square Feet Owned Lease of Facility or Expiration Location (Land in Acres) Leased Date LaCrosse, Wisconsin (7) 3 acres Owned Colorado Springs, Colorado (8) 42 acres Owned Yorkville, Illinois (9) 12,500 Leased July 31, 2005
(1) Includes 35,254 square feet leased to tenant until September 30, 1996. The subject property is adjacent to the Company's general offices. (2) This facility is leased by the Company's wholly owned subsidiary, Ace Hardware Canada, Limited. (3) This facility was leased by the Company in October, 1994, for use as a bulk merchandise redistribution center. (4) This facility was leased by the Company in June, 1994 for use as a freight consolidation center. (5) This facility is leased by the Company's wholly owned subsidiary, Ace Hardware Canada, Limited. (6) This facility was leased by the Company in February, 1995 for use as a redistribution center. (7) This land is adjacent to the Company's LaCrosse, Wisconsin warehouse. (8) This property was purchased by the Company in March, 1995. A distribution warehouse containing approximately 493,000 square feet is currently under construction and expected to be in operation during the second quarter of 1996. (9) This facility is a retail hardware store leased by the Company's wholly owned subsidiary, A.H.C. Store Development Corp. The Company also leases a fleet of transportation equipment for the primary purpose of delivering merchandise from the Company's warehouses to its dealers. THIS PAGE INTENTIONALLY LEFT BLANK INDEX TO FINANCIAL STATEMENTS Page Independent Auditors' Report 33 Balance Sheets as of December 31, 1995 and 1994 34 Statements of Earnings for the three years in the period ended December 31, 1995 36 Statements of Member Dealers' Equity for the three years in the period ended December 31, 1995 37 Statements of Cash Flows for the three years in the period ended December 31, 1995 38 Notes to Financial Statements 39 INDEPENDENT AUDITORS' REPORT The Board of Directors Ace Hardware Corporation: We have audited the accompanying balance sheets of Ace Hardware Corporation as of December 31, 1995 and 1994 and the related statements of earnings, member dealers' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ace Hardware Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Chicago, Illinois January 31, 1996 ACE HARDWARE CORPORATION BALANCE SHEETS December 31, 1995 and 1994 ASSETS
1995 1994 (000's omitted) Current assets: Cash and cash equivalents $ 12,853 $ 4,868 Receivables: Dealers 248,572 228,525 Other 39,916 32,377 288,488 260,902 Less allowance for doubtful receivables (1,410) (1,350) Net receivables 287,078 259,552 Inventories (Note 2) 254,451 270,391 Other current assets 9,324 7,189 Total current assets 563,706 542,000 Property and equipment (Note 9): Land 16,063 14,219 Buildings and improvements 145,359 135,252 Warehouse equipment 51,396 48,947 Office equipment 61,568 54,056 Manufacturing equipment 12,697 12,165 Transportation equipment 14,763 14,557 Leasehold improvements 13,498 10,928 Construction in progress 12,449 7,561 327,793 297,685 Less accumulated depreciation and amortization (136,289) (120,577) Net property and equipment 191,504 177,108 Other assets 3,923 4,502 $759,133 $723,610 See accompanying notes to financial statements.
ACE HARDWARE CORPORATION BALANCE SHEETS December 31, 1995 and 1994 LIABILITIES AND MEMBER DEALERS' EQUITY
1995 1994 (000's omitted) Current Liabilities: Current installments of long-term debt (Note 4) $ 7,378 $ 7,369 Short-term borrowings (Note 3) 13,000 30,000 Accounts payable 337,414 291,185 Patronage dividends payable in cash (Note 5) 23,522 27,302 Patronage refund certificates payable (Note 5) 12,641 1,315 Accrued expenses 35,397 38,659 Total current liabilities 429,352 395,830 Long-term debt (Note 4) 57,795 64,287 Patronage refund certificates payable (Note 5) 54,741 63,666 Member dealers' equity (Notes 5 and 8): Class A Stock of $1,000 par value 3,905 3,924 Class B Stock of $1,000 par value 6,499 6,499 Class C Stock of $100 par value 177,817 164,666 Class C Stock of $100 par value, issuable to dealers for patronage dividends 27,506 21,766 Additional stock subscribed, net 515 555 Retained earnings 4,650 5,624 Contributed capital 3,295 3,295 224,187 206,329 Less: Treasury stock, at cost (6,942) (6,502) Total member dealers' equity 217,245 199,827 Commitments (Notes 6 and 9) $759,133 $723,610 See accompanying notes to financial statements.
ACE HARDWARE CORPORATION STATEMENTS OF EARNINGS
Years Ended December 31, 1995 1994 1993 (000's omitted) Net sales $2,436,012 $2,326,115 $2,017,763 Cost of sales 2,252,125 2,152,835 1,866,768 Gross profit 183,887 173,280 150,995 Operating expenses: Warehouse and distribution 31,476 30,056 31,432 Selling, general and administrative 59,157 52,662 46,706 Retail success and development 18,889 14,798 7,891 Total operating expenses 109,522 97,516 86,029 Operating income 74,365 75,764 64,966 Interest expense (Note 11) (13,137) (13,474) (10,355) Other income, net 3,908 3,716 2,909 Income taxes (Note 7) (1,394) (1,484) (428) Net earnings $ 63,742 $ 64,522 $ 57,092 Retained earnings at beginning of year $ 5,624 $ 5,622 $ 7,553 Net earnings 63,742 64,522 57,092 Patronage dividends (Notes 5 and 8) (64,716) (64,520) (59,023) Retained earnings at end of year $ 4,650 $ 5,624 $ 5,622 See accompanying notes to financial statements.
ACE HARDWARE CORPORATION STATEMENTS OF MEMBER DEALERS' EQUITY Three Years Ended December 31, 1995 (000's omitted)
Class C Stock Issuable to Dealers for Additional Class A Class B Class C Patronage Stock Stock Stock Stock Dividends Subscribed* Balance at December 31, 1992 $4,060 $6,499 $139,014 $20,301 $ 797 Net earnings - - - - - Net payments on subscriptions - - - - 1,049 Stock issued 157 - 21,377 (20,301) (1,233) Stock repurchased - - - - - Stock retired (271) - (7,236) - - Stock issuable as patronage dividends - - - 19,064 - Patronage dividends payable - - - - - Balance at December 31, 1993 $3,946 $6,499 $153,155 $19,064 $ 613 Net earnings - - - - - Net payments on subscriptions - - - - 1,394 Patronage financing deductions - - - (1,086) - Stock issued 218 - 19,212 (17,978) (1,452) Stock repurchased - - - - - Stock retired (240) - (7,701) - - Stock issuable as patronage dividends - - - 21,766 - Patronage dividends payable - - - - - Balance at December 31, 1994 $3,924 $6,499 $164,666 $21,766 $ 555 Net earnings - - - - - Net payments on subscriptions - - - - 1,580 Patronage financing deductions - - - (15) - Stock issued 237 - 23,149 (21,751) (1,620) Stock repurchased - - - - - Stock retired (256) - (9,998) - - Stock issuable as patronage dividends - - - 27,506 - Patronage dividends payable - - - - - Balance at December 31, 1995 $3,905 $6,499 $177,817 $27,506 $ 515
*Additional stock subscribed is comprised of the following amounts at December 31, 1993, 1994 and 1995:
1993 1994 1995 Class A Stock $ 223 $ 291 $ 332 Class B Stock - - - Class C Stock 1,952 2,180 2,332 2,175 2,471 2,664 Less unpaid portion 1,562 1,916 2,149 $ 613 $ 555 $ 515 See accompanying notes to financial statements.
Retained Contributed Treasury Earnings Capital Stock Total Balance at December 31, 1992 $ 7,553 $ 3,295 $(5,838) $175,681 Net earnings 57,092 - - 57,092 Net payments on subscriptions - - - 1,049 Stock issued - - - - Stock repurchased - - (7,835) (7,835) Stock retired - - 7,507 - Stock issuable as patronage dividends - - - 19,064 Patronage dividends payable (59,023) - - (59,023) Balance at December 31, 1993 $ 5,622 $ 3,295 $(6,166) $186,028 Net earnings 64,522 - - 64,522 Net payments on subscriptions - - - 1,394 Patronage financing deductions - - - (1,086) Stock issued - - - - Stock repurchased - - (8,277) (8,277) Stock retired - - 7,941 - Stock issuable as patronage dividends - - - 21,766 Patronage dividends payable (64,520) - - (64,520) Balance at December 31, 1994 $ 5,624 $ 3,295 $(6,502) $199,827 Net earnings 63,742 - - 63,742 Net payments on subscriptions - - - 1,580 Patronage financing deductions - - - (15) Stock issued - - - 15 Stock repurchased - - (10,694) (10,694) Stock retired - - 10,254 - Stock issuable as patronage dividends - - - 27,506 Patronage dividends payable (64,716) - - (64,716) Balance at December 31, 1995 $ 4,650 $ 3,295 $(6,942) $217,245
ACE HARDWARE CORPORATION STATEMENTS OF CASH FLOWS
Year Ended December 31, (000's omitted) Operating Activities: 1995 1994 1993 Net Earnings $63,742 $64,522 $57,092 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 16,837 16,963 16,166 Loss on sale of property and equipment 3 175 460 Increase in accounts receivable, net (27,526) (46,950) (18,878) Decrease (Increase) in inventories 15,940 (6,815) (50,099) Decrease (Increase) in other current assets (2,135) 153 (70) Increase in accounts payable and accrued expenses 42,967 63,437 57,898 Net Cash Provided by Operating Activities 109,828 91,485 62,569 Investing Activities: Purchase of property and equipment (31,263) (28,285) (16,350) Proceeds from sale of property and equipment 27 187 238 Decrease (Increase) in other assets 579 7,711 (2,092) Net Cash Used in Investing Activities (30,657) (20,387) (18,204) Financing Activities: Payments of short-term borrowings (17,000) (8,500) (17,500) Proceeds from notes payable - - 30,000 Principal payments on long-term debt (6,483) (10,337) (1,092) Payment of cash portion of patronage dividend (27,302) (25,766) (27,538) Payments of patronage refund certificates and patronage financing deductions (11,287) (18,886) (19,451) Proceeds from sale of common stock 1,580 1,394 1,049 Repurchase of common stock (10,694) (8,277) (7,835) Net Cash Used in Financing Activities (71,186) (70,372) (42,367) Increase in Cash and Cash Equivalents 7,985 726 1,998 Cash and Cash Equivalents at beginning of year 4,868 4,142 2,144 Cash and Cash Equivalents at end of year $12,853 $ 4,868 $ 4,142 See accompanying notes to financial statements.
ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) The Company and Its Business The Company operates as a wholesaler of hardware and related products primarily in the United States, and manufactures paint products. As a dealer-owned cooperative, the Company distributes substantially all of its patronage sourced earnings in the form of patronage dividends to member dealers based on their volume of merchandise purchases. (b) Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (c) Receivables Receivables from dealers include amounts due from the sale of merchandise and special equipment used in the operation of dealers' businesses. Other receivables are principally amounts due from suppliers for promotional and advertising allowances. (d) Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using the last-in, first-out method on substantially all inventories. (e) Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Expenditures for maintenance, repairs and renewals of relatively minor items are generally charged to earnings. Significant improvements or renewals are capitalized. Depreciation expense is computed on both straight-line and accelerated methods based on estimated useful lives as follows: Useful Life Principal Years Depreciation Method Buildings and improvements 10-40 Straight line Warehouse equipment 5-10 Accelerated Office equipment 3-10 Various Manufacturing equipment 3-20 Straight line Transportation equipment 3-7 Straight line Leasehold improvements are generally amortized on a straight-line basis over the term of the respective leases. (f) Retirement Plans The Company has retirement plans covering substantially all non-union employees. Costs with respect to the noncontributory pension plans are determined actuarially and consist of current costs and amounts to amortize prior service costs and unrecognized gains and losses. The Company contribution under the profit sharing plan is determined annually by the Board of Directors. (g) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (h) Reclassifications Certain financial statement reclassifications have been made to prior year amounts to conform to comparable classifications followed in 1995. ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) (2) Inventories Inventories consist primarily of merchandise inventories. Substantially all of the Company's inventory is valued on the last-in, first-out (LIFO) method; the excess of replacement cost over the LIFO value of inventory was approximately $66,319,000 and $65,052,000 at December 31, 1995 and 1994, 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 1995 and 1994. The maximum amount outstanding at any month-end during the period was $95,000,000 in 1995 and $115,500,000 in 1994. The interest rate effective as of December 31, 1995 and 1994 was 6.13% and 6.5%, respectively. Short term borrowings outstanding as of December 31, 1995 and 1994 were $13,000,000 and $30,000,000 respectively. At December 31, 1995 the Company has available a revolving credit facility with a group of banks providing for $100 million in committed lines and also has available $85 million in uncommitted lines. The aggregate unused line of credit available at December 31, 1995 and 1994 was $172,000,000 and $120,000,000, respectively. At December 31, 1995 the Company had no compensating balance requirements. (4) Long-Term Debt Long-term debt is comprised of the following: December 31,
1995 1994 (000's omitted) Industrial Development Revenue Bond - $125,000 payable quarterly through December 1, 1996 with interest at 65% of the prime rate $ 500 $ 1,000 Notes Payable: $20,000,000 due in quarterly installments of $540,500 commencing July 1, 1994 with interest payable quarterly beginning January 1, 1992 at a fixed rate of 8.74% 16,757 18,919 $20,000,000 due in quarterly installments of $952,400 commencing January 1, 1995 with interest payable quarterly beginning October 1, 1992 at a fixed rate of 6.89% 16,190 20,000 $30,000,000 due in semi-annual installments of $2,000,000 commencing June 22, 2001 with interest payable quarterly beginning December 22, 1993 at a fixed rate of 6.47% 30,000 30,000 Liability under capitalized leases (see Note 9) 816 726 Installment notes with maturities through 1999 with various interest rates 910 1,011 65,173 71,656 Less current installments 7,378 7,369 $57,795 $64,287
ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) Prime interest rates in effect ranged from 8.5% to 9.0% in 1995 and from 6.0% to 8.5% in 1994. Aggregate maturities of long-term debt are $7,378,000, $6,460,000, $6,222,000, $6,052,000 and $3,115,000 in 1996 through 2000, respectively. The fair value of the Company's debt based upon discounting future cash flows does not materially vary from the carrying value of such debt as of December 31, 1995 and 1994. (5) Patronage Dividends and Refund Certificates Payable The Company operates as a cooperative organization and has paid or will pay patronage dividends to member dealers on the portion of earnings derived from business done with such dealers. Patronage dividends are allocated in proportion to the volume of purchases by member dealers during the period. The amount of patronage dividends to be remitted in cash depends upon the level of dividends earned by each member outlet, varying from 20% on the total dividends under $5,000 and increasing by 5% on total dividends for each subsequent $2,500 earned to a maximum of 40% on total dividends exceeding $12,500. All amounts exceeding the cash portions will be distributed in the form of Class C $100 par value stock, to a maximum based upon the current year purchase volume or $20,000 whichever is greater, and thereafter in a combination of additional cash and patronage refund certificates having maturity dates and bearing interest as determined by the Board of Directors. A portion of the dealer's annual patronage dividends distributed under the above plan in a form other than cash can be applied toward payment of principal and interest on any balances outstanding for approved exterior signage and computer equipment financing. The patronage dividend composition for 1995, 1994 and 1993 follows:
Subordinated Class Patronage Total Cash Refund C Financing Patronage Portion Certificates Stock Deductions Dividend (000's omitted) 1995 $23,522 $5,032 $27,506 $8,656 $64,716 1994 27,302 9,920 21,766 5,532 64,520 1993 25,766 12,728 19,064 1,465 59,023
Patronage dividends are allocated on a calendar year basis with issuance in the following year. The patronage refund certificates outstanding at December 31, 1995 are payable as follows:
Interest January 1, Amount Rate (000's omitted) 1996 $12,641 7.0% 1997 14,303 6.25 1998 13,981 6.0 1999 11,902 6.0 2000 9,523 7.0 2001 5,032 6.0
ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) (6) Retirement Plans The Company has defined benefit pension plans covering substantially all non-union employees. Benefits are based on years of service, highest average compensation (as defined) and the related profit sharing and primary social security benefit. Contributions to the plan are based on the Entry Age Normal, Frozen Initial Liability actuarial funding method and are limited to amounts that are currently deductible for tax reporting purposes. As of December 31, 1995 plan assets were held primarily in equities, mutual funds and group annuity contracts. Pension income for the years 1995, 1994 and 1993 included the following components:
1995 1994 1993 (000's omitted) Service cost-benefits earned during the period $ 355 $ 323 $ 292 Interest cost on projected benefit obligation 845 805 752 Actual return on plan assets (2,288) (121) (1,104) Net amortization and deferral 1,257 (1,073) (169) Net periodic pension expense (income) $ 169 $ (66) $ (229)
In December 1995 the plan settled a portion of the liability to retirees and vested terminated participants through lump sum payments and the purchase of single premium annuity contracts. In addition to the net periodic pension expense in 1995, the Company recognized a net loss of $1,380,100 related to this settlement. The following table sets forth the funded status of the plans and amounts recognized in the Company's Balance Sheet at December 31, 1995 and 1994 (December 31, 1995 and September 30, 1994 measurement dates):
1995 1994 (000's omitted) Accumulated benefit obligation, including vested benefits of $7,383,000 and $10,919,000 $ 7,613 $11,384 Plan assets at fair value $ 9,932 $13,654 Projected benefit obligation for service rendered to date 8,832 12,364 Plan assets in excess of projected benefit obligation $1,100 $ 1,290 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions 1,775 3,361 Remaining unrecognized net asset being amortized over participants average remaining service period (1,672) (1,983) Prepaid pension cost included in other assets $ 1,203 $ 2,668
ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.0% in 1995 and 1994. The related expected long-term rate of return was 8.0% in 1995 and 1994. The rate of increase in future compensation was projected using actuarial salary tables plus 1.0% in 1995 and 1994. The Company also participates in several multi-employer plans covering union employees. Amounts charged to expense and contributed to the plans totaled approximately $275,000, $282,000 and $275,000, in 1995, 1994 and 1993, respectively. The Company's profit sharing plan contribution for the years ended 1995, 1994 and 1993 was approximately $9,902,000, $9,381,000 and $8,690,000, 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 1995, 1994 and 1993 provisions for federal income taxes were $939,000, $924,000 and $141,000, respectively, and for state income taxes were $455,000, $560,000 and $287,000, respectively. The Company made tax payments of $1,685,000, $1,428,000 and $357,000 during 1995, 1994 and 1993, respectively. (8) Member Dealers' Equity The Company's classes of stock are described below:
Number of Shares at December 31, 1995 1994 Class A Stock, voting, redeemable at par value- Authorized 10,000 10,000 Issued and outstanding 3,905 3,924 Class B Stock, nonvoting, redeemable at not less than twice par value- Authorized 6,500 6,500 Issued 6,499 6,499 Outstanding 3,028 3,248 Treasury stock 3,471 3,251 Class C Stock, nonvoting, redeemable at not less than par value- Authorized 2,000,000 2,000,000 Issued and outstanding 1,778,173 1,646,656 Issuable as patronage dividends 275,059 217,658 Additional Stock Subscribed: Class A Stock 332 291 Class B Stock - - Class C Stock 23,320 21,800
At December 31, 1995 and 1994 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. ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) Member dealers may subscribe for the Company's stock in various prescribed combinations. Only one share of Class A Stock may be owned by a dealer with respect to the first member retail outlet controlled by such dealer. Only four shares of Class B Stock may be owned by a dealer with respect to each retail outlet controlled by such dealer, but only if such outlet was a member of the Company on or before February 20, 1974. An appropriate number of shares of Class C Stock must be included in any subscription by a dealer in an amount to provide that such dealer has a par value of all shares subscribed for equal to $5,000 for each retail outlet. Unregistered shares of Class C Stock are also issued to dealers in connection with patronage dividends. No dividends can be declared on any shares of any class of the Company's Stock. Upon termination of the Company's membership agreement with any retail outlet, all shares of stock of the Company, held by the dealer owning or controlling such outlet, must be sold back to the Company, unless a transfer of such shares is made to another party accepted by the Company as a member dealer with respect to the same outlet. A Class A share is issued to a member dealer only when the share subscribed has been fully paid. Class B and Class C shares are only issued when all such shares subscribed with respect to a retail outlet have been fully paid. Class C stock issuable as patronage dividends are issued in the following year and are not issued in excess of amounts authorized. Additional Stock Subscribed in the accompanying statements represents the par value of shares subscribed, reduced by the unpaid portion. All shares of stock are currently issued and repurchased at par value, except for Class B Stock which is repurchased at twice its par value, or $2,000 per share. Upon retirement of Class B shares held in treasury, the excess of redemption price over par is allocated equally between contributed capital and retained earnings. Transactions during 1993, 1994 and 1995 affecting treasury shares follow:
Shares Held in Treasury Class A Class B Class C Balance at December 31, 1992 - 2,919 - Stock issued - - - Stock repurchased 271 164 72,359 Stock retired (271) - (72,359) Balance at December 31, 1993 - 3,083 - Stock issued - - - Stock repurchased 240 168 77,013 Stock retired (240) - (77,013) Balance at December 31, 1994 - 3,251 - Stock issued - - - Stock repurchased 256 220 99,975 Stock retired (256) - (99,975) Balance at December 31, 1995 - 3,471 -
ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS-(Continued) (9) Commitments Leased property under capital leases is included as "Property and Equipment" in the balance sheets as follows:
December 31, 1995 1994 (000's omitted) Buildings and improvements $3,422 $3,422 Data processing equipment 1,441 723 Less: Accumulated depreciation and amortization (4,106) (3,609) $ 757 $ 536
The Company rents buildings and warehouse, office and certain other equipment under capital and operating leases. At December 31, 1995 annual minimum rental commitments under leases that have initial or remaining noncancelable terms in excess of one year are as follows:
Year Ending December 31, Capital Operating (000's omitted) 1996 $515 $13,383 1997 257 12,269 1998 77 10,116 1999 - 8,555 2000 - 7,744 Thereafter - 33,304 Total minimum lease payments $849 $85,371 Less amount representing interest 33 Present value of total minimum lease payments $816
All leases expire prior to 2010. Under certain leases, the Company pays real estate taxes, insurance and maintenance expenses in addition to rental expense. Management expects that in the normal course of business, leases that expire will be renewed or replaced by other leases. Rent expense was approximately $25,024,000, $21,814,000 and $21,444,000 in 1995, 1994 and 1993, respectively. Rent expense includes $4,724,000, $4,382,000 and $4,282,000 in contingent rentals paid in 1995, 1994 and 1993, respectively, primarily for transportation equipment mileage. (10) Media Expense The Company expenses media costs the first time the advertising takes place. Gross media expense, prior to income offsets from dealers and suppliers, amounting to $59,167,000, $52,185,000 and $48,293,000 were charged to operations in 1995, 1994 and 1993, respectively. (11) Interest Expense Capitalized interest totaled $497,000, $213,000 and $29,000 in 1995, 1994 and 1993, respectively. Interest paid was $13,574,000, $13,518,000 and $10,670,000 in 1995, 1994 and 1993, respectively. SELECTED FINANCIAL DATA Income Statement Data:
For The Years Ended December 31, 1995 1994 1993 1992 1991 (000's omitted) Net sales $2,436,012 $2,326,115 $2,017,763 $1,870,625 $1,704,203 Cost of sales 2,252,125 2,152,835 1,866,768 1,722,493 1,569,871 Gross profit 183,887 173,280 150,995 148,132 134,332 Total expenses 120,145 108,758 93,903 87,365 75,175 Net earnings $ 63,742 $ 64,522 $ 57,092 $ 60,767 $ 59,157 Patronage dividends (Notes A,B,5 and 8) $ 64,716 $ 64,520 $ 59,023 $ 63,207 $ 57,729
Balance Sheet Data:
Year Ended December 31, 1995 1994 1993 1992 1991 (000's omitted) Total assets $ 759,133 $ 723,610 $ 666,022 $ 593,399 $ 539,753 Working capital 134,354 146,170 135,224 105,641 107,408 Long-term debt 57,795 64,287 71,286 51,696 38,737 Patronage refund certificates payable, long-term debt 54,741 63,666 56,270 55,389 58,559 Member dealers' equity 217,245 199,827 186,028 175,681 164,411
(A) The Company operates as a cooperative organization, and pays patronage dividends to member dealers on earnings derived from business done with such dealers. It is the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends. (B) The form in which patronage dividends are to be distributed can only be determined at the end of each year when the amount distributable to each of the member dealers is known. For the five years ended December 31, 1995, patronage dividends were payable as follows:
1995 1994 1993 1992 1991 (000's omitted) In cash $ 23,522 $ 27,302 $ 25,766 $ 27,538 $ 26,864 In patronage refund certificates payable 5,032 9,920 12,728 14,598 15,176 In Class C Stock 27,506 21,766 19,064 20,301 14,841 In patronage financing deductions 8,656 5,532 1,465 770 848 Total patronage dividends $ 64,716 $ 64,520 $ 59,023 $ 63,207 $ 57,729
(C) Numbered notes refer to Notes to Financial Statements, beginning on page 39. (5) & (8) Refers to Notes 5 and 8 of the financial statements included in pg. 41, 43 and 44 of this Form S-2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Company's ability to generate cash adequate to meet its needs ("liquidity") results from internally generated funds, short-term lines of credit and long-term financings (see Notes 3 and 4 to the financial statements). The Company's long and short-term liquidity is dependent on retail growth as described under the "Company's Business." Nothing in the Company's plans as discussed under the "Company's Business" has led or is expected to lead to any material change in pricing, margins or product focus or is expected to materially impact the results or operations or liquidity of the Company. The Company's long-term strategic plan is only for a renewed focus on supporting retail growth. Retail growth provides equity growth for the Company. Recognizing the need for equity growth in order to properly capitalize the Company, the patronage stock formula for years beginning in 1995 was changed. See "Forms of Patronage Dividend Distributions." Additionally, to help ensure adequate accessibility to cash, the Company established a revolving credit facility in 1994. The Company believes that these changes and the retail growth of the membership will provide adequate liquidity for the long-term. The Company has an established unsecured revolving credit facility with a group of banks. During 1995, the Company increased its unsecured lines of credit to $185.0 million of which $172.0 million was available at December 31, 1995. Any borrowings under these lines of credit would bear interest at the prime rate or less. Long-term financings are arranged as determined necessary to meet the Company's capital or other requirements, with principal amount, timing and form dependent on prevailing debt markets and general economic conditions. The Company's credit facilities provide that certain ratios be maintained with the only material convenant related to fixed charge coverage. The Company is in compliance with all debt covenants. Capital expenditures for new and improved facilities were $31.3, $28.3 and $16.3 million in 1995, 1994 and 1993, respectively. During 1995, the Company financed the $31.3 million of capital expenditures out of current and accumulated internally generated funds and short-term borrowings. 1996 capital expenditures are anticipated to be approximately $49.0 million primarily for a new distribution facility and improvements to existing facilities. As a cooperative, the Company distributes substantially all of its patronage source earnings to its members in the form of patronage dividends, which are deductible for income tax purposes (see headings "Patronage Dividend Determinations and Allocations" and "Federal Tax Treatment of Patronage Dividends"). Prior to 1994, patronage dividends were distributed on the basis of taxable income. Accordingly, patronage dividends can exceed net income or be less than net income due to the timing of certain items for income tax purposes. The Board of Directors does have the authority to determine reasonable reserves for purposes of ensuring the welfare of the Company, but it has been the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends. Non-patronage sourced earnings (including international earnings) have been minimal in all years presented except for capital gains related to the sale and leaseback of a distribution center in 1991 which resulted in nonpatronage sourced income not available for distribution as patronage dividends. No adverse trends in revenue or net income have occurred since the end of the Company's last reported financial period. The Company expects that existing and new internally generated funds, along with established lines of credit and long-term financings, will continue to be sufficient to finance the Company's working capital requirements and patronage dividend and capital expenditure programs. Operations-1995 Compared to 1994 Net sales increased 4.7% in 1995 due to increases in existing dealer volume, new store development and increased store conversions. 1995 net sales were affected by slow retail and economic growth, moderate seasonal sales primarily related to late spring weather, and lumber price declines. International sales also decreased in 1995 due to the peso devaluation resulting in lower export sales to Mexico. Sales of basic hardware and paint merchandise (including warehouse, bulletin and direct shipments) increased 4.3%. Lumber and building material sales experienced slightly higher percentage increases in 1995 due to accelerated sales efforts, but were affected by industrywide lumber price declines. Net dealer outlets increased in 1995 due to targeted sales efforts on new store development and conversions to the Ace program and increased emphasis on dealer retail success. Gross profit increased $10.6 million or 6.1% and increased as a percent of sales to 7.55% from 7.45% in 1994 due primarily to shifts in the Company's sales mix towards the warehouse categories and higher merchandise discounts and allowances. Growth in competitively priced and promotional items within the overall sales mix moderated resulting in a slight gross profit improvement as a percent of sales. However, emphasis on upfront rebates through reduced handling charges and low upfront pricing programs and discounts continued with total upfront rebates increasing 9.5% in 1995. Warehouse and distribution expenses increased $1.4 million or 4.7% due to increased building and distribution costs to support the sales growth. Warehouse productivity improvements and increased freight consolidation revenue offset these increases resulting in total warehouse and distribution expenses remaining comparable to 1994 levels as a percent of sales. Selling, general and administrative expenses increased by $6.5 million or 12.3% and as a percent of sales due to increased data processing and personnel costs. Retail success and development expenses increased by $4.1 million or 27.6% due to increased personnel costs for field retail support and new business development. Decreased advertising income resulting from industrywide paper price increases also contributed to the 1995 expense increase. Increases in this category are directly related to retail support of the Ace dealer as the Company continues to make retail investments in our dealer base. Paint Division sales increased 6.2% to $90.2 million due to strong dealer support. As a separate division of the Company, the Paint Division produced net manufacturing profits of $5.8 million in 1995 vs. $6.7 million in 1994. The decreased net manufacturing profit is a result of increased raw material prices and costs associated with opening a second facility. Paint is the only product manufactured by the Company. As discussed on page 22, patronage dividends are calculated separately for paint sales and decreased to 6.87% in 1995 from 8.22% in 1994. Interest expense decreased $337,000 or 2.5% due to lower borrowing levels resulting from improved inventory turnover. The use of both short- term borrowings and long-term financing is expected to continue to fund planned capital expenditures in 1996. Other income increased $192,000 or 5.2% due primarily to the growth in dealer financing programs. Operations-1994 Compared to 1993 Net sales increased 15.3% in 1994 primarily due to increases in volume from existing dealers and increased International sales. Sales of basic hardware and paint merchandise (including warehouse, bulletin, and direct shipments) increased 13.5%. Increased advertising activity fueled strong 1994 promotional increases, particularly in the warehouse sales categories. Lumber and building material sales experienced higher percentage increases in 1994 as sales efforts were accelerated. Net dealer outlets increased in 1994 partially reversing previous year declines. Targeted sales efforts on new store development and conversions to the Ace program and increased emphasis on dealer retail success resulted in positive 1994 dealer growth. Gross profit increased $22.3 million or 14.8% vs 1993 due primarily to the strong sales results in the basic sales categories and strong manufacturing profits. As a percent of sales, however, gross profit declined due to continued growth of competitively priced and promotional items within the overall sales mix. Upfront rebates through reduced handling charges and low upfront pricing programs and discounts have accelerated and reduced gross profit as a percent of sales. The impact of LIFO inventory accounting on gross profit and results of operations was immaterial in both 1994 and 1993. Warehouse and distribution expenses decreased by $1.4 million or 4.4% and as a percent of sales due to increased traffic revenues and reduced building and operating costs due to the replacement of a facility in 1993. Selling, general and administrative expenses increased by $6.0 million or 12.8% and as a percent of sales due to increased building, data processing and purchasing costs. Retail success and development expenses increased by $6.9 million due to reduced net advertising income, increased personnel costs for field retail support and increased marketing costs. Increases within these categories are directly related to retail support of Ace dealers. Paint Division sales increased 24% to $84.9 million due to strong dealer support and growing recognition of Ace Paint as a quality private label brand. Paint is the only product manufactured by the Company. Manufacturing margins are characteristically higher than distribution margins due to the inherent risks and capital invested in the manufacturing process. As a separate division of the Company, the Paint Division produced net manufacturing profits of $6.7 million in 1994 vs. $5.1 million in 1993. Price increases did not occur in 1994 or contribute to the sales or income increase. Rather, a drop in raw material prices and the increase in production volume which improved absorption of fixed overhead costs were the major factors leading to increased manufacturing profits. Interest expense increased $3.1 million in 1994 due to increased borrowing levels to fund the sales growth and increased interest rates. The use of both short-term borrowings and long-term financing is expected to continue to fund planned capital expenditures (see liquidity and capital resources and Notes 3 and 4 to the financial statements). Other income increased $807,000 or 27.7% in 1994 due to increased interest income related to dealer financing programs and 1993 losses on asset disposals at a replaced facility which did not re-occur in 1994. Inflation and Changes in Prices The Company's business is not generally governed by contracts that establish prices substantially in advance of the receipt of goods or services. As vendors increase their prices for merchandise supplied to the Company, the Company increases the price to its dealers in an equal amount plus the normal handling charge on such amounts. In the past, these increases have provided adequate gross profit to offset the impact of inflation on operating expenses. MANAGEMENT The directors and the executive officers of the Company are: Name Age Position(s) Held Jennifer C. Anderson 45 Director Michael C. Bodzewski 46 Vice President-Merchandising Lawrence R. Bowman 49 Director David F. Hodnik 48 President and Chief Executive Officer Paul M. Ingevaldson 50 Vice President-Corporate Strategy and International Business Mark Jeronimus 47 Director Howard J. Jung 48 Director Rita D. Kahle 39 Vice President-Finance John E. Kingrey 52 Director Richard E. Laskowski 54 Chairman of the Board and Director David W. League 56 Vice President-General Counsel William A. Loftus 57 Senior Vice President-Retail Operations and Marketing David F. Myer 50 Vice President-Retail Support and New Business Fred J. Neer 56 Vice President-Human Resources Ray W. Osborne 59 Director Roger E. Peterson 58 Director Donald L. Schuman 57 Vice President-Information Systems Jon R. Weiss 60 Director Don S. Williams 54 Director James R. Williams 48 Director The primary type of business in which each director other than Mr. Peterson has been engaged during the past 5 years is that of the operation of one or more retail hardware stores. Prior to his election as director in June, 1995, Mr. Peterson was President and Chief Executive Officer of the Company (December, 1989-December, 1994) and Chief Executive Officer of the Company (January, 1995-May, 1995). The By-laws of the Company provide that its Board of Directors shall be comprised of such number of persons, not less than 9 and not greater than 12, as shall be fixed from time to time by the Board of Directors. A minimum of 9 of the directors shall be dealer directors. A maximum of two of the directors may be non-dealer directors, but non-dealer directors may not exceed 25% of the total number of directors in office at any one time. A person shall be eligible for election or appointment as a non- dealer director without regard to whether or not such person is the owner of a retail business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a retail business organization. The By-laws also provide for three classes of directors who are to be elected for staggered 3-year terms. The By-laws provide that no person is eligible to serve as a dealer director unless such person is either the owner of a retail business organization holding stock in the Company or an executive officer, general partner or general manager of such a retail business organization. Regional dealer directors are elected from geographic regions of the United States established by the Board in accordance with Article IV, Section 1 of the Company's By-laws. (See Appendix A). If the Board determines that all regions have representation by regional dealer directors and the maximum number of directors would not thereby be exceeded, then dealer directors at large may also be elected. The current geographic composition of each of the regions established by the Board of Directors for the election of directors pursuant to the applicable By-law provisions is as follows: Region 1 - Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York, Pennsylvania, New Jersey; Region 2 - Delaware, Maryland, Virginia, West Virginia, Kentucky, Tennessee, North Carolina, South Carolina, District of Columbia; Region 3 - Alabama, Mississippi, Georgia, Florida; Region 4 - Ohio, Indiana, Illinois; Region 5 - Iowa, Missouri, Nebraska, Kansas, Colorado; Region 6 - Arkansas, Louisiana, Oklahoma, Texas; Region 7 - Alaska, Washington, Oregon, Idaho, Montana, Wyoming, Utah; Region 8 - Arizona, New Mexico, Nevada, California, Hawaii; Region 9 - Michigan, Minnesota, North Dakota, South Dakota, Wisconsin. In accordance with the applicable procedure established by the By- laws, the following directors have been selected as nominees for reelection at the annual stockholders meeting to be held on June 3, 1996 as directors of the classes, from the regions, and for terms as indicated below: Nominee Class Region Term John E. Kingrey Third 6 3 years Jon R. Weiss Third 4 3 years Mr. Howard Jung is not eligible for reelection as a director commencing in 1996. The person named below has been selected as the nominee for election to the Board for the first time at the 1996 annual meeting as a dealer director of the class, and for the term indicated: Nominee Age Class Region Term James T. Glenn 36 Third 2 3 years Reference should be made to Article IV of the copy of the By-laws in Appendix A for information concerning the qualifications required for membership on the Board of Directors, the terms of directors, the limitations on the total period of time for which a director may hold office, the procedure established for the designation of Nominating Committees to select certain persons as nominees for election to the Board of Directors, and the procedure for filling vacancies on the Board for the remaining portion of unexpired terms. INDEMNIFICATION OBLIGATIONS OF COMPANY AND S.E.C. POSITION ON SECURITIES ACT INDEMNIFICATION Under Article EIGHTH (b) of the restated Certificate of Incorporation of the Company, and Article XV, Section 1 of the By-laws of the Company, persons serving as directors, officers, employees or agents of or at the request of the Company are required to be indemnified by the Company against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes, or penalties under the U.S. Employee Retirement Income Security Act, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by them in connection with any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted or threatened to be instituted against them by reason of their service in any of the aforementioned capacities on behalf of the Company or at its request. The same section of the restated Certificate of Incorporation also authorizes the advancement of litigation expenses to any such person without specific approval of the Board of Directors in each specific case under certain circumstances. Also, Article EIGHTH (a) of the restated Certificate of Incorporation provides that a director of the Company shall not be personally liable to the Company or to its stockholders for monetary damages arising solely out of such director's breach of fiduciary duty as a director. This provision does not affect a director's liability for monetary damages based upon such grounds as a breach of the duty of loyalty, a failure to act in good faith, intentional misconduct, a knowing violation of law, or the receipt of an improper personal benefit. The indemnification provisions described above would extend to and include proceedings under the federal Securities Act of 1933. However, insofar as indemnification for liabilities arising under said Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in said Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being offered by this Prospectus, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in said Act and will be governed by the final adjudication of such issue. ACE HARDWARE CORPORATION 1,852 Shares of Class A (Voting) Stock $1,000 par value 77,750 Shares of Class C (Non-voting) Stock $100 par value PROSPECTUS Dated: , 1996 No dealer, salesman, or any other person has been authorized by the Company to give any information or make any representations other than those contained in this Prospectus in connection with the offering described herein. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, to any person in any state in which it is unlawful to make such solicitation. The delivery of this Prospectus at any time does not imply that there has been no change in the affairs of the Company subsequent to its date of issue. In Florida the securities covered by this Prospectus are being offered pursuant to a limited offering exemption which extends to Florida purchasers the privilege of electing to void their purchases within 3 days after making any payment on account of the purchase price. TABLE OF CONTENTS Item Page Available Information 2 Reports to Security Holders 2 Factors to be Considered 2 Summary 3 Use of Proceeds 6 Distribution Plan and Offering Terms 7 Description of Capital Stock 9 Opinions of Experts 14 The Company's Business 14 Properties 29 Index to Financial Statements 32 Independent Auditors' Report 33 Financial Statements 34 Selected Financial Data 46 Management's Discussion and Analysis of Financial Condition and Results of Operations 47 Management 50 Indemnification Obligations of Company and S.E.C. Position on Securities Act Indemnification 51 Appendix A-By-laws of Ace Hardware Corporation A-1 APPENDIX A BY-LAWS OF ACE HARDWARE CORPORATION (As Amended through September 19, 1995) ARTICLE I OFFICES SECTION 1. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington in said State, and the registered agent in charge thereof shall be Corporation Service Company, 4305 Lancaster Pike. In the event that the business address of said registered agent in said State shall at any time be changed, the address of the corporation's registered office shall be deemed to have changed correspondingly. SECTION 2. The corporation may also have an office or offices in the Village of Oak Brook, Illinois, and at such other places as the Board of Directors may from time to time designate. ARTICLE II CORPORATE SEAL SECTION 1. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". ARTICLE III MEETINGS OF STOCKHOLDERS SECTION 1. The annual meeting of stockholders for the election of directors shall be held on such date between April 10 and June 10 of each year as shall be designated in a written communication mailed not less than 160 days prior to the designated date to each holder of record of a share of Class A stock of the corporation as of a date no earlier than 40 days preceding the date of such mailing. The Board of Directors shall adopt a resolution establishing each annual meeting date as designated in such communication, the purpose of which is to inform the Class A stockholders of the annual meeting date in advance of the commencement of the time period specified in Article XXIII, Section 3 of the By-laws for the submission to the President or Secretary of the corporation of proposed By-law amendments, director nominations, or other matters by a stockholder or stockholders. At each annual meeting the stockholders shall elect by plurality vote (and by written ballot unless the same shall be waived or dispensed with by a majority vote of the stockholders represented at the meeting) members of the class of directors whose terms expire at that time, and all directors so elected shall hold office until the date of the next annual meeting of the stockholders for the election of directors of such class or until their respective successors shall have been elected and qualified. SECTION 2. Special meetings of the stockholders may be called at any time by the President and shall be called by the President or Secretary on the request in writing or by vote of a majority of the whole Board of Directors or at the request in writing of stockholders of record owning ten percent (10%) in amount of the capital stock outstanding and entitled to vote. Any special meeting may be called for any specified purpose or purposes permitted by the General Corporation Law of Delaware and the Certificate of Incorporation of the corporation. SECTION 3. All meetings of the stockholders for the election of directors shall be held at the office of the corporation in Oak Brook, Illinois, or at such other place within the United States of America as may from time to time be designated by the Board of Directors and stated in the notice of the meeting to be given under Article III, Section 6 of the By-laws. All other meetings of the stockholders shall be held at such place or places in the United States of America as may from time to time be designated by the Board of Directors and stated in the notice of meeting. Each meeting of the stockholders shall be held at such time of day as shall be approved by the Board of Directors. SECTION 4. A complete list of the stockholders entitled to vote at any meeting thereof, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary or by such person as shall be designated by him to prepare such list. The list shall be kept on file at the registered office of the corporation in the State of Illinois and shall be subject to inspection by any stockholder at any time during usual business hours for a period of ten (10) days prior to the meeting, and the same shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. SECTION 5. Each stockholder entitled to vote shall, at every meeting of the stockholders, be entitled to one vote in person or by proxy, signed by him, for each share of voting stock held by him. Such right to vote shall be subject to the right of the Board of Directors to close the transfer books or to fix a record date for voting stockholders not more than sixty (60) nor less than ten (10) days before the date of the meeting as hereinafter provided, and if the directors shall not have exercised such right, no share of stock shall be voted on at any election for directors which shall have been issued or transferred on the books of the corporation within twenty (20) days next preceding such election. SECTION 6. Written notice of the time and place of the annual meeting and of any special meeting of stockholders shall be mailed or personally delivered to each stockholder entitled to vote there at not less than thirty (30) nor more than sixty (60) days prior to the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his address as it appears on the records of the corporation, with postage prepaid thereon. Notice of any special meeting shall state in general terms the purposes for which the meeting is to be held. SECTION 7. The holders of a majority of the stock outstanding and entitled to vote at any meeting of the stockholders, represented in person or by proxy, shall constitute a quorum for the transaction of business at such meeting. In the absence of a quorum, the stockholders attending or represented at the time and place for such meeting may adjourn the meeting from time to time, without notice other than announcement of the time and place of the adjourned meeting at the meeting at which the adjournment is taken, until a quorum shall be present. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally scheduled. ARTICLE IV DIRECTORS SECTION 1. The property and business of the corporation shall be managed and controlled by a Board of Directors, which shall be comprised of no fewer than 9 and no greater than 12 directors, as shall be fixed from time to time by the Board of Directors. A minimum of 9 of the directors shall be dealer directors. No person shall be eligible for election or appointment as a dealer director (whether as a regional dealer director or as a dealer director at large), or to continue to hold office as a dealer director, unless such person is either the owner of a retail business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a retail business organization. Dealer directors representing the regions established under Article IV, Section 4 hereof, shall be regional dealer directors. Subject to Article IV, Section 4(b) hereof, any additional dealer director(s) may be dealer director(s) at large, rather than regional dealer director(s). A maximum of 2 of the directors of Ace Hardware Corporation may be non-dealer directors. A person shall be eligible for election or appointment as a non-dealer director without regard to whether or not such person is the owner of a retail business organization which is a stockholder of Ace Hardware Corporation, or an executive officer, general partner or general manager of such a retail business organization. SECTION 2. The directors shall be divided into three classes, as nearly equal in number as possible, as determined by the Board of Directors. The first of said classes shall include 4 dealer directors elected for 3-year terms at the annual meeting of stockholders held in 1994. The second of said classes shall include 3 dealer directors, elected for 3-year terms at the annual meeting of stockholders held in 1993. The third of said classes shall include 3 dealer directors, elected for 3-year terms at the annual meeting of stockholders held in 1992, plus 1 non-dealer director position for a 3-year term to be filled at the 1995 annual meeting of stockholders. At each subsequent annual meeting of the stockholders, as the terms of each class of directors expire, directors of the class whose terms expire shall be elected for terms of 3 years. The directors shall be elected by the stockholders, except that if there be any vacancies in the Board by reason of death, resignation or otherwise, or if there be any newly created directorships resulting from any increase in the authorized number of directors which is to take effect prior to the next annual meeting of stockholders, a majority of the directors then in office (though less than a quorum) shall have authority to fill any such vacancy or any newly created directorship for the unexpired term. In no event shall any term for which any director is elected exceed three years. SECTION 3. In the event that, for any reason other than a revision made by the Board of Directors as to the States to be included within particular regions or a change made by the Board in the number of regions, a dealer director ceases to satisfy the eligibility requirements which are applicable to his/her position as a director, his/her membership on the Board of Directors shall thereupon immediately terminate. No director elected or appointed shall be eligible for subsequent election or appointment to any position on the Board if such election or appointment would result in his/her being elected or appointed to serve a total of more than 9 years as such a director, except (1) that a dealer director that has been elected and holds the office of Chairman of the Board shall be eligible for election for one additional 3-year term, and (2) the President of the Corporation, if elected as a director, shall be eligible for election or reelection or appointment as a director at any time without regard to the period of time during which he has previously served as a director. At all annual meetings of the stockholders, all holders of Class A stock of Ace Hardware Corporation as of the record date established for voting at the meeting shall be eligible to vote in the election for each position on the Board of Directors to be filled at such meeting. SECTION 4. The following procedure shall be utilized in determining dealer director regions: (a) The Board of Directors shall divide the United States into such number of geographic regions as it shall deem appropriate as regions from which regional dealer directors shall be chosen. (b) No later than the fifteenth day of October preceding the date of each annual meeting of stockholders, the Board shall determine the regions from which each regional dealer director to be elected at such meeting shall be chosen. No dealer director shall be eligible to serve as a regional dealer director from a particular region unless the headquarters store or office of the stockholder of Ace Hardware Corporation of which he is an owner, executive officer, general partner, or general manager is located in such region. If the Board determines that all regions have representation by regional dealer director(s) and the maximum number of directors would not thereby be exceeded, then dealer director(s) at large may be elected. (c) Each region shall consist of such of the States of the United States as shall be determined by the Board of Directors, which shall have authority from time to time to make revisions as to the States included within particular regions as well as to change the number of regions, provided that no such revision or change shall deprive any director holding office at the time the revision or change is made from continuing to serve for the balance of the term for which he was elected or otherwise chosen. SECTION 5. Without affecting the right of any Class A stockholder to nominate as a candidate for election to membership on the Board of Directors any person who would be eligible to serve as a director in accordance with the procedure specified in Article XXIII, the Board of Directors shall cause nominees to be selected for election as directors at each annual meeting of stockholders for whom proxies will be solicited on behalf of the Board. At the time that the Board determines the regions from which regional dealer directors are to be elected at the next annual meeting of the stockholders, the Board shall also determine whether each incumbent director who is eligible to be reelected for another term at such annual meeting shall be selected as a Board-endorsed nominee for reelection from any such region at said meeting. Each such determination shall be made by the Board without participation in its proceedings by the director who is eligible to be reelected at such next annual meeting. If the Board determines that proxies shall be solicited on its behalf for the election of a director at the next annual meeting of stockholders of a non dealer director or a dealer director at large, the Board shall make a timely determination to this effect. The following procedure shall be applied by the Board in selecting all other Board-endorsed regional dealer director nominees for whom proxies will be solicited on the Board's behalf at the next annual meeting. (a) A standing Nominating Committee established by the Board shall submit to the Board as soon as practicable prior to the last regularly scheduled meeting of the directors in each calendar year a list of such number of persons as the Board shall determine who are recommended by such Committee to be considered as members of a candidate selection committee for each director region from which the Board has determined that a new regional dealer director should be elected at the next annual meeting of the stockholders. (b) At or prior to its last regularly scheduled meeting in each calendar year, the Board shall create such a candidate selection committee for each such director region and shall select as members of each such candidate selection committee five of the persons recommended by the Nominating Committee plus two incumbent members of the Board. The Board may also select such alternate members, if any, of any such candidate selection committee as it deems appropriate. (c) Each candidate selection committee shall make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a regional dealer director. SECTION 6. Notwithstanding any of the foregoing provisions, in any instance where a board-endorsed nominee for election as a director becomes ineligible under the provisions of the By-Laws for election as a dealer director or shall decline to run or seek reelection or shall be unable to run or seek reelection by reason of death or disability, or shall, in the case of an incumbent director have resigned or been removed from the Board of Directors subsequent to having been named a board-endorsed nominee, or in any instance where the Board of Directors, having endorsed a nominee for election as a director shall withdraw or revoke such endorsement, then in the case of a non-dealer director nominee or a dealer director at large nominee, the Board may endorse another non-dealer candidate or dealer director at large candidate, as the case may be, on whose behalf proxies will be solicited at the next annual meeting as a Board- endorsed nominee for election as a director. In case of a regional dealer director nominee, the standing Nominating Committee established by the Board shall submit to the Board as soon as practicable, a list of such number of persons as the Board shall determine who are recommended by such committee to be considered as members of a candidate selection committee for that particular director region. The Board shall at a regularly scheduled meeting or a special meeting of the directors as soon as practicable, create a candidate selection committee for that director region and shall select as members of the candidate selection committee five persons recommended by the nominating committee plus two incumbent members of the Board. The Board may also select such alternate members, if any, of any such candidate selection committee as it deems appropriate. The candidate selection committee shall then make a timely designation of one of its eligible members as the person on whose behalf proxies will be solicited at the next annual meeting as a Board-endorsed nominee for election as a regional dealer director. SECTION 7. The number of non-dealer directors elected or appointed to office shall be limited so that non-dealer directors shall not exceed twenty-five percent (25%) of the total number of directors in office at any one time. The foregoing twenty-five percent (25%) limitation on the number of non-dealer directors may be further amended, repealed, or added to only at a regular or special meeting of the shareholders in accordance with Article XXIII, Section 2. ARTICLE V POWERS OF DIRECTORS SECTION 1. The Board of Directors shall have, in addition to such powers as are hereinafter expressly conferred on it, all such powers as may be exercised by the corporation, subject to the provisions of the statute, the Certificate of Incorporation and the By-Laws. SECTION 2. The following powers are hereby expressly conferred upon the Board of Directors: (a) to purchase or otherwise acquire property, rights or privileges for the corporation, which the corporation has power to take, at such prices and on such terms as the Board of Directors may deem proper; (b) to pay for such property, rights or privileges in whole or in part with money, stock, bonds, debentures or other securities of the corporation (secured by mortgages or otherwise), or by the delivery of other property of the corporation; (c) to create, make and issue mortgages, bonds, deeds, leases, trust agreements and negotiable or transferable instruments and securities, and to do every act and thing necessary to effectuate the same; (d) to appoint agents, consultants, advisors and trustees, and to dismiss them at its discretion, to fix their duties and emoluments and to change them from time to time and to require such security as it may deem proper; (e) to confer on any officer or officers of the corporation the power of selecting, discharging or suspending any of the persons referred to in subsection (d) of this Section; (f) to determine by whom and in what manner the corporation's bills, notes, receipts, acceptances, endorsements, checks, releases, contracts or other documents shall be signed; (g) irrespective of any personal interest of any of its members, to determine the amount of compensation, if any, to be paid to directors and to members of the Executive Committee and other Committees established by the Board of Directors for their services to the corporation as directors or Committee members. ARTICLE VI MEETINGS OF DIRECTORS SECTION 1. An annual organizational meeting of the Board of Directors as constituted after the election of directors at each annual meeting of the stockholders shall be held without call or formal notice at a time later in the same day as the annual meeting of the stockholders or during the day next following such stockholders meeting. The specific date of each such meeting of the Board, as well as the time and place thereof, shall be determined at one of the meetings of the Board held during the time between the most recently conducted annual stockholders meeting and the next scheduled annual stockholders meeting. In addition to electing officers of the corporation as provided for in Article VIII, Section 2, the Board shall select the members of its standing committees for the period until its next annual organizational meeting and shall give voting directions to the President as to the persons to be elected by the corporation as members of the Boards of Directors of each of its wholly-owned subsidiary corporations at their respective annual meeting times. SECTION 2. Additional regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the Board. SECTION 3. Special meetings of the directors may be called by the Chairman of the Board on four (4) days' notice by mail (calculated from the date of mailing) or on two days' notice by telephone to each director and shall be called by the Chairman of the Board in like manner on the written request of not less than four (4) directors. Special meetings of the directors may be held within or without the State of Delaware at such place as is indicated in the notice or waiver of notice thereof. SECTION 4. A majority of the total number of directors then holding office shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is secured. ARTICLE VII COMMITTEES ESTABLISHED BY THE BOARD SECTION 1. The Board of Directors shall establish as standing committees of the Board an executive committee and such other committees as it shall deem from time to time to be appropriate. The Chairman of the Board shall be an ex-officio member of any standing committee if the resolution adopted by the Board with regard to the membership of such committee so provides, except for any committee authorized to grant or withhold consent to the transfer of shares of the corporation's stock pursuant to Article XVI, Section 9 of these By-laws. Each such committee shall have such responsibilities and duties as shall be described in a resolution or resolutions adopted by a majority of the whole Board. Such resolution or resolutions may also establish the number (or the minimum and maximum numbers) of persons to be selected to serve on each of said committees, the voting members of each of which shall be members of the Board. The Board shall also have authority from time to time to establish special ad hoc committees comprised of two or more directors, the specific responsibilities of which shall be described in the resolutions creating them. SECTION 2. One or more directors may be designated by the Board as alternate members of any standing or special ad hoc committee, who may replace any absent or disqualified committee member at any meeting of the committee. Vacancies in the membership of any committee established by the Board shall be filled only by the Board. SECTION 3. In no event shall the executive committee or any other committee established by the Board have the power or authority at any time to take any final action on behalf of the Board with respect to (a) proposing amendments to the corporation's certificates of incorporation, (b) the adoption of any amendments to the By-laws of the corporation, (c) the adoption of an agreement of merger or consolidation, (d) the making of recommendations to the stockholders for the sale, lease, or exchange of all or substantially all of the corporation's property or assets, (e) the making of recommendations to the stockholders for the dissolution of the corporation or the revocation of a dissolution, (f) the making of any proposals submitted to the Board with respect to the purchase of all or a controlling portion of the outstanding capital stock of the corporation, (g) the authorization of issuance of shares of capital stock of the corporation or (h) the filling of vacancies in the membership of the Board or any committee thereof. SECTION 4. Each standing committee of the Board (with the exception of any committee authorized to grant or withhold consent to the transfer of shares of the corporation's stock pursuant to Article XVI, Section 9 of these By-laws) shall select one of its members to act as Chairman thereof as promptly as feasible after the members of the committee are selected at each annual organizational meeting of the Board. At the time of establishment of any special ad hoc committee of the Board, the Board shall designate a member of such committee to act as its Chairman. SECTION 5. Regular meetings of each standing committee established by the Board shall be held as provided for in a resolution adopted by the Board, or by a particular committee or its Chairman if authorized in a resolution of the Board. Special meetings of any standing committee, and all meetings of any special ad hoc committee, shall be held on reasonable notice given to all members thereof by the Chairman of the committee. Even if he has not been made a member of a particular standing committee, the Chairman of the Board shall be provided with the same notice of all regular or special meetings of such committee as is provided to members of the committee, and he shall have the right to attend any of the meetings held by the committee in an advisory non-voting capacity. Subject to the provisions of the resolution describing the responsibilities and duties of a particular committee established by the Board, any such committee shall have authority to establish its own rules of procedure. The Chairman of each committee of the Board which is required by these By-laws to have one of its members designated as its Chairman shall be responsible for assuring that: (a) an appropriate agenda is prepared for each formal meeting of the Committee; (b) minutes of the proceedings of each such meeting are kept; and (c) either a copy of such minutes or a summarized written report of the meeting is submitted to the Board at or prior to the next meeting of the Board. SECTION 6. A majority of the voting members of any committee hereunder shall constitute a quorum for meetings thereof, but the affirmative vote of a majority of all voting members of the whole committee shall be necessary with respect to all actions taken by the committee. SECTION 7. With the exception of the Chairman of any committee of the type described in the first sentence of Section 4 of this Article VII, the Board may authorize the payment to the Chairman of any standing or special ad hoc committee of compensation for the services rendered by him in his capacity as Chairman in such amount as the Board shall deem to be appropriate. Such compensation shall be in addition to the compensation paid to dealer directors for their regular services as members of the Board. ARTICLE VIII OFFICERS OF THE CORPORATION SECTION 1. There shall be elected by the Board of Directors the following executive officers of the corporation: (a) a Chairman of the Board and, if deemed appropriate by the directors, a Vice Chairman of the Board, each of whom shall be elected from the membership of the Board of Directors; (b) a President; (c) a Treasurer; and (d) one or more Executive Vice Presidents, Senior Vice Presidents, or Vice Presidents as the Board shall deem the business of the corporation to require from time to time. In addition the Board of Directors shall elect as corporate (but not executive) officers of the corporation a Secretary and such Assistant Secretaries as the Board shall determine to be appropriate. The board shall also elect from time to time such other additional executive or corporate officers as in its opinion are desirable for the conduct of the business of the corporation. Any number of offices filled by election of the Board may be held by the same person, except the offices of President and Secretary. Any executive officer of the corporation may bestow upon any employee of the corporation under his supervision such title or titles descriptive of the position held by such employee as such executive officer shall deem to be appropriate, provided that no such title shall be the same as or confusingly similar to the title of any officer elected by the Board, and provided further that no such title shall be deemed to bestow the status of an executive officer or corporate officer upon such employee nor to empower him with any authority to act on behalf of the corporation other than such authority as shall have expressly been assigned to him by the executive officer bestowing such title upon him. SECTION 2. All executive officers and corporate officers of the corporation shall be elected by the Board of Directors for one-year terms at the regular meeting thereof following the annual meeting of stockholders, provided that, in any event, any such officer shall hold office until his successor has been elected and qualified or until his death, resignation or removal from office. In the case of any officer with whom an employment contract employing him to perform the functions of a specific office for a period extending beyond one year has been entered into, the office or offices to which he is elected at each such meeting of the Board of Directors shall constitute the office or offices with respect to which he is employed under such employment contract during the ensuing year. The Board of Directors shall have authority to direct that the corporation enter into an employment contract with any executive officer or other employee for the purpose of employing him for a specified period of time, and no such contract shall be legally binding upon the corporation unless the same has been expressly authorized by the Board and has been executed on behalf of the corporation by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President of the corporation. In no event shall any such employment contract extend for an initial term of more than five years, but any such contract may contain a provision whereby the contract is automatically renewed for additional successive terms of not less than three years each, provided that the corporation is given the right to terminate the contract at the end of the initial term or renewal term by giving notice to the executive officer or other employee involved of its intention to do so by such specific period of time prior to the last day of the initial term or the then current renewal term as shall be set forth in the contract. Authorization of any such employment contract shall require the affirmative vote of a majority of the whole Board of Directors then in office. Subject to such contractual rights (if any) as may exist with respect to his employment, any executive officer or other officer elected or appointed by the Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of a majority of the whole Board of Directors then in office. If the office of any executive officer or other officer elected or appointed by the Board of Directors becomes vacant for any reason, the vacancy shall be filled by the affirmative vote of a majority of the whole Board of Directors then in office. SECTION 3. In case of the absence or disability of any executive officer or any other officer of the corporation elected or appointed by the Board of Directors, or for any other reason deemed sufficient by a majority of the whole Board of Directors then in office, and subject to such contractual rights as may exist with respect to the employment of any such officer, the Board of Directors may delegate the powers or duties of any such officer to any other officer, or to any director, for the time being. SECTION 4. In addition to executive officers, certain employees of the corporation may be designated from time to time by the President as staff officers, that is, officers upon whom responsibility is conferred with respect to the operations of a particular department, division, branch or function of the corporation. Any such staff officer shall be appointed by the President and may thereafter be removed at any time, with or without cause, by the President. However, if the Board of Directors elects or appoints an Executive Vice President, Senior Vice President, Vice President or other officer pursuant to the authority vested in it by Section 1. above, such officer may thereafter be removed only by the affirmative vote of a majority of the whole Board of Directors then in office even though such officer's title includes one or more words which are descriptive of the particular department, division, branch or function of the corporation managed by such officer. The removal of any officer shall be subject to such contractual rights (if any) as may exist under any contract of employment which has been entered into with him. SECTION 5. Unless his compensation has been expressly specified by a contract of employment entered into with him, the compensation of any executive officer shall be such amount as shall be determined from time to time by the Board of Directors. The President shall have sole authority to determine from time to time the amount of compensation to be paid to any other officer, except in the case of an officer whose compensation has been expressly specified in a contract of employment which has been entered into with him and except in the case of any such officer whose basic annual compensation would be or is in an amount which equals or exceeds the basic annual compensation then being paid to any executive officer (exclusive of the Secretary or any Assistant Secretary or Assistant Treasurer). ARTICLE IX DUTIES OF THE CHAIRMAN OF THE BOARD, VICE CHAIRMAN OF THE BOARD AND PRESIDENT SECTION 1. The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the By-laws. His specific duties and responsibilities shall include (a) acting as the primary liaison between the executive officers of the corporation on the one hand and its Board of Directors and its dealer-stockholders on the other hand; (b) bringing to the attention of and consulting with the corporation's executive officers with respect to any special concerns of the corporation's dealer-stockholders which come to his attention or to the attention of the Board of Directors; (c) reviewing from the perspective of the Board of Directors and the corporation's dealer-stockholders all reports, financial budgets, and corporate plans as developed and submitted to him from time to time by the corporation's executive officers; (d) overseeing and aiding in the implementation of plans for orderly successions to the positions held by the corporation's executive officers and other important staff personnel; and (e) seeing that the efforts of the various executive officers and other key management personnel of the corporation are carried out in a coordinated manner, particularly in periods when transitions in important officer or management positions occur. Except where it is provided by law that the signature of the President is required, the Chairman of the Board shall possess all of the same powers as the President to sign all certificates for shares of stock of the corporation and all contracts and other instruments of the corporation which may be authorized by the Board of Directors. SECTION 2. If the Board has elected a Vice Chairman of the Board, he shall preside at all meetings of the stockholders and the Board of Directors in the absence of the Chairman of the Board, and he shall be empowered to perform the other duties and exercise the other powers vested in the Chairman of the Board in the event that the Chairman of the Board is prevented by his absence, by disability, or otherwise from being able to perform such duties and powers in connection with a particular matter within the legally permitted period of time or within such period of time as shall be deemed to be reasonable and appropriate for action to be taken by the Chairman with regard to such matter. If there is no director holding the position of Vice Chairman of the Board, but there is a director (other than the Chairman of the Board) holding the position of Chairman of the Executive Committee of the Board, then the Chairman of the Executive Committee shall perform the duties and exercise the powers described above for the Vice Chairman of the Board whenever necessary; otherwise, upon the occurrence of any circumstance in which a Vice Chairman of the Board would have been vested with authority to perform the duties and exercise the powers of Chairman of the Board, the Board shall select one of its members as acting Chairman of the Board who shall be vested with the same authority. SECTION 3. The President shall be charged with the general and active management of the day-to-day operations of the corporation and with seeing that all orders and resolutions of the Board of Directors are carried into effect. His specific duties and responsibilities shall include (a) reporting from time to time to the Chairman of the Board on all significant matters affecting the operations and interests of the corporation which fall within his knowledge; (b) seeing that short-term and long-term corporate plans and budgets consistent with the directions of the Board of Directors are prepared and developed on a regular basis; (c) seeing that the corporation continually maintains competent personnel at all levels in order to adequately serve the needs of the retail hardware dealers supplied by it; (d) consulting with the Chairman of the Board from time to time with respect to the types of programs, products and services to be made available to the corporation's retail hardware dealers in order to serve the best interests of the corporation's entire network of dealers; (e) submitting to the stockholders at their annual meetings and/or at dealer conventions sponsored by the corporation such reports on the operations and affairs of the corporation as shall be appropriate in order to provide them with information of importance to them as both customers and stockholders of the corporation; and (f) executing on behalf of the corporation contracts and other instruments in writing, including mortgages, bonds and governmental reports of various kinds, in all instances wherein the signature of the President of the corporation is required or has been authorized by the Board of Directors or is otherwise deemed to be appropriate. The Board of Directors, in its discretion, may vest the person holding the office of President of the corporation at any given time with the additional title of Chief Executive Officer. Whenever the title of Chief Executive Officer is used as an additional title for the person holding the office of President, it shall be deemed to relate specifically to the duties and responsibilities dealing with the development of plans for orderly successions to the positions held by the corporation's executive officers and other management personnel and to the ongoing development of short-term and long-term strategic plans for the corporation to be presented to and reviewed by the Board of Directors and to the execution of all such plans as are approved by the Board. ARTICLE X DUTIES OF EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND OTHER VICE PRESIDENTS SECTION 1. Any Executive Vice President elected by the Board of Directors shall possess the power and may perform the duties of the President in his absence or disability. Each officer having the title of Executive Vice President shall perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 2. Any Senior Vice President elected by the Board of Directors shall possess the power and may perform the duties herein authorized to be performed by an Executive Vice President in the event that there is no person holding the office of Executive Vice President at the time, or in the event of the absence or disability of all persons then holding the office of Executive Vice President. Each officer having the title of Senior Vice President shall perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 3. Any Vice President elected by the Board of Directors shall possess the power and may perform the duties herein authorized to be performed by a Senior Vice President in the event that there is no person holding the office of Senior Vice President at the time, or in the event of the absence or disability of all persons then holding the office of Senior Vice President. Each officer having the title of Vice President shall perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 4. If there shall be more than one person holding the office of Executive Vice President at any time, or if there shall be more than one person holding the office of Senior Vice President at any time, or if there shall be more than one person holding the office of Vice President at any time, in each such instance the Board of Directors shall designate the order in which each of them shall possess the power and perform the duties of an officer of the next higher rank under the applicable one of the above Sections in the event of the nonexistence, absence or disability of all such higher ranking officers. SECTION 5. Notwithstanding any of the above provisions of this Article X, if the title given to any Executive Vice President, Senior Vice President, or Vice President also includes one or more words that are descriptive of a particular department, division, branch or function of the corporation managed by such officer, the duties of such officer shall consist only of the general and active management of the operations or activities of such department, division, branch or function and such other duties as shall have been specifically assigned to such officer by the Board of Directors. ARTICLE XI DUTIES OF CONTROLLER SECTION 1. In the event that a Controller shall be elected or appointed at any time by the Board of Directors, or in the event that a staff officer having the title of Controller is appointed at any time by the President, such officer shall be responsible to the Board of Directors, the President, and the Vice President-Finance (if such office has been created and filled), for all financial control and internal audit of the corporation and its subsidiaries. He shall also perform such other duties as may be assigned to him by the Board of Directors or the President. ARTICLE XII DUTIES OF THE SECRETARY AND ASSISTANT SECRETARIES SECTION 1. The Secretary (or an Assistant Secretary) shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. SECTION 2. The Secretary shall also keep, or cause to be kept by such person or persons to whom he shall delegate such duty, a register of all shares of capital stock issued by the corporation and all transfers of such shares. Such register shall be maintained in such manner and subject to such regulations as the Board of Directors may prescribe. SECTION 3. The Assistant Secretary, or if there be more than one (1), the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE XIII DUTIES OF THE TREASURER SECTION 1. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. SECTION 2. He shall disburse the funds of the corporation, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the corporation. SECTION 3. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE XIV WRITTEN CONSENTS AND CONFERENCE TELEPHONE MEETINGS SECTION 1. To the extent permitted by the General Corporation Law of the State of Delaware, and in accordance with the applicable procedure prescribed by the provisions thereof, whenever a vote or resolution of stockholders, the Board of Directors, or a committee of the Board at a meeting is required or permitted in connection with any corporate action by any provision of law, the Certificate of Incorporation, these By-laws, or any unrevoked resolution previously adopted by the Board, the meeting and vote or resolution may be dispensed with and the corporate action may be taken pursuant to written consent. The writing evidencing such consent shall be filed with the minutes of the proceedings of the stockholders, Board, or committee. SECTION 2. In accordance with the applicable procedure prescribed by the General Corporation Law of the State of Delaware, members of the Board of Directors, or of any committee of the board, may participate in a meeting of the Board, or of any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE XV INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. In accordance with the provisions of Section 145 of the General Corporation Law of the State of Delaware, and as more fully provided for in Article EIGHTH (b) of the restated Certificate of Incorporation of Ace Hardware Corporation, as amended, persons serving as directors, officers, employees or agents of or at the request of the corporation shall be indemnified against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties under the U.S. Employee Retirement Income Security Act, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by them in connection with any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted or threatened to be instituted against them by reason of their service in any of the aforementioned capacities on behalf of the corporation or at its request. ARTICLE XVI CERTIFICATES OF STOCK AND TRANSFER THEREOF SECTION 1. The shares of the corporation shall be represented by certificates signed by the Chairman of the Board or the President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the corporation and may be sealed with the seal of the corporation or a facsimile thereof. SECTION 2. The signatures of the officers of the corporation upon a certificate may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. SECTION 3. Each certificate of stock shall have conspicuously noted or stated thereon a statement of the liens, restrictions and limitations upon the voting power, ownership, transfer or other rights and privileges of the holder thereof. All shares of stock in the corporation shall be issued and accepted in accordance with and subject to the conditions, restrictions, and offsetting liens stipulated in the Certificate of Incorporation and By-laws of this corporation and amendments thereto. SECTION 4. If a certificate of stock be lost or destroyed, another may be issued in its stead upon proof of such loss or destruction and the giving of a satisfactory bond of indemnity, in an amount sufficient to indemnify the corporation against any claim. A new certificate may be issued without requiring bond when, in the judgment of the directors, it is proper to do so. SECTION 5. The corporation shall have a first lien upon each share of its issued and outstanding stock of any class, and upon each certificate of stock representing a share or shares of stock of any class of the corporation, for the amount of any indebtedness payable to the corporation by the holder thereof, and shall have a similar first lien upon all amounts which have been paid to the corporation pursuant to a subscription agreement for the purchase of shares of stock of the corporation which will be issuable to the subscriber upon the completion of payment of the purchase price of the shares. The interest of each holder of shares of the corporation's stock in and to the shares issued to such holder and the interest of each subscriber for shares of the corporation's stock in and to the funds paid to the corporation by such subscriber on account of the purchase price of the shares being purchased by such subscriber shall at all times be deemed to be offset by the amount of any indebtedness payable to the corporation by such holder or subscriber. In no event shall any transfer of any of the shares owned by any holder or any transfer of the stock subscription account of any subscriber for shares of stock of the corporation be made unless and until the stockholder whose shares are being transferred or the subscriber whose subscription account is being transferred is free from all indebtedness to the corporation. SECTION 6. No certificate representing any issued and outstanding share or shares of any class of stock of the corporation shall be pledged, mortgaged, hypothecated, sold, assigned or transferred without the prior consent of the Board of Directors of the corporation. In the event that the Board of Directors shall refuse to consent to any transfer or assignment of any certificate or certificates representing any share or shares of issued and outstanding stock of the corporation of any class, then the corporation shall have the right and shall be obligated to purchase from the owner thereof all of the shares of its stock of any class held for the store or other retail business unit with respect to which the corporation issued the share or shares as to which such consent has been refused and the franchise granted by this corporation with regard to the operation of such retail business unit shall thereby be terminated. In no event shall any transfer or assignment of shares of any class of stock of the corporation be made to any transferee who is not eligible to be a holder of such shares under the provisions of Article Fourth of the restated Certificate of Incorporation of the corporation. In the case of a proposed transfer of ownership of a store or other retail business unit owned by a holder of shares of stock of the corporation to a transferee which the corporation has accepted or is willing to accept as a franchised Ace Hardware dealer, then the owner of such stock shall have the option of either (a) selling or otherwise transferring to such transferee such number of shares of stock of this corporation of any class which the corporation would otherwise have been required to offer to such transferee in connection with the franchise granted to such transferee with respect to such store or other retail business unit, or (b) selling such shares to the corporation. In any case where the holder or holders of 50% or more of the outstanding voting stock of a corporation having a franchise from this corporation for one or more retail business outlets, or the holder or holders of 50% or more of the outstanding voting stock of a corporation owning 80% or more of the outstanding voting stock of a corporation having such a franchise, propose to sell or otherwise transfer all of the shares of capital stock (both voting and non-voting) of such corporation held by them, written notice of such proposal shall be given to this corporation, and upon the consummation of any such sale or transfer, such corporation shall have the option of either (a) retaining all of the shares of the capital stock of this corporation then held by it or (b) selling such shares to this corporation, but in the case of such a sale of said shares to this corporation, the franchise granted to said corporation by this corporation for each retail business unit operated by said corporation shall thereupon be deemed to have terminated by the voluntary action of said corporation and no such retail business unit shall thereafter operate as a franchise of this corporation unless a new application for a franchise for such retail business unit has been submitted to and accepted by this corporation. Notwithstanding any of the foregoing provisions, this corporation shall in no event be obligated to treat any of the following types of transfers as qualifying for purposes of the options provided for in this Section 6 of selling to this corporation shares of its capital stock: (a) any transfer of ownership of a retail business outlet or unit or of shares of the capital stock of a corporation directly or indirectly owning such outlet or unit which is not complete, unconditional and irrevocable; (b) any such transfer to an entity in which the transferor retains an ownership interest; or (c) any such transfer to the spouse of the transferor. SECTION 7. Subject to the provisions of Section 5 of this Article XVI of these By-laws, in the event of the termination of the franchise granted by this corporation with regard to the operation of a retail hardware store or other retail business unit for which shares of stock of the corporation are held, the corporation shall be obligated to purchase such shares. Unissued shares which have been subscribed for with respect to any such store or other retail business unit shall also be covered by the provisions of this Section to the extent of the amounts which have been paid on account of the purchase price thereof, and the corporation shall be obligated to refund all such amounts, subject only to the provisions of Section 5 of this Article XVI. For purposes of this Section, termination of the franchise granted for a particular retail hardware store or other retail business outlet shall include not only any termination pursuant to formal notice of termination given by either this corporation or the holder of the franchise but shall also include each of the following situations which shall be deemed to constitute such a termination: (a) The closing down of the store or other retail business unit with respect to which such shares of stock of the corporation are held, unless such store or other retail business unit is merely being moved, with the corporation's consent and approval, to another location or is being acquired by another dealer which this corporation has accepted or is willing to accept as a franchised dealer for operation pursuant to the same franchise at another location; (b) The death of an individual holder of the shares of stock of this corporation held for such retail store or other retail business unit, or of a member of a partnership which is a holder of such shares, except in a case where the store or other retail business unit with respect to which such shares are held continues, with the approval of the officers of the corporation (which approval shall not be unreasonably withheld), to be operated under a franchise from the corporation by the decedent's estate or by the person or persons to whom such shares are to be distributed by the decedent's estate or by the successor or successors to the decedent's interest in the partnership holding such shares (it being immaterial for this purpose that, in connection with such continuation of operation, the legal form of ownership of the franchised dealer has been changed from an individual proprietorship or partnership to a corporation or from a partnership to an individual proprietorship); (c) An adjudication of the insolvency of the dealer or of the store or other retail business unit for which the shares of stock of this corporation are held, or the making of an assignment for the benefit of creditors or the filing of a voluntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code by or on behalf of such dealer or retail business unit, or the filing of an involuntary petition in bankruptcy or similar petition under the U.S. Bankruptcy Code against the dealer or against said retail business unit. SECTION 8. A transfer of shares of stock of the corporation requiring the consent of the Board of Directors shall not be deemed to have occurred upon the death of a person who is the holder of shares of stock of the corporation jointly with one or more other persons under circumstances whereby ownership of such shares passes automatically by operation of law to the surviving holder or holders of such shares, nor shall the corporation become obligated to purchase such shares upon the death of such person unless the store or other retail business unit with respect to which such shares are held either (a) closes down, or (b) ceases to be operated under a franchise from this corporation. SECTION 9. The Board of Directors may delegate to a committee composed of two (2) or more members of the Board authority to act on its behalf with respect to all matters where the consent of the Board is required in connection with the transfer or assignment of any shares of any class of stock of the corporation. SECTION 10. The price to be paid by the corporation in connection with the purchase by it of any shares of its stock shall be as follows: (a) in the case of Class A stock, the par value of the shares; (b) in the case of Class B stock, an amount per share equal to the per share price last established by the Board of Directors as the price to be paid by the corporation in the event of redemption of shares of its Class B stock, which shall in no event be less than twice the par value of the Class B stock and shall also at all times be equal to twenty (20) times the per share purchase price last established by the Board of Directors with respect to purchases by it of Shares of its Class C Stock; (c) in the case of Class C stock, an amount per share equal to the per share price last established by the Board of Directors as the purchase price to be paid by the Corporation for shares of its Class C stock, which price shall in no event be less than the par value thereof. SECTION 11. Any shares of any class of stock of the corporation which are purchased by it from any stockholder shall become treasury shares which shall be eligible for sale to any other person, persons or firm which shall be qualified to hold such shares. SECTION 12. Effective with respect to all purchases and redemptions of shares of its capital stock made by the corporation from its stockholders on or after December 31, 1981, the entire purchase or redemption price to be paid by the corporation for such shares shall be paid in cash except that, in any of the situations described in subsection (a) hereof, the purchase or redemption price for such shares shall be paid in the manner set forth in subsection (b) hereof. (a) The situations in which such price shall be paid in the manner set forth in subsection (b) of this Section are as follows: (1) the voluntary termination by a stockholder of this corporation of the franchise from this corporation held by such stockholder for a retail business outlet under circumstances whereby such outlet continues to engage in substantially the same business under the ownership or control of the same person, partnership or corporation that owned or controlled it immediately prior to such termination; for purposes of this paragraph: (A) control of an outlet owned by an unincorporated person or partnership shall be deemed to be the same if more than fifty percent (50%) of the assets or profit shares therein, or more than fifty percent (50%) of the capital stock of a corporation becoming the owner of such outlet, continues to be legally or equitably owned by the same person, partnership or corporation; and (B) control of an outlet owned by a corporation shall be deemed to be the same if more than fifty percent (50%) of the capital stock of said corporation, or more than fifty percent (50%) of the assets or profit shares of an unincorporated person or partnership becoming the owner of such outlet, continues to be owned by the same person, partnership or corporation. (2) the termination by this corporation of the franchise from this corporation for a retail business outlet pursuant to the provisions of the Ace Dealer Franchise Agreement authorizing such termination by reason of: (A) the failure of such retail business outlet to make any payment owing to the corporation for merchandise or services supplied by it within the time period specified in such provisions; or (B) any default of such retail business outlet in performing any obligation of such outlet under the Ace Dealer Franchise Agreement of such outlet other than the obligation to pay for merchandise or services supplied by the corporation, provided that such default is described in the corporation's notice of termination in such a manner as to reasonably apprise such retail business outlet as to the nature of such default. (b) In each of the situations described in subsection (a) above, the purchase or redemption price to be paid by the corporation for the shares of its stock being purchased or redeemed by it shall be paid in the following manner: (1) in the case of Class A stock, the entire price shall be paid by the corporation in cash; (2) in the case of Class B stock or Class C stock purchased by a stockholder as part of the shares of capital stock of the corporation subscribed for in connection with the granting of a franchise by the corporation for a retail business outlet, that portion of the purchase or redemption price to be paid by the corporation which equals the amount paid to the corporation pursuant to such subscription shall be paid by the corporation in cash and any remaining balance of the price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years; (3) in the case of Class C stock received by a stockholder as part of the patronage dividends distributed by the corporation for a retail business outlet, the entire price (with interest thereon) shall be paid by the corporation in equal annual installments over a period of four years; (4) if the total portion of the purchase or redemption price which would otherwise be payable under the foregoing paragraphs in equal annual installments over a period of four years is less than $5,000, the entire purchase or redemption price shall be paid by the corporation in cash, notwithstanding the installment provisions of said paragraphs; (5) in any situation where a stockholder whose shares of capital stock of the corporation are to be purchased or redeemed by it is indebted to the corporation at such time, then, in accordance with the corporation's first lien and offset rights under Article XVI, Section 5, of these By-laws and Article Fourth (1) of the restated Certificate of Incorporation of the corporation, the purchase or redemption price shall in all cases be applied against such indebtedness to the extent thereof, with the portion of such price which would otherwise have been payable in cash being first applied for such purpose and, if any indebtedness to the corporation still remains, the portion of the price which would otherwise have been payable in equal annual installments then being applied for such purpose to the extent of any such remaining indebtedness; (6) the corporation's obligation to pay any portion of the purchase or redemption price of its shares in equal annual installments shall be evidenced by an installment promissory note of the corporation delivered to the stockholder whose shares are being purchased or redeemed, which note shall provide for the payment of the principal thereof in four equal annual installments commencing one year from the date of the repurchase or redemption of the shares and for the payment of interest with each annual installment payment of principal on the unpaid balance of principal from time to time at such rate as shall have been established by the Board of Directors as of the date of issuance thereof, provided, however, that said rate of interest shall in no event be less than the greater of (A) the latest interest rate as of the date of issuance of such note determined by the Board of Directors as the rate to be paid on patronage refund certificates distributed to the corporation's member-stockholders as part of their annual patronage dividends or (B) 6% per annum; (7) notwithstanding any of the foregoing provisions, the Board of Directors, in its discretion and after considering the financial condition and requirements of the corporation, may authorize and cause payment to be made in cash for all or any portion of the purchase or redemption price which would otherwise be payable in four equal annual installments if the Board of Directors determines that the prescribed method of payment would impose an undue hardship upon the stockholder whose shares are being repurchased or redeemed; (8) the Board of Directors may adopt hardship guidelines to implement the provisions of paragraph (7) of this Section and may delegate the authority to make determinations pursuant to said provisions to a committee comprised of two or more directors or to a committee comprised of two or more executive officers of the corporation. ARTICLE XVII CLOSING OF TRANSFER BOOKS AND DETERMINATION OF RECORD DATE SECTION 1. The Board of Directors shall have power to close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for the allotment of rights or the dates when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding sixty (60) days in connection with obtaining the consent of stockholders for any purpose. SECTION 2. Notwithstanding the foregoing, in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote, at any such meeting and any adjournment thereof, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. SECTION 3. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. ARTICLE XVIII FISCAL YEAR SECTION 1. Except as from time to time otherwise provided for by the Board of Directors, the fiscal year of the corporation shall end on the 3lst day of December in each year. ARTICLE XIX DIVIDENDS SECTION 1. No dividends shall ever be declared on any of the shares of any class of stock of the corporation. ARTICLE XX CHECKS FOR MONEY SECTION 1. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE XXI BOOKS AND RECORDS SECTION 1. The books, accounts and records of the corporation, except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the By-laws or by resolution of the directors. ARTICLE XXII NOTICES SECTION 1. Notice required to be given under the provisions of these By-laws to any director, officer or stockholder shall not be construed to mean personal notice, but may be given in writing by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, officer or director may waive, in writing, any notice required to be given under these By-laws, whether before or after the time stated therein. ARTICLE XXIII AMENDMENTS OF BY-LAWS AND ADVANCE NOTIFICATION BY STOCKHOLDERS OF PROPOSALS FOR AMENDMENTS, DIRECTOR NOMINATIONS OR OTHER CORPORATE ACTIONS SECTION 1. Except for any provisions hereof which shall at any time have been adopted by the stockholders in the manner prescribed in Section 2, these By-laws may be amended or repealed or added to, or new By-laws may be adopted, by the affirmative vote of a majority of the Board of Directors at any regular meeting of the Board or at any special meeting thereof called for that purpose. If any By-law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the By-law so adopted, amended or repealed, together with a precise statement of the changes made. SECTION 2. These By-laws may also be amended or repealed or added to, or new By-laws may be adopted, at any regular or special meeting of stockholders at which a quorum is present or represented by the affirmative vote of a majority of the issued and outstanding shares of Class A stock of the corporation. Any amendment, repeal, addition to the By-laws, or any new By-laws, adopted by the stockholders may be further amended, repealed, or added to only at a regular or special meeting of the stockholders at which a quorum is present or represented by the affirmative vote of a majority of the issued and outstanding shares of Class A stock of the corporation in the manner prescribed herein. SECTION 3. A written notice shall be given to the President or Secretary of the corporation of the intent of one or more stockholders to submit at a forthcoming stockholders meeting (a) a proposed amendment to these By-laws; (b) the nomination of an eligible person for election as a director; or (c) any other stockholder proposal for corporate action. Such notice must be received, either by mail or by personal delivery, not less than seventy-five (75) nor more than one hundred fifty (150) days prior to the date of the annual meeting or, in the event of a special meeting of stockholders, not later than the close of the fifteenth (15th) day following the day on which notice of the meeting is first mailed to stockholders. In the case of an annual meeting, the intention of one or more stockholders to submit a proposed By-law amendment, nomination or other proposal for corporate action which is so received in proper order shall be mentioned in the formal notice of the meeting, but neither the name or names of the stockholder or stockholders intending to make any such submission nor the name of any director nominee proposed by one or more stockholders shall be mentioned in the notice. No reference of any kind to any proposal or nomination to be submitted by any stockholder pursuant to this Section shall be made in the proxy materials caused to be sent to stockholders by the Board of Directors. At all annual or special meetings the Chairman shall declare out of order any proposed amendment, any nomination, or any other stockholder proposal not presented in accordance with this Section. Every notice given by a stockholder or stockholders under this Section shall set forth: (a) the name and the business and residence addresses of the stockholder (or person authorized by such stockholder as the stockholder's voting representative) intending to submit the proposed amendment, nomination, or other matter; (b) with respect to such notice of intent to submit a nomination, information concerning the proposed nominee's business and residence addresses, age and eligibility to serve as a director; and (c) with respect to notice of an intent to propose a By-law amendment or some other corporate action, a description of the proposed amendment or other action. Notice of intent to submit a nomination shall be accompanied by the written consent of each nominee to serve as a director of the corporation if so elected. ARTICLE XXIV MEMBERS' PATRONAGE DIVIDENDS SECTION 1. A "membership" in the corporation within the meaning of the term "membership" as used in Section 1388(c)(2)(B) of the U.S. Internal Revenue Code of 1954, as amended, shall be deemed to be held by (a) each retail hardware dealer owning a share of Class A stock of the corporation and (b) each other dealer in hardware or related products which becomes an owner of a share of Class A stock of the corporation after having been expressly approved as an Ace Hardware dealer by the Board of Directors of the corporation. The term "retail hardware dealer" as used in clause (a) of the preceding sentence shall mean any person or firm purchasing merchandise from this corporation for the purpose of reselling such merchandise at retail. However, whenever the term "retail hardware dealer" is used in any of the subsequent Sections of this Article XXIV of the By-laws, such term shall be deemed to include all dealers holding memberships in this corporation except where the context in which such term appears is of such a nature that it is not practical for such term to be applied to "other dealers" as referred to in clause (b) of the first sentence of this Section. For purposes of this Article XXIV of the By-laws a "retail hardware store" shall be deemed to refer to a business location to which there is delivered for resale from such location at the retail level any merchandise purchased from this corporation. Each such retail hardware store owned or controlled, directly or indirectly, by the same person, partnership or corporation, shall be deemed to constitute only one (1) retail hardware dealer. An unincorporated person or partnership shall be deemed controlled by another person, partnership or corporation if fifty percent (50%) or more of the assets or profit shares therein are legally or equitably owned by such other person, partnership or corporation, or by the legal or equitable owner or owners of fifty percent (50%) or more of such other person, partnership or corporation's assets or profit shares (if unincorporated) or shares of capital stock (if incorporated). A corporation shall be deemed controlled by another person, partnership or corporation if fifty percent (50%) or more of the capital stock of said corporation is owned by such other person, partnership or corporation, or by the owner or owners of fifty percent (50%) or more of its capital stock (if incorporated) or fifty percent (50%) or more of its assets or profit shares (if unincorporated). SECTION 2. In accordance with the policy heretofore established by the corporation in the Amendment to its By-laws adding Article XXIV thereto by the resolution adopted by the Board of Directors on July 20, 1973, there shall be distributed on a patronage basis to such members (that is, dealers holding memberships, as hereinabove defined, in the corporation) in a manner taking into account the amount of business done by the corporation with each of them, all the net savings and overcharges effected by or resulting from the operations conducted and carried on by the corporation in connection with sales of merchandise made by the corporation after May 31, 1974, to such members which remain after paying all operating and administration expenses of the corporation and all interest on its indebtedness and after the setting aside by the Board of Directors of such reasonable reserves as they shall determine from time to time to be appropriate for the purpose of insuring the safety and welfare of the corporation and for the purpose of providing for the expectancy of any losses or contingencies. Said distributions shall be made no later than eight and one-half (8 1/2) months following the close of the year of the corporation during which the patronage occurred with respect to which each such distribution is made. In no event shall less than twenty percent (20%) of the total patronage distributions made each year to each member be distributed in cash. The remaining portion shall be distributed in cash or in written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code) in whatever proportions shall be determined each year by the Board of Directors. SECTION 3. Notwithstanding the foregoing, every such member on becoming such authorizes and directs that all net savings of every character effected by this corporation which are distributable to such member, to the extent of the excess thereof over the twenty percent (20%) minimum portion of such distributable amount required to be distributed in cash, may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such member. Any such net savings which become distributable with respect to merchandise sold by this corporation for delivery to any retail hardware store owned or controlled, directly or indirectly, by the same person, partnership or corporation which so owns or controls one (1) or more other retail hardware stores may be so applied against any indebtedness owing with respect to merchandise sold by this corporation for delivery to any store which is part of any group deemed hereunder to constitute one (1) retail hardware dealer. The balance of any such net savings not so applied shall then be distributed as patronage dividends in the manner set forth in Article XXIV, Section 2, of these By-laws. SECTION 4. Each retail hardware dealer who applies for and is accepted as a member of this corporation shall, by his act of subscribing for a share of Class A stock of the corporation entitling such dealer to become such a member, consent that the amount of any patronage dividends with respect to his purchases of merchandise from this corporation occurring on or after June 1, 1974, which are made in written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code, as amended) and which are received by such member from this corporation will be taken into account by him at their stated dollar amounts in the manner provided in Section 1385(a) of said Code in the taxable year in which such notices of allocation are received by said member. The term "written notice of allocation" as used here shall be deemed to include, but not to be limited to, a letter of advice to a member which discloses to such member an amount which the corporation has elected to apply against indebtedness owed to the corporation in accordance with the first sentence of Article XXIV, Section 3, of these By-laws. SECTION 5. The aforesaid written notices of allocation shall be redeemable by the corporation in cash at the discretion of the Board of Directors and/or in accordance with the restated Certificate of Incorporation of the corporation and these By-laws. As security for the payment to the corporation of any indebtedness owing at any time to the corporation by any retail hardware dealer having membership in the corporation or by any retail hardware dealer who has subscribed for the 1 share of Class A stock of the corporation which is required to be owned in order to become a member of the corporation, the corporation shall have a first lien upon any written notice of allocation held by any such dealer (including all retail hardware stores treated as being part of a group constituting one "member" or "dealer"). The interest of each holder of any written notice of allocation in and to the same shall at all times be deemed to be offset by the amount of any indebtedness payable to the corporation by such holder. SECTION 6. Notwithstanding any other provision of these By-laws, and in accordance with the policy heretofore established by the corporation in the Amendment to its By-laws adding Section 6 to Article XXIV thereof by the resolution adopted by the Board of Directors on April 24, 1974, commencing with respect to purchases of merchandise made from the corporation after May 31, 1974 the corporation shall also make distributions on a patronage basis to those of its dealers who have franchise or membership agreements with the corporation and who have executed unrevoked and unexpired written consents of the type referred to in Section 1388 (c)(2) (A) of the U. S. Internal Revenue Code to include in their gross income all patronage dividends distributed to them in the form of written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code), even though such dealers do not then own any shares of any class of the capital stock of the corporation. Such patronage dividend distributions shall be made to such dealers in a manner taking into account the amount of business done by the corporation with each of them during the periods with respect to which said written consents are effective for each of them and shall consist of all the net savings and overcharges effected by or resulting from the business done by the corporation with such dealers which remain after paying all of the operating and administration expenses and interest on indebtedness of the corporation allocable to such business and after the setting aside by the Board of Directors of such reasonable reserves as they shall determine from time to time to be appropriate for the purpose of insuring the safety and welfare of the corporation and for the purpose of providing for the expectancy of any losses or contingencies. Each such written consent shall provide that it may be revoked at any time by the dealer, effective with respect to business done by the corporation with such dealer after the close of the taxable year of this corporation during which the revocation is filed with it. Each such written consent shall cease to be effective with respect to all business done by this corporation with any dealer who has furnished such a written consent to this corporation immediately upon said dealer's becoming an owner of a share of Class A stock of this corporation, as of which date such consent shall expire and such dealer shall be deemed to hold a "membership" in this corporation so that the provisions of this Article XXIV which are applicable to the distribution of patronage dividends to its members then become effective with respect to such dealer. Unless the same shall have been revoked or otherwise terminated, any such consent which has theretofore been executed by a dealer shall in any event be deemed to have expired and been rendered ineffective at the end of one hundred twenty (120) days following the later of (a) the date as of which an initial Registration Statement and Prospectus with respect to an offer to sell shares of the capital stock of the corporation (including shares of its Class A stock) to its dealers have become effective under the U.S. Securities Act of 1933, or (b) the date as of which such Prospectus can be used under the securities law of any state in which state registration of such stock is required. No such dealer shall be eligible to receive distributions of patronage dividends from the corporation with respect to business done by the corporation with such dealer after the expiration of such 120-day period unless such dealer either has become a member of the corporation by owning a share of its Class A stock (in which case such dealer shall thereupon be entitled to patronage dividends as provided for in Section 2 of this Article XXIV) or has executed a subscription agreement for the purchase of shares of capital stock of the corporation (including one (1) share of its Class A stock) which has been accepted by the corporation. There shall be incorporated in all such subscription agreements which include a subscription for a share of the Class A stock of the corporation a provision whereby the subscribing dealer consents to include in his gross income all patronage dividends distributed to such dealer in the form of written notices of allocation (as defined in Section 1388 of the U.S. Internal Revenue Code), and any dealer who has executed such a subscription agreement but who is not entitled to become the owner of a share of Class A stock of this corporation until he has completed payment of the purchase price for such share in accordance with such subscription agreement shall be entitled to receive patronage dividends pursuant to this Section 6 during the period for which he makes payments on account of such purchase price as required by the subscription agreement. Upon the completion of such payments and the issuance of such share of stock to him, such dealer shall then be entitled to receive patronage dividends pursuant to Section 2 of this Article XXIV. In no event shall less than twenty percent (20%) of the total patronage dividend distributions made each year to any dealer who is entitled to receive such distributions pursuant to this Section 6 be distributed in cash. Any amount in excess of said twenty percent (20%) minimum portion of the patronage dividends otherwise distributable to a dealer under this Section 6 may first be applied by the corporation to the payment of any indebtedness owed to the corporation by such dealer in the same manner as set forth in Section 3 of this Article XXIV. Any patronage dividends distributed in the form of written notices of allocation pursuant to this Section 6 shall be subject to all of the provisions with respect to distributions made in the form of written notices of allocation which are set forth in Section 5 of this Article XXIV. SECTION 7. Notwithstanding any of the foregoing provisions, the portion of any patronage dividends which would otherwise be distributable in cash under any provision of this Article XXIV to a retail hardware dealer with respect to a retail hardware store having a franchise or membership agreement with this corporation which has been cancelled or terminated at any time subsequent to the date of the annual meeting of stockholders to be held on the third Monday of May in 1980 by any means or for any reason whatsoever prior to the time of distribution of such patronage dividends shall be applied by the corporation to the payment of any indebtedness owed to the corporation by or on behalf of such store to the extent of such indebtedness instead of being distributed in cash, provided, however, that an amount equal to 20% of the total patronage dividends distributable for the applicable year to any such dealer with respect to such store shall nevertheless be paid in cash within 8 months following the close of such year if a timely written request for the payment of such amount in cash is submitted to the corporation by the dealer. However, in all events no less than 30% of the total annual patronage dividends distributable to a retail hardware dealer with respect to a retail business outlet pursuant to any provision of these By-laws shall be paid in cash if the retail business outlet is located in a jurisdiction as to which the 30% income tax withholding provisions of Section 1441 or Section 1442 of the U.S. Internal Revenue Code are applicable. SECTION 8. Effective with respect to business done by them with this corporation after December 31, 1982, each retail hardware dealer having membership in this corporation on that date and each retail hardware dealer who is a subscriber on that date or who becomes a subscriber after that date for the 1 share of Class A stock of this corporation which is required to be owned in order to become a member of this corporation shall, solely by such dealer's act of commencing or continuing to do business with this corporation after said date, be deemed to have authorized and directed that, notwithstanding any other provision of this Article XXIV of these By-laws, the distributions to be made on a patronage basis as provided for in Section 2 and Section 6 of this Article XXIV shall be made in a manner taking into account the quantity or value of business done with each dealer by each separate division of the corporation as shall be established on the books of the corporation with respect to its operations and/or the quantity or value of business done by the corporation or each such division of the corporation with each of its dealers with respect to each category of sales as shall be established on the books of the corporation. Each such dealer shall further thereby be deemed to have authorized and directed that, in any taxable year of this corporation during which it incurs a loss in connection with the operations of any such division or in connection with any such category of sales, (i) a proportionate share of such loss shall be deducted from the net earnings of the corporation on the business done during such year by each of its other divisions or with respect to each of its other sales categories with its dealers and (ii) the amount of patronage dividends which the corporation would otherwise be obligated to distribute to its dealers in connection with their purchases from each such other division of the corporation or in connection with each of the other sales categories established by the corporation (as the case may be) shall be reduced by such proportionate share of said loss. For the foregoing purposes the proportionate share of any such loss in connection with the operations of any such division of the corporation or in connection with any such category of sales which shall be deducted from the net earnings realized by it with respect to business done by each other division of the corporation or with respect to each of the other sales categories established by the corporation shall be determined by multiplying the total amount of such loss by a fraction having as its numerator the net earnings which would otherwise be distributable as patronage dividends in connection with the business done with its members by each such other division or each such other category of sales and having as its denominator the total of the net earnings which would otherwise be distributable as patronage dividends in connection with the business done with its members by all such divisions of this corporation and/or all such sales categories. ARTICLE XXV ESTABLISHMENT OF ACE HARDWARE CORPORATION DEALERSHIPS AND NON-MEMBER ACCOUNTS SECTION 1. Except as provided in Article XXV, Section 3 hereof, no person, partnership or corporation shall be authorized or permitted to use the name "Ace Hardware" or any trademark or trade name including the word "Ace" in conjunction with the sale of hardware or related merchandise, to display any identification sign or emblem indicating that said person, partnership or corporation is an authorized Ace Hardware dealer, or to purchase merchandise (including items carried under the Ace brand name) from Ace Hardware Corporation unless such person, partnership or corporation has first been accepted by Ace Hardware Corporation as a duly licensed or franchised dealer and has executed the membership or similar agreement then utilized by Ace Hardware Corporation for the establishment of such a dealer relationship and has otherwise complied with the usual requirements of Ace Hardware Corporation with respect thereto. Any such agreement may contain such reasonable provisions with respect to the termination thereof as shall be legally permitted by the laws of the United States of America and by the laws of the state or other jurisdiction in which the business of the dealer is located. SECTION 2. In order for any person, partnership or corporation to be accepted by Ace Hardware Corporation as a licensed dealer, such person, partnership or corporation shall also be required to purchase the necessary number of shares of capital stock of the corporation as required by Article Fourth (c) and Article Fourth (e) of the restated Certificate of Incorporation of Ace Hardware Corporation filed with the Secretary of State of Delaware on September 18, 1974. Accordingly, each such person, partnership or corporation shall, concurrently with the execution by such person, partnership or corporation of the Ace Dealer Membership Agreement then utilized by the corporation, also agree in writing to purchase one (1) share of Class A stock of the corporation at a price equal to the par value thereof of $1,000 per share, and forty (40) shares of Class C stock of the corporation at a price equal to the par value thereof of $100 per share or, when the store which is licensed under such Membership Agreement is not the first store owned or controlled by said person, partnership or corporation which has become accepted by Ace Hardware Corporation as a licensed dealer, to purchase fifty (50) shares of Class C stock at a price equal to the par value thereof of $100 per share. The terms of payment with respect to any shares of capital stock of the corporation purchased by any such person, partnership or corporation shall be as set forth in such resolution as shall be adopted from time to time by the Board of Directors of the corporation for the purpose of establishing such terms of payment. SECTION 3. In the case of a person, partnership or corporation operating one or more business outlets, whether located within or outside the United States of America, its territories and possessions, Ace Hardware Corporation may approve the sale of merchandise for delivery to such an outlet under the terms of a written agreement entered into with it by such party in lieu of the membership or similar agreement utilized with respect to business outlets by parties who are accepted by Ace Hardware Corporation as member dealers. No party approved as an International Retail Merchant or other non-member retail account shall be entitled to purchase or own any shares of the capital stock of Ace Hardware Corporation, nor shall any patronage dividends be paid on account of any purchases made from Ace Hardware Corporation by such party. Such purchases of merchandise shall be made in accordance with the terms of the applicable written agreement and such other terms as may be imposed by Ace Hardware Corporation from time to time with regard to particular accounts. Only with the express written consent of an executive officer whom its President has vested with authority to grant such consents, can these purchases include items carried under "Ace" or "Ace Hardware" brand names or under other private label names owned by, or licensed to, Ace Hardware Corporation. No such party shall have authority or be permitted to use names "Ace" or "Ace Hardware" or any other trade name, trademark or service mark owned or register (sic) by, or licensed to, Ace Hardware Corporation in the United States of America or elsewhere (including any translations of any of said names or marks) unless the applicable written agreement specifically grants the right to such use. All of the terms and conditions contained in the respective written agreements imposed upon such accounts (including, but not limited to, those dealing with territorial rights, duration, and service, handling, or license fees or charges, as well as any terms which vary among particular accounts) shall be established solely by the executive officer or officers of Ace Hardware Corporation vested with such authority by its President, provided, however, that no such party shall be granted any exclusive area or territorial rights without the prior approval of the Board of Directors or a committee of the Board to which the Board has delegated the authority to approve the granting of such rights. In establishing such terms, consideration shall be given to the relevant business circumstances, including, but not limited to, specific legal requirements and various costs associated with serving an account in a particular location. SECTION 4. Each person, partnership or corporation accepted by Ace Hardware Corporation as a member dealer or non-member account shall, by virtue of such acceptance, be deemed to have agreed to assume liability for and indemnify Ace Hardware Corporation and hold it harmless from and against any and all claims which may be asserted against it and from any losses sustained by it (including attorneys' fees and expenses incurred by it in defending such claims or in attempting to avoid or mitigate such losses) in connection with or resulting from billings by suppliers of merchandise purchased by or at the request of such dealer or account from or through Ace Hardware Corporation in cases where such merchandise is not to be supplied from the corporation's own inventories. ARTICLE XXVI BY-LAWS TO CONSTITUTE BINDING CONTRACT SECTION 1. These By-laws, as amended from time to time, shall constitute a binding legal contract between Ace Hardware Corporation and its stockholders, and shall be legally binding on all stockholders of Ace Hardware Corporation and the successors, heirs, executors, administrators, assigns and personal representatives of such stockholders. SECTION 2. The purchase of shares of any class of stock of this corporation and the issuance thereof to any stockholder shall constitute and be equivalent to a consent of the part of the stockholder to whom said shares are issued to be bound by these By- laws, as amended from time to time, and an agreement on such stockholder's part to be bound thereby. SECTION 3. The invalidity of any portion of these By-laws, as amended from time to time, shall in no way affect any other portion of the By-laws which can be given effect without such invalidated part, and the remaining portions of the By-laws shall continue to constitute a legally binding contract between this corporation and its stockholders. PARTII INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. The following is an estimate of expenses in connection with the issuance and distribution of the capital stock being offered: Printing of Registration Statement and Prospectus. . . . .$10,000 Accounting Fees and Expenses . . . . . . . . . . . . . . . 12,000 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . .2,000 Fees and Expenses under "Blue Sky" Laws of Various States .3,500 Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . 500 Total . . . . . . . . . . . . . . . . . . . . . . . . . .$28,000 Item 15. Indemnification of Directors and Officers. In accordance with the authority granted by Section 145 of the General Corporation Law of the State of Delaware, under which the Registrant is incorporated, Article XV of the Registrant's By-Laws (which Article is included in the copy of the By-laws designated as Appendix A to the Prospectus constituting a part of this Registration Statement and is incorporated herein by reference) provides for indemnification by the Registrant of its directors, officers, employees or agents. The principal provisions of said By-law obligate the Registrant to indemnify any such person against expenses (including attorneys' fees) actually and reasonably incurred by any such person in connection with his successful defense of any action, suit or proceeding (whether civil, criminal, administrative or investigative) instituted against him by reason of the fact that he is or was an officer, director, employee or agent of the Registrant and further authorize the Registrant, in any situation where the Board of Directors of the Registrant, by a majority vote of disinterested directors, determines that any such person acted in good faith and in a manner he reasonably believed to be in the best interest of the Registrant, to indemnify him for the amount of any judgment or fine or settlement payment incurred by him, together with his expenses and attorneys' fees, in connection with any such action, suit or proceeding. Richard Kaup, the late Virgil Poss, and Antone Salel, who constitute the Trustees of the Ace Dealers' Perpetuation Fund prior to its termination on November 30, 1976 (as of which date all of the assets of said Fund were assigned and transferred to the Registrant and the Registrant then assumed and became responsible for any and all obligations and liabilities, contingent or otherwise, of the Trustees of said Fund), would also be afforded indemnification by the Registrant with respect to any of their activities while acting as such Trustees under the following terms included in a resolution adopted by unanimous vote of the Board of Directors of the Registrant on April 24, 1974: "... that the corporation indemnify and hold harmless each of said Trustees with respect to any claims made against any of them and any expenses thereby incurred by any of them in connection with any of their activities as such Trustees". Insofar as indemnification for liabilities arising under the federal Securities Act of 1933 may be permitted to directors, officers, or persons controlling the Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Registrant also maintains a directors and officers liability and corporation indemnification insurance policy issued by Illinois National Insurance Company under which there are to be paid on behalf of the Registrant all amounts for which the Registrant grants indemnification to a director or officer of the Registrant with respect to any claim(s) made against him which arise out of a "Wrongful Act" (as defined in the policy) committed by such director or officer in his capacity as such a director or officer and which he has become legally obligated to pay. Said policy also insures each director or officer of the Registrant against loss arising from any claim(s) not indemnified by the Registrant which may be made against him by reason of any such "Wrongful Act" committed by him. The limits of liability under said policy are $10,000,000 for each loss and $10,000,000 for each policy year. The Registrant is subject to a $250,000 self-insured retention for a loss in which the Registrant grants indemnification to the directors and officers. Each director and officer covered by the policy has first dollar coverage with no deductible for each loss in which the Registrant does not grant indemnification. Coverage is not provided for claims under Section 16(b) of the Federal Securities Exchange Act of 1934, which could not arise in any event due to the ownership limitations and restrictions on transfers which are applicable to the Registrant's stock. Among the other classes of claims which are excluded from coverage under the policy are claims based upon alleged violations of the Federal Employee Retirement Income Security Act of 1974. Item 16. Exhibits (a) Exhibits: Exhibit No. 1 No exhibit. 2 No exhibit. 3 Not applicable. 4-A Restated Certificate of Incorporation of the Registrant dated September 18, 1974 filed as Exhibit 3-A to the Registrant's Form S-1 Registration Statement (Registration No. 2-55860) on March 30, 1976 and incorporated herein by reference. 4-B By-laws of the Registrant as amended through September 19, 1995 (included as Appendix A to the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement) and incorporated herein by reference. 4-C Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated May 19, 1976 filed as Exhibit 3-D to Amendment No. 1 to the Registrant's Form S-1 Registration Statement (Registration No. 2-55860) on June 10, 1976 and incorporated herein by reference. 4-D Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated May 21, 1979 filed as Exhibit 3-F to Amendment No. 1 to the Registrant's Form S-1 Registration Statement (Registration No. 2-63880) on May 23, 1979 and incorporated herein by reference. 4-E Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated June 7, 1982 filed as Exhibit 3-G to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 16, 1983 and incorporated herein by reference. Exhibit No. 4-F Certificate of Amendment to the restated Certificate of Incorporation of the Registrant dated June 5, 1987 filed as Exhibit 3-F to the Registrant's Form S-1 Registration Statement (Registration No. 33-4299) on March 29, 1988 and incorporated herein by reference. 4-G Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant dated June 16, 1989 filed as Exhibit 4-G to the Post Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-27790) on March 20, 1990 and incorporated herein by reference. 4-H Specimen copy of Class B stock certificate as revised as of November, 1984, filed as Exhibit 4-A to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 15, 1985 and incorporated herein by reference. 4-I Specimen copy of Patronage Refund Certificate as revised in 1988 filed as Exhibit 4-B to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 33- 4299) on March 29, 1988 and incorporated herein by reference. 4-J Specimen copy of Class A stock certificate as revised in 1987 filed as Exhibit 4-C to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration Statement (Registration No. 33-4299) on March 29, 1988 and incorporated herein by reference. 4-K Specimen copy of Class C stock certificate filed as Exhibit 4-I to the Registrant's Form S-1 Registration Statement (Registration No. 2-82460) on March 16, 1983 and incorporated herein by reference. 4-L Copy of current standard form of Subscription for Capital Stock Agreement to be used for dealers to subscribe for shares of the Registrant's stock in conjunction with new membership agreements submitted to the Registrant filed as Exhibit 4-L to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 4-M Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on and after January 1, 1995, adopted by the Board of Directors of the Registrant on July 26, 1994 (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement) and incorporated herein by reference. 4-N Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on or after January 1, 1993 through December 31, 1994 adopted by the Board of Directors of the Registrant on December 8, 1992, (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement) and incorporated herein by reference. 5 Opinion of David W. League, Vice President, General Counsel of the Registrant, as to legality of securities being registered. 6 No exhibit. Exhibit No. 7 Opinion of Messrs. Gatenbey, Law & League filed as Exhibit 7 to the Registrant's Form S-1 Registration Statement (Registration No. 2- 82460) on March 16, 1983 and incorporated herein by reference. 8 Exhibit 5 addresses tax matters as required in Exhibit 8; the opinions of David W. League, Vice President, General Counsel of the Registrant, as to certain tax matters are set forth in statements attributed to him under the subheading "Federal Income Tax Status of Class A and Class C Shares" and subheading "Federal Income Tax Treatment of Patronage Dividends" in the Prospectus constituting a part of the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement. 9 Not applicable. 10-A Copy of Retirement Benefits Replacement Plan of the Registrant, restated as of January 1, 1989 filed as Exhibit 10-A to Post- Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-B Copy of resolutions amending the 1990 Incentive Plans for Executives and establishing the Executive Supplemental Benefit Plans of the Registrant adopted by its Board of Directors on December 11, 1990, filed as exhibit 10-G to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33- 27790) on March 20, 1991 and incorporated herein by reference. 10-C Copy of amendment to the Executive Supplemental Benefits Plan of the Registrant adopted by its Board of Directors on July 30, 1991 filed as Exhibit 10-E to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-D Copy of amendment to the Executive Supplemental Benefits Plan of the Registrant adopted by its Board of Directors on December 9, 1991 filed as Exhibit 10-F to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-E Copy of the "Ace Hardware Corporation Officer's (sic) Incentive Compensation Plan" as amended and restated effective January 1, 1994 filed as Exhibit 10-G to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33- 46449) on March 23, 1994 and incorporated herein by reference. 10-F Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and Paul Ingevaldson filed as Exhibit 10-F to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-G Copy of Employment Agreement dated October 4, 1994 between Ace Hardware Corporation and David F. Hodnik filed as Exhibit 10-G to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-H Copy of Employment Agreement dated October 12, 1994 between Ace Hardware Corporation and William A. Loftus filed as Exhibit 10-H to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. Exhibit No. 10-I Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and Roger E. Peterson filed as Exhibit 10-K to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-J Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and Paul Ingevaldson filed as Exhibit 10-I to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-464489) on March 22, 1993 and incorporated herein by reference. 10-K Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and David F. Hodnik filed as Exhibit 10-J to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-L Copy of Employment Agreement effective January 1, 1993 between Ace Hardware Corporation and William A. Loftus filed as Exhibit 10-L to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-M Copy of Loan Agreement with Anne Arundel County, Maryland dated December 1, 1981 securing 15-year floating rate industrial development revenue bonds in the principal sum of $9,000,000 held by The Northern Trust Company, Chicago, Illinois, for itself and other participating lenders filed as Exhibit 10-A-k to Post-Effective Amendment No. 3 to the Registrant's Form S-1 Registration Statement (Registration No. 2-63880) on March 9, 1982 and incorporated herein by reference. 10-N Copy of Note Purchase and Private Shelf Agreement with The Prudential Insurance Company of America dated September 27, 1991 securing 8.74% Senior Series A Notes in the principal sum of $20,000,000 with a maturity date of July 1, 2003 filed as Exhibit 10-A-q to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1992 and incorporated herein by reference. 10-O Copy of Standard Form of Ace Hardware International Retail Merchant Agreement adopted in 1990, filed as Exhibit 10-A-q to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-27790) on March 20, 1991 and incorporated herein by reference. 10-P Copy of Current Standard Form of Ace Hardware Membership Agreement filed as Exhibit 10-P to the Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33- 46449) on March 23, 1994 and incorporated herein by reference. 10-Q Copy of 6.89% Senior Series B notes in the aggregate principal sum of $20,000,000 issued July 29, 1992 with a maturity date of January 1, 2000 pursuant to Note Purchase and Private Shelf Agreement with the Prudential Insurance Company of America dated September 27, 1991 filed as Exhibit 10-Q to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33- 46449) on March 23, 1994 and incorporated herein by reference. Exhibit No. 10-R Copy of 6.47% Senior Series A notes in the aggregate principal sum of $30,000,000 issued September 22, 1993 with a maturity date of June 22, 2008, and $20,000,000 Private Shelf Facility, pursuant to Note Purchase and Private Shelf Agreement with the Prudential Insurance Company of America dated as of September 22, 1993 filed as Exhibit 10-R to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-S Assignment and Assumption dated October 22, 1992 of Lease dated August 31, 1992 with MTI Vacations, Inc. filed as Exhibit 10-A-s to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-T Copy of Amendment to the Executive Supplemental Benefit Plans of the Registrant adopted by its Board of Directors on March 17, 1992 filed as Exhibit 10-A-t to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33- 46449) on March 22, 1993 and incorporated herein by reference. 10-U Copy of Lease dated September 30, 1992 for general offices of the Registrant in Oak Brook, Illinois filed as Exhibit 10-A-u to the Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 22, 1993 and incorporated herein by reference. 10-V Copy of Fourth Amendment to Executive Supplemental Benefit Plans effective January 1, 1994 filed as Exhibit 10-V to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-W Copy of Ace Hardware Corporation Deferred Director Fee Plan as amended on June 8, 1993 filed as Exhibit 10-W to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-X Copy of Ace Hardware Corporation Deferred Compensation Plan effective January 1, 1994 filed as Exhibit 10-X to Post-Effective Amendment No. 2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on March 23, 1994 and incorporated herein by reference. 10-Y Copy of Lease dated September 22, 1994 for bulk merchandise redistribution center of Registrant in Carol Stream, Illinois filed as Exhibit 10-Y to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-Z Copy of Lease dated May 4, 1994 for freight consolidation center of the Registrant in Chicago, Illinois filed as Exhibit 10-Z to the Registrant's Form S-2 Registration Statement (Registration No. 33- 58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-1 Copy of Long-Term Incentive Compensation Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994 filed as Exhibit 10-a-1 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. Exhibit No. 10-a-2 Copy of Directors' Deferral Option Plan of the Registrant effective January 1, 1995 adopted by its Board of Directors on December 6, 1994 filed as Exhibit 10-a-2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 (Registration No. 33-58191) and incorporated herein by reference. 10-a-3 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Fred J. Neer filed as Exhibit 10-a-3 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-4 Copy of Employment Agreement dated March 22, 1994 between Ace Hardware Corporation and Donald L. Schuman filed as Exhibit 10- a-4 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-5 Copy of Employment Agreement dated December 13, 1993 between Ace Hardware Corporation and David W. League filed as Exhibit 10-a-5 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-6 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and David F. Myer filed as Exhibit 10-a-6 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-7 Copy of Employment Agreement dated March 24, 1994 between Ace Hardware Corporation and Michael C. Bodzewski filed as Exhibit 10-a-7 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-8 Copy of Employment Agreement dated December 15, 1993 between Ace Hardware Corporation and Rita D. Kahle filed as Exhibit 10-a-8 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-9 Copy of Agreement dated January 6, 1995 between Ace Hardware Corporation and Roger E. Peterson filed as Exhibit 10-a-9 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan for Fiscal Year 1994 filed as Exhibit 10-a-10 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated herein by reference. 10-a-11 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. 10-a-12 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. 10-a-13 Copy of Lease dated November 27, 1995 between 674573 Ontario Limited and Ace Hardware Canada Limited for general office space in Markham, Ontario, Canada. Exhibit No. 10-a-14 Copy of Lease dated February 9, 1995 between Leroy M. Merritt and the Registrant for its Baltimore, Maryland redistribution center. 10-a-15 Copy of First Amendment to the Ace Hardware Corporation Long- Term Incentive Compensation Deferral Option Plan effective December 5, 1995. 10-a-16 Copy of First Amendment to the Ace Hardware Corporation Directors' Deferral Option Plan effective December 5, 1995. 10-a-17 Copy of Form of Executive Officer Employment Agreement effective January 1, 1996. 10-a-18 Copy of Ace Hardware Corporation Executive Benefit Security Trust Agreement effective July 19, 1995. 11 No exhibit. 12 No exhibit. 13 Not applicable. 14 Not applicable. 15 No exhibit. 16 Not applicable. 17 Not applicable. 18 Not applicable. 19 Not applicable. 20 Not applicable. 21 Not applicable. 22 Not applicable. 23(a) Independent Auditors' Consent, Dated March 8, 1996. (b) Consent of Counsel, Legal Opinions-Exhibit 5 and Exhibit 7. 24 Powers of Attorney. 25 No exhibit. 26 No exhibit. 27 Financial Data Schedule. 28 Not applicable. Item 17. Undertakings. The undersigned Registrant hereby undertakes: (a) Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section; (b) To file with the Securities and Exchange Commission, during any period in which offers or sales are being made pursuant to the registration, a post-effective amendment to the Registration Statement: (i) to include any Prospectus required by Section 10(a) (3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including (but not limited to) any addition or deletion of a managing underwriter. (c) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment to the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (d) To remove from registration by means of a post-effective amendment of any of the securities being registered which remain unsold at the termination of the offering. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Village of Oak Brook, State of Illinois, on the day of March 11, 1996. ACE HARDWARE CORPORATION RICHARD E. LASKOWSKI (Richard E. Laskowski, Chairman of the Board and Director) Pursuant to the requirement of the Securities Exchange Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date RICHARD E.LASKOWSKI Chairman of the Board March 11, 1996 (Richard E. Laskowski) and Director DAVID F. HODNIK President and Chief March 11, 1996 (David F. Hodnik) Executive Officer RITA D. KAHLE Vice President-Finance March 11, 1996 (Rita D. Kahle) (Principal Financial and Accounting Officer) Jennifer C. Anderson, Lawrence R. Bowman, Directors Mark Jeronimus, Howard J. Jung, John E. Kingrey, Ray W. Osborne, Roger E. Peterson, Jon R. Weiss, Don S. Williams and James R. Williams, Jr. *BY DAVID F. HODNIK March 11, 1996 David F. Hodnik *BY RITA D. KAHLE March 11, 1996 Rita D. Kahle *Attorneys-in-fact INDEX TO EXHIBITS FILED TO THE POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-2 OF ACE HARDWARE CORPORATION Exhibit Number Exhibit 4-B By-laws of the Registrant as amended through September 19, 1995 (included as Appendix A to the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement). 4-M Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on and after January 1, 1995, adopted by the Board of Directors of the Registrant on July 26, 1994 (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement). 4-N Copy of plan for the distribution of patronage dividends with respect to purchases of merchandise made from the Registrant on or after January 1, 1993 through December 31, 1994 adopted by the Board of Directors of the Registrant on December 8, 1992, (the text of which plan is set forth under the heading "The Company's Business," subheading "Forms of Patronage Dividend Distributions" in the Prospectus constituting a part of this Post-Effective Amendment No. 1 to the Registrant's Form S-2 Registration Statement). 5 Opinion of David W. League, Vice President and General Counsel of the Registrant as to legality of securities being registered. 10-a-11 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. 10-a-12 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. 10-a-13 Copy of Lease dated November 27, 1995 between 674573 Ontario Limited and Ace Hardware Canada Limited for general office space in Markham, Ontario, Canada. 10-a-14 Copy of Lease dated February 9, 1995 between Leroy M. Merritt and the Registrant for its Baltimore, Maryland redistribution center. 10-a-15 Copy of First Amendment to the Ace Hardware Corporation Long- Term Incentive Compensation Deferral Option Plan effective December 5, 1995. 10-a-16 Copy of First Amendment to the Ace Hardware Corporation Directors' Deferral Option Plan effective December 5, 1995. 10-a-17 Copy of Form of Executive Officer Employment Agreement effective January 1, 1996. 10-a-18 Copy of Ace Hardware Corporation Executive Benefit Security Trust Agreement effective July 19, 1995. Exhibit Number Exhibit 23(a) Independent Auditors' Consent, Dated March 8, 1996. (b) Consent of Counsel, Legal Opinions-Exhibit 5 and Exhibit 7. 24 Powers of Attorney. 27 Financial Data Schedule. The various exhibits incorporated by reference are listed in Item 16 of this Post-Effective Amendment No. 1 to the Form S-2 Registration Statement of Ace Hardware Corporation. EX-5 2 OPINION LETTER EXHIBIT 5 March 11, 1996 To the Board of Directors Ace Hardware Corporation 2200 Kensington Court Oak Brook, Illinois 60521 Re: Total Shares Offered By Prospectus 1,852 Class A 77,750 Class C Gentlemen: This opinion relates to the legality of 1,852 unsold shares of Class A voting stock (par value $1,000 per share) and 77,750 unsold shares of Class C nonvoting stock (par value $100 per share) of Ace Hardware Corporation (the "Company"), a Delaware corporation, previously registered with the Securities and Exchange Commission. Of the foregoing shares, 1,500 unsold shares of Class A stock and 40,000 of Class C stock were previously registered under Registration Statement No. 33-58191, and 352 unsold shares of Class A stock and 37,750 shares of Class C stock were previously registered under Registration Statement No. 33-46449. These shares, pursuant to Rule 429 of Regulation C of the Securities Act of 1933, constitute the shares being offered by the Prospectus filed as a part of the Post-Effective Amendment No. 1 to Registration Statement No. 33-58191 with respect to which said opinion is furnished. As General Counsel of the Company since January 1, 1989 and as a former partner in the firm of Gatenbey, Law & League which acted as general counsel to the Company and its Illinois predecessor corporation for many years prior to that date, I have examined the Company's restated Certificate of Incorporation (as amended to date), the By-laws of the Company (as amended to date), and its corporate proceedings, and have made such other investigations as I have deemed necessary or appropriate for the purpose of this opinion. VALIDITY OF SHARES OF STOCK Based upon the foregoing, I am of the opinion that: (1) The Company is duly organized and validly existing as a corporation in good standing under the laws of the State of Delaware and is also duly qualified to do business as a foreign corporation in, and is in good standing under the laws of, the States of Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Maryland, Mississippi, Missouri, Nebraska, New York, North Carolina, Ohio, Oregon, Texas, Washington and Wisconsin. (2) The total authorized capital stock of the Company consists of 10,000 shares of Class A Voting Stock (par value $1,000 per share), 6,500 shares of Class B Nonvoting Stock (par value $1,000 per share)and 2,000,000 shares of Class C Nonvoting Stock (par value $100 per share). (3) All of the shares of capital stock of the Company which are to be offered by the Prospectus filed as a part of the aforesaid Post-Effective Amendment No. 1 to Registration Statement No. 33-58191 with respect to which this opinion is furnished (including any shares which may have heretofore been issued but are not presently outstanding), will, upon issuance in accordance with the terms set forth in said Prospectus, constitute legally and validly issued, fully paid and non-assessable shares. This opinion also relates to the preference in excess of par value to which shares of Class "B" stock (par value $1,000.00 per share) of Ace Hardware Corporation (the "Company"), a Delaware corporation, are entitled in the event of the involuntary liquidation of the Company. The restated Certificate of Incorporation authorizes the Company to issue 6,500 shares of Class "B" stock, of which 3,028 shares are presently issued and outstanding. I have examined the restated Certificate of Incorporation and the By-laws of the Company, and note that the matter of distribution of the net assets of the Company in the event of a involuntary liquidation is provided for in Article Fourth (j) of the restated Certificate of Incorporation. It is stated therein that, in the event of a liquidation (voluntary or involuntary), there shall be added together the total par value of all of the issued and outstanding shares of Class "A" stock, the total purchase or redemption price of all of the shares of Class "A" stock, the total purchase or redemption price of all of the issued and outstanding shares of Class "B" stock as last determined by the Board of Directors, and the total purchase price of all of the issued and outstanding shares of Class "C" stock as last determined by the Board of Directors. It is further provided that each share of Class "B" stock shall share in the distribution of the net assets in the proportion which the purchase price or redemption price thereof last determined by the Board of Directors bears to said total dollar amount. Since Article Fourth (g) and Article Fourth (h) of the restated Certificate of Incorporation of the Company provide that the purchase or redemption price to be paid by the Company for shares of its Class "B" stock must at all times be equal to 20 times the per share purchase price last established by the Board of Directors with respect to purchases by the Company of its Class "C" stock and that the purchase or redemption price to be paid by the Company for its Class "B" stock shall in no event be less than twice the par value thereof, the shares of Class "B" stock could have a preference in excess of par value in the event of involuntary liquidation. PREFERENCE OF CLASS B STOCK IN VOLUNTARY LIQUIDATION In my opinion the provisions of the restated Certificate of Incorporation providing for such preference with respect to the shares of Class "B" stock of the Company are legally permitted and have been legally adopted in accordance with Section 151(d) of the General Corporation Law of Delaware. It is my further opinion that the aforementioned preference of the Class "B" stock in the event of involuntary liquidation of the Company does not require, and does not have the effect of, placing any restrictions upon surplus by reason of the potential preference in excess of par value attached to the Class "B" shares. In view of the fact that Article Fourth (f) of the restated Certificate of Incorporation expressly prohibits the Company from declaring dividends on any of the shares of any class of stock of the Company, it is also my opinion that the holders of any shares of the Company would have any remedies before or after payment of any dividend which would reduce surplus to an amount less than the amount of such excess. TAX ISSUES Statements made under subheadings "Federal Income Tax Status of Class A and Class C Shares," pp. 8-9 and "Federal Income Tax Treatment of Patronage Dividends," pp. 27-29 of the Prospectus that is part of the aforesaid Post-Effective Amendment No. 1 to Registration Statement No. 33-58191 also represent my opinion concerning said matters. CONSENT I understand that this opinion is to be used in connection with the aforesaid Post-Effective Amendment No. 1 to Registration Statement No. 33-58191, and I consent to the filing of this opinion with the Registration Statement and to the reference to me in the Prospectus under the heading "Opinion of Experts". 10-K CONSENT I further consent to "Federal Income Tax Treatment of Patronage Dividends," pages 14-15 of the 10-K which is incorporated by reference into the Company's S-2 Registration Statement and which also represents my opinion concerning said matters. Sincerely, David W. League Vice President and General Counsel Ace Hardware Corporation EX-10 3 EX 10-A-11 - YORKVILLE LEASE EXHIBIT 10-a-11 LEASE This Lease Agreement made as of the 28th day of July, 1995, by and between TRI-R Corporation, an Illinois corporation, with its principal offices at 9620 Route 34, Suite E, Yorkville, Illinois 60560 (hereinafter referred to as "Landlord") and A.H.C. STORE DEVELOPMENT CORP., an Illinois corporation, with its principal offices at 2200 Kensington Court, Oak Brook, Illinois 60521 (hereinafter referred to as "Tenant"). WITNESSETH: Whereas, Landlord is the owner of a certain parcel of real estate located at 9620 Route 34, Yorkville, Kendall County, Illinois, more particularly described on Exhibit A attached hereto, which includes a two story, 15,700 square foot commercial building (the "Premises"). Whereas, Landlord desires to lease to Tenant or its permitted assignee the retail store consisting of 12,500 square feet located on the first floor of the Premises, and the existing parking areas adjacent to the north, west and south sides of the building, but excluding ten (10) parking spaces on the west side of the Premises which Landlord reserves for the use of other tenants (the "Leased Premises"). Now, Therefore, Landlord and Tenant hereby agree as follows: 1. LEASED PREMISES: Landlord hereby leases to Tenant and Tenant hereby takes from Landlord, the Leased Premises, together with all rights, privileges, easements and appurtenances including the building and other improvements now situated or to be erected upon the Leased Premises. The Leased Premises shall exclude the second floor offices of the Premises. 2. TERM AND RENEWAL OPTIONS: The initial term of this Lease shall commence on August 1, 1995, (the "Commencement Date") and shall terminate ten (10) years thereafter. Tenant shall have the option of renewing this Lease for one (1) additional renewal term of five (5) years upon the same terms and conditions set forth herein, except for rent, provided it shall give Landlord written notice of its intention to do so not less than six (6) months prior to the expiration of the initial term. 3. RENT: A. Minimum Rent: Tenant shall pay to Landlord at the address set forth in Paragraph 28 hereof, or at such other address as Landlord shall from time to time designate in writing, without demand, except as in this Lease otherwise specifically provided, in equal, monthly installments in advance no later than the fifth day of each and every month during the initial term and renewal terms, if any, the minimum annual rent set forth in the Rent Schedule attached hereto as Exhibit B (the "Minimum Annual Rent"). B. Percentage Rent: In addition to the payment of the Minimum Annual Rent, Tenant shall pay to the Landlord as additional rent for each lease year, the amount, if any, by which five percent (5%) of Tenant's gross sales exceeds the Minimum Annual Rent. As used in this paragraph, the term "lease year" shall mean the first consecutive 12-month period beginning the first day of the first full month hereunder, and each succeeding 12- month period. The term "gross sales" shall mean the gross amount of sales of merchandise at the Leased Premises, either cash or credit, but excluding: (1) credits, allowances and refunds from the return of merchandise by Tenant's customers; (2) merchandise discounts and mark downs; (3) charges to customers for credit service, extension of credit, deferred payments and layaways; (4) proceeds from vending machines; (5) sales taxes added to the price of the merchandise; and, (6) sales of merchandise to Landlord. C. Annual Adjustment and Audit: Tenant shall pay the percentage rent due pursuant to paragraph 3B above, if any, within thirty (30) days after the end of each Lease year, and shall concurrently submit to Landlord a statement of Tenant's gross and net sales during the preceding Lease year. Landlord may, by giving written demand within sixty (60) days after the end of each Lease year, have Tenant's records of gross and net sales for the preceding Lease year inspected at Tenant's offices by a licensed accountant of Landlord's choice. Landlord's failure to make a timely written demand for inspection shall constitute an acceptance of the accuracy of Tenant's statement. All sales figures and other financial information disclosed to Landlord by Tenant shall be kept confidential by Landlord. 4. USE OF PREMISES: The Leased Premises may be used and occupied by Tenant for any lawful purpose (subject to Section 12 hereof) including, but not limited to, the operation of a hardware/home center/lumber/rental store. 5. COMPLIANCE WITH LAW: Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Leased Premises, and shall, subject to Section 7D. herein, promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisance in or upon, or connected with the Leased Premises, all at the Tenant's sole expense. 6. REAL ESTATE TAXES AND ASSESSMENTS: A. In addition to the Rent, Tenant shall pay all real estate taxes, governmental impositions, levies, and special or general assessments (sometimes collectively, the "Impositions") which are levied or assessed against Leased Premises and the common areas of the Premises, as defined in Section 9 hereof, when they shall respectively become due and payable, up to a maximum of $15,000.00 per year. If, during the term of the Lease or any renewal term, the amount of the Impositions increases above $15,000.00, then Landlord and Tenant shall each pay 50% of such increase. All Impositions assessed prior to but payable in whole or in installments after the Commencement Date, and all Impositions assessed during the term of this Lease but payable in whole or in installments after the term of this Lease, shall be adjusted and prorated so that the Landlord shall pay its prorated share for the periods preceding and following the term of this Lease, and Tenant shall pay its prorated share for the term of this Lease. Notwithstanding the foregoing, Tenant shall not be chargeable with or nor obligated to pay any income, inheritance, gift, franchise, corporate, gross receipts (except as provided below), capital levy, or estate tax, which may be at any time levied or assessed against, or become a lien upon, Landlord's parcel or the rents payable hereunder, but Landlord, at its own cost and expense, shall discharge same so as to keep the Leased Premises free of the liens of same, it being the intent hereof that Tenant shall be required to pay only such Impositions as are properly known as real estate taxes or real estate assessments and are assessed against the real estate, including the buildings and improvements thereon, as such. B. If there shall be any refunds or rebates on account of any Imposition paid by Tenant, such proportionate share of such refund or rebate shall belong to Tenant. Any such refunds or rebates received by Landlord shall be trust funds and shall be forthwith paid to Tenant. Landlord shall, on request of Tenant, sign any receipt which may be necessary to secure the payment of any such refund or rebate, and shall pay over to Tenant such refund or rebate as received by Landlord. C. Special or general assessments for local improvements or betterments which have become liens upon the building on or before the Commencement Date, shall be payable in full by Landlord and not be deemed Impositions for the purpose of this Section. D. Within forty-five (45) days following the end of each year of this Lease, Landlord shall furnish Tenant a statement covering the year just expired showing the Impositions separately for land and improvements payable by Tenant for such year and copies of receipts evidencing payment thereof by Landlord. Within thirty (30) days after receipt of such statement and receipts, Tenant shall pay Landlord its proportionate share of the Impositions. E. Tenant may, in its own name or in the name of Landlord, contest the validity or amount of any such taxes or the assessments upon which the same are based, and Landlord agrees to render to Tenant all assistance reasonably possible, including joining in and signing any protest or pleading which Tenant may deem advisable. If any rebate of such taxes is made, the rebate shall belong to Tenant, to the extent Tenant has so reimbursed Landlord for the year from which such rebate is made. Landlord shall from time to time furnish Tenant with a copy of each receipted tax bill with respect to the premises, together with a statement in reasonable detail showing the amount, if any, due from Tenant supported by evidence reasonably satisfactory to Tenant with respect to the method of calculation of said amount and the basis therefore. Subject to verification by Tenant as to the amount due and payment of such taxes, Tenant shall within thirty (30) days after receipt of the applicable tax bills, statement and evidence, remit to Landlord the amount due. If the minimum rent abates or is apportioned for any reason, the amounts due pursuant to this Section shall similarly abate or be apportioned. 7. MAINTENANCE BY LANDLORD: A. Landlord shall, at its expense, maintain the structural portions of the Premises and the Leased Premises including, but not limited to, the roof, foundation, underground or otherwise concealed plumbing and exterior walls (excluding all windows, window glass, plate glass and all doors) of the building in good repair and condition. Tenant shall give immediate written notice to Landlord of the need for repairs or corrections and Landlord shall proceed promptly to make such repairs or corrections. B. Landlord represents that, as of the Commencement Date, the plumbing, heating and air conditioning system and equipment are in good operating condition, and were built in accordance with applicable building codes in existence at the time of construction. C. Landlord agrees, at its expense, to re-seal and restripe the parking areas and to repair all existing roof leaks no later than thirty (30) days after the Commencement Date. Landlord agrees to be liable for maintaining the stairway leading up to the second floor offices. D. Landlord agrees that if any federal, state or municipal government, or any department or division thereof, subsequent to Tenant's occupancy of the Leased Premises, requires any rebuilding, alterations, repairs or installations to the interior of Tenant's Leased Premises so as to put the Leased Premises in conformity with the laws, regulations or ordinances relating to the use, occupancy and construction thereof, Landlord shall immediately, at its own cost and expense, rebuild or make such alterations, installations and repairs as may be necessary to comply with such laws, ordinances or requirements. Said rebuilding, alterations or repairs to the interior also includes but is not limited to all entrances and exits to the Leased Premises. 8. MAINTENANCE BY TENANT: A. Tenant shall, at its expense and risk, maintain all other parts of the building and other improvements on the Leased Premises in good repair and condition, including, but not limited to, repairs (including all necessary replacements) to the interior plumbing, windows, window glass, plate glass, doors, heating system, air conditioning equipment and the interior of the Leased Premises in general. Should Tenant be required to replace any of the aforementioned items, then Landlord and Tenant agree to prorate the cost thereof based on the value of the unused portion of the useful life of the item and the length remaining under the term of the Lease. The useful life of each major component of the heating and air conditioning equipment shall be agreed to in writing on or before the Commencement Date. Tenant must obtain Landlord's approval of the replacement of the item before incurring the cost thereof. The Tenant shall be responsible for usual and customary maintenance of the septic system. The Landlord shall be liable for repair or replacement of the septic system. Tenant shall maintain the landscaping and the parking area (sealing and patching, when necessary). B. Tenant shall throughout the Lease term take good care of the Leased Premises and other improvements and keep them free from waste or nuisance, and properly service and maintain the heating and air conditioning equipment and shall deliver up the premises broom clean at the termination of this Lease in good repair and condition (reasonable wear and tear excepted). C. In the event Tenant or Landlord should neglect to fulfill their respective maintenance obligations hereunder after written notice from the other party, then the other party shall have the right (but not the obligation) to cause repairs or corrections to be made and any reasonable costs therefore shall be payable by Tenant or offset against rent by Tenant, as the case may be, on the next rental installment date. 9. ALTERATIONS, ADDITIONS AND IMPROVEMENTS: Tenant shall not create any openings in roof or exterior walls nor make any alterations, additions or improvements to the Leased Premises without prior written consent of Landlord. Consent for nonstructural alterations, additions or improvements shall not be unreasonably withheld by Landlord. Tenant shall have the right at all times to erect or install shelves, bins, machinery, air conditioning or heating equipment, and trade fixtures, provided that Tenant complies with all applicable governmental laws, ordinances and regulations. Tenant shall have the right to remove at the termination of this Lease such items so installed, however, Tenant shall, prior to the termination of his Lease, repair any damages caused by such removal. Tenant shall indemnify Landlord from any mechanic's liens and shall within fifteen (15) days of completion of said work, provide Landlord with copies of validly executed waivers of liens and sworn contractor's affidavits. All alterations, additions or improvements made by Tenant shall become the property of the Landlord at the termination of this Lease. Tenant has the right to make alterations to the interior of the Leased Premises provided the cost of which does not exceed an amount equal to three (3) months' rent without prior consent of Landlord, at Tenant's sole expense. 10. SIGNS: Tenant shall have the right to erect signs on any of the four exterior facias of the building securely attached to and parallel to said facia, subject to applicable laws, regulations, ordinances of the governmental authorities having jurisdiction. Landlord also agrees to give Tenant permission to alter the existing pylon sign. This would include removal of the existing reader board sign, thereby allowing the installation of a larger, two-sided illuminated Ace or Ace Hardware sign on top of pylon. Tenant shall assume all expenses and responsibilities relative to the maintenance and use of pylon sign, provided, however, that Landlord shall, at its expense, ensure that the pylon sign and wiring comply with applicable building and electrical codes. Tenant shall remove all signs at the termination of this Lease, and shall repair any damage and close any holes caused by such removal. 11. INCREASING PREMIUMS OR CAUSING SUSPENSION OR CANCELLATION OF LANDLORD'S INSURANCE POLICY: Tenant shall not permit any operation to be conducted in the Leased Premises that would cause suspension or cancellation of the fire and extended coverage insurance policy carried by Landlord. Any insurance which may be carried by Landlord or Tenant against loss or damage to the building and other improvements situated on Leased Premises shall be for the sole benefit of the party carrying such insurance and under its sole control. 12. WAIVER OF SUBROGATION: Each party hereto waives (insofar as it is possible to do so without impairing or invalidating that party's insurance coverage) 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 by valid and collectible fire and extended coverage insurance policies, to the extent that such loss or damage is recoverable under said insurance policies. Said mutual waivers shall be in addition to, and not in limitation or derogation or, any other waiver or release contained in this Lease with respect to any loss of, or damage to, property to the parties hereto. Inasmuch as the above mutual waivers preclude the assignment of any aforesaid claim by way of subrogation (or otherwise) to an insurance company (or for any other person), each party hereto hereby 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 endorsed, if necessary, to prevent the invalidation of said insurance coverages by reason of said waivers. 13. LANDLORD'S RIGHT OF ENTRY: Landlord and its authorized agents shall have the right to enter the Leased Premises during normal working hours and upon reasonable prior notice for the following purposes: (a) inspecting the general conditions and state of repair of the premises; (b) the making of repairs required of Landlord; (c) the showing of the premises to any prospective purchaser; (d) or for any other reasonable purpose. If Tenant shall not have renewed or extended this Lease prior to the final one hundred 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 a customary sign advertising the property for lease or for sale. 14. UTILITY SERVICES: Landlord shall provide at the beginning date of this Lease the normal and customary utility service connections in the Leased Premises. The Leased Premises are presently serviced by a private well and septic system, which Landlord represents are in good working order as of the Commencement Date. If, during the term of this Lease or any renewal term, the Leased Premises are to be connected to the municipal water and sewer systems, the Landlord shall pay any required hook up costs and fees. Tenant shall pay all charges for gas, water and electricity used on the Premises, and for all electric light lamps or tubes used on the Leased Premises. 15. ASSIGNMENT AND SUBLEASING: The Tenant may not, without the written consent of the Landlord, assign or sublet this Lease. The consent of Landlord shall not be unreasonably withheld if such consent is requested, but Tenant may in no event assign this Lease or sublet the premises for a use which is more hazardous or more destructive to the premises than the use permitted hereunder. Landlord will not withhold its consent to an assignment or sublease from Tenant to another entity in which Tenant holds the majority interest. In the event of any assignment agreed upon between Landlord and Tenant, the Tenant shall not be released from any liability under this Lease or other related agreements signed among the parties. 16. FIRE AND CASUALTY DAMAGE: Should the building or other structures be damaged or destroyed by fire, tornado or other casualty which can be reasonably insured against, Tenant shall give immediate written notice thereof to the Landlord. If the building is substantially or totally destroyed, Landlord shall either rebuild the same to substantially the same condition which it was in immediately preceding the destruction, and there shall be an abatement of rent for the period of time during which the Leased Premises are unusable by Tenant, or Landlord may terminate this Lease. If the damage as a result of the casualty to the building is substantial but renders the Leased Premises unusable only in part, Landlord shall rebuild the same to substantially the conditions in which they were immediately preceding the damage, and there shall be an abatement of rent in the proportion that the part of the Leased Premises rendered unusable by the Tenant bears to the total usable area included in the premises immediately prior to the damage. If the Landlord has not repaired such damage within one hundred eighty (180) working days after the occurrence of the casualty, then Tenant may proceed to rebuild or repair the casualty damage to said building and other improvements to substantially the condition in which they existed prior to such casualty and may offset the cost thereof against rental then becoming next due. 17. HOLD HARMLESS: Landlord shall not be liable to Tenant or Tenant's employees, agents or invitees or to any other person whomsoever, for any injury to person or damage to property on or about the Leased Premises caused by negligence or misconduct of Tenant, its employees, or agents. Tenant agrees to indemnify Landlord and hold it harmless from any loss, expenses or claims arising out of any such damage or injury, unless such damage or injury results from Landlord's negligent or intentional acts or omissions. 18. CONDEMNATION: If, during the term of this Lease or any extension or renewal thereof , all or a substantial part of the Leased Premises should be taken for any public or quasi-public use under any governmental law, regulation, ordinance or by right of eminent domain, or should be sold to the condemning authority under threat of condemnation, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective as of the date of taking of said premises by the condemning authority. If less than twenty-five percent (25%) of the Leased Premises shall be taken for any public or quasi-public use under any governmental law, regulation, ordinance 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 and reconstruct the building and other improvements situated on the Leased Premises provided such restoration and reconstruction shall make the same reasonably Tenantable and suitable for the uses for which the premises are leased as defined in Section 4 above. The rent payable hereunder during the unexpired portion of this Lease shall be adjusted equitably on a pro rata basis. Landlord and Tenant shall each be entitled to receive and retain such separate awards as may be allocated to their respective interests in any condemnation proceedings. The termination of this Lease shall not affect the rights of the respective parties to such awards. Notwithstanding anything in this Section to the contrary, if any government taking contemplated herein renders the Leased Premises unusable for its intended purpose, then either party may terminate this Lease by written notice to the other and the parties will have no further obligations hereunder. 19. DEFAULT BY TENANT: The following events shall be deemed to be events of default by Tenant under this Lease: A. Tenant shall fail to pay any installment of the rent on the date that same is due and such failure shall continue for a period of five (5) days after written notice from Landlord. B. 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 default within thirty (30) days after written notice thereof to the Tenant, or if such default cannot reasonably be cured within the said thirty (30) days and Tenant shall not have commenced to cure such default within thirty (30) days after written notice thereof to Tenant, or if such default cannot reasonably be cured within the said thirty (30) days and Tenant shall not thereafter with reasonable diligence and good faith proceed to cure such default. C. Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. D. Tenant shall file a petition under any Section or Chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof; or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against the Tenant thereunder. E. A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. F. Upon the occurrence of any of such events of default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever. (i) Terminate this Lease, in which event Tenant shall immediately surrender the Leased Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Leased Premises, and relet the premises and receive the rent therefor; and Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. (ii) Enter upon and take possession of the Leased Premises, without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obliged 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 obligation under this Lease. 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. 20. RIGHT OF FIRST REFUSAL: If at any time during any term of this Lease, Landlord receives and is willing to accept a bona fide offer from a third party to purchase the Premises, other than an offer to purchase it at any sale incidental to the exercise of a remedy provided for in a mortgage or other security instrument creating a lien on the Premises, or if Landlord offers to sell the Premises to a third party, Landlord shall promptly transmit to Tenant its offer to sell the Premises to Tenant upon terms and conditions substantially similar to those offered by or to the third party, together with a true copy of such original offer. If Tenant does not accept such offer within thirty (30) days after it is made, Landlord may, within one hundred eighty (180) days after the thirty (30) day period expires, sell the interest to a third party upon terms and conditions substantially similar to those offered to Tenant. If Tenant accepts such offer by notice to Landlord within the time permitted, the offer and acceptance shall constitute a contract for the sale by Landlord and the purchase by Tenant of the Premises at a closing to be held within thirty (30) days following the receipt by Landlord of Tenant's notice of acceptance. On the date of such purchase, Landlord shall convey marketable title to the Premises to Tenant against payment of the purchase price therefor. 21. ATTORNEY'S FEES: If, on account of any breach or default by Landlord or Tenant of their obligations to any of the parties hereto, under the terms, conditions and covenants of this Lease, it shall become necessary for any of the parties hereto to employ an attorney to enforce or defend any of its rights or remedies hereunder and should such party prevail, it shall be entitled to any reasonable attorney's fees incurred in such connection. 22. QUIET ENJOYMENT: Landlord warrants that it has full right and power to execute and perform this Lease and to grant the estate leased herein and that Tenant, on payment of the 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 renewal thereof. Tenant's interest in the Leased Premises is subordinate to any mortgage or deed of trust granted by the Landlord 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 mortgagee and that the rights of Tenant shall remain in full force and effect during the term of this Lease so long as Tenant shall continue to perform all of the covenants of this Lease. 23. WAIVER OF DEFAULT: No waiver by the parties hereto of any default or breach of any term, condition, or covenant of this Lease shall be deemed to be waiver of any subsequent covenant contained herein. 24. 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 question of intent should arise. 25. 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, be exercised or performed by Landlord's agent or attorney. 26. NOTICES: Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered when deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the parties hereto at the respective addresses set opposite their names below, or at such other addresses as they have therefore specified by written notice delivered in accordance herewith: Landlord: Tenant: TRI-R Corporation A.H.C. Store Development Corp. 9620 Route 34 2200 Kensington Court Suite E Oak Brook, Illinois Yorkville, Illinois 60521 60560 Attn: Robert Brettelle Attn: William Loftus 27. INSURANCE: During the entire term of this Lease, the Tenant shall, at Tenant's sole cost and expense, furnish, maintain and provide the following insurance coverage for benefit of Landlord and Tenant: A. General public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the leased premises and on any sidewalks directly adjacent to the Leased Premises. The limitation of liability of such insurance shall be not less than Five Hundred Thousand Dollars ($500,000) in respect to injury or death of one person and a limitation of One Million Dollars ($1,000,000) in respect of any one accident, and a limitation of One Hundred Thousand Dollars ($100,000) in respect of property damage, or a combined single limit covering bodily injury and property damage in the amount of $1,000,000. Such policies may be blanket policies covering other locations and evidence of such insurance shall be delivered to Landlord upon demand. If Tenant fails to obtain such insurance or to maintain same in effect or to furnish Landlord with such evidence, Landlord shall have the right to obtain such insurance and to add the cost thereof to the rent then due or to grow due hereunder. B. At all times during the term hereof keep in force at its own expense plate glass insurance in companies acceptable to Landlord and naming Landlord as an additional insured party. C. At all times during the term hereof keep in force at its own expense property insurance with extended coverage in companies acceptable to Landlord, equal to the replacement cost of the Premises, naming Landlord as an additional insured party. D. Prior to occupying the Leased Premises, Tenant shall provide Landlord with a duly executed Certificate of Insurance showing that the insurance required herein is in full force and effect. Said certificate shall provide that Landlord shall be given ten (10) days notice of any cancellation or change in the insurance set forth on said certificate. 28. SEVERABILITY: If any provisions of this Lease shall be determined to be void by any court of competent jurisdiction, then such determination shall not affect any other provision hereof, all of which other provisions shall remain in full force and effect. 29. ENVIRONMENTAL: Landlord represents and warrants that, as of the Commencement Date, the Premises are in compliance with all federal, state or local environmental laws, rules and regulations including, without limitation, laws, rules and regulations pertaining to the transportation, treatment, storage and disposal of hazardous materials and hazardous wastes. Landlord shall defend, indemnify and hold harmless Tenant, its officers, agents, employees and assignees from any against any liability arising out of a breach of the foregoing representation. 30. EXCLUSIVITY: Landlord agrees that during any period that this Lease is in full force and effect, it shall not create or lease space at the Premises to anyone other than Tenant for the sale of hardware, paint, wallpaper, automotive supplies, rental items or live plants without Tenant's consent. 31. ARBITRATION: Landlord and Tenant agree that all disputes that may arise under this Lease shall be submitted to arbitration under the rules of the American Arbitration Association. Such arbitration shall take place in Chicago, Illinois. IN WITNESS WHEREOF, the parties have executed this Lease on the date first set forth above. Tenant: Landlord: A.H.C. STORE DEVELOPMENT CORP. TRI-R CORPORATION By: WILLIAM A. LOFTUS By: TED SCHICK William A. Loftus, President Title: PRESIDENT ATTEST: ATTEST: WILLIAM M. CHRISTOU ROBERT A. BRETTELLE V.P. EXHIBIT A [Insert Legal Description] EXHIBIT B RENT SCHEDULE YEAR MINIMUM ANNUAL RENT 1. REDACTED 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. EX-10 4 EX 10-A-12 - BRANTFORD LEASE EXHIBIT 10-a-12 MULTI TENANT INDUSTRIAL BUILDING SHORT FORM BRANT TRADE & INDUSTRIAL PARK INC. LANDLORD - - and - ACE HARDWARE CANADA LIMITED TENANT L E A S E TABLE OF CONTENTS Article Article I 1.0 LEASE SUMMARY Article II 2.0 DEFINITIONS Article III 3.0 INTENT OF LEASE 3.1 Net Lease Article IV 4.0 LEASE OF PREMISES 4.1 Premises 4.2 Term 4.3 Use Prior to Commencement Date 4.4 Acceptance of Premises 4.5 Licence to Use Common Facilities 4.6 Quiet Enjoyment 4.7 Fixturing of Premises Article V 5.0 RENT 5.1 Tenant to Pay 5.2 Basic Rent 5.3 Additional Rent 5.4 Deemed Rent and Allocation 5.5 Monthly Payments of Additional Rent Article VI 6.0 TAXES 6.1 Taxes Payable by Tenant 6.2 Determination of Tenant's Taxes 6.3 Business Taxes 6.4 Tax Bills and Assessment Notices 6.5 Contest of Realty Taxes Article VII 7.0 OPERATION OF PROJECT 7.1 Operation of Project by Landlord 7.2 Tenant's Payment of Operating Costs 7.3 Adjustments to Operating Costs Article VIII 8.0 USE OF PREMISES 8.1 Use of Premises 8.2 Conduct of Business 8.3 Tenant's Fixtures 8.4 Signs 8.5 Waste Removal 8.6 Pest Control 8.7 Waste and Nuisance 8.8 Compliance with Law 8.9 Deliveries 8.10 Prohibited Uses Article IX 9.0 SERVICES AND UTILITIES 9.1 Utilities 9.2 Heating and Air-Conditioning 9.3 Non-Liability of Landlord 9.4 Landlord's Suspension of Utilities 9.5 Landlord's Services 9.6 Landlord's Charges for Services Article X 10.0 MAINTENANCE, REPAIRS AND ALTERATIONS 10.1 Maintenance and Repairs of Premises 10.2 Approval of Repairs and Alterations 10.3 Repair According to Landlord's Notice 10.4 Notice by Tenant 10.5 Ownership of Leasehold Improvements 10.6 Construction Liens 10.7 Landlord's Repairs Article XI 11.0 END OF TERM 11.1 Vacating of Possession 11.2 Removal of Trade Fixtures 11.3 Removal of Leasehold Improvements 11.4 Overholding by Tenant Article XII 12.0 DAMAGE AND DESTRUCTION 12.1 Insured Damage to Premises 12.2 Uninsured Damage and Last Two Years 12.3 Damage to Project 12.4 Restoration of Premises or Project 12.5 Determination of Matters Article XIII 13.0 INSURANCE AND INDEMNITY 13.1 Landlord's Insurance 13.2 Tenant's Effect on Other Insurance 13.3 Tenant's Insurance 13.4 Landlord's Right to Place Tenant's Insurance 13.5 Landlord's Non-Liability 13.6 Indemnity of Landlord 13.7 Landlord's Employees and Agents Article XIV 14.0 ASSIGNMENT, SUBLETTING AND CHANGE OF CONTROL 14.1 Consent Required 14.2 Obtaining Consent 14.3 Landlord's Option 14.4 Terms of Consent 14.5 Effect of Transfer 14.6 No Advertising of Premises 14.7 Mortgage of Lease 14.8 Corporate Tenant 14.9 Assignment by Landlord Article XV 15.0 STATUS AND SUBORDINATION OF LEASE 15.1 Status Statement 15.2 Subordination and Attornment 15.3 Tenant's Failure to Comply 15.4 Registration Article XVI 16.0 DEFAULT AND REMEDIES 16.1 Default and Remedies 16.2 Interest 16.3 Costs 16.4 Distress and Tenant's Property 16.5 Security Deposit 16.6 Remedies to Subsist 16.7 Impossibility of Performance Article XVII 17.0 CONTROL OF PROJECT 17.1 Landlord's Control 17.2 Alterations of the Project 17.3 Use of Common Facilities 17.4 Rules and Regulations 17.5 Access to Premises 17.6 Expropriation 17.7 Development of Project 17.8 Landlord's Consent Article XVIII 18.0 MISCELLANEOUS 18.2 Complete Agreement 18.3 Time of the Essence 18.4 Applicable Law 18.5 Severability 18.6 Section Numbers and Headings 18.7 Interpretation 18.8 Successors Article XIX 19.0 SPECIAL PROVISIONS 19.1 Conditions to Tenant's Rights 19.2 Renewal Option 19.3 Environmental Provisions 19.4 Right of First Refusal 19.5 Condition of Premises 19.6 Building Codes 19.7 Environmental Representation 19.8 Net Rent Free Period 19.9 Exterior Use of Premises 19.10 Non-Disturbance Agreement 19.11 Landlord's Work 19.12 Early Termination 19.13 Office Space 19.14 Close Down Period 19.15 Commissions 19.16 Mediation/Arbitration Schedules "A" Legal Description of Project "B" Outline Plan of Premises "C" Tenant Alterations Appendix "A" Guaranty Agreement Multi Tenant Industrial Building Short Form THIS LEASE dated the 31st day of October, 1995 B E T W E E N : BRANT TRADE & INDUSTRIAL PARK INC. (hereinafter called "Landlord") OF THE FIRST PART - and - ACE HARDWARE CANADA LIMITED (hereinafter called "Tenant") OF THE SECOND PART ARTICLE I.0 LEASE SUMMARY Lease Summary The following is a summary of some of the basic terms of this Lease, which are elaborated upon in the balance of this Lease. This section 1.1 is for convenience and if a conflict occurs between the provisions of this section 1.1 and any other provisions of this Lease, the latter shall govern. Premises: A portion, as shown cross hatched in heavy black on the sketch annexed hereto as Schedule "B" (the "Industrial Space"), of the industrial building known as Building #2; Term: Ten (10 ) years four (4) months and fifteen (15) days; Commencement Date: November 15, 1995; Expiry Date: March 31, 2006; Basic Rent (also referred to as "Net Rent"): The Net Rent payable during the Term based on 284,000 square feet shall be as follows: Year Rate/Square Foot Rate/Annum Rate/Month 1 REDACTED 2 3 4 5 6 7 8 9 10 All rates and funds are in Canadian Dollars. Rentable Area of Premises: 284,000 square feet of Industrial Space, subject in each case to confirmation of the actual Rentable Area in accordance with section 2.21. In addition to the aforementioned space (284,000 square feet) the Tenant shall utilize an additional area of up to 70,000 square feet on an "as is" basis located on the structural mezzanine level directly over a portion of the premises. There shall be no net rent for the mezzanine space. Should any common area maintenance charges become applicable during the term or any extensions thereof, the Tenant agrees to pay half of the charge for the mezzanine. Should any tax charges become applicable during the term or any extensions thereof, the Tenant agrees to pay said charges for the mezzanine; Deposits: (i) Prepaid Rent: Ninety-four thousand six hundred sixty-six dollars and sixty-six cents ($94,666.66), to be applied against the first two monthly payments of Net Rent; (ii) Security Deposit: Nil; Use of Premises: Warehousing, outside storage, distribution and associated offices; Address for Service of Notice on Tenant or Guarantor, if any: at the Premises; with a copy to: Real Estate Department Ace Hardware Corporation Ace Hardware Corporate Offices 2200 Kensington Court Oak Brook, Illinois 60521 Address for Service of Notice on Landlord: Unit 28 2104 Highway 7 Concord, Ontario L4K 2S9 Special Provisions; See Article XIX. ARTICLE II.0 DEFINITIONS Definitions Where used in this Lease, the following words or phrases shall have the meanings set forth in the balance of this Article. "Additional Rent" shall have the meaning given to it in section 5.3. "Architect" means a professionally accredited architect, engineer, surveyor or other qualified person appointed by Landlord from time to time. "Basic Rent" shall have the meaning given to it in section 5.2. "Building" means the industrial building in which the Leased Premises are situated. "Business Hours" means 24 hours per day, seven days per week, subject to applicable Laws. "Commencement Date" shall have the meaning given to it in section 1.1. "Common Facilities" means the facilities, areas, lands, systems, improvements, fixtures and equipment which serve or benefit other Leaseable Areas of the Project in addition to the Premises, including without limitation roadways, driveways and walkways, whether or not such Common Facilities are located within the Project, and to the extent that the same are designated by Landlord to be part of the Common Facilities from time to time. "Fiscal Year" means the period used by Landlord for fiscal purposes in respect of the Project. Unless otherwise determined by Landlord by written notice to Tenant at any time or times, each Fiscal Year shall be a calendar year. In the event of a change in the Fiscal Year, or with respect of a partial Fiscal Year at the beginning or end of the Term, all appropriate adjustments resulting from a Fiscal Year being shorter or longer than twelve (12) months shall be made. "Landlord's Work" means the leasehold improvements which Landlord is required, by this Lease, to make to the Premises on or after the Commencement Date. "Lands" means the lands included in the Premises. "Laws" means all statutes, regulations, by-laws, orders, rules, requirements and directions of all governmental authorities having jurisdiction. "Lease Year" means each consecutive period of three hundred and sixty-five (365) days (or three hundred and sixty-six (366) days in the case of a Lease Year which includes the month of February in a leap year), the first Lease Year commencing on the Commencement Date and ending on the day before the anniversary of the Commencement Date (unless the Commencement Date is not the first day of a calendar month, in which case the first Lease Year shall commence on the Commencement Date and end on the day before the anniversary of the first day of the first full month of the Term), and each successive Lease Year commencing on the anniversary of the first day of the first full month of the Term. "Leasable Areas" means all areas and spaces of the Project to the extent designated or intended from time to time by Landlord to be leased to tenants, whether leased or not. "Operating Costs" means the aggregate of all expenses and costs of every kind for each fiscal period designated by Landlord, as determined without duplication, incurred by or on behalf of Landlord with respect to the operation, maintenance, repair, replacement and management of the Common Facilities, and all insurance relating to the Project, provided that if the Project is less than 100% completed or occupied during the whole of any fiscal period, the Tenant shall only be responsible for its share of the actual Operating Costs, determined to be a fraction which has as its numerator the Rentable Area of the Premises and which has as its denominator the aggregate Rentable Area of Leasable Areas with in the Project that have been leased during such fiscal period. Without in any way limiting the generality of the foregoing, Operating Costs shall include all cost in respect of the following: all remuneration, including wages and fringe benefits, of employees directly engaged in the operation, maintenance, repair, replacement and management of the Common Facilities; fire sprinkler maintenance and monitoring, if any, of the Project, excluding the cost of such services charged directly to tenants of the Project; waste removal, landscaping, grass cutting, snow and ice clearing and removal and salting in respect of the Common Facilities; all utilities supplied to the Project including, without limitation, water, gas, electricity and sewer charges, excluding those charged directly to tenants of the Project; depreciation or amortization, over a period reasonably determined by Landlord, of all costs, including capital costs, of all improvements, furnishings, fixtures, equipment, machinery, systems and facilities constructed or installed in or used in connection with the Common Facilities, which by their nature require periodic or substantial repair or replacement, or which are constructed or installed or used primarily to reduce the cost of other items included in Operating Costs, whether or not such other costs are in fact reduced; all insurance which Landlord obtains and the cost of any deductible amounts payable by Landlord in respect of any insured risk or claim; policing, supervision, security and traffic control; maintenance, repairs and replacements in respect of the Common Facilities including structural maintenance, repairs and replacements; all costs in the nature of Operating Costs in respect of areas, services and facilities outside the Project, such as sidewalks and boulevards, off-site utilities and other service connections, and in respect of areas, services and facilities shared by users of the Project and users of any other property, to the extent Landlord performs or contributes to the same as a result of its ownership of the Project; engineering, accounting, legal and other consulting and professional services related to Common Facilities; capital taxes payable by Landlord in respect of its ownership or other interest in the Project, namely any tax or taxes payable under any provincial or federal legislation based upon or computed by reference to the paid-up capital or place of business of Landlord as determined for the purposes of such tax or based upon or computed by reference to the taxable capital employed in Canada, or any similar tax levied, imposed or assessed in the future in lieu thereof or in addition thereto by any governmental authority; (xii) costs of Landlord's administration in respect of Realty Taxes, including, without limitation, all costs incurred by Landlord in contesting any Realty Taxes or appealing any assessments relating thereto, all costs and expenses of any kind incurred by Landlord acting reasonably in obtaining or attempting to obtain information in respect of, or a reduction or reallocation of, Realty Taxes or any assessments related thereto, and all legal, appraisal, administration and overhead costs; (xiii) repair or replacement of the roof membrane of Building 2, provided that the Tenant shall only be responsible for its pro rata share of the cost thereof, determined by multiplying the cost by a fraction, which has as its numerator the area of the Leased Premises and which has as its denominator the aggregate leaseable area on the ground floor of Building 2. Operating Costs, however, shall be reduced by the following to the extent actually received by Landlord: proceeds of insurance and damages received by Landlord from third parties to the extent of costs otherwise included in Operating Costs; contributions from parties other than tenants of the Project, if any, in respect of Operating Costs, such as contributions made by parties for sharing the use of Common Facilities, but not including rent or fees charged directly for the use of any Common Facilities such as parking fees; amounts in the nature of Excess Costs, as defined in subsection 7.3(a), to the extent received by Landlord from tenants of the Project. Operating Costs, however, shall exclude the following: Realty Taxes; expenses incurred by Landlord in respect of other tenants' leasehold improvements; capital costs except to the extent included as set forth above; depreciation, except to the extent included as set forth above; and repairs or replacements to the extent that the cost of the same is recovered by Landlord pursuant to original construction warranties. "Premises" shall have the meaning given to it in section 4.1. "Project" means those lands described in Schedule "A" hereto and all buildings, structures, improvements, equipment and facilities of any kind erected or located thereon from time to time, as such lands, buildings, structures, improvements, equipment and facilities may be expanded, reduced or otherwise altered by Landlord in its sole discretion from time to time. "Proportionate Share" means a fraction which has as its numerator the Rentable Area of the Premises and which has as its denominator the aggregate Rentable Area of Leasable Areas within the Project, subject to adjustment pursuant to subsection 7.3(b). "Realty Taxes" means all taxes, rates, duties, levies, fees, charges, local improvement rates, levies and assessments whatever ("Taxes"), whether municipal, provincial, federal or otherwise, which may be levied, assessed or charged against or in respect of the Project or any part thereof or any fixtures, equipment or improvements therein, or against Landlord in respect of any of the same or in respect of any rental or other compensation receivable by Landlord in respect of the same, and including all Taxes which may be incurred by or imposed upon Landlord or the Project in lieu of or in addition to the foregoing including, without limitation, any Taxes on or in respect of real property rents or receipts as such (as opposed to a tax on such rents as part of the income of Landlord) business transfer taxes, sales taxes, goods and services taxes, value-added taxes, and other such taxes to the extent charged on or calculated on the basis of Rent or any portion thereof, any Taxes based in whole or in part on the value of the Project, any commercial concentration levy in respect of the Project, and any licence fee measured by rents or other charges payable by occupants of space in the Project. "Rent" shall have the meaning given to it in section 5.1. "Rentable Area" when applied to the Premises or any Leaseable Areas means the area measured from the exterior face of exterior walls and windows, from the exterior face of all walls and windows dividing any Leaseable Areas from Common Facilities, and from the centre line of all interior walls separating any Leaseable Areas from other Leaseable Areas, all without deduction for any space occupied by structures, columns, beams, conduits, ducts or projections of any kind, and all without deduction for the recessing of any entrance way or boundary wall from the lease line. Every Rentable Area shall also include a pro rata share (defined below) of all areas in the Building, such as, by way of example only and without limitation, lobbies, corridors and entranceways, which form part of the Common Facilities but are used exclusively or primarily by certain tenants of the Project; the "pro rata share" shall be the floor area of such area(s), measured as set out above, and divided by the number of tenants whose premises are served by such area(s). Every Rentable Area shall be as determined by Landlord and, upon Tenant's request, Landlord shall, within a reasonable time thereafter, provide Tenant with an Architect's certificate as to the Rentable Area of the Premises, which certificate shall be conclusive and binding upon the parties hereto. "Term" shall have the meaning given to it in section 4.2. ARTICLE III.0 INTENT OF LEASE Net Lease It is the intent of the parties hereto that, except as expressly herein set out, this Lease be absolutely net to Landlord, and Landlord not be responsible for any expenses or obligations of any kind whatsoever in respect of the Premises or the Project. ARTICLE IV.0 LEASE OF PREMISES Premises Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those premises ("Premises") being part of the Building and shown cross hatched in heavy black on the plan attached hereto as Schedule "B". The purpose of Schedule "B" is to show the approximate location of the Premises and its contents are not intended as a representation as to the precise size or dimensions of the Premises or any other aspects of the Building or the Project. Tenant reserves the right to install a security fence around the perimeter of the shipping area on the east side of the leased premises subject to the Tenant providing the Landlord with a drawing for approval by the Landlord. Term The term of this Lease (the "Term") shall be for the period described as the Term in section 1.1 hereof, commencing on the Commencement Date and ending on the Expiry Date, both dates as described in section 1.1. Use Prior to Commencement Date If Tenant uses or occupies the whole or any part of the Premises in any way prior to the Commencement Date without entering into a lease with Landlord in respect of such use or occupancy, then during that period Tenant shall be a tenant of Landlord subject to all the terms and conditions contained in this Lease, provided that the inclusion of this section shall not be deemed to authorize or permit Tenant to use or occupy the whole or any portion of the Premises in any way prior to the Commencement Date. Acceptance of Premises Tenant accepts the Premises in the state and condition in which they are received from Landlord and, except only to the extent of any deficiency that may be found in the Landlord's Work described in section 19.11, and any other deficiency set out in a written list or videotape to be given by Tenant to Landlord within thirty (30) days after Tenant takes possession of the Premises, Tenant's entering into possession of the Premises shall be conclusive evidence of the acceptance by Tenant of the condition and state of repair of the Premises. It is understood and acknowledged by Landlord that Tenant shall have no responsibility or liability with respect to the repair or replacement of any of the above referenced deficiencies, unless the same shall have been repaired or replaced by Landlord. Licence to Use Common Facilities Subject to all other relevant provisions of this Lease, Landlord grants to Tenant the non-exclusive licence during the Term to use for their intended purposes, in common with others entitled thereto, such portions of the Common Facilities as are reasonably required for the use and occupancy of the Premises during Business Hours and such other hours, if any, as the Common Facilities are open for use, as determined by Landlord from time to time. Quiet Enjoyment Subject to Tenant's complying with all of the terms of this Lease, Tenant may peaceably possess and enjoy the Premises for the Term without interruption by Landlord or any person claiming through Landlord. Fixturing of Premises By not later than June 1, 1996 the Tenant shall fully finish, furnish, fixture and staff the whole of the Premises and shall commence the conduct of its business in the whole of the Premises as permitted and required pursuant hereto. ARTICLE V.0 RENT Tenant to Pay Tenant shall pay in lawful money of Canada at such address as shall be designated from time to time by Landlord Basic Rent and Additional Rent (all of which is herein sometimes referred to collectively as "Rent") as herein provided without any deduction, set-off or abatement whatsoever, Tenant hereby agreeing to waive any set-off rights it may have under any statute or at law. Basic Rent Commencing on the Commencement Date Tenant shall pay to Landlord a fixed minimum annual rent ("Basic Rent") for each Lease Year of the Term in the annual amount(s) described as Basic Rent in section 1.1, to be paid in equal monthly installments, as described as Basic Rent in section 1.1, in advance on the first day of each month during the Term. On the Commencement Date, if it is other than the first day of a calendar month, Tenant shall pay to Landlord for such partial month Basic Rent computed on a per diem basis. If an amount per square foot is specified in the description of Basic Rent in section 1.1, then the Basic Rent is intended to be such amount per square foot of Rentable Area of the Premises per annum, and the Basic Rent shall be subject to adjustment based upon the Architect's certificate of Rentable Area of the Premises to be delivered pursuant to section 2.21. Within thirty (30) days after delivery of such certificate all necessary adjustments will be made and Tenant shall pay to Landlord any deficiency in previous payments of Basic Rent and Additional Rent, and if Tenant is not in default under the terms of this Lease the amount of any overpayment by Tenant of Basic Rent and Additional Rent shall be paid to Tenant or credited to the account of Tenant. Additional Rent In addition to Basic Rent Tenant shall pay to Landlord all other amounts as and when the same shall be due and payable pursuant to the provisions of this Lease or pursuant to any other obligation in respect of the Premises, all of which shall be deemed to accrue on a per diem basis; all of such amounts are herein sometimes referred to as "Additional Rent". Tenant shall promptly deliver to Landlord upon request evidence of due payment of all payments of Additional Rent required to be paid by Tenant hereunder. Deemed Rent and Allocation If Tenant defaults in payment of any Rent (whether to Landlord or otherwise) as and when the same is due and payable hereunder, Landlord shall have the same rights and remedies against Tenant upon such default as if such sum or sums were rent in arrears under this Lease. Landlord may allocate payments received from Tenant among items of Rent then due and payable by Tenant. No acceptance by Landlord of payment by Tenant of any amount less than the full amount payable to Landlord, and no endorsement or direction on any cheque or other written instruction or statement respecting any payment by Tenant shall be deemed to constitute payment in full or an accord and satisfaction of any obligation of Tenant. Monthly Payments of Additional Rent Landlord may from time to time by written notice to Tenant estimate or re-estimate any amount(s) payable by Tenant to Landlord hereunder including without limitation, amounts in respect of Operating Costs, Realty Taxes and utilities, for the then current or next following fiscal period used by Landlord in respect of each of the said amounts. The fiscal period used by Landlord may correspond to a shorter period within any twelve month period where an item, for example Realty Taxes, is payable in full by Landlord over such shorter period. The amounts so estimated shall be payable by Tenant in advance in equal monthly installments over the fiscal period on the same days as the monthly payments of Basic Rent. Landlord may, from time to time, alter the fiscal period selected in each case. As soon as practicable after the expiration of each Fiscal Year, Landlord shall furnish to Tenant a statement of the actual amounts payable by Tenant in respect of Operating Costs, Taxes, utilities and any other relevant provisions hereof for such Fiscal Year. If the amount determined to be payable by Tenant as aforesaid shall be greater or less than the payments on account thereof previously made by Tenant, then the appropriate adjustments will be made and Tenant shall pay any deficiency to Landlord within sixty (60) days after delivery of such statement, and if Tenant is not in default under the terms of the Lease, the amount of any overpayment shall be paid to or credited to the account of Tenant within sixty (60) days after the delivery of said statement. Landlord shall provide Tenant with access to its books and records for the purpose of conducting an audit to verify the accuracy of said statement. If the audit discloses a material discrepancy (i.e. in excess of five percent (5%)) in such statement to the prejudice of the Tenant, then Tenant shall have the right to recover its costs and expenses incurred in conducting the audit. ARTICLE VI.0 TAXES Taxes Payable by Tenant Commencing on the Commencement Date and thereafter throughout the Term, Tenant shall pay to Landlord as and when due all Realty Taxes and other taxes, if any, levied, confirmed, imposed, assessed or charged (herein referred to as "charged") against or in respect of the Premises and all fixtures, equipment, improvements and alterations in the Premises, and including any such Realty Taxes and other taxes charged against the Premises in respect of any Common Facilities. In addition, Tenant shall pay the Proportionate Share of Realty Taxes, if any, separately charged against Common Facilities. To the extent of Realty Taxes received by Landlord from Tenant, Landlord shall pay same to the taxing authority. Determination of Tenant's Taxes Tenant's obligation to pay Realty Taxes charged against or in respect of the Premises shall be determined on the basis of a separate bill if available. If the relevant taxing authority does not issue a separate bill for the Premises then Tenant's obligation in respect thereof shall be computed by applying the relevant tax rate to a separate assessment of the Premises, if any. If there is neither a separate bill for Realty Taxes for the Premises nor a separate assessment of the Premises for any period of time, then for such period the Realty Taxes charged against or in respect of the Premises shall be determined by Landlord, acting reasonably, on the basis of the then current established principles of assessment used by the relevant assessing authorities and on the same basis as the assessment actually obtained for the project as a whole or the part thereof in which the Premises are located. Provided that Tenant shall be solely responsible for any increase in Realty Taxes resulting from any act or election of Tenant or from any fixtures or improvements in the Premises, and Tenant shall not be responsible for any such increase resulting from any act or election of Landlord or any other occupant of the Project or any fixtures or improvements in other Leasable Areas. Any amounts payable by Tenant on account of Realty Taxes shall be adjusted on a per diem basis in respect of any period not falling wholly within the Term. Business Taxes Tenant shall pay to the relevant taxing authority as and when the same are due and payable all taxes charged in respect of any business conducted on, or any use or occupancy of, the Premises. Tax Bills and Assessment Notices Tenant shall deliver to Landlord forthwith upon Tenant's receiving the same copies of all assessment notices, tax bills, receipts and other documents received by Tenant relating to Realty Taxes on the Premises or the Project. Contest of Realty Taxes Landlord may contest any Realty Taxes and appeal any assessments related thereto and may withdraw any such contest or appeal or may agree with the relevant authorities on any settlement in respect thereof. Tenant will cooperate with Landlord in respect of any such contest and appeal and shall provide to Landlord such information and execute such documents as Landlord requests to give full effect to the foregoing. All costs of any such contest and appeal by Landlord shall be included in Operating Costs. Tenant will not contest any Realty Taxes or appeal any assessments related thereto without first obtaining Landlord's prior written consent and delivering to Landlord such security as may be required by Landlord, acting reasonably, against any costs, liabilities or damages which might arise out of such contest or appeal. Tenant shall promptly upon request pay all costs and expenses, including without limitation reasonable legal expenses, incurred by Landlord as a result of any such contest or appeal by Tenant and indemnify Landlord against all costs, liabilities or damages which may be incurred by Landlord or any other person arising out of such contest or appeal. While any such contest or appeal by Tenant is in progress Tenant shall continue to pay Realty Taxes in respect of the Premises as if such contest or appeal had not been commenced. ARTICLE VII.0 OPERATION OF PROJECT Operation of Project by Landlord Landlord shall repair, maintain and operate the Common Facilities, in a reasonable manner as would a prudent owner having regard to its size, age, location and character. Tenant's Payment of Operating Costs Commencing on the Commencement Date and thereafter at all times throughout the Term Tenant shall pay to Landlord: (i) the Proportionate Share of Operating Costs, adjusted in accordance with 7.3; and (ii) an administration fee equal to fifteen percent (15%) of the amount payable by the Tenant in respect of Operation Costs. The amounts payable by Tenant pursuant to this section 7.2 may be computed on the basis of such periods of time as Landlord shall determine from time to time and shall be paid to Landlord within thirty (30) days after the submission to Tenant of a statement showing the amount payable by Tenant from time to time. All amounts payable under this Article VII in respect of any period not falling entirely within the Term shall be adjusted on a per diem basis. Adjustments to Operating Costs If by reason of the conduct of business on the Premises outside the normal business hours for the Project, as determined by Landlord, or by reason of the particular use or occupancy of the Premises or any of the Common Facilities by Tenant, its employees, agents or persons having business with Tenant, additional costs in the nature of Operating Costs, such as utility charges or security costs, are incurred in excess of the costs which would otherwise have been incurred for such items ("Excess Costs"), then Landlord shall have the right to determine on a reasonable basis and require Tenant to pay such Excess Costs. If Tenant or any other tenant of the Project, pursuant to its lease or otherwise by arrangement with Landlord, provides at its cost any goods or services the cost of which would otherwise be included in Operating Costs, or if any goods or services the cost of which is included in Operating Costs benefit any portion of the Project to a materially greater or lesser extent than any other portion of the Project, then either the denominator for determining a Proportionate Share, or alternatively the amount of Operating Costs, may be adjusted as determined by Landlord acting reasonably to provide for the equitable allocation of the cost of such goods and services among the tenants of the Project. ARTICLE VIII.0 USE OF PREMISES Use of Premises To the extent that this covenant shall run with the Premises for the benefit for the Project, excluding the Premises, Tenant covenants that it shall not use and shall not permit the Premises to be used for any purpose other than as described as Use of Premises in section 1.1 hereof, all in keeping with the standards of a prestige industrial park, and to be no more noxious or burdensome in terms of smoke, noise, radiation or vibration than the business initially operated by Tenant on the Premises. Conduct of Business At all times throughout the Term Tenant shall continuously and actively conduct its business in the whole of the Premises in a first class and reputable manner. Tenant's Fixtures Tenant shall install and maintain in the Premises at all times during the Term first-class trade fixtures including furnishings and equipment adequate and appropriate for the business to be conducted on the Premises, all of which shall be kept in good order and condition. Tenant shall not remove any trade fixtures or other contents from the Premises during the Term except in the ordinary course of business or for the purpose of replacing them with others at least equal in value and function to those being removed. Signs Tenant shall not erect, install or display any sign on or visible from the exterior of the Premises without the prior written approval of Landlord, which approval shall not be unreasonably withheld. Any exterior signage identifying Tenant's business on the Premises shall be supplied and erected by Tenant at Tenant's expense. Waste Removal Tenant shall not allow any refuse, garbage or any loose, objectionable material to accumulate in or about the Premises or the Project and will at all times keep the Premises in a clean and neat condition. Tenant shall comply with Landlord's regulations respecting the storage and removal of waste and shall be responsible for all costs of removal of waste from the Premises other than costs of routine waste removal included in Operating Costs. Until removed from the Project all waste from the Premises shall be kept in appropriate containers within the Premises. Tenant shall not use the exterior portions of the Premises for outside storage, including without limitation the storage of any machinery, equipment or waste. Pest Control Tenant shall be responsible for pest extermination in respect of the Premises and shall engage, for such purpose, such contractors at such intervals as Landlord shall reasonably require. Tenant shall not bring or permit to be brought onto the Premises or the Project any animals or birds of any kind. Waste and Nuisance Tenant shall not cause, suffer or permit any waste or damage to the Premises or leasehold improvements, fixtures or equipment therein nor permit any overloading of the floors thereof and shall not use or permit to be used any part of the Premises for any dangerous, noxious or offensive activity or goods and shall not do or bring anything or permit anything to be done or brought on or about the Premises or the Project which results in undue noise or vibration or which Landlord may reasonably deem to be hazardous or a nuisance or annoyance to any other tenants or any other persons permitted to be on the Project, and Tenant shall immediately take steps to remedy, remove or desist from any activity, equipment or goods on the Premises to which Landlord objects on a reasonable basis. Tenant shall take every reasonable precaution to protect the Premises and the Project from risk of damage by fire, water or the elements or any other cause. Tenant shall not itself, and shall not permit any of its employees, servants, agents, contractors or persons having business with Tenant, to obstruct any Common Facilities nor to use or permit to be used any Common Facilities for other than their intended purposes. Without limiting the foregoing, nothing shall be placed or stored anywhere in or on the Common Facilities. Tenant shall not, and shall not permit anyone else to, place anything on the roof of the Building or go on to the roof of the Building for any purpose whatsoever, without Landlord's prior written approval, which may be withheld in Landlord's sole discretion acting reasonably. Tenant shall not use any advertising, transmitting or other media or devices which can be heard, seen, or received outside the Premises, or which could interfere with any communications or other systems outside the Premises. Tenant shall be solely responsible for any contaminant, pollutant and toxic substance at any time affecting the Premises resulting from any act or omission of Tenant or any other person on the Premises or any activity or substance on the Premises during the Term, and any period prior to the Term during which the Premises were used or occupied by or under the control of Tenant, and shall be responsible for the clean-up and removal of any of the same and any damages caused by the occurrence, clean-up or removal of any of the same, and Tenant shall indemnify Landlord in respect thereof. Compliance with Laws Tenant shall be solely responsible for obtaining from all authorities having jurisdiction all necessary permits, licences and approvals as may be necessary to permit Tenant to occupy the Premises and conduct its business thereon, as required by all applicable Laws. Tenant shall comply at its own expense with all applicable Laws respecting the use, condition and occupation of the Premises, and all leasehold improvements, fixtures, equipment and contents thereof. Deliveries All deliveries to and from the Premises shall be made only by way of such driveways and access routes as Landlord may from time to time designate, acting reasonably. Prohibited Uses Tenant shall not cause, suffer or permit the Premises or any part thereof to be used at any time during the Term for any of the following businesses or activities: any type of business or business practice which would, in the reasonable opinion of Landlord, tend to lower the character or image of the Project or any portion thereof; any use which in any way contravenes any restrictive covenants in leases granted by Landlord after the date hereof; Tenant covenants and agrees that it will not carry on in the Premises any business which will in any way place Landlord in breach of any such restrictive covenants and Tenant will indemnify and save Landlord harmless from and against all actions, claims, demands and costs with respect thereto; this subsection (ii) shall not be interpreted to prevent Tenant from carrying on in the Premises any business to the extent expressly permitted pursuant to section 8.1 hereof; or any business or activity not in compliance with all Laws. The inclusion of the foregoing provisions of this section 8.10 shall not be deemed to be a representation or warranty of Landlord that any of the foregoing activities will not be authorized by Landlord to be conducted on any part of the Project. If, in the opinion of Landlord, Tenant is in breach of any of the provisions of this section 8.10, Tenant shall immediately discontinue such use upon Landlord's written request. Any restrictive covenants granted by the Landlord shall not restrict the Tenant from carrying on its business as contemplated herein and shall not result in any increase in charges to the Tenant pursuant to this Lease. ARTICLE IX.0 SERVICES AND UTILITIES Utilities Subject to Landlord's ability to do so, Landlord shall supply or cause to be supplied to the Premises electricity and other utilities for the reasonable use of the Premises for their intended purposes. Tenant shall promptly pay for, as and when they fall due, to Landlord or as Landlord shall from time to time direct, all costs of supplying water, electricity, gas, steam and other utilities to or in respect of the Premises, and all costs for all fittings, connections and meters and all work performed in connection with any services or utilities provided to the Premises. Tenant shall promptly execute and deliver any agreements required by Landlord or by utilities suppliers in respect of the supply of any utilities to the Premises. Tenant's use of any such utilities shall not exceed the available capacity of the existing systems from time to time. Should there be no individual meters for the measurement of the consumption of any utilities supplied to the Premises then Landlord, acting reasonably, may allocate the cost of such utilities among the various users thereof. If required by Landlord, Tenant shall install at its expense a separate meter or meters to measure the consumption of any or all utilities in the Premises. The cost of any utilities which are not charged to tenants of the Project individually shall be included in Operating Costs. Heating and Air-Conditioning Tenant shall heat and, where applicable, air-condition the Premises in a reasonable manner at Tenant's expense using heating and, where applicable, air-conditioning equipment installed in the Building. If the heating, ventilating, air-conditioning or humidity control equipment in or serving the Premises shall require maintenance, repair or replacement, Tenant at its expense shall promptly attend to the same in accordance with the manufacturer's or supplier's specifications and instructions. Tenant shall at its expense maintain a service contract for such equipment in or serving the Premises, with a contractor approved in advance in writing by Landlord, and shall ensure that Landlord is at all times in possession of a copy of such service contract and shall promptly deliver to Landlord copies of regular inspection reports and details of repairs. Landlord shall not be responsible for the inadequacy of any heating or air-conditioning of the Premises. If Tenant fails to so maintain, repair or replacement of any of the heating, ventilating, air-conditioning and humidity control equipment, and does not rectify such failure within the applicable cure period provided in section 16.1 after notice from Landlord, Landlord shall be entitled thereafter to itself attend to the maintenance, repair and replacement of such equipment, in which case the cost of such maintenance, repairs or replacement shall either be charged to Tenant or included in Operating Costs, as determined by Landlord to be appropriate pursuant to the applicable provisions of this Lease. Non-Liability of Landlord Landlord shall not be liable for any damages, direct or indirect, resulting from or contributed to by any interruption or cessation in supply of any utilities or heating, ventilating, air-conditioning and humidity control. Without limiting or affecting the generality or interpretation of the foregoing, and not withstanding the foregoing, it is agreed that the Landlord shall not be liable for any and all indirect or consequential damages or damages for personal discomfort or illness of Tenant or any persons permitted by it to be on the Premises, by reason of the suspension or non-operation of any utilities, heating, ventilating, air-conditioning or humidity control. Landlord's Suspension of Utilities In order to effect any maintenance, repairs, replacements or alterations to any of such utilities, heating, ventilating, air-conditioning or humidity control systems or any other part of the Project, Landlord shall have the right to modify or temporarily discontinue or suspend any such systems as required from time to time. Where reasonably possible to do so, and except in case of emergency when no notice shall be required, Landlord shall give Tenant reasonable notice (which notice need not be in writing but may be given orally, including by telephone, to a person in apparent authority at the Premises), of any expected interruption of the supply of utilities, heating, ventilating, air-conditioning or humidity control systems, or any other similar services, to the Premises. Landlord's Services Tenant shall pay Landlord on demand all charges as determined and allocated by Landlord acting reasonably in respect of all special services provided to or for the benefit of Tenant beyond standard services for the Project the costs of which are included in Operating Costs. Any services in respect of the Premises requiring drilling or otherwise penetrating floors, walls or ceilings, or for locksmithing, security arrangements or waste removal, shall be performed only by persons first approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed. Landlord's Charges for Services Unless otherwise expressly agreed between Landlord and Tenant to the contrary in respect of any specific matter from time to time, all work performed and materials supplied by Landlord for Tenant or by reason of Tenant's failure to make timely repairs respecting the Premises pursuant to the provisions hereof or otherwise shall be paid for by Tenant to Landlord forthwith on demand at Landlord's cost for the same plus ten percent (10%) for inspection and supervision plus ten percent (10%) for overhead and profit or such other reasonable amounts as may be charged by Landlord for overhead and profit from time to time. ARTICLE X.0 MAINTENANCE, REPAIRS AND ALTERATIONS Maintenance and Repairs of Premises At all times throughout the Term Tenant at its sole expense shall perform such maintenance, repairs and replacements as required to keep the Premises, all contents thereof and all services and equipment located in or primarily serving the Premises, in first-class appearance and condition, and in accordance with all Laws and Landlord's reasonable requirements, subject only to the obligations of Landlord expressly provided in section 10.7. For purposes of this section 10.1, but without affecting the interpretation of any other provision of this Lease, Premises shall include, without limitation: all leasehold improvements; all exterior and interior walls (repairs to exterior walls only if damaged by Tenant), windows and doors, including the exterior faces thereof; loading docks and bumpers; stairs; surrounding or enclosing masonry or other materials; and all such areas and facilities adjacent or proximate to and serving exclusively the Premises. Approval of Repairs and Alterations Tenant shall not make any repairs, replacements, changes, additions, improvements or alterations (hereinafter referred to as ("Alterations") to the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld unless such proposed Alterations might affect the structure of the Building, or the coverage of the Project for zoning purposes or the parking requirements for the Project, or impair the value or usefulness of the Premises or the Project, in any of which cases Landlord's consent may be unreasonably withheld in Landlord's sole discretion. Notwithstanding anything in the foregoing to the contrary, Tenant shall have the right to make and Landlord consents to the Tenant's alterations set forth in Schedule "C", subject to Landlord's prior written approval as to plans and specifications. With its request for consent Tenant shall submit to Landlord details of the proposed Alterations including plans and specifications prepared by qualified architects or engineers, and such Alterations shall be completed in accordance with the plans and specifications approved in writing by Landlord. Unless expressly authorized in writing by Landlord to the contrary, all Alterations which might cost in excess of $20,000.00 to complete or which may affect the structure or mechanical, electrical, utility, sprinkler, communications or other similar systems of the Building, shall be conducted under the supervision of a qualified engineer approved by Landlord, such approval not to be unreasonably withheld. All Alterations shall be planned and completed in compliance with all Laws and Tenant shall, prior to commencing any Alterations, obtain at its expense all necessary permits and licences. Prior to the commencement of any such Alterations Tenant shall furnish to Landlord such evidence as reasonably required by Landlord of the projected cost of Alterations and Tenant's ability to pay for same, together with such indemnification against costs, liens and damages as Landlord shall reasonably require including, if required by Landlord, a performance, completion and labour and materials bond acceptable to Landlord guaranteeing completion of such Alterations. All Alterations shall be performed at Tenant's cost, promptly and in a good and workmanlike manner and in compliance with Landlord's reasonable rules and regulations, by competent contractors or workmen who shall be first approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed. If any Alterations affect the structure or any external portions of the Building or any mechanical, electrical, utility, sprinkler, communications or other similar systems within the Premises or the Project, they shall, at Landlord's option, be performed at Tenant's expense by Landlord or by contractors designated by Landlord and under Landlord's supervision. For all Alterations performed by Landlord or at Landlord's expense or under Landlord's supervision, Tenant shall pay forthwith upon request all amounts paid or payable by Landlord to third parties and all reasonable charges of Landlord for its own personnel, plus ten percent (10%) for Landlord's inspection and supervision. All Alterations, the making of which might disrupt other tenants or occupants of the Project or the public, shall be performed outside normal business hours. If Tenant performs any such Alterations without compliance with all of the foregoing provisions of this Article X, Landlord shall have the right to require Tenant to remove such Alterations forthwith. Tenant shall pay to Landlord forthwith upon request all of Landlord's reasonable costs including, without limitation, fees of architects, engineers and designers, incurred in dealing with Tenant's request for Landlord's consent to any Alterations, whether or not such consent is granted, and in inspecting and supervising any such Alterations and Landlord shall have the right to require Tenant to pay Landlord a deposit on account of such costs as a precondition to Landlord's granting such consent. (g) The Tenant agrees at its expense to restore the premises to their original condition at the expiration of the lease term or any extensions thereof, normal wear and tear excepted, if so requested by the Landlord. Repair According to Landlord's Notice Landlord or any persons designated by it shall have the right to enter the Building at any time, during normal business hours except in case of emergency and, except in case of emergency when no notice shall be required, upon reasonable advance notice to Tenant (which notice need not however exceed twenty-four (24) hours and need not be given in writing, but may instead be given orally, including by telephone, to any person in apparent authority at the Premises, to view the state of repair and condition thereof and Tenant shall promptly perform any required maintenance, repairs or replacements according to Landlord's written notice. Any such entry and inspection by Landlord shall not unreasonably interfere with Tenant's quiet and peaceful enjoyment of the Premises except in the case of an emergency. Notice by Tenant Tenant shall give immediate written notice to Landlord of any accident, defect or damage in any part of the Premises or the Project which comes to the attention of Tenant or any of its employees or contractors notwithstanding the fact that Landlord may have no obligation in respect of the same. Ownership of Leasehold Improvements All leasehold improvements installed in or about the Premises shall forthwith upon the installation thereof become the property of Landlord but without Landlord's thereby accepting any responsibility in respect of the maintenance, repair or replacement thereof. The expression "leasehold improvements" where used in this Lease includes, without limitation, all fixtures, installations, alterations and additions from time to time made or installed in or about the Premises, and includes all of the following, whether or not they are trade fixtures or easily removable: doors, partitions and hardware; mechanical, electrical and utility installations; heating, ventilating, air-conditioning and humidity control equipment; lighting fixtures and built-in furniture. The only exclusions from "leasehold improvements" are free-standing furniture, trade fixtures and equipment not in any way connected to the Premises or to any utilities systems located therein, and Tenant's computer equipment. Construction Liens Tenant shall make all payments and take all steps as may be necessary to ensure that no lien is registered against the Project or any portion thereof as a result of any work, services or materials supplied to Tenant or the Premises. Tenant shall cause any such registrations to be discharged or vacated by payment into court or otherwise, within ten (10) days after notice from Landlord. If Tenant fails to cause any such registrations to be discharged or vacated within such ten (10) day period, Tenant shall indemnify and save harmless Landlord from and against any liabilities, claims, liens, damages, costs and expenses, including legal expenses, arising as a result thereof in connection with any work, services or materials supplied to Tenant or the Premises. If Tenant fails to cause any such registration to be discharged or vacated within such ten (10) day period then, in addition to any other rights of Landlord, Landlord may, but shall not be obliged to, discharge the same by paying the amount claimed into court, and the amounts so paid and all costs incurred by Landlord, including legal fees and disbursements, shall be paid by Tenant to Landlord forthwith upon demand. Landlord's Repairs Subject to the provisions of Article XII herein and subject to Tenant's obligations hereunder, to the extent that the failure to do so would materially detrimentally affect access to or use of the Premises, Landlord shall repair all of the following: (i) the Common Facilities; and (ii) damage to the Premises, excluding all leasehold improvements, against which and to the extent to which Landlord is required to be insured pursuant hereto or is otherwise insured and against which Tenant is not required to be insured and is not otherwise insured. Landlord's costs of compliance with this section 10.7 shall be included in Operating Costs to the extent set out in section 2.15. Provided that to the extent that such repair is necessitated directly or indirectly by any act or omission of Tenant or any servant, employee, agent, contractor, invitee or licensee or Tenant, Tenant shall be solely responsible for the cost of such repairs in accordance with section 9.6 and shall indemnify Landlord in respect thereof. The Landlord at its sole expense shall be responsible for structural repairs and replacements including those to the foundation, exterior walls and roof, if not occasioned by the fault of the Tenant or those for whom the Tenant is responsible. Any such repairs or replacements shall not unreasonably interfere with the Tenant's quiet and peaceful enjoyment of the Premises. It is acknowledged that the roof membrane is a part of the common area cost of the Building in which the Leased Premises are situated and is not a structural element. ARTICLE XI.0 END OF TERM Vacating of Possession Forthwith upon the expiry or earlier termination of the Term, Tenant shall deliver to Landlord vacant possession of the Premises in such condition in which Tenant is required to keep the Premises during the Term pursuant hereto and shall leave the Premises in neat and clean condition and shall deliver to Landlord all keys for the Premises and all keys or combinations to locks on doors or vaults in the Premises. Removal of Trade Fixtures Provided Tenant has paid all Rent and is not otherwise in default hereunder, or if otherwise authorized or requested by Landlord, at the expiry or earlier termination of the Term Tenant shall remove its trade fixtures and repair all damage resulting from the installation or removal of such trade fixtures. If at the expiry or earlier termination of the Term Tenant does not remove its trade fixtures or any of its other property on the Premises, Landlord shall have no obligation in respect thereof and may sell or destroy the same or have them removed or stored at the expense of Tenant; at the option of Landlord, such trade fixtures or property shall become the absolute property of Landlord without any compensation to Tenant. Removal of Leasehold Improvements Notwithstanding that the leasehold improvements become the property of Landlord upon installation, at the expiry or earlier termination of the Term Tenant shall remove any or all of such leasehold improvements made or installed in or about the Premises by Tenant, or by Landlord as Tenant's contractor, as required by Landlord and in so doing shall repair all damage resulting from, and shall restore the Premises to their condition prior to, the installation and removal of such leasehold improvements. Overholding by Tenant If Tenant remains in possession of all or any part of the Premises after the expiry of the Term with the consent of Landlord but without any further written agreement, this Lease shall not be deemed thereby to have been renewed and Tenant shall be deemed to be occupying the Premises as a monthly tenant on the same terms as set forth in this Lease insofar as they are applicable to a monthly tenancy except that beginning with the fourth month of such overholding by Tenant the monthly Basic Rent shall be twice the monthly Basic Rent payable during the last twelve months of the Term. ARTICLE XII.0 DAMAGE AND DESTRUCTION Insured Damage to Premises If there is damage to or destruction of the Premises caused by an occurrence against which, and to not more than the extent that, Landlord either is required to insure pursuant to this Lease or is otherwise insured ("Insured Damage"), then the following provisions of this section 12.1 shall apply. If such damage or destruction is such as to render the whole or any part of the Premises unusable for the purpose of Tenant's use and occupancy thereof, Landlord shall deliver to Tenant within thirty (30) days following the occurrence of such damage or destruction its reasonable opinion as to whether or not the same is capable of being repaired, to the extent of Landlord's repair obligations hereunder, within one hundred and eighty (180) days following such occurrence. If this Lease is not terminated as herein provided, Landlord, to the extent of insurance proceeds which it receives or would have received had it maintained such insurance as required hereunder, shall diligently proceed to perform repairs to the Premises to the extent of its obligations pursuant to section 10.7 hereof; and Tenant, commencing as soon as practicable but without interfering with Landlord's repairs, shall diligently perform such repairs as are Tenant's responsibility pursuant hereto. If, (i) in Landlord's reasonable opinion, the Premises are not capable of being repaired as aforesaid within one hundred and eighty (180) days following such occurrence, or (ii) immediately prior to the occurrence of such damage, Tenant was not using substantially all of the Premises for the purposes permitted by and as otherwise required pursuant hereto, or (iii) Tenant was at the time of such damage in breach of this Lease and fails within fifteen (15) days after notice of such default to remedy same to the extent possible in view of such damage, Landlord may, at its option, elect by written notice to the Tenant within thirty (30) days after delivery by Landlord of the opinion provided for in subsection 12.1(b) above, to terminate this Lease, whereupon Tenant shall immediately surrender possession of the Premises and Basic Rent and all other payments for which Tenant is liable pursuant hereto shall be apportioned to the effective date of such termination. If the damage is such as to render the whole or any part of the Premises unusable in whole or in part for the purpose of Tenant's use and occupancy thereof and if immediately prior to the occurrence of such damage Tenant was using substantially all of the Premises for the purposes permitted by and as otherwise required pursuant hereto, then the Rent payable hereunder shall abate to the extent that Tenant's use and occupancy of the Premises is in fact diminished, which determination shall be made by Landlord, acting reasonably, until the earlier of (i) the thirtieth (30th) day after the Premises are determined by Landlord to be ready for Tenant to commence its repairs to the Premises, and (ii) the date on which Tenant first commences the conduct of business in any part of the Premises which had been damaged. The respective obligations of Landlord and Tenant with respect to repair of the Premises following any damage or destruction shall be performed with all reasonable speed and in accordance with all applicable obligations to repair contained herein. Tenant acknowledges that its obligations to repair the Premises after such damage or destruction shall be performed at its sole cost without any contribution by Landlord provided that such damage or destruction was not caused by Landlord's fault and whether or not Landlord had at any time made any contribution to the cost of any leasehold improvements in the Premises. In any event, within thirty (30) days after Landlord has completed its repairs to the Premises as aforesaid, Tenant shall complete its repairs to the Premises and shall recommence the conduct of business thereon. Uninsured Damage and Last Two Years If there is damage to or destruction of the Premises and if, in Landlord's reasonable opinion, of which notice shall be given to Tenant within fifteen (15) days after the later of the date of such damage or destruction and the date upon which Landlord is notified by Tenant of such damage or destruction, the Premises are not capable of being repaired to the extent of Landlord's repair obligations within thirty (30) days following the giving of such notice, if (i) such damage or destruction is not Insured Damage, or (ii) such damage or destruction occurs within the last two (2) years of the Term and either Tenant has no remaining rights to renew this Lease or, having the right to renew this Lease fails to do so within fifteen (15) days after receipt of the said notice, then Landlord, at its option to be exercised by written notice given to Tenant within thirty (30) days after the later of the date of such damage or destruction and the date upon which Landlord is notified by Tenant of such damage or destruction, may terminate this Lease whereupon Tenant shall immediately surrender possession of the Premises and Basic Rent and all other payments for which Tenant is liable hereunder shall be apportioned to the effective date of such termination. If this Lease is not terminated as aforesaid the parties shall repair as provided in subsection 12.1(c) hereof and there shall be no abatement of any Rent unless the damage or destruction is Insured Damage and then only to the extent expressly provided in subsection 12.1(e) above. Damage to Project If thirty-five (35%) percent or more of the Rentable Area of Leasable Areas of the Project is damaged or destroyed by any cause whatsoever, whether or not there is any damage to the Premises, Landlord may, at its option, by notice given to Tenant within sixty (60) days after such occurrence, terminate this Lease as of a date specified in such notice, which date shall be not less than thirty (30) days and not more than one hundred and eighty (180) days after the giving of such notice. In the event of such termination Tenant shall surrender vacant possession of the Premises by not later than the said date of termination, and Basic Rent and all other payments for which Tenant is liable hereunder shall be apportioned to the effective date of termination. If Landlord does not so elect to terminate this Lease, Landlord shall diligently proceed to repair and rebuild the Project to the extent of its obligations pursuant hereto to the extent of insurance proceeds which Landlord receives or would have received had it maintained such insurance as required hereunder, and to the extent that any mortgagee entitled to be paid such insurance proceeds consents to the use of same for such purpose. Restoration of Premises or Project If there is damage to or destruction of the Premises or the Project and if this Lease is not terminated pursuant hereto, Landlord, in performing its repairs as required hereby, shall not be obliged to repair or rebuild in accordance with the plans or specifications for the Premises or the Project as they existed prior to such damage or destruction; rather, Landlord may repair or rebuild in accordance with any plans and specifications chosen by Landlord in its sole discretion provided that Tenant's use of and access to the Premises and the general overall quality of the Project are not materially detrimentally affected by any difference in plans or specifications of the Premises or the Project. Determination of Matters For the purposes of this Article XII all matters requiring determination such as, without limitation, the extent to which any area(s) of the Premises or the Project are damaged or are not capable of being used, or the time within which repairs may be made, unless expressly provided to the contrary, shall be determined by Landlord's Architect, such determination to be final and binding on the parties. ARTICLE XIII.0 INSURANCE AND INDEMNITY Landlord's Insurance Landlord shall obtain and maintain in full force and effect during the Term with respect to the Project insurance against such occurrences and in such amounts, on such terms and with such deductible(s) as would a prudent owner of such a project. Such insurance may include, without limitation: (i) insurance on the Building and any improvements therein which Landlord desires to insure, against damage by fire and other risks covered by extended coverage fire insurance policies or, at Landlord's option, all risks insurance; (ii) boiler and machinery insurance; (iii) rental income insurance; (iv) public liability insurance; and (v) such other insurance and in such amounts and on such terms as Landlord, in its discretion, may reasonably determine. Notwithstanding that Tenant shall be contributing to the costs of such insurance pursuant to the terms of this Lease, Tenant shall not have any interest in or any right to recover any proceeds under any of Landlord's insurance policies. Tenant's Effect On Other Insurance Tenant shall not do or permit anywhere on the Premises or Project anything which might: (i) result in any increase in the cost of any insurance policy of Landlord on the Project; (ii) result in an actual or threatened cancellation of or adverse change in any insurance policy of Landlord on the Project; or (iii) be prohibited by any insurance policy of Landlord on the Project. If the cost of any insurance policies of Landlord on the Project is increased as a result of any improvements made by Tenant or anything done or permitted by Tenant anywhere on the Premises or Project, Tenant shall pay the full amount of such increase to Landlord forthwith upon demand. Tenant's responsibility for any increased cost of insurance as aforesaid shall be conclusively determined by a statement issued by the organization, company or insurer establishing the insurance rates for the relevant policy. If there is in actual or threatened cancellation of or adverse change in any policy of insurance of Landlord on the Project by reason of anything done or permitted by Tenant anywhere on the Premises or Project, and if Tenant fails to remedy the situation giving rise to such actual or threatened cancellation or change within twenty-four (24) hours after notice from Landlord, then Landlord may, at its option, either (i) terminate this Lease forthwith by written notice; or, (ii) remedy the situation giving rise to such actual or threatened cancellation or change, all at the cost of Tenant to be paid to Landlord forthwith upon demand, and for such purpose Landlord shall have the right to enter upon the Premises without further notice. Tenant's Insurance Tenant shall, at its sole expense, maintain in full force and effect at all times throughout the Term and such other times, if any, as Tenant occupies the Premises or any portion thereof, such insurance as would be maintained by a prudent tenant of premises such as the Premises, which insurance shall include at least all of the following: comprehensive general liability insurance on an occurrence basis with respect to any use and occupancy of or things on the Premises, and with respect to the use and occupancy of any other part of the Project by Tenant or any of its employees, servants, agents, invitees, licensees, subtenants, contractors or persons for whom Tenant is in law responsible, with coverage for any occurrence of not less than Five Million Dollars ($5,000,000) or such higher amount as Landlord may reasonably require on not less than one (1) month's notice; all risks insurance covering the leasehold improvements, trade fixtures and contents on the Premises, for not less than the full replacement cost thereof and with a replacement cost endorsement; broad form comprehensive boiler and machinery insurance on all insurable objects located on or about the Premises or which are the property or responsibility of Tenant, for not less than the full replacement cost thereof and with a replacement cost endorsement; business interruption insurance in such amounts as necessary to fully compensate Tenant for direct or indirect loss of sales or earnings attributable to any of the perils required to be insured against under the policies referred to in subsections 13.3(a)(ii) and (iii) and all circumstances usually insured against by cautious tenants including losses resulting from interference with access to the Premises or the Project as a result of such perils or for any other reason; tenant's legal liability insurance for the full replacement cost of the Premises, and the loss of use thereof; and (vi) any other insurance against such risks and in such amounts as Landlord or any mortgagee of Landlord may from time to time reasonably require upon not less than thirty (30) days' notice to Tenant. Each of Tenant's insurance policies shall either name Landlord as an additional named insured or otherwise protect Landlord's interest, and shall be taken out with insurers and shall be in such form and on such terms as are satisfactory to Landlord from time to time. Without limiting the generality of the foregoing, each of Tenant's insurance policies shall contain: (i) the standard mortgage clause as may be required by any mortgagee of Landlord; (ii) an undertaking by the insurer that no material change adverse to Tenant or Landlord or any mortgagee of Landlord will be made and the policy will not lapse or be terminated, except after not less than thirty (30) days' written notice to Tenant and Landlord and to any mortgagee of Landlord; (iii) a provision stating that Tenant's insurance policy shall be primary and shall not call into contribution any other insurance available to Landlord; (iv) a joint loss endorsement, where applicable; (v) a severability of interests clause and a cross-liability clause; and (vi) a waiver, in respect of the interests of Landlord and any mortgagee of Landlord, of any provision with respect to any breach of any warranties, representations, declarations or conditions contained in the said policy. Tenant shall ensure that Landlord shall at all times be in possession of either certificates or certified copies of Tenant's insurance policies which are in good standing and in compliance with Tenant's obligations hereunder. Tenant hereby releases Landlord and its servants, agents, employees, contractors and those for whom Landlord is in law responsible from all losses, damages and claims of any kind in respect of which Tenant is required to maintain insurance hereunder or is otherwise insured. Landlord's Right to Place Tenant's Insurance If Tenant fails to maintain in force, or pay any premiums for, any insurance required to be maintained by Tenant hereunder, or if Tenant fails from time to time to deliver to Landlord satisfactory proof of the good standing of any such insurance or the payment of premiums therefor, then Landlord, without prejudice to any of its other rights and remedies hereunder, shall have the right but not the obligation to effect such insurance on behalf of Tenant and the cost thereof and all other reasonable expenses incurred by Landlord in that regard shall be paid by Tenant to Landlord forthwith upon demand. Landlord's Non-Liability Tenant agrees that Landlord shall not be liable or responsible in any way for any injury or death to any person or for any loss or damage to any property at any time on or about the Premises or any property owned by or being the responsibility of Tenant or any of its servants, agents, customers, contractors or persons for whom Tenant is in law responsible elsewhere on or about the Project, no matter how the same shall be caused except where contributed to by the Landlord's own negligence. Without limiting the generality of the foregoing, Landlord shall not be liable or responsible for any such injury, death, loss or damage to any persons or property caused or contributed to by fire, explosion, steam, water, rain, snow, dampness, leakage, electricity or gas except where contributed to by the Landlord's own negligence. Without limiting or affecting the generality or interpretation of the foregoing, and notwithstanding the foregoing, it is agreed that Landlord shall in no event be liable for any indirect or consequential damages suffered by Tenant or any persons permitted by it to be on the premises, whether or not caused by the negligence of the Landlord, its servants, agents, employees, contractors or persons for whom Landlord is in law responsible. Indemnity of Landlord Tenant shall indemnify Landlord and all of its servants, agents, employees, contractors and persons for whom Landlord is in law responsible against any and all liabilities, claims, damages, losses and expenses, including all reasonable legal fees and disbursements, arising from: (i) any breach by Tenant of any of the provisions of this Lease; (ii) any act or omission of any person on the Premises or any use or occupancy of or any things in the Premises; (iii) any act or omission of Tenant or any of its servants, agents, employees, invitees, licensees, subtenants, concessionaires, contractors or persons for whom Tenant is in law responsible on the Premises or elsewhere on or about the Project; or (iv) any injury or death of persons, or any loss or damage to property of Tenant or any of its servants, agents, employees, invitees, licensees, subtenants, contractors or persons for whom Tenant is in law responsible, on the Premises or elsewhere on or about the Project; provided that, such indemnity obligation shall not extend to any liabilities, claims, damages, losses and expenses arising from the negligence of the Landlord and/or its agents or employees. Landlord's Employees and Agents Every indemnity, exclusion or release of liability and waiver of subrogation contained in this Lease for the benefit of Landlord shall extend to and benefit all of Landlord's servants, agents, employees, and others for whom Landlord is in law responsible. Solely for such purpose, and to the extent that Landlord expressly chooses to enforce the benefits of this section for the foregoing persons, it is agreed that Landlord is the agent or trustee for such persons. ARTICLE XIV.0 ASSIGNMENT, SUBLETTING AND CHANGE OF CONTROL Consent Required Tenant shall not assign this Lease in whole or in part and shall not sublet or part with or share possession of all or any part of the Premises and shall not grant any licences or other rights to others to use any portion of the Premises (all of the foregoing being hereinafter referred to as a "Transfer"; a party making a Transfer is referred to as a "Transferor" and a party taking a Transfer is referred to as a "Transferee") without the prior written consent of Landlord in each instance, which consent shall not be unreasonably withheld; provided that it shall be reasonable for Landlord to withhold or delay its consent to a Transfer unless it is shown to Landlord's satisfaction that: (i) the proposed Transferee has a good business and personal reputation and has financial strength at least sufficient to satisfy all the obligations of Tenant hereunder; (ii) without affecting the interpretation of section 8.1 or any other provision hereof, the business proposed to be carried on by the Transferee on the Premises will not be incompatible with the uses of other tenants of the Project, and will not be more burdensome on the Project, in terms of parking requirements or any other factor, than the business previously carried on by Tenant on the Premises; and (iii) the proposed Transferee is not an existing occupant of any part of the Project and has not then recently been a prospect involved in bona fide negotiations with Landlord respecting the leasing of any premises in the Project and is not in any way affiliated with such existing occupant or bona fide prospect. The provisions of this Article XIV shall apply to any Transfer which might occur by inheritance or operation of law. If Landlord withholds, delays or refuses to give consent to any Transfer, whether or not Landlord is entitled to do so, Landlord shall not be liable for any losses or damages in any way resulting therefrom and Tenant shall not be entitled to terminate this Lease or exercise any other remedy whatever in respect thereof except to seek the order of a court of competent jurisdiction compelling Landlord to grant any such consent which Landlord is obliged to grant pursuant to the terms of this Lease. No Transfer may be made where any portion of Rent is lower than fair market rates. Obtaining Consent All requests to Landlord for consent to any Transfer shall be made to Landlord in writing together with a copy of the agreement pursuant to which the proposed Transfer will be made, accompanied by such information in writing as a landlord might reasonably require respecting a proposed Transferee including, without limitation, name, business and home addresses and telephone numbers, business experience, credit information and rating, financial position and banking and personal references, description of business proposed to be conducted by the Transferee on the Premises and parking requirements for such business. Tenant shall promptly pay all costs incurred by Landlord in considering and processing the request for consent including legal costs and all costs of completing any documentation to implement any Transfer, which shall be prepared by Landlord or its solicitor if required by Landlord, and as a prior condition to considering any request for consent Landlord may require from Tenant payment of a reasonable deposit, of at least $250.00, on account of Landlord's said costs. Landlord's Option Notwithstanding the other provisions contained in this Article XIV, after Landlord receives a request for consent to a Transfer with the information and copy of agreement hereinabove required, it shall have the option, to be exercised by written notice to Tenant within fifteen (15) days after the receipt of such request, information and agreement, to: (i) terminate this Lease as it relates to the portion of the Premises which is the subject of the proposed Transfer ("Transferred Premises"); (ii) receive all amounts to be paid to Tenant under the agreement in respect of such Transfer less only the direct costs of Tenant related to the Transfer such as legal costs and commissions, and less, in the case of a sublease, all amounts receivable by Tenant under the sublease equal to the amounts payable by Tenant hereunder each month during the term of the sublease in respect of the Transferred Premises; or (iii) take a Transfer from Tenant of the Transferred Premises on the same terms as the Transfer in respect of which Tenant has requested Landlord's consent, as aforesaid. If Landlord elects to terminate this Lease as aforesaid, Tenant shall have the right, to be exercised by written notice to Landlord within ten (10) days after receipt of such notice of termination, to withdraw the request for consent to the Transfer, in which case Tenant shall not proceed with such Transfer, the notice of termination shall be null and void and this Lease shall continue in full force and effect. If, pursuant to this section 14.3, Landlord terminates this Lease, or takes a Transfer of the Premises or any portion thereof, Landlord shall be deemed to have arbitrarily and unreasonably withheld its consent to the Transfer, as Landlord is entitled to do pursuant to section 14.1. If Landlord terminates this Lease as it relates to a portion of the Premises, or takes a Transfer of a portion of the Premises, Tenant hereby grants to Landlord and any others permitted by Landlord the right, in common with Tenant and all others entitled to use the same, to use for their intended purposes all portions of the Premises in the nature of common areas (such as corridors, washrooms, lobbies and the like) or which are reasonably required for proper access to or use of the Transferred Premises (such as reception area, interior corridors, mechanical or electrical systems and ducts and the like). Terms of Consent In the event of a Transfer Landlord shall have the following rights, in default of any of which no such Transfer shall occur or be effective: to collect a deposit or further deposit to be held as a security deposit pursuant to section 16.5 such that the security deposit held by Landlord shall be equivalent to at least the Basic Rent payable for the last two (2) months of the Term in respect of the premises which are the subject of the Transfer; to require Tenant and the Transferee and Indemnifier, if any, to enter into a written agreement to implement any amendments to this Lease to give effect to Landlord's exercise of any of its rights hereunder; to require the Transferee to enter into an agreement with Landlord in writing and under seal to be bound by all of Tenant's obligations under this Lease in respect of the portion of the Premises which is the subject of the Transfer; to require the Transferee to waive any rights, pursuant to subsection 39(2) of the Landlord and Tenant Act (Ontario) and any amendments thereto and any other statutory provisions of the same or similar effect, to pay any Rent less than any amount payable hereunder; to require, if the Transfer is a sublease or other transaction other than an assignment, that upon notice from Landlord to the Transferee all amounts payable by the Transferee each month shall be paid directly to Landlord who shall apply the same on account of Tenant's obligations under this Lease; and to require that this Lease be amended to delete therefrom any right of renewal and any first right to lease premises in the Project. Effect of Transfer No consent of Landlord to a Transfer shall be effective unless given in writing and executed by Landlord and no such consent shall be presumed by any act or omission of Landlord or by Landlord's failure to respond to any request for consent or by Landlord's accepting any payment of any amount payable hereunder from any party other than Tenant. No Transfer and no consent by Landlord to any Transfer shall constitute a waiver of the necessity to obtain Landlord's consent to any subsequent or other Transfer. In the event of any Transfer or any consent by Landlord to any Transfer, Tenant shall not thereby be released from any of its obligations hereunder but shall remain bound by all such obligations pursuant to this Lease for the balance of the Term. If this Lease is renewed or extended by any Transferee pursuant to any option of Tenant, each Transferor shall be liable for all of the obligations of Tenant throughout the Term as renewed or extended. Every Transferee shall be obliged to comply with all of the obligations of Tenant under this Lease, and any default of any Transferee shall also constitute a default of Tenant hereunder. If this Lease is ever disclaimed or terminated by a trustee in bankruptcy of a Transferee Tenant shall nevertheless remain responsible for fulfillment of all obligations of Tenant hereunder for what would have been the balance of the Term but for such disclaimer or termination, and shall upon Landlord's request enter into a new lease of the Premises for such balance of the Term and otherwise on the same terms and conditions as in this Lease. No Advertising of Premises Tenant shall not advertise this Lease or all or any part of the Premises or the business or fixtures therein for sale without Landlord's prior written consent. Mortgage of Lease The restrictions on Transfer as aforesaid shall apply to any assigning, subletting, mortgaging, charging or otherwise transferring of the Premises or this Lease for the purpose of securing any obligation of Tenant. Corporate Tenant If Tenant or any occupant of the Premises at any time is a corporation, the transfer of the majority of the issued shares in the capital stock or any transfer, issuance or division of any shares of the corporation or of any affiliate of the corporation sufficient to transfer control to others than the then present shareholders of the corporation shall be deemed for all purposes of this Article XIV to be a Transfer. Upon request Tenant shall make the corporate books and records of Tenant and of any affiliate of Tenant available to Landlord and its representatives for inspection in order to ascertain whether or not there has at any time during the Term been a change in control of Tenant corporation as aforesaid. Assignment by Landlord If Landlord sells, leases, mortgages or otherwise disposes of the Project or any part thereof or assigns its interest in this Lease, to the extent that the purchaser or assignee agrees with Landlord to assume the covenants and obligations of Landlord hereunder, Landlord shall thereupon be released from all liability pursuant to the terms of this Lease. ARTICLE XV.0 STATUS AND SUBORDINATION OF LEASE Status Statement Tenant shall, within ten (10) days after written request from Landlord, execute and deliver to Landlord, or to any actual or proposed lender, purchaser or assignee of Landlord, a statement or certificate in such form as requested by Landlord stating (if such is the case, or stating the manner in which such may not be the case): (i) that this Lease is unmodified and in full force and effect; (ii) the date of commencement and expiry of the Term and the dates to which Basic Rent and any other Rent, including any prepaid rent, have been paid; (iii) whether or not there is any existing default by Landlord under this Lease and, if so, specifying such default; and (iv) that there are no defences, counter claims or rights of set-off in respect of the obligations hereunder of Tenant. Subordination At the option of Landlord to be expressed in writing from time to time this Lease and the rights of Tenant hereunder are and shall be subject and subordinate to any and all mortgages, trust deeds and charges (any of which is herein called "Mortgage") on the Project or any part thereof now or in the future, including all renewals, extensions, modifications and replacements of any Mortgages from time to time. Tenant shall at any time on notice from Landlord or holder of a Mortgage attorn to and become a tenant of the holder of any such Mortgage upon the same terms and conditions as set forth herein and shall execute promptly on request any certificates, agreements, instruments of postponement or attornment or other such instruments or agreements, including without limitation any short form or notice of this Lease for the purpose of registration on title to the Project, as requested from time to time to give full effect to this Article XV. Provided Tenant is not in default hereunder, Landlord shall use reasonable efforts to obtain from the holder of any Mortgage, in respect of which tenant has executed and delivered an instrument of postponement, subordination or attornment as required hereby, its agreement to permit Tenant to continue to occupy the Premises in accordance with the terms of this Lease. Tenant's Failure to Comply If Tenant fails to execute any certificate, agreement, instrument, or other document as required by the foregoing provisions of this Article XV within ten (10) business days after request by Landlord, then Landlord shall have the right, without limiting any other rights of Landlord hereunder or at law, to terminate this Lease or to execute any such certificate, agreement, instrument or document on behalf of Tenant and in Tenant's name, for which purpose Tenant hereby appoints Landlord as Tenant's attorney pursuant to the Powers of Attorney Act (Ontario). Registration Tenant shall not register this Lease or any short form or notice hereof except in such form as has been approved by Landlord in writing, Tenant agreeing to pay Landlord's reasonable expenses, including legal fees, of such approval. Tenant shall forthwith provide to Landlord a duplicate registered copy of any short form or notice of this Lease or other document registered on title. ARTICLE XVI.0 DEFAULT AND REMEDIES Default and Remedies If any of the following shall occur: Tenant fails, for any reason, to make any payment of Rent as and when the same is due to be paid hereunder and such default continues for five (5) days after such payment was due, whether or not notice is given to Tenant; Tenant fails, for any reason, to observe or perform any obligation of Tenant pursuant to this Lease other than the payment of any Rent, and such default continues for fifteen (15) days in the event that third parties are affected; otherwise thirty (30) days, or such shorter period in the event of an emergency as expressly provided herein, or in case there is no emergency, such longer period as is necessary to cure such default, after notice thereof to Tenant; any of Landlord's insurance policies on the Project are actually or threatened to be cancelled or adversely changed as a result of any use of or contents in the Premises; Tenant shall purport to make a Transfer affecting the Premises, or the Premises shall be used by any person or for any purpose, other than in compliance with this Lease; Tenant or any other occupant of the Premises makes an assignment for the benefit of creditors generally or becomes bankrupt or insolvent or takes the benefit of any statute for bankrupt or insolvent debtors or makes any proposal or arrangement with creditors, or Tenant makes any sale in bulk of any property on the Premises (other than in conjunction with a Transfer approved in writing by Landlord and made pursuant to all applicable legislation), or steps are taken for the winding up or other termination of Tenant's existence or liquidation of its assets; a trustee, receiver, receiver-manager, or similar person is appointed in respect of the assets or business of Tenant or any other occupant of the Premises; Tenant attempts to or does abandon the Premises, or if the Premises are vacant or unoccupied for a period of five (5) consecutive days or more without the prior written consent of Landlord; this Lease or any other property of Tenant in the Premises is at any time seized or taken in execution which remains unsatisfied for a period of five (5) days or more; termination or re-entry by Landlord is permitted under any provision of this Lease or at law; then the then current and the next three (3) months' Rent shall be forthwith due and payable and, in addition to any other rights or remedies to which Landlord is entitled hereunder or at law, Landlord shall have the following rights and remedies, which are cumulative and not alternative, namely: (i) to terminate this Lease in respect of the whole or any part of the Premises by written notice to Tenant; (ii) as agent of Tenant to relet the Premises and take possession of any furniture, fixtures, equipment or other property thereon and, upon giving notice to Tenant, to store the same at the expense and risk of Tenant or sell or otherwise dispose of the same at public or private sale without further notice, and to make alterations to the Premises to facilitate their reletting and to apply the net proceeds of the sale of any furniture, fixtures, equipment, or other property or from the reletting of the Premises, less all expenses incurred by Landlord in making the Premises ready for reletting and in reletting the Premises, on account of the Rent due and to become due under this Lease and Tenant shall be liable to Landlord for any deficiency and for all such expenses incurred by Landlord as aforesaid; nothing done by Landlord shall be construed as an election to terminate this Lease unless written notice of such termination is given by Landlord to Tenant; (iii) to remedy any default of Tenant in performing any repairs, work or other obligations of Tenant hereunder, and in so doing to enter upon the Premises, without any liability to Tenant therefor and without constituting a re-entry of the Premises or termination of this Lease or breach of the Landlord's covenant of quiet enjoyment, and, in such case, Tenant shall pay to Landlord forthwith upon demand all reasonable costs of Landlord in remedying or attempting to remedy any such default plus ten (10%) percent for inspection and supervision plus ten (10%) percent for overhead and profit or such other reasonable amounts as may be charged by Landlord for overhead and profit from time to time; and (iv) to obtain damages from Tenant including, without limitation, if this Lease is terminated, all deficiencies between all amounts which would have been payable by Tenant for what would have been the balance of the Term, but for such termination, and all net amounts actually received by Landlord for such period. Interest All amounts of Rent shall bear interest from their respective due dates until the dates of payment at the rate of five (5%) percent per annum in excess of the prime rate of interest charged by Landlord's bank in Ontario from time to time. Costs Tenant shall pay to Landlord forthwith upon demand all costs incurred by Landlord, including, without limitation, reasonable legal expenses on a solicitor and his own client basis and reasonable compensation for all time expended by Landlord's own personnel, arising as a result of any default in Tenant's obligations under this Lease. Distress and Tenant's Property Tenant hereby waives and renounces the benefit of any present or future statute taking away or limiting Landlord's right of distress and agrees with Landlord that, notwithstanding any such statute, all goods and chattels from time to time on the Premises shall be subject to distress for Rent. All Tenant's personal property on the Premises shall at all times be the unencumbered property of Tenant. Security Deposit NOT APPLICABLE Remedies to Subsist No waiver of any of Tenant's obligations under this Lease or of any of Landlord's rights in respect of any default by Tenant hereunder shall be deemed to have occurred as a result of any condoning, overlooking or delay by Landlord in respect of any default by Tenant or by any other act or omission of Landlord including, without limitation, the acceptance of any Rent less than the full amount thereof or the acceptance of any Rent after the occurrence of any default by Tenant. The waiver by Landlord of any default of Tenant or of any rights of Landlord, which shall be effected only by an express written waiver executed by Landlord, shall not be deemed to be a waiver of any term, covenant or condition in respect of which such default or right has been waived and shall not be deemed to be a waiver of any subsequent default of Tenant or right of Landlord. All rights and remedies of Landlord under this Lease and at law shall be cumulative and not alternative, and the exercise by Landlord of any of its rights pursuant to this Lease or at law shall at all times be without prejudice to any other rights of Landlord, whether or not they are expressly reserved. Tenant's obligations under this Lease shall survive the expiry or earlier termination of this Lease and shall remain in full force and effect until fully complied with. Impossibility of Performance If and to the extent that either Landlord or Tenant shall be delayed in the fulfillment of any obligation under this Lease, other than the payment by Tenant of any Rent, by reason of unavailability of material, equipment, utilities, services or by reason of any Laws, or by reason of any other similar cause beyond its control and not avoidable by the exercise of reasonable foresight (excluding the inability to pay for the performance of such obligation), then the party being delayed shall be entitled to extend the time for fulfillment of such obligation by a time equal to the duration of such delay and the other party shall not be entitled to any compensation for any loss or inconvenience occasioned thereby. The party delayed will, however, use its best efforts to fulfill the obligation in question as soon as is reasonably practicable by arranging an alternate method of providing the work, services or materials. ARTICLE XVII.0 CONTROL OF PROJECT Landlord's Control The Project is at all times subject to the exclusive control and management of Landlord. Without limiting the generality of the foregoing, Landlord shall have the right to obstruct or close off or restrict entry to all or any part of the Project for purposes of performing any maintenance, repairs or replacements or for security purposes or to prevent the accrual of any rights to any person or the public or any dedication thereof, provided that in exercising any such right Landlord shall use reasonable best efforts to minimize interference with Tenant's access to and use of the Premises. Alterations of the Project At any time or times Landlord shall have the right to make any changes in, additions to, deletions from or relocations of any part of the Project including any of the Common Facilities (any of which are herein referred to as "Changes") as Landlord shall consider desirable. If Landlord makes any Changes to the Premises, subject to Tenant's prior written approval which will not be unreasonably withheld, Landlord shall ensure that the Premises, as affected by such Changes, shall be substantially the same in size and shall be in all other material respects reasonably comparable to the Premises originally demised hereby. If the Premises are relocated as a result of such Changes, Landlord shall be responsible for the direct cost of moving Tenant to the relocated Premises and constructing replacement leasehold improvements therein, but not for any indirect costs or losses of Tenant. Tenant shall not have the right to object to or make any claim on account of the exercise by Landlord of any of its rights under this section 17.2, except that Tenant shall be entitled to an abatement of Basic Rent, pro rata in proportion to the premises so affected, for any period of time in excess of one (1) day that Tenant is unable to conduct business in the Premises as a result of the making of such Changes. Landlord shall make any such Changes as expeditiously as is reasonably possible and so as to interfere as little as is reasonably possible with Tenant's business on the Premises. Tenant acknowledges that portions of the Project may be under construction during the Term, and that such construction activities may cause temporary noise and disturbance to existing tenants of the Project. Landlord will use reasonable efforts to minimize interference with Tenant's occupation of the Premises as a result of such construction activities, but Tenant acknowledges that in no event shall any noise or other disturbance caused by such construction constitute a breach of Tenant's right to quiet enjoyment of the Premises. Use of Common Facilities Tenant shall not itself and shall not permit any of its employees, servants, agents, contractors or persons having business with Tenant, to obstruct any Common Facilities including driveways, laneways or access routes, or to park vehicles in any portion of the Common Facilities other than such areas, if any, as expressly authorized by Landlord. Tenant shall ensure that its employees, customers, and others doing business with it, shall not park vehicles anywhere on the Project other than on the Premises. Landlord shall have the right, at Tenant's expense payable on demand, to remove any such obstruction or improperly parked vehicles, without any liability for any damage caused thereby. Rules and Regulations Landlord may from time to time make and amend reasonable rules and regulations for the management and operation of the Project and Tenant and all persons under its control shall comply with all of such rules and regulations of which notice is given to Tenant from time to time, all of which shall be deemed to be incorporated into and form part of this Lease. Landlord shall not make any rules or regulations which conflict with any express provision of this Lease unless and only to the extent required by any applicable Laws. Landlord shall act reasonably in enforcing such rules and regulations but shall not be liable for their non-enforcement. Access to Premises Without limiting any other rights Landlord may have pursuant hereto or at law, Landlord shall have the right to enter the Premises, including the building, at any time for any of the following purposes: (i) to examine the Premises and to perform any maintenance, repairs or alterations to any part of the Premises or to any equipment and services serving the Premises or any other part of the Project; (ii) in cases of emergency; (iii) to read any utility or other meters; (iv) during the last twelve (12) months of the Term to show the Premises to prospective tenants and to permit prospective tenants to make inspections, measurements and plans; and (v) at any time during the Term to show the Premises to prospective purchasers or lenders. Landlord shall have the right to run through the Premises conduits, wires, pipes, ducts and other elements of any systems for utilities, heating, ventilating, air-conditioning and humidity control, telephone and other communications systems and any other such systems to serve the Premises or the Project. Landlord shall exercise its rights pursuant to this section 17.5 in such manner and at such times as Landlord, acting reasonably but in its sole discretion, shall determine. At any time that entry by Landlord is desired in case of emergency, and if no personnel of Tenant are known by Landlord to be present on the Premises or if such personnel fail for any reason to provide Landlord immediate access at the time such entry is desired, Landlord may forcibly enter the Premises without liability for damage caused thereby. Expropriation If the Premises or any part thereof shall be expropriated (which for the purposes of this Article XVII shall include a sale by Landlord to any authority with the power to expropriate) by any competent authority then: Landlord and Tenant shall co-operate with each other so that Tenant may receive such award to which it is entitled in law for relocation costs, business interruption, and the value of leasehold improvements paid for by Tenant and the amortized portion, if any, of leasehold improvements paid for by Landlord, and so that Landlord may receive the maximum award to which it may be entitled in law for all other compensation arising from such expropriation including, without limitation, all compensation for the value of Tenant's leasehold interest in the Premises; except for such compensation to which Tenant shall be entitled as aforesaid, all Tenant's other rights in respect of such expropriation are hereby assigned to Landlord, and within ten (10) days after request by Landlord Tenant shall execute such further documents as requested by Landlord to give effect to such assignment, failing which Landlord is hereby irrevocably appointed, pursuant to the Powers of Attorney Act (Ontario) Tenant's attorney to do so on behalf of Tenant and in its name; and Landlord shall have the option, to be exercised by written notice to Tenant, to terminate this Lease, effective on the date the expropriating authority takes possession of the whole or any portion of the Premises. If the whole or any part of the Project shall be expropriated, then subject to the foregoing provisions respecting expropriation of the Premises: all compensation resulting from such expropriation shall be the absolute property of Landlord and all of Tenant's rights, if any, to any such compensation are hereby assigned to Landlord and within ten (10) days after request by Landlord Tenant shall execute such further documents as requested by Landlord to give effect to such assignment, failing which Landlord is hereby irrevocably appointed, pursuant to the Powers of Attorney Act (Ontario), Tenant's attorney to do so on behalf of Tenant and in its name; and if the expropriation of part of the Project is such as to render undesirable, in Landlord's reasonable opinion, the continuing operation of the portion of the Project in which the Premises are situate, Landlord shall have the right to terminate this Lease as of the date the expropriating authority takes possession of all or any portion of the Project. Development of Project Landlord shall be entitled from time to time to make any application it considers necessary or desirable in respect of the Project, including applications for any re-zoning, variance, severance, or by-law amendment or enactment. Promptly upon request from Landlord, Tenant will provide its consent and co-operation in respect of any application made by Landlord in the process of developing the Project, and will execute all documents and make all attendances required in connection therewith. Without limiting the generality of the foregoing, Tenant agrees that it will not contest or object to any application or other process initiated or supported by Landlord in respect of the development of the Project, including without limitation any local improvements or any assessments in respect thereof required or imposed by governmental authorities. Landlord may from time to time grant, and whenever requested by Landlord tenant will consent to or co-operate or join in the granting of, any licences, easements, rights-of-way and other rights in the nature of the foregoing, in favour of any municipal, governmental or public utility authorities or companies, which Landlord deems necessary or desirable for the provision to the Project of roadways, utilities, services or amenities or otherwise for the furtherance of the development of the Project. 17.8 Landlord's Consent If Landlord withholds, delays or refuses to give consent as provided by the terms of this Lease, whether or not Landlord is entitled to do so, Landlord shall not be liable for any losses or damages in any way resulting therefrom and Tenant shall not be entitled to terminate this Lease or exercise any remedy whatever in respect thereof except to seek the order of a court of competent jurisdiction compelling Landlord to grant any such consent which Landlord is obliged to grant pursuant to the terms of this Lease. ARTICLE XVIII.0 MISCELLANEOUS Notices All notices, statements, demands, requests or other instruments ("Notices") which may be or are required to be given under this Lease shall be in writing and shall be delivered in person or sent by prepaid registered Canadian mail addressed, if to the Tenant, at the Address for Service of Notice on Tenant, if to the Guarantor, if any, at the Address for Service of Notice on Guarantor, and if to the Landlord at the Address for Service of Notice on Landlord, all as provided in section 1.1 hereof. All such Notices shall be conclusively deemed to have been given and received upon the day the same is personally delivered or, if mailed as aforesaid, four (4) business days (excluding Saturdays, Sundays, holidays and days upon which regular postal service is interrupted or unavailable for any reason) after the same is mailed as aforesaid. Any party may at any time by notice in writing to the other change the Address for Service of Notice on it. If two or more persons are named as Tenant or Indemnifier, any Notice given hereunder shall be sufficiently given if delivered or mailed in the foregoing manner to any one of such persons. Complete Agreement There are no covenants, representations, agreements, warranties or conditions in any way relating to the subject matter of this Lease or the tenancy created hereby, expressed or implied, collateral or otherwise, except as expressly set forth herein, and this Lease constitutes the entire agreement between the parties and may not be modified except by subsequent written agreement duly executed by Landlord and Tenant. Time of the Essence Time is of the essence of all terms of this Lease. Applicable Law This Lease shall be governed by and interpreted in accordance with the laws of the Province of Ontario. The parties agree that the Courts of Ontario shall have jurisdiction to determine any matters arising hereunder. Severability If any provision of this Lease is illegal, unenforceable or invalid, it shall be considered separate and severable and all the remainder of this Lease shall remain in full force and effect as though such provision had not been included in this Lease but such provision shall nonetheless continue to be enforceable to the extent permitted by law. Section Numbers and Headings The table of contents and all section numbers and headings of this Lease are inserted for convenience only and shall in no way limit or affect the interpretation of this Lease. Interpretation Whenever a word importing the singular or plural is used in this Lease such word shall include the plural and singular respectively. Where any party is comprised of more than one entity, the obligations of each of such entities shall be joint and several. Words importing persons of either gender or firms or corporations shall include persons of the other gender and firms or corporations as applicable. Subject to the express provisions contained in this Lease, words such as "hereof", "herein", "hereby", "hereafter", and "hereunder" and all similar words or expressions shall refer to this Lease as a whole and not to any particular section or portion hereof. Successors This Lease shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors assigns and other legal representatives except only that this Lease shall not enure to the benefit of any of such parties unless and only to the extent expressly permitted pursuant to the provisions of this Lease. ARTICLE XIX 19.0 SPECIAL PROVISIONS 19.1 Conditions to Tenant's Rights If Tenant has duly and punctually performed each and every of its obligations under this Lease and is not in continuing default of this Lease, and has not made an assignment for the benefit of creditors and has not taken the benefit of any statute in force for bankrupt or insolvent debtors, no petition in bankruptcy or receiving order has been made against Tenant, and no receiver or other similar person has taken control of the assets or business of Tenant or a substantial portion thereof, and Tenant has not sublet or parted with possession of all or any part of the Premises, then and only then shall sections 19.2, apply. 19.2 Renewal Option The Tenant shall have the Option to Renew the herein Lease for two (2) additional period of five years each upon the same terms and conditions, save and except for the rental rates which shall be as follows, provided that the Tenant exercises such option by notice in writing delivered to the Landlord no later than nine (9) months prior to the expiration of the Lease Term. Option Number 1: Year Rate/Sq.Ft. Rate/Annum Rate/Month 11 $3.10 $ 880,400.00 $73,366.67 12 $3.30 $ 937,200.00 $78,100.00 13 $3.50 $ 994,000.00 $82,833.33 14 $3.70 $1,050,800.00 $87,566.67 15 $3.90 $1,107,600.00 $92,300.00 Option Number 2: Year Rate/Sq.Ft. Rate/Annum Rate/Month 16 To be negotiated based upon market rental rates for similar 17 space in the Brantford, Ontario area. Failing agreement 18 to this, all parties agree to refer this matter to arbitration. 19 20 19.3 Environmental Provisions (a) For the purposes of this Lease "Environmental Laws" shall mean all applicable federal, provincial, municipal, or local laws, statutes, regulations, by-laws and orders, directives and decisions rendered by any ministry, department or administrative or regulatory agency. (b) The Landlord represents and warrants that at the commencement of the term, the Buildings and Leased Premises are in compliance with all Environmental Laws affecting their condition and use. (c) The Landlord hereby releases and agrees to defend, indemnify and hold the Tenant harmless from and against all claims, demands, liabilities, losses, damages, expenses, costs and reasonable attorney's fees arising out of or resulting from the presence of any Hazardous Substance (as defined below) upon, in or under the Leased Premises on and prior to the date on which this Lease commences, including and without limiting the generality of the foregoing, the presence of any Hazardous Substance in the tow motor line; in the drainage trough directly north of the tow motor line; in the air, soil or ground water; and in capacitors, transformers, light ballasts or other electrical equipment. The term "Hazardous Substance" means asbestos, polychlorinated biphenyls, nuclear fuel or materials, chemical wastes, radioactive materials, explosives, known carcinogens, petroleum products and any other dangerous, toxic, or hazardous pollutant, contaminant, chemical, material or substance defined as hazardous or as a pollutant or contaminant in, or the release or disposal of which is regulated by, any existing federal, provincial, municipal, local or other statute, law, ordinance or regulation, which may relate to or deal with human health or the environment. (d) The Tenant represents and warrants that there are no judgements, decrees or orders outstanding and no litigation or administrative, arbitrable, or governmental or quasi-governmental proceedings or inquiries pending or, to the best of the Tenant's knowledge, threatened against or related to, in whole or in part, the Tenant, including, without limitation, those relating to Environmental Laws. (e) The Tenant will carry on business upon and with respect to the Leased Premises in compliance in all material respects with all permits, licences, registrations and approvals necessary to carry on its business, including, without limitation, all applicable environmental permits, licences, consents, approvals, orders and authorizations required under applicable Environmental Laws. (f) The business which the Tenant intends to conduct upon and with respect to the Leased Premises is not in breach of any applicable covenant, restriction or Environmental Laws currently enforced. (g) If the Tenant receives any notice, citation, summons or order or learns of any complaint which has been filed with respect to the business carried on by the Tenant on the Leased Premises concerning any alleged violation of any Environmental Laws or with respect to any alleged failure to have any environmental permits or approvals required in connection with the conduct of its business, or any alleged violation with respect to compliance with the terms or conditions of any environmental permits or approvals in connection with the conduct of its business, the Tenant shall forthwith notify the Landlord thereof in writing. (h) On the termination of this Lease for any reason the Tenant will surrender the Leased Premises to the Landlord in the condition in which they are required by the Lease to be kept by the Tenant and as closely as is reasonably possible to their condition at the Lease Commencement Date, all at the Tenant's expense. (i) The Tenant shall indemnify and hold the Landlord harmless from and against any claims, demands, liabilities, losses, damages and expenses suffered by the Landlord arising out of or in connection with any and all environmental liabilities relating to the activities of the Tenant upon or with respect to the Leased Premises from and after the date on which this Lease commences. (j) The Landlord or the Landlord's Authorized Agent shall have the right to perform an environmental inspection of the Leased Premises, including any testing therein, upon providing the Tenant with twenty-four (24) hours prior written notice of the Landlord's or the Landlord Authorized Agent's intent to do so. The Tenant shall fully cooperate with the Landlord or the Landlord's Authorized Agent. 19.4 Right Of First Refusal (Warehouse and/or Office Space) The Tenant shall have the Right of First Refusal to lease all or part of the space identified as "X" and in black on Schedule "B" at any time during the original term of the lease, or during any subsequent renewal term of this lease, if, as and when said space becomes vacant. Pursuant to this right of first refusal, the Landlord will notify the Tenant when the said space becomes vacant and a bonafide offer acceptable to the Landlord is received, in which event the Tenant shall have forty-eight (48) hours to make the same offer which the Landlord must accept. 19.5 Condition Of Premises The Landlord represents to the best of its knowledge and belief that the premises are free of any material structural defect, and the roof, plumbing, heating, air-conditioning, electrical, drainage, sprinkler, lighting, and, in general all systems contained herein are in good working condition and fully operational. 19.6 Building Codes The Landlord represents to the best of its knowledge and belief that the building meets all provincial and municipal Building Codes and By-laws. 19.7 Environmental Representation The Landlord represents to the best of its knowledge and belief, that the premises are in compliance with all environmental laws and regulations. The Landlord agrees to indemnify, defend and hold Tenant harmless against any liability for the failure of the premises to comply with environmental laws and regulations prior to the date of Tenant's occupancy. 19.8 Net Rent Free Period (Early Occupancy) The Landlord agrees to grant a Net Rent Free Period (Early Occupancy) from November 15, 1995 to March 31, 1996 equal to four months and fifteen days. It is understood and agreed by both the Landlord and the Tenant that all Additional Rent shall apply during this "period". 19.9 Exterior Use of Premises The Tenant shall be allowed unobstructed and exclusive use of its area of the shipping/receiving yard and parking areas adjacent to the demised premises as shown on Schedule "B" during the lease term or option periods thereof if exercised. 19.10 Non-Disturbance Agreement The Landlord shall obtain from any existing holder of a mortgage, charge, or encumbrance, a non-disturbance agreement in favour of the Tenant whereby the Tenant's use and occupation of the Leased Premises will not be interfered with by any such mortgagee, chargor, encumbrancer provided that the Tenant shall not be in continuous breach of any of its covenants or obligations under the Lease. If this is not available then it shall not represent a default by the Landlord. 19.11 Landlord's Work It is understood and agreed that the Landlord at the Landlord's expense, shall be responsible for the following work which shall be performed by the Landlord and/or its agents in a proper and workmanlike manner using new materials and shall comply with the Ontario Building Code and municipal codes and bylaws: a) Remove all debris and obstructions and fill in all pits, excluding the floor level conveyor, and depressions providing a levelled floor suitable for the Tenant's business, b) Clean and repair floors, (remove, scrub, degrease and power sweep ready for floor sealant, c) Make all necessary repairs to the roof, walls and yard, d) Provide seventeen (17) truck level doors with heavy duty automatic levellers, overhead doors, tracks and door seals. This work shall include grading, paving and concrete dolly pads, if not existing, for truck access to the shipping/receiving doors. Two (2) of the truck level doors shall be constructed on the south side of the Building and Landlord shall remove the existing cement block office structure at this location to provide access to these doors; and, five (5) of the truck level doors shall be constructed on the east side of the Building, e) Provide up to one hundred and fifty (150) parking spaces in the existing employee parking lot area on the south side of the subject premises for the exclusive use of the Tenant, f) Remove the portable shop office and related equipment in the premises and replace the fence to secure the transformers, g) Provide, if required by the Tenant, a new entrance to the office area of the premises, h) Provide, if required by the Tenant, two (2) floor level doors in the north wall of the premises. i) With the Tenant's prior written authorization, remove and dispose of all paint and other residue and curbing from the concrete floor of the mezzanine area in accordance with all local, provincial and federal laws, rules and regulations. The above work shall include alteration of the protective railing around floor openings. Tenant shall reimburse Landlord for the cost of such work plus applicable taxes, if any, but the Landlord shall not contract for any such work without the prior written consent of the Tenant. 19.12 Early Termination The Tenant may exercise its right of early termination of the Lease for any reason as follows: a) The right of termination is only exercisable by the Tenant after the seventy-eighth month of the initial Term, b) The Tenant must give the Landlord six months prior written notice of its intent to terminate the Lease, c) The Tenant shall at the end of the aforementioned six month notice period pay to the Landlord an amount equivalent to the net rent for the next twelve (12) month period, and d) The Tenant shall provide the Landlord with vacant possession of the premises at the end of the six month notice period, in accordance with the terms in the Lease. 19.13 Office Space If available, the Tenant shall have the right, within ninety (90) days from the commencement date herein, to lease all the office space in Building No. 1, consisting of approximately 25,000 square feet, in the Brant Trade & Industrial Park. If the Tenant exercises said option then the office space shall be leased at the same rental rates and term as provided for herein. The Tenant shall improve the premises at its sole cost and expense. 19.14 Close Down Period (Hold Over) The Tenant at the end of the Lease term and any of the Option periods to renew, if exercised shall have an additional three (3) months as a "Close Down Period". It is understood and agreed by both the Landlord and the Tenant that the net rental and all additional rents shall apply during this period as per the last month's rates of the Lease. 19.15 Commissions a) Each party shall be responsible for the payment of its own broker's commissions, finder's fees or similar charges. b) Landlord shall indemnify and hold the Tenant harmless from any liabilities, losses, damages and expenses suffered by Tenant arising out of or resulting from any claims or demands for broker's commissions, finder's fees or similar charges by anyone with whom Landlord has dealt in connection with this Lease. c) The Tenant shall indemnify and hold the Landlord harmless from any liabilities, losses, damages and expenses suffered by Landlord arising out of or resulting from any claims or demands for broker's commissions, finder's fees or similar charges by anyone with whom Tenant has dealt in connection with this Lease. 19.16 Mediation/Arbitration The exclusive procedure for resolution of any disputes or controversies arising under this Lease or the transactions contemplated hereunder shall be as follows: The parties shall attempt in good faith to resolve by mediation any and all disputes and differences of any kind between the parties arising under this Lease or the transactions contemplated hereunder which cannot be settled amicably by the parties. The mediator shall be a mutually acceptable third party, who shall be responsible for the conduct of the mediation process. If the matter or dispute has not been resolved pursuant to the aforesaid mediation procedure within sixty (60) days of the commencement of such procedure (which period may be extended by mutual agreement), if either party does not participate in such mediation, or if the parties cannot agree on a mutually acceptable mediator within thirty (30) days of delivery of notice by one party to the other of its intention to mediate a dispute, the parties shall submit to arbitration. Any arbitration commenced or conducted hereunder shall be conducted pursuant to the Arbitrations Act 1991 (Ontario) as amended from time to time, to the extent the provisions thereof are not inconsistent with the provisions of this Section 19.16. Any such arbitration proceedings shall be conducted in Toronto, Ontario by a panel of three (3) arbitrators appointed in accordance with the following provisions: a) Arbitration Panel: The arbitration panel shall consist of three (3) arbitrators. Landlord shall appoint one (1) arbitrator and Tenant shall appoint one (1) arbitrator. The two (2) arbitrators thus appointed shall appoint one (1) arbitrator who shall act as the Chairman of the arbitration panel. In the event of any default in the appointment of an arbitrator or any inability to agree on the appointment of an arbitrator or the Chairman of the arbitration panel, either party may apply to a judge on the Ontario Court (General Division) to appoint an arbitrator or a third arbitrator, as the case may be. b) Binding Award: The award of the arbitrators shall be final and binding on the parties to the arbitration, their successors and assigns and there shall be no appeal therefrom with respect to any controversy. The costs of arbitration, and which party or parties shall bear the costs and expenses or if all of the parties shall share the costs and expenses and, if so, in what proportion, shall be decided by the arbitrators taking into strict account the provisions of this Lease. c) Enforcement: The award of the arbitrators shall be enforceable by any court having jurisdiction over the party or parties against which the award has been rendered, or where assets of the party or parties against which the award has been rendered can be located. Each of the parties agree to pay the amount of, and otherwise comply with, any arbitral award and to pay any costs and expenses of arbitration which the arbitrators determine that it is required to pay within fifteen (15) Business Days after receipt of notice of the arbitrators' award. IN WITNESS WHEREOF the parties have executed this Lease. BRANT TRADE & INDUSTRIAL PARK INC. Per: c/s Per: ACE HARDWARE CANADA LIMITED Per: DAVID F. HODNIK, PRESIDENT & CEO Per: DAVID W. LEAGUE, SECRETARY SCHEDULE "A" In the City of Brantford, in the County of Brant, being composed of Part of Lots 37, 38 and 39 in Concession 3 of the Geographic Township of Brantford, designated as PARTS 1, 2, 3 and 4 on Reference Plan number 2R-4137, deposited in the Land Registry Office for the Registry Division of Brant. Subject to an Easement as described in instrument number A89909 in favour of THE CORPORATION OF THE CITY OF BRANTFORD, its successors and assigns, over that Part of said Lot 39 designated as PART 3 on Reference Plan number 2R-4137. SCHEDULE "B" SCHEDULE "C" TENANT ALTERATIONS 1. Refurbish 2nd floor bathrooms 2. Exterior perimeter fence - dock (east loading area) 3. Proposed parking lot 4. Clean 2nd floor structure 5. Remove paint from floor - 2nd floor 6. Painting 2nd floor 7. Re-light 2nd floor 8. Remove 2nd floor offices 9. Cover steel sash windows 10. Add stairs to 2nd floor 11. Add ramps for rail access 12. Renovate aerosol room 13. Renovate 1st floor offices 14. Add employee entrance 15. Line safety/security 16. In-rack sprinklers 17. At Tenant's option install wall mounted gas fired forced air heaters on mezzanine level - - 2 - - - v - Article - - 42 - EX-10 5 EX 10-A-13 - MARKHAM LEASE EXHIBIT 10-a-13 OFFICE LEASE 674573 ONTARIO LIMITED (Landlord) ACE HARDWARE CANADA LIMITED A corporation incorporated under the laws of Ontario 80 Micro Court Markham, Ontario TABLE OF CONTENTS ARTICLE I Definitions Section 1.01 "Additional Rent". . . . . . . . . . . . . . . . . . 1 Section 1.02 "Architect". . . . . . . . . . . . . . . . . . . . . 1 Section 1.03 "Building" . . . . . . . . . . . . . . . . . . . . . 1 Section 1.04 "Common Facilities". . . . . . . . . . . . . . . . . 2 Section 1.05 "Fixturing Period" . . . . . . . . . . . . . . . . . 2 Section 1.06 "Land Surveyor". . . . . . . . . . . . . . . . . . . 2 Section 1.07 "Landlord" . . . . . . . . . . . . . . . . . . . . . 2 Section 1.08 "Landlord's Work". . . . . . . . . . . . . . . . . . 3 Section 1.09 "Leasable Premises". . . . . . . . . . . . . . . . . 3 Section 1.10 "Manager". . . . . . . . . . . . . . . . . . . . . . 3 Section 1.11 "Minimum Rent" . . . . . . . . . . . . . . . . . . . 3 Section 1.12 "Mortgagee". . . . . . . . . . . . . . . . . . . . . 3 Section 1.13 "Normal Business Hours". . . . . . . . . . . . . . . 3 Section 1.14 "Person" . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.15 "Premises" . . . . . . . . . . . . . . . . . . . . . 4 Section 1.16 "Proportionate Share". . . . . . . . . . . . . . . . 4 Section 1.17 "Rent" . . . . . . . . . . . . . . . . . . . . . . . 4 Section 1.18 "Rentable Area of the Premises". . . . . . . . . . . 4 Section 1.19 "Rentable Area of the Building". . . . . . . . . . . 4 Section 1.20 "Rental Year". . . . . . . . . . . . . . . . . . . . 5 Section 1.21 "Rules and Regulations". . . . . . . . . . . . . . . 5 Section 1.22 "Tenant" . . . . . . . . . . . . . . . . . . . . . . 5 Section 1.23 "Tenant's Work". . . . . . . . . . . . . . . . . . . 5 Section 1.24 "Term" . . . . . . . . . . . . . . . . . . . . . . . 5 Section 1.25 "Usable Floor Area". . . . . . . . . . . . . . . . . 5 Section 1.26 "Hazardous Substances" . . . . . . . . . . . . . . . 6 ARTICLE II Intent and Interpretation Section 2.01 - Net Lease. . . . . . . . . . . . . . . . . . . . . . 6 Section 2.02 - Obligations as Covenants . . . . . . . . . . . . . . 6 Section 2.03 - Headings . . . . . . . . . . . . . . . . . . . . . . 6 Section 2.04 - Extended Meanings. . . . . . . . . . . . . . . . . . 6 Section 2.05 - Partial Invalidity . . . . . . . . . . . . . . . . . 7 Section 2.06 - Entire Agreement . . . . . . . . . . . . . . . . . . 7 Section 2.07 - Governing Law. . . . . . . . . . . . . . . . . . . . 7 Section 2.08 - Time of the Essence. . . . . . . . . . . . . . . . . 8 ARTICLE III Grant and Term Section 3.01 - Premises . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.02 - Use of Common Facilities . . . . . . . . . . . . . . 8 Section 3.03 - Commencement and Ending Date of the Term. . . . . . . . . . . . . . . 8 Section 3.04 - Notice and Certificates. . . . . . . . . . . . . . . 9 Section 3.05 - Early Occupancy. . . . . . . . . . . . . . . . . . . 9 Section 3.06 - Delayed Possession . . . . . . . . . . . . . . . . . 9 Section 3.07 - Acceptance of Premises . . . . . . . . . . . . . . . 9 Section 3.08 - Landlord's and Tenant's Work . . . . . . . . . . . . 10 Section 3.09 - Relocation . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV Rent Section 4.01 - Covenant to Pay. . . . . . . . . . . . . . . . . . . 10 Section 4.02 - Minimum Rent . . . . . . . . . . . . . . . . . . . . 10 Section 4.03 - Rent Past Due. . . . . . . . . . . . . . . . . . . . 11 ARTICLE V Taxes Section 5.01 - Taxes - Definition . . . . . . . . . . . . . . . . . 11 Section 5.02 - Taxes Payable by the Landlord. . . . . . . . . . . . 12 Section 5.03 - Taxes Payable by the Tenant. . . . . . . . . . . . 12 Section 5.04 - Business Taxes and Other Taxes of Tenant . . . . . . 13 Section 5.05 - Tenant's Indemnification With Respect to Taxes under Sections 5.01, 5.03 and 5.04 . . . . . . 14 Section 5.06 - Landlord's Taxes . . . . . . . . . . . . . . . . . . 14 Section 5.07 - Per Diem Adjustment. . . . . . . . . . . . . . . . . 14 ARTICLE VI Building and Common Facilities - Control and Payment Section 6.01 - Control of the Building by the Landlord. . . . . . . 14 Section 6.02 - Tenant to Bear Share of Expense. . . . . . . . . . . 16 Section 6.03 - Payment of Tenant's Share. . . . . . . . . . . . . . 19 Section 6.04 - Landlord's Services. . . . . . . . . . . . . . . . . 19 Section 6.05 - Building Identification. . . . . . . . . . . . . . . 21 ARTICLE VII Utilities and Heating, Ventilating and Air Conditioning Section 7.01 - Charges for Utilities. . . . . . . . . . . . . . . . 21 Section 7.02 - Lighting . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE VIII Use of the Premises Section 8.01 - Use of the Premises. . . . . . . . . . . . . . . . . 22 Section 8.02 - Conduct of Business. . . . . . . . . . . . . . . . . 23 Section 8.03 - Observance of Law. . . . . . . . . . . . . . . . . . 24 ARTICLE IX Insurance and Indemnity Section 9.01 - Tenant's Insurance . . . . . . . . . . . . . . . . . 25 Section 9.02 - Increase in Insurance Premiums . . . . . . . . . . . 27 Section 9.03 - Cancellation of Insurance. . . . . . . . . . . . . . 27 Section 9.04 - Loss or Damage . . . . . . . . . . . . . . . . . . . 27 Section 9.05 - Landlord's Insurance . . . . . . . . . . . . . . . . 28 Section 9.06 - Indemnification of Landlord. . . . . . . . . . . . . 28 Section 9.07 - Limitations of Liability . . . . . . . . . . . . . . 29 ARTICLE X Maintenance, Repairs and Alterations Section 10.01 - Maintenance and Repairs by Tenant . . . . . . . . . 29 Section 10.02 - Landlord's Approval of Tenant's Repairs . . . . . . 29 Section 10.03 - Maintenance by Landlord . . . . . . . . . . . . . . 31 Section 10.04 - Repair on Notice. . . . . . . . . . . . . . . . . . 32 Section 10.05 - Surrender of the Premises . . . . . . . . . . . . . 32 Section 10.06 - Repair Where Tenant at Fault. . . . . . . . . . . . 32 Section 10.07 - Tenant Not to Overload Facilities . . . . . . . . . 32 Section 10.08 - Tenant Not to Overload Floors . . . . . . . . . . . 33 Section 10.09 - Removal and Restoration by Tenant . . . . . . . . . 33 Section 10.10 - Notice by Tenant. . . . . . . . . . . . . . . . . . 34 Section 10.11 - Liens . . . . . . . . . . . . . . . . . . . . . . . 34 Section 10.12 - Signs and Advertising . . . . . . . . . . . . . . . 34 Section 10.13 - Directory Board . . . . . . . . . . . . . . . . . . 35 ARTICLE XI Damage and Destruction and Expropriation Section 11.01 - Destruction of the Premises . . . . . . . . . . . . 35 Section 11.02 - Destruction of the Building . . . . . . . . . . . . 36 Section 11.03 - Expropriation . . . . . . . . . . . . . . . . . . . 37 Section 11.04 - Architect's Certificate . . . . . . . . . . . . . . 38 ARTICLE XII Assignment, Subletting and Change of Control Section 12.01 - Consent Required. . . . . . . . . . . . . . . . . . 38 Section 12.02 - Conditions of Consent . . . . . . . . . . . . . . . 39 Section 12.03 - No Advertising of Premises. . . . . . . . . . . . . 41 Section 12.04 - Assignment by the Landlord. . . . . . . . . . . . . 41 ARTICLE XIII Access and Alterations Section 13.01 - Right of Entry. . . . . . . . . . . . . . . . . . . 41 Section 13.02 - Security. . . . . . . . . . . . . . . . . . . . . . 42 ARTICLE XIV Status Statement, Attornment and Subordination Section 14.01 - Status Statement. . . . . . . . . . . . . . . . . . 42 Section 14.02 - Subordination and Attornment. . . . . . . . . . . . 43 Section 14.03 - Execution of Documents. . . . . . . . . . . . . . . 43 Section 14.04 - Financial Information . . . . . . . . . . . . . . . 44 ARTICLE XV Default and Landlord's Remedies Section 15.01 - Right to Re-Enter . . . . . . . . . . . . . . . . . 44 Section 15.02 - Right to Relet. . . . . . . . . . . . . . . . . . . 46 Section 15.03 - Expenses. . . . . . . . . . . . . . . . . . . . . . 47 Section 15.04 - Removal of Chattels . . . . . . . . . . . . . . . . 47 Section 15.05 - Waiver of Exemption from Distress . . . . . . . . . 47 Section 15.06 - Landlord May Cure Tenant's Default or Perform Tenant's Covenants . . . . . . . . . . . . 47 Section 15.07 - Lien on Personal Property . . . . . . . . . . . . . 48 Section 15.08 - Charges Collectible as Rent . . . . . . . . . . . . 48 Section 15.09 - Remedies Generally. . . . . . . . . . . . . . . . . 48 ARTICLE XVI Miscellaneous Section 16.01 - Rules and Regulations . . . . . . . . . . . . . . . 49 Section 16.02 - Overholding - No Tacit Renewal. . . . . . . . . . . 49 Section 16.03 - Successors. . . . . . . . . . . . . . . . . . . . . 50 Section 16.04 - Tenant Partnership. . . . . . . . . . . . . . . . . 50 Section 16.05 - Waiver. . . . . . . . . . . . . . . . . . . . . . . 50 Section 16.06 - Accord and Satisfaction . . . . . . . . . . . . . . 50 Section 16.07 - Brokerage Commissions . . . . . . . . . . . . . . . 51 Section 16.08 - No Partnership or Agency. . . . . . . . . . . . . . 51 Section 16.09 - Force Majeure . . . . . . . . . . . . . . . . . . . 51 Section 16.10 - Notices . . . . . . . . . . . . . . . . . . . . . . 52 Section 16.11 - No Option . . . . . . . . . . . . . . . . . . . . . 52 Section 16.12 - Registration. . . . . . . . . . . . . . . . . . . . 52 Section 16.13 - Compliance with The Planning Act. . . . . . . . . . 52 Section 16.14 - Metric Conversion . . . . . . . . . . . . . . . . . 53 Section 16.15 - Limited Recourse and Severability . . . . . . . . . 53 Section 16.16 - Quiet Enjoyment . . . . . . . . . . . . . . . . . . 53 Section 16.17 - Tenant's Covenant to Hazardous Substances . . . . . . . . . . . . . . . . . . . . 53 Section 16.18 - Execution of Lease By Landlord. . . . . . . . . . . 54 EXECUTION SCHEDULE "A" - Legal Description of Lands SCHEDULE "B" - Floor Plan SCHEDULE "C" - Landlord's and Tenant's Work SCHEDULE "D" - Rules and Regulations SCHEDULE "E" - Supplementary Lease Provisions SCHEDULE "F" - Hazardous Substances THIS LEASE is dated the 27th day of November, 1995. IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT BETWEEN: 674573 ONTARIO LIMITED (hereinafter called the "Landlord"), PARTY OF THE FIRST PART - and - ACE HARDWARE CANADA LIMITED A corporation incorporated under the laws of Ontario (hereinafter called the "Tenant") PARTY OF THE SECOND PART ARTICLE I Definitions The parties hereto agree that when used in this Lease or in any Schedule attached to this Lease the following words or expressions have the meaning hereinafter set forth. Section 1.01 "Additional Rent" means any and all sums of money or charges required to be paid by the Tenant under this Lease (except Minimum Rent) whether or not designated as "Additional Rent" or whether or not payable to the Landlord or to any other person. Section 1.02 "Architect" means the architect from time to time named by the Landlord. Section 1.03 "Building" means all those lands and premises located at 80 Micro Court, in the City of Markham, in the Province of Ontario, which lands are more particularly described in Schedule "A" attached hereto, as such lands may be altered, expanded or reduced from time to time and the buildings, improvements, equipment and facilities erected thereon or situate from time to time therein. Section 1.04 "Common Facilities" means those areas, facilities, utilities, improvements, equipment and installations which, from time to time: (i) are not designated or intended by the Landlord to be leased to tenants of the Building; (ii) are designated by the Landlord to serve or benefit the Building, whether or not located within, adjacent to, or near the Building; (iii) are designated by the Landlord as part of the Common Facilities; (iv) are provided or designated (and which may be changed from time to time) by the Landlord for the use or benefit of the tenants, their employees, customers and other invitees in common with others entitled to the use or benefit thereof in the manner and for the purposes permitted by this Lease. Without limiting the generality of the foregoing, Common Facilities includes the roof and roof membrane, exterior wall assemblies including weather walls, exterior and interior structural elements and bearing walls in the buildings and improvements comprising the Building, and the foundations and footings of the Building, all parking areas, and parking garages (if any); all entrances and exits thereto and all structural elements thereof; employee parking areas; access roads; truck courts; driveways; truckways; delivery passages; manual, mechanical, electrical or automatically operated doors; package pick-up stations; loading docks and related areas; pedestrian sidewalks; landscaped and planted areas; foyers, atria and lobbies; public seating and service areas; corridors; bus kiosks, if any, roadways and stops; equipment, furniture, furnishings and fixtures; first aid stations; stairways, escalators, ramps, moving sidewalks and elevators and other transportation equipment and systems; tenant common and public washrooms; electrical, telephone, meter, valve, mechanical, mail, storage, service and janitor rooms and galleries; music, fire prevention, security and communication systems; pylon and other general signs; columns; pipes; electrical, plumbing, drainage, heating, ventilating, air conditioning, mechanical, and all other installations, equipment or services located in the Building or related thereto as well as the structures housing the same. Section 1.05 "Fixturing Period" DELETED IN IT'S ENTIRETY. Section 1.06 "Land Surveyor" means the accredited land surveyor from time to time named by the Landlord. Section 1.07 "Landlord" means the Party of the First Part, and is deemed to include the word "Lessor", and in any section of this Lease that contains exculpatory language in favour of the Landlord, "Landlord" also includes the directors, officers, servants, employees and agents of the Landlord. Section 1.08 "Landlord's Work" means the work to be performed by the Landlord as described in the provisions of Schedule "C" hereto. Section 1.09 "Leasable Premises" means those premises (including the Premises) in the Building which are leased to tenants or which are designated or intended by the Landlord from time to time to be leased or used and occupied by tenants, but shall not include any Common Facilities and shall also not include storage space in the Building leased to tenants or which is designated or intended by the Landlord from time to time to be leased or occupied by tenants for storage space in the Building. Section 1.10 "Manager" means the Person retained by the Landlord from time to time to manage the Building. Section 1.11 "Minimum Rent" means the annual rent payable by the Tenant pursuant to Section 4.02 hereof. Section 1.12 "Mortgagee" means any mortgagee or hypothecary creditor (including any trustee for bondholders) of the Building or any part thereof, and any chargee or other secured creditor that holds the Building or any part of it as security but a Mortgagee is not a creditor, chargee or security holder of a tenant of Leasable Premises. Section 1.13 "Normal Business Hours" means the hours from 7:00 a.m. to 7:00 p.m. on Mondays to Fridays, unless any such day is a statutory holiday. Section 1.14 "Person" if the context allows, includes any person, firm, partnership or corporation, or any group of persons, firms, partnerships or corporations or any combination thereof. Section 1.15 "Premises" means the premises described in Section 3.01 hereof leased to the Tenant. Section 1.16 "Proportionate Share" means a fraction which has as its numerator the Rentable Area of the Premises, and as its denominator, the Rentable Area of the Building. Section 1.17 "Rent" means all Minimum Rent and Additional Rent payable pursuant to this Lease. Section 1.18 "Rentable Area of the Premises" means (i) where a tenant has leased or occupied an entire floor in the Building, all floor area measured from the inside face of the outer building glass surfaces and from the inside face of outer building masonry walls including the elevator lobby, service corridors, electrical rooms, telephone rooms, janitors' closets, men's and women's washrooms, mechanical rooms and vending areas, but shall exclude the lobby on the ground floor of the Building in the case of a ground floor tenant leasing or occupying such entire floor and shall exclude the elements of the Building that penetrate through the floor to areas below, such as stairs, elevator shafts, flues, stacks, pipe shafts and vertical ducts and their enclosing wall, provided that no deduction from Rentable Area shall be made for columns or projections necessary to the Building nor for any service areas which are for the specific use of a particular tenant, such as special stairs and/or elevators, or, (ii) where a floor is leased or occupied by more than one (1) tenant, the Usable Floor Area of the Premises multiplied by a fraction, the numerator of which shall be the Rentable Area for that floor on which the Premises are located, (excluding for ground floor tenants the lobby on the ground floor of the Building) determined as if the Tenant had leased the entire floor for its lease purposes and the denominator of which shall be the aggregate Usable Floor Area of the same floor. The definitions in this paragraph are in accordance with the standard method for measuring floor area in office buildings as sanctioned by the Building Owners and Managers Association International (BOMA) as ANSI Z65.1 - 1980 (Reaffirmed 1989) Section 1.19 "Rentable Area of the Building" means the aggregate of the individual Rentable Areas (measured in accordance with the method set out in Section 1.18) of all Leasable Premises within the Building. Section 1.20 "Rental Year" means a period of time, the first Rental Year commencing on the first day of the Term hereof, and ending on the last day of the month of December immediately following. Each Rental Year thereafter shall consist of consecutive periods of twelve (12) calendar months, but the last Rental Year of the Term shall terminate on the expiration or earlier termination of this Lease. If, however, the Landlord considers it necessary or convenient for the Landlord's purposes, the Landlord may at any time and from time to time, by written notice to the Tenant, specify a date from which each subsequent Rental Year is to commence, and in such event, the then current Rental Year shall terminate on the day immediately preceding the commencement of such new Rental Year, and the appropriate adjustments shall be made between the parties. Section 1.21 "Rules and Regulations" means the rules and regulations contained in Schedule "D" of this Lease and such amendments and additions thereto which may be adopted and promulgated by the Landlord from time to time, acting reasonably. Section 1.22 "Tenant" means the Party of the Second Part and is deemed to include the word "lessee" and any Person mentioned as Tenant in this Lease, whether one or more. Section 1.23 "Tenant's Work" means the work to be completed by the Tenant described in the provisions of Schedule "C" hereto. Section 1.24 "Term" means the period of time described in Section 3.03 hereof. Section 1.25 "Usable Floor Area" means (i) where a tenant has leased or occupied an entire floor in the Building, the Rentable Area of the Premises, or, (ii) where a floor is leased or occupied by more than one (1) tenant, all floor area from the inside face of the outer building glass surfaces and from the inside face of the outer building masonry walls to the tenant's side of corridors and/or other permanent partitions and to the centre of partitions that separate the Premises from adjoining tenants' premises (whether occupied or not) but excluding elements of the Building that penetrate through the floor to areas below, such as stairs, elevator shafts, flues, pipe shafts, and vertical ducts and their enclosing walls. No deduction from Usable Floor Area shall be made for columns or projections necessary for the Building nor for any service areas which are for the specific use of a particular tenant, such as special stairs and/or elevators. The definitions in this paragraph are in accordance with the standard method of measuring floor area in office buildings as sanctioned by the Building Owners and Managers Association International (BOMA) as ANSI Z65.1 - 1980 (Reaffirmed 1989). Section 1.26 "Hazardous Substances" - Schedule "F" attached forms part of this Lease. ARTICLE II Intent and Interpretation Section 2.01 - Net Lease The Tenant acknowledges and agrees that it is intended that this Lease is a completely carefree net lease to the Landlord, except as expressly herein set out, that during the Term the Landlord is not responsible for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Premises, or the use and occupancy thereof, or the contents thereof or the business carried on therein, and the Tenant shall pay all charges, impositions, costs and expenses of every nature and kind, extraordinary as well as ordinary and foreseen as well as unforeseen, relating to the Premises, the use and occupancy thereof, the contents thereof, and the business carried on therein, except as expressly herein set out. Section 2.02 - Obligations as Covenants Each obligation or agreement of the Landlord or the Tenant expressed in this Lease, even though not expressed as a covenant, is considered to be a covenant for all purposes. Section 2.03 - Headings The headings introducing Sections and Articles in this Lease are inserted for convenience of reference only and in no way define, limit, construe or describe the scope or intent of such Sections or Articles. Section 2.04 - Extended Meanings The words "hereof", "herein", "hereunder" and similar expressions used in any Section or subsection of this Lease relate to the whole of this Lease and not to that Section or subsection only, unless otherwise expressly provided. The use of the neuter singular pronoun to refer to any party is deemed a proper reference even though the party is an individual, a partnership, a corporation or a group of two or more individuals, partnerships or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where there is more than one Landlord or Tenant or other party and to either corporations, associations, partnerships, or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. Section 2.05 - Partial Invalidity If for any reason whatsoever any term, covenant or condition of this Lease, or the application thereof to any person or circumstance, is to any extent held or rendered invalid, unenforceable or illegal, then such term, covenant or condition: (a) is deemed to be independent of the remainder of this Lease and to be severable and divisible therefrom and its invalidity, unenforceability or illegality does not affect, impair or invalidate the remainder of this Lease or any part thereof; and (b) continues to be applicable to and enforceable to the fullest extent permitted by law against any Person and circumstances other than those as to which it has been held or rendered invalid, unenforceable or illegal. Neither party is obliged to enforce any term, covenant or condition of this Lease against any Person, if, or to the extent by so doing, such party is caused to be in breach of any laws, rules, regulations or enactments from time to time in force. Section 2.06 - Entire Agreement This Lease and the Schedules and Riders, if any, attached hereto form a part hereof together with the Rules and Regulations adopted and promulgated by the Landlord pursuant to Section 16.01 hereof, sets forth all the covenants, promises, agreements, conditions and understandings between the Landlord and the Tenant concerning the Premises and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding unless in writing and signed by the parties to be bound thereby. Section 2.07 - Governing Law This Lease shall be construed in accordance with and governed by the laws of the Province of Ontario. Section 2.08 - Time of the Essence Time is of the essence of this Lease and of every part hereof. ARTICLE III Grant and Term Section 3.01 - Premises In consideration of the rents, covenants and agreements herein contained on the part of the Tenant to be paid, observed and performed, the Landlord leases to the Tenant, and the Tenant leases from the Landlord, the Premises, now or hereafter to be erected as part of the Building, which Premises consist of part of the Third (3rd) floor of the Building, being composed of approximately Thirteen Thousand, Eight Hundred and Forty-Six (13,846) square feet of Usable Floor Area and approximately Fifteen Thousand, Three Hundred and Seventy-Two (15,372) square feet of Rentable Area, as shown outlined in red on the plan attached as Schedule "B". The space enclosed by the boundaries of the Premises extends to the limits of the Usable Area of the Premises determined in accordance with Section 1.25, but it is acknowledged and agreed that the Common Facilities which are within the space enclosed by the boundaries of the Premises do not form part of the Premises. Section 3.02 - Use of Common Facilities The use and occupation by the Tenant of the Premises includes the non-exclusive and non-transferable right or licence to use the Common Facilities in common with others entitled thereto for the purposes for which they are intended and during such hours as the Building may be open for business as determined by the Landlord from time to time, subject in each case to this Lease and to the Rules and Regulations. Section 3.03 - Commencement and Ending Date of the Term The Tenant shall have and hold the Premises for and during the Term which shall be, unless sooner terminated pursuant to the other provisions hereof, the period of Ten (10) years, from and including the 1st day of March, 1996 (the "Commencement Date") up to and including the 28th day of February, 2006. (a) expiring Ten (10) years after the last day of the calendar month in which the Commencement Date occurs, if the Term commences other than on the first day of a calendar month, or, (2) the last day of the calendar month immediately preceding the calendar month in which the Term commences, if the Term commences on the first day of a calendar month. Section 3.04 - Notice and Certificates Where reasonably possible prior to the Commencement Date or within a reasonable period thereafter: (a) the Landlord shall determine the actual Commencement Date of the Term and shall send a notice to the Tenant advising the Tenant of the actual Commencement Date and such notice shall form a part of this Lease; and (b) the Landlord shall, unless previously certified, provide a certificate as to the Rentable Area of the Premises which certificate unless disputed by the Tenant within 30 days, shall be binding on the Tenant, and shall form part of the Lease. In the event of any dispute the Landlord's Architect shall provide a certificate of the Rentable Area of the Premises which certificate shall be binding on the Landlord and the Tenant. Section 3.05 - Early Occupancy If the Tenant begins to conduct business in all or any portion of the Premises before the Commencement Date, the Tenant shall pay to the Landlord on the Commencement Date a rental in respect thereof for the period from the date the Tenant begins to conduct business in all or any part of the Premises to the Commencement Date, which rental shall be that proportion of Rent for one calendar year which the number of days in such period is 365. Except where clearly inappropriate, the provisions of this Lease shall be applicable during such period. The Tenant shall not, however, conduct business from the Premises before the Commencement Date without the Landlord's prior written approval. Section 3.06 - Delayed Possession If for any reason the Landlord's Work has not been completed by N/A or the Fixturing Period has not xpired on or before the commencement date, then this Lease shall not be void or voidable nor shall the Landlord be liable to the Tenant for any loss or damages resulting from any delay, but unless the same is caused by or attributable to delay in completion of the Landlord's Work caused by or attributable to the Tenant, its employees, servants, agents or independent contractors, Rent shall abate until the date of expiry of the Fixturing Period, unless the Tenant elects to take possession of a portion of the Premises, if possession of such portion is available from the Landlord, and the Landlord consents thereto, whereupon Rent shall be payable in respect of such portion from the date such possession is so taken. In the event of a dispute between the Landlord and the Tenant as to whether there was a delay in completion of the Landlord's Work caused by or attributable to the Tenant, its employees, servants, agents, or independent contractors, the certificate of the Architect as to the foregoing shall be conclusive and binding and Rent in full shall accrue and become payable from and including the Commencement Date. Section 3.07 - Acceptance of Premises The Tenant acknowledges and agrees that taking possession of all or any portion of the Premises by the Tenant shall be conclusive evidence as against the Tenant that the Premises including the Landlord's Work or such portion thereof are in good and satisfactory condition on the date of taking possession and that all undertakings, if any, of the Landlord to alter, remodel or improve the Premises or the Building and all representations, if any, by the Landlord respecting the condition of the Premises or the Building have been fully satisfied and performed by the Landlord. Section 3.08 - Landlord's and Tenant's Work The Landlord agrees to undertake and install the Landlord's Work and the Tenant agrees to undertake and install the Tenant's Work and to complete such work during the Fixturing Period. The Tenant shall be permitted access to the Premises during the Fixturing Period for the purpose of undertaking and installing the Tenants Work, and shall not be responsible for payment of all amounts payable by it under this Lease during such Fixturing Period, except electricity costs. Section 3.09 - Relocation At any time after the initial term the Landlord may substitute for the Premises other premises in the Building (the "New Premises"), in which event the New Premises shall be deemed to be the Premises for all purposes under this Lease, provided that the New Premises shall be similar to the Premises in area, location and configuration. If the Tenant is then occupying the Premises, the Landlord shall pay the actual and reasonable expenses of physically moving the Tenant and its property and equipment to the New Premises. The Landlord shall give the Tenant not less than sixty (60) days prior written notice of such substitution and the Landlord, at its expense, shall improve the New Premises with improvements substantially similar to those in the Premises at the time of such substitution if the Premises are then improved. ARTICLE IV Rent Section 4.01 - Covenant to Pay The Tenant shall pay Rent as herein provided which obligation shall survive the expiration or earlier termination of this Lease. Section 4.02 - Minimum Rent (a) The Tenant shall pay from and after the Commencement Date to the Landlord at the office of the Landlord, or at such other place designated by the Landlord, in lawful money of Canada, without any prior demand therefor and without any deduction, abatement, set off or compensation whatsoever, as annual Minimum Rent, the sum of: please see Schedule "E". The Minimum Rent is based upon an annual rate of: Please see Schedule "E"; and when the Rentable Area of the Premises is certified as set out in Section 3.04, the Minimum Rent shall, if necessary, be adjusted accordingly as of the Commencement Date and from time to time thereafter to conform with changes in the Rentable Area of the Premises. If the Tenant has paid in excess of the amounts due on account of Minimum Rent as a result of such adjustment, the excess shall be credited by the Landlord against Rent, then or in the future owing by the Tenant under this Lease. If the amount the Tenant has paid is less than the amounts due as a result of the adjustment, the Tenant shall pay such additional amounts due within thirty (30) days after demand therefor. If the Commencement Date is on a day other than the first day of the calendar month, then the Tenant shall pay, upon the Commencement Date, a portion of the Minimum Rent prorated on a per diem basis from the Commencement Date to the end of the month in which the Commencement Date occurs, based upon a period of three hundred and sixty-five (365) days. (b) At the Landlord's option, upon notice to the Tenant, the Tenant shall, at the Tenant's cost, and without prejudice to any other right or remedy of the Landlord present to the Landlord thirty (30) days prior to the commencement of each Rental Year throughout the Term, a series of monthly postdated cheques for each such year of the Term in respect of the aggregate of the monthly payments of annual Minimum Rent and any payments of Additional Rent estimated by the Landlord in advance, and any other payments required by this Lease to be paid by the Tenant monthly in advance. (c) The Landlord acknowledges receipt of the Tenant's deposit in the amount of Thirty Nine Thousand, Sixty-Four Dollars and Ten Cents ($39,064.10) which deposit is to be held "In Trust" for the Tenant and said deposit is to be designated for application against the first months rent in the amount of Twelve Thousand, One Hundred and Sixty-Nine Dollars and Fifty Cents ($12,169.50) plus G.S.T. of Eight Hundred and Fifty-One Dollars and Eighty-Seven Cents ($851.87) and the balance to be applied towards the last two months of the term. Section 4.03 - Rent Past Due If the Tenant fails to pay, when the same is due and payable, any Rent or any other amount payable by the Tenant under this Lease, such unpaid amounts shall bear interest (payable as Additional Rent) from the due date thereof to the date of payment at a rate per annum which is equal to six (6) percentage points in excess of the prime commercial lending rate (the "Prime Rate") per annum charged by any Canadian bank designated by the Landlord from time to time on loans made in Canadian funds to its most favoured commercial borrowers, calculated and compounded monthly, with any adjustment in such rate to be effective on the first day of the month next following such change in the Prime Rate. ARTICLE V Taxes Section 5.01 - Taxes - Definition "Taxes" means all real property taxes, rates, duties and assessments (including local improvement taxes), impost charges or levies (collectively referred to as "real property taxes"), whether general or special, that are levied, rated, charged or assessed against the Building or any part thereof from time to time (including, without limitation, the Common Facilities) by any lawful taxing authority, whether federal, provincial, municipal, school or otherwise, and any taxes or other amounts which are imposed in lieu of, or in addition to, any such real property taxes whether of the foregoing character or not or whether in existence at the Commencement Date or not, and any such real property taxes levied or assessed against the Landlord on account of its ownership of or interest in the Building. Section 5.02 - Taxes Payable by the Landlord The Landlord shall pay all Taxes which are levied, rated, charged or assessed against the Building or any part thereof subject to Sections 5.03, 5.04 and, 6.02 hereof. However, the Landlord may defer payment of any such Taxes, or defer compliance with any statute, law, by-law, regulation or ordinance in connection with levying of any such Taxes, in each case to the fullest extent permitted by law, so long as it diligently prosecutes any contest or appeal of any such Taxes and so long as the same does not result in forfeiture by the Tenant of its interest in this Lease or any disturbance of its right to quiet possession hereunder. Section 5.03 - Taxes Payable by the Tenant (a) The Tenant shall pay, as Additional Rent, in each and every year during the Term and within the times provided for by the taxing authorities, to the Landlord or to the taxing authorities as the Landlord may direct, and discharge, all Taxes that may be levied, rated, charged or assessed against the Premises and against all leasehold improvements situate at the Premises, or any part or parts thereof from time to time by any taxing authority whether federal, provincial, municipal, school or otherwise. The Tenant agrees to provide the Landlord upon receipt by the Tenant with a copy of any separate tax bills, and separate notices of assessments for and in respect of the Premises and all leasehold improvements situate at the Premises. In addition, the Tenant shall pay to the Landlord, on demand, as Additional Rent, in each Rental Year, the Tenant's Proportionate Share of the Taxes assessed against the lands described in Schedule "A" and the Common Facilities. (b) In the event that there shall not be a separate assessment for Taxes made against the Premises, the Landlord may, at its option, with each tax bill it receives, make an allocation of Taxes on a reasonable and equitable basis between the lands described in Schedule "A", the Common Facilities, the Leasable Premises, other premises available for leasing to tenants which do not constitute part of the Leasable Premises, and as between such other premises, the Leasable Premises and the Premises, and as between the assessment relating to the leasehold improvements made to the Premises and those made to other Leasable Premises and such other premises, and the Landlord shall be entitled to charge an administration fee of fifteen per cent (15%) of the amount of such Taxes so allocated to the Tenant. The Tenant shall pay its share of Taxes so allocated against the Premises by the Landlord together with the share of such administration charge within ten (10) days after demand therefor by the Landlord and the Tenant in addition shall pay to the Landlord, as Additional Rent, in each Rental Year, the Tenant's Proportionate Share of the Taxes so allocated against the said lands and the Common Facilities. (c) In the event that there shall not be a separate assessment for Taxes made against the Premises the Landlord at its option, may include all Taxes for the lands described in Schedule "A", the Building, the Common Facilities, the Leasable Premises and all other premises available for leasing in the Building which do not constitute part of the Leasable Premises, in the costs and expenses referred to in Section 6.02(a) and (b), and the Tenant shall pay its Proportionate Share thereof in the manner and at the time set forth in Section 6.03 hereof. Section 5.04 - Business Taxes and Other Taxes of Tenant (a) In addition to the Taxes payable by the Tenant pursuant to Section 5.03, the Tenant shall pay as Additional Rent to the lawful taxing authorities, or to the Landlord, as it may direct, and shall discharge in each Rental Year when the same become due and payable (i) all taxes, rates, duties, assessments and other charges that are levied, rated, charged or assessed against or in respect of all improvements, fixtures, personal property, equipment and facilities on or in the Premises or any part thereof; and, (ii) every tax and license fee which is levied, rated, charged or assessed against or in respect of any and every business carried on in the Premises or in respect of the use or occupancy thereof or any other part of the Building by the Tenant and every subtenant or licensee of the Tenant, all of the foregoing described in subsections (i) and (ii) aforesaid being collectively referred to as "Business Taxes" and whether in any case, any such taxes, rates, duties, assessments or license fees are rated, charged or assessed by any federal, provincial, municipal, school or other body during the Term. If there are no separate bills provided for Business Taxes, the Tenant shall pay its Proportionate Share of all Business Taxes with respect to the entire Building; and, (iii) all taxes that are levied, charged, assessed or imposed wholly or partially with respect to the Rent whether imposed upon the Tenant or the Landlord, whether the same exist as of the date hereof, as of the Commencement Date, or at any time thereafter; and (iv) its Proportionate Share of all capital taxes payable by the Landlord in respect of the Building, calculated as if the Building were its only asset. (b) The Tenant shall upon request of the Landlord promptly deliver to the Landlord for inspection, receipts for payment of all taxes payable by the Tenant pursuant to this Section 5.04, notices of any assessments of any taxes referred to in this Section 5.04 received by the Tenant and such other information in connection with any such taxes as the Landlord reasonably determines from time to time. (c) The Tenant hereby expressly agrees that it is not permitted to contest or appeal any taxes referred to in Sections 5.01, 5.03 and 5.04, save and except with respect to its own Business Taxes. The Tenant agrees to deliver to the Landlord, at least ten (10) days prior to the last date permitted for filing of an appeal, notice of any appeal or contestation that the Tenant intends to institute with respect to its own Business Taxes and to consult with and obtain the prior written approval of the Landlord to any such appeal or contestation. If the Tenant obtains approval, the Tenant shall, upon demand, deliver to the Landlord such security for the payment of such Business Taxes as the Landlord deems advisable and the Tenant shall diligently prosecute any such appeal or contestation to a speedy resolution and shall keep the Landlord informed of its progress in that regard from time to time. Section 5.05 - Tenant's Indemnification With Respect to Taxes under Sections 5.01, 5.03 and 5.04 The Tenant shall promptly indemnify and hold harmless the Landlord from and against payment for any and all losses, claims, actions, suits, proceedings, causes of action, demands, damages, judgments, executions, liabilities, responsibilities, costs, charges and expenses (collectively referred to in this Lease as "Claims") occasioned by or arising from any and all taxes payable by the Tenant hereunder including those which may in future be levied in lieu of or in addition to such taxes referred to in Sections 5.01, 5.03 and 5.04 or which may be assessed against any Rent payable pursuant to this Lease whether in lieu of such taxes or otherwise, whether against the Landlord or the Tenant including, without limitation, any increase whensoever occurring in such taxes arising directly or indirectly out of an appeal or contestation by the Tenant of its own Business Taxes relating to the Premises or the Building or any part thereof. The Tenant shall deliver to the Landlord on demand such security for any such Taxes as the Landlord deems advisable. Section 5.06 - Landlord's Taxes Notwithstanding what is otherwise herein provided for in this Article V, but subject to the provisions of Section 5.04(a)(iii) and (iv) hereof, the Tenant shall not be responsible for the payment of such taxes as corporate income, profits, or excess profits taxes assessed upon the income of the Landlord. Section 5.07 - Per Diem Adjustment If any Rental Year during the Term of this Lease is less than twelve (12) calendar months, the taxes that the Tenant is required to pay pursuant to Article V hereof shall be subject to a per diem adjustment on the basis of a period of 365 days. ARTICLE VI Building and Common Facilities - Control and Payment Section 6.01 - Control of the Building by the Landlord The Landlord or its Manager shall operate and maintain the Building in such manner as the Landlord determines from time to time, and in a first-class and reputable manner as would a prudent landlord of a similar multiple tenancy commercial office building having regard to size, age and location. The Building is at all times subject to the exclusive control and management of the Landlord. Without limiting the generality of the foregoing, the Landlord has the right, in its control, management and operation of the Building and by the establishment of Rules and Regulations and general policies with respect to the operation of the Building or any part thereof at all times during the period of time that the Tenant's Work contemplated in Schedule "C" hereto is being undertaken and throughout the Term, to: (a) (i) obstruct or close off all or any part of the Building for the purpose of maintenance, repair or construction; (ii) close all or any portion of the Building to such extent as may, in the opinion of the Landlord's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any Person or the public therein; (iii)grant, modify and terminate easements and other agreements pertaining to the use and maintenance of all or any part of the Building; (iv) employ all personnel including supervisory personnel and managers necessary for the operation, maintenance and control of the Building; the Tenant acknowledges that the Building may be managed by the Landlord or by the Manager or such other Person as the Landlord designates in writing from time to time; (v) from time to time permit the Tenant to have exclusive use of parts of the parking areas forming part of the Common Facilities and permit other tenants to have the exclusive use of parts of the parking areas; (vi) from time to time, prohibit the Tenant and its employees from parking anywhere in the Building; if the Landlord designates tenant parking areas in the Building or elsewhere, the Tenant and its employees shall park their vehicles only in such parking areas; the Tenant shall furnish the Landlord, upon request, with the current licence numbers of all vehicles owned or used by the Tenant and its employees and such other information concerning vehicles and parking thereof as the Landlord may require and the Tenant shall, thereafter, notify the Landlord of any changes within five (5) days after such changes occur; if the Tenant or its employees park their vehicles in any such prohibited parking areas, the Landlord, in addition to all rights and remedies hereunder, shall have the right to charge the Tenant a per diem fee per vehicle parked in any area other than a designated area; such fee is payable as Additional Rent on demand; subject to the provisions of Section 16.17 hereof, the Landlord reserves the right to impose reasonable charges upon the Tenant and any person (including the general public) for the use of parking facilities; (b) from time to time, change the area, level, location, arrangement or use of the Building or any part thereof, make alterations, additions, subtractions, or re-arrangements to the Building or any part thereof, and construct additional buildings, structures, improvements or facilities in, adjoining or near to, the Building or to construct other buildings, structures or improvements in the Building and build additional stories on the Building; (c) impose such requirements with respect to access to the Building and security measures as the Landlord deems necessary, and the Tenant and its employees and invitees shall abide by all such requirements and measures, including any card-access or other security system installed in the Building; and (d) do and perform such other acts in and to the Building as, in the use of good business judgment, the Landlord determines to be advisable for the more efficient and proper operation of the Building. Notwithstanding anything contained in this Lease, it is understood and agreed that if as a result of the exercise by the Landlord of its rights set out in this Section 6.01, the Common Facilities are diminished or altered in any manner whatsoever, the Landlord is not subject to any liability, nor is the Tenant entitled to any compensation or diminution or abatement of Rent, nor is any alteration or diminution of the Common Facilities deemed constructive or actual eviction, or a breach of any covenant for quiet enjoyment contained in this Lease. Section 6.02 - Tenant to Bear Share of Expense (a) In each Rental Year, the Tenant shall pay to the Landlord, as Additional Rent, its Proportionate Share or other share determined by the Landlord as provided for herein, as the case may be, of the total costs and expenses incurred, accrued, paid, payable or attributable, whether by the Landlord or others on behalf of the Landlord: (1) for the operation, service, maintenance, repair, rebuilding, replacement, insurance, policing, supervision, management, and administration of the Building, and, (2) for the Landlord to discharge its obligations or actions under this Lease or under other leases of premises in the Building. If the Building is less than 100% completed or occupied for any time, such costs and expenses shall be adjusted to mean the amount obtained by adding to such costs and expenses during such time additional costs as would have been incurred if the Building had been 100% completed and occupied as determined by the Landlord acting reasonably. (b) The costs and expenses as set out in Section 6.02(a) include, without limitation and without duplication, the aggregate of: (i) insurance on the Building and any improvements, equipment and other property located thereon; the Landlord's insurance may, without limitation, include loss of insurable gross profits attributable to the perils insured against by the Landlord or commonly insured against by landlords, including loss of rent and other amounts receivable from tenants in the Building, and third party liability coverage including the exposure of personal injury, bodily injury, property damage occurrence, including all contractual obligations coverage and including actions of the employees, contractors, subcontractors and agents working on behalf of the Landlord; (ii) landscaping, cleaning (including window cleaning), painting, snow and ice removal, repaving parking areas (including without limitation, line painting and curb installation), garbage and waste collection and disposal, and all costs referred to in Section 6.04; (iii) lighting, utilities (including, without limitation, electricity, water, gas, steam and other fuel and hook-up, connection or service charges for utilities, and charges for the use of the sewage disposal system), loudspeakers, telephones and any telephone answering service facilities and systems, used in or serving the Building, and the cost of electricity for any signs designated by the Landlord as part of the Common Facilities; (iv) policing, security, security systems, supervision and traffic control; (v) in the event that the Landlord has not contracted for the management services of the Manager or any Person for the operation, supervision, management and administration of the Building, remuneration (including, without limitation, contributions and premiums towards fringe benefits, unemployment and Worker's Compensation insurance, pension plan contributions and similar premiums and contributions) of Persons to the extent engaged in the operation, maintenance, administration, management and supervision of the Building; (vi) the cost of the rental of any equipment and signs, and the cost of building supplies used by the Landlord in the maintenance of the Building; (vii) auditing, accounting, bookkeeping, legal and other professional and consulting fees and disbursements; (viii) the cost of all repairs (including, without limitation, major repairs) and replacements to and maintenance and operation of the Building and the Common Facilities and the systems, facilities and equipment serving the Building (including, without limitation, all escalators, elevators, moving sidewalks and other transportation equipment and systems and all heating, ventilating and air conditioning and climate control systems serving the Building) except for the cost of repairing or replacing any inherent structural defects or weaknesses; (ix) depreciation or amortization (1) of the cost, including repair and replacement, of all maintenance, cleaning and operating equipment and master utility meters from the Commencement Date, and, (2) of the costs incurred after the Commencement Date for repairing or replacing all other fixtures, equipment and facilities serving or comprising the Building unless they are, pursuant to Section 6.02(b)(viii), charged fully in the Rental Year in which they are incurred in accordance with sound accounting principles; (x) all costs incurred in acquiring, installing, maintaining, revising, repairing and replacing energy conservation equipment and systems and life safety systems for the Building and for effecting any improvements to the Building made to comply with air pollution or environmental control standards; (xi) heating, ventilating and air conditioning costs of the Building; (xii) subject to the provisions of Article VII hereof, the cost of water, fuel, power, telephone and other utilities used or consumed in or with respect to the Building; (xiii) reserves established by the Landlord for capital expenditures based on $.20 per square foot, per annum, of the Rentable Area of the Building; (xiv) subject to the provisions of Article V hereof, the Business Taxes of the Landlord and Taxes, and all costs incurred by the Landlord in contesting or appealing such taxes or related assessments (including, without limitation, legal, appraisal and other professional fees and administration and overhead costs) on all or any part of the Building; (xv) in the event that the Landlord has not contracted for the management services of a Person for the operation, supervision, management and administration of the Building, an administration fee of fifteen per cent (15%) of such total annual costs set out in Section 6.02(b)(i) to Section 6.02(b)(xiv) inclusive (or such greater amount as shall be standard from time to time in the property management industry, as determined by the Landlord, acting reasonably); (xvi) in the event that the Landlord has hired the services of a Manager or any Person for the operation, supervision, management and administration of the Building, all amounts which the Landlord must pay to such Manager or any Person in connection therewith, including without limitation, management fees and disbursements incurred by such Manager or any Person in carrying out its obligations to the Landlord. From the total of the above costs set out in Section 6.02(b)(i) to Section 6.02(b)(xvi) inclusive, there shall be deducted net proceeds received by the Landlord from insurance policies taken out by the Landlord to the extent that such proceeds relate to the costs and expenses incurred in the maintenance and operation of the Common Facilities. Provided that in computing such costs and expenses described in Section 6.02(a) and (b), if the Landlord from time to time determines that the use of any water, fuel, power, telephone or other utilities used or consumed in or with respect to the Premises, or in the event that any service to or in respect of the Premises is disproportionate to the use of other tenants or occupants in the Building, the Landlord may adjust the Tenant's share of the cost thereof from a date reasonably determined by the Landlord to take into account such disproportionate use. Section 6.03 - Payment of Tenant's Share (a) Subject to the provisions of Articles V and VII hereof, the amounts payable by the Tenant pursuant to Articles V, VI and VII hereof may be estimated by the Landlord for such period as the Landlord determines from time to time, and the Tenant agrees to pay to the Landlord the Tenant's Proportionate Share, or other share thereof determined by the Landlord as provided for herein, as the case may be, as so estimated, of such amounts in monthly instalments in advance during such period as Additional Rent on the same dates as payments of the Minimum Rent. Notwithstanding the foregoing, as soon as bills for all or any portion of the said amounts so estimated are received, the Landlord may bill the Tenant for the Tenant's Proportionate Share thereof or other share thereof determined by the Landlord as provided for herein, as the case may be, and the Tenant shall pay the Landlord such amounts so billed (less all amounts previously paid by the Tenant on the basis of the Landlord's estimate as aforesaid) as Additional Rent on demand. Provided that in the event that the Landlord does not provide a new estimate, notwithstanding that the period for which such previous estimate has been given to the Tenant has expired, the Tenant shall continue to pay its Proportionate Share, or other share thereof determined by the Landlord as provided for herein, as the case may be, based on the most recent estimate provided by the Landlord, until such time as a new estimate is rendered by the Landlord therefor. (b) Within a reasonable period of time after the end of the period for which such estimated payments have been made, the Landlord shall deliver to the Tenant a statement issued by the Landlord, which statement will set forth the amounts and costs referred to in Articles V, VI and VII together with a statement of the Tenant's Proportionate Share thereof, or other share thereof determined by the Landlord as provided for herein, as the case may be. In either case, if necessary, an adjustment shall be made between the parties in the following manner. If the Tenant has paid in excess of the amounts due, the excess shall be credited by the Landlord against Rent, then or in the future owing by the Tenant under this Lease. If the amount the Tenant has paid is less than the amounts due, the Tenant agrees to pay such additional amounts due with the next monthly payment of Minimum Rent. If any Rental Year during the Term is greater or less than any such period determined by the Landlord as aforesaid, the Tenant's Proportionate Share or other share thereof determined by the Landlord as provided for herein, as the case may be, shall be subject to a per diem, pro rata adjustment. Failure of the Landlord to provide any statement under this Section 6.03 shall not prejudice the Landlord's right to provide such statement thereafter or with respect to any other period. The providing of any such statement shall also not affect the Landlord's right to subsequently provide an amended or corrected statement. The Tenant shall have the right at it's sole expense to inspect those records of the Landlord maintained by the Landlord at its principal place of business as may be necessary to verify the Landlord's calculation of Additional Rent payable by the Tenant; such right of inspection to be exercised within thirty (30) days of the Tenant's receipt of the Landlord's statement indicated above. Section 6.04 - Landlord's Services (1) The Landlord covenants with the Tenant as follows: (a) To provide climate control to the Premises during Normal Business Hours to maintain a temperature adequate for occupancy, except during the making of repairs, alterations or improvements. The Tenant acknowledges that the Landlord has installed in the Building a system for the purpose of climate control, which system is designed to heat and cool during normal occupancy of the Premises as general offices on an open floor basis and based on the window shading being fully closed in those offices having exterior windows exposed to the sun, without having regard to the Tenant's specific use thereof or the installation of any heat generating equipment in the Premises by the Tenant or by anyone on behalf of the Tenant. The Tenant further acknowledges that the climate control system may require balancing and adjustment during the first year after installation to achieve a level of efficient operation. Any use of the Premises not in accordance with the design standards or any arrangement of partitioning which interferes with the normal operation of such system may require changes or alterations in the system or duct through which the same operates. Any changes or alterations so occasioned, if such changes can be accommodated by the Landlord's equipment, shall be made by the Tenant at its cost and expense but only with the written consent of the Landlord first had and obtained, and in accordance with drawings and specifications and by a contractor first approved in writing by the Landlord. If installations of partitions, equipment or fixtures by the Tenant necessitates the rebalancing of the portion of the climate control equipment installed in the Premises, the same will be performed by the Landlord at the Tenant's expense payable by the Tenant upon demand as Additional Rent. (b) Subject to the supervision of the Landlord, to furnish, during Normal Business Hours, and during such extended hours as the Landlord may determine, for use by the Tenant and its employees and invitees in common with other persons entitled thereto, passenger elevator service to the Premises, and to furnish upon written request for the use of the Tenant in common with others entitled thereto at reasonable intervals and at such hours as the Landlord may select, freight elevator service to the Premises for the carriage of furniture, equipment, deliveries and supplies. (c) To provide for the use of the Tenant and its employees and invitees in common with others entitled thereto, washrooms on each floor of the Building upon which any part of the Premises is located. (d) To provide janitor and cleaning services when reasonably necessary from time to time to the Premises and to the Building to be rendered substantially in accordance with the standards of a similar modern office building. (e) To furnish appropriate facilities for bringing telephone services to a point in the Premises, to provide to a point or points in the Premises hot and cold water for use in the washrooms (if any) in the Premises and to provide washrooms with hot and cold water available for the Tenant's use in common with others entitled thereto when washrooms are not located within the Premises. (2) The Landlord shall have no liability or responsibility for failure to supply any of the foregoing services or facilities when prevented from doing so due to repairs, alterations or improvements, or by labour disruptions or strikes or causes beyond the reasonable control of the Landlord. Section 6.05 - Building Identification Deleted. ARTICLE VII Utilities and Heating, Ventilating and Air Conditioning Section 7.01 - Charges for Utilities (a) The Tenant shall be solely responsible for and shall promptly pay to the Landlord, or as it otherwise directs, in the manner hereinafter provided as a charge with respect to the Premises (the "Charge") the aggregate, without duplication, of: (i) the total cost of water, fuel, power, telephone and other utilities (the "Utilities") used or consumed in or with respect to the Premises at rates not in excess of public utility rates for the same services if such utilities are provided by public utilities; and (ii) all costs reasonably incurred by the Landlord in determining or allocating the Charge or determining the Utilities including, without limitation, professional, engineering and consulting fees and an administration fee of fifteen per cent (15%) of the total cost hereinbefore set out in this Section 7.01(a). (b) The Landlord may determine in a reasonable and equitable manner the Charge applicable to the Premises by allocating the Utilities for the Building amongst the several components and areas of the Building, including the Common Facilities, the Leasable Premises, and other premises available for leasing which do not constitute part of the Leasable Premises. (c) Provided that notwithstanding the foregoing, the Landlord at its option may include the cost of all Utilities for the Building, including for Common Facilities, the Premises and all Leasable Premises and other premises available for leasing which do not constitute a part of the Leasable Premises which are not separately metered in the costs and expenses referred to in Section 6.02(a) and subject to what is otherwise herein provided, the Tenant shall pay its Proportionate Share thereof in the manner and at the times as set forth in Section 6.03 hereof. (d) The Tenant agrees as follows: (i) If the Landlord elects, for the more efficient and proper operation of the Building, or is required by municipal by-law or the suppliers of the Utilities to purchase the Utilities or any of them for the Building, the Tenant shall purchase such Utilities and pay for such Utilities as Additional Rent forthwith on demand to the Landlord at rates not in excess of the rates charged by such suppliers for such Utilities, if applicable; (ii) If requested by the Landlord, the Tenant shall promptly install a separate check meter indicating demand and consumption of Utilities in the Premises at the Tenant's expense and in a location designated by the Landlord; (iii) If the Landlord elects, the Landlord shall be entitled to install, at the Tenant's expense, a separate check meter indicating demand and consumption of Utilities in the Premises, in a location designated by the Landlord. (e) If the suppliers of the Utilities require that the Tenant enter into contracts or arrangements with such suppliers in connection with such Utilities, the Tenant shall be responsible to enter into such contracts or other arrangements and to pay whatever deposits or other amounts that are payable under such contracts or other arrangements. (f) In no event is the Landlord liable for, nor has the Landlord any obligation with respect to, an interruption or cessation of, or a failure in the supply of any such Utilities, services or systems in, to or serving the Building or the Premises, whether or not supplied by the Landlord or others, and whether the interruption or cessation is caused by the Landlord's fault or not. Section 7.02 - Lighting The Landlord shall have the exclusive right to attend to any replacement of electric light bulbs, tubes and ballasts in the Premises throughout the Term. The Landlord may adopt a system of relamping and reballasting periodically on a group basis in accordance with good commercial practice. The Tenant shall pay to the Landlord as Additional Rent on the first day of each and every month during the Term a monthly charge per bulb, tube and ballast on account of the cost of such replacement together with 15% of the total cost thereof. If the cost of such replacement shall increase or decrease during the Term, the Landlord shall adjust the Additional Rent payable for such replacement hereunder on an equitable basis and the Tenant agrees to pay such Additional Rent as adjusted. The decision of the Landlord, acting reasonably, with respect to any such adjustment, and Additional Rent based thereon shall be final and binding on the parties hereto. If the Landlord does not adopt a system of relamping and reballasting as aforesaid, then replacement of electric light bulbs, tubes and ballasts in the Premises shall be undertaken by the Landlord at such time as they actually burn out and after notice from the Tenant that replacement is required. In such event, the cost of such replacement and installation shall be paid by the Tenant to the Landlord as Additional Rent. ARTICLE VIII Use of the Premises Section 8.01 - Use of the Premises The Tenant shall use the Premises solely for the purposes of general offices and the Tenant will not use or permit, or suffer the use of the Premises or any part thereof for any other business or purpose. Section 8.02 - Conduct of Business The Tenant shall occupy the Premises from and after the Commencement Date and thereafter throughout the Term shall conduct continuously and actively the business set out in Section 8.01 hereof in the whole of the Premises. In the occupancy of the Premises and the conduct of the Tenant's business pursuant to this Lease, the Tenant shall: (a) own, install in the Premises and keep in good order and condition, free from liens or rights of third parties, only fixtures and equipment of first class quality; (b) abide by all Rules and Regulations and general policies formulated by the Landlord from time to time relating to the shipping and receiving of goods, merchandise, materials and supplies; (c) not commit or suffer or permit to be committed any waste upon, or damage to, the Premises, or any nuisance or other act or thing which in the Landlord's opinion disturbs the quiet enjoyment of any other tenant or occupant of premises in the Building; and not perform any acts or carry on any practices which may damage the Building or any part thereof; (d) not do, nor suffer or permit to be done, any act in or about the Building which, in the Landlord's opinion, hinders or interrupts the flow of traffic to, in and from the Building and not do, nor suffer or permit anything to be done which, in the Landlord's opinion, in any way obstructs the free movement of Persons doing business in the Building; (e) not solicit business, nor shall it suffer or permit its employees or agents to solicit business in any part of the Building other than the Premises, nor display any merchandise elsewhere within the Building outside of the Premises at any time without in each case the prior written consent of the Landlord; (f) not install or allow on the Premises any transmitting device, nor erect any aerial on the roof of any building forming part of the Building or on any exterior walls of the Premises or in any of the Common Facilities; (g) not use any travelling or flashing lights, or any signs, television or other audio-visual or mechanical devices in a manner so that they can be seen outside of the Premises, and not use any loudspeakers, television, phonographs, radio or other audio-visual or mechanical devices in a manner so that they can be heard outside of the Premises, without in each case the prior written consent of the Landlord. If the Tenant uses any such equipment without receiving the prior written consent of the Landlord, the Landlord shall be entitled to remove such equipment without notice at any time and such removal shall be done and all damage as a result thereof shall be made good, in each case, at the cost of the Tenant, payable as Additional Rent forthwith on demand; (h) not use, or permit to be used, any part of the Premises for any activity or business which (in the reasonable opinion of the Landlord) is dangerous, noxious or offensive, or which might result in any increase of insurance, premiums or cancellation of any insurance maintained by the Landlord in respect of the Building; (i) (i) cooperate with the Landlord in the conservation of all forms of energy in the Building, including, without limitation, in the Premises; (ii) comply with all laws, by-laws, regulations and orders relating to the conservation of energy affecting the Building or any part thereof; and, (iii) promptly comply, at the Tenant's expense, with all reasonable requests and demands of the Landlord made with a view to such energy conservation. Any and all costs and expenses paid or incurred by the Landlord in installing energy conservation equipment and systems, so far as the same apply to or are reasonably apportioned to the Building by the Landlord, shall be included in Section 6.02(b)(x). The Landlord shall not be liable or responsible to the Tenant in any way for any Claims whether direct or consequential, paid, suffered or incurred by the Tenant due to any reduction in the services provided by the Landlord to the Tenant or to the Building or any part thereof as a result of the Landlord's compliance with such laws, by-laws, regulations or orders; and (j) not use or permit to be used, any part of the Premises for the preparation, cooking or consumption of food or hot beverages, except as specifically permitted by the Landlord in writing, in its sole discretion, and shall not permit or allow any odours, vapours, steam, water, vibrations, noises or other undesirable effects to emanate from the Premises or any equipment or installation therein which, in the Landlord's opinion, are objectionable or cause any interference with the safety, comfort or convenience of the Building by the Landlord or any occupants thereof or their customers or invitees. If required by the Landlord, the Tenant shall install, at its expense, an exhaust system to properly ventilate any kitchen or other source of odours, vapours or steam. If the Tenant is in default of any of the foregoing, the Landlord shall have the right to verbally inform the Tenant's manager in the Premises thereof, whereupon the Tenant shall forthwith (i) take such steps as are necessary to cure any such default, and, (ii) cease selling the offending item or items, as the case may be. Any business, conduct or practice promulgated, carried on or maintained by the Tenant, whether through advertising or selling procedures or otherwise, which in the opinion of the Landlord, acting reasonably, may harm or tend to harm the business or reputation of the Landlord or reflect unfavourably on the Building, the Landlord or other tenants in the Building, or which may tend to confuse, mislead, deceive or be fraudulent to the public, shall be immediately discontinued by the Tenant at the request of the Landlord. Section 8.03 - Observance of Law The Tenant shall, at its sole cost and expense and subject to Sections 10.01 and 10.02 hereof, promptly: (a) observe and comply with all provisions of law including, without limitation, all requirements of all governmental authorities, including federal, provincial and municipal legislative enactments, by-laws and fire and other regulations now or hereafter in force which pertain to or affect the Premises, the Tenant's use of the Premises or the conduct of any business in the Premises, or the making of any repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the Premises; and (b) carry out all modifications, alterations or changes of or to the Premises and the Tenant's conduct of business in or use of the Premises which are required by any such authorities as are set out above. ARTICLE IX Insurance and Indemnity Section 9.01 - Tenant's Insurance (a) The Tenant shall throughout the period that the Tenant is given possession of the Premises and during the entire Term, at its sole cost and expense, take out and keep in full force and effect, the following insurance: (i) all-risk insurance (including but not limited to sprinkler leakage, flood, earthquake and collapse coverage) in an amount equal to the full replacement cost thereof upon property of every description and kind owned by the Tenant or for which the Tenant is liable, or installed by or on behalf of the Tenant and which is located within the Building including, without limitation, Leasehold Improvements, tenant's fixtures, the Tenant's stock-in-trade, furniture, equipment and all other personal property provided that if there is a dispute as to the amount which comprises full replacement cost, the decision of the Landlord shall be conclusive; (ii) business interruption insurance in such amount as will reimburse the Tenant for direct or indirect loss of earnings attributable to all perils insured against in subclause (i) and other perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or the Building as a result of such perils; (iii) comprehensive general liability insurance, including property damage and bodily injury and personal injury liability, tenant's legal liability, contractual liability (including contractual liability with respect to this Lease) and owners' and contractors' protective insurance coverage with respect to the Premises and the Tenant's use of the Common Facilities, coverage to include the activities and operations conducted by the Tenant and any other person for whom the Tenant is in law responsible. Such policies shall be written on a comprehensive basis with inclusive limits of not less than Two Million Dollars ($2,000,000) for bodily injury to any one or more persons or property damage, and such higher limits as the Landlord, acting reasonably, requires from time to time, and shall contain a severability of interests clause and a cross-liability clause; (iv) broad form comprehensive boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in an amount not less than the full replacement cost of all Leasehold Improvements and of all boilers, pressure vessels, air-conditioning equipment and miscellaneous electrical apparatus owned or operated by the Tenant or by others (other than the Landlord) on behalf of the Tenant in or serving the Premises; (v) motor vehicle insurance having third party liability limits not less than Two Million Dollars ($2,000,000) covering all vehicles owned or operated by the Tenant which are at any time used in connection with the Tenant's business at the Premises or which are at any time brought upon the Lands; (vi) any other form of insurance which the Landlord, acting reasonably, requires from time to time in form, in amounts and for risks against which a prudent tenant would insure. (b) All policies shall: (i) be taken out with insurers acceptable to the Landlord; (ii) be in a form satisfactory from time to time to the Landlord which form may include a reasonable deductible, the amount of which will be subject to the Landlord's approval, which approval may not be unreasonably withheld; (iii)be non-contributing with and shall apply only as primary and not as excess to any other insurance available to the Landlord; (iv) exclude the exercise of any claim of the insurer or insurers, whether by subrogation or otherwise, against the Landlord and against those for whom the Landlord is in law responsible; (v) contain an undertaking by the insurers to notify the Landlord in writing not less than thirty (30) days prior to any cancellation thereof; and (vi) name the Landlord as an insured party. (c) Certificates of insurance or if required by the Landlord certified copies of each such insurance policy will be delivered to the Landlord as soon as practicable after the placing of the required insurance and in any event within ten (10) days of the effective date of coverage. Provided that no review or approval of any such insurance certificate by the Landlord shall derogate From or diminish the Landlord's rights or the Tenant's obligations contained in this Article. (d) If the Tenant fails to take out or keep in force any insurance referred to in this Section, or should any such insurance not be approved by the Landlord and should the Tenant not commence diligently to rectify (and thereafter proceed diligently to rectify) the situation within twenty-four (24) hours after written notice by the Landlord to the Tenant (stating, if the Landlord does not approve of such insurance, the reasons therefor), the Landlord has the right without assuming any obligation in connection therewith to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be paid by the Tenant to the Landlord on demand as Additional Rent without prejudice to any other rights and remedies of the Landlord under this Lease. (e) The Tenant agrees that in the event of damage or destruction to the Leasehold Improvements in the Premises covered by insurance pursuant to subclause (a)(i), the Tenant shall use the proceeds of such insurance for the purpose of repairing or restoring such Leasehold Improvements. In the event of damage to or destruction of the Building entitling the Landlord to terminate the Lease pursuant to Section 11.01(b) or 11.02, then if the Premises have also been damaged or destroyed and the Lease is terminated, the Tenant shall forthwith pay to the Landlord all of its insurance proceeds relating to the Leasehold Improvements in the Premises and if the Premises have not been damaged or destroyed, the Tenant shall upon demand deliver to the Landlord in accordance with the provisions of this Lease the Leasehold Improvements and the Premises. Section 9.02 - Increase in Insurance Premiums The Tenant shall not keep, use, sell or offer to sell in or upon the Premises any article which may be prohibited by any fire insurance policy in force from time to time covering the Premises, the Building or the Lands. If: (a) the occupation of the Premises; (b) the conduct of business in the Premises; or (c) any act or omission of the Tenant on the Lands or any part thereof; causes or results in any increase in premiums for the insurance carried from time to time by the Landlord with respect to the Building or the Lands, the Tenant shall pay any such increase in premiums as Additional Rent forthwith upon demand by the Landlord. In determining whether increased premiums are caused by or result from the use or occupancy of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Lands showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. The Tenant shall comply promptly with all requirements of any insurer now or hereafter in effect pertaining to or affecting the Premises, the Building or the Lands. Section 9.03 - Cancellation of Insurance If any insurance policy upon the Building or the Lands or any part thereof shall be cancelled or shall be threatened by the insurer to be cancelled or the coverage thereunder reduced in any way by the insurer by reason of the use or occupation of the Premises or any part thereof by the Tenant or by any assigns or sub-tenant of the Tenant, or by anyone permitted by the Tenant to be upon the Premises, the Tenant shall remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within twenty-four (24) hours after Notice thereof by the Landlord. Section 9.04 - Loss or Damage The Landlord shall not be liable for any death or injury arising from or out of any occurrence in, upon, at or relating to the Building or the Lands, or damage to property of the Tenant or of others located on the Premises or elsewhere in the Building or on the Lands, nor shall it be responsible for any loss of or damage to any property of the Tenant or others from any cause whatsoever, except for any such death, injury, loss or damage which results from the negligence of the Landlord, its agents, servants or employees or other persons for whom it may in law be responsible provided that in no event shall the Landlord be responsible for any loss, injury or damage contemplated by Section 9.07(b), or for any indirect or consequential damages sustained by the Tenant or others. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, dampness, falling plaster, falling ceiling tile, falling ceiling fixtures or from steam, gas, electricity, water, rain, flood, snow or leaks from any rentable premises or from the pipes, sprinklers, appliances, plumbing works, roof, windows or subsurface of any floor or ceiling of the Building or from the street or any other place or by any other cause whatsoever. The Landlord shall not be liable for any such damage caused by other tenants or persons in the Building or on the Lands or by occupants of adjacent property thereto, or the public, or caused by construction or by any private, public or quasi-public work. All property of the Tenant kept or stored on the Premises shall be so kept or stored at the risk of the Tenant only and the Tenant shall indemnify the Landlord and save it harmless from any claims arising out of any damage to the same including, without limitation, any subrogation claims by the Tenant's insurers. Section 9.05 - Landlord's Insurance The Landlord shall at all times throughout the Term carry: (a) insurance on the Building and any machinery, boilers and equipment contained therein or servicing the Building and owned by the Landlord and constituting Common Facilities (specifically excluding any property with respect to which the Tenant and other tenants are obliged to insure pursuant to Section 9.01 or similar sections of their respective leases) against damage by fire and extended perils or all-risks coverage; (b) public liability and property damage insurance with respect to the Landlord's operations and interest in the Lands and the Building; (c) loss of rental income insurance, or loss of insurable gross profits commonly insured against by prudent landlords, including loss of all rentals receivable from tenants in the Building in accordance with the provisions of their leases, including basic and additional rentals; and (d) such other form or forms of insurance as the Landlord or the Mortgagee reasonably considers advisable. Such insurance shall be in such reasonable amounts and with such reasonable deductibles as would be carried by a prudent owner of a reasonably similar building, having regard to size, age, use and location. Notwithstanding the Landlord's covenant contained in this Section, and notwithstanding any contribution by the Tenant to the cost of insurance premiums provided herein, the Tenant acknowledges and agrees that no insurable interest is conferred upon the Tenant under any policies of insurance carried by the Landlord, and the Tenant has no right to receive any proceeds of any such insurance policies carried by the Landlord. Section 9.06 - Indemnification of Landlord Except as provided in Section 9.07(a) but notwithstanding any other provision of this Lease, the Tenant shall indemnify the Landlord and save it harmless from and against any loss (including loss of Minimum Rent and Additional Rent), claims, actions, damages, liability and expenses in connection with loss of life, personal injury, damage to property or any other loss or injury whatsoever arising out of this Lease, or any occurrence in, upon or at the Premises, or the occupancy or use by the Tenant of the Premises or any part thereof, occasioned wholly or in part by any act or omission of the Tenant or by anyone permitted to be on the Premises by the Tenant. If the Landlord shall, without fault on its part, be made a party of any litigation commenced by or against the Tenant, then the Tenant shall protect, indemnify and hold the Landlord harmless and shall pay all costs, expenses and reasonable legal fees incurred or paid by the Landlord in connection with such litigation. The Tenant shall also pay all costs, expenses and legal fees that may be incurred or paid by the Landlord in reasonably enforcing the terms, covenants and conditions in this Lease unless a court of law having jurisdiction shall decide otherwise. Section 9.07 - Limitations of Liability Notwithstanding anything else in this Lease: (a) The Tenant shall not be liable to the Landlord in respect of any loss, injury or damage insured by the Landlord under Sections 9.05 (a) and (c) to the extent of any recovery by the Landlord under such insurance; and (b) The Landlord shall not be liable to the Tenant in respect of any loss, injury or damage to property insured or required to be insured by the Tenant under Sections 9.01(a)(i), (ii) and (iv). ARTICLE X Maintenance, Repairs and Alterations Section 10.01 - Maintenance and Repairs by Tenant Subject to Section 10.03 and Article XI hereof, the Tenant, shall, at all times during the Term, at its cost, keep and maintain in good order, first-class condition and repair (which shall include, without limitation, periodic painting and decorating) as personally determined by the Landlord, and shall, subject to Sections 10.02 and 10.03, make all needed repairs and replacements with due diligence and dispatch to (i) the whole of the Premises; (ii) all partitions, doors, and fixtures located in or upon the Premises; and (iii) all equipment in, appurtenances of and improvements to the Premises (including, without limitation, electrical, lighting, wiring, plumbing fixtures and equipment and the heating, ventilating and air-conditioning equipment within, or installed by or on behalf of the Tenant within the Premises or the Building, and all telephone outlets and conduits and special mechanical and electrical equipment within or serving the Premises). Section 10.02 - Landlord's Approval of Tenant's Repairs The Tenant shall not make any repairs, alterations, replacement, decorations or improvements to any part of the Premises without first obtaining the Landlord's written approval. The Tenant shall submit to the Landlord: (a) details of the proposed work including drawings and specifications prepared by qualified architects or engineers and conforming to good engineering practice; (b) such indemnification against liens, costs, damages and expenses as the Landlord requires; and (c) evidence satisfactory to the Landlord that the Tenant has obtained, at its expense, all necessary consents, permits, licences and inspections from all governmental and regulatory authorities having jurisdiction. All such repairs, replacements, alterations, decorations or improvements by the Tenant to the Premises approved by the Landlord shall be performed: (i) at the sole cost of the Tenant; (ii) by competent workmen, who are compatible with others employed by the Landlord and its contractors; (iii) in a good and workmanlike manner; (iv) in accordance with the drawings and specifications approved by the Landlord; and (v) subject to the reasonable regulations, controls and inspection of the Landlord. The Tenant shall pay the fees of any architectural, engineering or other consultant hired by the Landlord in connection with the foregoing plus a sum equal to fifteen per cent (15%) of the total cost thereof representing the Landlord's overhead. Any such repair, replacement, alteration, decoration or improvement made by the Tenant without the prior written consent of the Landlord or which is not made in accordance with the drawings and specifications approved by the Landlord shall, if requested by the Landlord, be promptly removed by the Tenant at the Tenant's expense and the Premises restored to their previous condition, failing which the Landlord may, at its option, without notice to the Tenant and without liability on the Landlord's part, remove same at the Tenant's expense which shall be paid by the Tenant to the Landlord together with fifteen (15%) percent of the cost thereof, as Additional Rent forthwith on demand. Notwithstanding anything contained in this Lease including, without limitation, Section 10.01, if any maintenance, repairs, alterations, decorations, additions or improvements to the Premises or to any improvements installed by or on behalf of the Tenant for the benefit of the Premises which are approved by the Landlord (1) affect the structure of the Premises or any part of the Building other than the Premises, or (2) are installed outside of the Premises, or (3) are installed within the Premises but are part of the Common Facilities, or affect any part of the Common Facilities, such work shall, if required by the Landlord, be performed only by the Landlord at the Tenant's sole cost and expense. Upon completion thereof, the Tenant shall pay to the Landlord, as Additional Rent upon demand, both the Landlord's costs relating to any such repairs, alterations, decorations, additions or improvements including the fees of any architectural, engineering or other consultants plus a sum equal to fifteen percent (15%) of the total cost thereof representing the Landlord's overhead. No repairs, alterations, additions, decorations or improvements to the Premises by or on behalf of the Tenant shall be permitted which may weaken or endanger the structure or adversely affect the condition or operation of the Premises or the Building or diminish the value thereof, or restrict or reduce the Landlord's coverage for zoning purposes. The Tenant agrees that it will at the commencement of the Term and periodically throughout the Term, including, without limitation, whenever any alterations are made to the Premises, balance the air movement in the Premises at the Tenant's expense and for this purpose use the air-balancer designated by the Landlord. Section 10.03 - Maintenance by Landlord Subject to Article XI hereof, the Landlord shall, at all times throughout the Term, maintain and repair, or cause to be maintained and repaired, as would a prudent owner of a reasonably similar building, the structure of the Building including, without limitation, the foundations, exterior wall assemblies including weather walls, subfloor, roof, bearing walls, and structural columns and beams of the Building. The cost of such maintenance and repairs (except for the cost of repairing and replacing any inherent structural defects or weaknesses) shall be included in Section 6.02(b)(viii) or shall be depreciated or amortized pursuant to Section 6.02(b)(ix) hereof, unless the Landlord is required, due to the business carried on by the Tenant, to perform such maintenance or make such repairs by reason of the application of laws or ordinances or the direction, rules or regulations of any duly constituted regulatory body, or by reason of any act, omission to act, neglect or default of the Tenant, or those for whom the Tenant is in law responsible, in which event the Tenant shall be liable and responsible for the total cost of any such maintenance and repairs plus a sum equal to fifteen percent (15%) of the total cost of such repairs representing the Landlord's overhead, which shall immediately become due and payable to the Landlord as Additional Rent upon demand. Notwithstanding the Landlord's obligations contained in this Section 10.03, the Tenant shall be liable and responsible for the cost of any maintenance and repairs required to be made by the Landlord and which result from any of the circumstances referred to in the immediately preceding sentence plus a sum equal to fifteen per cent (15%) of the total cost of the foregoing representing the Landlord's overhead. If the Tenant refuses or neglects to carry out any maintenance, repairs and replacements properly as required pursuant to Section 10.01 hereof, and to the reasonable satisfaction of the Landlord, the Landlord may, but shall not be obliged to, perform such maintenance, repairs and replacements without being liable for any loss or damage that may result to the Tenant's merchandise, fixtures or other property or to the Tenant's business by reason thereof, and upon completion thereof, the Tenant shall pay to the Landlord the Landlord's costs relating to any such maintenance, repairs and replacements plus a sum equal to fifteen percent (15%) thereof representing the Landlord's overhead, as Additional Rent upon demand. If any elevator servicing the Building or any of the boilers, engines, pipes, climate control equipment or other apparatus or any of them used for the purpose of climate control or operating any elevator, or if the water pipes, drainage pipes, electrical, lighting or other equipment servicing the Building are damaged or destroyed or get out of repair, the Landlord shall have a reasonable time in which to make such repairs or replacements as may be reasonably required for the resumption of services to the Premises which the Landlord has by this Lease expressly agreed to provide and the Tenant is not entitled to any compensation or damages therefor, but if any such equipment, facilities or systems servicing the Building or elevators become impaired, damaged or destroyed in the circumstances referred to in Section 10.06, the Tenant shall be responsible for the cost of repairing, restoring or making good such damage in accordance with the provisions of Section 10.06. Section 10.04 - Repair on Notice In addition to the obligations of the Tenant contained in Section 11.01 hereof, the Tenant shall effect all work referred to therein according to notice from the Landlord but failure to give notice shall not relieve the Tenant from its obligations under either Sections 10.01 or 11.01 hereof. Section 10.05 - Surrender of the Premises At the expiration or earlier termination of this Lease, the Tenant shall at its expense (i) peaceably surrender and yield up vacant possession of the Premises to the Landlord in a clean, broom swept and tidy state, and in as good condition and repair as the Tenant is required to maintain the Premises throughout the Term, and (ii) surrender all keys for the Premises to the Landlord at the place then fixed for the payment of Minimum Rent and shall inform the Landlord of all combinations of locks, safes and vaults, if any, in the Premises; (iii) remove all trade fixtures and such alterations, decorations, additions, erections, fixtures, improvements or appurtenances in, on, to, for or which service the Premises as the Landlord shall at its option upon notice to the Tenant require to be removed and the Tenant shall forthwith repair, at its sole cost and expense, all damage to the Premises caused by their installation or removal; and (iv) if the Tenant has filed or registered against title of the Building lands or any part thereof, a caveat, notice, caution or other document or instrument giving notice of this Lease, it shall promptly cause the same to be discharged. The Tenant's obligation to observe and perform the provisions of this Section 10.05 shall survive the expiration or earlier termination of this Lease. Section 10.06 - Repair Where Tenant at Fault Notwithstanding any other terms, covenants and conditions contained in this Lease, if the Building or any part thereof requires repair or becomes damaged or destroyed through the negligence, carelessness or misuse of the Tenant or due to the requirements of governmental authorities relating to the Tenant's conduct of business or through the Tenant in any way damaging the Building, the cost of the resulting repairs, replacements or alterations plus a sum equal to fifteen percent (15%) of the cost thereof representing the Landlord's overhead shall be paid by the Tenant to the Landlord as Additional Rent forthwith upon presentation of an account of such expenses incurred by the Landlord. Section 10.07 - Tenant Not to Overload Facilities The Tenant shall not install any equipment which will exceed or overload the capacity of any utility, electrical or mechanical facilities in the Premises and the Tenant will not bring into the Premises or install any utility, electrical or mechanical facility or service which the Landlord does not approve. The Tenant agrees that if any equipment installed by the Tenant requires additional utility, electrical or mechanical facilities, the Landlord may, in its sole discretion, if they are available, elect to install them at the Tenant's expense plus a sum equal to fifteen percent (15%) of such costs representing the Landlord's overhead, payable by the Tenant to the Landlord as Additional Rent, on demand, and in accordance with plans and specifications prepared by the Tenant at the Tenant's expense to be approved in advance in writing by the Landlord. Section 10.08 - Tenant Not to Overload Floors The Tenant shall not bring upon the Premises or any part thereof, any machinery, equipment, article or thing that by reason of its weight, size or use, might in the opinion of the Landlord damage the Premises and shall not at any time overload the floors of the Premises. If any damage is caused to the Premises by any machinery, equipment, object or thing or by overloading, or by any act, neglect, or misuse on the part of the Tenant, or any of its servants, agents, or employees, or any Person having business with the Tenant, the Tenant will forthwith repair such damage, or at the option of the Landlord, pay the Landlord the cost of repairing such damage plus a sum equal to fifteen percent (15%) of such costs representing the Landlord's overhead, as Additional Rent upon demand. Section 10.09 - Removal and Restoration by Tenant (a) All alterations, decorations, additions, erections, fixtures, improvements and appurtenances made by the Tenant, or made by the Landlord on the Tenant's behalf (other than the Tenant's trade fixtures), in, on, to, for or which serve the Premises, shall immediately become the property of the Landlord upon affixation or installation, without compensation therefor to the Tenant. Such alterations, decorations, additions, erections, fixtures, improvements and appurtenances shall not be removed from the Premises either during or at the expiration or earlier of this Lease except that: (i) The Tenant may during the Term in the usual or normal course of its business and with the prior written consent of the Landlord remove its trade fixtures, provided such trade fixtures have become excess for the Tenant's purposes or the Tenant is substituting new and similar trade fixtures therefor, and provided that in each case (1) the Tenant is not in default under this Lease; and (2) such removal is done at the Tenant's sole cost and expense; and (ii) The Tenant shall, at the expiration or earlier termination of this Lease, at its own cost, remove all its trade fixtures and such alterations, decorations, additions, erections, fixtures, improvements and appurtenances in, on, to, for or which serve the Premises as the Landlord at its option, upon notice to the Tenant requires to be removed. (b) If the Tenant does not remove its trade fixtures at the expiration or earlier termination of the Term, the trade fixtures shall, at the option of the Landlord, thereupon become the property of the Landlord, without compensation therefor to the Tenant, and may be removed from the Premises and sold or disposed of by the Landlord in such manner as it deems advisable. (c) The Tenant shall, in the case of every such installation or removal either during or at the expiration of the Term, promptly make good any damage caused to the Premises or the Building. (d) For greater certainty, the Tenant's trade fixtures shall not include (i) heating, ventilating and air-conditioning systems, facilities and equipment in or serving the Premises; (ii) floor covering affixed to the floor of the Premises; (iii) light fixtures or window coverings; (iv) doors; (v) internal stairways, escalators or elevators; and (vi) anything that would not normally be considered a trade fixture; all of which are deemed to be leasehold improvements. Section 10.10 - Notice by Tenant The Tenant shall, when it becomes aware of same, notify the Landlord of any damage to, or deficiency or defect in any part of the Building, including the Premises, any equipment or utility systems, or any installations located therein, notwithstanding the fact that the Landlord may have no obligations with respect to same. Section 10.11 - Liens The Tenant shall at all times promptly pay all its contractors, material men, suppliers and workmen and all charges incurred by or on behalf of the Tenant for any work, materials or services which may be done, supplied or performed at any time in respect of the Premises and the Tenant shall do any and all things necessary so as to ensure that no lien is registered against the Building or any part thereof, against the Landlord's interest in the Building, or against the Tenant's interest in the Premises, or any fixtures, equipment or leasehold improvements therein, and if any such lien is made, filed or registered, the Tenant shall discharge it or cause it to be discharged forthwith at the Tenant's expense. If the Tenant fails to discharge or cause any such lien to be discharged as aforesaid, then, in addition to any other right or remedy of the Landlord, the Landlord may, but it shall not be obligated to, discharge the same by paying the amount claimed to be due into Court or directly to any such lien claimant and the amount so paid by the Landlord and all costs and expenses including without limitation solicitor's fees (on a solicitor and his client basis) incurred as a result of the registration of the lien, including the discharge of the lien, shall be immediately due and payabel by the Tenant to the Landlord on demand as Additional Rent. Section 10.12 - Signs and Advertising Tenant shall not paint, affix, display or cause to be painted, affixed or displayed, any sign, picture, advertisement, notice, lettering or decoration of any kind anywhere outside the Premises (whether on the outside or inside of the Building) or within the Premises so as to be visible from the outside of the Premises, without the prior written approval of the Landlord. The Landlord will prescribe a uniform pattern of identification signs for tenants to be placed on the outside of the doors leading into the Premises. Any such sign shall remain the property of the Tenant and shall be maintained at the Tenant's cost and expense. At the expiration of the Term or earlier termination of the Lease, the Tenant shall remove any such sign, picture, advertisement, notice, lettering or decoration from the Premises at the Tenant's expense and shall promptly repair all damage caused by any such removal. The Tenant's obligation to observe and perform this covenant shall survive the expiration of the Term or earlier termination of the Lease. Section 10.13 - Directory Board The Tenant shall be entitled at its expense to have its name shown upon the directory board of the Building and the Landlord shall design the style of such identification and the directory board shall be located in an area designated by the Landlord in the main lobby of the Building. ARTICLE XI Damage and Destruction and Expropriation Section 11.01 - Destruction of the Premises (a) If the Premises are at any time destroyed or damaged (including, without limitation, smoke and water damage) as a result of fire, the elements, accident or other casualty required to be insured against by the Landlord pursuant to Section 9.05 hereof or otherwise insured against by the Landlord and not caused by the Tenant, and if as a result of such occurrence: (i) the Premises are rendered untenantable only in part, this Lease shall continue in full force and effect and the Landlord shall, subject to Section 11.02 hereof, commence diligently to reconstruct, rebuild or repair the Premises to the extent only of the Landlord's Work and exclusive of the Tenant's Work and only Minimum Rent (but not Additional Rent) shall abate proportionately to the portion of the Premises rendered untenantable from the date of the destruction or damage and until the Premises have been restored and rendered tenantable by the Landlord to the extent of the Landlord's Work; (ii) the Premises are rendered wholly untenantable, the Landlord shall, subject to Section 11.02, hereof, commence diligently to reconstruct, rebuild or repair the Premises to the extent of the Landlord's Work and only Minimum Rent (but not Additional Rent) shall abate entirely from the date of the destruction or damage and until the Premises have been restored and rendered tenantable in whole or in part by the Landlord to the extent of the Landlord's Work; (iii) the Premises are not rendered untenantable in whole or in part, this Lease shall continue in full force and effect, the Rent and other amounts payable by the Tenant shall not terminate, be reduced or abate and the Landlord shall, subject to Section 11.02 hereof, commence diligently to reconstruct, rebuild or repair the Premises to the extent of the Landlord's Work. (b) Upon the Tenant being notified in writing by the Landlord that the Landlord's Work has been completed to such an extent that the Tenant's Work can be commenced, the Tenant shall forthwith complete all the Tenant.s Work and all work required to fully restore the Premises for business fully fixtured, stocked and staffed (in any case, without the benefit of any capital allowance inducement to lease, or other payments made at the time of or in conjunction with, the original construction of the Premises by the Landlord to the Tenant in connection with the Tenant's Work). The Tenant shall diligently complete the Tenant's Work and, if the Premises have been closed for business, reopen for business within ninety-five (95) days after notice from the Landlord that the Landlord's Work has been completed to such an extent that the Tenant's Work can be commenced. (c) Nothing in this Section 11.01 requires the Landlord to (i) repair or replace any improvements, equipment, furniture, chattels or trade fixtures in the Premises which do not belong to the Landlord, or, (ii) repair, reconstruct or rebuild the Building or any part thereof, or the Premises or any part thereof, using the plans and specifications and working drawings used in the original construction of the Building or any part thereof or in the Premises or any part thereof, provided that such plans and specifications and working drawings so used by the Landlord in repairing, reconstructing or rebuilding call for a quality equal to or better than that called for in the plans and specifications and working drawings used in the original construction. Section 11.02 - Destruction of the Building (a) If thirty-five per cent (35%) or more of the Rentable Area of the Building is at any time destroyed or damaged (including, without limitation, smoke and water damage) as a result of fire, the elements, accident or other casualty, whether or not the Premises are affected by such occurrence, and if, in the opinion of the Landlord, reasonably arrived at, the Rentable Area of the Building so damaged or destroyed cannot be rebuilt or be made fit for the purposes of the respective tenants of such space within one hundred and eighty (180) days of the happening of the damage and destruction, then and so often as any of such events occur, the Landlord may, at its option, to be exercised by written notice to the Tenant within forty-five (45) days following any such occurrence, elect to terminate this Lease. (b) In the event that as a result of any damage or destruction to the Building or to the Premises or any part or parts thereof, the Landlord, acting reasonably, is of the opinion that it is not economically feasible to repair, reconstruct or rebuild the Building and that it is advisable to demolish or substantially renovate the Building, then the Landlord may, at its option, to be exercised by written notice to the Tenant within forty-five (45) days following any such occurrence, elect to terminate this Lease. (c) In the case of such election being made by the Landlord pursuant to either Sections 11.02 (a) or 11.02 (b) hereof, the Term and the tenancy hereby created shall expire on the thirtieth (30th) day after such notice is given, without indemnity or penalty payable or any other recourse by one party to or against the other and the Tenant shall, within such thirty (30) day period, vacate the Premises and surrender them to the Landlord with the Landlord having the right to re-enter and repossess the Premises discharged of this Lease and to expel all Persons and remove all property therefrom. All Rent shall be due and payable without reduction or abatement subsequent to the destruction or damage and until the date of termination, unless the Premises shall have been destroyed or damaged as well, in which event Section 11.01 shall apply. (d) If all or any part of the Building is at any time destroyed or damaged as set out in Sections 11.02(a) and/or 11.02(b) hereof, and the Landlord does not elect to terminate this Lease in accordance with the rights hereinbefore granted, the Landlord shall, following such destruction or damage, commence diligently to reconstruct, rebuild or repair, the Premises to the extent that the Landlord is obligated to repair the Premises as set forth in the provisions of Section 11.01 hereof, and if necessary, that part of the Building immediately adjacent to the Premises, but only to the extent of the Landlord's responsibilities pursuant to the terms of the various leases for the premises in the Building and exclusive of any tenant's responsibilities set out therein. If the Landlord elects to repair, reconstruct or rebuild the Building or any part thereof, the Landlord may use plans and specifications and working drawings other than those used in the original construction of the Building or any part thereof provided that such plans and specifications and working drawings so used by the Landlord call for a quality equal to or better than that called for in the plans and specifications and working drawings used in the original construction. (e) Notwithstanding any of the provisions hereinbefore set out in this Lease: (1) in the event of damage or destruction occurring to the Building, the Premises, or any part or parts thereof by reason of any cause in respect of which there are no proceeds of insurance available to the Landlord or proceeds of insurance are available but insufficient to pay the Landlord for the costs of rebuilding or making fit the Building or the Premises or effecting the Landlord's Work because any Mortgagee or other Person entitled thereto will not consent to the payment to the Landlord of the proceeds of any insurance policy for such purpose, or, (2) if any such damage or destruction is caused by the Tenant, the Landlord may terminate this Lease on thirty (30) days' written notice to the Tenant and all Rent shall be adjusted as of, and the Tenant shall vacate and surrender the Premises on, such termination date. Section 11.03 - Expropriation Both the Landlord and the Tenant agree to cooperate with each other in respect of any expropriation of all or any part of the Premises or any other part of the Building, so that each may receive the maximum award in the case of any expropriation to which they are respectively entitled at law. If and to the extent that any portion of the Building other than the Premises is expropriated, then the full proceeds accruing therefrom or awarded as a result thereof, shall belong solely to the Landlord and the Tenant will abandon or assign to the Landlord any rights which the Tenant may have or acquire by operation of law to such proceeds or award and will promptly execute such documents as in the opinion of the Landlord are or may be necessary to give effect to this intention. If at any time during the Term, (a) more than twenty per cent (20%) of the Rentable Area of the Building, or, (b) more than twenty per cent (20%) of the area of the Common Facilities (excluding the area of the parking facilities), or, (c) more than ten per cent (10%) of the area of those Common Facilities which are exterior or adjacent to the buildings forming part of the Building, is acquired or expropriated by any lawful expropriating authority, or if reasonable access to the Building is materially and adversely affected by any such acquisition or expropriation, then in any of such events, at the option of the Landlord, this Lease shall cease and terminate as of the date of the interest acquired or expropriated vesting in such expropriating authority and the Tenant shall have no claim against the Landlord for the value of any unexpired Term or for damages or for any reason whatsoever. If the Landlord does not so elect to cancel this Lease by notice as aforesaid, this Lease shall continue in full force and effect without any reduction or abatement of Rent, provided that if any part of the Premises is expropriated and as a result thereof the area of the Premises is physically reduced, then from and after the date of such physical reduction, the Rentable Area of the Premises shall be adjusted to take into account any such reduction in area, and the Minimum Rent payable by the Tenant pursuant to Section 4.02 shall be adjusted on the basis of the rental rate set out therein. Section 11.04 - Architect's Certificate The certificate of the Architect shall bind the parties as to (a) the percentage of the Rentable Area of the Building damaged or destroyed; (b) whether or not the Premises are rendered untenantable and the extent of such untenantability; (c) the date upon which the Landlord's Work is completed or substantially completed and the date when the Premises are rendered tenantable; (d) the state of completion of any work of either the Landlord or the Tenant under this Lease; (e) whether reasonable access to the Building is materially and adversely affected by any such acquisition or expropriation; and (f) the percentage of the Rentable Area of the Building which is acquired or expropriated pursuant to this Lease. ARTICLE XII Assignment, Subletting and Change of Control Section 12.01 - Consent Required (a) In this Article "Transfer" means (i) an assignment, a sublease, a mortgage, charge or debenture (floating or otherwise) or other encumbrance of this Lease or the Premises or any part of them, (ii) a parting with or sharing of possession of all or part of the Premises, and, (iii) a transfer or issue by sale, assignment, bequest, inheritance, operation of law or other disposition, or by subscription of all or part of the corporate shares of the Tenant which results in a change in the effective voting control of the Tenant. "Transferor" means the Person or Persons who is or will be making a Transfer and "Transferee" means the Person or Persons to whom a Transfer is or is to be made (it being understood that for a Transfer described in Section 12.01(a)(iii) above the Transferor is the Person that has effective voting control before the Transfer and the Transferee is the Person that has effective voting control after the Transfer). (b) The Tenant will not affect or permit a Transfer without in each instance obtaining the prior written consent of the Landlord, which consent will not be unreasonably withheld, except that despite any provisions of this Lease or any statutory provision to the contrary the Tenant hereby acknowledges that it shall not be unreasonable for the Landlord to withhold its consent to a Transfer if: (i) the Tenant is then in default under any of the terms, covenants and conditions herein on its part to be observed and performed; (ii) covenants, restrictions, or commitments given by the Landlord to other tenants in the Building or to Mortgagees or other parties regardless of when given, prevent or inhibit the Landlord from giving its consent to the Transfer or any Mortgagee does not consent thereto; (iii) the Transfer is a mortgage, charge, debenture (floating or otherwise) of, or in respect of, this Lease or the Premises or any part of them; and/or (iv) the Landlord does not receive sufficient information, material, books or records from the Tenant or the Transferee to enable the Landlord, in the Landlord's opinion, acting reasonably, to make a determination as to whether or not it should give its consent. (c) Section 12.01(b) does not apply to a Transfer described in Section 12.01(a)(iii) which occurs when the Tenant is a corporation whose shares are traded and listed on a stock exchange in Canada or the United States. (d) The Landlord shall have the right, upon notice to the Tenant, if the Tenant requests its consent to a Transfer of the whole of the Premises or this Lease, to terminate this Lease, or if the request is to Transfer a part of the Premises only, to terminate this Lease with respect to such part only, in each case as of the termination date specified in such notice. In such event the Tenant shall surrender the whole or part, as the case may be, of the Premises in accordance with such notice and Rent and Additional Rent shall be apportioned and paid to the date of surrender and, if part only is surrendered, Rent and Additional Rent shall thereafter abate proportionally. If the Landlord shall not exercise the foregoing right of termination, then the Landlord's consent to the Tenant's request for consent to the Transfer shall be governed by Sections 12.01(b) and 12.02. Section 12.02 - Conditions of Consent The following terms and conditions apply in respect of any Transfer (but this shall not imply consent by the Landlord to any Transfer without the Tenant first complying with the provisions of Section 12.01(b) hereof); (a) the consent by the Landlord to any Transfer and the deemed consent pursuant to Section 12.01(c) and/or (d) hereof is not a waiver of the requirement for consent to any subsequent Transfer; (b) no acceptance by the Landlord of Rent or other payments by a Transferee is, (i) a waiver of the requirement for the Landlord to consent to the Transfer, (ii) the acceptance of the Transferee as the Tenant, (subject however to the provisions of Section 12.01(c) hereof), or, (iii) a release of the Tenant from its obligations under this Lease; (c) the Landlord may apply amounts collected from the Transferee to any unpaid Rent; (d) the Transferor, unless the Transferee is a sub-tenant of the Tenant, will retain no rights under this Lease in respect of obligations to be performed by the Landlord or in respect of the use or occupation of the Premises after the Transfer and will execute an Indemnity Agreement on the Landlord's standard form in respect of obligations to be performed after the Transfer by the Transferee; (e) the Transferor will cause the Transferee to promptly execute an agreement (prepared by the Landlord at the Tenant's expense) directly with the Landlord, (i) agreeing to be bound by all of the terms of this Lease (including, without limitation, the provisions of Section 8.01 relating to the use of the Premises) as if the Transferee had originally executed this Lease as the Tenant, and, (ii) amending the Lease to incorporate any conditions imposed by the Landlord in its consent or required by this Section 12.02; but the Transferor will not be released from its obligations under this Lease and shall be (and shall cause any Indemnitor to be) a party to such agreement, and the liability of the Transferor and Transferee shall be joint and several; (f) if as a result of any such Transfer, the Tenant is entitled, directly or indirectly, to receive in respect of any such Transfer, a bonus or premium payable for any such Transfer which relates to the Tenant's interest in the Lease or to the Premises (excluding any consideration for the Tenant's trade fixtures) or a Rent (whether Minimum Rent or Additional Rent) greater than that required to be paid to the Landlord pursuant to the provisions of this Lease, the Tenant shall pay to the Landlord, as Additional Rent the entire amount of any such bonus, premium or increased Rent, as aforesaid, forthwith upon receipt thereof by the Tenant from any such Transferee from time to time. In this respect, the Tenant shall make available to the Landlord upon request any and all books and records of the Tenant so as to enable the Landlord to verify the receipt of the amount thereof, of any bonus, premium or greater Rent, as aforesaid, which the Tenant has received from any such Transferee from time to time, as aforesaid; (g) any documents relating to a Transfer or relating to the Landlord's consent will be prepared by the Landlord or its solicitors and all of the legal costs of the Landlord with respect thereto together with a reasonable administration charge for the Landlord shall be paid by the Tenant to the Landlord on demand, as Additional Rent; (h) notwithstanding the effective date of any permitted Transfer as between the Tenant and any Transferee, all Rent for the month in which such effective date occurs shall be paid in advance by the Tenant so that the Landlord will not be required to accept partial payments of Rent for such month from either the Tenant or any Transferee; and (i) in no event shall any Transfer to which the Landlord may have consented release or relieve the Tenant from its obligations fully to perform all the terms, covenants and conditions of this Lease on its part to be performed and in any event the Tenant shall be liable for the Landlord's reasonable costs incurred in connection with the Tenant's request for consent. Section 12.03 - No Advertising of Premises The Tenant shall not advertise the whole or any part of the Premises or this Lease for the purpose of a Transfer and shall not print, publish, post, display or broadcast any notice or advertisement to that effect and shall not permit any broker or other Person to do any of the foregoing, unless the complete text and format of any such notice, advertisement or offer is first approved in writing by the Landlord. Without in any way restricting or limiting the Landlord's right to refuse any text or format on other grounds, any text or format proposed by the Tenant shall not contain any reference to the rental rate of the Premises. Section 12.04 - Assignment by the Landlord In the event of the sale, lease or disposition by the Landlord of the Building or any part thereof, or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder other than by way of security, the Landlord shall, thereupon and without further agreement, be freed and relieved of all liability with respect to such covenants and obligations. Provided that any funds in the hands of the Landlord at the time of such sale, lease, disposition or assignment shall be turned over to the Person in respect of which the Landlord is entering into the sale, lease, disposition or assignment. ARTICLE XIII Access and Alterations Section 13.01 - Right of Entry (a) The Landlord and its agents have the right to enter the Premises at all reasonable times to examine the same and to make such repairs, alterations, changes, adjustments, improvements or additions to the Premises or the Building or any part thereof or any adjacent property as the Landlord considers necessary or desirable without this constituting a re-entry or a breach of any covenant for quiet enjoyment contained in this Lease or implied by law. The Rent required to be paid pursuant to this Lease shall not abate or be reduced while any such repairs, alterations, changes, adjustments, improvements or additions are being made due to loss or interruption of business of the Tenant, inconvenience or otherwise, and the Landlord shall not be liable to the Tenant for any injury or death caused to any Person or for any loss or damage to the property of the Tenant or of others located on the Premises as a result of such entry. (b) The Landlord and its agents have the right to enter the Premises at all reasonable times to show them to prospective purchasers, lessees, insurers or mortgagees and during the twelve (12) months prior to the expiration of the Term, the Landlord may place upon the Premises the usual "For Rent" or "For Sale" notices which the Tenant shall permit to remain thereon without molestation or complaint. (c) If the Tenant is not personally present to open and permit an entry into the Premises at any time when for any reason an entry therein is necessary or permissible, the Landlord or its agents may forcibly enter the same without rendering the Landlord or such agents liable therefor, and without in any manner affecting the obligations and covenants of this Lease. The Tenant agrees that no entry into the Premises or anything done in, to or for the Premises by the Landlord pursuant to a right granted by this Lease shall constitute a breach of any covenant for quiet enjoyment, or (except where expressed by the Landlord in writing) shall constitute a re-entry or forfeiture, or an actual or constructive eviction and the Landlord shall not be liable to the Tenant for any injury or death to any person or for any loss or damage to any property of the Tenant or of others as a result of any such entry or thing. Section 13.02 - Security The Tenant shall be issued security system access cards to permit access to the Building at times other than Normal Business Hours, at a ratio of one card for every 600 square feet of Usable Floor Area of the Premises. Additional cards, if supplied, and replacement cards will be provided upon payment to the Landlord of its standard charge as determined by the Landlord from time to time. ARTICLE XIV Status Statement, Attornment and Subordination Section 14.01 - Status Statement Within ten (10) days after written request therefor by the Landlord, or if upon any sale, assignment, lease or mortgage of the Premises or the land thereunder or the Building by the Landlord, a status statement is required from the Tenant, the Tenant shall deliver, in a form supplied by the Landlord, a status statement or a certificate to any proposed mortgagee or purchaser, or to the Landlord, stating (if such is the case): (a) that 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 identifying the modification agreements) or if this Lease is not in full force and effect, the certificate shall so state; (b) the Commencement Date; (c) the date to which Rent has been paid under this Lease; (d) whether or not there is any existing default by the Tenant in the payment of any Rent or other sum of money under this Lease, and whether or not there is any other existing or alleged default by either party under this Lease with respect to which a notice of default has been served and if there is any such default, specifying the nature and extent thereof; (e) whether there are any set-offs, defences or counter claims against enforcement or the obligations to be performed by the Tenant under this Lease; and (f) with reasonable particularity, details respecting the Tenant's and any Indemnitor's financial standing and corporate organization; or as otherwise required by the form supplied or directed to be used by the Landlord. Section 14.02 - Subordination and Attornment (a) This Lease and all of the rights of the Tenant hereunder are, and shall at all times be, subject and subordinate to any and all mortgages, trust deeds and the charge or lien resulting from, or any instruments of, any financing, refinancing or collateral financing and any renewals or extensions thereof from time to time in existence against the Building or any part thereof. Upon request, the Tenant shall subordinate this Lease and all of its rights hereunder in such form as the Landlord requires to any and all mortgages, trust deeds or the charge or lien resulting from, any instrument of, any financing, refinancing or collateral financing and to all advances made or hereafter to be made upon the security thereof. (b) The Tenant shall, if possession is taken under, or any proceedings are brought for the foreclosure of, or in the event of the exercise of the power of sale under any mortgage, charge, lease or sale and leaseback transaction, deed of trust, or the lien resulting from any other method of financing, refinancing or collateral financing made by the Landlord or otherwise in existence against the Building, or any part thereof, attorn to the Mortgagee, chargee, lessee, trustee, other encumbrancer or the purchaser upon any such foreclosure or sale and recognize such Mortgagee, chargee, lessee, trustee, other encumbrancer or the purchaser as the Landlord under this Lease. (c) The obligation of the Tenant to subordinate this Lease and to attorn to the Mortgagee as provided for in Section 14.02(a) and (b) is conditional upon the Mortgagee providing a written acknowledgement in favour of the Tenant, that so long as the Tenant is not in default under the covenants, obligations and agreements on the part of the Tenant herein to be performed, the Tenant may continue in possession of the Premises, without disturbance by the Mortgagee. Section 14.03 - Execution of Documents The Tenant shall, upon request of the Landlord or the Mortgagee or any other Person having an interest in the Building, or any part thereof, execute and deliver promptly such instruments, acknowledgements, statements or certificates to carry out the intent of Sections 14.01 and 14.02 or any other provision of this Lease subject however to the provisions of Section 14.02(c) in the case of any instruments of subordination or attornment required under the provisions of Sections 14.01 and 14.02 hereof. If ten (10) days after the date of a request by the Landlord to execute any such instruments, statements, acknowledgements or certificates the Tenant has not executed and delivered the same to the Landlord or to whomsoever the Landlord directs, the Tenant hereby irrevocably appoints the Landlord as the Tenant's attorney with full power and authority to execute and deliver in the name of the Tenant any such instruments, statements, acknowledgements or certificates. Section 14.04 - Financial Information The Tenant shall, upon request, provide the Landlord with such information as to the Tenant's or the Indemnitor's financial standing and corporate organization as the Landlord or the Mortgagee requires. Failure of the Tenant to comply with the Landlord's request herein shall constitute a default under the terms of this Lease and the Landlord shall be entitled to exercise all of its rights and remedies provided for in this Lease. ARTICLE XV Default and Landlord's Remedies Section 15.01 - Right to Re-Enter Notwithstanding anything contained in any present or future laws to the contrary, if and whenever: (a) the Tenant fails to pay any Rent or other sums due hereunder on the day or dates appointed for the payment thereof, (provided the Landlord first gives two (2) days' written notice to the Tenant of any such failure); or (b) the Tenant fails to observe or perform any other of the terms, covenants or conditions of this Lease to be observed or performed by the Tenant (other than the terms, covenants or conditions set out below in subparagraphs (c) to (l), inclusive, for which no notice shall be required) provided the Landlord first gives the Tenant ten (10) days, or such shorter period of time as is otherwise provided herein, written notice of any such failure to perform and the Tenant within such period of ten (10) days fails to commence diligently and thereafter to proceed diligently and continuously to cure any such failure to perform; or (c) the Tenant or any Indemnitor of this Lease or any Person occupying the Premises or any part thereof or any licensee, concessionaire or franchisee operating business in the Premises becomes bankrupt or insolvent or takes benefit of any act now or hereafter in force for bankrupt or insolvent debtors or files any proposal or makes any assignment for the benefit of creditors or any arrangement or compromise; or (d) a receiver of a receiver and manager is appointed for all or a portion of the Tenant's property or any such Indemnitor's, occupant's, licensee's, concessionaire's or franchisee's property; or (e) any steps are taken or any action or proceedings are instituted by the Tenant or by any other party including, without limitation, any court or governmental body of competent jurisdiction for the dissolution, winding-up or liquidation of the Tenant or its assets; or (f) the Tenant makes or attempts to make a sale in bulk of any of its assets, wherever situated (other than a bulk sale made to a Transferee permitted under this Lease); or (g) the Tenant sells or disposes of the goods, trade fixtures, equipment or chattels of the Tenant or removes or commences, attempts or threatens to remove them from the Premises so that in the Landlord's opinion there would not in the event of such sale, disposal or removal be sufficient goods of the Tenant on the Premises subject to distress to satisfy all Rent due or accruing hereunder for a period of at least twelve (12) months; or (h) the Tenant abandons or attempts to abandon the Premises or any part thereof, or the Landlord has reasonable cause to believe that the Tenant intends to abandon or attempt to abandon the Premises or any part thereof; or (i) the Premises or any part thereof become and remain vacant or unoccupied for a period of five (5) consecutive days or more without the prior written consent of the Landlord, or are used by any Persons other than such as are entitled to use them; or (j) the Tenant effects or attempts to effect a Transfer that is not permitted by this Lease; or (k) this Lease or any of the Tenant's assets on the Premises are taken under any writ of execution, chattel mortgage, charge, debenture or other security instrument; or (l) re-entry is permitted under any other terms of this Lease, then and in every such case the Landlord, in addition to any other rights or remedies it has pursuant to this Lease or at law, has the immediate right of re-entry upon the Premises and it may repossess the Premises and enjoy them as of its former estate, and the Tenant hereby consents that the Landlord may expel all Persons and remove all property from the Premises and such property may be removed and sold or disposed of by the Landlord by public auction or otherwise, and either in bulk or by individual item, all as the Landlord in its sole discretion may decide (and the Tenant acknowledges and agrees that the proceeds of such sale or disposition shall be applied by the Landlord in the same manner as set out in the second sentence of Section 15.02 hereof, insofar as applicable) or may be stored in a public warehouse or elsewhere at the cost and for the account of the Tenant, all without service of notice or resort to legal process and without the Landlord being considered guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby or for any claim for damages. The Tenant hereby irrevocably waives (i) the benefit of any present or future laws which in any way may limit or diminish the Landlord's right to terminate this Lease or re-enter into possession of the Premises in pursuance of its rights or remedies as set forth in this Lease, and, (ii) any and all rights of redemption granted by or under any present or future laws in the event of the Tenant being evicted or dispossessed for any cause, or in the event of the Landlord obtaining possession of the Premises by reason of the violation by the Tenant of any of the terms or conditions of this Lease or otherwise. Section 15.02 - Right to Relet If the Landlord elects to re-enter the Premises as herein provided, or if it takes possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time without terminating this Lease, as agent for the Tenant or otherwise, make such alterations and repairs as are necessary in order to relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term) and at such Rent and upon such other terms, covenants and conditions as Landlord in its sole discretion considers advisable. Upon each such reletting all Rent received by the Landlord from such reletting shall be applied, first to the payment of any indebtedness other than Rent due hereunder from the Tenant to the Landlord; second, to the payment of any costs and expenses of such reletting including brokerage fees and solicitor's fees and of costs of such alterations and repairs; third, to the payment of Rent due and unpaid hereunder; and the residue, if any, shall be held by the Landlord and applied in payment of future Rent as the same becomes due and payable hereunder. If such Rent received from such reletting during any month is less than that to be paid during that month by the Tenant hereunder, the Tenant shall pay any such deficiency, which shall be calculated and paid monthly in advance on or before the first day of each and every month. No such re-entry or taking possession of the Premises by the Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention is given to the Tenant. Notwithstanding any such reletting without termination the Landlord may at any time thereafter elect to terminate this Lease for such previous breach. If the Landlord at any time terminates this Lease for any breach, in addition to any other remedies it may have, it may recover from the Tenant all damages it incurs by reason of such breach, including, without limitation, the cost of recovering the Premises, solicitor's fees (on a solicitor and his client basis) and including the worth at the time of such termination of the excess, if any, of the amount of Rent and charges equivalent to Rent required to be paid pursuant to this Lease for the remainder of the Term (which Term shall be deemed for the purposes of this Section 15.02 only to continue on until its expiration as set forth in Section 3.03) over the then reasonable rental value of the Premises for the remainder of the Term, all of which amounts shall be immediately due and payable by the Tenant to the Landlord. In any of the events referred to in Section 15.01 hereof, in addition to any and all other rights, including the rights referred to in this Section and in Section 15.01 hereof, the full amount of the current month's instalment of Minimum Rent and Additional Rent including, without limitation, the aggregate of the monthly contributions towards Taxes, insurance premiums, the Tenant's Proportionate Share of costs of maintaining and operating the Building as set out in Section 6.02, and any other payments required to be made monthly hereunder, together with the next three (3) months' instalments of Minimum Rent and the aggregate of such payments for the next three (3) months, all of which shall be deemed to be accruing due on a day-to-day basis, shall immediately become due and payable as accelerated Rent, and the Landlord may immediately distrain for the same, together with any Rent arrears then unpaid. Section 15.03 - Expenses If legal action is brought for recovery of possession of the Premises, for the recovery of Rent or any other amount due under this Lease, or because of the breach of any other terms, covenants or conditions herein contained on the part of the Tenant to be kept or performed, and a breach is established, the Tenant shall pay to the Landlord as Additional Rent, upon demand, all costs and expenses incurred therefor, including, without limitation, any professional, consultant and legal fees (on a solicitor and his client basis), unless a Court shall otherwise award. Section 15.04 - Removal of Chattels The Tenant agrees that all goods, chattels and fixtures when moved into the Premises shall not, except in the normal course of business, be removed from the Premises until all Rent due or to become due during the Term, and all other amounts payable by the Tenant, are fully paid. In case of removal by the Tenant of the goods and chattels of the Tenant from the Premises, the Landlord may follow same for thirty (30) days in the same manner as is provided for in The Landlord and Tenant Act (Ontario) or any like legislation in any other province in Canada. Section 15.05 - Waiver of Exemption from Distress The Tenant hereby waives and renounces the benefit of any present or future laws purporting to limit or qualify the Landlord's right to distrain. Notwithstanding any term or condition of this Lease or anything contained in any present or future laws, none of the goods and chattels of the Tenant at any time during the continuance of the Term shall be exempt from levy by distress for Rent or other sums provided in this Lease to be paid by the Tenant as Rent in arrears, and upon any claim being made by the Landlord, this provision may be pleaded as an estoppel against the Tenant in any action brought to test the rights to the levying upon any such goods as are named as exempted in such legislation, the Tenant hereby waiving all and every benefit that it could or might have with regard thereto. Section 15.06 - Landlord May Cure Tenant's Default or Perform Tenant's Covenants If the Tenant fails to pay, when due, any Rent or other charge required to be paid pursuant to this Lease, the Landlord, after giving five (5) days' notice in writing to the Tenant, may, but shall not be obligated to, pay all or any part of the same. If the Tenant is in default in the performance of any of its covenants or obligations hereunder (other than the payment of Rent or other charge required to be paid pursuant to this Lease) the Landlord may from time to time after giving such notice as it considers sufficient (or without notice in the case of an emergency) having regard to the circumstances applicable, perform or cause to be performed any of such covenants or obligations, or any part thereof, and for such purpose may do such things as may be required, including, without limitation, entering upon the Premises and doing such things as may be required upon or in respect of the Premises or any part thereof as the Landlord reasonably considers requisite or necessary. All expenses incurred and expenditures made pursuant to this Section 15.06 plus a sum equal to fifteen per cent (15%) thereof representing the Landlord's overhead shall be paid by the Tenant as Additional Rent forthwith upon demand. The Landlord shall have no liability to the Tenant for any loss or damages resulting from any such action or entry by the Landlord upon the Premises. Section 15.07 - Lien on Personal Property As security for the due payment by the Tenant of the Rent reserved hereunder whether now due, accruing due or to fall due at any time during the Term, and the performance by the Tenant of all covenants, agreements, provisoes and conditions of the Tenant to be performed hereunder, the Tenant hereby grants to the Landlord a first lien and charge on all of the personal property of the Tenant on, in or about the Premises. Such lien and charge shall constitute a security agreement within the meaning of the Personal Property Security Act (Ontario) or any like legislation in any other province in Canada and on default of the Tenant hereunder the Landlord shall have, in addition to any other rights and remedies it may be entitled to under this Lease or otherwise, all the rights and remedies of a secured party under the Personal Property Security Act. For greater clarity, the rights of the Landlord hereunder shall be in addition to and not in substitution for any other rights and remedies of the Landlord. The Tenant shall not create or permit any lien, mortgage, charge, conditional sales agreement or other encumbrance in respect of its leasehold improvements, trade fixtures or other personal property on, in or about the Premises without the prior written consent of the Landlord, which may be arbitrarily withheld. Nothing contained herein shall prevent the Tenant from disposing of its inventory in the ordinary course of business and for the purpose of carrying on same. The provision of this Section 15.07 shall survive the expiration or earlier termination of this Lease. Section 15.08 - Charges Collectible as Rent If the Tenant is in default in the payment of any amounts, monies or charges required to be paid by the Tenant pursuant to this Lease, they shall, if not paid when due, or when otherwise provided hereunder, be collectible as Rent in arrears together with the next monthly instalment of Minimum Rent thereafter falling due hereunder, but nothing herein contained is deemed to suspend or delay the payment by the Tenant of any amount, money or charge at the time same becomes due and payable hereunder, or limit any other remedy of the Landlord. The Tenant agrees that the Landlord may, at its option, apply or allocate any sums received from or due to the Tenant against any amounts due and payable hereunder in such manner as the Landlord sees fit. Section 15.09 - Remedies Generally Mention in this Lease of any particular remedy of the Landlord in respect of the default by the Tenant does not preclude the Landlord from any other remedy in respect thereof, whether available at law or in equity or by statute or expressly provided for in this Lease. No remedy shall be exclusive or dependent upon any other remedy, but the Landlord may from time to time exercise any one or more of such remedies independently or in combination, such remedies being cumulative and not alternative. Whenever the Tenant seeks a remedy in order to enforce the observance or performance of one of the terms, covenants and conditions contained in this Lease on the part of the Landlord to be observed or performed, the Tenant's only remedy shall be for such damages as the Tenant shall be able to prove in a court of competent jurisdiction that it has suffered as a result of a breach (if established) by the Landlord in the observance and performance of any of the terms, covenants and conditions contained in this Lease on the part of the Landlord to be observed or performed, except that where this Lease provides that the Landlord's consent or approval is not to be unreasonably withheld, the Tenant's sole remedy if the Landlord unreasonably withholds consent or approval, shall be an action for specific performance and the Landlord shall not be liable for any damages. ARTICLE XVI Miscellaneous Section 16.01 - Rules and Regulations The Rules and Regulations adopted and promulgated by the Landlord from time to time are hereby made a part of this Lease as if they were embodied herein. The Rules and Regulations existing as at the Commencement Date are those set out in Schedule "D" hereto. The Rules and Regulations may differentiate between different types of businesses, but the Rules and Regulations will be adopted and promulgated by the Landlord acting reasonably and in such manner as would a prudent landlord of a reasonably similar building. The Tenant's failure to keep and observe the Rules and Regulations constitutes a default under this Lease in such manner as if the same were contained herein as covenants. The Landlord reserves the right from time to time to amend or supplement the Rules and Regulations applicable to the Premises or the Building. The Landlord is not responsible to the Tenant in the event of the non-observance or violation of any of such Rules and Regulations or of the terms, covenants or conditions of any other lease of premises in the Building and is under no obligation to enforce any such Rules and Regulations or terms, covenants or conditions. Section 16.02 - Overholding - No Tacit Renewal If the Tenant remains in possession of the Premises after the end of the Term with the consent of the Landlord but without having executed and delivered a new lease, there is no tacit or implied renewal of this Lease and the Term hereby granted, notwithstanding any statutory provisions or legal presumption to the contrary, and the Tenant shall be deemed to be occupying the Premises as a Tenant from month-to-month at a monthly Minimum Rent payable in advance on the first day of each month equal to two times the monthly amount of Minimum Rent payable during the last month of the Term and otherwise, upon the same terms, covenants and conditions as are set forth in this Lease (including the payment of all Additional Rent), so far as these are applicable to a monthly tenancy. Section 16.03 - Successors All rights and liabilities herein granted to or imposed upon the respective parties hereto, extend to and bind the respective successors and assigns of each party hereto constituting the Landlord and the heirs, executors, administrators and permitted successors and assigns of the Tenant, as the case may be. No rights, however, shall enure to the benefit of any Transferee of the Tenant unless the Transfer to such Transferee is permitted under the terms of this Lease. If there is more than one Tenant, they are all bound jointly and severally by the terms, covenants and conditions herein. Section 16.04 - Tenant Partnership If at any time during the Term (i) there is more than one Tenant or more than one Person constituting the Tenant hereunder then they shall each be liable jointly and severally for all of the Tenant's obligations hereunder and (ii) the Tenant is a partnership, joint venture or co-tenancy (the "Tenant Partnership"), each Person who is presently a member of the Tenant Partnership, and each Person who becomes a member of any successor Tenant Partnership hereafter, shall be and continue to be liable jointly and severally for the full and complete performance of, and shall be and continue to be subject to the terms, covenants and conditions of this Lease, whether or not such Person ceases to be a member of such Tenant Partnership or successor Tenant Partnership. Section 16.05 - Waiver The waiver by the Landlord of any breach of any term, covenant or conditions herein contained is not deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or of any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by the Landlord is not deemed to be a waiver of any preceding breach by the Tenant of any term, covenant or condition of this Lease, regardless of the Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No term, covenant or condition of this Lease is deemed to have been waived by the Landlord unless such waiver is in writing by the Landlord. All Rent to be paid by the Tenant to the Landlord hereunder shall be paid without any deduction, abatement, set-off or compensation whatsoever (except for Minimum Rent to the extent it may be abated pursuant to Section 11.01), and the Tenant hereby waives the benefit of any statutory or other rights in respect of abatement, set-off or compensation in its favour at the time hereof or at any future time. Section 16.06 - Accord and Satisfaction No payment by the Tenant or receipt by the Landlord of a lesser amount than the monthly payment of Minimum Rent herein stipulated is deemed to be other than on account of the earliest stipulated Minimum Rent, nor is any endorsement or statement on any cheque or any letter accompanying any cheque or payment as Rent deemed an acknowledgement of full payment or an accord and satisfaction, and the Landlord may accept and cash such cheque or payment without prejudice to the Landlord's right to recover the balance of such Rent or pursue any other remedy provided in this Lease. No receipt of monies by the Landlord from the Tenant after the termination of this Lease in any lawful manner shall reinstate, continue or extend the Term, or affect any notice previously given to the Tenant, or operate as a waiver of the right of the Landlord to enforce the payment of Rent then due or thereafter falling due, or operate as a waiver of the right of the Landlord, to recover possession of the Premises by proper suit, action, proceedings or other remedy; it being agreed that, after the service of notice to terminate this Lease and the expiration of the time therein specified, and after the commencement of any suit, action, proceeding or other remedy, or after a final order or judgment for possession of the Premises, the Landlord may demand, receive and collect any monies due, or thereafter falling due without in any manner affecting such notice, suit, action, proceeding, order or judgment; and any and all such monies so collected shall be deemed payments on account of the use and occupation of the Premises or at the election of the Landlord on account of the Tenant's liability hereunder. Section 16.07 - Brokerage Commissions Unless otherwise agreed by the Landlord in writing, any brokerage commission with respect to this Lease transaction shall be borne exclusively by the Tenant and the Tenant shall promptly indemnify and hold the Landlord harmless from any and all claims with respect thereto. Section 16.08 - No Partnership or Agency Nothing in this Lease shall create any relationship between the parties to this Lease other than that of Landlord and Tenant and it is acknowledged and agreed that the Landlord does not in any way or for any purpose become a partner of the Tenant in the conduct of its business, or otherwise, or a joint venturer or a member of a joint enterprise with the Tenant, nor is the relationship of principal and agent created. Section 16.09 - Force Majeure Notwithstanding anything to the contrary contained in this Lease, if the Landlord is bona fide delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder by reason of strikes; labour troubles; inability to procure materials or services; power failure; restrictive governmental laws or regulations; riots; insurrection; sabotage; rebellion; war; act of God; or other reason whether of a like nature or not which is not the fault of the party delayed in performing work or doing acts required under the terms of the Lease, (collectively referred to in this Lease as "Force Majeure") then performance of such term, covenant or act is excused for the period of the delay and the Landlord shall be entitled to perform such term, covenant or act within the appropriate time period after the expiration of the period of such delay. Section 16.10 - Notices Any notice, demand, request or other instrument which may be or is required to be given under this Lease shall be delivered in person or sent by registered mail postage prepaid and shall be addressed (a) if to the Landlord c/o MD Realty Corporation, The Credit Suisse Centre, 525 University Avenue, Suite 1050, Toronto, Ontario, M5G 1X3, Attention: Regional Manager, with a copy to such other Person or at such other address as the Landlord designates by written notice, and (b) if to the Tenant, at the Premises. Any such notice, demand, request or consent is conclusively deemed to have been given or made on the day upon which such notice, demand, request or consent is delivered, or, if mailed, then seventy-two (72) hours following the date of mailing, as the case may be, and the time period referred to in the notice commences to run from the time of delivery or seventy-two (72) hours following the date of mailing. Either party may at any time give notice in writing to the other of any change of address of the party giving such notice, and from and after the giving of such notice, the address therein specified is deemed to be the address of such party for the giving of notices hereunder. If the postal service is interrupted or is substantially delayed, any notice, demand, request or other instrument shall only be delivered in person. Section 16.11 - No Option The submission of this Lease for examination does not constitute a reservation of or option to lease for the Premises and this Lease become effective as a Lease only upon execution and delivery thereof by the Landlord and the Tenant. Section 16.12 - Registration The Tenant will not register or permit the registration of this Lease or any assignment or sublease or other document evidencing any interest of the Tenant in this Lease or the Premises except that, at the Tenant's request, subject to the Tenant paying the Landlord's costs and expenses, the Landlord will enter into a short form of lease with the Tenant for registration purposes, describing the parties, the Term, and the other minimum information required under the applicable legislation but the short form of lease must be in a form satisfactory to the Landlord, acting reasonably. Upon the expiration or earlier termination of this Lease, the Tenant shall, at its expense, forthwith remove and discharge such short form of lease, if any, from the title of the Building lands, and in the event of its failure to do so the Landlord may on behalf of the Tenant and at the Tenant's expense, as its attorney, proceed to remove and discharge such short form of lease, and the Tenant hereby expressly appoints the Landlord its lawful attorney in this regard. Section 16.13 - Compliance with The Planning Act It is an express condition of this Lease, that the provisions of Section 49 of the Planning Act, Statutes of Ontario, 1983 c.l, as amended, be complied with if applicable in law. Until any necessary consent to this Lease is obtained, notwithstanding anything else contained herein, the Term (including any extensions or renewals thereof) shall not extend for a period greater than twenty-one (21) years less one (1) day from the Commencement Date. The Tenant shall apply diligently to prosecute such application for such consent forthwith upon the execution of this Lease by both the Landlord and the Tenant, and the Tenant shall be responsible for all costs, expenses, taxes and levies imposed, charged or levied as a result of such application and in order to obtain such consent. Notwithstanding the foregoing provisions of this Section 16.13, the Landlord reserves the right at any time to apply for such consent in lieu of the Tenant (at the Tenant's expense) and the Tenant's application is hereby expressly made subject to any application which the Landlord intends to make. Section 16.14 - Metric Conversion If measurements are expressed in metric measure in this Lease, the following conversion factors apply: 1 metre = 3.2808 feet; 1 square metre = 10.7639 square feet; 1 foot = .3048 metres; and 1 square foot = .0929 square metres. Section 16.15 - Limited Recourse and Severability If at any time during the Term, the Landlord is a partnership, joint venture or co-tenancy, the Tenant shall look solely to the assets of such partnership or joint venture or the co-tenants' interest in the Building, whichever shall be the case, for the collection or satisfaction of any money or judgment which the Tenant may recover against the Landlord, and the Tenant shall not look for the collection or satisfaction of any such money or judgment to the personal assets of any person who shall at any time be a partner, joint venturer of the co-tenant in or under such partnership, joint venture or co-tenancy. The Tenant acknowledges that University/Elm Holdings Inc. and 744151 Ontario Limited are co-tenants and that the obligations of each of them under this Lease are several and proportional to the interests of each of them in the Building, and are not either joint or joint and several. Section 16.16 - Quiet Enjoyment If the Tenant pays the Rent and other sums herein provided when due, and punctually observes and performs all of the terms, covenants and conditions on the Tenant's part to be observed and performed hereunder, the Tenant shall peaceably and quietly hold and enjoy the Premises for the Term hereby demised without hindrance or interruption by the Landlord or any other Person lawfully claiming by, through or under the Landlord subject, nevertheless, to the terms, covenants and conditions of this Lease. Section 16.17 - Tenant's Covenant as to Hazardous Substances Schedule "F" attached forms part of this Lease. Section 16.18 - Execution of Lease By Landlord The Tenant acknowledges that MD Realty Corporation has executed this Lease as agent for and on behalf of, in the name of and with the authority of the Landlord, and that the covenants and agreements of the Landlord are obligations of the Landlord only and are not obligations personal to or enforeceable against MD Realty Corporation in its own right, save and except that MD Realty Corporation covenants for itself that it is the duly authorized agent of the Landlord with complete power to execute this Lease as agent for and on behalf of, in the name of and with the authority of the Landlord. The Tenant acknowledges that the obligations arising under this Lease, or any other document entered into with respect to this Lease, are not, and shall not be construed to be, personally binding upon, nor shall resort be had to, nor recourse or satisfaction sought from the private property of, any of the trustees, unit holders, officers, employees or agents of MD Realty Fund. The Tenant represents and warrants that neither the Tenant nor any director or officer of the Tenant is in any way associated or affiliated with the Canadian Medical Association, MD Management Limited, MD Realty Fund, MD Realty Corporation or any of their affiliates other than by direct membership as a physician in any one or more of the Canadian Medical Association, its divisions and affiliate societies IN WITNESS WHEREOF, the Landlord and the Tenant have executed this Lease. SIGNED, SEALED AND DELIVERED ) in the presence of ) 674573 ONTARIO LIMITED ) by its authorized agent ) MD REALTY CORPORATION ) ) Per: c.s. ) ) Per: c.s. ) ) ) ) ACE HARDWARE CANADA LIMITED ) ) Per: c.s. ) ) Per: c.s. SCHEDULE "A" LEGAL DESCRIPTION OF LANDS Part of Lot 24, Plan 65M-2230, Town of Markham, Regional Municipality of York, designated as Parts 2 and 3 on Plan 65R-7173, and Parts of Lot 4 and 5, Concession 5, and Part of Lot 24, Plan 65M-2230, Town of Markham, Regional Municipality of York, designated as Parts 2 and 3 on Plan 65R-12393. SCHEDULE "B" - FLOOR PLAN SCHEDULE "C" LANDLORD'S WORK and TENANT'S WORK OFFICE PREMISES LANDLORD'S WORK NONE. The Premises are taken on an as is basis. TENANT'S WORK The Tenant is taking the premises on an as is basis. SCHEDULE "D" RULES AND REGULATIONS 1. The Landlord shall permit the Tenant and the Tenant's employees and all Persons lawfully requiring communication with them to have the use, during Normal Business Hours in common with others entitled thereto, of the main entrance and the stairways, corridors, elevators or other mechanical means of access leading to the Premises. At times other than during Normal Business Hours the Tenant and the employees of the Tenant shall have access to the Building and to the Premises only in accordance with the Rules and Regulations and shall be required to satisfactorily identify themselves and to register in any book which may at the Landlord's option be kept by the Landlord for such purpose. If identification is not satisfactory, the Landlord is entitled to prevent the Tenant or the Tenant's employees or other Persons lawfully requiring communication with the Tenant from having access to the Building. In addition, the Landlord is not required to open the door to the Premises for the purpose of permitting entry therein to any Person not having a key to the Premises. 2. The Tenant shall permit window cleaners to clean the windows of the Premises during Normal Business Hours. 3. The sidewalks, entrances, passages, escalators, elevators and staircases shall not be obstructed or used by the Tenant, its agents, servants, contractors, invitees or employees for any purpose other than ingress to and egress from the Premises and the Building. The Landlord reserves entire control of all parts of the Building employed for the common benefit of the tenants and without restricting the generality of the foregoing, the sidewalks, entrances, corridors and passages not within the Premises, washrooms, lavatories, air conditioning closets, fan rooms, janitors' closets, electrical closets and other closets, stairs, escalators, elevator shafts, flues, stacks, pipe shafts and ducts and shall have the right to place such signs and appliances therein, as it deems advisable, provided that ingress and egress from the Premises is not unduly impaired thereby. 4. The Tenant, its agents, servants, contractors, invitees or employees, shall not bring in or take out, position, construct, install or move any safe, business machinery or other heavy machinery or equipment or anything liable to injure or destroy any part of the Building, including the Premises, without first obtaining the consent in writing of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion, to prescribe the weight permitted and the position thereof, the use and design of planks, skids or platforms, and to distribute the weight thereof. All damage done to the Building, including the Premises, by moving or using any such heavy equipment or other office equipment or furniture shall be repaired at the expense of the Tenant. The moving of all heavy equipment or other office equipment or furniture shall occur only by prior arrangement with the Landlord. Safes and other heavy office equipment and machinery shall be moved through the halls and corridors only upon steel bearing plates. No freight or bulky matter of any description will be received into the Building, including the Premises, or carried in the elevators except during hours approved by the Landlord. 5. The Tenant shall not place or cause to be placed any additional locks upon any doors of the Premises without the approval of the Landlord and subject to any conditions imposed by the Landlord. Two keys shall be supplied to the Landlord for each entrance door to the Premises and all locks shall be standard to permit access to the Landlord's master key. If additional keys are requested, they must be paid for by the Tenant. No one, other than the Landlord's staff, will have keys to the outside entrance doors of the Building. 6. The water closets and other water apparatus shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. Any damage resulting from misuse shall be borne by the Tenant by whom or by whose agents, servants or employees the same is caused. The Tenant shall not, (1) let the water run unless it is in actual use, (2) deface or mark any part of the Building, including the Premises, (3) drive nails, spikes, hooks or screws into the walls or woodwork of the Building, including the Premises, or, (4) bore, drill or cut into the walls or woodwork of the Building, including the Premises, in any manner or for any reason. 7. No one shall use the Premises for sleeping apartments or residential purposes, or for the storage of personal effects or articles other than those required for business purposes. 8. The Tenant shall not permit any cooking or any heating of any foods or liquids in the Premises without the written consent of the Landlord, but this shall not prevent the Tenant from having an electric coffee maker or electric kettle on the Premises. 9. Canvassing, soliciting and peddling in or about the Building are prohibited. 10. It shall be the duty of the Tenant to assist and cooperate with the Landlord in preventing injury to the Premises. 11. No inflammable oils or other inflammable, dangerous or explosive materials save those approved in writing by the Landlord's insurers shall be kept or permitted to be kept in the Premises. 12. No bicycles or other vehicles shall be brought within the Building without the consent of the Landlord. 13. No animals or birds shall be brought into the Building without the consent of the Landlord. 14. The Tenant shall not install or permit the installation or use of any machine dispensing goods for sale in the premises or the Building or permit the delivery of any food or beverage to the Premises without the written approval of the Landlord or in contravention of any Rules and Regulations fixed or to be fixed by the Landlord. Only Persons authorized by the Landlord shall be permitted to deliver or to use the stairs, elevators or escalators in the Building for the purpose of delivering food or beverages to the Premises. 15. If the Tenant desires telegraphic or telephonic connections, the Landlord will direct the electricians as to where and how the wires are to be introduced. No gas pipe or electric wire will be permitted which has not been ordered or authorized by the Landlord. No outside radio or television aerials shall be allowed on any part of the Premises without authorization in writing by the Landlord. 16. The Tenant shall not cover or obstruct any of the skylights and windows that reflect or admit light into any part of the Building except for the proper use of approved blinds and drapes. 17. Any hand trucks, carryalls or similar appliances used in the Building with the consent of the Landlord shall be equipped with rubber tires, slide guards and such other safeguards as the Landlord requires. 18. The Tenant shall not place or maintain any supplies, merchandise or other articles in any vestibule or entry of the Premises, on the footwalks adjacent thereto or elsewhere on the exterior of the Premises or elsewhere in the Building. 19. The Tenant shall not do or permit anything to be done in the Premises, or bring or keep anything therein which will in any way increase the risk of fire or the rate of fire insurance on the Building or on property kept therein, or obstruct or interfere with the rights of other tenants or in any way injure or annoy them or the Landlord, or violate or act at variance with the laws relating to fires or with the regulations of the Fire Department, or with any insurance upon the Building or any part thereof, or violate or act in conflict with any of the rules and ordinances of the Board of Health or with any statute or municipal by-law. SCHEDULE "E" SUPPLEMENTARY LEASE PROVISIONS Section 4.02 - Minimum Rent Years 1 - 4 annual minimum rent is REDACTED, Dollars payable in equal consecutive monthly instalments of REDACTED Dollars each in advance on the first day of each calendar month of each Rental Year. The Minimum Rent is based upon an annual rate of REDACTED per square foot of the Rentable Area. Years 5 - 7 annual minimumn (sic) rent is REDACTED Dollars payable in equal consecutive monthly instalments of REDACTED Dollars each in advance on the first day of each calendar month of each Rental Year. The Minimum Rent is based upon an annual rate of REDACTED per square foot of the Rentable Area. Years 8 - 10 annual minimum rent is REDACTED Dollars payable in equal consecutive monthly instalments of REDACTED Dollars each in advance on the first day of each calendar month of each Rental Year. The Minimum Rent is based upon an annual rate of REDACTED per square foot of the Rentable Area. SCHEDULE "F" HAZARDOUS SUBSTANCES Section 1 - Definitions 1. "Environmental Audit" means an inspection or inspections of the Leased Premises or other affected locations at the Building or the Lands by an independent contractor acceptable to the Landlord together with such other tests, surveys and inquiries as such contractor deems advisable in the circumstances into the use, transport, storage, disposal, handling, sale or manufacture of any Hazardous Substance in, on or about the Leased Premises, the Building or the Lands by the Tenant, those for whom the Tenant is in law responsible or any other person using or occupying the Leased Premises, or into the condition or status of the Leased Premises in relation to possible contamination by any Hazardous Substance, and any Environmental Audit by such contractor shall include the said contractor's written report delivered to the Landlord summarizing the nature and results of all inspections, tests, surveys and inquiries conducted by the contractor, and the said contractor's recommendations for any remedial or precautionary actions to be taken in relation to the presence of Hazardous Substance on the Leased Premises, the Building or the Lands. 2. "Environmental Claim" means all claims, losses, costs, expenses, fines, penalties, payments and/or damages (including, without limitation, all solicitors' fees on a solicitor and client basis) relating to, arising out of, resulting from or in any way connected with the presence of any Hazardous Substance at the Leased Premises, the Building or the Lands, including, without limitation, all costs and expenses of any remediation or restoration of the Leased Premises, the Building, the Lands and/or any property adjoining or in the vicinity of the Lands required or mandated by the Environmental Law. 3. "Environmental Law" means any law, bylaw, order, ordinance, ruling, regulation, certificate, approval, policy, guideline, consent or directive of any applicable federal, provincial or municipal government, governmental department, agency or regulatory authority or any Court of competent jurisdiction, relating to environmental matters and/or regulating the import, storage, distribution, labelling, sale, use, handling, transport or disposal of any Hazardous Substance which may be in force from time to time. 4. "Hazardous Substance" means: (a) any substance which is hazardous to persons or property and includes, without limiting the generality of the foregoing, the following: (i) radioactive materials; (ii) explosives; (iii) any substance that, if added to any water, would degrade or alter or form part of a process of degradation or alteration of the quality of that water to the extent that it is detrimental to its use by man or by any animal, fish or plant; (b) any solid, liquid, gas or odour or combination of any of them that, if emitted into the air, would create or contribute to the creation of a condition of the air that: (i) endangers the health, safety or welfare of persons or the health of animal life; (ii) interferes with normal enjoyment of life or property; or (iii) causes damage to plant life or to property; (c) toxic substances; and (d) any material or substance declared or deemed to be hazardous, deleterious, caustic, dangerous, a contaminant, a waste, a source of contaminant, a pollutant or toxic under the Environmental Law. Section 2 - Tenant's Covenant As To Hazardous Substances The Tenant covenants and agrees that it will: (a) not bring or allow any Hazardous Substance to be brought onto the Lands, the Building or the Leased Premises except in compliance with the Environmental Law; (b) comply at all times and require all those for whom the Tenant is in law responsible to comply at all times with the Environmental Law as it affects the Leased Premises, the Building or the Lands; (c) give Notice to the Landlord of the presence at any time during the Term of any Hazardous Substance on the Leased Premises (or the Building or the Lands if such substance is in the control of the Tenant) together with such information concerning such Hazardous Substance and its presence on the Leased Premises, the Building or the Lands as the Landlord may require; (d) give Notice to the Landlord of any occurrence which might give rise to a duty under the Environmental Law in either the Tenant or the Landlord with respect to the presence of any Hazardous Substance on the Leased Premises, the Building or the Lands including, without limitation, Notice of any spill or escape into the environment of any Hazardous Substance at the Leased Premises, the Building or the Lands; (e) in any case where the Tenant has given Notice as to the presence of a Hazardous Substance at the Leased Premises, the Building or the Lands or is required to give such Notice or where the Landlord has reasonable grounds to believe that any Hazardous Substance is or has been brought upon the Leased Premises, the Building or the Lands by the Tenant or any person for whom the Tenant is in law responsible, to commission an Environmental Audit at the Tenant's expense when required by the Landlord to do so; (f) comply with any investigative, remedial or precautionary measures required under the Environmental Law or as reasonably required by the Landlord, and the Tenant shall be fully and completely liable to the Landlord for any and all clean up costs or costs incurred to comply with the Environmental Law or any request by the Landlord that investigative, remedial or precautionary measures be taken; (g) protect, indemnify and save each of the Landlord and its directors, officers, employees, agents, successors and assigns completely harmless from and against any Environmental Claim, directly or indirectly incurred, sustained or suffered by or asserted against the Landlord and/or its directors, officers, employees, agents, successors and assigns caused by or attributable to, either directly or indirectly, any act or omission of the Tenant and/or any person for whom the Tenant is in law responsible; (h) enter into any additional contract of insurance respecting the Leased Premises which the Landlord may reasonably require to protect the Landlord and its directors, officers, employees, agents, successors and assigns from any Environmental Claim respecting the Leased Premises; and (i) provide to the Landlord such security as the Landlord may from time to time require, acting reasonably, to ensure compliance by the Tenant of its covenants herein contained. Section 3 - Inquiries By Landlord The Tenant hereby authorizes the Landlord to make inquiries from time to time of any government or governmental agency with respect to the Tenant's compliance with the Environmental Law at the Leased Premises, and the Tenant covenants and agrees that the Tenant will from time to time provide to the Landlord such written authorization as the Landlord may reasonably require in order to facilitate the obtaining of such information. The Landlord or its authorized agent may inspect the Leased Premises from time to time, without Notice, in order to verify the Tenant's compliance with the Environmental Law and the requirements of this Lease respecting Hazardous Substances. Upon request by the Landlord from time to time, the Tenant shall provide to the Landlord a certificate executed by a senior officer of the Tenant certifying ongoing compliance by the Tenant with its covenants contained herein. Section 4 - Ownership Of Hazardous Substances If the Tenant shall bring or create upon the property of the Leased Premises, the Building or the Lands any Hazardous Substance or if the conduct of the Tenant's business shall cause there to be any Hazardous Substance upon the Lands, the Building or the Leased Premises then, notwithstanding any rule of law to the contrary, such Hazardous Substance shall be and remain the sole and exclusive property of the Tenant and shall not become the property of the Landlord notwithstanding the degree of affixation of the Hazardous Substance or the goods containing the Hazardous Substance to the Leased Premises, the Building or the Lands and notwithstanding the expiry or earlier termination of this Lease. Section 5 - Landlord's Remedies Upon Default Upon the Tenant's material default under this Article and in addition to the rights and remedies set forth elsewhere in this Lease, the Landlord shall be entitled to the following rights and remedies: (a) at the Landlord's option, to terminate this Lease; and/or (b) to recover any and all damages associated with the material default, including without limitation, in addition to any rights reserved or available to the Landlord in respect of an early termination of this Lease, cleanup costs and charges, civil and criminal penalties and fees, loss of business and sales by the Landlord and other tenants of the Building, any and all damages and claims asserted by third parties and Landlord's solicitors' fees and costs. EX-10 6 EX 10-A-14 - MERRITT LEASE EXHIBIT 10-a-14 THIS LEASE, made this 9th day of February, 1995, by and between LEROY M. MERRITT, hereinafter called "Landlord," and ACE HARDWARE CORPORATION, hereinafter called "Tenant." WITNESSETH, that in consideration of the rental hereinafter agreed upon and the performance of all the conditions and covenants hereinafter set forth on the part of the Tenant to be performed, the Landlord does hereby lease unto the said Tenant, and the latter does lease from the former the following premises (hereinafter sometimes called the "premises"): BEING those premises outlined in red on the Plat attached hereto as Exhibit A, said premises being located within the building known as 2601-2653 Merchant Drive, Baltimore, MD 21230; 158,485 square feet; for the term of three (3) years, beginning on the first day of April, 1995, and ending on the last day of March, 1998, at and for the annual rental of REDACTED Dollars) payable in advance on the first day of each and every month during the term of this Lease, in equal monthly installments of REDACTED Dollars. Subject also to the renewal option in Section 44. If the term of this Lease shall commence on a date other than the first day of a month, the rental for the period from the date of commencement of the term to the first day of the first full calendar month of the term shall be prorated and shall be payable on the first day of the term; if the term of this Lease shall end on a date other than the last day of a month, the rent for the period from the first day of the last month of the term to the date the term ends shall be prorated and shall be payable on the first day of the last month of the term. All rentals shall be paid to Landlord at 2066 Lord Baltimore Drive, Baltimore, Maryland 21244, or at such other place or to such appointee of the Landlord as the Landlord may from time to time designate in writing. This Lease is made subject to the following additional terms, covenants and conditions: 1. Payment of Rental. Tenant covenants and agrees to pay the rental herein reserved and each installment thereof promptly when and as due, without setoff or deduction whatsoever. 2. Use. Tenant covenants and agrees to use and occupy the premises solely for the following purposes: GENERAL WAREHOUSING, DISTRIBUTION, OFFICE Tenant agrees to comply with all applicable zoning and other laws and regulations, and provide and install at its own expense any additional equipment or alterations required to comply with all such laws and regulations as required from time to time. Tenant will not permit, allow or cause any public or private auction sales or sheriffs' or constables' sales to be conducted on or from the premises. 3. Utilities. Tenant agrees to pay as additional rent Tenant's pro rata share of the water rent, sewer service charges and public service electric costs covering the exterior common area lighting chargeable to the total building in which the premises are located, based upon the number of tenants occupying the same, and not based upon the size of the premises in proportion to the total square footage of the building. However, if in Landlord's sole judgment, the water and sewer charges for the premises are substantially higher than normal due to Tenant's water usage, then Tenant agrees that it will, upon written notice from Landlord, install a water meter at Tenant's expense and thereafter pay all water charges for the premises based on such meter readings. Tenant shall pay all costs of electricity, gas, telephone and other utilities used or consumed on the premises, together with all taxes, levies or other charges on such utilities. If Tenant defaults in payment of any such utilities, charges or taxes, Landlord may, at its option, pay the same for and on Tenant's account, in which event Tenant shall promptly reimburse Landlord therefor. 4. Compliance with Laws. (a) Tenant covenants and agrees that it will, at its own expense, observe, comply with and execute all laws, orders, rules, requirements and regulations of any and all governmental departments, bodies, bureaus, agencies and officers, and all rules, directions, requirements and recommendations of the local board of fire underwriters and the fire insurance rating organizations having jurisdiction over the area in which the premises are situated, or other bodies or agencies now or hereafter exercising similar functions in the area in which the premises are situated, in any way pertaining to the premises or the use and occupancy thereof. In the event Tenant shall fail or neglect to comply with any of the aforesaid laws, orders, rules, requirements or recommendations, Landlord or its agents may enter the premises and take all such action and do all such work in or to the premises as may be necessary in order to cause compliance with such laws, orders, rules, requirements or recommendations, and Tenant covenants and agrees to reimburse Landlord promptly upon demand for the expense incurred by Landlord in taking such action and performing such work. (b) Without limiting the generality of paragraph (a) hereof, regarding any improvements to the existing premises, Tenant shall at all times keep the premises in compliance with the Americans With Disabilities Act and its supporting regulations, and all similar federal, state or local laws, regulations and ordinances. In the event the space or building are required to be modified to comply with ADA requirements, the cost of such requirements shall be the responsibility of the Landlord, provided the requirement is not due to the use of Tenant. If Landlord's consent would be required for alterations to bring the Premises into compliance, Landlord agrees not to unreasonably withhold its consent. 5. Assignment and Subletting. (a) Tenant covenants and agrees not to assign this Lease, in whole or in part, nor sublet the premises, or any part or portion thereof, nor grant any license or concession for all or any part thereof, without the prior written consent of the Landlord in each instance first had and obtained. Landlord's consent will not be unreasonably withheld. If such assignment or subletting is permitted, Tenant shall not be relieved from any liability whatsoever under this Lease. In the event that the amount of the rent or other consideration to be paid to the Tenant by any assignee or sublessee is greater than the rent required to be paid by the Tenant to the Landlord pursuant to this Lease, Tenant shall pay to Landlord any such excess as is received by Tenant from such assignee or sublessee. Any consent by Landlord to an assignment or subletting of this Lease shall not constitute a waiver of the necessity of such consent as to any subsequent assignment or subletting. An assignment for the benefit of Tenant's creditors or otherwise by operation of law shall not be effective to transfer or assign Tenant's interest under this Lease unless Landlord shall have first consented thereto in writing. (b) In the event this Lease contains a renewal option exercisable by Tenant, Landlord's consent to an assignment or sublease of the premises or any portion thereof during the original Lease term shall be deemed to be conditioned upon the agreement of Tenant and such assignee or sublessee that such renewal right or option shall terminate and be of no further force or effect unless Landlord's consent to such assignment or sublease expressly provides otherwise. Consequently, unless so provided otherwise, any assignment or sublease during the original Lease term shall automatically constitute a termination of the right of Tenant or such assignee or sublessee to exercise any renewal option contained herein. 6. Loading Capacity. Tenant covenants and agrees not to load the premises beyond its present carrying or loading capacity. 7. Increase in Landlord's Insurance Rates. The Landlord agrees to maintain insurance on the building throughout the Lease term, sufficient to replace the building in the event of casualty or loss. Tenant will not do, or suffer to be done, anything in or about the premises, or keep or suffer to be kept, anything in or about the premises which will contravene or affect any policy of insurance against loss by fire or other hazards, including, but not limited to, public liability, now existing or which the Landlord may hereafter place thereon, or which will prevent the Landlord from procuring such policies in companies acceptable to Landlord at standard rates. Tenant will, at Tenant's sole expense, take reasonable actions and make any installations or alterations as may be necessary to obtain a reasonable possible reduction in the insurance rates for the premises and the building in which the premises are located (or, if the premises are a part of a building, any increase in the premium of any insurance on said entire building) caused by the occupancy of Tenant, the nature of the business carried on by Tenant in the premises, or otherwise resulting from any act of Tenant, its agents, servants, employees or customers, or anything done or suffered to be done by Tenant, its agents, servants, employees or customers. However, Tenant may elect to pay the cost of such insurance increase rather than pay for the alteration to the premises. 8. Insurance - Indemnity. (a) Tenant covenants and agrees that from and after the date of delivery of the premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense and in the amounts specified and in the form hereinafter provided, the following types of insurance: (i) Public Liability and Property Damage. General Public Liability Insurance covering the premises and Tenant's use thereof against claims for personal injury or death and property damage occurring upon, in or about the premises, such insurance to afford protection to the limit of not less than $2,000,000 arising out of any one occurrence, and against property damage to afford protection to the limit of not less than $2,000,000; or such insurance may be for a combined single limit of $2,000,000 per occurrence. The insurance coverage required under this Section 8(a)(i) shall, in addition, extend to any liability of Tenant arising out of Tenant's indemnities hereinafter provided, as well as Independent Contractors' Liability, Products/Completed Operations Liability, Personal Injury Liability and Contractual Liability. (ii) Tenant Improvements and Property. Insurance covering all leasehold improvements and other improvements installed by Tenant upon the premises, trade fixtures and personal property from time to time in, on or upon the premises and any alterations, improvements, additions or changes made by Tenant thereto in an amount not less than one hundred percent (100%) of their full replacement cost from time to time during the Lease term, providing protection against perils included within the standard Maryland form of fire and extended coverage insurance policy, together with insurance against sprinkler leakage or other sprinkler damage, vandalism and malicious mischief. Any policy proceeds from such insurance, so long as this Lease shall remain in effect, shall be held in trust by Tenant's insurance company first for the repair, reconstruction, restoration or replacement of the property damaged or destroyed. (b) All policies of insurance to be provided by Tenant shall be issued in form acceptable to Landlord by insurance companies with general policyholder's rating of not less than B++ and a financial rating of B++ as rated in the most current available "Best's" Insurance Reports, and qualified to do business in Maryland. Each such policy shall be issued in the names of Landlord and Tenant. Said policies shall be for the mutual and joint benefit and protection of each of said parties and executed copies of each such policy of insurance or a certificate thereof shall be delivered to Landlord within ten (10) days after delivery of possession of the premises to Tenant and thereafter at least fifteen (15) days prior to the expiration of each such policy. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All such policies of insurance shall contain a provision that the company writing said policy will give to Landlord at least thirty (30) days' notice in writing in advance of any cancellations, or lapse, or the effective date of any reduction in the amounts of insurance. In the event Tenant shall fail to promptly furnish any insurance herein required, Landlord may effect the same for a period not exceeding one (1) year and Tenant shall promptly reimburse Landlord upon demand, as additional rent, the premium so paid by Landlord. If, upon Tenant's failure, rather than purchase separate insurance coverage, Landlord chooses to include Tenant's coverage under Landlord's insurance policies, then Tenant shall promptly reimburse Landlord upon demand, as additional rent, the greater of the increase in Landlord's premium resulting therefrom or One Thousand Dollars ($1,000.00). All such public liability, property damage and other casualty policies shall be written as primary policies which do not contribute to and are not in excess of coverage which Landlord may carry. All such public liability and property damage policies shall contain a provision that Landlord shall nevertheless be entitled to recover under said policies for any loss occasioned to it, its servants, agents and employees by reason of the negligence of Tenant or any other named assured. Any insurance provided for may be affected by a policy or policies of blanket insurance, covering additional items or locations; provided, however, that (i) Landlord shall be named as an additional assured thereunder as its interests may appear; (ii) the coverage afforded Landlord will not be reduced or diminished by reason of the use of such blanket policy of insurance; (iii) any such policy or policies (except any covering the risks referred to in paragraph [i]), shall specify therein (or Tenant shall furnish Landlord with a written statement from the insurers under such policy specifying) the amount of the total insurance allocated to the "Tenant Improvements and Property" more specifically detailed in paragraph (iii), above; and (iv) the requirements set forth herein are otherwise satisfied. Any insurance policies herein required to be procured by Tenant shall contain an express waiver of any right of subrogation by the insurance company against the Landlord, and all other tenants or occupants of space in the building. (c) Tenant shall, and does hereby, indemnify and hold harmless Landlord and any other parties in interest set forth in paragraph (b), above, from and against any and all liabilities, fines, claims, damages and actions, costs and expenses of any kind or nature (including attorneys' fees) and of anyone whatsoever (i) relating to or arising from the use and occupancy of the premises; (ii) due to or arising out of any mechanic's lien filed against the building, or any part thereof, for labor performed or for materials furnished or claimed to be furnished to Tenant, or (iii) due to or arising out of any breach, violation or nonperformance of any covenant, condition or agreement in this Lease set forth and contained on the part of Tenant to be fulfilled, kept, observed or performed, unless such damage or injury shall be occasioned by the negligence or willful act or omission of the Landlord, in which event, Landlord shall indemnify and hold harmless Tenant to the extent of such negligence or willful act or omission. Notwithstanding the foregoing, Tenant shall at all times remain liable for, and indemnify and hold harmless Landlord as aforesaid against, any damage or injury arising from perils against which Tenant is required by this Lease to insure, regardless of the negligence or willful act or omissions of others. 9. Alterations. Tenant shall not make any alterations to the premises, or any part thereof, without prior written consent of Landlord in each instance first had and obtained. If Tenant shall desire to make such alterations, plans for the same shall first be submitted to and approved by Landlord, and all work and installations shall be performed by Tenant at its own expense in accordance with approved plans. Tenant agrees that all such work shall be done in a good and workmanlike manner, that the structural integrity of the building shall not be impaired, and that no liens shall attach to the premises by reason thereof. Tenant agrees to obtain, at Tenant's expense, all permits required for such alterations. 10. Ownership of Alterations. Unless Landlord shall elect that all or part of any alteration made by Tenant to the premises (including any alteration consented to by Landlord pursuant to paragraph 9 hereof) shall remain on the premises after the termination of this Lease, the premises shall be restored to their original condition by Tenant before the expiration of this Lease at Tenant's sole expense. Upon such election by Landlord, any such alterations, improvements, betterments or mechanical equipment, including but not limited to, heating and air conditioning systems, shall become the property of Landlord as soon as they are affixed to the premises, and all right, title and interest thereof of Tenant shall immediately cease, unless otherwise agreed to in writing by Landlord. Tenant shall promptly pay any franchise, minor privilege or other tax or assessment resulting directly or indirectly from any alterations or improvements made by Tenant to the premises. Tenant shall repair promptly, at its own expense, any damage to the premises caused by bringing into the premises any property for Tenant's use, or by the installation or removal of such property, regardless of fault or by whom such damage shall be caused. 11. Repairs and Maintenance. (a) The premises hereby leased are leased to Tenant "as is." Except as herein expressly provided, Landlord shall be under no liability, nor have any obligation to do any work or make any repairs in or to the premises, and any work which may be necessary to outfit the premises for Tenant's occupancy or for the operation of Tenant's business therein is the sole responsibility of Tenant and shall be performed by Tenant at its own cost and expense. Tenant acknowledges that it has fully inspected the premises prior to the execution of this Lease, and Tenant further acknowledges that Landlord has made no warranties or representations with respect to the condition or state of repairs of the premises. (b) Tenant will, during the term of this Lease, keep the premises and appurtenances (including windows, doors, plumbing, heating and electrical facilities and installations) in good order and repair and will make all necessary repairs thereof at its own expense, except that Landlord will make all necessary repairs (except painting) to the exterior masonry walls and roof of the premises, after being notified in writing by Tenant of the need for such repairs, and shall have a reasonable time in which to complete such repairs. Tenant agrees to carry a maintenance and/or service agreement or policy on the HVAC system in the demised premises. This agreement or policy shall be carried throughout the term of this Lease and any renewals or extensions hereof. Tenant shall provide Landlord with a copy of such policy or a certificate evidencing such coverage. In the event that the repairs required to be made by Landlord are necessitated as a result of negligence or misuse by Tenant, its agents, servants, employees, licensees or guests, or by any contractor engaged by or on behalf of Tenant, such repairs shall be made by and be paid for by Tenant. Tenant shall also maintain any driveways and parking areas designated for its exclusive use. Tenant will, at the expiration of the term or at the sooner termination thereof by forfeiture or otherwise, deliver up the premises in the same good order and condition as they were at the beginning of tenancy, reasonable wear and tear excepted. Tenant further agrees that it will maintain the premises at its own expense in a clean, orderly and sanitary condition, free of insects, rodents, vermin, and other pests; and that it will not permit undue accumulation of garbage, trash, rubbish or other refuse, but will remove the same at its own expense and will keep such refuse in proper containers within the interior of the premises until called for to be removed. Tenant further agrees that it will not install any additional electrical wiring or plumbing unless it has first obtained Landlord's written consent thereto, and, if such consent is given, Tenant will install the same at its own cost and expense, and Tenant shall obtain, at Tenant's expense, all permits required for such installation. (c) In the event Tenant shall not proceed promptly and diligently to make any repairs or perform any obligation imposed upon it by subparagraphs (a) and (b) hereof within forty-eight (48) hours after receiving written notice from Landlord to make such repairs or perform such obligation, then and in such event, Landlord may, at its option, enter the premises and do and per- form the things specified in said notice, without liability on the part of Landlord for any loss or damage resulting from any such action by Landlord, and Tenant agrees to pay promptly upon demand any cost or expense incurred by Landlord in taking such action. 12. Tax and Insurance Escalation. (a) The premises hereby leased comprise approximately one hundred percent (100%) of Merchant Drive No. 7 and thirty-five and five tenths percent (35.5%) of Merchant Drive Nos. 1-6 of the total land and/or building(s) within which the premises are located. Landlord agrees to provide Tenant with copies of the appropriate tax or insurance bill. (b) Tenant covenants and agrees to pay Landlord, as additional rent, one hundred percent (100%) of Merchant Drive No. 7 and thirty-five and five tenths percent (35.5%) of Merchant Drive Nos. 1-6 of any increase in real estate taxes assessed against the land and/or building(s) in excess of the taxes for the 1995/1996 fiscal year whether as a result of an increase in the tax rate, or the levy, assessment or imposition of any tax on real estate as such not now levied, assessed or imposed, which payment shall be due and payable within fifteen (15) days after Landlord's written demand. The foregoing shall apply to increases in real estate taxes assessed against the land or building(s) generally, and not resulting from improvements placed thereon by Tenant. In the event of any increases in real estate taxes resulting from improvements, alterations or additions made by Tenant, Tenant shall pay the entire amount of said increase. If this Lease shall be in effect for less than a full fiscal year, Tenant shall pay a pro rata share of taxes, based upon the number of months that this Lease is in effect. "Taxes" as used herein shall include, but not by way of limitation, all paving taxes, special paving taxes, Metropolitan District charges, and any and all other benefits or assessments which may be levied on the premises or the land or building(s) in which the same are situate, but shall not include any income tax on the income or rent payable hereunder. "Taxes" shall also include all reasonable expenses incurred by Landlord (including attorneys' fees and costs) in contesting any increase in, or applying for any reduction of, a tax assessment. (c) Tenant also covenants and agrees to pay Landlord, as additional rent, one hundred percent (100%) of Merchant Drive No. 7 and thirty-five and five tenths percent (35.5%) of Merchant Drive Nos. 1-6 of any increase in insurance premiums (as hereinafter defined) in excess of the annualized premiums for the most recent policy period prior to the commencement of this lease, which payment shall be due and payable within fifteen (15) days after Landlord's written demand. As used herein, "insurance premiums" means the total premium cost of all insurance carried by Landlord with respect to the total land and building(s) within which the premises are located, including, but not limited to, all Real Property and Rental Value perils insured against under an "All Risk" insuring agreement, primary General Liability insurance and Umbrella and/or Excess Liability insurance. 13. Default. (a) Any of the following events shall constitute a default by Tenant: (i) If the rent (basic or additional) shall be in arrears, for a period of ten (10) days in whole or in part; or (ii) If Tenant shall have failed to perform any other non-rent related term, condition, or covenant of this Lease on its part to be performed for a period of thirty (30) days after notice of such failure from Landlord; or (iii) If the premises are vacant, unoccupied or deserted for a period of fifteen (15) days or more at any time during the term; or (iv) If Tenant is adjudicated a bankrupt or insolvent by any court of competent jurisdiction, or if any such court enters an order, judgment or decree finally approving any petition against Tenant seeking reorganization, liquidation, dissolution or similar relief or if a receiver, trustee, liquidator or conservator is appointed for all or substantially all of Tenant's assets and such appointment is not vacated within ten (10) days after the appointment, or if Tenant seeks or consents to any of the relief hereinabove enumerated in this subparagraph (iv) or files a voluntary petition in bankruptcy or insolvency or makes an assignment of all or substantially all of its assets for the benefit of creditors or admits in writing of its inability to pay its debts generally as they come due or files Articles of Dissolution, or similar writing indicating its intention to wind up or liquidate its business, with the appropriate authority of the place of its incorporation; or (v) If Tenant's leasehold interest under this Lease is sold under execution, attachment or decree of court to satisfy any debt of Tenant, or if any lien (including a mechanic's lien) is filed against Tenant's leasehold interest and is not discharged within ten (10) days thereafter. Tenant may elect to provide Landlord with a bond in the amount of such lien in lieu of having the lien discharged. However, tenant must have any liens discharged prior to Landlord refinancing the building, selling the building or Tenant's lease expiring. (b) In the event of default as defined in paragraph (a) hereof, Landlord, in addition to any and all legal and equitable remedies it may have, shall have the following remedies: (i) To distrain for any rent or additional rent in default; and (ii) At any time after default, without notice, to declare this Lease terminated and enter the premises with or without legal process; and in such event Landlord shall have the benefit of all provisions of law now or hereafter in force respecting the speedy recovery of possession from Tenant's holding over or proceedings in forcible entry and detainer, and Tenant waives any and all provisions for notice under such laws. Notwithstanding such reentry and/or termination, Tenant shall immediately be liable to Landlord for the sum of the following: (a) all rent and additional rent then in arrears, without apportionment to the termination date, including Tenant's contribution to taxes under paragraph 12 for the year of termination, whether such termination is before or after July lst of such year; (b) all other liabilities of Tenant and damages sustained by Landlord as a result of Tenant's default, including, but not limited to, the reasonable costs of reletting the premises and any broker's commissions payable as a result thereof; (c) all of Landlord's costs and expenses (including reasonable counsel fees) in connection with such default and recovery of possession; (d) the difference between the rent reserved under this Lease for the balance of the term and the fair rental value of the premises for the balance of the term to be determined as of the date of reentry; or at Landlord's option in lieu thereof, Tenant shall pay the amount of the rent and additional rent reserved under this Lease at the times herein stipulated for payment of rent and additional rent for the balance of the term, less any amount received by Landlord during such period from others to whom the premises may be rented on such terms and conditions and at such rentals as Landlord, in its sole discretion, shall deem proper; and (e) any other damages recoverable by law. In the event Landlord brings any action against Tenant to enforce compliance by Tenant with any covenant or condition of this Lease, including the covenant to pay rent, and it is judicially determined that Tenant has defaulted in performing or complying with any such covenant or condition, then and in such event, Tenant shall pay to Landlord all costs and expenses incurred by Landlord in bringing and prosecuting such action against Tenant, including a reasonable attorney's fee. (c) In the event Tenant fails to pay Landlord any ren- tal payment or other charge due hereunder within ten (10) days from the date on which any such payment was due, Landlord may, at its option, charge Tenant a late charge equal to five percent (5%) of the rental payment or other such charge, which late charge shall be collectible as additional rent and shall be payable by Tenant to Landlord within ten (10) days after written notice from Landlord to Tenant assessing the same. In addition, any such rental payment or other charge which is delinquent for ten (10) days or more, shall bear interest from the date on which same was due at the prime rate of interest then being charged by NationsBank to its most favored commercial customers. 14. Damage or Destruction. (a) If, during the Lease term, the premises hereby leased are damaged by fire or other casualty, but not to the extent that Tenant is prevented from carrying on business in the premises, Landlord shall promptly cause such damage to be repaired; if such damage renders a substantial portion of the premises untenantable, the rent reserved hereunder (except Tenant's share of any charges for water) shall be reduced during the period of its untenantability proportionately to the amount by which the area so rendered untenantable bears to the entire area leased hereunder, and such reduction shall be apportioned from the date of the casualty to the date when the leased premises are rendered fully tenantable. Notwithstanding the foregoing, in the event such fire or other casualty damages or destroys any of Tenant's leasehold improvements, alterations, betterments, fixtures or equipment, Tenant shall cause the same to be repaired or restored at Tenant's sole cost and expense and Landlord shall have no liability for the restoration or repair thereof. (b) If, during the Lease term, the premises or a substantial portion of the building in which the premises is situated are rendered wholly untenantable as the result of fire, the elements, unavoidable accident or other casualty, Landlord shall have the option either to restore the premises to their condition immediately prior to the casualty or to terminate this Lease, such option shall be exercised by Landlord by written notice to Tenant within thirty (30) days after the fire, accident or casualty. In the event of such termination, the rent reserved hereunder shall be adjusted as of the date of the fire, accident or casualty. If Landlord elects to restore the premises, such restoration shall be completed as promptly and reasonably as possible and the rent reserved hereunder shall abate until the premises are again rendered tenantable. In no event will the required improvement take more than one hundred twenty (120) days in which case Tenant's lease may be terminated. 15. Possession. In case possession of the premises, in whole or in part, cannot be given to Tenant on or before the commencement of the term of this Lease, Landlord agrees to abate the rent proportionately until possession is given to Tenant, and Tenant agrees to accept such pro rata abatement as liquidated damages for the failure to obtain possession on the commencement date herein specified. The parties hereto covenant and agree that if the term of this Lease commences on a date other than the date herein specified, they will, upon the request of either of them, execute an agreement in recordable form setting forth the new commencement and termination dates of the Lease term. Under no circumstances shall Landlord be under any liability for failure to deliver possession of the premises to Tenant on the date herein specified. In the event Landlord's improvements are not completed within one hundred twenty (120) days of the anticipated commencement, Tenant may terminate the Lease. 16. Exterior of Premises - Signs. (a) Tenant covenants and agrees that it will not place or permit any sign, billboard, marquee, lights, awning, poles, placard, advertising matter, or other thing of any kind, in or about the exterior of the premises or the building in which the premises are situate, nor paint or make any change in, to or on the exterior of said premises to change the uniform architecture, paint or appearance of the building, without in each such instance obtaining the prior written consent of Landlord. In the event such consent is given, Tenant agrees to pay any minor privilege or other tax arising as a result of any such installation immediately when due. Tenant shall obtain, at Tenant's expense, all permits required for such installation. Tenant further agrees to maintain any sign, billboard, marquee, awning, decoration, placard, or advertising matter or other thing of any kind as may be approved by Landlord in good condition and repair at all times. Landlord has attached a copy of Landlord's sign criteria as Exhibit "B". (b) Tenant further covenants and agrees not to pile or place anything on the sidewalk, parking lot or other exterior portion of the premises or building or in the front, rear or sides of the building, nor block the sidewalk, parking lot or other exterior portion of the premises or building, nor do anything that directly or indirectly will interfere with any of the rights of ingress or egress or of light from any other tenant, nor do anything which will, in any way, change the uniform and general design of any property of Landlord in which the premises are situate. In the event this Lease covers all or substantially all of an entire building, Tenant agrees to keep all sidewalks, steps and porches free and clear of ice, snow and debris. 17. Relocation. Landlord reserves the right at its option and at Landlord's sole cost and expense (including all moving expenses of Tenant) to relocate the premises hereby leased to another area within the building or group of buildings in which the premises hereby leased is located provided such new location shall be comparable to the premises hereby leased or to comparable space in another location and provided Landlord gives Tenant thirty (30) days prior written notice of such relocation. 18. For Rent/Sale Signs. Landlord shall have the right to for six (6) months prior to termination of this Lease, show the premises and all parts thereof to prospective tenants between the hours of 9:00 a.m. and 5:00 p.m. on any day except Sunday or any legal holiday on which Tenant shall not be open for business. Whenever possible, Landlord will provide Tenant with prior written notice. 19. Water and Other Damage. Landlord shall not be liable for, and Landlord is hereby released and relieved from, all claims and demands of any kind by reason of or resulting from damage or injury to person or property of Tenant or any other party, directly or indirectly caused by (a) dampness, water, rain or snow, in any part of the premises or in any part of any other property of Landlord or of others, and/or (b) falling plaster, steam, gas, electricity, or any leak or break in any part of the premises or from any pipes, appliances or plumbing or from sewers or the street or subsurface or from any other place or any part of any other property of Landlord or of others or in the pipes of the plumbing or heating facilities thereof. 20. Right of Entry. Landlord and its agents, servants, employees, including any builder or contractor employed by Landlord, shall have the absolute and unconditional right, license and permission, at any and all reasonable times, to enter and inspect the premises or any part thereof, and at the option of Landlord, to make such reasonable repairs and/or changes in the premises as Landlord may deem necessary or proper and/or to enforce and carry out any provision of this Lease. Landlord agrees to enter the premises during normal business hours, and provide prior notice when possible and in non-emergency situations. 21. Termination of Term. (a) It is agreed that the term of this Lease shall expire and terminate at the end of the original term hereof (or at the expiration of the last renewal term, if this Lease contains a renewal option and the same is properly exercised), without the necessity of any notice by or to any of the parties hereto, unless otherwise provided herein. If Tenant shall occupy the premises after such expiration or termination, it is understood that Tenant shall hold the premises as a tenant from month-to-month, subject to all the other terms and conditions of this Lease, at an amount equal to double the highest monthly rental installment reserved in this Lease. Landlord shall, upon such expiration or termination of this Lease, be entitled to the benefit of all public general or local laws relating to the speedy recovery of possession of lands and tenements held over by Tenants that may be now in force or may hereafter be enacted. (b) At the time Tenant surrenders the premises to Landlord, the premises shall be in compliance with all applicable building code requirements insofar as such requirements relate to Tenant's use and occupancy of the premises or to any installations, alterations or improvements made by Tenant thereto. 22. Condemnation. (a) If, during the term of this Lease, all or a substantial part of the premises shall be taken by or under power of eminent domain, this Lease shall terminate as of, and the rent (basic and additional) shall be apportioned to and abate from and after, the date of taking. Tenant shall have no right to participate in any award or damages for such taking and hereby assigns all of its right, title and interest therein to Landlord. For the purposes of this paragraph, "a substantial part of the premises" shall mean such part that the remainder thereof is rendered inadequate for Tenant's business and that such remainder cannot practicably be repaired and improved so as to be rendered adequate to permit Tenant to carry on its business with substantially the same efficiency as before the taking. (b) If, during the Lease term, less than a substantial part of the premises (as hereinabove defined) is taken by or under power of eminent domain, this Lease shall remain in full force and effect according to its terms; and Tenant shall not have the right to participate in any award or damages for such taking and Tenant hereby assigns all of its right, title and interest in and to the award to Landlord. In such event Landlord shall, at its expense, promptly make such repairs and improvements as shall be necessary to make the remainder 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; provided that in no event shall Landlord be required to expend an amount in excess of the award received by Landlord for such taking. If, as a result of such taking, any part of the premises is rendered permanently unusable, the basic annual rent reserved hereunder shall be reduced in such amount as may be fair and reasonable, which amount shall not exceed the proportion which the area so taken or made unusable bears to the total area which was usable by Tenant prior to the taking. If the taking does not render any part of the premises unusable, there shall be no abatement of rent. (c) For purposes of this section, "taking" shall include a negotiated sale or lease and transfer of possession to a condemning authority under bona fide threat of condemnation for public use, and Landlord alone shall have the right to negotiate with the condemning authority and conduct and settle all litiga- tion connected with the condemnation. As hereinabove used, the words "award or damages" shall, in the event of such sale or settlement, include the purchase or settlement price. (d) Nothing herein shall be deemed to prevent Tenant from claiming and receiving from the condemning authority, if legally payable, compensation for the taking of Tenant's own tangible property and such amount as may be payable by statute or ordinance toward Tenant's damages for Tenant's loss of business, removal and relocation expenses. 23. Subordination. Tenant covenants and agrees that all of Tenant's rights hereunder are and shall be subject and subordinate to the lien of any first mortgage hereafter placed on the leased premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any first mortgage. Such subordination shall be automatic, without the execution of any further subordination agreement by Tenant. If, however, a written subordination agreement, consistent with this provision, is required by a mortgagee, Tenant agrees to execute, acknowledge and deliver the same. Landlord agrees to provide Tenant with a Lender approved non-disturbance agreement. 24. Landlord's Right to Perform Tenant's Covenants. If Tenant shall fail to perform any covenant or duty required of it by this Lease or by law, Landlord shall have the right (but not the obligation) to perform the same, and if necessary to enter the premises for such purposes without notice. The reasonable cost thereof to Landlord shall be deemed to be additional rent hereunder payable by Tenant, and Landlord shall have the same rights and remedies with respect to such additional rent as Landlord has with respect to the rental reserved hereunder. 25. Attornment. (a) If Landlord assigns this Lease or the rents hereunder to a creditor as security for a debt, Tenant shall, after notice of such assignment and upon demand by Landlord or the assignee, pay all sums thereafter becoming due Landlord hereunder both to Landlord and such assignee. Tenant shall also, upon receipt of such notice, have all policies of insurance required hereunder endorsed so as to protect the assignee's interest as it may appear and shall deliver such policies, or certificates thereof, to the assignee. (b) If, at any time during the term of this Lease, the Landlord of the leased premises shall be the holder of a leasehold estate covering premises which include the leased premises, and if such leasehold shall terminate or be terminated for any reason, or if, at any time during the term of Lease a mortgage to which this Lease is subordinate shall be foreclosed, Tenant agrees at the election and upon demand of any owner of the premises which include the leased premises, or of any mortgagee in possession thereof, or of any holder of a leasehold thereafter affecting premises which include the leased premises, or of any purchaser at foreclosure, to attorn, from time to time, to any such owner, mortgagee, holder or purchaser upon the terms and conditions set forth herein for the remainder of the term demised in this Lease. Provided however, that Tenant shall not be obligated to attorn unless, if Tenant shall so request in writing, such holder, owner, mortgagee or purchaser shall execute and deliver to Tenant an instrument wherein said holder, owner, mortgagee or purchaser agrees that so long as Tenant performs all the terms, covenants and conditions of this Lease, on Tenant's part to be performed, Tenant's possession under the provisions of this Lease shall not be disturbed by such holder, owner, mortgagee or purchaser. (c) The foregoing provisions shall inure to the benefit of any such owner, mortgagee, holder or purchaser and shall apply notwithstanding that this Lease may terminate upon the termination of any such leasehold estate or upon such foreclosure, and shall be self-operative upon any such demand, without requiring any further instrument to give effect to such provisions. Tenant, however upon demand of any such owner, mortgagee, holder or purchaser, agrees to execute, from time to time an instrument in confirmation of the foregoing provisions, satisfactory to any such owner, mortgagee, holder or purchaser, in which Tenant shall acknowledge such attornment and set forth herein and shall apply for the remainder of the term originally demised in this Lease. 26. Non-Waiver of Future Enforcement. The receipt of rent by Landlord, with knowledge of any breach of this Lease by Tenant or of any default on the part of Tenant in the observance or per- formance of any of the conditions or covenants of this Lease, shall not be deemed to be a waiver of any provisions of this Lease. No failure on the part of Landlord or of the Tenant to enforce any covenant or provision herein contained nor any waiver of any right hereunder by Landlord or Tenant, shall discharge or invalidate such covenant or provision or affect the right of Landlord or Tenant to enforce the same in the event of any subsequent default. The receipt by Landlord of any rent or any sum of money or any other consideration hereunder paid by Tenant after the termination, in any manner, of the term herein demised, or after the giving by Landlord of any notice hereunder to effect such termination, shall not reinstate, continue or extend the term herein demised, or destroy, or in any manner impair the efficacy of any such notice of termination as may have been given hereunder by Landlord to Tenant prior to the receipt of any such sum of money or other consideration, unless so agreed to in writing and signed by Landlord. Neither acceptance of the keys nor any other act or thing done by Landlord or any agent or employee during the term herein demised shall be deemed to be an acceptance of a surrender of said premises, excepting only an agreement in writing signed by Landlord accepting or agreeing to accept such surrender. 27. Personal Property Taxes. Tenant shall be responsible for and shall pay any taxes or assessments levied or assessed during the term of this Lease against any leasehold interest of Tenant or personal property or trade fixtures of Tenant of any kind, owned by Tenant or placed in, upon or about the premises by Tenant. 28. Recordation of Lease. Tenant agrees that it will, upon Landlord's request, and Landlord agrees that it will upon Tenant's request, execute a Memorandum of the Lease in a form suitable for recording under applicable Maryland law. The party recording such Memorandum of Lease shall pay all costs of recordation, including transfer taxes and documentary stamp taxes hereon. 29. Notices. Any notice required by this Lease shall be sent by certified mail or by a recognized overnight delivery service such as Federal Express with a receipt by addressee to Landlord at: 2066 Lord Baltimore Drive, Baltimore, Maryland 21244. Any notice required by this Lease shall be sent by certified mail to Tenant at: 2200 Kensington Court, Oak Brook, Illinois 60521 OR George Harris (708) 990-6666 Emergency if no other address specified, such notices to Tenant shall be addressed to the leased premises. Either party may, at any time, or from time to time, designate in writing a substitute address for that above set forth, and thereafter all notices to such party shall be sent by certified mail to such substitute address. 30. Waiver of Jury Trial. THE LANDLORD AND THE TENANT WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, COUNTERCLAIM, OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS WAIVER APPLIES TO ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS AND PROCEEDINGS, INCLUDING PARTIES WHO ARE NOT PARTIES TO THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE TENANT AND THE TENANT ACKNOWLEDGES THAT NEITHER THE LANDLORD, NOR ANY PERSON ACTING ON BEHALF OF THE LANDLORD, HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS EVIDENCE OF THIS FACT SIGNS ITS INITIALS. __________________________ (initials of tenant) 31. Severability. If any terms, clause or provision of this Lease is declared invalid by a court of competent jurisdiction, the vali- dity of the remainder of this Lease shall not be affected thereby but shall remain in full force and effect. 32. Non-Waiver. It is understood and agreed that nothing herein shall be construed to be a waiver of any of the terms, covenants or conditions herein contained, unless the same shall be in writing, signed by the party to be charged with such waiver and no waiver of the breach of any covenant herein shall be construed as a waiver of such covenant or any subsequent breach thereof. No mention in this Lease of any specific right or remedy shall preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may be otherwise entitled either at law or in equity. 33. Successors and Assigns. Except as herein provided, this Lease and the covenants and conditions herein contained shall inure to the benefit of and be binding upon Tenant, its successors and assigns, and shall inure to the benefit of Tenant and only such assignees of Tenant to whom an assignment by Tenant has been consented to in writing by Landlord. In the event more than one person, firm or corporation is named herein as Tenant, the liability of all parties named herein as Tenant shall be joint and several. In the event Landlord's interest under this Lease is transferred or assigned and written notice thereof is given to Tenant, the Landlord herein named (or any subsequent assignee or transferee of Landlord's interest under this Lease who gives such notice to Tenant) shall automatically be relieved and released from and after the date of such transfer or conveyance from all liability hereunder. Further, Tenant specifically agrees to look solely to Landlord's interest in the building for the recovery of any judgment from Landlord, it being agreed that Landlord shall never be personally liable for any such judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest or any other action not involving the personal liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the building or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. 34. Security Deposit. Landlord hereby acknowledges receipt from Tenant of the sum of_______N/A_____________($___N/A____) which sum represents a security deposit for the faithful performance of Tenant's obligations under this Lease. Tenant agrees that Landlord shall have the right, but not the obligation, in its sole discretion and without notice to Tenant to apply said security deposit or any portion thereof to cure or remedy any default by Tenant hereunder, including default in payment of rent. If Landlord so applies the security deposit or any portion thereof Tenant shall, upon demand, immediately reimburse Landlord for the portion of the security deposit so applied; and any failure of Tenant to do so within five (5) days after Landlord's demand therefor shall constitute an event of default hereunder. Said sum, if not sooner applied, shall be returned to Tenant, without interest, within thirty (30) days after vacating of the premises by Tenant and termination of this Lease (or upon termination of the last renewal term of this Lease if this Lease contains a renewal and Tenant exercises said option); provided (i) Tenant is not then in default under any of the provisions of this Lease; (ii) there is no damage to the premises beyond ordinary wear and tear and the premises have been left in a clean condition and in good order with all debris, rubbish and trash placed in proper containers; (iii) all keys to the premises have been returned to the Landlord; and (iv) Tenant's forwarding address has been left with Landlord. Tenant further agrees that Landlord shall be entitled to commingle said security deposit with its own funds. Tenant further agrees that a mortgagee or holder of a deed of trust on the premises hereby leased and/or a mortgagee or trust holder thereof in possession of said premises and/or a purchase of said premises at a foreclosure sale shall not have any liability to Tenant for Tenant's security deposit. 35. Notices to Mortgagee. Tenant agrees that a copy of any notice of default from Tenant to Landlord shall also be sent to the holder of any mortgage or deed of trust on the premises; provided Tenant has been given written notice of the fact that such mortgage or deed of trust has been made; and Tenant shall allow said mortgagee or holder of the deed of trust a reasonable time, not to exceed ninety (90) days from the receipt of said notice, to cure, or cause to be cured, any such default. If such default cannot reasonably be cured within the time specified herein, then such additional time as may be necessary shall be allowed, provided the curing of such default is commenced and diligently pursued (including, but not limited to, commencement of foreclosure proceedings if necessary to effect such cure) in which event this Lease shall not be terminated while such remedies are being thus diligently pursued. 36. Estoppel Certificate. Tenant shall, at any time and from time to time during the term of this Lease or any renewal thereof, upon request of Landlord, execute, acknowledge, and deliver to Landlord or its designee, a statement in writing, certifying that this Lease is unmodified and in full force and effect if such is the fact (or if there have been any modifications thereof, that the same is in full force as modified and stating the modifications), the dates to which the rents and other charges have been paid in advance, if any, and any defaults or claimed defaults by Landlord. Any such statement delivered pursuant to this paragraph may be relied upon by any prospective purchaser of the estate of Landlord or by the mortgagee or any assignee of any mortgagee or the trustee or beneficiary of any deed of trust constituting a lien on the premises or upon property in which the premises are situate. 37. Environmental Provisions. (a) Tenant and its successors and assigns shall use and operate the building, the property and the leased premises, respectively, at all times during the term hereof, under and in compliance with the laws of the State of Maryland and in compliance with all applicable Environmental Legal Requirements. "Environmental Legal Requirements" shall mean any applicable law relating to public health, safety or the environment, including, without limitation, relating to releases, discharges or omissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls ("PCB's") or asbestos, or asbestos containing products, to the disposal, treatment, storage or management of solid or other hazardous or harmful wastes or to exposure to toxic, hazardous or other harmful materials (collectively "Hazardous Substances") to the handling, transportation, discharge or release of gaseous or liquid substance and any regulation or final order or directive issues pursuant to such statute or ordinance, in each case applicable to the premises, the building or its operation, construction or modification, including without limitation the following: the Clean Air Act, the Federal Water Pollution Control Act ("FWPCA"), the Safe Drinking Water Act, the Toxic Substances Control Act, the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Solid and Hazardous Waste Amendments of 1984 ("RCRA"), the Occupational Safety and Health Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Solid Waste Disposal Act, and any state statutes addressing similar matters, and any state statute providing for financial responsibility for clean-up or other actions with respect to the release or threatened release of any of the above-referenced substances. (b) Tenant hereby 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 (i) 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 Legal Requirements and (ii) within fifteen (15) days after written demand therefor, reimburse Landlord for any amounts expended by Landlord to comply with any Environmental Requirements with respect to the premises or 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 attorneys' fees, fines or other penalty payments. (c) For purposes of this provision, Tenant shall be presumptively deemed to have violated the Environmental Legal Requirements if (i) any notice or order is directed to either Landlord or Tenant by any governmental agency, body, or court alleging that such violation has occurred; or (ii) if Landlord obtains and delivers to Tenant a report prepared by an engineer or other party engaged in the business of testing or determining the existence of Hazardous Substances, which report states that there are Hazardous Substances used, stored or placed upon the premises. In the event Tenant is deemed to have violated any of the Environmental Legal Requirements as set forth in the preceding sentence, then Tenant shall have a reasonable period of time to cure such violation, which need not exceed sixty (60) days. If Tenant fails to cure such violation, then Landlord shall have the right and option, after fifteen (15) days prior written notice to Tenant, to terminate this lease by written notice thereof to Tenant, in which event Landlord shall retain all rights and remedies, and Tenant shall be subject to all liabilities, set forth in Article 13 of this lease notwithstanding such termination. (d) 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 for the purpose of determining whether Tenant, its agents, employees, contractors or invitees, has violated any of the provisions of this Section. (e) As of the lease date the premises is in compliance with environmental legal requirements, and the Landlord agrees to indemnify the tenant for any liability for non-compliance or pre-existing conditions that occurred prior to lease commencement. 38. Captions. The captions of the various sections of this Lease are for convenience only and are not a part of this Lease. Such captions shall not be construed to define or limit any of the provisions of this Lease. 39. Lender's Approval. It is understood and agreed that this Lease and the obligations of the parties hereunder are subject to written approval of Landlord's lender, and that this Lease is not binding upon either Landlord or Tenant unless Landlord receives such written approval from Landlord's lender. Landlord will advise Tenant promptly upon its receipt of approval or disapproval from Landlord's lender. In the event Tenant has not been notified within five (5) days of lease execution of lender's consent, the lease will be deemed by Landlord and Tenant to have been approved by Lender. 40. Final and Entire Agreement. This Lease contains the final and entire agreement between the parties hereto, and neither they nor their agents shall be bound by any terms, conditions or representations not herein written. 41. Tenant Representative. The name, address and telephone number of Tenant's representative to be contacted in event of emergency: Andrew Moriarity, George Harris 42. Additional Rent. All sums of money required to be paid by Tenant to Landlord pursuant to the terms of this Lease, unless otherwise specified herein, shall be considered additional rent and shall be collectible by Landlord as additional rent, in accordance with the terms of this Lease. Nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder or to limit any other remedy of Landlord. 43. Landlord's Work. The Tenant space is to be provided in an "as-is" condition except for the following items to be performed by Landlord at Landlord's cost: A. Replace existing dock doors that are in poor condition. B. Install sixteen (16) new dock doors. C. Remove the existing office with the exception of what is shown on the attached plan. D. Install a security fence around the entire property with a card accessed gate for access after dark. E. Clean and seal the warehouse floor. AS WITNESS the hands and seals of the parties hereto the date and year first above written. WITNESS: LEROY M. MERRITT BY: THE MERRITT OPERATIONS CORPORATION, AGENT __________________________ __________________________(SEAL) LANDLORD WITNESS: ACE HARDWARE CORPORATION __________________________ __________________________(SEAL) TENANT RENEWAL OPTION RIDER TO LEASE BETWEEN LEROY M. MERRITT, LANDLORD AND ACE HARDWARE CORPORATION, TENANT. THE FOLLOWING NEW SECTION 44 IS HEREBY ADDED TO THE ATTACHED LEASE: 44. Renewal Options. If Tenant is not then in default under this Lease or any of the provisions hereof, Tenant may extend the term of this Lease for one (1) additional successive period of two (2) years each, by notifying Landlord in writing of its intention to do so at least one hundred eighty (180) days prior to the expiration of the then current term. Each such renewal term shall be under the same terms and conditions as are herein set forth except that the annual rental for each succeeding renewal term shall be as follows: (a) REDACTED Dollars payable in equal monthly installments of REDACTED Dollars. All said rental shall be payable in advance in equal monthly installments on the 1st day of each month during said renewal term, without setoff or deduction. There shall be no additional right to renew or extend this Lease except as provided herein. AS WITNESS the hands and seals of the parties hereto simultaneously with the execution of the attached Lease. WITNESS: LEROY M. MERRITT BY: THE MERRITT OPERATIONS CORPORATION, AGENT ________________________ BY:______________________(SEAL) TITLE:______________________ Landlord WITNESS: ACE HARDWARE CORPORATION ________________________ BY:______________________(SEAL) TITLE:______________________ Tenant TABLE OF CONTENTS FOR LEASE BETWEEN LEROY M. MERRITT, LANDLORD AND ACE HARDWARE CORPORATION, TENANT. 1. Payment of Rental 1 2. Use 2 3. Utilities 2 4. Compliance with Laws 2 5. Assignment and Subletting 3 6. Loading Capacity 4 7. Increase in Landlord's Insurance Rates 4 8. Insurance - Indemnity 5 9. Alterations 8 10. Ownership of Alterations 9 11. Repairs and Maintenance 9 12. Tax and Insurance Escalation 11 13. Default 12 14. Damage or Destruction 15 15. Possession 16 16. Exterior of Premises - Signs 16 17. Relocation 17 18. For Rent/Sale Signs 17 19. Water and Other Damage 17 20. Right of Entry 18 21. Termination of Term 18 22. Condemnation 18 23. Subordination 20 24. Landlord's Right to Perform Tenant's Covenants 20 25. Attornment 20 26. Non-Waiver of Future Enforcement 22 27. Personal Property Taxes 22 28. Recordation of Lease 22 29. Notices 23 30. Waiver of Jury Trial 23 31. Severability 24 32. Non-Waiver 24 33. Successors and Assigns 24 34. Security Deposit 25 35. Notices to Mortgagee 26 36. Estoppel Certificate 27 37. Environmental Provisions 27 38. Captions 29 39. Lender's Approval 29 40. Final and Entire Agreement 29 41. Tenant Representative 29 42. Additional Rent 29 43. Landlord's Work 30 44. Renewal Options 31 THIS FIRST AMENDATORY LEASE AGREEMENT made this 21st day of February, 1995, by and between LEROY M. MERRITT, (hereinafter called "Landlord") and ACE HARDWARE CORPORATION, (hereinafter called "Tenant"). EXPLANATORY STATEMENT By lease (hereinafter called the "Lease") dated February 9, 1995, Landlord leased to Tenant, and the latter rented from the former, certain premises within the building known as 2601-2653 Merchant Drive, Baltimore, MD 21230. The parties desire to amend the Lease as hereinafter set forth. NOW, THEREFORE, AND IN CONSIDERATION of the mutual covenants and agreement herein contained, the parties hereto hereby covenant and agree as follows: 1. Tenant will hereby lease an additional 30,150 square feet located at 2626 West Patapsco Avenue for a period of two (2) months, commencing February 17, 1995. 2. The rent for the premises will be REDACTED Dollars per month. 3. Except as herein provided, the Lease shall remain unchanged and in full force and effect. IN WITNESSETH WHEREOF, the parties hereto have executed the within Amendatory Lease Agreement as of the day and year first above written. WITNESS: ACE HARDWARE CORPORATION ________________________ BY:____________________ (SEAL) Tenant ATTEST: LEROY M. MERRITT BY: MERRITT OPERATIONS CORPORATION, AGENT ________________________ BY:____________________ (SEAL) Landlord SECOND AMENDATORY LEASE AGREEMENT THIS SECOND AMENDATORY LEASE AGREEMENT, made this day of , 1995, by and between LEROY M. MERRITT ("Landlord"), and ACE HARDWARE CORPORATION ("Tenant"). EXPLANATORY STATEMENT By Lease dated February 9, 1995, Landlord leased to Tenant, and Tenant rented from Landlord, certain premises within the building known as 2601-2653 Merchant Drive, Baltimore, Maryland 21230, which premises are more specifically set forth in Exhibit A to said February 9, 1995 Lease (the "Premises"); By First Amendatory Lease Agreement, dated February 21, 1995, Landlord and Tenant amended the terms and conditions of the February 9, 1995 Lease, as more specifically set forth in said First Amendatory Lease Agreement (the February 9, 1995 Lease and the First Amendatory Lease Agreement are hereinafter collectively referred to as the "Lease"); The parties hereto desire to modify the Lease as hereinafter set forth. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, of the good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. Alteration to Premises. Upon the full execution of this Agreement, Landlord shall, at Landlord's expense, install twenty- one (21) edges of docks and twenty-one (21) dock seals at and upon the Premises, at a total cost of REDACTED Dollars. 2. Additional Dock Rental. Commencing August 1, 1995, and on the first day of the succeeding thirty-one (31) remaining months of the term of the Lease, Tenant shall pay to Landlord, in addition to all Rent and Additional Rent to be paid by Tenant to Landlord pursuant to the terms and conditions of the Lease, an Additional Dock Rental payment of REDACTED Dollars. 3. Except as herein provided, all terms and conditions of the Lease shall remain unchanged and in full force and effect. [SIGNATURES ON NEXT PAGE] IN WITNESS WHEREOF, the parties have executed this Second Amendatory Lease Agreement under seal as of the day and year first written above. WITNESS/ATTEST: LEROY M. MERRITT By: Merritt Operations Corporation, Agent ________________________________ By:_____________________________ (SEAL) LANDLORD ACE HARDWARE CORPORATION ________________________________ By:_____________________________ (SEAL) TENANT EX-10 7 EX 10-A-15 - L/T INCENTIVE COMP OPT PLAN EXHIBIT 10-a-15 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 EX-10 8 EX 10-A-16 - DIRECTORS' DEFERRAL OPTION PLAN EXHIBIT 10-a-16 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 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 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. Section 3.2 is the only Section affected by this Amendment. Ace Hardware Corporation By: David F. Hodnik Its: President and Chief Executive Officer EX-10 9 EX 10-A-17 - OFFICER EMPLOYMENT AGREEMENT EXHIBIT 10-a-17 EMPLOYMENT AGREEMENT This Employment Agreement made and entered into this ___ day of __________, 1995 by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter referred to as the "Employer", and ________________, hereinafter referred to as the "Executive"; W I T N E S S E T H : Whereas the Executive is now employed by the Employer and the Employer and Executive desire to enter into an Agreement to provide for the continuation of the services of the Executive for the Employer for a term of years to the extent and upon the terms and conditions hereinafter set forth; Now, therefore, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: l. Employment. The Employer hereby employs the Executive as an executive officer of the Employer holding such specific office or offices during the term of this Agreement to which she has been appointed by the Employer or is hereafter elected by the Board of Directors of the Employer, and the Executive hereby accepts such employment upon the terms and conditions hereinafter set forth. The duties and responsibilities of the Executive shall include those duties and responsibilities assigned to the office or offices held by her under the Employer's By-laws and its practices and procedures, together with such additional duties as may reasonably be assigned to her from time to time by the President or the Board of Directors of the Employer. If, during the term of this Agreement, the Executive shall become eligible to be elected or appointed as a director of the Employer, then, in the event that she is elected or appointed as such a director, the Executive shall serve in such capacity without additional compensation during the remainder of the term of this Agreement. 2. Term of Agreement. The initial term of this Agreement shall begin on January 1, 1996 and shall terminate on December 31, 1997, unless the Agreement shall have been terminated earlier by reason of the Executive's resignation, death, retirement or termination for cause pursuant to Section 4. hereof or by reason of a determination made pursuant to Section 9. hereof. Provided the Executive is actively employed by the Employer as of the last day of the initial term hereof, the Agreement shall automatically be extended for an additional term of one (l) year following the expiration of the initial term unless either the Employer or the Executive shall have delivered written notice to the other party hereto not less than sixty (60) days prior to December 31, 1997 of its or her intention to terminate the Agreement at the end of the initial term, in which case the Agreement shall not be extended beyond December 31, 1997. 3. Employer's Alternative Option to Re-offer Same Agreement. In lieu of either allowing this Agreement to be extended for an additional one-year term beyond December 31, 1997 or exercising its right not to extend the Agreement for such an additional one-year term, the Employer shall have the additional option of offering to the Executive a new Employment Agreement to be effective as of January 1, 1998 which shall contain all of the same terms and conditions as this Agreement except for a provision comparable to this Section 3. and for those modifications which would be required with respect to the then current salary of the Executive and the dates or years to be designated in such new Agreement. In order to exercise such option, the Employer shall deliver written notice to the Executive of the Employer's intention to offer her such new Employment Agreement not less than sixty (60) days prior to December 31, 1997. With such notice the Employer shall tender to the Executive two (2) copies of such new agreement duly executed on behalf of the Employer. In the event that the Executive does not return to the Employer one (l) copy of said new agreement executed by the Executive by December 31, 1997, the Employer's offer of such new agreement shall be deemed null and void. Any decision on the part of the Employer to offer such new agreement to the Executive, as well as any decision on the part of the Employer not to allow this Agreement to be extended for an additional term of one (1) year as provided for in Section 2. above, shall be made only by the Board of Directors of the Employer. 4. Termination for Cause. The Employer may dismiss the Executive from its employment and terminate this Agreement at any time for cause, which shall consist of (a) theft, fraud, or embezzlement, or conviction of any felony; or (b) the giving away or selling of any trade secrets belonging to the Employer or of any information, plans or records acquired or compiled by the Executive, or furnished to her by Employer, in conjunction with her employment hereunder for use in Employer's business, provided that such activity results in a proven detriment to the Employer, and provided further that this provision shall not apply to information, plans and records which are otherwise available to competitors of Employer or to members of the public. In the event of any such termination of this Agreement for cause, payment to the Executive of whatever portion of the Executive's salary which shall have accrued to her to the date of such termination shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall also constitute a full and complete discharge of any and all claims which she might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of such termination for the payment by Employer of compensation to her or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 5. Compensation. For all services rendered by the Executive under this Agreement, the Employer agrees to pay to the Executive a salary of ________________________________ Dollars ($_________.00) per year, or such increased amount, if any, as shall be approved by the Board of Directors of the Employer pursuant to the annual review procedure. Such salary shall be paid to the Employee in semi-monthly installments, or in such other manner as shall be mutually agreed upon by the Employer and the Executive. The Employer further agrees to review the salary of the Executive hereunder at a meeting of the Board of Directors of the Employer during the year 1996 with respect to the amount of such salary to be paid to the Executive in 1997. In the event that this Agreement is extended for one (1) year beyond December 31, 1997, the Employer agrees to further review said salary at a meeting of the Board of Directors of the Employer in 1997 with respect to the amount thereof to be paid to the Executive in the year 1998. The Executive shall be paid such increased salary, if any, as the Employer's Board of Directors shall deem to be appropriate after the completion of each salary review made by the Board. Notwithstanding anything herein to the contrary, the Employer's contractual obligation for the payment of compensation hereunder shall be suspended during any period Executive is receiving income continuation benefits, including, but not limited to, short or long-term disability benefits, under any Employer-sponsored plan. 6. Limitation on Outside Business Activities. The Executive shall devote her entire business time, attention and energies to the business of the Employer, and shall not, during the term of this Agreement, be engaged in any other business activity, whether or not such business activity is pursued for gain, profit or other pecuniary advantage, except that the Executive may devote a reasonable portion of her time during business hours to professional, civic, community or charitable activities, and, with the approval of the President of the Employer, to service as a director of other corporations and to other types of activities not expressly mentioned herein. 7. Vacations. The Executive shall be granted during each calendar year a vacation consisting of such number of weeks as she would be entitled to during each such year in accordance with the vacation policy established by the Employer for its executive officer employees. 8. Nondisclosure of Confidential Information. It is understood and agreed that the method and system of business used and developed by the Employer involves marketing programs, pricing procedures, operational procedures, training procedures, information concerning retailers supplied by the Employer, lists of vendors to the Employer, and other confidential information and/or trade secrets of the Employer, and that the Executive, by virtue of her employment hereunder, necessarily has and will become acquainted with such confidential information and/or trade secrets. It is further understood and agreed that the business and customers of the Employer extend throughout the fifty (50) States of the United States and its territorial possessions, the District of Columbia, and several foreign countries located in various parts of the world. Accordingly, the Executive agrees to treat as confidential and to use only for the advancement of the interests of the Employer all such information and/or trade secrets belonging to the Employer and all information, plans and records submitted to her by the Employer or acquired or compiled by her from time to time in the course of her employment by the Employer for use in the Employer's business which she knows to have been received by her in confidence or which she knows would not otherwise be available to competitors of the Employer or to members of the public and, as a further specific condition of her employment hereunder, and in further consideration thereof, the Executive covenants and agrees that she will not, at any time during the term of this Agreement or after its termination divulge to any person, firm or corporation engaged anywhere in any line of business which is directly or indirectly competitive with any line of business engaged in by the Employer any such confidential information or trade secrets. In the event of a breach or threatened breach of the provisions of this Section of this Agreement which conflicts with or would conflict with the interests of the Employer and which results in or would result in a detriment to the Employer, the Employer shall be entitled to an injunction restraining the Executive from so disclosing any such trade secrets or confidential information. Nothing contained herein shall be construed as prohibiting the Employer from pursuing any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Executive. 9. Termination for Physical or Mental Incapacity or Alcohol or Narcotics Addiction. Notwithstanding any other provision herein contained, the Employer may, at its option, terminate this Agreement at any time after it shall have been determined by competent medical authority that the Executive has become physically or mentally incapacitated or has become addicted to the use of alcohol or narcotics to such an extent that she is prevented by reason of such physical disability, mental incapacity, or addiction from properly carrying on her duties hereunder; provided, however, that the foregoing shall not be construed to relieve the Employer of any obligations it would otherwise have under the Americans with Disabilities Act of 1990 or other applicable Illinois statutes to the extent the same are not preempted thereby. In the event of any such termination of this Agreement, the Executive shall be paid whatever portion of her salary shall have accrued to her to the date of such termination, together with such amount, if any, as shall equal the amount of salary which otherwise would have been paid to her during any accrued vacation time not utilized by her, and the payment to the Executive of such salary and such accrued vacation pay shall be deemed to constitute payment in full for all compensation due to the Executive hereunder and shall further constitute a full and complete discharge of any and all claims which she might otherwise have or purport to have hereunder with respect to any period subsequent to the effective date of the termination of her employment pursuant to this Section 9. for the payment by Employer of compensation to her or for the payment by Employer after such date of the cost of any additional benefits provided by Employer for the Executive. 10. Non-Competition with Employer upon Voluntary Termination of Employment. As a further specific condition of her employment by the Employer hereunder and in further consideration of such employment, the Executive agrees that, for a period of one (1) year following any voluntary termination by the Executive of her employment hereunder at any time prior to the last day of the term for which she would otherwise be employed under this Agreement, she will not, in any State or territory of the United States of America or the District of Columbia in which the Employer has franchise or other regular customer relationships with retailers at the time of such termination of the Executive's employment (a) become associated, by way of employment or any other type of arrangement, in any business activities of any other person, firm or corporation which are in competition with any business activities carried on by the Employer or (b) become engaged on her own behalf or for her own account in any such business activity or in the conduct of a consulting or advisory service for any such business activity carried on by any other person, firm or corporation. The Employer and the Executive recognize that the laws and public policies of the various States of the United States and its territories and the District of Columbia may differ as to the validity and enforceability of agreements similar to those contained in this Section 10. It is the intention of the Employer and the Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of the State of Illinois, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision or provisions hereof shall not render unenforceable or impair the validity of the remainder of this Agreement. Accordingly, if any provision of this Agreement shall be determined to be invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provisions and to alter the balance of this Agreement in order to render the same valid and enforceable to the fullest extent permissible as aforesaid. 11. Application to Subsidiaries of Employer. Any employment of the Executive by any wholly-owned subsidiary of the Employer and any services performed by the Executive for any such subsidiary during the term hereof (including, but not limited to, services in the capacity of an officer or director of any such subsidiary) shall be deemed to be included within the scope of the Executive's employment hereunder and, unless separate compensation of the Executive for the services performed by her for any such subsidiary shall have been expressly authorized by the Board of Directors of such subsidiary, the compensation paid to the Executive pursuant to Section 5. hereof shall be deemed to constitute the total compensation payable to the Executive for the services performed by her for both the Employer and any such subsidiary. The terms "Employer", "Employer's business", "line of business engaged in by the Employer", and "business activities carried on by the Employer" as used in Sections 8. and 10. hereof shall include any subsidiary of the Employer, the business of or lines of business engaged in by any such subsidiary, and all business activities carried on by any such subsidiary. 12. Separation Allowance Payments. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the same shall not constitute a breach of this Agreement; however, in such event, the Employer shall continue to pay to the Executive on the regular dates for payment thereof the salary which would accrue for her under this Agreement if her employment had been continued until the last day of the then current term of this Agreement. In addition, if any such termination of employment by the Employer for a reason not specified in Sections 4. and 9. hereof becomes effective during the final six (6) months of the then current term of this Agreement, the Employer shall further pay to the Executive following the end of such term a separation allowance in a total amount equal to the amount of salary which would have continued to accrue for her if her employment hereunder had continued beyond the end of such term until a total of six (6) months has elapsed from the effective date of such termination of her employment. Such separation allowance shall be paid to the Executive in equal installments on the same dates that the Executive would have received payments of salary if her employment had continued for such period of time. It is the intention of the parties that, by reason of the foregoing provisions, the Executive shall in all events receive payments for a period of six (6) months beyond the effective date of termination of her employment by the Employer during the final six (6) months of the then current term of this Agreement for any reason not specified in Sections 4. and 9. hereof, which payments shall consist of the regular salary payments which would accrue for the Executive until the end of the then current term of this Agreement plus such number of separation allowance payments thereafter as shall be required in order to insure that payments of salary or of amounts equivalent thereto are received by the Executive for such total period of six (6) months subsequent to such termination of her employment. The non-competition provisions set forth in Section 10. of this Agreement shall also be applicable to the Executive's right to receive separation allowance payments under this Section 12. and, effective with respect to any such payment which would otherwise become due and payable to the Executive on or after the Executive's commencement of employment in, or other engagement in, any type of business activity described in Section 10., the Employer shall have no obligation to make any such separation allowance payments to the Executive. Notwithstanding anything herein to the contrary, the Employer's obligation to make Separation Allowance Payments hereunder shall terminate upon the death of the Executive and such Separation Allowance Payments as would have otherwise been payable hereunder except for the death of the Executive shall be forfeited. l3. Outplacement Agency Services. In the event that the Employer determines to terminate the Executive's employment for other than the reasons specified in Sections 4. and 9. of this Agreement effective as of any date while this Agreement is in effect, the Employer shall make available to the Executive, at the Employer's expense, the services of a recognized outplacement agency selected by the Employer for the purpose of aiding the Executive in seeking other employment. l4. Amendments. Any of the terms and provisions of this Agreement may, from time to time, be altered or amended by mutual agreement of the parties hereto, provided, however, that any such alteration or amendment shall be made in writing and shall be signed by both parties hereto. Any such writing shall be made a part of this Agreement as of the effective date specified in such writing. Any increase in salary granted to the Executive by the Employer pursuant to the salary review provisions of Section 5. of this Agreement shall not constitute an alteration or amendment of the Agreement requiring the signatures of both parties hereto, however, and this Agreement shall be deemed to have been amended with respect to any such salary increase by the adoption by the Board of Directors of the Employer of a resolution authorizing such increase and by the Executive's continuing thereafter to perform the services required of him hereunder. l5. Entire Agreement. This Agreement constitutes the entire agreement between the parties with reference to the employment of the Executive by the Employer and the compensation to be paid to the Executive for or with respect to such employment. All agreements, contracts, understandings or arrangements which may have been heretofore made or had with reference to the employment of the Executive by the Employer are hereby wholly abrogated, discharged and annulled, with the exception of any existing rights of the Executive under the Employer's Profit Sharing Plan, Pension Plan, Retirement Benefits Replacement Plan, Executive Supplemental Benefit Plans, Short-Term Incentive Plan, Long-Term Incentive Compensation Deferral Option Plan and other employee benefit plans now maintained by the Employer. The Employer further agrees that any new or improved benefits provided generally to or made generally available to the Employer's executive officer employees will be provided or made available on the same basis to the Executive. 16. Applicable Law. This Agreement and the construction, interpretation and enforcement of each of the provisions hereof shall be governed in all respects by the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ACE HARDWARE CORPORATION, a Delaware corporation EXECUTIVE By: __________________ ______________________ ________________________ (Seal) Attest: ______________________ (SEAL) Secretary EX-10 10 EX 10-A-18 - BENEFIT SECURITY TRUST AGREEMENT EXHIBIT 10-a-18 ACE HARDWARE CORPORATION EXECUTIVE BENEFIT SECURITY TRUST THIS TRUST AGREEMENT ( A AGREEMENT @ ) is made and entered into this 1st day of January 1995 by Ace Hardware Corporation, a Delaware corporation (the "Company"), and Harris Trust & Savings Bank, and its successor or successors and assigns in the trust hereby evidenced, as trustee (the "Trustee"), WITNESSETH: WHEREAS, the Company has adopted the Ace Hardware Corporation Long-Term Incentive Compensation Deferral Option Plan and the Ace Hardware Corporation Directors' Deferral Option Plan (the "Plans") for the benefit of a select group of management and/or highly compensated employees and directors of the Company; and WHEREAS, the Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; and WHEREAS, the Company wishes to establish a trust (hereinafter called the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to participants of the Plans and their beneficiaries in such manner and at such times as specified in the Plans; and WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees and directors for purposes of Title I of the Employee Retirement Income Security Act of 1974; and WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: ARTICLE I INTRODUCTION 1.01 The Trust, the Plans , Participants. This Agreement and the Trust hereby evidenced shall be known as the "Ace Hardware Corporation Executive Benefit Security Trust." The Trust is established for the benefit of employees and directors of the Company who are or become covered under the Plans and their beneficiaries, as determined in accordance with the provisions of the Plans, which employees, directors and beneficiaries are referred to as "Participants." However, the Participants shall not have any right or security interest in any specific asset of the Trust or beneficial ownership in or preferred claim on the assets of the Trust, it being understood that the assets of the Trust shall be available for the claims of the Company's creditors as provided in Article V and all rights created under the Plans or the Trust shall be unsecured contractual rights against the Company. 1.02 Status of Trust. The Trust is intended to constitute a grantor trust under Sections 671-678 of the Internal Revenue Code, as amended, and shall be construed accordingly. (a) Company hereby deposits with Trustee in trust $100, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Agreement. At any time or from time to time thereafter the Company may deliver to the Trustee additional funds or other property to be held, invested and distributed by the Trustee in accordance with the provisions of this Agreement. (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of the Participants and general creditors as herein set forth. Participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Agreement shall be mere unsecured contractual rights of Participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in paragraph 5.01 herein. 1.03 Acceptance. The Trustee accepts the duties and obligations of the Trustee hereunder, agrees to accept delivery of property delivered to it by the Company pursuant to paragraph 1.02, and agrees to hold such property (and any proceeds from the investment of such property) in trust in accordance with this Agreement. 1.04 The Committee. The committee that is responsible for the administration of the Plans is the Committee appointed to administer the Plans pursuant to Article VI of the Plans. The Committee has certain powers, rights and duties under this Agreement as described below. An officer of the Company will certify to the Trustee from time to time the person or persons who are acting as the members of the Committee or who have been delegated the authority to act on behalf of the Committee. The Trustee may rely on the latest certificate received without further inquiry or verification. ARTICLE II MANAGEMENT OF THE TRUST FUND 2.01 The Trust Fund. Unless the context clearly implies or indicates otherwise, the term "Trust Fund" as of any date means all property of every kind then held under this Agreement by the Trustee or any custodian. 2.02 Trustee's General Powers, Rights and Duties. With respect to the Trust Fund and subject only to the limitations expressly provided in this Agreement (including the powers reserved to the Committee or imposed by applicable law), the Trustee shall have the following powers, rights and duties in addition to those vested in it elsewhere in this Agreement or by law: (a) When directed by the Committee, to invest and reinvest part or all of the Trust Fund in any real or personal property (including investments in any stocks, bonds, debentures, mutual fund shares, notes, commercial paper, treasury bills, any common, commingled or collective trust funds or pooled investment funds described in paragraph 2.03, any interest bearing deposits held by any bank or similar financial institution, and any other real or personal property). (b) When directed by the Committee, to apply for, pay premiums on and maintain in force on the lives of some or all of the Participants individual, group term, universal or other life insurance policies ("Policies" or "Policy") to fund benefits under the Plans for Participants on whose lives the Policies are issued and containing such provisions as the Committee may approve or direct; to receive or acquire such a Policy from the Company or from the Participant on whose life the Policy is issued, but the Trustee may purchase a Policy only if the Trustee pays, transfers or otherwise exchanges for the Policy no more than the cash surrender value of the Policy and the Policy is not subject to a mortgage or similar lien which the Trustee would be required to assume; and to have with respect to Policies any rights, powers, options, privileges and benefits usually comprised in the term "incidents of ownership" and normally vested in an insured or owner of such Policies. (c) To retain in cash such amounts as the Trustee considers advisable and as are permitted by applicable law and to deposit any cash so retained in any depository (including any bank acting as Trustee) which the Trustee may select. (d) To manage, sell, insure and otherwise deal with all real and personal property held by the Trustee on such terms and conditions as the Trustee shall decide. (e) To vote stock and other voting securities personally or by proxy, to exercise subscription, conversion and other rights and options, to take any action and to abstain from taking any action with respect to any reorganization, consolidation, merger, dissolution, recapitalization, refinancing and any other program or change affecting any property constituting a part of the Trust Fund, to hold or register any property from time to time in the Trustee's name or in the name of a nominee or to hold it unregistered or in such form that title shall pass by delivery and, with the approval of the Committee, to borrow from anyone, including any bank acting as Trustee, to the extent permitted by law, such amounts from time to time as the Trustee considers desirable to carry out this Trust (and to mortgage or pledge all or part of the Trust Fund as security). (f) To make payments from the Trust Fund to provide benefits that have become payable under the Plans pursuant to paragraph 4.05 or that are required to be made to the creditors of the Company pursuant to paragraph 5.02. (g) To maintain in the Trustee's discretion any litigation the Trustee considers necessary in connection with the Trust Fund. (h) To withhold, if the Trustee considers it advisable, all or any part of any payment required to be made hereunder as may be necessary and proper to protect the Trustee or the Trust Fund against any liability or claim on account of any estate, inheritance, income or other tax or assessment attributable to any amount payable hereunder, and to discharge any such liability with any part or all of such payment so withheld, provided that at least ten (10) days prior to discharging any such liability with any amount so withheld the Trustee shall notify the Committee in writing of the Trustee's intent to do so. (i) To maintain records reflecting all receipts and payments under this Agreement and such other records as the Committee specifies and the Trustee agrees to, which records may be audited from time to time by the Committee or anyone named by the Committee. (j) To furnish periodic accounts to the Committee for such periods as the Committee may specify, showing all investments, receipts, disbursements and other transactions involving the Trust during the applicable period. (k) To furnish the Company with such information in the Trustee's possession as the Company may need for tax or other purposes. (l) To employ agents, attorneys, accountants, and other persons (who also may be employed by the Company or the Committee), to delegate discretionary powers to such persons, to reasonably rely upon information and advice furnished by such persons; provided that each such delegation and the acceptance thereof by each such person shall be in writing; and provided further that the Trustee may not delegate its responsibilities as to the management or control of the assets of the Trust Fund. (m) To perform all other acts which in the Trustee's judgment are appropriate for the proper management, investment and distribution of the Trust Fund. (n) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. (o) Notwithstanding any powers granted to the Trustee pursuant to this Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. 2.03 Collective Investment Trusts. The Trustee may invest Trust assets in any common, collective or commingled trust fund or pooled investment fund that is maintained by a bank or trust company (including a bank or trust company acting as Trustee) provided such investments are consistent with the investment guidelines agreed to in writing by the Company and the Trustee. To the extent that any Trust assets are invested in any such fund, the provisions of the documents under which such common, collective or commingled trust fund or pooled investment fund are maintained shall govern any investments therein and such provisions are hereby incorporated herein and made a part of this Agreement. ARTICLE III MANNER OF ACTION OF THE COMMITTEE The Committee members may act by meeting, or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. Any written action in lieu of a meeting must be by unanimous consent of all disinterested members. An action of a majority of disinterested members at a meeting of the Committee shall be effective as if taken on or made by all Committee members. If a member of the Committee is a Participant, he/she may not decide or determine any matter or questions concerning any payments to be made to him/her from the Trust that he/she would not have the right to decide or determine if he/she were not a member of the Committee. ARTICLE IV GENERAL PROVISIONS 4.01 Restrictions on Reversion. The Company shall not have any right, title or interest in the assets of the Trust Fund, nor will any part of the assets of the Trust Fund revert or be repaid to the Company until all benefits due under the Plans have been paid pursuant to the terms of the Plans and in accordance with the provisions of paragraph 4.05, except as follows: (a) The assets of the Trust shall be available for the claims of the Company's creditors under the circumstances specified in Article V; (b) If the Company ceases to maintain the Plans, any balance remaining in the Trust after all benefits have been paid pursuant to the terms of the Plans and in accordance with the provisions of paragraph 4.05 shall revert to the Company; (c) Except in the event of a Change of Control (as defined below), upon the written request of the Committee at any time, the Trustee shall repay to the Company any excess assets (as defined below) in the Trust, provided that the Committee furnishes to the Trustee a certified statement of an independent actuary as to the then value of vested accrued benefits (as defined below) under the Plans. For these purposes, "excess assets" means any amount by which the sum of the cash surrender value of Policies held in the Trust and the fair market value of all other assets in the Trust, as determined by the Trustee, exceeds 110 percent (110%) of the value of vested accrued benefits under the Plans. For purposes of this Trust, "vested accrued benefits" shall mean the sum of (i) all Deferred Benefit Accounts (as defined in the Plans) of Participants, including interest credited at the Retirement Interest Yield (as defined in the Plans), and (ii) the present value of all other projected benefit obligations under the Plans. In the event of a "Change of Control", no assets of the Trust Fund shall revert or be repaid to the Company, under any circumstances, until all benefits due under the Plans have been paid pursuant to the terms of the Plans and in accordance with the provisions of paragraph 4.05. For purposes of this Trust, a "Change of Control" shall mean the sale of the Company or substantially all of its assets, in any form whatsoever, including merger, consolidation, or other reorganization or the sale of a substantial portion of the Company or its assets or any substantial change in ownership of the outstanding shares of stock of the Company or which the Company, in its sole discretion, determines to be a change in control under this paragraph. 4.02 Nonalienation of Trust Assets. To the extent permitted by law, the rights or interests of any Participants to any benefits or future payments hereunder shall not be subject to attachment, garnishment, levy, execution or other legal or equitable process by any creditor of any such Participant, nor shall any such Participant have any right to alienate, anticipate, commute, pledge, encumber or assign (either at law or in equity) any of the benefits or rights which he/she may expect to receive (contingently or otherwise) under this Agreement, except as may be required by the tax withholding provisions of the Internal Revenue Code or of a state's income tax act. 4.03 Litigation. Any final judgment that is not appealed or appealable and which may be entered in any action or proceeding regarding this Trust shall be binding and conclusive on the parties hereto and all persons having or claiming to have an interest in the Trust. If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 4.04 Trustee's Actions Conclusive. Except as otherwise provided by law, the Trustee's exercise or non-exercise of its powers and discretion in good faith shall be conclusive on all persons. No one shall be obliged to see to the application of any money paid or property delivered to the Trustee. The certificate of the Trustee that it is acting in accordance with this Agreement will fully protect all persons dealing with the Trustee. If there is a disagreement between the Trustee and anyone as to any act or transaction reported in any accounting, the Trustee shall have the right to a settlement of its account by any proper court. 4.05 Benefit Payments. The Committee from time to time shall direct the Trustee in writing to make distributions of benefits from the Trust Fund that have become payable, but that have not been paid by the Company, under the Plans to Participants, including the amount and manner of payment of any such benefit. If a payment required under the terms of the Plans has not been made to a Participant (whether due to the failure of the Committee to notify the Trustee as required by this paragraph or otherwise), then the Participant may notify the Trustee in writing of the amount (or a reasonable estimate of the amount) owed to him/her pursuant to the Plans, and the date or dates such amount was due and payable. The Trustee shall notify the Committee and the Company within fifteen (15) calendar days of the receipt of such payment request. If the Committee or the Company does not provide the Trustee with a certified statement from either an independent actuary or from any other independent party agreed to by the Trustee, the Committee and the Participant, as to the proper amount due and payable to the Participant within thirty (30) days of the date the Trustee notified the Committee and the Company of the payment request, the Trustee shall make the payment or payments requested by the Participant from the Trust Fund and may conclusively rely on such payment or payments being the appropriate amount. The Trustee shall also notify the Committee and the Company of any such payments. Payment shall be made to a Participant from the Trust Fund in accordance with the terms of the Plans until the earlier of: (i) all benefit commitments due the Participant under the Plans as requested by the Participant in his/her notification to the Trustee, have been satisfied; or (ii) the Committee or the Company provide a certified statement as described above. If a certified statement is so provided, appropriate adjustment, if any, in the amount paid and to be paid to the Participant shall be made. The Trustee shall be fully protected in acting without Committee direction under this paragraph and shall be indemnified and saved harmless as provided in paragraph 4.08. The Trustee shall make such distributions from the Trust Fund in accordance with the provisions of this paragraph 4.05, subject to the provisions of Article V. If Trust assets are not sufficient to pay the benefits from the Plans, the Company shall make the balance of each such payment when due. 4.06 Missing Persons. If any payment directed to be made by the Trustee from the Trust Fund is not claimed by the person entitled thereto, the Trustee shall notify the Committee of that fact. Neither the Company, the Committee nor the Trustee shall have any obligation to search for or ascertain the whereabouts of any payee under this Trust. 4.07 Liabilities Mutually Exclusive. To the extent permitted by law, the Company, the Trustee, the Committee and each member thereof shall be responsible only for their own acts or omissions. 4.08 Indemnification. To the extent permitted by law, neither the Trustee, any present or former Committee member, nor any person who is or was a director, officer, or employee of the Company, shall be personally liable for any act done, or omitted to be done, in good faith in the administration of this Trust. Any person to whom the Committee or the Company has delegated any portion of its responsibilities under the Trust, any person who is or was a director or officer of the Company, members and former members of the Committee, and each of them, shall, to the extent permitted by law, be indemnified and saved harmless by the Company (to the extent not indemnified or saved harmless under any liability insurance or other indemnification arrangement with respect to this Trust) from and against any and all liability or claim of liability to which they may be subjected by reason of any act done or omitted to be done in good faith in connection with the administration of the Trust or the investment of the Trust Fund, including all expenses reasonably incurred in their defense if the Company fails to provide such defense after having been requested to do so in writing. The Trustee shall be indemnified and saved harmless by the Company (to the extent not indemnified or saved harmless under any liability insurance or other indemnification arrangement with respect to this Trust) only with respect to liability or claim of liability to which the Trustee shall be subjected by reason of its good faith compliance with any directions given in accordance with the provisions of the Trust by the Committee including all expenses reasonably incurred in the Trustee's defense if the Company fails to provide such defense after having been requested to do so in writing. 4.09 Compensation and Expenses. All reasonable costs, charges and expenses incurred by the Trustee pursuant to subparagraph 2.02(g) shall be paid from the Trust Fund to the extent not paid by the Company, and all other reasonable compensation, costs, charges and expenses incurred in the administration of this Trust, as agreed upon between the Committee and the Trustee, will, to the extent not paid by the Company be paid from the Trust Fund; provided that expenses incurred in connection with the sale, investment and reinvestment of the Trust Fund (such as brokerage, postage, express and insurance charges and transfer taxes) shall be paid from the Trust Fund. 4.10 Action by the Company. Any action with respect to this Trust required or permitted to be taken by the Company shall be by resolution of its Board of Directors, by a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 4.11 Warranty. The Company warrants that all directions or authorizations by the Committee, whether for the payment of money or otherwise, will comply with the provisions of the Plans and this Trust. 4.12 Evidence. Evidence required of anyone under this Agreement shall be signed, made or presented by the proper party or parties and may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable. 4.13 Waiver of Notice. Any notice required under this Agreement may be waived by the person entitled to such notice. 4.14 Counterparts. This Agreement may be executed in two or more counterparts, any one of which will be an original without reference to the others. 4.15 Gender and Number. Where the context admits, words denoting the masculine gender shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. 4.16 Scope of this Agreement. The Plans and this Trust will be binding on all persons entitled to benefits hereunder and their respective heirs and legal representatives, and upon the Company, the Committee, the Trustee, and their successors and assigns. 4.17 Severability. If any provision of this Agreement is held to be illegal or invalid, such illegality or invalidity shall not affect the remaining provisions of this Agreement, and they shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 4.18 Statutory References. Any references in this Agreement to a section of the Internal Revenue Code shall include any comparable section or sections of any future legislation that amends, supplements or supersedes that section. 4.19 Applicable Law. The Trust shall be construed in accordance with the laws of the State of Illinois. ARTICLE V INSOLVENCY 5.01 Insolvency. The Company shall be considered "Insolvent" for purposes of this Trust if the Company's debts are not paid as they mature or if its affairs become the subject of reorganization or liquidation proceedings as a debtor under federal bankruptcy laws. 5.02 Payments During Insolvency. At all times during the existence of this Trust, assets and rights of the Trust shall be subject to the claims of the Company's general creditors. Therefore, if the Trustee knows that the Company is Insolvent (as defined in paragraph 5.01), the Trustee shall discontinue benefit payments that otherwise would be paid and will deliver or otherwise make available assets of the Trust to satisfy the claims of the Company's creditors as directed by a court of competent jurisdiction. If the Company becomes Insolvent, its Board of Directors and its President shall have the duty to promptly inform the Trustee of the Company's Insolvency. The Committee shall have the same duty if and when it becomes aware that the Company has become Insolvent or upon an inquiry of the Company's solvency by the Trustee. Participants shall not be granted greater rights to the Trust Fund by virtue of their rights under the Plans than other general creditors of the Company, but no provision of the Trust shall diminish the rights of a Participant to pursue his/her rights as a general creditor of the Company with respect to any benefits he/she is entitled to under the Plans, or otherwise. The Trustee shall resume payments of benefits in accordance with the Plans after the Trustee has been notified by the Board of Directors or the President that the Company is no longer Insolvent. 5.03 Trustee's Reliance. Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that the Company is Insolvent, Trustee shall have no duty to inquire whether the Company is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency. ARTICLE VI STATEMENT AND ACCOUNTS OF THE TRUSTEE 6.01 The Trustee shall maintain accurate and detailed records and accounts of all investments, receipts, disbursements and other transactions under this Agreement. All accounts, books, and records of the Trustee under this Agreement shall be open at all reasonable times to inspection and audit by any person designated by the Company. 6.02 Within sixty (60) days following the close of (i) the date of the removal or resignation of the Trustee or (ii) the close of other periods agreed on by the Trustee and the Company, the Trustee shall file with the Company a written account setting forth a description of all securities and other property purchased and sold, all liabilities incurred, all receipts, disbursements and other transactions effected by it during such period, at their cost and fair market values, and all incurred but unpaid liabilities as of the end of such period. Special reports and accounts shall be provided by the Trustee to the Company on a periodic basis as is mutually agreeable. 6.03 The Company shall review such written accounts within 120 days after receipt. Such accounting shall be deemed approved, and the Trustee shall be released and discharged, as to all items set forth in such account except with respect to any such acts or transactions as to which the Company shall within such 120 day period file written objections with the Trustee. ARTICLE VII RESIGNATION OR REMOVAL OF TRUSTEE 7.01 Resignation or Removal of Trustee. The Trustee may resign at any time by giving thirty (30) days advance written notice to the Company and the Committee. The Committee may remove a Trustee by giving written notice to the Trustee and the Company provided that such removal shall not become effective until the time immediately preceding the appointment of a successor Trustee pursuant to paragraph 7.02. 7.02 Successor Trustees. In the event of the resignation or removal of the Trustee, a successor Trustee shall be appointed by the Committee in writing as soon as practicable. Written notice of such appointment shall be given by the Committee to the Company and the predecessor Trustee. 7.03 Duties of Predecessor Trustee and Successor Trustee. A Trustee that resigns or is removed shall promptly furnish to the Committee and the successor Trustee a final account of its administration of the Trust. A successor Trustee shall succeed to the right and title of the predecessor Trustee in the assets of the Trust Fund and, within thirty (30) days after notice of resignation or removal is given, the predecessor Trustee shall deliver the property comprising the Trust Fund to the successor Trustee together with any instruments of transfer, conveyance, assignment and further assurances as the successor Trustee may reasonably require. Each successor Trustee shall have all the powers, rights and duties conferred by this Agreement as if named the initial Trustee. Subject to applicable law, no successor Trustee shall be personally liable for any act or failure to act of a predecessor Trustee. ARTICLE VIII AMENDMENT AND TERMINATION 8.01 Amendment. This Trust may be amended from time to time by the Company, except as follows: (a) The duties and liabilities of the Committee and the Trustee under this Agreement cannot be changed substantially without their consent. (b) Under no condition shall any amendment result in the return or repayment to the Company of any portion of the Trust Fund or the income therefrom except to the extent permitted under paragraph 4.01, or result in the distribution of the Trust Fund for any purposes other than payment of obligations of the Company to its creditors, including Participants. (c) This Trust may not be amended so as to cause the reduction or cessation of any benefits a Participant would receive under the terms of the Plans nor may the Trust be amended to make the Trust revocable. 8.02 Termination. This Trust shall not terminate, and all the rights, titles, powers, duties, discretions and immunities on or reserved to the Trustee, the Company and the Committee shall continue in effect with respect to the Trust, until all benefits payable to Participants under the Plans have been paid and all assets have been distributed by the Trustee under the Trust and the Plans. Notwithstanding any other provision of this Trust, the Trust shall terminate one day prior to the expiration of a period of twenty-one (21) years after the death of the last to die of employees or directors of the Company who are Participants in the Plans on the day and year first above written. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company. IN WITNESS WHEREOF, the Company and the Trustee have caused this Agreement to be executed on their behalf and by their respective officers thereunto duly authorized, the day and year first above written. ACE HARDWARE CORPORATION ATTEST/WITNESS: GARY HUNT By DAVID F. HODNIK Its President & COO Harris Trust & Savings Bank ATTEST/WITNESS: IRENE DEMEUR by HOLLY S. HEEP Its Vice-President EX-23 11 EX 23-A - INDEPENDENT AUDITORS' CONSENT EXHIBIT 23(a) Consent of Independent Auditors The Board of Directors Ace Hardware Corporation: We consent to the use of our report included herein and to the reference to our firm under the heading "Opinions of Experts" in the Prospectus. KPMG Peat Marwick LLP Chicago, Illinois March 8, 1996 EX-24 12 EX 24 - POWER OF ATTORNEY EXHIBIT 24 ACE HARDWARE CORPORATION: POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors of ACE HARDWARE CORPORATION, a Delaware corporation, hereby constitutes and appoints DAVID F. HODNIK and RITA D. KAHLE, and each of them, his true and lawful attorneys-in-fact and agents, each with full power to act without the other, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Post-Effective Amendment No. 1 to the Registration Statement on Form S-2, and any and all amendments thereto, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has set his or her hand and seal as of this 11th day of March, 1996. JENNIFER C. ANDERSON RAY W. OSBORNE Jennifer C. Anderson Ray W. Osborne LAWRENCE R. BOWMAN ROGER E. PETERSON Lawrence R. Bowman Roger E. Peterson MARK JERONIMUS JON R. WEISS Mark Jeronimus Jon R. Weiss HOWARD J. JUNG DON S. WILLIAMS Howard J. Jung Don S. Williams JOHN E. KINGREY JAMES R. WILLIAMS, JR. John E. Kingrey James R. Williams, Jr. RICHARD E. LASKOWSKI Richard E. Laskowski EX-27 13 ART 5 FDS FOR YEAR ENDING DEC-31-1995
5 This schedule contains summary financial information extracted from SEC Form S-2 and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1995 DEC-31-1995 12,853 0 288,488 1,410 254,451 563,706 327,793 136,289 759,133 429,352 0 215,727 0 0 515 759,133 2,436,012 2,436,012 2,252,125 109,522 0 0 13,137 65,136 1,394 63,742 0 0 0 63,742 0 0
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