-----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, PrUcHm4Ntkj3/UM4aJTreCmOnFXiUYBwPqSlSEh/2vbWkizhioWamtVsv4hrpBBF icF0/f3cz76lHsfWmwr1wg== 0000950137-03-001639.txt : 20030321 0000950137-03-001639.hdr.sgml : 20030321 20030321172754 ACCESSION NUMBER: 0000950137-03-001639 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSERV CORP CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-LUMBER, PLYWOOD, MILLWORK & WOOD PANELS [5031] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-18397 FILM NUMBER: 03612891 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631-3505 BUSINESS PHONE: 7736955000 MAIL ADDRESS: STREET 1: 8600 W. BRYN MAWR AVENUE CITY: CHICAGO STATE: IL ZIP: 60631-3505 FORMER COMPANY: FORMER CONFORMED NAME: COTTER & CO DATE OF NAME CHANGE: 19920703 10-K 1 c75265e10vk.txt ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO ------------------------ COMMISSION FILE NUMBER 2-20910 TRUSERV CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 36-2099896 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
8600 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631-3505 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 695-5000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X. NO__. INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K (SEC.229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE ACT). YES __. NO X. STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY HELD BY NON-AFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE COMMON EQUITY WAS LAST SOLD, OR THE AVERAGE BID AND ASKED PRICE OF SUCH COMMON EQUITY, AS OF THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLY COMPLETED SECOND FISCAL QUARTER. There is no public market for Registrant's Class A and Class B common stock. The Registrant's Class A common stock is offered by the Registrant in units of 60 shares each, exclusively to retailers of hardware and related merchandise, in connection with their becoming members of the Registrant. The Class B common stock is issued as part of the patronage dividend to members of the Registrant. The terms of the Class A and Class B common stock limit its transferability. The Class B common has no voting rights. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Outstanding at February 22, 2003 Class ----------------- Class A common stock, $100 Par Value................ 475,020 Class B common stock, $100 Par Value................ 1,756,457
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PAGE PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 13 Item 3. Legal Proceedings........................................... 15 Item 4. Submission of Matters to a Vote of Security Holders......... 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 18 Item 6. Selected Financial Data..................................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 20 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 35 Item 8. Financial Statements and Supplementary Data................. 36 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................... 36 PART III Item 10. Directors and Executive Officers of the Registrant.......... 36 Item 11. Executive Compensation...................................... 38 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 44 Item 13. Certain Relationships and Related Transactions.............. 44 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 44
PART I THIS ANNUAL REPORT AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT'S EXPECTATIONS, ESTIMATES AND ASSUMPTIONS. THE FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS ARE NOT GUARANTIES OF FUTURE PERFORMANCE AND INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT ARE DIFFICULT TO PREDICT. THEREFORE, ACTUAL FUTURE RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM WHAT WE FORECAST DUE TO A VARIETY OF FACTORS, INCLUDING WITHOUT LIMITATION, OUR ASSUMPTIONS ABOUT FINANCING REQUIREMENTS AND TERMS, INTEREST RATE FUNCTIONS, CAPITAL REQUIREMENTS OF TRUSERV AND TRENDS IN OUR INDUSTRY. ITEM 1. BUSINESS. ($ IN THOUSANDS -- EXCEPT PER SHARE INFORMATION) THE COMPANY TruServ Corporation was organized as Cotter & Company, a Delaware corporation, in 1953. Upon its organization, it succeeded to the business of Cotter & Company, an Illinois corporation organized in 1948. On July 1, 1997, Cotter & Company merged with ServiStar Coast to Coast Corporation ("SCC"). SCC was a hardware wholesaler incorporated in 1935, under the name American Hardware Supply Company, with a strong presence in retail lumber and building materials. Following the merger, Cotter & Company was renamed TruServ Corporation. TruServ's main executive offices are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631-3505. Its main telephone number is (773) 695-5000. Its web page address is www.truserv.com. The merger united two similar organizations under the name of TruServ Corporation, creating one of the largest hardware/home center cooperatives in the United States. The goals were to: (i) lower pricing for the members by increasing buying power, (ii) increase potential for rebates by combining vendor purchases, and (iii) better leverage operating expenses by consolidating distribution centers and reducing duplicate corporate overhead costs. In fiscal year 2000, TruServ sold its lumber and building materials business, consisting primarily of intangibles and inventory, to Builder Marts of America, Inc. ("BMA"). TruServ concluded that BMA would be able to provide lumber and building materials to TruServ members at lower cost. The lumber and building materials business had been a low-margin business for TruServ. In connection with the sale of the lumber and building materials business to BMA, TruServ entered into non-compete, cooperation, trademark license and lease agreements with BMA. The terms of these agreements range from two to ten years. In fiscal year 2001, TruServ sold its ownership interest in TruServ Canada Cooperative, Inc. along with the headquarters and warehouse building and other parcels of real estate in Winnipeg, Manitoba to the current member group of the cooperative. The proceeds received enabled TruServ to recover its capital investment in the Canadian cooperative as well as the appraised value of the real estate and to retire all indebtedness relating to Canadian activities. In connection with the transaction, TruServ revised and extended a license agreement with the Canadian cooperative to enable it and its members to continue to do business under the principal TruServ trademarks. In addition, TruServ continues to provide True Value paints and supplies to the Canadian cooperative. On December 31, 2002, TruServ completed a sale leaseback transaction of seven of its distribution centers. The sale generated net proceeds of $121,438, which were used to pay down the revolving credit facility, senior notes and synthetic lease obligation (the "Senior Debt"), all of whom are parties to the intercreditor agreement. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment on senior notes. The facilities are being leased back by TruServ under three 20-year lease agreements that each contain, at TruServ's option, two extension periods on the lease. See "Properties -- Sale Leaseback Transaction." The proceeds from the sale will help TruServ reduce outstanding Senior Debt less make-whole notes to below $270,000 at June 30, 2003. See "Business -- Financing Agreements" below. 1 GENERAL DESCRIPTION OF THE BUSINESS TruServ, organized as a cooperative, is one of the largest member-owned wholesalers of hardware and related merchandise in the United States, serving approximately 6,600 retail and industrial distribution outlets for its members as of December 31, 2002. TruServ also manufactures and sells paint and paint applicators. TruServ sells its products to hardware retailers, industrial distributors and rental retailers who have entered into retail member agreements with it. TruServ serves its members by principally functioning as a low cost distributor of goods and maximizing its volume purchasing abilities, primarily through vendor rebates and discount programs, for the benefit of its members. These benefits are passed along to its members in the form of lower prices and/or patronage dividends. TruServ also provides to its members value-added services such as marketing, advertising, merchandising, and store location and design services. Generally, members are entitled to use one of certain TruServ trademarks and trade names, including the federally registered True Value(R), Grand Rental Station(R), Taylor Rental(R), Party Central(R), Home & Garden Showplace(R) and Induserve Supply(R) trademarks, service marks and collective membership marks. See "Trademarks, Service Marks and Collective Membership Marks" below. Members have access to certain TruServ private label products and when there are annual profits they are entitled to receive annual patronage dividends based upon their purchases from TruServ. In accordance with TruServ's By-Laws and the Retail Member Agreements, the annual patronage dividend is paid to members out of the gross margins from operations and other patronage source income, after deduction for expenses, reserves and other provisions as may be authorized by the board of directors. See "Distribution of Patronage Dividends" below. As of December 31, 2002, TruServ serves approximately 6,600 retail and industrial distribution outlets for its members throughout the United States and in 51 other countries. Primary concentrations of members exist in New York (approximately 9%), Pennsylvania (approximately 7%), California and Texas (approximately 5% each), Illinois, Michigan and New Jersey (approximately 4% each) and Massachusetts, Minnesota, Ohio, Washington and Wisconsin (approximately 3% each). SALES AND SUPPLIERS TruServ provides each of its members with an illustrated price catalog showing the products available from TruServ, which the members can access through the member Internet site. Upon request, a member will also receive a printed version of the catalog. These products, comprised of more than 62,000 stockkeeping units ("SKUs") maintained at TruServ's distribution centers, are divided into seven categories of merchandise. In addition to purchasing products which are maintained at the distribution centers, members can purchase additional SKUs directly from TruServ approved vendors and have those purchases drop shipped directly to them, but have the product billed through TruServ. Collectively, these products represent the products sold by TruServ's two operating segments in 2002 and three operating segments in 2001 and 2000. See Note 11, "Segment Information" to the Consolidated Financial Statements beginning at page F-1 for additional segment information. 2 The seven product categories (eight product categories through early 2001) are set forth in the following table, along with the corresponding dollars of total revenues for each category during the last three fiscal years:
FOR THE FISCAL YEARS ENDED DECEMBER 31, ------------------------------------ 2002 2001(2) 2000(2) ---------- ---------- ---------- ($ IN THOUSANDS) Hardware goods....................... $ 521,450 $ 608,903 $ 682,909 Farm and garden...................... 443,062 514,233 579,375 Electrical and plumbing.............. 385,853 441,259 496,828 Painting and cleaning................ 331,029 379,394 400,386 Appliances and housewares............ 247,786 285,855 322,623 Sporting goods and toys.............. 125,555 148,764 180,372 Other................................ 120,716 219,604 246,047 Lumber and building materials(1)..... -- 21,422 1,085,102 ---------- ---------- ---------- $2,175,451 $2,619,434 $3,993,642 ========== ========== ==========
- --------------- (1) The lumber business was sold on December 29, 2000. The revenue and cost of revenue from merchandise shipped and billed in fiscal year 2001, but negotiated prior to December 29, 2000, was recorded in TruServ's results of operations in fiscal year 2001. (2) The Canadian business was sold on October 22, 2001. Total sales from Canadian operations were $84,397 in 2001 and $109,009 in 2000 and such sales are reflected in the above amounts for each of the eight categories. TruServ's merchandise sales to its members are divided into three logistics categories, as follows: - warehouse shipment sales (approximately 65%, 63% and 41% of total sales for fiscal 2002, 2001 and 2000, respectively); - direct shipment sales (approximately 31%, 33% and 56% of total sales for fiscal 2002, 2001 and 2000, respectively); and - relay shipment sales (approximately 4%, 4%, and 3% of total sales for fiscal 2002, 2001 and 2000, respectively). The change in the mix between the three logistic categories is predominately due to the lumber business that was sold on December 29, 2000. All lumber business sales were generated through the direct shipment logistic category. Excluding lumber business transactions in 2000, the mix of sales would have been 60% warehouse shipment, 36% direct shipment and 4% relay shipment. Warehouse shipment sales are sales of products that are purchased, warehoused and resold by TruServ in response to orders from the members. Direct shipment sales are sales of products that are purchased through TruServ by the members but delivered directly to members from vendors and TruServ accepts the credit risk. Relay sales are sales of products that are purchased through TruServ in response to the requests of several members for a product that typically is: - to be included in future promotions, - seasonal in nature, - not normally held in inventory, and - not conducive to direct shipment. Generally, TruServ will give notice to all members of its intention to purchase products for relay shipment and will then purchase only as many items as the members order. When the product shipment arrives at TruServ, it is not warehoused; rather, TruServ breaks up the shipment and "relays" the appropriate quantities to the members who placed orders. 3 TruServ has numerous individual agreements with or commitments from its vendors, most of which are terminable by the vendors or TruServ without cause. These termination provisions, either individually or in the aggregate, have not had any material adverse effect on TruServ's ability to conduct its business. The goods and services purchased by TruServ from these suppliers are generally available from a wide variety of sources. TruServ is not dependent upon any one supplier or group of suppliers. TruServ also manufactures and sells paint and paint applicators. The principal raw materials used by TruServ in its paint manufacturing activities are chemicals. All raw materials are purchased from outside sources. In the past, TruServ has been able to obtain adequate sources of raw materials and other items used in production. TruServ does not currently anticipate shortages of materials that would materially impact its paint manufacturing operations. OTHER SERVICES TruServ annually sponsors two "markets", funded in part by vendors through booth fees, at which it features the products available for purchase by members, including new merchandise and seasonal items. The markets permit members and prospective members to keep better informed as to industry trends and the availability of merchandise including new and seasonal products. In the year 2003, one of the markets will be held in Atlanta, Georgia, and the other will be held in Las Vegas, Nevada. As the markets generate income and stimulate member purchases, the timing of markets impact the timing of sales and income recognition for TruServ. All members are invited to the markets and attending members generally place substantial orders for delivery of merchandise during the period between markets. BACKLOG As of February 22, 2003 and February 23, 2002, respectively, TruServ had a backlog of firm orders (including relay orders) of approximately $10,764 and $56,177. TruServ's backlog at any given time is made up of two principal components: - normal resupply orders; and - market orders for future delivery. Resupply orders are orders from members for merchandise to keep inventories at normal levels. Generally, such orders are filled the day following receipt, except that relay orders are for future delivery. Relay orders for future delivery are not intended to be filled for several months. Market orders for future delivery are member orders placed at one of TruServ's two markets for new or seasonal merchandise, to be delivered during the subsequent period between markets. Thus, TruServ generally has a relatively high backlog at the end of each market, which decreases in subsequent months until the next market occurs. The substantial decrease in backlog orders in 2003 relative to 2002 is due to the timing of the markets held in those two periods. In 2002, the spring market was held in early February but in 2003 it will not be held until late April. COMPETITION The retail hardware industry is characterized by intense competition. Independent retail hardware businesses, including those served by TruServ, face intense competition from chain stores, discount stores, home centers and warehouse operations such as Wal-Mart, Home Depot, Menards, Sears and Lowe's. Increased operating expenses for the retail stores, including increased costs due to longer store hours and higher retail occupancy costs, have cut into operating margins for members and brought pressure on TruServ to achieve lower merchandise costs for its members. In response, TruServ works with its members to drive profitability through operational improvement programs such as AIM (advanced inventory management) which focuses on assortments of fast turning products as well as retail programs which focus on areas such as pricing, merchandising, store design and signage. In addition, TruServ has introduced wholesale pricing strategies, Priced 2 Win(TM) and Connect 4 Profit(R), which are designed to improve retail competitiveness. The trueAdvantage(R) program was introduced in 1995 and was subsequently upgraded to promote higher retail 4 standards in order to build consumer goodwill and create a positive image for all member retail outlets. In 2002, TruServ changed the program to Store of First Choice(R) to focus on incentivizing members to adopt retail best practices. Competitive conditions in the wholesale hardware industry are similarly intense and increasing, particularly as a result of the intense pressure on hardware retailers to obtain low-cost wholesale supply sources for merchandise acquisition. TruServ competes with other member-owned and non-member-owned wholesalers as a source of supply and merchandising support for independent retailers. Competitive factors considered by independent retailers in choosing a source of supply include pricing, servicing capabilities, promotional support and merchandise selection, quality and patronage dividends. TruServ is concentrating on its supply channel strategies and practices for gaining sustainable competitive advantage. In several markets in the United States, TruServ competes directly with other member-owned wholesalers such as Ace Hardware Corporation and Do-it-Best Corporation. TRADEMARKS, SERVICE MARKS AND COLLECTIVE MEMBERSHIP MARKS TruServ's trademarks, service marks and collective membership marks are of prime importance to TruServ. Many of the marks are highly recognized and utilized in extensive advertising and marketing campaigns, and TruServ vigorously defends its marks. As of December 31, 2002, TruServ's members have approximately 6,600 retail and industrial distribution outlets that operate predominately as retail hardware stores, rental facilities, horticulture outlets as well as commercial and industrial distributors, throughout the United States and in 51 countries, most of which sell merchandise and services under the marks. The marks include the True Value(R) marks, the ServiStar(R) mark, the Coast to Coast(R) mark, the Induserve Supply(R) mark, the Party Central(R) mark, the Grand Rental Station(R) mark, the Taylor Rental(R) mark, the Home & Garden Showplace(R) mark and the Commercial Sales(R) mark. The marks also include E-Z Kare(R), Weatherall(R), and Easy Color(R) for paint. All of the marks are currently used in commerce and TruServ intends to use the marks in commerce in the future. Each of the marks is renewable at TruServ's option and TruServ intends to renew them upon expiration. Members have continued to conduct their businesses under the same retail banners as before the merger of Cotter and SCC; however, beginning in year 2000, many members with the retail banners of Coast to Coast(R) and ServiStar(R) started to conduct their business under the single retail banner of True Value(R). TruServ's marks also include Help is Just Around the Corner(R), Christmas is Just Around the Corner(R) and Summer is Just Around the Corner(R). EMPLOYEES As of December 31, 2002, TruServ employed approximately 3,200 persons in the United States on a full-time basis. Due to the widespread geographical distribution of TruServ's operations, employee relations are governed by the practices prevailing in the particular area where the employees are located and are generally implemented locally. Approximately 43% of TruServ's 2,400 hourly-wage employees are covered by collective bargaining agreements that are generally effective for periods of three or four years. In general, TruServ considers its relationship with its employees to be good. FINANCING AGREEMENTS On December 30, 2002, TruServ amended the Senior Debt agreements that had previously been amended in April 2002 in order to allow for a sale leaseback transaction that was completed on December 31, 2002 (the "December 2002 Amendments"). TruServ applied the net proceeds of the sale leaseback transaction, $121,438, to pay down the Senior Debt, all of whom are parties to the intercreditor agreement. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment of senior notes. The December 2002 Amendments mainly set preliminary financial covenants to allow for the substantial reduction in debt and the corresponding increase in rent payments resulting from the sale leaseback transaction. On March 13, 2003, TruServ amended the Senior Debt agreements that had previously been amended on December 30, 2002 (the "March 2003 Amendments"). The March 2003 Amendments primarily finalized the financial covenants resulting from the sale leaseback transaction and 5 extended the maturity date of the Hagerstown facility's synthetic lease obligation to the earlier of December 31, 2003 or a refinancing of the revolving credit facility. See Note 5, "Lease Commitments" and Note 16, "Subsequent Events" to the Consolidated Financial Statements beginning at page F-1. The Senior Debt agreements were previously amended on April 11, 2002 when TruServ entered into various amendments that eliminated the event of default created when TruServ failed to comply with a covenant as of February 24, 2001 (the "April 2002 Amendments"). The April 2002 Amendments to the revolving credit facility extended the term of the facility from June 2002 to June 2004. The amount of the commitment at the time of amendment was $200,000. The commitment under the revolving credit facility is permanently reduced by the amount of any prepayments allocated to and paid on the revolving credit facility. Borrowings under the revolving credit facility are subject to borrowing base limitations that fluctuate in part with the seasonality of the business. The borrowing base formula limits advances to the sum of 85% of eligible accounts receivable, 50% of eligible inventory, 60% of the appraised value of eligible real estate and 50% of the appraised value of eligible machinery and equipment; availability is further increased by seasonal over-advances and decreased by reserves against availability. The revolving credit facility has certain minimum unusable commitment amounts, which vary based upon the projected seasonal working capital needs of TruServ. The interest rate on the revolving credit facility was increased to the prime rate plus 3.25% resulting in a rate of 7.5% as of December 31, 2002. The unused commitment fee is 0.75% per annum. Since the April 2002 Amendments, the revolving credit facility commitment has been permanently reduced to $143,200 at December 31, 2002 due to prepayments in 2002 from the proceeds of asset sales. TruServ had available, under the revolving credit facility, approximately $115,300 at December 31, 2002. The April 2002 Amendments to the various senior note agreements maintained the existing debt amortization schedules of the various notes. Interest rates on the notes are at the pre-default rates, which ranged at December 31, 2002 from 10.04% to 11.85%. The senior notes and revolving credit facility amendments also require initial, quarterly and annual maintenance fees. All of the cash proceeds from certain asset sales and certain notes receivable, and 80% of any excess cash flow, as defined in the amended senior notes and revolving credit facility agreements, are to be used to prepay all parties to these amendments in accordance with an amended intercreditor agreement. For 2002, cash proceeds from certain asset sales and notes receivable totaling $157,312 were used to prepay all parties to the intercreditor agreement. No additional payment as a result of excess cash flow is required to be made at this time. The intercreditor agreement establishes how the assets of TruServ, which are pledged as collateral, are shared and how certain debt prepayments are allocated among the senior lenders. For the year ended December 31, 2002, the prepayments to senior note holders of $93,915 resulted in make-whole liabilities of $18,710, which are recorded as additional debt with an offsetting entry to a prepaid interest account. As previously described, the $12,695 of make-whole notes from the sale leaseback transaction, is a component of the $18,710. The prepaid interest account will be amortized to interest expense over the remaining life of the original notes. The terms of the senior note agreements, that comprise a portion of the Senior Debt, have always provided that in the event of early termination or a prepayment of all or a portion of the notes, make-whole liabilities are triggered. The nature of the transaction giving rise to the prepayment, the length of time to maturity of a particular note, the magnitude of the prepayment relative to the remaining debt outstanding and prevailing market interest rates relative to the interest rates on the senior notes are factors in determining the amount of potential make-whole liabilities. In the event of full prepayment of the senior notes, the entire prepaid interest amount will be immediately charged to interest expense. Management currently intends to pursue a refinancing of the existing Senior Debt in the first half of 2004. Management anticipates significantly lower interest rates upon refinancing. However, based upon current market interest rates, make-whole expense of a refinancing, before considering the impact of any negotiations with the senior note holders, could range up to approximately $27,000, in addition to fully expensing the remaining prepaid balance of existing make-whole, which was $17,864 at December 31, 2002. TruServ management negotiated a reduction of approximately 50% in the make-whole notes when it made prepayments on the senior notes from the proceeds of the sale leaseback transaction. 6 The April 2002 Amendments all require TruServ to meet certain restrictive covenants relating to minimum sales, minimum adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), minimum fixed charge coverage, minimum interest coverage and maximum capital expenditures. The senior note holders may accelerate the due date of their notes, if TruServ does not have a revolving credit facility in place to fund its seasonal cash flows. As described above, some of these covenants were adjusted in March 2003, as a result of the sale leaseback transaction. TruServ was in compliance with all of these covenants as of December 31, 2002 as shown in the chart below:
RESTRICTIVE COVENANT COVENANT ACTUAL - -------------------- ---------- ---------- ($ IN THOUSANDS) Minimum sales............................................... $1,975,000 $2,175,451 Minimum adjusted EBITDA..................................... $ 100,000 $ 120,062 Minimum fixed charge coverage............................... 0.70 1.01 Minimum interest coverage................................... 1.75 1.97 Maximum capital expenditures................................ $ 16,000 $ 12,838
TruServ believes it will continue to remain in compliance with its debt covenants. For fiscal 2003, TruServ believes operating results will be sufficient to comply with the covenants established in the March 2003 Amendments. The term of the revolving credit facility will accelerate to June 30, 2003 from June 30, 2004, if on that date, total Senior Debt outstanding less the aggregate principal amount of the make-whole notes is in excess of $270,000, or total Senior Debt outstanding less the aggregate principal amount of the make-whole notes, plus the unused amount of the commitment under the revolving credit facility, less $30,000, is in excess of $320,000. At December 31, 2002, the total Senior Debt outstanding less the aggregate principal amount of the make-whole notes was $167,965 and the related commitments outstanding less $30,000 totaled $253,323. Although the revolver portion of total Senior Debt outstanding can fluctuate with the seasonal cash flow requirements of the business, TruServ believes it will maintain a sufficiently low level of Senior Debt outstanding with cash from operating activities to meet the June 30, 2003 requirement. The April 2002 Amendments limit the amount of the cash portion of patronage dividends to the 20% minimum required to be paid under applicable IRS regulations in order for TruServ to maintain its status as a cooperative, unless TruServ's operating performance achieves certain EBITDA targets, in which case, up to 30% of the patronage dividend may be paid in cash. TruServ exceeded the EBITDA target for 2002 and, as such, the cash portion of the 2002 patronage dividend paid in 2003 averaged 30%. The April 2002 Amendments also require the continuation of the stock redemption moratorium through June 30, 2004. Further, it is an event of default under the April 2002 Amendments to exceed certain levels of subordinated note payments. TruServ did not exceed the maximum payment level of $24,000 in 2002 and, accordingly, was in compliance. In addition, an event of default arises under the April 2002 Amendments in the event that TruServ fails to comply with its corporate governance policy requiring the retention by TruServ of at least two outside directors prior to May 31, 2002, at least four outside directors prior to September 1, 2002 and at least five outside directors prior to November 1, 2002. As of October 7, 2002, TruServ appointed its fifth outside director and, as such, TruServ was in compliance with the corporate governance covenant as of December 31, 2002. The April 2002 Amendments also contain requirements for other customary covenants, representations and warranties, funding conditions and events of default. As of December 31, 2002, and as of the filing date of this Annual Report on Form 10-K, TruServ was in compliance with all applicable covenants and has not triggered any events of default. 7 RETAIL MEMBER AGREEMENT The TruServ Retail Member Agreement provides, among other things, that each member: (1) will be required to purchase 60 shares of Class A common stock at a purchase price of $100 per share for each store owned by the member, up to a maximum of 300 shares for five or more stores that are owned by a member; (2) will conduct its businesses subject to the terms of the Retail Member Agreement; (3) will conduct a retail hardware store, home or garden center, or a full-service rental operation at a designated location; (4) will comply with TruServ's By-Laws, as may be amended from time to time; (5) will accept patronage dividends in a form complying with the requirements of the Internal Revenue Code for deduction from gross income by TruServ; (6) may receive different services or charges based upon the amount of merchandise purchased by the member; (7) agrees to have its Retail Member Agreement terminated in certain circumstances by unilateral action by TruServ's board of directors; (8) agrees to have its Retail Member Agreement automatically modified upon notice from TruServ to the member of any relevant change in the Certificate of Incorporation and/or By-Laws of TruServ, or by resolution of the board of directors; (9) agrees to utilize TruServ as its primary supplier for the types of merchandise offered by TruServ; (10) agrees to have its Retail Member Agreement governed by Illinois law, enforced only in courts located in Cook County, Illinois or any Illinois county contiguous to Cook County and only interpreted in accordance with the substantive laws of Illinois without giving effect to its conflict of laws principles; and (11) may terminate the Retail Member Agreement upon 60 days written notice mailed to any executive officer of TruServ at TruServ's principal office. CAPITAL STOCK In general, members of TruServ own shares of Class A and Class B common stock. Each of the two classes of stock has a par value of $100 per share. The Class A common stock is sold in units of 60 shares. Each TruServ member is required to purchase one unit of Class A common stock for each store owned; however, no TruServ member is permitted to acquire more than five units of Class A common stock. The Class B common stock is issued only to holders of the Class A common stock in connection with the patronage dividend distributed to the members for purchases in the year of the patronage dividend, as discussed below. See "Distribution of Patronage Dividends" below. Neither class of TruServ common stock accrues dividends and each has limited transferability, by virtue of TruServ's right of first refusal to repurchase at par value a member's stock before it can be transferred. Historically, TruServ has always exercised this right. TruServ also retains an automatic lien on both classes of stock for any indebtedness due to TruServ by a member. There is no existing market for either class of TruServ common stock. Participation in the earnings of a cooperative is based on member patronage purchasing and reflected by the payment of patronage dividends. In general, these patronage dividends are based on a member's purchasing volume and margins applicable to merchandise or services purchased by the member, less any expenses related to such business and less certain cooperative reserves. Patronage dividends are determined on a yearly basis for purchasing activity conducted the prior year, and are allocated no later than the 15th day of the ninth month following the end of the calendar year. TruServ has been paying patronage dividends in a 8 combination of cash and Class B common stock. As TruServ reported a net loss for 2001, there was no patronage dividend payable in 2002 related to 2001 results. As TruServ reported a net margin for 2002, there was a patronage dividend paid in 2003 related to 2002 results. Such dividend was a combination of cash, Class B common stock and loss allocation account reduction (for members with such an account). See "Allocation of Patronage Dividends against Loss Allocation Account" below. MORATORIUM ON REDEMPTIONS OF CAPITAL STOCK In March 2000, the board of directors of TruServ declared a moratorium on redemptions of the capital stock. In reaching its decision to declare the moratorium, the board of directors of TruServ reviewed the financial condition of TruServ and considered its fiduciary obligations and corporate law principles under Delaware law. The board of directors concluded that it should not redeem any of the capital stock while its net asset value was substantially less than par value, as that would likely violate legal prohibitions against "impairment of capital." In addition, the board of directors concluded that it would be a violation of its fiduciary duties to all members and that it would constitute a fundamental unfairness to members if some members were allowed to have their shares redeemed before the 1999 loss was allocated to them and members who did not request redemption were saddled with the losses of those members who requested redemption. Moreover, the board of directors considered TruServ's debt agreements and, in particular, the financial covenants thereunder, which prohibit redemptions when TruServ, among other things, does not attain certain profit margins. At the time the board of directors declared the moratorium on redemptions, TruServ's By-Laws did not impose limitations on the board's discretion to initiate or to continue a moratorium on redemption. The By-Laws merely provided that, upon termination of a member's agreement, TruServ was to redeem the member's shares. Nevertheless, the board of directors concluded that its fiduciary obligations to TruServ and its members would not permit it to effect redemptions under the circumstances described above. After the board of directors declared the moratorium, the board of directors amended the By-Laws to provide that if TruServ's funds available for redemption are insufficient to pay all or part of the redemption price of shares of capital stock presented for redemption, the board of directors may, in its sole discretion, delay the payment of all or part of the redemption price. The amended debt agreements preclude the lifting of the stock moratorium until June 30, 2004 except for certain hardship cases, not to exceed $2,000 annually. Given certain ongoing related litigation (see "Legal Proceedings"), there are no plans for hardship redemption of stock. Subsequent to the expiration of the prohibition against stock redemptions under the debt agreements, which could be in the first half of 2004, if TruServ completes the refinancing of its Senior Debt, the board of directors will consider the financial condition of TruServ, and will not lift the moratorium unless it can conclude that effecting redemptions of TruServ's capital stock will not "impair the capital" of TruServ, unfairly advantage some members to the disadvantage of others, or violate the financial covenants under its debt agreements. The board of directors is monitoring the financial performance of TruServ quarterly. As of December 31, 2002, the amount of Class A common stock and Class B common stock presented for redemption but deferred due to the moratorium is approximately $39,614 after the offset of the loss allocation account. This amount does not include an offset of approximately $7,343 of accounts receivable owed by terminated members to the co-op. Historically, TruServ has offset such amounts due by members to the co-op against amounts the co-op pays the members on redemption of their stock. This amount does not include any remaining amount of the 2001 loss that may be allocated, on a member by member basis, from the accumulated deficit account and reduce the amount paid to a member on the redemption of their stock. The $39,614 amount of stock presented for redemption, but deferred due to the moratorium, includes approximately $15,475 related to the Class A common stock (which was historically paid out at the time of redemption) and $47,033 related to Class B common stock (which was historically paid out in five equal annual installments), offset by the amount of the loss allocation account related to the Class B common stock of $22,894. 9 DISTRIBUTION OF PATRONAGE DIVIDENDS TruServ operates on a cooperative basis with respect to business transacted with or for members. All members are entitled to receive patronage dividend distributions from TruServ, calculated on the basis of gross margins of merchandise and/or services purchased by each member. In accordance with TruServ's By-Laws and Retail Member Agreement, the annual patronage dividend, as authorized by the board of directors, is paid to members out of patronage source income, less certain deductions, calculated as provided in the following sentence. The total patronage dividend paid to members is based on pre-tax net earnings calculated in accordance with accounting principles generally accepted in the United States of America after reducing or increasing net earnings for non-member income/(losses), reasonable reserves and deferred patronage amortization. The total dividend is allocated to each purchase category, with the main purchase categories being warehouse, relay, direct shipment and paint. Once the patronage dividend is allocated to the purchase categories, it is distributed to members based on the relative gross margin participation of the member for each type of purchase category. Patronage dividends are usually paid to members within 90 days after the close of TruServ's fiscal year; however, the Internal Revenue Code (the "Code") permits distribution of patronage dividends as late as the 15th day of the ninth month after the close of TruServ's fiscal year, and TruServ may elect to distribute the annual patronage dividend at a later time than usual in accordance with the provisions of the Code. TruServ's By-Laws provide for the payment of annual patronage dividends, after payment of at least 20% of such patronage dividends in cash, in "qualified written notices of allocation" including: - Class B common stock based on its par value, up to a maximum of 2% of the member's net purchases of merchandise from TruServ for the year (except in unusual circumstances of individual hardship, in which case the board of directors reserves the right to make payments in cash), - promissory (subordinated) notes, or - other property. Promissory (subordinated) notes are for a five year term and bear interest at a rate fixed from time to time by the board of directors. The notes are subordinated to all other debt of TruServ. TruServ may also issue "nonqualified written notices of allocation" to its members as part of its annual patronage dividend. "Non-qualified written notices of allocation" are usually issued in the form of Class B common stock. See "Payment of Patronage Dividends in Accordance with the Internal Revenue Code" below. In determining the form of the annual patronage dividend, a member's required investment in Class B common stock of TruServ had historically been limited by the board of directors to a certain amount, the cumulative value of which would not exceed two percent (2%) of the member's net purchases of merchandise and services from TruServ. Commencing in 1996, the board established a minimum Class B common stock ownership requirement, which may be varied from time to time. However, not all members have achieved the minimum target. This minimum is calculated as the aggregate of a member's various types of annual purchases multiplied by a specific percentage, which varies from 1% to 14%, decreasing as total dollar purchases by category increase. The amount of the required investment is determined by majority vote of the board of directors, and may be increased or decreased from time to time. The necessity of an increase or decrease is determined through an evaluation of the financial needs of TruServ and the needs of its membership. ALLOCATION OF PATRONAGE DIVIDENDS AGAINST LOSS ALLOCATION ACCOUNT During the third quarter of fiscal 2000, TruServ management developed and the board of directors approved a plan to equitably allocate to members the loss incurred in 1999. This loss was previously recorded as a reduction of retained earnings. TruServ has allocated the 1999 loss among its members by establishing a loss allocation account as a contra-equity account in the consolidated balance sheet with the offsetting credit recorded to the accumulated deficit account. The loss allocation account reflects the sum of each member's proportionate share of the 1999 loss, after being reduced by certain amounts that were not allocated to 10 members. The loss allocation account will be satisfied, on a member by member basis, by applying the portion of future non-cash patronage dividends as a reduction to the loss allocation account until fully satisfied. The loss allocation amount may also be satisfied, on a member by member basis, by applying the par value of maturing member notes and related interest payments as a reduction to the loss allocation account until such account is fully satisfied. However, in the event a member should terminate as a stockholder of TruServ, any unsatisfied portion of that member's loss allocation account will be satisfied by reducing the redemption amount paid for the member's stock investment in TruServ. See related discussion in "Legal Proceedings." The board of directors has determined that TruServ will retain the fiscal 2001 loss as part of the accumulated deficit account. All or a portion of patronage income and all non-patronage income, if any, may be retained in the future to reduce the accumulated deficit account. TruServ has determined for each member that was a stockholder in 2001, its share of the fiscal 2001 loss that has been retained in the accumulated deficit account, based upon the member's proportionate Class A common stock and Class B common stock investment. TruServ allocated the remainder of the fiscal 2001 loss based on the member's purchases from the co-op in 2001. In the event a member terminates its status as a stockholder of TruServ, any remaining 2001 loss in the accumulated deficit account that is allocable to the terminating member will be satisfied by reducing the redemption amount paid for the member's stock investment in TruServ. PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE The Code specifically provides for the taxation of cooperatives (such as TruServ) and their patrons (such as TruServ's members) so as to ensure that the business earnings of a cooperative are currently taxable either to the cooperative or to its patrons, but not both. The shares of Class B common stock and other written notices distributed by TruServ to its members, which disclose to the recipient the stated amount allocated to the member by TruServ and the portion thereof that is a patronage dividend, are "written notices of allocation" as that phrase is used in the Code. For such written notices to be "qualified written notices of allocation" within the meaning of the Code, it is necessary that TruServ pay 20% or more of the annual patronage dividend in cash and that the members consent to having the allocations (at their stated dollar amounts) treated as being constructively received by them and includable in their gross income. Any written notices that do not meet these requirements are "nonqualified written notices of allocation" within the meaning of the Code. TruServ deducts the sum of cash, the face value of qualified written notices and the fair market value of any other property distributed to the members (except nonqualified written notices of allocation) from its earnings in determining its taxable income. Accordingly, all of these items, including such qualified written notices of allocation, are includable in the gross income of the members. Section 1385(a) of the Code provides, in substance, that the amount of any patronage dividend which is paid in cash, qualified written notices of allocation or other property (except nonqualified written notices of allocation) shall be included in the gross income of the patron (member) for the taxable year in which he or it receives such distribution. In general, for nonqualified written notices of allocation, no amounts are either deductible by TruServ or includable in a member's gross income until the notices are redeemed by TruServ. TruServ itself therefore includes any earnings reflected in nonqualified written notices of allocation in its own gross income and pays tax on them. Thus, every year each member may receive, as part of the member's patronage dividend, non-cash "qualified written notices of allocation," which may include Class B common stock, the stated dollar amount of which must be recognized as gross income by the member for the taxable year in which received. The portion of the patronage dividend paid in cash (at least 20%) may be insufficient, depending on a member's individual tax bracket, to pay income taxes due from the member on its receipt of the full amount of the patronage dividend, including cash and Class B common stock. 11 TruServ's By-Laws, reflecting the Code provision applicable to cooperatives, usually treat shares of Class B common stock and such other notices as the board of directors may determine, if distributed in payment of patronage dividends, as "qualified written notices of allocation." The By-Laws provide: (1) for payment of patronage dividends in a combination of cash, qualified written notices of allocation (including Class B common stock), other property and nonqualified written notices of allocation; and (2) that membership in the organization (i.e., the status of being a member of TruServ) constitutes the member's consent to recognize the stated amount of any qualified written notices of allocation or other property distributed to it as includable in the member's gross income as provided in Section 1385(a) of the Code. Under the Code, any person who becomes or became a member of TruServ, or who remains a member after adoption of the By-Laws, providing that membership in TruServ constitutes consent to be taxed on receipt of qualified written notices of allocation, is deemed to have consented to be taxed on receipt of patronage dividends in cash and in qualified written notices of allocation, in accordance with Section 1385(a) of the Code. Written notification of the adoption of the By-Laws and its significance, and a copy of the By-Laws, were sent to each then existing member and have been, and will continue to be, delivered to each person prior to becoming a member. Such consent is then effective as to patronage dividends. Such consent may be revoked by the member only by terminating its membership in TruServ in the manner provided in his or its Retail Member Agreement. See "Retail Member Agreement" above. TruServ has historically paid its members approximately 30% of the patronage dividend in cash (excluding nonqualified written notices of allocation). However, TruServ is only obligated to distribute 20% of the annual patronage dividend (excluding nonqualified written notices of allocation) in cash, and it may distribute this lesser percentage in future years. TruServ's amended debt agreements limit the cash portion of the patronage dividend to 20% unless certain annual EBITDA targets are achieved, in which case, the cash portion of the patronage dividend may be paid at a higher percent up to 30%. As TruServ exceeded the EBITDA target in 2002. The cash portion of the 2002 patronage dividend paid in 2003 averaged 30%. In order to avoid the administrative inconvenience and expense of issuing separate certificates representing shares of Class B common stock to each member, TruServ deposits a certificate, representing all the shares of Class B common stock then being issued, with Harris Trust and Savings Bank, Chicago, Illinois, for safekeeping for and on behalf of its members. TruServ keeps the allocations of Class B common stock in book entry form. TruServ then sends a written notice to each member of these deposits and the allocation thereof to the member. SET OFF RIGHTS OF TRUSERV TruServ's Certificate of Incorporation and By-Laws specifically provide that TruServ, but not the member, may set off its obligation to make any payment to a member for such member's stock, notes, interest and declared and unpaid dividends against any obligation owed by the member to TruServ. TruServ exercised these set off rights in 2002 and 2001, when TruServ notes and interest came due to former members with outstanding merchandise accounts receivable to TruServ and current members with past due merchandise accounts receivable to TruServ. TruServ also set off its obligation to former members against their related loss allocation balance. The set off rights were exercised in an aggregate amount of $16,526 during 2002 and $7,483 during 2001. As TruServ maintains stock records for its members on a store-by-store basis, members with multiple stores who elect to sell one or more, but not all, of their stores can transfer the stock registered on TruServ's records with respect to a store location that is terminating its relationship with TruServ, to the store locations that are not being terminated, with proper evidence of succession, assignment or authority to transfer. Otherwise, TruServ may exercise its right to offset the par value of the stock recorded for the store location to be closed against the loss allocation account balance. 12 ITEM 2. PROPERTIES. ($ IN THOUSANDS) WAREHOUSING AND OFFICE FACILITIES TruServ's worldwide headquarters is located in Chicago, Illinois. Information with respect to TruServ's owned and leased warehousing and office facilities at December 31, 2002 is set forth below:
SQUARE FEET OF WAREHOUSE AND LEASE LOCATION OFFICE AREA INTEREST EXPIRATION DATE -------- -------------- -------- --------------- Chicago, Illinois(1)....................... 228,100 Leased December 31, 2010 Corsicana, Texas(7)........................ 775,000 Leased December 31, 2022 Denver, Colorado........................... 360,000 Leased June 30, 2004 East Butler, Pennsylvania(2)(6)............ 476,200 Owned Fogelsville (Allentown), Pennsylvania(7)... 600,000 Leased December 31, 2022 Hagerstown, Maryland(3)(5)................. 840,000 Leased December 31, 2003 Harvard, Illinois.......................... 1,032,000 Leased August 23, 2013 Harvard, Illinois(8)....................... 163,000 Leased August 23, 2005 Jonesboro (Atlanta), Georgia(7)............ 670,000 Leased December 31, 2022 Kansas City, Missouri(7)................... 415,000 Leased December 31, 2022 Kingman, Arizona(7)........................ 375,000 Leased December 31, 2022 Manchester, New Hampshire(6)............... 730,000 Owned Mankato, Minnesota(6)...................... 320,000 Owned Peachtree City, Georgia(4)................. 60,500 Leased November 24, 2005 Springfield, Oregon(7)..................... 504,000 Leased December 31, 2022 Westlake (Cleveland), Ohio(6).............. 405,000 Owned Woodland, California(7).................... 350,000 Leased December 31, 2022
- --------------- (1) TruServ has subleases with third parties for approximately 72,000 of the 228,100 square feet of the Chicago, Illinois space. (2) The East Butler, Pennsylvania facility is currently for sale. (3) The Hagerstown, Maryland facility, which was vacated in December 2002, is assigned as collateral under a synthetic lease obligation and is currently for sale. Proceeds of a sale will be paid to the lessor as payment on the outstanding synthetic lease obligation. (4) TruServ has subleases with third parties for the Peachtree City, Georgia facility, which is not currently used in operations. (5) The lease term expires the earlier of December 31, 2003 or the termination of the existing revolving credit facility. (6) Facility is assigned as collateral under the senior debt agreements. (7) Facility was part of the December 31, 2002 sale leaseback transaction. See next section of Item 2. (8) TruServ has subleases with third parties for approximately 80,700 of the 163,000 square feet of the Harvard, Illinois space which has a lease expiration date of August 23, 2005. SALE LEASEBACK TRANSACTION On December 31, 2002, TruServ sold seven of its distribution centers to unrelated third parties for an aggregate purchase price of $125,753. The sale resulted in net proceeds to TruServ of $121,438, which were used to pay Senior Debt. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment on senior notes. TruServ then entered into leases with each of three purchasers to lease the distribution centers for a period of 20 years. The transaction was recorded as a real property sale and as operating leases in TruServ's financial statements. The resulting gain on sale of $55,564, 13 recorded as deferred gain in the balance sheet, and to be amortized to income on a straight line basis over the initial 20 year lease term. Each lease is a "triple-net" lease under which TruServ is obligated to pay all operating expenses of the property, all taxes and other impositions related to the property, to maintain and insure the property and, with minor exceptions, to rebuild the improvements after a casualty or condemnation. TruServ also indemnifies the landlord from any loss, cost, damage or liability arising out of the use, ownership or operation of the property, including any liability related to hazardous materials. TruServ's obligation to pay rent under the leases is absolute, with no right to offset or abatement. The three leases are cross-defaulted, such that a default under one of the leases constitutes a default under each of the other leases. Events of default under the leases relate to TruServ's "triple-net" lease obligations, as described above, and do not include any financial covenants. TruServ has no right to terminate any of the leases, with minor exceptions as described in the leases. TruServ sold the distribution facilities located in Corsicana, Texas and Woodland, California to and now leases them from Wrench (DE) Limited Partnership. TruServ sold the distribution facilities located in Kingman, Arizona, Fogelsville, Pennsylvania and Springfield, Oregon to and now leases them from Bolt (DE) Limited Partnership. TruServ sold the distribution facilities located in Jonesboro, Georgia and Kansas City, Missouri to and now leases them from Hammer (DE) Limited Partnership. The three limited partnerships are affiliated with W.P. Carey Investments, an investment firm independent of TruServ. TruServ pays rent under each lease quarterly in January, April, July and October. The aggregate annual rent under all three leases for the first year of the lease totals $12,007. Rent under the leases increases 2% each year during the initial 20 year lease term. TruServ has the right to extend each lease for two additional periods. The first extension period under each lease is for a term of nine years and 11 months and the second is for a term of 10 years. TruServ may elect to renew a lease or leases with respect to any one or more of the properties without renewing the lease or leases with respect to all of the properties subject thereto. TruServ has the right to assign the lease without the landlord's prior written consent, but subject to certain conditions described in the leases. Provided that TruServ assigns the rent thereunder to the landlord, TruServ may sublet all or any part of any property without the landlord's consent. TruServ continues to evaluate opportunities to capitalize on the increase in market value over the historical book value of its owned real estate assets through additional sale leaseback transactions, mortgages or other financing methods. See "Manufacturing Facilities" section below with regard to a pending sale leaseback transaction. OTHER PROPERTY SALES The Brookings, South Dakota regional distribution center was closed and sold in 2002. In 2001, TruServ closed its Henderson, North Carolina distribution center and the lease agreement on the facility expired on November 11, 2001. The Indianapolis, Indiana distribution center was closed and sold in 2001. TruServ's interest in TruServ Canada Cooperative, Inc. was sold in October of 2001, which included the sale of the Winnipeg, Manitoba property. The Westfield, Massachusetts distribution center was closed and sold in 2000. TruServ will exit its operations in the East Butler, Pennsylvania facility during 2003 and that facility is currently for sale. TruServ has been exiting and consolidating distribution facilities since the merger with SCC in 1997 to both realize the benefit of reduced operating costs of the merged cooperatives and to reflect a level of contraction of its operations. 14 MANUFACTURING FACILITIES Information with respect to TruServ's manufacturing facilities is set forth below:
SQUARE FEET OF MANUFACTURING AND OFFICE PRINCIPAL LOCATION AREA PRODUCT INTEREST - -------- -------------- --------- -------- Chicago, Illinois(1)....................... 105,000 Oil based Paint Owned Cary, Illinois(1).......................... 612,000 Latex based Paint Owned and Paint Applicators
- --------------- (1) Facility is assigned as collateral under the senior debt agreements. In July 2001, TruServ announced its intention to explore a possible sale of the paint manufacturing business in order to generate cash to pay down senior debt. In July 2002, after receiving offers which were not commensurate with management's estimate of the value of the business and as a result of TruServ's ability to achieve senior debt reductions through operating cash flow, including significant inventory reductions and certain other asset sales, TruServ announced it would be retaining ownership of the paint manufacturing business. TruServ is currently negotiating a sale and short-term leaseback of its Chicago, Illinois oil based paint facility due to an increase in the value of the real estate underlying the facility together with a decrease in industry demand for oil based paint products. TruServ's facilities are suitable for their respective uses and are, in general, adequate for TruServ's present needs. OTHER LEASES TruServ owns and leases transportation equipment for use at its distribution centers for the primary purpose of delivering merchandise from TruServ's distribution centers to its members. Additional information concerning these leases can be found in Note 5 "Lease Commitments" to the Consolidated Financial Statements beginning at page F-1. ITEM 3. LEGAL PROCEEDINGS. ($ IN THOUSANDS) BESS ACTION In May 2000, TruServ filed a complaint in the Circuit Court of McHenry County, Illinois against Bess Hardware and Sports, Inc., ("Bess") to recover an accounts receivable balance in excess of $400. Bess filed a counterclaim, seeking a setoff against its accounts receivable balance for the par redemption value of Bess' shares of TruServ Stock. Bess contested the validity of a March 17, 2000 corporate resolution declaring a moratorium on the redemption of all TruServ capital stock, as well as an allocation of Bess' proportionate share of the loss which TruServ declared for its fiscal year 1999. On June 21, 2002, the court issued an oral ruling granting summary judgment to TruServ on its accounts receivable claim, and granting summary judgment to Bess on its counterclaim. The judgment was entered on August 6, 2002. TruServ believes that the court's ruling on Bess' counterclaim is not supported by either the facts or Delaware corporate law. TruServ's motion for reconsideration and reversal of the August judgment on Bess' counterclaim was denied on November 21, 2002. TruServ filed its notice of appeal in the Second District of Illinois Appellate Court on December 2, 2002. DERIVATIVE ACTION In August 2000, an action was brought in Delaware Chancery Court (New Castle County) by a former TruServ member ("Hudson City Properties") against certain present and former directors and certain former officers of TruServ and against TruServ. The complaint is brought derivatively on behalf of TruServ and 15 alleges that the individual defendants breached their fiduciary duties in connection with the accounting adjustments made by TruServ in the fourth quarter of 1999. Hudson City Properties also seeks to proceed on a class-action basis against TruServ on behalf of all those affected by the moratorium on stock redemption and the creation of the loss allocation accounts. Hudson City Properties alleges that TruServ breached, and the named directors caused TruServ to breach, agreements with members by suspending payment of the members' 1999 annual patronage dividend, by declaring the moratorium on the redemption of members' TruServ stock and by imposing minimum annual purchase requirements upon members. The plaintiff seeks monetary and non-monetary relief in connection with the various claims asserted in the complaint. The lawsuit, despite its vintage, is in an early stage and the extent of the damages claimed has not yet been determined. The parties have entered into settlement negotiations, but a final settlement has not been reached at this time and no assurances can be given that one will be entered into. KENNEDY ACTION In June 2000, various former members of TruServ filed an action against TruServ in the Circuit Court of the 19th Judicial Circuit (McHenry County, Illinois) (the "Kennedy action"). The plaintiffs in the Kennedy action each allege that, based upon representations made to them by TruServ and its predecessors that the Coast to Coast brand name would be maintained, they voted for the merger of ServiStar/Coast to Coast and Cotter & Company. The plaintiffs allege that after the merger, the Coast to Coast brand name was eliminated and that each plaintiff thereafter terminated or had its membership in TruServ terminated. The plaintiffs further claim that TruServ breached its obligations by failing to redeem their stock and by creating loss allocation accounts for the plaintiffs. The plaintiffs have each asserted claims for fraud/misrepresentation, negligent misrepresentation, claims under the state securities laws applicable to each plaintiff, claims under the state franchise/dealership laws applicable to each plaintiff, breach of fiduciary duty, unjust enrichment, estoppel and recoupment. Similar claims were filed against TruServ as counterclaims to various complaints filed by TruServ in McHenry County to recover accounts receivable balances from other former members. Those claims were consolidated with the Kennedy action. In March 2001, the Kennedy complaint was amended to add additional plaintiffs. Also in March 2001, another action was filed against TruServ on behalf of additional former members, in the same court, by the same law firm (the "A-Z action"). The A-Z complaint alleges substantially similar claims as those in the Kennedy action, with the principal difference being that the claims relate to the elimination of the ServiStar brand name. The Kennedy and A-Z actions have been consolidated for purposes of discovery, which is ongoing. The plaintiffs seek damages for stock repurchase payments, lost profits and goodwill, out of pocket expenses, attorney fees and punitive damages. In July 2002, the plaintiffs in these consolidated actions amended their complaints to name as defendants two former officers of TruServ. To the extent that TruServ may have indemnification obligations to these former officers, TruServ's directors and officers' liability insurance policies may be available to cover such claims. TruServ intends to vigorously defend all of these cases. However, a ruling in favor of any or all of the plaintiffs in the Kennedy Action, the Derivative Action or the Bess Action could have a material adverse effect on TruServ. The courts could rule that TruServ violated its Agreement with members or its By-Laws in establishing the loss allocation account; imposing the moratorium on stock redemptions; or imposing minimum purchase commitments on members. In the event of such a ruling, TruServ could be required to do one or more of the following: - lift the moratorium on stock redemptions; and - redeem members' stock presented for redemption at its full stated value. Such actions could constitute events of default under TruServ's Senior Debt. Unless appropriate waivers were obtained from TruServ's lenders, the amounts due under the Senior Debt could become immediately due and payable or the Senior Debt agreements could have to be renegotiated. However, there can be no assurances that TruServ would be able to obtain the requisite waivers or successfully renegotiate its Senior Debt agreements. In the event TruServ was unable to obtain the requisite waivers or successfully renegotiate its Senior Debt agreements, a material adverse effect on TruServ's liquidity and capital resources could result. 16 PENTZ SETTLEMENT In June 2002, TruServ reached a comprehensive and confidential settlement with Paul Pentz, a former president of TruServ regarding his claims for bonus and retirement compensation payments. CLAIM AGAINST ERNST & YOUNG LLP TruServ is pursuing claims against its former outside auditors, Ernst & Young LLP ("E&Y"), for professional malpractice, breach of contract, deceptive business practices and fraud. TruServ contends that E&Y failed to properly discharge its duties to TruServ and failed to identify, in a timely manner, and indeed concealed, certain material weaknesses in TruServ's internal financial and operational controls. As a result, TruServ was forced to make an unanticipated accounting adjustment in the fourth quarter of 1999 in the total amount of $121,333 (the "Fourth Quarter Charge"). As a result, TruServ reported a net loss of $130,803 for the fiscal year ended December 31, 1999. It is TruServ's belief that had E&Y properly discharged its duties, the scope and breadth of the Fourth Quarter Charge, as well as the accounting and operational control deficiencies that necessitated the charge, would have been substantially lessened, if not eliminated in their entirety. As a result of E&Y's failures, TruServ has suffered significant financial damages. The factual allegations that form the basis for TruServ's claim against E&Y include, in part, the issues identified in the Securities and Exchange Commission (the "Commission") cease and desist order described below. TruServ began discussion of its claims with E&Y early in the fall of 2001. Pursuant to the dispute resolution procedures required by TruServ's engagement letter with E&Y, TruServ and E&Y attempted to mediate this dispute during the first six months of 2002. When those attempts proved unsuccessful, and again pursuant to the dispute resolution procedures, TruServ filed its claim with the American Arbitration Association on July 31, 2002. The arbitration, which is subject to certain confidentiality requirements, is currently pending. TRUSERV ORDER On March 4, 2003, the Commission entered an Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to TruServ Corporation, SEC File No. 3-11050 (the "Order"). TruServ consented to the entry of the Order without admitting or denying the findings in the Order. The Commission entered the Order following an investigation by the staff of the Commission of the circumstances that led to significant financial adjustments resulting in the 1999 loss of $131,000. The Order found that, from approximately July 1997 through the end of 1999, TruServ's accounting systems and internal controls related to inventory management were inadequate. The Order also found that these deficiencies caused TruServ to understate expenses, which resulted in overstatement of net income, during 1998 and 1999. According to the Order, TruServ filed erroneous reports on Form 10-Q for the first, second and third quarters of 1998 and 1999 and an erroneous report on Form 10-K for 1998. In 1999, TruServ reported a loss, caused by weaknesses in the accounting practices and internal controls at TruServ, of approximately $131,000. The largest component of the 1999 loss of $131,000 represented adjustments to inventory and merchandise payable. Specifically, the Commission found that TruServ had in 1998 and the first three quarters of 1999 misstated accounts, including unbilled merchandise, claims for returned merchandise from members, and additional stock adjustments, consisting of lost and found merchandise, damaged goods, and others. The Order also found that TruServ and its senior management had notice of its internal control problems as early as February 1997, through a report prepared by its internal audit department. The report noted several specific, recurring problems in data entry concerning inventory management that caused significant discrepancies in TruServ's inventory records. According to the Order, no one acted on the 1997 report, even though it concluded that TruServ did not have adequate internal controls over its inventory systems. TruServ investigated the causes of the inventory and merchandise payable adjustments, and in order to prevent problems from occurring in the future, it adopted several changes in procedure to correct accounting weaknesses. According to the Order, as a result of these systemic flaws, TruServ is not able to restate any of 17 the erroneous filings made in 1998 and 1999. The Commission made no allegations of fraud nor did it seek civil monetary penalties in connection with entering the Order. Pursuant to the Order, TruServ has agreed to continue to maintain the procedures that it has adopted since the Spring of 2000 and otherwise to comply with the accounting, record keeping and internal control provisions of the Securities and Exchange Act of 1934 (the "Exchange Act"). In addition, TruServ will continue to employ as a member of its management team, during the fiscal years ending 2002, 2003 and 2004, a Director of Internal Audit who will be responsible for executing TruServ's internal audit plan and will continue to engage a public accounting firm to assist the Director of Internal Audit in performing internal audit procedures. Also pursuant to the Order, within 90 days after the close of each fiscal year ending 2002, 2003 and 2004, the Director of Internal Audit will prepare and deliver to TruServ's board audit committee, with copies to the Commission, TruServ's auditors and the public accounting firm assisting the Director of Internal Audit, a report describing the scope of the audit plan during the preceding year, confirmation that the audit plan was carried out, an overview of significant control weaknesses identified that require improvement and a review of the steps taken to improve the system of internal controls. On March 4, 2003, the Commission also entered an Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to Kerry Kirby, File No. 3-11053 (the "Kirby Order"). The Kirby Order made substantially all of the findings that were made in the Order. In addition, the Kirby Order found that Kerry Kirby, the chief financial officer of TruServ from July 1997 to May 1999, in part due to his failure to act on the internal audit report that TruServ's accounting systems were flawed, was a cause of TruServ's violations of securities laws requiring the accurate financial reporting, accurate books and records and adequate internal controls. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no existing market for the common stock of TruServ and there is no expectation that any market will develop. TruServ's Class A common stock is owned exclusively by retailers of hardware and related products, garden center retailers and industrial distributors as well as rental retailers, each of whom is a member or former member of TruServ and purchased at least 60 shares of TruServ's Class A common stock (the only class of voting stock) upon becoming a member. TruServ is organized as a Delaware stock corporation and operates as a member-owned wholesaler cooperative corporation. The shares of TruServ's Class B common stock now outstanding were issued to members in partial payment of the annual patronage dividend that accrued as a result of patronage business transacted by such members with TruServ. In accordance with TruServ's By-Laws, the annual patronage dividend is paid to members out of the gross margins from operations and other patronage source income, after deduction for expenses, reserves and other provisions authorized by the board of directors. The number of holders of record (as of February 22, 2003) of each class of stock of TruServ is as follows:
NUMBER OF HOLDERS OF RECORD TITLE OF CLASS ---------- Class A common stock, $100 Par Value........................ 7,621 Class B common stock, $100 Par Value........................ 7,733
18 Dividends (other than patronage dividends) on the Class A common stock and Class B common stock, subject to the provisions of TruServ's Certificate of Incorporation, may be declared out of gross margins of TruServ, other than gross margins from operations with or for members and other patronage source income, after deduction for expenses, reserves and provisions as may be authorized by the board of directors. Dividends may be paid in cash, in property, or in shares of the Class B common stock, subject to the provisions of the Certificate of Incorporation and the By-Laws. Other than the payment of patronage dividends, including the redemption of all nonqualified written notices of allocation, TruServ has not paid dividends on its Class A common stock or Class B common stock. In February 2003, the board of directors authorized the payment of a patronage dividend related to 2002. Such amounts were paid in March 2003. The board of directors does not plan to pay non-patronage dividends on either class of stock in 2003 for the year ended December 31, 2002. See "Business -- Distribution of Patronage Dividends", and "-- Allocation of Patronage Dividends Against Loss Allocation Account." ITEM 6. SELECTED FINANCIAL DATA. ($ IN THOUSANDS)
SELECTED FINANCIAL DATA AS OF AND FOR THE FISCAL YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 2002(1) 2001(1) 2000 1999(2)(3) 1998(2)(3) ---------- ---------- ---------- ---------- ---------- Net revenues......................... $2,175,451 $2,619,434 $3,993,642 $4,502,326 $4,328,238 Gross margin......................... 239,831 264,034 277,397 181,465 298,135 Net margin/(loss).................... 21,153 (50,687) 34,117 (130,803) 12,020 Patronage dividends(4)............... 20,541 -- 34,705 -- 35,024 Total assets......................... 703,371 1,020,837 1,236,014 1,335,397 1,587,674 Short-term borrowings................ 27,852 141,755 138,085 167,007 258,147 Current and non-current long-term senior and current member debt..... 184,818 329,559 350,279 397,884 407,577 Promissory (subordinated) and installment member notes payable(5)......................... 43,531 42,973 65,846 83,804 124,422 Class A common stock(6).............. 50,120 49,896 49,084 47,270 49,880 Class B common stock(6).............. 176,945 174,448 174,448 177,779 195,643 Loss allocation...................... (75,966) (89,972) (92,460) -- -- (Accumulated deficit)/Retained earnings........................... (68,704) (68,568) (17,134) (130,939) 579
- --------------- (1) The lumber and building materials business was sold on December 29, 2000. (2) The net margin/(loss) of $(131,143) and $20,480 originally reported in 1999 and 1998, respectively, was restated to $(130,803) and $12,020, respectively, in the Form 10-K(A) filed for the year ended December 31, 2000. The restatement related to expensing as incurred costs previously accrued in connection with the merger of Cotter & Company and SCC. (3) TruServ had for several years, from at least February 1997 through at least the end of 1999, inadequate internal controls relating to, among other things, various aspects of inventory management, accounts payable, cost of goods sold and accounting for certain income and expense items. Principally as a result of these deficiencies, TruServ reported a loss of $130,803 for fiscal year 1999. Because the problems identified above were caused by systematic flaws in internal controls, TruServ does not have information available to confirm the accuracy of these results or that would cause it to conclude that the fiscal 1999 and 1998 financial statements for the 1999 and 1998 fiscal years, respectively, can or should be modified. On March 4, 2003, the Commission entered the Order following an investigation by the staff of the Commission of the circumstances that led to significant financial adjustments resulting in the 1999 loss. Pursuant to the Order, TruServ will be required to maintain books and records in accordance with the 19 record keeping requirements of the Exchange Act and to perform certain other undertakings. See "Legal Proceedings." (4) No patronage dividends were issued in 2001 and 1999 due to the reported net loss of $50,687 and $130,803, respectively. (5) This is the non-current portion of promissory and installment notes payable to members included in members' capitalization on the balance sheet. (6) In Fiscal 2002, Class A common stock and Class B common stock include approximately $15,475 and $47,033, respectively, of amounts not redeemed due to the stock moratorium. In Fiscal 2001, Class A common stock and Class B common stock include approximately $11,699 and $34,712, respectively of amounts related to the stock moratorium. See "Business -- Moratorium on Redemptions of Capital Stock." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ($ IN THOUSANDS) FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001 RESULTS OF OPERATIONS REVENUES AND GROSS MARGIN A reconciliation of revenue and gross margin between 2002 and 2001 follows:
% OF GROSS NET 2001 NET GROSS MARGIN % REVENUES REVENUES MARGIN OF REVENUE ---------- -------- -------- ---------- ($ IN THOUSANDS) FISCAL YEAR 2001 RESULTS.......................... $2,619,434 100.0% $264,034 10.1% Same store sales: Product price increases......................... 13,340 0.5 13,340 Product price decreases......................... (1,100) -- (1,100) Warehouse and relay revenues.................... (72,923) (2.8) (10,766) Vendor direct revenues.......................... (60,567) (2.3) (593) Terminated members: Warehouse and relay............................. (166,083) (6.3) (30,043) Direct.......................................... (66,084) (2.5) (647) New members: Warehouse and relay............................. 19,268 0.7 4,301 Direct.......................................... 7,509 0.3 73 Lumber and building materials business(1)......... (21,422) (0.8) -- Canadian business(2).............................. (84,397) (3.2) (12,344) Advertising, transportation and other revenues.... (11,524) (0.5) (6,939) Indirect cost of revenues......................... -- -- 20,515 ---------- ----- -------- Total change...................................... (443,983) (16.9) (24,203) ---------- ----- -------- FISCAL YEAR 2002 RESULTS.......................... $2,175,451 83.1% $239,831 11.0% ========== ===== ========
- --------------- (1) The lumber business was sold on December 29, 2000. The revenue and the cost of revenue from merchandise shipped and billed in fiscal year 2001, but negotiated prior to December 29, 2000, was recorded in TruServ's results of operations in fiscal year 2001. (2) This business was sold on October 22, 2001. 20 Revenues for 2002 totaled $2,175,451. This represented a decrease in revenues of $443,983, or 16.9%, from 2001. The key contributors to the decrease in revenue are the 12% decline in the number of participating member retail outlets in 2002, representing an 8.8% revenue reduction, together with a 4.6% decline in same store sales and the effect of the sale of the Canadian and Lumber businesses, representing a 4.0% revenue reduction. TruServ increased prices in September 2001. The impact of these price increases on 2002 member purchases was $13,340. In October 2002, TruServ announced it would commence lowering prices monthly in 2002 and continue price reductions into 2003. The impact of the reduction in pricing on fourth quarter 2002 member purchases was $1,100. TruServ has forecasted 2003 price reductions to members to aggregate $8,000. TruServ has forecasted that a decline in retail outlets will recur in 2003, but the forecast is not as significant as the actual 2002 decline. A favorable trend that is occurring is that as a result of certain marketing programs and sales initiatives, together with the impact of a slow-down in the national economy, members are buying more merchandise from the distribution centers. This trend has favorably improved the sales mix toward more warehouse sales from the less profitable direct sales and has minimally affected revenues due to lower volume offset by higher prices, but has positively affected gross margin. Gross margin for 2002 totaled $239,831. This represented a decrease in gross margin dollars of $24,203, or 9.2%, as compared to 2001. The sale of TruServ Canada Cooperative, Inc. and the decline in the number of participating member retail outlets are the key contributors to the negative variance relative to the prior year. However, the gross margin as a percent of revenue increased to 11.0% in 2002 from 10.1% for 2001. The shift in the sales mix to warehouse sales from vendor direct orders and certain product price increases initiated in September 2001 contributed to the increase in gross margin as a percent of revenue. Price reductions commenced in October 2002. The indirect cost of revenues favorably impacted the gross margin dollars as a result of distribution center closures and headcount reduction, which reduced the direct inbound logistics costs and labor and related overhead incurred to bring merchandise to the distribution centers. Additional impact to gross margin was due to a reduction in advertising support fees of $7,956, which was partially offset by a reduction in gross advertising costs of $2,868. These reductions relate to lower member participation in the distribution of direct mail circulars but cost was partially offset by additional network advertising for the new power event promotions.
$ EXPENSE 2002 2001 DECREASE ------- ------- --------- Logistics and manufacturing............................. $60,924 $79,970 $19,046
Logistics (outbound to members' stores) and manufacturing (the paint business) expenses decreased $19,046, or 23.8%, as compared to the prior year. Approximately $11,223 of this decrease resulted from the exclusion of expenses associated with TruServ Canada Cooperative, Inc., which was sold in October 2001. An additional $3,444 was due to the closure of several distribution centers in late 2001 through 2002, in response to a reduction in the member base. Also, a decrease of approximately $4,388 was caused by lower expense spending related to the manufacturing operations, predominately related to lower advertising. In 2003, as a result of the sale leaseback of seven facilities at the end of 2002, rent expense will be increased by a net of $11,786, which includes an increase in gross rent charges of $14,564 offset by the amortization of the gain on the sale of these facilities of $2,778. Additionally, depreciation expense will decrease by approximately $2,585 in 2003 as a result of the sale leaseback of these facilities.
$ EXPENSE 2002 2001 DECREASE ------- -------- --------- Selling, general and administrative.................... $92,948 $137,533 $44,585
Selling, general and administrative expenses ("SG&A") decreased by $44,585, or 32.4%, in 2002, as compared to the prior year. TruServ achieved significant reductions in SG&A as a result of lower labor cost and reduced benefit expenses. TruServ's restructuring initiatives in 2000 and 2001, which included headcount reductions, generated a savings of $4,090 in labor costs. The $15,126 reduction in benefit plan costs were generated from lower headcount, changes in the benefits, a reduction in pension settlements with terminated employees, and the elimination in 2002 of the requirement in 2001 to cover exposure of an insurance carrier in liquidation. An additional reduction of $6,041 in SG&A expenses for fiscal 2002, as compared to fiscal 2001, is the result of lower bad debt expense due to TruServ's improved ability to collect receivables. Also in 2002, 21 TruServ adopted SFAS No. 142, "Goodwill and Other Intangible Assets", which changed the accounting for goodwill from an amortization method to an impairment only approach. Goodwill amortization for fiscal year 2001 was $2,577. Other areas of reductions in SG&A include lower refinancing fees of $7,368, lower software license fees of $2,483 relating to retail point of sale software and lower non-restructuring related severance of $1,386.
$ EXPENSE 2002 2001 DECREASE ------ ------- --------- Restructuring charges and other related expenses......... $6,284 $38,522 $32,238
In fiscal 2002, TruServ incurred restructuring and other related charges of $6,284, of which $3,313 related to restructuring, and $2,971 related to other post-employment and asset impairment charges. The restructuring charge of $3,313 in fiscal 2002 resulted from TruServ's continued workforce reductions initiated in fiscal 2000 and 2001 and related to distribution center closures and workforce reductions in the organization. This charge was comprised of $2,316 for severance and $2,296 for facility exit costs, offset by a $1,299 reduction in asset impairment charges. The severance charges of $2,316 primarily consisted of additional workforce reductions at the corporate headquarters in Chicago, Illinois. The facility exit costs of $2,296 related to exiting the Hagerstown, Maryland distribution center, which was completed prior to December 31, 2002. The $1,299 reduction of asset impairment charges consisted of a $927 favorable adjustment to the asset value for the closing of the of the Brookings, South Dakota distribution center, based on actual proceeds received on the sale of this facility in 2002. It also included a $372 favorable adjustment relating to the transfer of certain Hagerstown, Maryland equipment to other facilities, the value of which had been fully reserved in 2001. The other charges of $2,971 consisted of $1,769 for asset impairment and $1,202 for post-employment charges. The asset impairment charge of $1,769 related to the write-down of the East Butler, Pennsylvania facility. The post-employment charge of $1,202 was comprised of $352 relating to severance charges for the Cary, Illinois facility, and $850 relating to severance charges for the corporate headquarters in Chicago, Illinois. In fiscal 2001, TruServ recorded a charge to income of $38,522, of which $10,722 was for severance, $18,901 was for facility exit costs for the distribution centers, and $8,899 was for asset impairments. The largest component of these exit costs related to the Hagerstown, Maryland distribution center closure, which is subject to a synthetic lease. The difference of approximately $14,800 between the lease obligation at December 31, 2001 of $40,000 and management's estimate of the fair value of the building was the major component of its facility exit costs in 2001. This obligation and the original cost of the facility are not recorded on TruServ's balance sheet because it does not meet the requirement for capital lease treatment under Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." At December 31, 2002, the synthetic lease had a balance of $33,383, which is due at the end of the amended lease term, which is the earlier of December 31, 2003 or the termination of the existing revolving credit facility. A summary of restructuring charges, related uses of reserves and ending reserve balances is as follows:
ADDITIONAL DECEMBER 31, 2001 RESTRUCTURING ADJUSTMENT DECEMBER 31, 2002 RESTRUCTURING CHARGES/ TO RESTRUCTURING RESERVE (CREDITS) ASSET VALUE (PAYMENTS) RESERVE ----------------- ------------- ----------- ---------- ----------------- ($ IN THOUSANDS) Severance and outplacement....... $ 8,270 $ 2,316 $ -- $ (6,345) $ 4,241 Facility exit costs.............. 17,979 2,296 -- (9,245) 11,030 Asset impairments................ -- (1,299) 1,299 -- -- ------- ------- ------ -------- ------- $26,249 $ 3,313 $1,299 $(15,590) $15,271 ======= ======= ====== ======== =======
As a result of the restructuring and other efforts, estimated annualized cost saving of $28,957 were related to charges reserved through 2001, with $4,350 of cost saving relating to additional reserve charges in 2002. Headcount reductions of 909 were related to charges reserved through 2001, with additional headcount 22 reductions of 80 related to charges reserved for in 2002. The following chart highlights these saving and reductions by facility:
ESTIMATED ANNUALIZED SAVINGS HEADCOUNT REDUCTIONS ----------------------------- --------------------------- THROUGH 2002 THROUGH 2002 2001 ADDITIONS TOTAL 2001 ADDITIONS TOTAL ------- --------- ------- ------- --------- ----- ($ IN THOUSANDS) Henderson, North Carolina.............. $ 798 $ -- $ 798 102 102 Indianapolis, Indiana.................. 1,476 1,476 94 94 Brookings, South Dakota................ 4,041 4,041 166 166 Hagerstown, Maryland................... 7,545 172 7,717 331 1 332 Corporate Headquarters................. 15,097 4,178 19,275 216 79 295 ------- ------ ------- --- -- --- Totals................................. $28,957 $4,350 $33,307 909 80 989 ======= ====== ======= === == ===
$ EXPENSE 2002 2001 DECREASE ------- ------- --------- Interest expense: Member............................................... $ 6,611 $ 7,842 $1,231 Third Parties........................................ 55,284 55,431 147
Interest paid on member debt decreased by $1,231, or 15.7%, as compared to the prior year, due to a decrease in the average balance of debt outstanding of approximately $26,628, which was partially offset by a higher average interest rate (8.49% average in 2002 compared to 7.50% average in 2001). Third party interest expense decreased by $147, or 0.3%, as compared to the prior year. TruServ experienced an interest expense savings of $11,629, as a result of the lower average balance of senior debt outstanding as compared to 2001. However, this amount was substantially offset by higher financing fee amortization and higher interest rates, which increased the effective interest rate by approximately 2.9%, as compared to 2001 resulting in increased interest expense of $11,482. TruServ achieved the lower average debt balances in 2002 by generating cash from operations and asset sales. These amounts were offset in part, however, by the fees resulting from TruServ amending its existing credit facility and senior note agreements due to the debt covenant violation under these agreements in 2001. As a result of various debt paydowns during 2002 from cash received from asset sales, 2003 interest expense will be reduced by $14,600, offset by additional make-whole and financing fee amortization of $6,100, for a net reduction of $8,500. Of this $8,500 reduction, the paydown of third party debt with cash received from the sale leaseback of seven regional distribution centers in December, 2002 will reduce interest expense by $12,500, offset by additional make-whole and financing fee amortization of $5,600, for a net reduction of $6,900. The remaining reduction in interest expense of $1,600 is from the paydown of debt in 2002 with cash proceeds from other asset sales and notes receivable in 2001 and 2002, which reduced interest expense by $2,100, offset by additional make-whole and financing fee amortization of $500.
$ GAIN 2002 2001 DECREASE ---- ------- -------- Loss/(gain) on sale of assets.............................. $91 $(1,958) $(2,049)
Loss/(gain) on sale of assets decreased $2,049, from a gain of $1,958 in 2001 to a loss of $91 in 2002. The variance was mainly due to the nonrecurrence of fiscal 2001 gains of $1,588 and $472 recorded upon the sale of TruServ's Canadian business and the Indianapolis distribution center, respectively.
$ NET MARGIN 2002 2001 INCREASE ------- -------- -------- Net margin/(loss)...................................... $21,153 $(50,687) $71,840
The net margin in 2002 was $21,153 compared to a net loss of $50,687 in 2001, an increase in net margin/(loss) of $71,840. Net margin/(loss) was favorably impacted by the closure of distribution centers and headcount reductions that occurred from the restructuring activities in 2001, the non-recurrence of the 23 significant 2001 restructuring charges and a better gross margin percentage. These favorable impacts were partially offset by the loss of participating member retail outlets. FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000 RESULTS OF OPERATIONS REVENUES AND GROSS MARGINS A reconciliation of revenue and gross margin between 2001 and 2000 follows:
% OF NET 2000 NET GROSS GROSS MARGIN % REVENUES REVENUES MARGIN OF REVENUE ----------- -------- -------- -------------- ($ IN THOUSANDS) Fiscal year 2000 results...................... $ 3,993,642 100.0% $277,397 6.9% Lumber and building materials business(1)..... (1,063,680) (26.6) (18,196) Canadian business(2).......................... (24,611) (0.6) (3,251) Terminated members............................ (184,223) (4.6) (20,384) New members................................... 26,436 0.7 3,116 Same store sales: Warehouse and relay revenues................ (10,665) (0.3) 12,941 Vendor direct revenues...................... (110,875) (2.8) (824) Advertising, transportation and other revenues.................................... (6,590) (0.2) (493) Indirect cost of revenues..................... -- -- 13,728 ----------- ----- -------- Total change.................................. (1,374,208) (34.4) (13,363) ----------- ----- -------- Fiscal year 2001 results...................... $ 2,619,434 65.6% $264,034 10.1% =========== ===== ======== ====
- --------------- (1) This business was sold on December 29, 2000. (2) This business was sold on October 22, 2001. A reconciliation of gross margin percentage between 2001 and 2000 follows:
GROSS % OF MARGIN % CHANGE -------- ------ Fiscal year 2000 results.................................... 6.9% Effect of sale of lumber and building materials business.... 1.9 61.7% Effect of shift from vendor direct to warehouse and relay sales..................................................... 0.7 22.1 All other................................................... 0.6 16.2 ---- ----- Total change................................................ 3.2 100.0% ---- ===== Fiscal year 2001 results.................................... 10.1% ====
Revenues for 2001 totaled $2,619,434. This represented a decrease in revenues of $1,374,208 or 34.4% from 2000. The key contributors to the decrease in revenue were the sale of the lumber and building materials business to BMA in December 2000, the sale of TruServ Canada Cooperative, Inc. in October 2001, and the 11% decline in the number of participating member retail outlets in 2001 resulting in a 4.6% sales decline. The remaining revenue reduction occurred in same store sales, with 90% of this decrease in direct sales to members, which generated approximately a 1% gross margin for TruServ before consideration of vendor volume rebates on purchases. The reduction in direct sales was partially due to a shift in member purchases to warehouse sales. Certain marketing programs and sales initiatives, together with the impact of a slow down in the national economy, had encouraged members to buy in the smaller quantities that are available by purchasing merchandise from the distribution centers. This trend favorably improved the sales mix toward more warehouse sales from the less profitable direct sales. 24 Gross margin for 2001 totaled $264,034. This represented a decrease in gross margin dollars of $13,363, or 4.8%, as compared to 2000. The sale of the lumber and building materials business, the sale of TruServ Canada Cooperative, Inc. and the decline in the number of participating member retail outlets were the key contributors to the negative variance relative to the prior year. However, the gross margin as a percent of revenue increased to 10.1% in 2001 from 6.9% in 2000. The shift in the sales mix to warehouse sales from vendor direct orders, a reduction in member returns and allowances, and certain product price increases contributed to the increase in gross margin as a percent of revenue. The indirect cost of revenues favorably impacted the gross margin dollars, as a result of the closure of distribution centers and headcount reduction, which reduced the direct inbound logistics costs and labor and related overhead incurred to bring merchandise to the distribution centers. The reduction in member returns and allowances was principally due to a change in processes resulting in fewer shipping errors. Additional favorable impact to gross margin was due to a reduction in gross advertising costs of $23,400, which was partially offset by a reduction in advertising support fees of $12,527. These reductions relate to lower member participation in the distribution of direct mail circulars and a reduction in network advertising.
$ EXPENSE 2001 2000 DECREASE ------- ------- --------- Logistic and manufacturing expenses..................... $79,970 $83,276 $3,306
Logistics (outbound to members' stores) and manufacturing expenses decreased $3,306, or 4.0%, as compared to the prior year primarily due to the closure of distribution centers, headcount reductions and a reduction in the member base.
$ EXPENSE 2001 2000 INCREASE -------- -------- --------- Selling, general and administrative expenses......... $137,533 $124,584 $(12,949)
SG&A increased by a net $12,949, or 10.4%, in 2001, as compared to 2000. Health and pension benefit costs increased $8,894 due to pension settlements with terminated employees and a decline in the expected investment return on plan assets. Software license fees related to retail point of sale software increased $3,553. Financing and legal costs, including consulting and legal fees related to the debt covenant violation under the senior debt agreements and other legal matters, were $9,337. The aggregate of this increase, $21,784, was partially offset principally by $7,146 of lower corporate staff expenses due to headcount reductions that were part of the 2000 and 2001 restructuring initiatives and $4,511 of lower headcount and operational expenses as a result of the December 2000 sale of the lumber and building materials business.
$ EXPENSE 2001 2000 INCREASE ------- ------ --------- Restructuring charges and other related expenses........ $38,522 $4,944 $(33,578)
In fiscal 2001, TruServ continued the workforce reductions initiated in fiscal 1999 and 2000 related to regional distribution center closures and workforce reductions at its corporate headquarters. TruServ recorded a charge to income of $38,522 in fiscal 2001. The charge is comprised of $10,722 for severance, $8,899 for asset impairments related to the regional distribution centers based upon current estimates of the market values of the assets compared to their book values and $18,901 of facility exit costs related to the regional distribution center closures. The largest component of these exit costs relates to the Hagerstown, Maryland distribution center closure, which is subject to a synthetic lease. The synthetic lease had a principal balance of $40,000 at December 31, 2001, which is due at the end of the lease term, which is the earlier of December 31, 2003 or the termination of the existing credit facility. This obligation and the original cost of the facility are not recorded on TruServ's balance sheet because it does not meet the requirement for capital lease treatment under Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." The difference between the lease obligation and management's estimate of the fair value of the building as of December 31, 2001 was approximately $14,800 and was the major component of its facility exit costs. In fiscal 2000, TruServ recorded a restructuring charge of $4,944, approximately $2,000 of which was related to the closures of the Henderson, North Carolina and the Indianapolis, Indiana distribution centers. The closures of Henderson and Indianapolis were completed by the end of fiscal 2001. The closures of the 25 Brookings and Hagerstown regional distribution centers were expected to be substantially completed by the end of fiscal 2002. Brookings was vacated and sold in the third quarter of fiscal 2002; Hagerstown was vacated in December 2002 and is currently for sale. A summary of restructuring charges, related uses of reserves and ending reserve balances is as follows:
DECEMBER 31, 2000 ADDITIONAL DECEMBER 31, 2001 RESTRUCTURING RESTRUCTURING ASSET RESTRUCTURING RESERVE CHARGES IMPAIRMENT PAYMENTS RESERVE ----------------- ------------- ---------- -------- ----------------- ($ IN THOUSANDS) Severance and outplacement... $ 861 $10,722 $ -- $(3,313) $ 8,270 Facility exit costs.......... 1,051 18,901 -- (1,973) 17,979 Asset impairments............ -- 8,899 (8,899) -- -- ------ ------- ------- ------- ------- $1,912 $38,522 $(8,899) $(5,286) $26,249 ====== ======= ======= ======= ======= ESTIMATED ANNUALIZED HEADCOUNT SAVINGS REDUCTION ---------- --------- ($ IN THOUSANDS) Severance and outplacement... Facility exit costs.......... Asset impairments............ $28,957 909 ======= ===
$ EXPENSE 2001 2000 DECREASE ------- ------- --------- Interest expense: Members............................................... $ 7,842 $11,131 $3,289 Third Party........................................... 55,431 56,575 1,144
Interest expense to members decreased by $3,289, or 29.5%, as compared to the prior year, primarily due to a lower average principal balance of debt outstanding to members. Third party interest expense decreased by $1,144, or 2%, as compared to prior year. The interest expense savings from the lower average principal balance of senior debt outstanding, as compared to the prior year, was offset by the interest rate increase of approximately 2% imposed as a result of the debt covenant violation under the revolving credit facility and the senior note agreements. As a result of this default interest rate, TruServ incurred additional interest expense of $6,779 in fiscal 2001.
$ GAIN 2001 2000 DECREASE ------- -------- -------- Loss/(gain) on sale of assets......................... $(1,958) $(30,337) $(28,379)
Loss/(gain) on sale of assets decreased $28,379. The variance was due to the nonrecurrence of the gain of $28,981 recorded upon the sale of TruServ's lumber and building materials business in December 2000.
$ OTHER INCOME 2001 2000 DECREASE ------ ------ -------------- Other income, net..................................... $3,996 $7,809 $3,813
Other income decreased by $3,813, due principally to the nonrecurrence of a gain of $4,999 recorded in fiscal 2000 from the settlement of certain pension obligations to fully vested employees through the purchase of annuity contracts.
$ NET MARGIN 2001 2000 DECREASE -------- ------- ------------ Net margin/(loss).................................... ($50,687) $34,117 ($84,804)
The net loss in 2001 was $50,687, as compared to a net margin of $34,117 in 2000, reflecting a decrease in net margin of $84,804. Net margin was unfavorably impacted from gain on the sale of the lumber and building materials business in fiscal year 2000, TruServ's significant restructuring charges, the loss of member retail outlets, and the financing and legal cost related to the debt covenant violation. These unfavorable impacts to net margin were partially offset by a better gross margin percentage and the favorable impacts from TruServ's restructuring initiative. 26 LIQUIDITY AND CAPITAL RESOURCES In 2001, the Commission issued Financial Reporting Release No. 61, which sets forth the views of the Commission regarding certain disclosures relating to liquidity and capital resources. The information provided below describing TruServ's debt, credit facilities, guarantees and future commitments is included in order to facilitate a review of TruServ's liquidity. TruServ generated cash from operating activities for the fiscal year 2002, 2001 and 2000 in the amounts of $104,095, $179,441 and $83,573, respectively. The cash generated from the decrease in inventory in fiscal year 2002, 2001 and 2000 was $99,528, $100,692 and $38,752, respectively. TruServ generated cash in 2002 and 2001 through initiatives to improve inventory turns and eliminate excess and/or obsolete inventory, as well as a result of closing regional distribution centers, which in turn reduced stock levels. In addition, TruServ initiated several inventory reduction programs to keep inventory levels in line with a reduction in membership. TruServ generated cash in 2000 principally from distribution network consolidation to respond to the decline in sales. While not as significant as the decline that occurred in 2002, TruServ is forecasting a decline in inventory of $10,000 for 2003, as it continues to improve inventory turns and assortment and to respond to the decrease in the number of participating member outlets. TruServ generated cash from the decrease in accounts and notes receivable for the fiscal year 2002, 2001 and 2000 in the amount of $32,926, $127,000 and $52,187, respectively. TruServ's 13 month average member receivable DSO (Days Sales Outstanding) was 39.7, 43.9 and 41.3 days for 2002, 2001 and 2000, respectively. The cash improvement in 2002 was related to the improved DSO of 4.2 days. In fiscal 2001, the sale of the lumber and building materials business significantly impacted both cash generated from accounts and notes receivable and DSO. The sale of the lumber and building materials business accounted for approximately $64,000 of cash generated in 2001 and caused the DSO to increase since that business' average terms were approximately 20 days, which was lower than TruServ's average DSO. The remaining decrease in accounts and notes receivable is mainly due to a decline in sales, change in sales mix from direct sales to warehouse sales, and the implementation of improved collection efforts. In fiscal 2000, the decrease in accounts and notes receivable is related both to a decline in sales and to the implementation of improved collection efforts. The other significant impact in operating activities was in accounts payable. In fiscal 2002, 2001 and 2000, cash used to fund the decrease in accounts payable was $52,091, $92,216 and $81,944, respectively, which partially offset the cash generated from inventory and accounts receivable. The decrease in fiscal 2002 is primarily due to the lower inventory purchases. The decrease in fiscal 2001 is partially due to the reduction of lumber vendors resulting from the sale of the lumber and building materials business, which accounts for approximately $39,000 of the decrease. The remaining decrease is a result of lower inventory purchases. The decrease in fiscal 2000 is related both to lower inventory purchases and to lower accounts and notes receivable related to direct sales. TruServ generated cash flows from investing activities for fiscal year 2002 in the amount of $145,960. Cash flows used for investing activities for the fiscal year 2001 and 2000 were $26,502 and $1,954, respectively. Investing activities include capital expenditures, proceeds from sales of properties, restricted cash activities and changes in other assets. Total capital expenditures, including expenditures under capital leases, were $12,838 for the fiscal year ended December 31, 2002, as compared to $15,151 and $12,526 for the fiscal years ended December 31, 2001 and December 31, 2000, respectively. Capital expenditures are comprised of various building improvements and purchases of additional equipment and technology at TruServ's distribution centers and at its corporate headquarters. TruServ has forecasted that the capital expenditure investment for fiscal 2003 will approximate fiscal 2002 spending for capital expenditures. In fiscal 2002, the gross proceeds from the sale of properties were $127,941, which principally related to the sale leaseback of seven properties (See Note 13 to the Consolidated Financial Statements beginning at page F-1) and the sale of the Brookings, South Dakota distribution center. In fiscal 2001, the proceeds from sale of properties were $10,511, which were generated from the sale of TruServ Canada Cooperative, Inc. and the sale of its Indianapolis, Indiana property. In fiscal 2000, the proceeds from the sale of properties were $23,113. The principal amount of cash generated in 2000 was from the sale of the lumber and building materials business on December 29, 2000 in 27 the amount of $13,948. Additionally, TruServ generated additional cash from this transaction in the amount of $5,164 pursuant to non-competition, cooperation, lease and other agreements. Restricted cash consisted of the following at December 31:
2002 2001 ------- ------- ($ IN THOUSANDS) Letters of credit........................................... $11,691 $11,392 Proceeds from sale of assets available for debt reduction by the collateral agent...................................... 39 10,906 Lockbox cash management deposit requirements................ 4,025 4,000 Redeemable (subordinated) notes............................. -- 1,746 Escrow...................................................... -- 1,031 ------- ------- $15,755 $29,075 ======= =======
TruServ finances its requirements for letters of credit with cash deposited and invested at the issuing bank. TruServ partially secures its requirement for banking services by maintaining invested cash deposits with its cash management banks. The intercreditor agreement amended in April 2002 with TruServ's lenders requires TruServ to hold the proceeds from the sale of certain assets in a restricted cash account invested with the collateral agent to be used for debt reduction. These proceeds were held by the collateral agent in fiscal 2001 and distributed after the Senior Debt agreements were amended in April 2002. TruServ generated cash flows from operating and investing activities in 2002 and from operating activities in 2001 and 2000 and used them primarily for financing activities. In particular, TruServ applied the cash flow to reducing its long-term and short-term financing and the level of outstanding checks at year end, which collectively were $329,870, $79,614, and $67,943 for fiscal year 2002, 2001 and 2000, respectively. In fiscal 2002, short-term borrowings for financing activities used cash of $113,903, as a result of TruServ maintaining the revolving credit facility borrowings at $140,000 at December 31, 2001. Of the $140,000 of borrowings outstanding, $57,000 was held in cash and was recorded in cash and cash equivalents at December 31, 2001. TruServ is forecasting an additional paydown of debt of $80,000 in fiscal year 2003. TruServ plans to refinance its senior debt by March 31, 2004. TruServ's total debt, including member subordinated notes, whose long-term component is a component of Members' capitalization, was $256,201 and $514,287 at December 31, 2002 and 2001, respectively. TruServ achieved this reduced level of debt with cash generated from operations, reduction in excess cash, asset sales and sale leaseback transaction proceeds. See "Properties -- Sale Leaseback Transaction." TruServ's debt consisted of the following at December 31:
2002 2001 -------- -------- ($ IN THOUSANDS) Short-term borrowings....................................... $ 27,852 $141,755 Senior notes................................................ 158,920 279,429 Redeemable (subordinated) term notes........................ 3,296 7,819 Capital lease obligations................................... 1,247 2,678 Promissory (subordinated) and installment notes(1).......... 64,886 82,606 -------- -------- 256,201 514,287 Cash and cash equivalents borrowed and available to reduce debt(2)................................................... -- (57,000) -------- -------- Adjusted debt outstanding................................... $256,201 $457,287 ======== ========
- ------------------------- (1) $43,531 and $42,973 of amounts shown as of December 31, 2002 and 2001, respectively, are reflected in member capitalization on the balance sheet as of the respective dates. (2) See "Excess cash" in next table. 28 The change in TruServ's debt balances were as follows for fiscal years ending December 31:
2002 2001 --------- -------- ($ IN THOUSANDS) Beginning balance........................................... $ 514,287 $554,210 Miscellaneous asset sale payments (net of makewhole of $5,989)................................................... (27,802) -- Sale leaseback payments (net of makewhole of $12,695)(1).... (103,624) -- Excess cash................................................. (57,000) 57,000 Paydown from cash generated from operations, net of other uses...................................................... (69,660) (96,923) --------- -------- Ending balance.............................................. $ 256,201 $514,287 ========= ========
- ------------------------- (1) Excludes prepayments on synthetic lease obligation of $5,119. TruServ had outstanding borrowings under its revolving credit facility agreement of $27,852 and $140,000 at December 31, 2002 and 2001, respectively. The $140,000 outstanding as of December 31, 2001 included approximately $57,000 of cash recorded in cash and cash equivalents that was available to reduce outstanding borrowings to $83,000. The weighted average interest rate on these borrowings was 8.3% and 9.9% for the years ended December 31, 2002 and 2001, respectively. The 2001 average interest rate reflects the inclusion of a 2% default premium. The 2002 average interest rate includes the impact of 3 primary factors: the elimination of the 2% default rate as of the April 2002 amendment, the periodic decline in the prime rate, partially offset by higher base rate and fees instituted in the April 2002 amendments. TruServ's Hagerstown, Maryland distribution center is subject to a synthetic lease. The synthetic lease had a principal balance of $33,383 as of December 31, 2002, which is due at the end of the amended lease term, which is the earlier of December 31, 2003 or the termination of the existing revolving credit facility. This obligation and the original cost of the facility are not recorded in TruServ's balance sheet because the synthetic lease does not meet the requirement for capital lease treatment under SFAS No. 13, "Accounting for Leases." The difference between the lease obligation and management's estimate of the fair value of the building at December 31, 2002 is approximately $8,183 and is the current balance in the restructuring reserve that was accrued in Fiscal 2001. The principal payment schedule for long-term debt, promissory and installment notes is as follows:
2003(1) 2004 2005 2006 2007 THEREAFTER ------- ------- ------- ------- ------- ---------- ($ IN THOUSANDS) Senior notes(1)....................... $34,833 $22,138 $24,852 $24,566 $24,566 $27,965 Redeemable (subordinated) term notes(2)(3)......................... 3,185 111 -- -- -- -- Capital lease obligations............. 424 441 311 71 -- -- Promissory (subordinate) and installment notes issued to members(2).......................... 21,322 19,998 23,565 -- -- -- ------- ------- ------- ------- ------- ------- $59,764 $42,688 $48,728 $24,637 $24,566 $27,965 ======= ======= ======= ======= ======= =======
- ------------------------- (1) In addition to the scheduled principal payments, TruServ is obligated under the terms of the amended debt agreements to use the net proceeds from the sale of assets or other non-operating sources to pay to the senior note holders as well as the revolving credit facility banks their prorata share of the net proceeds. This will reduce principal amounts outstanding and the revolver commitment level, respectively. The terms of the revolving credit facility will accelerate to June 30, 2003 from June 30, 2004, if on that date, total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, is in excess of $270,000, or total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, plus the unused amount of the commitment under the revolving credit facility, less $30,000, is in excess of $320,000. See Footnote 4 "Long-term Debt and Borrowing Arrangements" to the Consolidated Financial Statements beginning at page F-1. At December 31, 2002, the total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, was $167,965 and the related commitments 29 outstanding less $30,000 totaled $253,323. Although the revolver portion of total Senior Debt outstanding can fluctuate with the seasonal cash flow requirements of the business, TruServ believes it will maintain a sufficiently low level of Senior Debt outstanding with cash from operating activities to continue to meet the June 30, 2003 requirement. Management currently intends to pursue a refinancing of the existing Senior Debt in the first half of 2004. (2) Amounts shown are the scheduled repayments on the subordinated notes. However, the amended debt agreements limit the aggregate payments on the subordinated notes to $24,000 in 2002 and $14,000 in 2003. TruServ paid an aggregate of $17,765 with respect to the subordinated notes in 2002. While the scheduled repayments on the subordinated notes aggregated $44,244, TruServ was able, with the consent of the holders thereof, to extend the maturity date of the other subordinated notes that came due in 2002 and, thus, comply with the covenant in the amended debt agreements. In 2003, TruServ expects to again seek the consent of the holders in order to extend a portion of the notes due in 2003, in order to comply with the amended debt agreements. (3) The redeemable (subordinated) term notes have two to four year terms and were issued in exchange for promissory (subordinated) notes that were held by promissory note holders who do not own the company's Redeemable Class A voting common stock. They are also available for purchase by investors that are affiliated with TruServ. TruServ intends to both honor the amounts outstanding under the member note agreements and not exceed the maximum allowable payments of $14,000 in fiscal 2003 under the revolving credit facility and senior note agreements through the consent of the holders of the member notes, to extend a portion of the notes due in 2003. If TruServ exceeds the maximum allowable payments of $14,000 in fiscal 2003, or violates any negative covenant, it is an event of default under the revolving credit facility and senior note agreements. Unless appropriate waivers were obtained from TruServ's lenders, the amounts due under the revolving credit facility and senior note agreements could become immediately due and payable or the agreements could have to be renegotiated. However, there can be no assurances that TruServ would be able to obtain the requisite waivers or successfully renegotiate its lending agreements. In the event TruServ was unable to obtain the requisite waivers or successfully renegotiate its lending agreements, a material adverse effect on TruServ's liquidity and capital resources could result. On December 30, 2002, TruServ amended the Senior Debt agreements that had previously been amended in April 2002 in order to allow for a sale leaseback transaction that was completed on December 31, 2002 (the "December 2002 Amendments"). TruServ applied the net proceeds of the sale leaseback transaction, $121,438, to pay down the Senior Debt, all of whom are parties to the intercreditor agreement. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment on senior notes. The December 2002 Amendments mainly set preliminary financial covenants to allow for the substantial reduction in debt and the corresponding increase in rent payments resulting from the sale leaseback transaction. On March 13, 2003, TruServ amended the Senior Debt agreements that had previously been amended on December 30, 2002 (the "March 2003 Amendments"). The March 2003 Amendments primarily finalized the financial covenants resulting from the sale leaseback transaction and extended the maturity date of the Hagerstown facility's synthetic lease obligation to the earlier of December 31, 2003 or a refinancing of the revolving credit facility. See Note 5, "Lease Commitments" and Note 16, "Subsequent Events" to the Consolidated Financial Statements beginning at page F-1. The Senior Debt agreements were previously amended on April 11, 2002, when TruServ entered into various amendments that eliminated the event of default created when TruServ failed to comply with a covenant as of February 24, 2001 (the "April 2002 Amendments"). The April 2002 Amendments to the revolving credit facility extended the term of the facility from June 2002 to June 2004. The amount of the commitment at the time of amendment was $200,000. The commitment under the revolving credit facility is permanently reduced by the amount of any prepayments allocated to and paid on the revolving credit facility. Borrowings under the revolving credit facility are subject to borrowing base limitations that fluctuate in part with the seasonality of the business. The borrowing base formula limits advances to the sum of 85% of eligible accounts receivable, 50% of eligible inventory, 60% of the appraised value of eligible real estate and 30 50% of the appraised value of eligible machinery and equipment; availability is further increased by seasonal over-advances and decreased by reserves against availability. The revolving credit facility has certain minimum unusable commitment amounts, which vary based upon the projected seasonal working capital needs of TruServ. The interest rate on the revolving credit facility was increased to the prime rate plus 3.25% resulting in a rate of 7.5% as of December 31, 2002. The unused commitment fee is 0.75% per annum. Since the April 2002 Amendments, the revolving credit facility commitment has been permanently reduced to $143,200 at December 31, 2002 due to prepayments in 2002 from the proceeds of asset sales. TruServ had available, under the revolving credit facility, approximately $115,300 at December 31, 2002. The April 2002 Amendments to the various senior note agreements maintained the existing debt amortization schedules of the various notes. Interest rates on the notes are at the pre-default rates, which ranged at December 31, 2002 from 10.04% to 11.85%. The senior notes and revolving credit facility amendments also require initial, quarterly and annual maintenance fees. All of the cash proceeds from certain asset sales and certain notes receivable; and 80% of any excess cash flow, as defined in the amended senior notes and revolving credit facility agreements, are to be used to prepay all parties to these amendments in accordance with an amended intercreditor agreement. For 2002, cash proceeds from certain asset sales and notes receivable totaling $157,312 were used to prepay all parties to the intercreditor agreement. No additional payment as a result of excess cash flow is required to be made at this time. The intercreditor agreement establishes how the assets of TruServ, which are pledged as collateral, are shared and how certain debt prepayments are allocated among the senior lenders. For the year ended December 31, 2002, the prepayments to senior note holders of $93,915 resulted in make-whole liabilities of $18,710, which are recorded as additional debt with an offsetting entry to a prepaid interest account. As previously described, the $12,695 of make-whole notes from the sale leaseback transaction, is a component of the $18,710. The prepaid interest account will be amortized to interest expense over the remaining life of the original notes. The terms of the senior note agreements, that comprise a portion of the Senior Debt, have always provided that in the event of early termination or a prepayment of all or a portion of the notes, make-whole liabilities are triggered. The nature of the transaction giving rise to the prepayment, the length of time to maturity of a particular note, the magnitude of the prepayment relative to the remaining debt outstanding and prevailing market interest rates relative to the interest rates on the senior notes are factors in determining the amount of potential make-whole liabilities. In the event of full prepayment of the senior notes, the entire prepaid interest amount will be immediately charged to interest expense. Management currently intends to pursue a refinancing of the existing Senior Debt in the first half of 2004. Management anticipates significantly lower interest rates upon refinancing. However, based upon current market interest rate, make-whole expense of a refinancing, before considering the impact of any negotiations with the senior note holders, could range up to approximately $27,000, in addition to fully expensing the remaining prepaid balance of existing make-whole, which was $17,864 at December 31, 2002. TruServ management negotiated a reduction of approximately 50% in the make-whole notes when it made prepayments on the senior notes from the proceeds of the sale leaseback transaction. The April 2002 Amendments all require TruServ to meet certain restrictive covenants relating to minimum sales, minimum adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), minimum fixed charge coverage, minimum interest coverage and maximum capital expenditures. The senior note holders may accelerate the due date of their notes, if TruServ does not have a revolving credit facility in place to fund its seasonal cash flows. As described above, some of these covenants were adjusted in March 31 2003, as a result of the sale leaseback transaction. TruServ was in compliance with all of these covenants as of December 31, 2002 as shown in the chart below:
RESTRICTIVE COVENANT COVENANT ACTUAL - -------------------- ---------- ---------- ($ IN THOUSANDS) Minimum sales............................................... $1,975,000 $2,175,451 Minimum adjusted EBITDA..................................... $ 100,000 $ 120,062 Minimum fixed charge coverage............................... 0.70 1.01 Minimum interest coverage................................... 1.75 1.97 Maximum capital expenditures................................ $ 16,000 $ 12,838
TruServ believes it will continue to remain in compliance with its debt covenants. For fiscal 2003, TruServ believes operating results will be sufficient to comply with the covenants established in the March 2003 Amendments. The term of the revolving credit facility will accelerate to June 30, 2003 from June 30, 2004, if on that date, total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, is in excess of $270,000, or total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, plus the unused amount of the commitment under the revolving credit facility, less $30,000, is in excess of $320,000. At December 31, 2002, the total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes was $167,965 and the related commitments outstanding less $30,000 totaled $253,323. Although the revolver portion of total Senior Debt outstanding can fluctuate with the seasonal cash flow requirements of the business, TruServ believes it will maintain a sufficiently low level of Senior Debt outstanding with cash from operating activities to meet the June 30, 2003 requirement. The April 2002 Amendments limit the amount of the cash portion of patronage dividends to the 20% minimum required to be paid under applicable IRS regulations in order for TruServ to maintain its status as a cooperative, unless TruServ's operating performance achieves certain EBITDA targets, in which case, up to 30% of the patronage dividend may be paid in cash. TruServ exceeded the EBITDA target for 2002 and, as such, the cash portion of the 2002 patronage dividend paid in 2003 averaged 30%. The April 2002 Amendments also require the continuation of the stock redemption moratorium through June 30, 2004. Further, it is an event of default under the April 2002 Amendments to exceed certain levels of subordinated note payments. TruServ did not exceed the maximum payment level of $24,000 in 2002 and, accordingly, was in compliance. In addition, an event of default arises under the April 2002 Amendments in the event that TruServ fails to comply with its corporate governance policy requiring the retention by TruServ of at least two outside directors prior to May 31, 2002, at least four outside directors prior to September 1, 2002 and at least five outside directors prior to November 1, 2002. As of October 7, 2002, TruServ appointed its fifth outside director and, as such, TruServ was in compliance with the corporate governance covenant as of December 31, 2002. The April 2002 Amendments also contain requirements for other customary covenants, representations and warranties, funding conditions and events of default. As of December 31, 2002, and as of the filing date of this Annual Report on Form 10-K, TruServ was in compliance with all applicable covenants and has not triggered any events of default. TruServ provides guarantees for certain member loans, but is not required to provide a compensating balance for the guarantees. TruServ is required to pay off a portion of the full amount of these loans under these guarantees, ranging from 15-50% of the member's outstanding balance, in the event that a member defaults on its loan, after which the member will be liable to TruServ for the guaranteed amount. The amount of the guaranteed portion of these member loans, which are not recorded in TruServ's balance sheet, was approximately $2,172 and $3,966 as of December 31, 2002 and 2001, respectively. The balance of $2,172 as of December 31, 2002 includes approximately $557 that will mature in fiscal 2003. The remaining guarantees will expire periodically through 2013. TruServ carries a reserve of $217 relating to these guarantees. 32 Additionally, TruServ sold certain member note receivables to a third party in 2002, which TruServ has fully guaranteed payment. TruServ is required to pay off 100% of the outstanding balance of the member note under these guarantees in the event that a member defaults on its notes, after which the member will be liable to TruServ for the guaranteed amount. The balance of these notes at December 31, 2002 was $871. TruServ has recorded a liability and related receivable for $871 relating to these member notes, and carries an $87 reserve relating to these guarantees. The balance of $871 as of December 31, 2002 includes approximately $264 that will mature in fiscal 2003. The remaining guarantees will expire periodically through 2007. Cash and cash equivalents at December 31, 2002 and 2001 were $9,001 and $88,816, respectively. As of December 31, 2001 the revolving credit facility borrowings were at $140,000, which included $57,000 of cash recorded in cash and cash equivalents that was available to reduce outstanding borrowings to $83,000. At December 31, 2002, TruServ's working capital was $84,051, as compared to $25,740 at December 31, 2001, and $91,098 at December 31, 2000. The current ratio was 1.21 at December 31, 2002, as compared to 1.04 at December 31, 2001, and 1.12 at December 31, 2000. This increase in both the working capital and the current ratio between 2002 and 2001 primarily resulted from the reduction of short-term maturities of senior debt due to a large scheduled debt payment in 2002, as well as a reduction in short term revolver debt resulting from paydowns from proceeds received from various asset sales in 2002. The decrease in the working capital between 2001 and 2000 primarily resulted from an increase in short-term maturities of senior debt in 2001 as noted above, as well as an increase in accrued liabilities in 2001 from additional restructuring charges. TruServ believes that its cash from operations and existing credit facilities will provide sufficient liquidity to meet its working capital needs, planned capital expenditures and debt obligations due to be repaid in fiscal year 2003. CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60 recently released by the SEC recommends that all registrants include a discussion of "critical" accounting policies or methods used in the preparation of financial statements. TruServ's significant accounting policies are contained in the accompanying Notes to Consolidated Financial Statements. The financial statements have been prepared in conformity with generally accepted accounting principles and, accordingly, include amounts based on informed estimates and judgments of management with due consideration given to materiality. Accordingly, actual results could differ from those estimates. The following represents those critical accounting policies where materially different amounts would be reported under different conditions or using different assumptions. - Receivables, net of valuation allowances -- At December 31, 2002, accounts receivable, net of $8,553 in allowance for doubtful accounts, were $207,709. The valuation allowance was determined based upon TruServ's evaluation of known requirements, aging of receivables, historical experience, the current economic environment and the ability of TruServ to set off against any unpaid receivable amounts due to members for stock, notes, interest and declared and unpaid dividends. While TruServ believes it has appropriately considered known or expected outcomes, its members' ability to pay their obligations, including those to TruServ, could be adversely affected by declining sales of hardware at retail resulting from such factors as contraction in the economy, loss of memberships or intense competition from chain stores, discount stores, home centers and warehouse stores. - Inventory valuation -- At December 31, 2002, inventories, net of $10,434 in valuation reserves, were $234,448, and reflect the reductions from cost in order to state inventories at the lower of cost or market. The lower of cost or market valuation considers the estimated realizable value in the current economic environment associated with disposing of surplus and/or damaged/obsolete inventories. The estimated realizable value was based on an analysis of historical trends related to distressed inventory of TruServ. This analysis considers trends to return merchandise to suppliers, transfer to other distribution centers, the sell-down of product through the price reduction process and final liquidation price. Should the current economic climate significantly contract further resulting in retailers being 33 unwilling to accept deliveries of advance orders placed (or TruServ electing not to ship inventories to those retailers where additional credit risk is not deemed appropriate), unanticipated decline in retail outlets or a significant contraction in TruServ's warehouse stock replenishment business for selected product categories, additional downward valuation adjustments could be required. The potential additional downward valuation adjustments could result from unanticipated additional excess quantities of finished goods and raw materials, and/or from lower disposition values offered by the parties who normally purchase surplus inventories. - Goodwill -- At December 31, 2002, the accompanying Consolidated Balance Sheet reflects $91,474 of goodwill. Goodwill is tested for impairment using a discounted cash flow analysis by each reporting unit. This test is completed annually, unless significant events necessitate a more frequent test. The test completed at December 31, 2002 used a discount rate of 11.15% and TruServ determined that no impairment exists. - Deferred tax assets -- At December 31, 2002, the accompanying Consolidated Balance Sheet reflects $97,685 of deferred tax assets, principally related to net operating loss carryforwards, deferred gain recognition and nonqualified notices of allocation. These deferred tax assets, net of deferred tax liabilities of $2,733, are offset by a full valuation allowance at December 31, 2002. TruServ had approximately $70,911 of tax operating loss carryforwards available to offset future taxable income. In general, such carryforwards must be utilized within 20 years of incurring the net operating loss. At December 31, 2002, TruServ concluded that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, and that a full valuation allowance is required. Deferred tax assets will only be realized to the extent future earnings are retained by TruServ and not distributed to members as patronage dividends. - Accrued expenses -- At December 31, 2002, the accompanying Consolidated Balance Sheet reflects $84,082 of accrued expenses, principally related to restructuring, pension, health and other benefits. TruServ utilized current real estate market values in writing down the value of the East Butler, Pennsylvania facility. TruServ will exit its operations in that facility during 2003, and that facility is for sale. TruServ also used current real estate market values in adjusting its obligation under a synthetic lease related to the Hagerstown, Maryland distribution center, which is closed and is for sale. Should real estate values continue to decline, an additional provision may be required. Additionally, TruServ works with an actuarial firm in the valuation of benefit obligations. TruServ selects certain actuarial assumptions on which to base the calculation of the actuarial valuation of the obligation, such as the discount rate (interest rate used to determine present value of obligations payable in the future), medical trend rate, expected return on assets and mortality tables to determine the expected future benefit obligations. The discount rate was based on an analysis of bond rates with terms that have similar durations as the pension liabilities. The medical trend rate was based on an analysis of inflation rates and medical inflation rates and the long-term trend for these rates. The expected return on assets was based on an analysis of historical real returns on TruServ's portfolio mix over 30 year periods. This analysis created a range of rates that were adjusted for a future inflation factor and the impact for trust fees and the rate used is within this range of rates. To the extent that the actual rates and mortality vary from the assumptions used to determine the present actuarial valuation of these benefits, additional provision for expense may be necessary. NEW ACCOUNTING PRONOUNCEMENTS In January 2002, TruServ adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." See Note 1 "Description of Business and Accounting Policies" to the Consolidated Financial Statements beginning at page F-1. In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement 34 costs. SFAS No. 143 is effective January 1, 2003 for TruServ. TruServ is currently evaluating the impact this standard will have on its financial statements, but does not expect the impact of its adoption to be material. In January 2002, TruServ adopted SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets," replacing SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and portions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations." SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of and changes the criteria to be met to classify an asset as held-for-sale. SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held-for-sale. The adoption of this standard did not have a material impact on TruServ's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FAS 4, 44 and 64, Amendment of FAS 13 and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt" (eliminating the extraordinary treatment of gains or losses on debt modification other than for certain exceptions), rescinds SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," amends SFAS No. 13, "Accounting for Leases" (to eliminate an inconsistency between the required accounting for sale leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale leaseback transactions) and amends other existing authoritative pronouncements (to make various technical corrections, clarify meanings or describe their applicability under changed conditions). SFAS No. 145 is effective for TruServ for fiscal 2003 but earlier application is encouraged. TruServ is currently evaluating the impact this standard will have on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS No. 146 and EITF Issue No. 94-3 relates to the requirement for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized only when the liability is incurred; under EITF Issue No. 94-3, a liability for an exit cost, as defined in EITF Issue No. 94-3, was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value and only when the liability is incurred. SFAS No. 146 is effective for TruServ for any exit or disposal activities undertaken after December 31, 2002 but earlier application is encouraged. In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 requires the disclosure of certain guarantees existing at December 31, 2002. In addition, Interpretation No. 45 requires the recognition of a liability for the fair value of the obligation of qualifying guarantee activities that are initiated or modified after December 31, 2002. Accordingly, TruServ has disclosed certain guarantees that existed at December 31, 2002 in this Annual Report on Form 10-K and will apply the recognition provisions of Interpretation No. 45 prospectively to guarantee activities initiated after December 31, 2002. See Note 6 to the Consolidated Financial Statements beginning at page F-1 for a further discussion of guarantees. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ($ IN THOUSANDS) TruServ's operations are subject to certain market risks, primarily interest rate risk and credit risk. Interest rate risk pertains to TruServ's variable rate debt with a borrowing ceiling of $143,200 at December 31, 2002; approximately $27,852 was outstanding at December 31, 2002. A 50 basis point movement in interest rates would result in an approximate $139 annualized increase or decrease in interest expense and cash flows 35 based on the outstanding balance at December 31, 2002. For the most part, TruServ manages interest rate risk through a combination of variable and fixed-rate debt instruments with varying maturities. Credit risk pertains primarily to TruServ's trade receivables. TruServ extends credit to its members as part of its day-to-day operations. TruServ believes that as no specific receivable or group of receivables comprises a significant percentage of total trade accounts, its risk in respect to trade receivables is limited. Additionally, TruServ believes that its allowance for doubtful accounts is adequate with respect to member credit risks. TruServ has no investments in derivative instruments and performs no speculative hedging activities. TruServ does not have any special purpose entities ("SPE's") and all related party transactions (i.e., transactions with members) are at arm's length. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ($ IN THOUSANDS) TruServ's consolidated financial statements and report of independent accountants are listed in the index on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS AND EXECUTIVE OFFICERS The directors and senior executive officers (officers who report directly to the CEO) of TruServ are:
POSITIONS HELD AND NAME AGE BUSINESS EXPERIENCE ---- --- ------------------- Bryan R. Ableidinger............... 54 Chairman-Elect to take office after the 2003 annual stockholders' meeting, April 29, 2003. Director since August 2000. Owner/operator of retail hardware business. Cathy C. Anderson.................. 53 Senior Vice President, General Counsel and Secretary since February 17, 2003. Previous position was Executive Vice President, General Counsel and Secretary, Alliant Foodservice, Inc. 1995 - 2002. Laurence L. Anderson............... 61 Director since April 2002. Consultant for Associated Wholesale Grocers. Prior positions include Executive Vice-President and President of Super Kmart, President and Chief Operating Officer of retail food companies for SuperValu, Inc. Joe W. Blagg....................... 53 Chairman since January 2000. Director since April 1996. Owner/operator of retail hardware business. Acting Chief Executive Officer from July 3, 2001 to November 16, 2001. Michael Glode...................... 53 Nominated to the Board of Directors and will stand for election at the 2003 annual stockholders' meeting. Owner/operator of retail hardware business. William F. Godwin.................. 48 Senior Vice President, Merchandise Supply Chain since March 2001. Prior positions were Vice President, Merchandise Supply Chain, from 2000 to 2001, Vice President, Inventory Management from 1998 to 2000, and Vice President Merchandising, from 1997 to 1998.
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POSITIONS HELD AND NAME AGE BUSINESS EXPERIENCE ---- --- ------------------- Thomas S. Hanemann................. 63 Director since October 2002. Chief manager of Chander- Hanemann, L.L.C. Prior positions include President and Director of AutoZone and President of Super D Drugstores, a division of Malone & Hyde. Judith S. Harrison................. 49 Director since August 2002. Principal of and Senior Consultant for WayPoint Partners, Inc. Prior positions include Chief Executive Officer of Zanybrainy.com, President of Cigar Enterprises and, President and Chief Executive Officer of the Monet Group. Neil A. Hastie..................... 54 Senior Vice President, Chief Information Officer since December 1999. Prior position was Director of E-Business since 1998. Peter G. Kelly..................... 59 Vice-Chairman since April 2002. Director since July 1997. Owner/operator of retail hardware business. Formerly director of ServiStar/Coast to Coast since January 1982 and Chairman from 1990 to 1997. Formerly co-Vice Chairman for TruServ from 1997 to 1999. Fred Kirst......................... 51 Vice President of Maintenance, Repair and Operations niche business since December 12, 2001. Previous positions were Vice President, Advertising and Merchandising, April 2001 - December 2001; Vice President, Global Development and Emerging Business, June 2000 - March 2001; Assistant Vice President, International, March 1997 - May 2000. Robert J. Ladner................... 56 Director since April 1994. Owner/operator of retail hardware business. Formerly Chairman of Cotter & Company from 1996 to 1997. Formerly co-Vice Chairman of TruServ from 1997 to 1999. Will not stand for re-election at the 2003 annual stockholders' meeting. Pamela Forbes Lieberman............ 48 President and Chief Executive Officer and Director since November 16, 2001. Prior positions with TruServ were Senior Vice President, Chief Operating Officer and Chief Financial Officer since July 3, 2001, Senior Vice President and Chief Financial Officer since April 18, 2001 and Senior Vice President, Finance since March 12, 2001. Previous positions were Senior Vice President, Finance and Chief Financial Officer of Shoptalk, Inc. and of Martin-Brower Company and Vice-President Finance and Chief Financial Officer of Fel-Pro Incorporated. Amy W. Mysel....................... 50 Vice President of Human Resources since September 2002. Former position was Executive Vice President, Human Resources, Planning and Communication for Market Day, Inc. 1996 - 2002. Michael D. Rosen................... 50 Senior Vice President of Sales and Manufacturing since January 2003. Prior positions were Senior Vice President of Distribution and Logistics, from 2000 to 2002, Vice President of Logistics and Retail Systems, from 1999 to 2000, Assistant Vice President of Retailing and Assistant Vice President of Merger Administration, from 1997 to 1999.
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POSITIONS HELD AND NAME AGE BUSINESS EXPERIENCE ---- --- ------------------- David Y. Schwartz.................. 62 Director since April 2002. Retired Senior Partner and Managing Partner of the Chicago Office Audit and Business Consulting Practice for Arthur Andersen through 1997. He is also a member of the board of directors of Walgreen Co. and Foot Locker, Inc. and sits on the boards of several privately held companies. David A. Shadduck.................. 42 Senior Vice President and Chief Financial Officer since November 20, 2001. Prior position with TruServ was Vice President, Corporate Controller since June 2001. Prior positions were Controller for Tenneco Automotive North American Aftermarket and Controller for Original Equipment Business at Fel-Pro Incorporated. George V. Sheffer.................. 50 Director since July 1994. Owner/operator of retail hardware business. Will not stand for re-election at the 2003 annual stockholders' meeting. Gilbert L. Wachsman................ 55 Director since March 2002. Retired Vice Chairman and Director of Musicland Group, Inc. Prior position was Senior Vice President of Kmart Corporation. Charles W. Welch................... 52 Nominated to the Board of Directors and will stand for election at the 2003 annual stockholders' meeting. Owner/operator of retail hardware business. Carol Wentworth.................... 45 Vice president of Marketing and Advertising since June 2002. Previous positions include Vice President of Sales Promotion and Marketing and Assistant Vice President of Sales Promotion at Fred Meyer, in Portland Oregon.
- --------------- Each current director's term expires at the 2003 annual stockholders' meeting. BOARD AUDIT COMMITTEE The audit committee of TruServ's board of directors is comprised of four non-employee members plus the Chairman of the Board as an ex officio member. David Y. Schwartz is the "audit committee financial expert" serving on the audit committee. Mr. Schwartz is an independent member of the board of directors of TruServ, as that term is used in Item 7 (d) (3) (iv) of Schedule 14A under the Exchange Act and is defined in Section 303.01 (B) (2) (a) and (3) of the New York Stock Exchange, Inc. Listed Company Manual. CODE OF ETHICS TruServ has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller and any other person performing a similar function. The code of ethics has been filed as an exhibit to this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. COMPENSATION COMMITTEE The Compensation Committee of the board of directors consists of four non-employee directors plus the Chairman of the Board as an ex officio member. The committee assists the board of directors in fulfilling its responsibilities for setting and administering the policies which govern annual compensation and monitoring TruServ's pension and other benefit plans. The committee, which meets regularly, calls upon outside consultants for assistance in carrying out its obligations. The philosophy of the committee is to maintain an executive compensation program to help TruServ attract, retain and motivate the executive resources needed to maintain industry leadership, provide high levels 38 of service to members and achieve the financial objectives determined by the board of directors. The committee sets performance goals, assesses achievement relative to the performance goals and recommends to the board salary, bonus or retention incentives and long-term incentives for the senior executives of TruServ. To achieve its goals, the committee has developed three executive compensation policies for TruServ: - Salaried compensation should be competitive with the median for executives of companies of a comparable size within TruServ's industry; - Annual incentive compensation should vary and reflect TruServ's performance; and - A long-term (multiple year) incentive program should be available to help TruServ retain selected executives. The combination of these three compensation policies is intended to provide competitive earning opportunities when performance reaches desired levels. Both the annual and long-term incentive plans may be terminated by the board of directors at any time. The annual incentive and long-term components of the total compensation package are accrued for during the year in which they are earned based upon a forecast of the year's performance. A final computation is made in the year following the year in which the incentives are earned. The annual incentive, if earned, will be paid out on or before March 31st of the following year. Any potential payout on the long-term incentive plan would not occur until March 31st following the last year of a performance cycle and the cumulative performance over the performance period of these two and three year plans has met the required achievement, at least at the threshold level. TruServ provides salary levels that are intended to fall within the median (between the 50th and 60th percentile) of the executive marketplace of comparable size in TruServ's industry. The following types of organizations are considered within TruServ's industry: member-owned organizations, wholesale distribution firms, mass merchandising retail firms and general manufacturing organizations. Competitiveness is measured using data from a number of sources, including published information, proxy statements and surveys by consulting firms. The 2002 compensation of Pamela Forbes Lieberman, TruServ's President and Chief Executive Officer, consisted of a base salary of $650,000, effective April 1, 2002. This amount is comparable to base salaries for persons holding this position at companies of comparable size within TruServ's industry. The incentive component of Ms. Forbes Lieberman's compensation was set by the compensation committee to reflect the achievement of TruServ's performance goals determined by the committee, including the attainment of targets for product fill rates, net sales, and working capital interest rate adjusted earnings before income taxes, depreciation and amortization (EBITDA) together with individual goals relating to completion of a strategic plan, with member satisfaction improvement and with corporate culture change. The annual incentive portion of the 2002 compensation to be paid to Ms. Forbes Lieberman will be paid out on or before March 31, 2003. There are no long-term compensation payments scheduled to be paid out in 2003 for her performance in 2002 or earlier. The Compensation Committee, appointed following the 2002 annual stockholders' meeting of May 2002, with the addition of Judith S. Harrison upon her joining the Board in August 2002, is as follows: COMPENSATION COMMITTEE Gilbert L. Wachsman, Chairman Judith S. Harrison Peter G. Kelly Robert J. Ladner Joe W. Blagg (ex officio) 39 EXECUTIVE COMPENSATION The following table sets forth the total annual compensation earned by individuals serving as TruServ's Chief Executive Officer and the four most highly compensated executive officers of TruServ during fiscal year 2002 and the total compensation earned by each such individual for TruServ's two previous fiscal years: SUMMARY COMPENSATION TABLE
NAME AND OTHER PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) ------------------ ---- --------- -------- --------------- Pamela Forbes Lieberman........................... 2002 $643,750 $531,000 $53,402 President, Chief Executive Officer 2001 318,868 211,657 22,756 and Director 2000 -- -- -- Robert Ostrov..................................... 2002 310,500 129,256 51,752 Senior Vice President, Chief Administrative 2001 308,250 180,285 31,080 Officer and General Counsel 2000 264,080 172,550 31,036 William F. Godwin................................. 2002 293,000 150,916 32,373 Senior Vice President, 2001 266,249 159,808 22,867 Merchandise Supply Chain 2000 233,145 122,400 22,921 David A. Shadduck................................. 2002 266,500 205,735 28,067 Senior Vice President and 2001 124,964 96,690 11,707 Chief Financial Officer 2000 -- -- -- Neil A. Hastie.................................... 2002 267,000 133,676 39,517 Senior Vice President and 2001 246,000 153,763 24,633 Chief Information Officer 2000 206,251 119,250 27,705
- --------------- (1) Earned and paid in fiscal year shown. (2) Annual incentive amounts are earned and accrued during the fiscal years indicated, and paid subsequent to the end of each fiscal year. To attain achievement of the business plan objectives necessary to turn TruServ around, the board of directors approved effective January 1, 2002, a key associate annual incentive plan for identified key associates and officers employed by TruServ in 2002 or joined TruServ by September 30, 2002, who remained employed through the payment date of the plan (on or before March 31, 2003). To attain achievement of the business plan objectives necessary to obtain financing necessary to turn TruServ around, the board of directors approved, effective August 1, 2001 for the five month period ending December 31, 2001, a key associate special retention and restructuring incentive plan for identified key associates and officers employed by TruServ on or after August 1, 2001 who remained employed through the payment date of the plan (subsequent to the filing of the 2001 Annual Report on Form 10-K). Both the 2002 and 2001 incentive plans had targets related to fill rates, sales, EBITDA, and individual-specific goals associated with one or more of TruServ's key initiatives established as of the effective date of each respective plan. In fiscal 2000, a bonus was earned and paid in fiscal 2001 as a result of TruServ's improved service levels to members. (3) Other compensation consists of TruServ's contributions to the TruServ Corporation Employee's Savings and Compensation Deferral Plan (the "401k Plan"), life insurance plan, financial planning services and automobile allowances. Under the 401k Plan, each participant may elect to make a contribution in an amount of up to 50% of her/his annual compensation, not to exceed $40,000 (including TruServ's contributions) per year, of which $11,000 (in 2002) and $10,000 (in 2001 and 2000) of the executive officer's salary in any fiscal year may be deferred. TruServ's contribution to the 401k Plan, from January 1 through June 30 of 2000, was equal to 75% of the participant's contribution, but not to exceed 4 1/2% of the participant's annual compensation. Effective July 1, 2000, the 401k Plan was amended to apply only a profit sharing match tied to TruServ's net earnings. Robert Ostrov, William F. Godwin and Neil A. Hastie did earn a profit sharing match for the second half of fiscal 2000 that was paid in March 2001. Officers and associates did not earn a profit sharing match for fiscal 2001. In 2002, as TruServ achieved its targeted EBITDA, under its 401k Plan, there will be a match equaling two thirds of a participant's 40 contribution, up to a total of 4% of the participant's annual compensation. Such match will be funded by March 31, 2003. TruServ has a severance policy providing termination benefits based upon annual compensation and years of service. Officers of TruServ are also offered agreements providing for severance in the event of termination without cause with the imposition of certain restrictions regarding competition and confidentiality. The officer severance agreements provide for 12 months, 18 months or 24 months of base compensation based on length of service. No loans were made by TruServ to its executive officers or to its directors during the last three fiscal years. BOARD COMPENSATION In 2002, directors of TruServ (except the Chairman and Vice Chairman) were each paid $30,000 per year. The Chairman of the Board was paid $100,000 in consideration for his services as chairman and the Vice-Chairman of the Board was paid $54,000 in consideration for his services as vice chairman for 2002. Committee Chairmen were each paid $5,000 per year, in addition to their annual retainer. Each director receives a payment for attending meetings that range from $500 - $1,500 per meeting, along with reimbursement of travel expenses. The President and Chief Executive Officer does not receive additional compensation for serving in the capacity of director. DEFINED BENEFIT RETIREMENT PLANS TruServ has a defined benefit pension plan, the TruServ Corporation Defined Lump Sum Pension Plan, which is qualified under the Internal Revenue Code. The plan was amended and restated effective January 1, 1998 (including amendments effective after January 1, 1998 where indicated). The amount of TruServ's annual contribution to the plan is determined for the total of all participants covered by the plan, and the amount of payment with respect to a specified person is not and cannot readily be separated or individually calculated by the actuaries for the plan. The plan provides fully vested lump sum benefits to eligible employees who have been employed a minimum of five years. Annuities are also available and are the actuarial equivalent of the lump sum payment. Each of the executive officers listed in the foregoing Summary Compensation Table is a participant in the plan. In accordance with the Defined Lump Sum Pension Plan as amended and restated as of February 28, 2002 for each year of service, a participant receives a percentage of his or her "average compensation" in the form of a lump sum. The percentages range from one percent of average compensation for years of service performed prior to age 26 to nine percent of average compensation for years of service performed at or after age 56, for service after December 31, 2001. For service prior to January 1, 2002 the percentages range from two percent of average compensation for years of service performed prior to age 26 to twelve percent of average compensation for years of service performed at or after age 61. Participants with average compensation in excess of two-thirds of the Social Security Taxable Wage Base in the year of termination of employment or retirement receive an additional benefit on this excess compensation equal to half of the percentage earned as of December 31, 2001. For participants who had attained age 50 and completed at least fifteen years of service as of January 1, 1996, the sum of their annual pension credit percentage is increased by 25 percentage points. The benefits under the plan cannot be less than the benefits already earned by the participant under the plan as it existed prior to its amendment. The plan was amended effective January 1, 1998 to include former employees of ServiStar/Coast to Coast (SCC). These employees received credit under the plan for all years for which they received credit under the ServiStar/Coast to Coast Retirement Income Plan (the "ServiStar Plan"). In addition, for any ServiStar (but not Coast to Coast) employees who had attained age 50 and completed at least 15 years of service as of January 1, 1998, the sum of their annual pension credit percentage is increased by 25 percentage 41 points. Also, the benefits under this plan cannot be less than benefits already earned by the participant under the ServiStar Plan as of December 31, 1997. "Average compensation" means the average of the compensation paid to an eligible employee during the three highest calendar years within the ten calendar years immediately preceding the date of termination of employment. Compensation considered in determining benefits includes salary, overtime pay, commissions, bonuses, deferral contributions under the Savings Plan and pre-tax medical premiums. The estimated annual retirement benefits which may be payable pursuant to the qualified plan to the officers named in the Summary Compensation Table is currently limited under Section 401(a)(17) of the Internal Revenue Code, which outlines the maximum earnings amounts which may be considered under the qualified plan in determining retirement benefits. This limit was $200,000 for 2002. Section 415 of the Internal Revenue Code outlines the maximum annual benefit which may be payable from the qualified plan during the year, the dollar limit is $160,000 for 2002 for a participant retiring at age 65, with reduced amounts at younger ages. The actuarial equivalent of the annual amount may be payable as a lump sum. No year of service will be credited to any participant for any period of employment with Coast to Coast, Inc. occurring prior to July 1, 1996 or any period of employment with Advocate Services, Inc. occurring prior to January 1, 1998. TruServ maintains a Supplemental Retirement Plan for employees in the position of Vice President and above. The supplemental plan provides participants with a benefit equal to 33% of their "average compensation" multiplied by their years of service, reduced by any benefits payable under the qualified plan. Service is limited to 20 years and the maximum aggregate percentage is 660%. "Average Compensation" for the supplemental plan is defined similarly to the qualified plan, as discussed above. Benefits are payable in a lump sum following termination of employment. The supplemental plan is not a qualified plan under the Internal Revenue Code. Benefits payable under the supplemental plan are financed through operations. The following table reflects the combined estimated annual retirement benefits which may be payable pursuant to the qualified plan and the supplemental plan to the officers named in the Summary Compensation Table at retirement under various assumed conditions, assuming retirement at age 65.
YEARS OF SERVICE AVERAGE ----------------------------------------- COMPENSATION 5 10 15 20 ------------ -------- -------- -------- -------- $1,500,000......................................... $209,141 $418,283 $627,424 $836,566 1,450,000......................................... 202,170 404,340 606,510 808,680 1,400,000......................................... 195,199 390,397 585,596 780,794 1,350,000......................................... 188,227 376,454 564,682 752,909 1,300,000......................................... 181,256 362,512 543,768 725,023 1,250,000......................................... 174,284 348,569 522,853 697,138 1,200,000......................................... 167,313 334,626 501,939 669,252 1,150,000......................................... 160,342 320,683 481,025 641,367 1,100,000......................................... 153,370 306,741 460,111 613,481 1,050,000......................................... 146,399 292,798 439,197 585,596
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YEARS OF SERVICE AVERAGE ----------------------------------------- COMPENSATION 5 10 15 20 ------------ -------- -------- -------- -------- 1,000,000......................................... 139,428 278,855 418,283 557,710 950,000......................................... 132,456 264,912 397,369 529,825 900,000......................................... 125,485 250,970 376,454 501,939 850,000......................................... 118,513 237,027 355,540 474,054 800,000......................................... 111,542 223,084 334,626 446,168 750,000......................................... 104,571 209,141 313,712 418,283 700,000......................................... 97,599 195,199 292,798 390,397 650,000......................................... 90,628 181,256 271,884 362,512 600,000......................................... 83,657 167,313 250,970 334,626 550,000......................................... 76,685 153,370 230,056 306,741 500,000......................................... 69,714 139,428 209,141 278,855 450,000......................................... 62,742 125,485 188,227 250,970 400,000......................................... 55,771 111,542 167,313 223,084
The present credited years of service for the officers listed in the above table are as follows: William F. Godwin, 7.5 years; Neil Hastie, 5.0 years; Pamela Forbes Lieberman, 1.8 years; Robert Ostrov, 5.9 years (Robert Ostrov's last day of employment with TruServ was February 14, 2003); David Shadduck, 1.6 years. PERFORMANCE GRAPH There is no existing market for TruServ's common stock and there is no expectation that any market will develop. There are no broad market or peer group indices TruServ believes would render meaningful comparisons. Accordingly, a performance graph of TruServ's cumulative total stockholder return for the previous five years, with a performance indicator of the overall stock market for TruServ's peer group, has not been prepared. EMPLOYMENT AND SEPARATION AGREEMENTS On November 15, 2001, TruServ entered into an employment agreement effective November 16, 2001 with Pamela Forbes Lieberman, in connection with her assuming the duties of President and Chief Executive Officer of TruServ. The employment agreement specifies that Ms. Forbes Lieberman will serve in those capacities at the will of the board of directors. Pursuant to the employment agreement, the Board of Directors awarded to Ms. Forbes Lieberman an annual base salary of $650,000 effective April 1, 2002. In addition, Ms. Forbes Lieberman will be eligible for an annual incentive, if and when approved by the board of directors of TruServ. At achievement of pre- established targets, the annual incentives are in an amount of 60% of her base salary for year 2001 and 70% of her base salary for calendar years thereafter. There are thresholds and maximums for each year. In addition, Ms. Forbes Lieberman will be eligible to receive a long-term incentive of 50% of her annual base salary if TruServ meets a certain threshold financial performance level, 100% of her annual base salary if TruServ attains a targeted financial performance level with a maximum 150% of her annual base salary at the specified maximum performance level. See "Summary Compensation Table" under the item "Executive Compensation" for the amount of salary and incentive earned by Ms. Forbes Lieberman in 2002 and 2001. None of the TruServ officers earned long-term incentive compensation in or for 2001. Long-term compensation was earned by Ms. Forbes Lieberman and other officers of TruServ for year 2002 performance and, accordingly, was accrued for. Any ultimate payout is based upon cumulative performance over the performance period of these multi-year plans. Any potential payout would not occur until March 31st following the last year of a performance cycle. The first such payout could occur in March 2004 but is dependent on the aggregate of performance in 2002 and 2003. Ms. Forbes Lieberman is also eligible to participate in the other benefit plans available from time to time to executives of TruServ. In the event that TruServ terminates Ms. Forbes Lieberman's employment without "cause," she is entitled to receive a severance payment, payable over 24 months, in an amount equal to two times her base 43 salary, but only if she signs a release of claims against TruServ and agrees to comply with certain obligations upon her departure. "Cause" includes her inability or unwillingness to perform the material duties of her position or her performance of any action injurious to TruServ. If within one year following a "change of control" of TruServ, Ms. Forbes Lieberman terminates her employment with TruServ for "good reason," she may be entitled to a severance payment equal to an amount up to two times her base salary and, in certain cases, a percentage of incentives received in prior years, but only if she signs a release and agrees to comply with certain obligations upon her departure. "Change of control" is defined as a business combination through a merger, consolidation or share exchange in which TruServ or its shareholders after the combination do not own 51% or more of the voting equity of the entity. "Good reason" is defined to include a demotion or a substantial reduction in compensation and benefits within a year after the change of control. On February 14, 2003, Robert Ostrov resigned from the position of Senior Vice President, Chief Administrative Officer and Secretary of TruServ. Pursuant to the terms of his termination agreement with TruServ, Mr. Ostrov is entitled to receive $566,000 as severance pay to be paid over two years. In addition, TruServ will pay certain of Mr. Ostrov's retirement benefits within 45 days of the effective date of the termination agreement. The termination agreement also provides for certain medical insurance coverage and outplacement services of the kind provided to other former senior executives of TruServ. Mr. Ostrov in the termination agreement, provides TruServ among other things, with a general release, a covenant not to sue, a confidentiality covenant, a non-solicitation covenant, a cooperation covenant and an indemnification agreement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of February 22, 2003, each of the member directors of TruServ was the owner of at least 60 shares of Class A common stock of TruServ (but no more than 300 shares), constituting in the aggregate less than 1% of the issued and outstanding shares of Class A Common Stock. No non-member director or senior officer owns any shares of Class A common stock. The member directors own, in the aggregate, less than 1% of Class B common stock as of February 22, 2003. No non-member director or senior officer owns any shares of Class B common stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. FINANCIAL STATEMENTS The consolidated financial statements listed in the index on page F-1 are filed as part of this annual report. 2. FINANCIAL STATEMENT SCHEDULES The schedule listed in the index on page F-36 is filed as part of this annual report. 3. EXHIBITS The exhibits listed in the index on pages E-1-E-4 are filed as part of this annual report. (B) REPORTS ON FORM 8-K A Current Report on Form 8-K was filed on October 8, 2002 regarding the appointment of TruServ's fifth outside director. A Current Report on Form 8-K was filed on November 4, 2002 regarding third quarter earnings. A Current Report on Form 8-K was filed on November 12, 2002 containing revised Statements of Oath of TruServ's principal executive officers. A Current Report on Form 8-K was filed on November 20, 2002 regarding October earnings. 44 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. TRUSERV CORPORATION By: /s/ DAVID A. SHADDUCK ------------------------------------- David A. Shadduck Senior Vice President and Chief Financial Officer DATED: March 21, 2003 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOE W. BLAGG Chairman of the Board and March 21, 2003 - ----------------------------------------------------- Director Joe W. Blagg /s/ PAMELA FORBES LIEBERMAN President, Chief Executive March 21, 2003 - ----------------------------------------------------- Officer and Director Pamela Forbes Lieberman /s/ DAVID A. SHADDUCK Senior Vice President and March 21, 2003 - ----------------------------------------------------- Chief Financial Officer David A. Shadduck /s/ BRYAN R. ABLEIDINGER Director March 21, 2003 - ----------------------------------------------------- Bryan R. Ableidinger /s/ LAURENCE L. ANDERSON Director March 21, 2003 - ----------------------------------------------------- Laurence L. Anderson /s/ THOMAS S. HANEMANN Director March 21, 2003 - ----------------------------------------------------- Thomas S. Hanemann /s/ JUDITH S. HARRISON Director March 21, 2003 - ----------------------------------------------------- Judith S. Harrison /s/ PETER G. KELLY Director March 21, 2003 - ----------------------------------------------------- Peter G. Kelly /s/ ROBERT J. LADNER Director March 21, 2003 - ----------------------------------------------------- Robert J. Ladner /s/ DAVID Y. SCHWARTZ Director March 21, 2003 - ----------------------------------------------------- David Y. Schwartz
45
SIGNATURE TITLE DATE --------- ----- ---- /s/ GEORGE V. SHEFFER Director March 21, 2003 - ----------------------------------------------------- George V. Sheffer /s/ GILBERT WACHSMAN Director March 21, 2003 - ----------------------------------------------------- Gilbert Wachsman
46 CERTIFICATION I, Pamela Forbes Lieberman, certify that: 1. I have reviewed this annual report on Form 10-K of TruServ Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of TruServ as of, and for, the periods presented in this annual report; 4. TruServ's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for TruServ and have: a. designed such disclosure controls and procedures to ensure that material information relating to TruServ, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of TruServ's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. TruServ's other certifying officer and I have disclosed, based on our most recent evaluation, to TruServ's auditors and the audit committee of TruServ's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect TruServ's ability to record, process, summarize and report financial data and have identified for TruServ's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in TruServ's internal controls; and 6. TruServ's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. TRUSERV CORPORATION By: /s/ PAMELA FORBES LIEBERMAN ------------------------------------ Pamela Forbes Lieberman President and Chief Executive Officer Date: March 21, 2003 47 CERTIFICATION I, David A. Shadduck, certify that: 1. I have reviewed this annual report on Form 10-K of TruServ Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of TruServ as of, and for, the periods presented in this annual report; 4. TruServ's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for TruServ and have: a. designed such disclosure controls and procedures to ensure that material information relating to TruServ, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of TruServ's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. TruServ's other certifying officer and I have disclosed, based on our most recent evaluation, to TruServ's auditors and the audit committee of TruServ's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect TruServ's ability to record, process, summarize and report financial data and have identified for TruServ's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in TruServ's internal controls; and 6. TruServ's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. TRUSERV CORPORATION By: /s/ DAVID A. SHADDUCK ------------------------------------ David A. Shadduck Senior Vice President and Chief Financial Officer Date: March 21, 2003 48 ITEM 14(a)(1). INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE(S) ------- Report of Independent Accountants........................... F-2 Consolidated Balance Sheet at December 31, 2002 and December 31, 2001.................................................. F-3 Consolidated Statement of Operations for each of the three years in the period ended December 31, 2002............... F-4 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2002............... F-5 Consolidated Statement of Members' Equity for each of the three years in the period ended December 31, 2002......... F-6 Notes to Consolidated Financial Statements.................. F-7 to F-35
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Members of TruServ Corporation In our opinion, the consolidated financial statements of TruServ Corporation listed in the index appearing under Item 14(a)(1) on page F-1 present fairly, in all material respects, the financial position of TruServ Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page F-36 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the Consolidated Financial Statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 19, 2003, except as to Note 16 which is as of March 13, 2003 F-2 TRUSERV CORPORATION CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, --------------------- 2002 2001 -------- ---------- ($ IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 9,001 $ 88,816 Restricted cash (Note 4).................................. 15,755 29,075 Accounts and notes receivable, net of allowance for doubtful accounts of $8,553 and $9,402................. 207,709 243,275 Inventories, net of valuation reserves of $10,434 and $15,636 (Note 2)....................................... 234,448 333,976 Other current assets...................................... 23,440 16,688 -------- ---------- Total current assets.............................. 490,353 711,830 Properties, net (Note 3).................................... 91,116 180,347 Goodwill, net of accumulated amortization of $11,549 and $11,549................................................... 91,474 91,474 Other assets................................................ 30,428 37,186 -------- ---------- Total assets...................................... $703,371 $1,020,837 ======== ========== LIABILITIES AND CAPITALIZATION Current liabilities Accounts payable.......................................... $199,566 $ 251,657 Outstanding checks........................................ 28,884 87,385 Accrued expenses.......................................... 84,082 112,002 Short-term borrowings (Note 4)............................ 27,852 141,755 Current maturities of long-term debt, notes and capital lease obligations (Notes 4, 5 and 7)................... 59,797 93,291 Patronage dividend payable in cash........................ 6,121 -- -------- ---------- Total current liabilities......................... 406,302 686,090 Long-term liabilities and deferred credits Long-term debt, including capital lease obligations, less current maturities (Notes 4 and 5)................................ 125,021 236,268 Deferred gain on sale leaseback (Note 13)................. 52,786 -- Deferred credits (Notes 10 and 12)........................ 20,282 16,246 -------- ---------- Total long-term liabilities and deferred credits......................................... 198,089 252,514 -------- ---------- Total liabilities and deferred credits............ 604,391 938,604 -------- ---------- Commitments and contingencies (Note 6)...................... -- -- Members' capitalization: Promissory (subordinated) and installment notes, net of current portion (Note 7)............................... 43,531 42,973 Members' equity: Redeemable Class A voting common stock, $100 par value; 750,000 shares authorized; 474,360 and 455,220 shares issued and fully paid; 35,700 and 54,840 shares issued (net of subscriptions receivable of $886,000 and $1,110,000)............................................ 50,120 49,896 Redeemable Class B non-voting common stock and paid in capital, $100 par value; 4,000,000 shares authorized; 1,756,457 and 1,731,490 shares issued and fully paid... 176,945 174,448 Loss allocation (Note 1).................................. (75,966) (89,972) Deferred patronage (Note 1)............................... (25,793) (26,541) Accumulated deficit....................................... (68,704) (68,568) Accumulated other comprehensive loss...................... (1,153) (3) -------- ---------- Total members' equity............................. 55,449 39,260 -------- ---------- Total members' capitalization..................... 98,980 82,233 -------- ---------- Total liabilities and members' capitalization..... $703,371 $1,020,837 ======== ==========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-3 TRUSERV CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 2002 2001 2000 ------------ ------------ --------------- ($ IN THOUSANDS) Net revenues.......................................... $2,175,451 $2,619,434 $3,993,642 ---------- ---------- ---------- Cost and expenses: Cost of revenues.................................... 1,935,620 2,355,400 3,716,245 Logistics and manufacturing expenses................ 60,924 79,970 83,276 Selling, general and administrative expenses........ 92,948 137,533 124,584 Restructuring charges and other related expenses (Note 15)........................................ 6,284 38,522 4,944 Interest expense to members......................... 6,611 7,842 11,131 Third party interest expense........................ 55,284 55,431 56,575 Loss/(gain) on sale of assets (Note 12)............. 91 (1,958) (30,337) Other income, net................................... (3,723) (3,996) (7,809) ---------- ---------- ---------- Total cost and expenses............................... 2,154,039 2,668,744 3,958,609 ---------- ---------- ---------- Net margin/(loss) before income taxes................. 21,412 (49,310) 35,033 Income tax expense.................................... 259 1,377 916 ---------- ---------- ---------- Net margin/(loss)..................................... $ 21,153 $ (50,687) $ 34,117 ========== ========== ==========
The accompanying notes are an integral part of the Consolidated Financial Statements. F-4 TRUSERV CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ ($ IN THOUSANDS) Operating activities: Net margin/(loss)...................................... $ 21,153 $(50,687) $ 34,117 Adjustments to reconcile net margin/(loss) to net cash and cash equivalents provided by/(used for) operating activities: Depreciation and amortization....................... 34,851 41,519 43,033 Provision for losses on accounts and notes receivable........................................ 120 6,275 9,147 Restructuring charges and other related expenses.... 6,284 38,522 1,912 Loss/(gain) on sale of assets....................... 91 (1,958) (30,337) Changes in operating assets and liabilities: Accounts and notes receivable..................... 32,926 127,000 52,187 Inventories....................................... 99,528 100,692 38,752 Other current assets.............................. (1,659) 3,836 (2,337) Accounts payable.................................. (52,091) (92,216) (81,944) Accrued expenses.................................. (36,268) 7,525 14,927 Other adjustments, net.............................. (840) (1,067) 4,116 --------- -------- -------- Net cash and cash equivalents provided by operating activities......................... 104,095 179,441 83,573 --------- -------- -------- Investing activities: Additions to properties................................ (12,838) (15,151) (12,526) Proceeds from sale of properties (Note 12 and 13)...... 127,941 10,511 23,113 Changes in restricted cash (Note 4).................... 13,320 (25,250) (3,825) Changes in other assets................................ 17,537 3,388 (8,716) --------- -------- -------- Net cash and cash equivalents provided by/(used for) investing activities.................... 145,960 (26,502) (1,954) --------- -------- -------- Financing activities: Payment of patronage dividend.......................... -- (9,483) -- Payment of notes, long-term debt and lease obligations......................................... (157,690) (40,138) (67,355) Proceeds from long-term borrowings..................... -- -- 1,098 (Decrease)/increase in outstanding checks.............. (58,501) (42,105) 26,726 (Decrease)/increase in short-term borrowings........... (113,903) 11,300 (28,922) Purchase of common stock............................... -- -- (599) Proceeds from sale of Redeemable Class A common stock and subscription receivable......................... 224 812 1,109 --------- -------- -------- Net cash and cash equivalents used for financing activities......................... (329,870) (79,614) (67,943) --------- -------- -------- Net (decrease)/increase in cash and cash equivalents..... (79,815) 73,325 13,676 Cash and cash equivalents at beginning of year........... 88,816 15,491 1,815 --------- -------- -------- Cash and cash equivalents at end of year................. $ 9,001 $ 88,816 $ 15,491 ========= ======== ========
See Note 9 for supplemental cash flow information. The accompanying notes are an integral part of the Consolidated Financial Statements. F-5 TRUSERV CORPORATION CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
REDEEMABLE COMMON STOCK ---------------------------------------------- RETAINED CLASS A CLASS B EARNINGS/ --------------------- ---------------------- LOSS DEFERRED (ACCUMULATED # OF SHARES AMOUNT # OF SHARES AMOUNT ALLOCATION PATRONAGE DEFICIT) ----------- ------- ----------- -------- ---------- --------- ------------ ($ IN THOUSANDS) Balances at and for the year ended December 31, 1999................ 511,440 $47,270 1,764,797 $177,779 $ -- $(27,663) $(130,089) Net margin......................... 34,117 Foreign currency translation adjustment....................... Amortization of deferred patronage........................ 375 (375) Loss allocation.................... (113,918) 113,918 Patronage dividend................. 30 3 225,510 22,551 (34,705) Class B stock applied against loss allocation....................... (214,580) (21,458) 21,458 Payments from stock subscriptions receivable....................... 14,550 3,407 Stock purchased and retired........ (15,960) (1,596) (44,245) (4,424) ------- ------- --------- -------- --------- -------- --------- Balances at and for the year ended December 31, 2000................ 510,060 49,084 1,731,482 174,448 (92,460) (27,288) (17,134) Net loss........................... (50,687) Foreign currency translation adjustment....................... Amortization of deferred patronage........................ 747 (747) Payments from stock subscriptions receivable....................... -- 812 Other.............................. 8 -- Matured notes applied against loss allocation....................... 2,488 ------- ------- --------- -------- --------- -------- --------- Balances at and for the year ended December 31, 2001................ 510,060 49,896 1,731,490 174,448 (89,972) (26,541) (68,568) Net margin......................... 21,153 Foreign currency translation adjustment....................... Amortization of deferred patronage........................ 748 (748) Minimum pension liability adjustment....................... Patronage dividend................. 144,196 14,420 (20,541) Payments from stock subscriptions receivable....................... 224 Class B stock applied against loss allocation....................... (119,229) (11,923) 11,923 Matured notes applied against loss allocation....................... 2,083 ------- ------- --------- -------- --------- -------- --------- Balances at and for the year ended December 31, 2002................ 510,060 $50,120 1,756,457 $176,945 $ (75,966) $(25,793) $ (68,704) ======= ======= ========= ======== ========= ======== ========= ACCUMULATED OTHER TOTAL TOTAL COMPREHENSIVE MEMBERS' COMPREHENSIVE INCOME/(LOSS) EQUITY INCOME/(LOSS) ------------- ---------- ------------- ($ IN THOUSANDS) Balances at and for the year ended December 31, 1999................ $ (846) $ 66,451 $(130,275) ========= Net margin......................... 34,117 34,117 Foreign currency translation adjustment....................... (126) (126) (126) Amortization of deferred patronage........................ -- Loss allocation.................... -- Patronage dividend................. (12,151) Class B stock applied against loss allocation....................... -- Payments from stock subscriptions receivable....................... 3,407 Stock purchased and retired........ (6,020) ------- --------- --------- Balances at and for the year ended December 31, 2000................ (972) 85,678 33,991 ========= Net loss........................... (50,687) (50,687) Foreign currency translation adjustment....................... 969 969 969 Amortization of deferred patronage........................ -- Payments from stock subscriptions receivable....................... 812 Other.............................. -- Matured notes applied against loss allocation....................... 2,488 ------- --------- --------- Balances at and for the year ended December 31, 2001................ (3) 39,260 (49,718) ========= Net margin......................... 21,153 21,153 Foreign currency translation adjustment....................... 3 3 3 Amortization of deferred patronage........................ -- Minimum pension liability adjustment....................... (1,153) (1,153) (1,153) Patronage dividend................. (6,121) Payments from stock subscriptions receivable....................... 224 Class B stock applied against loss allocation....................... -- Matured notes applied against loss allocation....................... 2,083 ------- --------- --------- Balances at and for the year ended December 31, 2002................ $(1,153) $ 55,449 $ 20,003 ======= ========= =========
Redeemable Class A common stock amounts are net of unpaid subscription amounts of $886 relating to 35,700 issued shares at December 31, 2002; $1,110 relating to 54,840 issued shares at December 31, 2001; $1,922 relating to 98,880 issued shares at December 31, 2000; and $3,874 relating to 106,380 issued shares at December 31, 1999. The accompanying notes are an integral part of the Consolidated Financial Statements. F-6 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) 1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES Principal business activity TruServ Corporation ("TruServ" or the "company") is a member-owned wholesaler of hardware and related merchandise. The company also manufactures and sells paint and paint applicators. The company's goods and services are sold predominantly within the United States, primarily to retailers of hardware, industrial distributors and rental retailers, each of whom has purchased 60 shares per store (up to a maximum of 5 stores (300 shares)) of the company's Class A common stock upon becoming a member. The Class A stock is redeemable by the company and has voting rights (the "Redeemable Class A voting common stock"). The company operates as a member-owned wholesaler cooperative. When there are annual profits, members in good standing are entitled to receive patronage dividend distributions from the company on the basis of gross margins of merchandise and/or services purchased by each member. In accordance with the company's By-Laws, the annual patronage dividend is paid to members out of gross margins from operations and other patronage source income, after deduction for expenses and provisions authorized by the board of directors. TruServ also provides to its members value-added services such as marketing, advertising, merchandising and store location and design services. Consolidation The consolidated financial statements include the accounts of the company and all wholly owned subsidiaries. The consolidated statement of operations and cash flows also include the activities of TruServ Canada Cooperative, Inc., a Canadian member-owned wholesaler of hardware, through the date of its sale, October 22, 2001. The consolidated balance sheets at December 31, 2001 and December 31, 2002 exclude TruServ Canada Cooperative, Inc. The company does not have any special purpose entities ("SPE's") or variable interest entities ("VIE's"). Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform with the current year's presentation. These reclassifications had no effect on Net margin/(loss) for any period or on Total members' equity at the balance sheet dates. Capitalization The company's capital (Capitalization) is derived from Members' equity and Promissory (subordinated) and installment notes. Members' equity is comprised of Redeemable Class A voting common stock, Redeemable Class B common stock, Accumulated deficit, Loss allocation, Deferred patronage and Accumulated other comprehensive loss. TruServ follows the practice of accounting for deferred patronage charges and credits as a separate component of capitalization. Deferred patronage consists of net charges and expenses, primarily related to costs associated with the merger of Cotter & Company and Servistar Coast to Coast Corporation to form TruServ Corporation (the "Merger"), which are included in the computation of net margin/(loss) in different periods for financial statement purposes than for patronage purposes. Promissory (subordinated) notes and Redeemable Class B common stock had been issued in connection with the company's annual patronage dividend. For the year ended December 31, 2002, only Cash and Redeemable Class B common stock will be issued in 2003 in connection with the company's fiscal 2002 patronage dividend. The By-Laws provide TruServ the right to allow a member to partially meet the company's capital requirements by the issuance of stock in payment of the year-end patronage dividend. F-7 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Patronage dividend Patronage dividends related to the fiscal year ended December 31, 2002 were $20,541 (see Note 16). Approximately thirty percent of the dividend was paid in cash (TruServ By-Laws and the IRS require that the payment of at least twenty percent of patronage dividends be in cash). The remainder will be paid through the issuance of the company's Redeemable Class B common stock and, to those members that had such accounts, used to offset members' loss allocation accounts. No patronage dividends were declared for the fiscal year ended December 31, 2001, as the company incurred a loss for the year 2001, which was retained by the company. Patronage dividends in the amount of $34,705 were paid on March 31, 2001 related to the fiscal year ended December 31, 2000; approximately thirty percent of which were paid in cash. The remainder was paid through the issuance of the company's Redeemable Class B common stock which was offset to members' loss allocation accounts to those members that had such accounts. In certain cases, a small portion of the dividend was paid by means of Promissory (Subordinated) Notes of the company. The Redeemable Class B common stock issued for the December 31, 2002 and 2000 patronage dividend have been designated as qualified notices of allocation. Membership may be terminated without cause by either the company or the member upon sixty days' written notice. In the event membership is terminated, the company undertakes to purchase, and the member is required to sell to the company, all of the member's Redeemable Class A voting common stock and Redeemable Class B common stock at par value. Payment for the Redeemable Class A voting common stock has historically been in cash. Payment for the qualified Redeemable Class B common stock has historically been in the form of a note payable in five equal annual installments and with interest set at comparable treasury rates plus 2.0%. In March 2000, the board of directors of TruServ declared a moratorium on redemptions of the capital stock. In reaching its decision to declare the moratorium, the board of directors of TruServ reviewed the financial condition of TruServ and considered its fiduciary obligations and corporate law principles under Delaware law. The board of directors concluded that it should not redeem any of the capital stock while its net asset value was substantially less than par value, as that would likely violate legal prohibitions against "impairment of capital." In addition, the board of directors concluded that it would be a violation of its fiduciary duties to all members and that it would constitute a fundamental unfairness to members if some members were allowed to have their shares redeemed before the 1999 loss was allocated to them and members who did not request redemption were saddled with the losses of those members who requested redemption. Moreover, the board of directors considered TruServ's debt agreements and, in particular, the financial covenants thereunder, which prohibit redemptions when TruServ, among other things, does not attain certain profit margins. At the time the board of directors declared the moratorium on redemptions, TruServ's By-Laws did not impose limitations on the board's discretion to initiate or to continue a moratorium on redemption. The By-Laws merely provided that upon termination of a member's agreement, TruServ was to redeem the member's shares. Nevertheless, the board of directors concluded that its fiduciary obligations to TruServ and its members would not permit it to effect redemptions under the circumstances described above. After the board of directors declared the moratorium, the board of directors amended the By-Laws to provide that if TruServ's funds available for redemption are insufficient to pay all or part of the redemption price of shares of capital stock presented for redemption, the board of directors may, in its sole discretion, delay the payment of all or part of the redemption price. The amended senior debt agreements preclude the lifting of the stock moratorium until June 30, 2004 except for certain hardship cases, not to exceed $2,000 annually. Given certain ongoing related litigation, there are no plans for hardship redemption of stock. See Note 6, "Commitments and Contingencies." Subsequent to the expiration of the prohibition against stock redemptions under the debt agreements, which could be in the first half of 2004, if TruServ completes the refinancing of its Senior Debt, the board of directors will consider F-8 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the financial condition of TruServ, and will not lift the moratorium unless it can conclude that effecting redemptions of TruServ's capital stock will not "impair the capital" of TruServ, unfairly advantage some members to the disadvantage of others, or violate the financial covenants under its debt agreements. The board of directors is monitoring the financial performance of TruServ quarterly. As of December 31, 2002, the amount of Class A common stock and Class B common stock presented for redemption but deferred due to the moratorium is approximately $39,614 after the offset of the loss allocation account. This amount does not include an offset of approximately $7,343 of Accounts receivable owed by terminated members to the co-op. Historically, the company has offset such amounts due by members to the co-op against amounts the co-op pays the members on redemption of their stock. This amount does not include any remaining amount of the 2001 loss that may be allocated, on a member by member basis, from the Accumulated deficit account and reduce the amount paid to a member on the redemption of their stock. The $39,614 amount of stock presented for redemption, but deferred due to the moratorium, includes approximately $15,475 related to the Class A common stock (which was historically paid out at the time of redemption) and $47,033 related to Class B common stock (which was historically paid out in five equal annual installments), offset by the amount of the Loss allocation account related to the Class B common stock of $22,894. Loss allocation to members and Accumulated deficit During the third quarter of fiscal 2000, TruServ management developed and the board of directors approved a plan to equitably allocate to members the loss incurred in 1999. This loss was previously recorded as a reduction of Retained earnings. TruServ has allocated the 1999 loss among its members by establishing a Loss allocation account as a contra-equity account in the consolidated balance sheet with the offsetting credit recorded to the Accumulated deficit account. The Loss allocation account reflects the sum of each member's proportionate share of the 1999 loss, after being reduced by certain amounts that were not allocated to members. The Loss allocation account will be satisfied, on a member by member basis, by applying the portion of future non-cash patronage dividends as a reduction to the Loss allocation account until fully satisfied. The Loss allocation amount may also be satisfied, on a member by member basis, by applying the par value of maturing member notes and related interest payments as a reduction to the Loss allocation account until such account is fully satisfied. However, in the event a member should terminate as a stockholder of the company, any unsatisfied portion of that member's Loss allocation account will be satisfied by reducing the redemption amount paid for the member's stock investment in TruServ. The board of directors determined that TruServ would retain the fiscal 2001 loss as part of the Accumulated deficit account. All or a portion of patronage income and all non-patronage income, if any, may be retained in the future to reduce the Accumulated deficit account. TruServ has determined for each member that was a stockholder in 2001, its share of the fiscal 2001 loss that has been retained in the Accumulated deficit account, based upon the member's proportionate Class A common stock and Class B common stock investment, TruServ allocated the remainder of the fiscal 2001 loss based on the member's purchases from the co-op in 2001. In the event a member terminates its status as a stockholder of TruServ, any remaining 2001 loss in the Accumulated deficit account that is allocable to the terminating member will be satisfied by reducing the redemption amount paid for the member's stock investment in TruServ. Cash equivalents The company classifies all highly liquid investments with an original maturity of three months or less as cash equivalents. Inventories Inventories are stated at the lower of cost, determined on the first-in, first-out basis, or market. The lower of cost or market valuation considers the estimated realizable value in the current economic environment F-9 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) associated with disposing of surplus and/or damaged/obsolete inventories. The estimated realizable value was based on an analysis of historical trends related to distressed inventory of TruServ. This analysis considers historical data on TruServ's ability to return inventory to suppliers, to transfer inventory to other distribution centers, to sell inventory to members through the price reduction process and to sell remaining inventory to liquidators. The cost of inventory also includes indirect costs (such as logistics, manufacturing, freight-in, vendor rebates and support costs) incurred to bring inventory to its existing location for resale. These indirect costs are treated as product costs, classified in inventory and subsequently recorded as cost of revenues as the product is sold (see Note 2). Properties Properties are recorded at cost. Depreciation and amortization are computed by using the straight-line method over the following estimated useful lives: buildings and improvements -- 10 to 40 years; machinery and warehouse, office and computer equipment and software -- 5 to 10 years; transportation equipment -- 3 to 7 years; and leasehold improvements -- the lesser of the life of the lease, without regard to options for renewal, or the useful life of the underlying property. Goodwill Goodwill represents the excess of cost over the fair value of net assets acquired and was amortized using the straight-line method over 40 years. In January 2002, TruServ adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changed the accounting for goodwill and certain other intangible assets from an amortization method to an impairment only approach. In accordance with the adoption of SFAS No. 142, TruServ stopped amortizing goodwill at the beginning of fiscal 2002. TruServ has completed its annual impairment assessment as required by SFAS No. 142 and has determined that no impairment exists. The reported Net margin/(loss), Goodwill amortization and the resulting adjusted Net margin/(loss) are as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 2002 2001 2000 ------- -------- ------- ($ IN THOUSANDS) Reported Net margin/(loss)............................. $21,153 $(50,687) $34,117 Add back: Goodwill amortization........................ -- 2,577 3,054 ------- -------- ------- Adjusted Net margin/(loss)............................. $21,153 $(48,110) $37,171 ======= ======== =======
Goodwill amortization related to the hardware segment for fiscal year 2001 and 2000 was $2,210 and $2,687, respectively. Goodwill amortization related to the paint segment for fiscal year 2001 and 2000 was $367 in each year. At December 31, 2002, the Goodwill was comprised of $78,429 for the hardware segment and $13,045 for the paint segment. Conversion funds In connection with the Merger, the company made funds available to the members to assist their stores in defraying various conversion costs (i.e., costs to change store signage and branding to True Value) associated with the Merger and costs associated with certain upgrades and expansions of their store. The total amount of conversion funds distributed was $27,175; the funds are amortized over a 5 year period representing the period of time over which members committed to stay with the post merger company. The annual amortization expense for fiscal year 2002, 2001 and 2000 was $6,056, $5,747 and $4,385, respectively. The unamortized balance at December 31, 2002 was approximately $5,324. The members agree to refund to TruServ all or a portion of the conversion funds in the event of default or termination during the five fiscal years following the date of the agreement. Any uncollectible amounts are written off to expense. F-10 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Asset impairment For purposes of determining impairment, management reviews long-lived assets based on a geographic region or revenue producing activity as appropriate. Such impairment review includes, among other criteria, management's estimate of future cash flows for the region or activity. If the estimated future cash flows (undiscounted and without interest charges) are not sufficient to recover the carrying value of the long-lived assets, including associated goodwill, of the region or activity, such assets would be determined to be impaired and would be written down to their fair value. In fiscal 2002, TruServ recorded asset impairment charges which netted to $470, consisting of a $1,769 charge relating to the East Butler, Pennsylvania facility, offset by a $927 favorable adjustment to the asset impairment charge for the Brookings, South Dakota distribution center based on actual proceeds on the sale of this facility in 2002, as well as a $372 favorable adjustment for the transfer of certain Hagerstown, Maryland equipment, the value of which had been fully reserved for in 2001, to other facilities. In fiscal 2001, TruServ recorded asset impairment charges aggregating $8,899 related to its Brookings, South Dakota distribution center and certain equipment at its Hagerstown, Maryland distribution center which were for sale; the Hagerstown facility remains for sale. There were no impairment charges recorded in fiscal 2000. Revenue recognition The company's policy is to recognize revenues from product sales and services when earned, as in accordance with SEC Staff Accounting Bulletin ("SAB") No. 101. Specifically, product revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Revenue is not recognized until title and risk of loss have transferred to the customer, which is upon delivery of products. Provisions for discounts, rebates to customers, and returns are provided for at the time the related sales are recorded, and are reflected as a reduction of sales. Service revenue is comprised of advertising and transportation and amounted to $69,463 and $52,665 for fiscal 2002, respectively, and $77,419 and $56,978 for 2001, respectively. Advertising revenue is recognized when the underlying advertisement is run or when the related circulars are dropped. Transportation revenue is recognized when the services are provided. Advertising expenses Amounts billed to members for advertising are included in revenues. Advertising costs are expensed in the period the advertising takes place. Such costs amounted to $56,407, $59,275 and $82,675 in fiscal year 2002, 2001 and 2000, respectively, and are included in Cost of revenues. Amortization of financing fees Amounts paid for financing fees incurred in connection with the company's financing arrangements are capitalized and amortized to interest expense over the remaining lives of the underlying financing agreements. The costs incurred in the fourth quarter of fiscal year 2001 for the potential asset-based lending refinancing were expensed in the fourth quarter of fiscal 2001, when it was determined that TruServ would instead amend its existing debt agreements. Repairs and maintenance expense Expenditures which extend the useful lives of the company's property and equipment are capitalized and depreciated on a straight line basis over the remaining useful lives of the underlying assets. Otherwise, repair and maintenance expenditures are expensed as incurred. F-11 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Research and development costs Research and development costs related to the company's manufacturing operations are expensed as incurred. Such costs amounted to $941, $1,003 and $993 in fiscal year 2002, 2001 and 2000, respectively, and are included in Logistic and manufacturing expenses. Shipping and handling costs Amounts billed to members for shipping and handling costs are included in Revenues. Amounts incurred for shipping and handling are included in Cost of revenues. Income taxes Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. At December 31, 2002, TruServ concluded that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, and that a full valuation allowance is required. Deferred tax assets will only be realized to the extent future earnings are retained by TruServ and not distributed to members as patronage dividends. Per share information There is no existing market for the common stock of the company and there is no expectation that any market will develop. The company's Redeemable Class A voting common stock is owned by members and former members whose stock has not yet been redeemed as a result of the moratorium. The company's Redeemable Class B non-voting common stock now outstanding was issued to members in partial payment of the annual patronage dividend. Accordingly, no earnings per share information is presented in the consolidated financial statements. Retirement plans The company sponsors two noncontributory defined benefit retirement plans covering substantially all of its employees. Company contributions to union-sponsored defined contribution plans are based on collectively bargained rates multiplied by hours worked. The company's policy is to fund annually all tax-qualified plans to the extent deductible for income tax purposes. Fair value of financial instruments The carrying amounts of the company's financial instruments, which were comprised primarily of accounts and notes receivables, accounts payable, short-term borrowings, long-term debt and promissory (subordinated) and installment notes, approximate fair value. Fair value was estimated using discounted cash flow analyses, based on the company's incremental borrowing rate for similar borrowings. The carrying amount of debt and credit facilities approximate fair value due to their stated interest rates approximating market rates and as a result of such facilities having been renegotiated in fiscal 2002 (see Note 4). These estimated fair value amounts have been determined using available market information or other appropriate valuation methodologies. Concentration of credit risk Credit risk pertains primarily to the company's trade receivables. The company extends credit to its members as part of its day-to-day operations. The company believes that as no specific receivable or group of receivables comprises a significant percentage of total trade accounts, its risk with respect to trade receivables is limited. Additionally, the company believes that its allowance for doubtful accounts is adequate with respect F-12 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to member credit risks. Also, TruServ's Certificate of Incorporation and By-Laws specifically provide that TruServ may set off its obligation to make any payment to a member for such member's stock, notes, interest and declared and unpaid dividends against any obligation owed by the member to TruServ. TruServ exercises these set off rights when TruServ notes and interest become due to former members with outstanding accounts receivable to TruServ and current members with past due accounts receivable to TruServ. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New accounting pronouncements In January 2002, TruServ adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." See "Goodwill" above. In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective January 1, 2003 for TruServ. TruServ is currently evaluating the impact this standard will have on its financial statements, but does not expect the impact of its adoption to be material. In January 2002, TruServ adopted SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets," replacing SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"' and portions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations." SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of and changes the criteria to be met to classify an asset as held-for-sale. SFAS No. 144 retains the requirement of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held-for-sale. The adoption of this standard did not have a material impact on the company's financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FAS 4, 44 and 64, Amendment of FAS 13 and Technical Corrections as of April 2002." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt" (eliminating the extraordinary treatment of gains or losses on debt modification other than for certain exceptions), amends SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," amends SFAS No. 13, "Accounting for Leases" (to eliminate an inconsistency between the required accounting for sale leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale leaseback transactions) and amends other existing authoritative pronouncements (to make various technical corrections, clarify meanings or describe their applicability under changed conditions). SFAS No. 145 is effective for TruServ for fiscal 2003 but earlier application is encouraged. The company is currently evaluating the impact this standard will have on its financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between SFAS No. 146 and EITF Issue No. 94-3 relates to the requirement for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized only when the F-13 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) liability is incurred; under EITF Issue No. 94-3, a liability for an exit cost, as defined in EITF Issue No. 94-3, was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value and only when the liability is incurred. SFAS No. 146 is effective for TruServ for any exit or disposal activities undertaken after December 31, 2002 but earlier application is encouraged. In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 requires the disclosure of certain guarantees existing at December 31, 2002. In addition, Interpretation No. 45 requires the recognition of a liability for the fair value of the obligation of qualifying guarantee activities that are initiated or modified after December 31, 2002. Accordingly, the company has disclosed certain guarantees that existed at December 31, 2002 in Note 6 and will apply the recognition provisions of Interpretation No. 45 prospectively to guarantee activities initiated after December 31, 2002. See Note 6, "Commitments and Contingencies," for a further discussion of guarantees. 2. INVENTORIES Inventories consisted of the following at December 31:
2002 2001 -------- -------- ($ IN THOUSANDS) Manufacturing inventories: Raw materials............................................. $ 1,473 $ 1,720 Work-in-process and finished goods........................ 19,655 24,909 Manufacturing inventory reserves.......................... (1,297) (2,724) -------- -------- 19,831 23,905 Merchandise inventories: Warehouse inventory....................................... 223,754 322,983 Merchandise inventory reserves............................ (9,137) (12,912) -------- -------- 214,617 310,071 -------- -------- $234,448 $333,976 ======== ========
The amount of indirect costs included in ending inventory at December 31, 2002 and 2001 was $15,753 and $23,272, respectively. Indirect costs incurred for fiscal year 2002 and 2001 were $95,865 and $115,162, respectively. In fiscal 2002, the company recorded physical inventory adjustments aggregating $1,457 (as an increase to Inventory and a reduction to Cost of revenues) principally in the fourth quarter of the year. In fiscal 2001, the company recorded physical inventory adjustments aggregating $4,800 (as an increase to Inventory and a reduction to Cost of revenues) principally in the third and fourth quarters of the year. F-14 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. PROPERTIES Properties consisted of the following at December 31:
2002 2001 --------- --------- ($ IN THOUSANDS) Buildings and improvements.................................. $ 80,016 $ 176,414 Machinery and warehouse equipment........................... 89,284 91,842 Office and computer equipment............................... 156,961 156,644 Transportation equipment.................................... 36,389 40,961 --------- --------- 362,650 465,861 Less accumulated depreciation............................... (274,519) (294,842) --------- --------- 88,131 171,019 Land........................................................ 2,985 9,328 --------- --------- $ 91,116 $ 180,347 ========= =========
As discussed further in Note 13, on December 31, 2002, the company sold seven of its ten owned distribution centers. This transaction resulted in a decrease in the net book value of buildings and improvements of $65,762. Depreciation expense for fiscal year 2002, 2001 and 2000 was $28,795, $33,195 and $35,594, respectively. 4. DEBT AND BORROWING ARRANGEMENTS Long-term debt consisted of the following at December 31:
2002 2001 -------- -------- ($ IN THOUSANDS) Senior Notes (rates at December 31, 2002/2001): 11.85% / 13.85%........................................... $ 16,403 $ 28,000 10.63% / 12.63%........................................... 31,610 50,000 10.16% / 12.16%........................................... 11,745 21,429 10.10% / 12.60%........................................... 65,309 105,000 10.04% / 12.04%........................................... 33,853 50,000 9.98% / 11.98%............................................ -- 25,000 Redeemable (subordinated) term notes: Fixed interest rates ranging from 5.3% to 7.83%........... 3,296 7,819 Capital lease obligations (Note 5).......................... 1,247 2,678 -------- -------- 163,463 289,926 Less amounts due within one year............................ (38,442) (53,658) -------- -------- $125,021 $236,268 ======== ========
F-15 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Principal payment schedule for long-term debt:
BALANCE AS OF 12/31/02 CURRENT 2004 2005 2006 2007 THEREAFTER -------------- ------- ------- ------- ------- ------- ---------- ($ IN THOUSANDS) Senior Notes (rates at December 31, 2002/2001): 11.85% / 13.85%............................ $ 16,403 $ 5,727 $ 4,000 $ 6,676 $ -- $ -- $ -- 10.63% / 12.63%............................ 31,610 7,998 4,545 4,545 4,545 4,545 5,432 10.16% / 12.16%............................ 11,745 4,563 3,572 3,610 -- -- -- 10.10% / 12.60%............................ 65,309 13,358 10,021 10,021 10,021 10,021 11,867 10.04% / 12.04%............................ 33,853 3,187 -- -- 10,000 10,000 10,666 9.98% / 11.98%............................. -- -- -- -- -- -- -- -------- ------- ------- ------- ------- ------- ------- 158,920 34,833 22,138 24,852 24,566 24,566 27,965 Redeemable (subordinated) term notes: Fixed interest rates ranging from 5.3%to 7.83%.................................... 3,296 3,185 111 -- -- -- -- Capital lease obligations (Note 5)........... 1,247 424 441 311 71 -- -- -------- ------- ------- ------- ------- ------- ------- Total........................................ $163,463 $38,442 $22,690 $25,163 $24,637 $24,566 $27,965 ======== ======= ======= ======= ======= ======= =======
The company had outstanding borrowings under its revolving credit facility agreement of $27,852 and $140,000 at December 31, 2002 and 2001, respectively. The $140,000 outstanding as of December 31, 2001 included approximately $57,000 of cash recorded in cash and cash equivalents that was available to reduce outstanding borrowings to $83,000. The weighted average interest rate on these borrowings was 8.3% and 9.9% for the years ended December 31, 2002 and 2001, respectively. The 2001 average interest rate reflects the inclusion of a 2% default premium. On December 30, 2002, TruServ amended the revolving credit facility, senior notes and synthetic lease agreements (the "Senior Debt") that had previously been amended in April 2002 in order to allow for a sale leaseback transaction that was completed on December 31, 2002 (the "December 2002 Amendments") (See Note 13). TruServ applied the net proceeds of the sale leaseback transaction, $121,438 to pay down the Senior Debt, all of whom are parties to the intercreditor agreement. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment on senior notes. The December 2002 Amendments mainly set preliminary financial covenants to allow for the substantial reduction in debt and the corresponding increase in rent payments resulting from the sale leaseback transaction. See Note 5, "Lease Commitments" and Note 16, "Subsequent Events." The Senior Debt agreements were previously amended on April 11, 2002, when TruServ entered into various amendments that eliminated the event of default created when TruServ failed to comply with a covenant as of February 24, 2001 (the "April 2002 Amendments"). The April 2002 Amendments to the revolving credit facility extended the term of the facility from June 2002 to June 2004. The amount of the commitment at the time of amendment was $200,000. The commitment under the revolving credit facility is permanently reduced by the amount of any prepayments allocated to and paid on the revolving credit facility. Borrowings under the revolving credit facility are subject to borrowing base limitations that fluctuate in part with the seasonality of the business. The borrowing base formula limits advances to the sum of 85% of eligible accounts receivable, 50% of eligible inventory, 60% of the appraised value of eligible real estate and 50% of the appraised value of eligible machinery and equipment; availability is further increased by seasonal over-advances and decreased by reserves against availability. The revolving credit facility has certain minimum unusable commitment amounts, which vary based upon the projected seasonal working capital needs of TruServ. The interest rate on the revolving credit facility was increased to the prime rate plus 3.25%, which was 7.5% as of December 31, 2002. The unused commitment fee is 0.75% per annum. Since the April 2002 Amendments, the revolving credit facility commitment has been permanently reduced to $143,200 at December 31, 2002 due to prepayments in 2002 from the proceeds of asset sales. TruServ had available, under the revolving credit facility, approximately $115,300 at December 31, 2002. F-16 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The April 2002 Amendments to the various senior note agreements maintained the existing debt amortization schedules of the various notes. Interest rates on the notes are at the pre-default rates, which ranged at December 31, 2002 from 10.04% to 11.85%. The senior note and revolving credit facility amendments also require initial, quarterly and annual maintenance fees. All of the cash proceeds from certain asset sales and certain notes receivable, and 80% of any excess cash flow, as defined in the amended senior note and revolving credit facility agreements, are to be used to prepay all parties to these amendments in accordance with an amended intercreditor agreement. For 2002, cash proceeds from certain asset sales and notes receivable totaling $157,312 were used to prepay all parties to the intercreditor agreement. No additional payment as a result of excess cash flow is required to be made at this time. The intercreditor agreement establishes how the assets of TruServ, which are pledged as collateral, are shared and how certain debt prepayments are allocated among the senior lenders. For the year ended December 31, 2002, the prepayments to senior note holders of $93,915 resulted in make-whole liabilities of $18,710, which are recorded as additional debt with an offsetting entry to a prepaid interest account. As previously described, the $12,695 of make-whole notes from the sale leaseback transaction, is a component of the $18,710. The prepaid interest account will be amortized to interest expense over the remaining life of the original notes. The terms of the senior note agreements, that comprise a portion of the Senior Debt, have always provided that in the event of early termination or a prepayment of all or a portion of the notes, make-whole liabilities are triggered. The nature of the transaction giving rise to the prepayment, the length of time to maturity of a particular note, the magnitude of the prepayment relative to the remaining debt outstanding and prevailing market interest rates relative to the interest rates on the senior notes are factors in determining the amount of potential make-whole liabilities. In the event of full prepayment of the senior notes, the entire prepaid interest amount will be immediately charged to interest expense. Management currently intends to pursue a refinancing of the existing Senior Debt in the first half of 2004. Management anticipates significantly lower interest rates upon refinancing. However, based upon current market interest rate, make-whole expense of a refinancing, before considering the impact of any negotiations with the senior note holders, could range up to approximately $27,000, in addition to fully expensing the remaining prepaid balance of existing make-whole, which was $17,864 at December 31, 2002. TruServ management negotiated a reduction of approximately 50% in the make-whole notes when it made prepayments on the senior notes from the proceeds of the sale leaseback transaction. The April 2002 Amendments all require TruServ to meet certain restrictive covenants relating to minimum sales, minimum adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), minimum fixed charge coverage, minimum interest coverage and maximum capital expenditures. The senior note holders may accelerate the due date of their notes, if TruServ does not have a revolving credit facility in place to fund its seasonal cash flows. Some of these covenants were adjusted in March 2003 as a result of the sale leaseback transaction. See Note 16, "Subsequent Events." TruServ was in compliance with all of these covenants as of December 31, 2002 as shown in the chart below:
RESTRICTIVE COVENANT COVENANT ACTUAL - -------------------- ---------- ---------- ($ IN THOUSANDS) Minimum sales............................................... $1,975,000 $2,175,451 Minimum adjusted EBITDA..................................... $ 100,000 $ 120,062 Minimum fixed charge coverage............................... 0.70 1.01 Minimum interest coverage................................... 1.75 1.97 Maximum capital expenditures................................ $ 16,000 $ 12,838
TruServ believes it will continue to remain in compliance with its debt covenants. For fiscal 2003, TruServ believes operating results will be sufficient to comply with the covenants established in the March 2003 Amendments. See Note 16 "Subsequent Events". F-17 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The term of the revolving credit facility will accelerate to June 30, 2003 from June 30, 2004, if on that date, total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, is in excess of $270,000, or total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes, plus the unused amount of the commitment under the revolving credit facility, less $30,000, is in excess of $320,000. At December 31, 2002, the total Senior Debt outstanding, less the aggregate principal amount of the make-whole notes was $167,965 and the related commitments outstanding less $30,000 totaled $253,323. Although the revolver portion of total Senior Debt outstanding can fluctuate with the seasonal cash flow requirements of the business, TruServ believes it will maintain a sufficiently low level of Senior Debt outstanding with cash from operating activities to continue to meet the June 30, 2003 requirement. The April 2002 Amendments limit the amount of the cash portion of patronage dividends to the 20% minimum required to be paid under applicable IRS regulations in order for TruServ to maintain its status as a cooperative, unless TruServ's operating performance achieves certain EBITDA targets, in which case, up to 30% of the patronage dividend may be paid in cash. TruServ exceeded the EBITDA target for 2002 and, as such, the cash portion of the 2002 patronage dividend paid in 2003 averaged 30%. The April 2002 Amendments also require the continuation of the stock redemption moratorium through June 30, 2004. As discussed in Note 7, it is an event of default under the April 2002 Amendments if payments of subordinated notes exceed $14,000 in fiscal 2003. TruServ did not exceed the maximum payment level of $24,000 in 2002 and, accordingly, was in compliance. In addition, an event of default arises under the April 2002 Amendments in the event that TruServ fails to comply with its corporate governance policy requiring the retention by TruServ of at least two outside directors prior to May 31, 2002, at least four outside directors prior to September 1, 2002 and at least five outside directors prior to November 1, 2002. As of October 7, 2002, TruServ appointed its fifth outside director and, as such, TruServ was in compliance with the corporate governance covenant as of December 31, 2002. The April 2002 Amendments also contain requirements for other customary covenants, representations and warranties, funding conditions and events of default. As of December 31, 2002, TruServ was in compliance with all applicable covenants and has not triggered any events of default. TruServ intends to both honor the amounts outstanding under the member note agreements and not exceed the maximum allowable payments of $14,000 in fiscal 2003 under the revolving credit facility and senior note agreements through the consent of the holders of the member notes, to extend a portion of the notes due in 2003. If TruServ exceeds the maximum allowable payments of $14,000 in fiscal 2003, or violates any negative covenant, it is an event of default under the revolving credit facility and senior note agreements. Unless appropriate waivers were obtained from TruServ's lenders, the amounts due under the revolving credit facility and senior note agreements could become immediately due and payable or the agreements could have to be renegotiated. However, there can be no assurances that TruServ would be able to obtain the requisite waivers or successfully renegotiate its lending agreements. In the event TruServ was unable to obtain the requisite waivers or successfully renegotiate its lending agreements, a material adverse effect on TruServ's liquidity and capital resources could result. The redeemable (subordinated) term notes have two to four year terms and were issued in exchange for promissory (subordinated) notes that were held by promissory note holders who do not own the company's Redeemable Class A voting common stock. They were also available for purchase by investors that were affiliated with the company. F-18 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Restricted cash consisted of the following at December 31:
2002 2001 ------- ------- ($ IN THOUSANDS) Letters of credit........................................... $11,691 $11,392 Proceeds from sale of assets available for debt reduction by the collateral agent...................................... 39 10,906 Lockbox cash management deposit requirements................ 4,025 4,000 Redeemable (subordinated) notes............................. -- 1,746 Escrow...................................................... -- 1,031 ------- ------- $15,755 $29,075 ======= =======
TruServ finances its requirements for letters of credit with cash deposited and invested at the issuing bank. TruServ partially secures its requirement for banking services by maintaining invested cash deposits with its cash management banks. The intercreditor agreement amended in April 2002 with TruServ's lenders requires TruServ to hold the proceeds from the sale of certain assets in a restricted cash account invested with the collateral agent to be used for debt reduction. These proceeds were held by the collateral agent in fiscal 2001 and distributed after the Senior Debt agreements were amended in April 2002. 5. LEASE COMMITMENTS The company is a lessee of distribution centers, office space, and computer and transportation equipment under operating and capital leases. The following is a schedule of future minimum lease payments under capital and long-term non-cancelable operating leases, together with the present value of the net minimum lease payments under capital leases, as of December 31, 2002:
CAPITAL OPERATING ------- --------- ($ IN THOUSANDS) 2003........................................................ $ 464 $ 33,461 2004........................................................ 464 31,008 2005........................................................ 358 28,251 2006........................................................ 85 24,079 2007........................................................ -- 22,839 Thereafter.................................................. -- 266,473 ------ -------- Net minimum lease payments.................................. $1,371 $406,111 ======== Less amount representing interest........................... (125) ------ Present value of net minimum lease payments................. 1,246 Less amount due within one year............................. (424) ------ $ 822 ======
Capitalized leases expire at various dates and generally provide for purchase options but not renewals. Purchase options provide for purchase prices at either fair market value or a stated value, which is related to the lessor's book value at the expiration of the lease term. Operating lease obligations increased significantly at the end of 2002 as a result of the December 31, 2002 sale leaseback of seven regional distribution centers as discussed in Note 13. The Hagerstown, Maryland distribution center is subject to a synthetic lease with monthly payments that are recorded in Third party interest expense. The lease payment commitments were for three years with two one-year renewal options and a principal payment due at the expiration of the lease agreement. All obligations under this lease arrangement are guaranteed by the company. The synthetic lease had a principal balance of F-19 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $33,383 at December 31, 2002, which is due at the end of the lease term, which is the earlier of December 31, 2003 or the termination of the existing revolving credit facility. This debt and the original cost of the facility are not recorded in the company's balance sheet because the synthetic lease does not meet the requirement for capital lease treatment under SFAS No. 13, "Accounting for Leases." The difference between the lease obligation and management's estimation of the fair value of the building, which TruServ continues to believe is reasonable at December 31, 2002, was recorded as a 2001 cost to exit the facility and remains as a component in accrued expenses at December 31, 2002 (see Note 15). Rent expense under operating leases was $25,436, $25,338 and $29,942 for the years ended December 31, 2002, 2001 and 2000, respectively. 6. COMMITMENTS AND CONTINGENCIES TruServ provides guarantees for certain member loans, but is not required to provide a compensating balance for the guarantees. The company is required to pay off a portion of the full amount of these loans under these guarantees, ranging from 15-50% of the member's outstanding balance, in the event that a member defaults on their loan, after which the member will be liable to the company for the guaranteed amount. The amount of the guaranteed portion of these member loans, which are not recorded in TruServ's balance sheet, was approximately $2,172 and $3,966 as of December 31, 2002 and 2001, respectively. The balance of $2,172 as of December 31, 2002 includes approximately $557 that will mature in fiscal 2003. The remaining guarantees will expire periodically through 2013. TruServ carries a reserve of $217 relating to these guarantees. Additionally, TruServ sold certain member note receivables to a third party in 2002 which the company has fully guaranteed. The company is required to pay 100% of the outstanding balance of these member notes under these guarantees in the event that a member defaults on their notes, after which the member will be liable to the company for the guaranteed amount. The balance of these notes at December 31, 2002 was $871. TruServ has recorded a liability and related receivable for $871 relating to these member notes, and carries a $87 reserve relating to these guarantees. The balance of $871 as of December 31, 2002 includes approximately $264 that will mature in fiscal 2003. The remaining guarantees will expire periodically through 2007. TruServ has a lifetime warranty or a customer satisfaction guarantee on the majority of the company's TruTest paint products, which covers only replacement material. The company has historically experienced minimal returns on these warranties and guarantees and has determined any related liability to be immaterial. The company is involved in various claims and lawsuits incidental to its business. The following significant matters existed at December 31, 2002: BESS ACTION In May 2000, TruServ filed a complaint in the Circuit Court of McHenry County, Illinois against Bess Hardware and Sports, Inc., ("Bess") to recover an accounts receivable balance in excess of $400. Bess filed a counterclaim, seeking a setoff against its accounts receivable balance for the par redemption value of Bess' shares of TruServ Stock. Bess contested the validity of a March 17, 2000 corporate resolution declaring a moratorium on the redemption of all TruServ capital stock, as well as an allocation of Bess' proportionate share of the loss which TruServ declared for its fiscal year 1999. On June 21, 2002, the court issued an oral ruling granting summary judgment to TruServ on its accounts receivable claim, and granting summary judgment to Bess on its counterclaim. The judgment was entered on August 6, 2002. TruServ believes that the court's ruling on Bess' counterclaim is not supported by either the facts or Delaware corporate law. TruServ's motion for reconsideration and reversal of the August judgment on Bess' counterclaim was denied on November 21, 2002. TruServ filed its notice of appeal in the Second District of Illinois Appellate Court on December 2, 2002. F-20 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DERIVATIVE ACTION In August 2000, an action was brought in Delaware Chancery Court (New Castle County) by a former TruServ member ("Hudson City Properties") against certain present and former directors and certain former officers of TruServ and against TruServ. The complaint is brought derivatively on behalf of TruServ and alleges that the individual defendants breached their fiduciary duties in connection with the accounting adjustments made by TruServ in the fourth quarter of 1999. Hudson City Properties also seeks to proceed on a class-action basis against TruServ on behalf of all those affected by the moratorium on stock redemption and the creation of the loss allocation accounts. Hudson City Properties alleges that TruServ breached, and the named directors caused TruServ to breach, agreements with members by suspending payment of the members' 1999 annual patronage dividend, by declaring the moratorium on the redemption of members' TruServ stock and by imposing minimum annual purchase requirements upon members. The plaintiff seeks monetary and non-monetary relief in connection with the various claims asserted in the complaint. The lawsuit, despite its vintage, is in an early stage and the extent of the damages claimed has not yet been determined. The parties have entered into settlement negotiations, but a final settlement has not been reached at this time and no assurances can be given that one will be entered into. KENNEDY ACTION In June 2000, various former members of TruServ filed an action against TruServ in the Circuit Court of the 19th Judicial Circuit (McHenry County, Illinois) (the "Kennedy action"). The plaintiffs in the Kennedy action each allege that, based upon representations made to them by TruServ and its predecessors that the Coast to Coast brand name would be maintained, they voted for the merger of ServiStar/Coast to Coast and Cotter & Company. The plaintiffs allege that after the merger, the Coast to Coast brand name was eliminated and that each plaintiff thereafter terminated or had its membership in TruServ terminated. The plaintiffs further claim that TruServ breached its obligations by failing to redeem their stock and by creating loss allocation accounts for the plaintiffs. The plaintiffs have each asserted claims for fraud/misrepresentation, negligent misrepresentation, claims under the state securities laws applicable to each plaintiff, claims under the state franchise/dealership laws applicable to each plaintiff, breach of fiduciary duty, unjust enrichment, estoppel and recoupment. Similar claims were filed against TruServ as counterclaims to various complaints filed by TruServ in McHenry County to recover accounts receivable balances from other former members. Those claims were consolidated with the Kennedy action. In March 2001, the Kennedy complaint was amended to add additional plaintiffs. Also in March 2001, another action was filed against TruServ on behalf of additional former members, in the same court, by the same law firm (the "A-Z action"). The A-Z complaint alleges substantially similar claims as those in the Kennedy action, with the principal difference being that the claims relate to the elimination of the ServiStar brand name. The Kennedy and A-Z actions have been consolidated for purposes of discovery, which is ongoing. The plaintiffs seek damages for stock repurchase payments, lost profits and goodwill, out of pocket expenses, attorney fees and punitive damages. In July 2002, the plaintiffs in these consolidated actions amended their complaints to name as defendants two former officers of TruServ. To the extent that TruServ may have indemnification obligations to these former officers, TruServ's directors and officers' liability insurance policies may be available to cover such claims. TruServ intends to vigorously defend all of these cases. However, a ruling in favor of any or all of the plaintiffs in the Kennedy Action, the Derivative Action or the Bess Action could have a material adverse effect on TruServ. The courts could rule that TruServ violated its Agreement with members or its By-Laws in establishing the loss allocation account; imposing the moratorium on stock redemptions; or imposing minimum purchase commitments on members. In the event of such a ruling, TruServ could be required to do one or more of the following: - lift the moratorium on stock redemptions; and - redeem members' stock presented for redemption at its full stated value. F-21 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Such actions could constitute events of default under TruServ's Senior Debt. Unless appropriate waivers were obtained from TruServ's lenders, the amounts due under the Senior Debt could become immediately due and payable or the Senior Debt agreements could have to be renegotiated. However, there can be no assurances that TruServ would be able to obtain the requisite waivers or successfully renegotiate its Senior Debt agreements. In the event TruServ was unable to obtain the requisite waivers or successfully renegotiate its Senior Debt agreements, a material adverse effect on TruServ's liquidity and capital resources could result. PENTZ SETTLEMENT In June 2002, TruServ reached a comprehensive and confidential settlement with Paul Pentz, a former president of TruServ regarding his claims for bonus and retirement compensation payments. CLAIMS AGAINST ERNST & YOUNG LLP TruServ is pursuing claims against its former outside auditors, Ernst & Young LLP ("E&Y"), for professional malpractice, breach of contract, deceptive business practices and fraud. TruServ contends that E&Y failed to properly discharge its duties to TruServ and failed to identify, in a timely manner, and indeed concealed, certain material weaknesses in TruServ's internal financial and operational controls. As a result, TruServ was forced to make an unanticipated accounting adjustment in the fourth quarter of 1999 in the total amount of $121,333 (the "Fourth Quarter Charge"). As a result, TruServ reported a net loss of $130,803 for the fiscal year ended December 31, 1999. It is TruServ's belief that had E&Y properly discharged its duties, the scope and breadth of the Fourth Quarter Charge, as well as the accounting and operational control deficiencies that necessitated the charge, would have been substantially lessened, if not eliminated in their entirety. As a result of E&Y's failures, TruServ has suffered significant financial damages. The factual allegations that form the basis for TruServ's claim against E&Y include, in part, the issues identified in the Securities and Exchange Commission cease and desist order described below. TruServ began discussion of its claims with E&Y early in the fall of 2001. Pursuant to the dispute resolution procedures required by TruServ's engagement letter with E&Y, TruServ and E&Y attempted to mediate this dispute during the first six months of 2002. When those attempts proved unsuccessful, and again pursuant to the dispute resolution procedures, TruServ filed its claim with the American Arbitration Association on July 31, 2002. The arbitration, which is subject to certain confidentiality requirements, is currently pending. F-22 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. PROMISSORY (SUBORDINATED) AND INSTALLMENT NOTES Promissory (subordinated) and installment notes consisted of the following at December 31:
2002 2001 -------- -------- ($ IN THOUSANDS) Promissory (subordinated) notes: Due on December 31, 2002 -- 7.86%......................... $ -- $ 23,253 Due on December 31, 2003 -- 7.90%......................... 19,413 19,731 Due on December 31, 2004 -- 9.00% to 10.00%............... 19,902 19,963 Due on December 31, 2005 -- 7.00% to 10.00%............... 23,565 1,304 Term (subordinated) notes Due on June 30, 2002 -- 8.06%............................. -- 12,393 Installment notes at interest rates of 5.74% to 8.06% with maturities through 2004................................... 2,006 5,962 -------- -------- 64,886 82,606 Less amounts due within one year............................ (21,355) (39,633) -------- -------- $ 43,531 $ 42,973 ======== ========
Prior to 1997, promissory notes were issued for partial payment of the annual patronage dividend. Promissory notes are subordinated to indebtedness to banking institutions, trade creditors and other indebtedness of TruServ as specified by its board of directors. Prior experience indicates that the maturities of a significant portion of the notes due within one year are extended, for a three-year period, at interest rates substantially equivalent to competitive market rates of comparable instruments. The company anticipates that this practice of extending notes, based on historical results, will continue and, accordingly, these notes are classified as a component of capitalization. Total maturities of promissory and installment notes for fiscal years 2003, 2004 and 2005 are $21,354, $19,951 and $23,581, respectively. Amounts shown as scheduled repayments are the stated note amounts; however, it is an event of default in the amended debt agreements if payments of subordinated notes exceed $14,000 in 2003. TruServ's payments of such notes aggregated $17,765 in 2002 against scheduled repayments of $44,244 and maximum payment level under the debt agreements of $24,000; as such payment amount was less than the event of default ceiling amount, TruServ was in compliance. TruServ will seek members' consent in 2003 to extend the note due dates in exchange for an increase in the interest rate as it did in 2002. F-23 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES Income tax expense consisted of the following for the years ended December 31:
2002 2001 2000 ---- ------ ---- ($ IN THOUSANDS) Current: Federal................................................... $ -- $ 203 $231 State..................................................... 259 194 315 Foreign................................................... -- 641 306 ---- ------ ---- Total current............................................. 259 1,038 852 Deferred: Federal................................................... -- -- -- State..................................................... -- -- -- Foreign................................................... -- 339 64 ---- ------ ---- Total deferred............................................ -- 339 64 ---- ------ ---- $259 $1,377 $916 ==== ====== ====
The company operates as a nonexempt cooperative and is allowed a deduction in determining its taxable income for amounts paid as qualified patronage dividends based on margins from business done with or on behalf of members and for the redemption of nonqualified notices of allocation. The reconciliation of income tax expense to income tax computed at the U.S. federal statutory tax rate of 35% was as follows for the years ended December 31:
2002 2001 2000 ------- -------- -------- ($ IN THOUSANDS) Tax at U.S. statutory rate............................ $ 7,494 $(19,224) $ 12,262 Effects of: Patronage dividend.................................. (7,189) -- (12,233) State income taxes, net of federal benefit.......... 168 126 205 (Decrease)/increase in valuation allowance.......... (353) 18,353 (2,503) Non-deductible goodwill............................. -- 902 2,819 Other, net.......................................... 139 1,220 366 ------- -------- -------- $ 259 $ 1,377 $ 916 ======= ======== ========
Deferred income taxes reflect the net tax effects to the company of its net operating loss carryforwards, which expire in years through 2021; alternative minimum tax credit carryforwards, which do not expire, nonqualified notices of allocations, which are deductible when redeemed and do not expire; and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax effect of the net operating loss carryforward was reduced in 2002 by $37,076. $21,895 of the reduction is primarily attributable to changes in other deferred tax assets and liabilities, mostly due to gains from asset sales taxable in the year of sale but deferred for financial reporting purposes; and the remaining $15,181 reduction is the cumulative effect of non-cash patronage dividends applied to satisfy members' loss allocation accounts (a corresponding reduction of $15,181 was made to the valuation allowance). Total deferred tax assets net of deferred tax liabilities have a full valuation allowance because the company has concluded that, based on the weight of available evidence it is more likely than not that the deferred tax assets will not be realized. Deferred tax assets will only be realized to the extent future earnings are retained by TruServ and not distributed to members as patronage dividends. If tax benefits are subsequently recognized in excess of net deferred tax assets, approximately $13,619 of the resulting reduction in the valuation allowance for deferred tax assets is merger-related and will reduce goodwill. F-24 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The significant components of the company's deferred tax assets and liabilities were as follows for the years ended December 31:
2002 2001 -------- --------- ($ IN THOUSANDS) Deferred tax assets Net operating loss carryforwards.......................... $ 28,364 $ 65,440 AMT credit carryforward................................... 784 784 Nonqualified notices of allocation........................ 13,548 13,548 Bad debt provision........................................ 3,421 3,761 Vacation pay.............................................. 2,889 2,617 Contributions to fund retirement plans.................... 3,051 -- Deferred gain from sale leaseback......................... 25,026 -- Severance and restructuring costs......................... 6,846 12,878 Inventory reserves........................................ -- 1,272 Rent expense.............................................. 2,714 2,623 Merger-related valuations and accruals.................... 1,861 2,160 Inventory capitalization.................................. 3,126 2,657 Other..................................................... 6,055 5,302 -------- --------- Total deferred tax assets................................... 97,685 113,042 Valuation allowance for deferred tax assets................. (94,952) (110,537) -------- --------- Net deferred tax assets..................................... 2,733 2,505 Deferred tax liabilities: Tax depreciation in excess of book depreciation........... 1,602 960 Contributions to fund retirement plans.................... -- 414 Other..................................................... 1,131 1,131 -------- --------- Total deferred tax liabilities.............................. 2,733 2,505 -------- --------- Net deferred taxes.......................................... $ -- $ -- ======== =========
9. SUPPLEMENTAL CASH FLOW INFORMATION The patronage dividend and promissory (subordinated) and redeemable (subordinated) term note renewals relating to non-cash operating and financing activities were as follows for the years ended December 31:
2002 2001 2000 ------- ------- ------- ($ IN THOUSANDS) Patronage dividend payable in cash...................... $ 6,121 $ (976) $10,459 Accrued expenses........................................ (245) (569) -- Promissory (subordinated) notes......................... (4,324) (5,888) (1,820) Redeemable Class A voting common stock.................. -- -- 3 Redeemable Class B common stock......................... 2,497 -- (2,733) Installment notes....................................... (34) (50) 2,515 Loss allocation......................................... 14,006 2,488 21,458 Member indebtedness..................................... 2,520 4,995 4,823 ------- ------- ------- Patronage dividend.................................... $20,541 $ -- $34,705 ======= ======= ======= Member note renewals and interest rollover.............. $36,434 $21,936 $22,525 ======= ======= =======
TruServ may set off its obligation to make any payment to a member for such member's stock, notes, interest and declared and unpaid dividends against any obligation owed by the member to TruServ. TruServ exercised its set off rights in 2002 when patronage dividends were declared for members with loss allocation F-25 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounts. Also the set off rights were exercised when TruServ notes and interest came due to former members with outstanding accounts receivable to TruServ and current members with past due accounts receivable to TruServ. TruServ also set off its obligation to former members against their related loss allocation balance. The set off rights were exercised in an aggregate amount of $16,526, which decreased the loss allocation account by $14,006 and accounts receivable by $2,520 during 2002. In 2001, TruServ also exercised its set off rights when TruServ notes and interest came due to former members with outstanding accounts receivable to TruServ and current members with past due accounts receivable to TruServ. TruServ also set off its obligation to former members against their related loss allocation balance. The set off rights were exercised in an aggregate amount of $7,483, which decreased the loss allocation account by $2,488 and accounts receivable by $4,995 during 2001. $976 of the offset to accounts receivable was generated from the payment of the fiscal 2000 patronage dividend in 2001, which reduced the cash payment from $10,459 to $9,483. The company's non-cash financing and investing activities in fiscal year 2001 include $1,300 related to a note received for the sale of its Indianapolis, Indiana property. In fiscal year 2000, the company's non-cash financing and investing activities are due to an asset sale and related agreements with Builder Marts of America, Inc. that included a note receivable of $19,500 and debit memos of $4,000. Cash paid for interest during fiscal years 2002, 2001 and 2000 totaled $61,989, $59,048 and $60,059, respectively. Cash paid for income taxes during fiscal years 2002, 2001 and 2000 totaled $305, $133 and $777, respectively. 10. BENEFIT PLANS The change in the projected benefit obligation and in the plan assets for the company administered qualified pension plan were as follows for the years ended December 31:
2002 2001 -------- -------- ($ IN THOUSANDS) Change in projected benefit obligation: Projected benefit obligation at beginning of year......... $ 58,991 $ 68,181 Service cost.............................................. 5,045 5,639 Interest cost............................................. 3,693 4,494 Benefit payments.......................................... (26) (1) Actuarial losses.......................................... 5,144 10,394 Plan amendments........................................... 19 (10,678) Curtailments.............................................. (1,301) -- Settlements............................................... (11,849) (19,038) -------- -------- Projected benefit obligation at end of year............... 59,716 58,991 Change in plan assets: Fair value of plan assets at beginning of year............ 54,376 76,501 Actual return on assets................................... (5,573) (3,086) Employer contributions.................................... 10,000 -- Benefit payments.......................................... (26) (1) Settlements............................................... (11,849) (19,038) -------- -------- Fair value of plan assets at end of year.................. 46,928 54,376 Reconciliation of funded status: Funded status............................................. (12,788) (4,616) Unrecognized transition asset............................. (104) (361)
F-26 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002 2001 -------- -------- ($ IN THOUSANDS) Unrecognized prior service cost........................... (7,616) (9,793) Unrecognized actuarial loss............................... 26,206 17,468 -------- -------- Prepaid expense........................................... $ 5,698 $ 2,698 ======== ========
TruServ also has a pension plan that is the supplemental executive retirement plan ("SERP"), which is an unfunded unqualified defined benefit plan. The change in the projected benefit obligation and in the plan assets for the SERP were as follows for the years ended December 31:
2002 2001 ------- ------- ($ IN THOUSANDS) Change in projected benefit obligation: Projected benefit obligation at beginning of year......... $ 4,648 $ 8,317 Service cost.............................................. 342 212 Interest cost............................................. 301 380 Benefit payments.......................................... (390) (390) Actuarial losses.......................................... 129 2,786 Plan amendments........................................... (18) -- Settlements............................................... -- (6,657) ------- ------- Projected benefit obligation at end of year............... 5,012 4,648 Change in plan assets: Fair value of plan assets at beginning of year............ -- -- Employer contributions.................................... 390 7,047 Benefit payments.......................................... (390) (390) Settlements............................................... -- (6,657) ------- ------- Fair value of plan assets at end of year.................. -- -- Reconciliation of funded status: Funded status............................................. (5,012) (4,648) Unrecognized prior service cost........................... 3,727 4,357 Unrecognized actuarial loss............................... 1,970 1,927 ------- ------- Prepaid expense........................................... $ 685 $ 1,636 ======= =======
The company recorded in Deferred credits, for the SERP plan, an additional minimum pension liability of $4,880 as of December 31, 2002, which represents the amount by which the accumulated benefit obligation exceeded the fair value of plan assets plus the previously recognized prepaid asset. The additional liability has been offset by an intangible asset, which is included in Other assets, to the extent of previously unrecognized prior service cost. The amount in excess of previously unrecognized prior service cost of $1,153 at December 31, 2002 is recorded as a reduction of Members' equity in Accumulated other comprehensive income. The company has a prepaid pension expense for both plans of $6,383 and $4,334 at December 31, 2002 and 2001, respectively. The prepaid pension expense at December 31, 2002 and December 31, 2001 is classified in "Other current assets." F-27 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of net periodic pension cost for the company administered qualified pension plan were as follows for the years ended December 31:
2002 2001 2000 ------- ------- -------- ($ IN THOUSANDS) Components of net periodic pension cost: Service cost......................................... $ 5,045 $ 5,639 $ 6,098 Interest cost........................................ 3,693 4,494 8,716 Expected return on assets............................ (4,618) (5,986) (12,987) Amortization of transition assets.................... (235) (311) (529) Amortization of prior service cost................... (519) (62) 340 Amortization of actuarial loss/(gain)................ 96 109 (180) Curtailment gain..................................... (1,641) -- -- Settlement loss/(gain)............................... 5,179 5,521 (5,376) ------- ------- -------- Net pension cost................................ $ 7,000 $ 9,404 $ (3,918) ======= ======= ========
In the third quarter of fiscal year 2000, the company purchased from an insurance company non-participating annuity contracts to satisfy pension obligations related to certain former employees who were fully vested in their pension benefits. As a result of this transaction, the company recognized a pre-tax gain of approximately $5,000 in fiscal year 2000 related to the settlement of these pension obligations. Such gain has been recorded as Other income, net. The components of net periodic pension cost for the SERP were as follows for the years ended December 31:
2002 2001 2000 ------ ------ ------ ($ IN THOUSANDS) Components of net periodic pension cost: Service cost............................................. $ 342 $ 212 $ 316 Interest cost............................................ 301 380 757 Amortization of prior service cost....................... 611 612 612 Amortization of actuarial loss/(gain).................... 86 169 89 Settlement loss/(gain)................................... -- 2,759 3,411 ------ ------ ------ Net pension cost...................................... $1,340 $4,132 $5,185 ====== ====== ======
The company also participates in union-sponsored defined contribution plans. Costs related to these plans were $60, $30 and $169 for fiscal year 2002, 2001 and 2000, respectively. Plan assets consist primarily of publicly traded common stocks and corporate debt instruments. The assumptions used to determine TruServ's pension obligations for all plans were as follows for the years ended December 31:
2002 2001 ----- ----- Weighted average assumptions: Discount rate............................................. 6.50% 7.00% Expected return on assets................................. 8.00% 8.50% Rate of compensation increase............................. 3.50% 4.50%
F-28 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) TruServ also maintains a defined benefit retirement medical plan for former SCC employees who met certain age and service criteria that was frozen at the time of the Merger. The company contributes $0.105 per month per person for such employees who elect coverage for themselves and their dependents. The company also maintains similar benefits for some former SCC executives who were also contractually eligible for such coverage. The change in the benefit obligation and in the plan's assets for the company's post-retirement plan, as well as the components of net periodic post-retirement benefit cost, was as follows for the years ended December 31:
2002 2001 ------- ------- ($ IN THOUSANDS) Change in benefit obligation: Accumulated post-retirement benefit obligation at beginning of year...................................... $ 4,972 $ 4,747 Interest cost............................................. 415 350 Claims paid............................................... (597) (427) Actuarial losses.......................................... 1,476 302 ------- ------- Accumulated post-retirement benefit obligation at end of year................................................... 6,266 4,972 ------- ------- Change in plan assets: Fair value of plan assets at beginning of year............ -- -- Employer contribution..................................... 597 427 Claims paid............................................... (597) (427) ------- ------- Fair value of plan assets at end of year.................. -- -- ------- ------- Reconciliation of funded status: Funded status............................................. (6,266) (4,972) Unrecognized actuarial losses............................. 1,757 326 ------- ------- Net amount recognized..................................... (4,509) (4,646) ------- ------- Component of net periodic post-retirement benefit cost: Interest cost............................................. 415 350 Amortization of (gain)/loss............................... 45 -- ------- ------- Net periodic benefit cost................................. $ 460 $ 350 ======= =======
The effect of a one percentage point increase in the medical trend rate would increase the interest cost component by $11 and the post-retirement benefit obligation by $150. The effect of a one percentage point decrease in the medical trend rate would decrease the interest cost components by $9 and the post-retirement benefit obligation by $126. The assumptions used to determine TruServ's health benefit obligations were as follows for the years ended December 31:
2002 2001 ---- ---- Weighted average assumptions: Discount rate............................................. 6.50% 7.00% Medical trend rate........................................ 5.00% 5.00%
11. SEGMENT INFORMATION The company is principally engaged as a wholesaler of hardware and related products and is a manufacturer of paint products. The company identifies segments based on management responsibility and the nature of the business activities of each component of the company. The company measures segment earnings F-29 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) as operating earnings including an allocation for interest expense and income taxes. Information regarding the identified segments and the related reconciliation to consolidated information are as follows:
DECEMBER 31, 2002 -------------------------------------------- PAINT MANUFACTURING CONSOLIDATED HARDWARE AND DISTRIBUTION TOTALS ---------- ---------------- ------------ ($ IN THOUSANDS) Net sales to external customers....................... $2,060,282 $115,169 $2,175,451 Interest expense...................................... 57,349 4,546 61,895 Depreciation and amortization......................... 33,409 1,442 34,851 Segment net margin.................................... 11,967 9,186 21,153 Identifiable segment assets........................... 652,815 50,556 703,371 Expenditures for long-lived assets.................... 12,061 777 12,838
DECEMBER 31, 2001 ------------------------------------------------------------------------ PAINT ELIMINATION MANUFACTURING OF INTERSEGMENT CONSOLIDATED HARDWARE AND DISTRIBUTION CANADA ITEMS TOTALS ---------- ---------------- ------- --------------- ------------ ($ IN THOUSANDS) Net sales to external customers.... $2,404,553 $130,484 $84,397 $ -- $2,619,434 Intersegment sales................. -- 1,649 -- (1,649) -- Interest expense................... 58,967 3,819 487 -- 63,273 Depreciation and amortization...... 39,344 1,671 504 -- 41,519 Segment net margin/(loss).......... (64,562) 12,826 1,049 -- (50,687) Identifiable segment assets........ 963,736 54,757 2,344 -- 1,020,837 Expenditures for long-lived assets........................... 14,188 615 348 -- 15,151
DECEMBER 31, 2000 ------------------------------------------------------------------------- PAINT ELIMINATION MANUFACTURING OF INTERSEGMENT CONSOLIDATED HARDWARE AND DISTRIBUTION CANADA ITEMS TOTALS ---------- ---------------- -------- --------------- ------------ ($ IN THOUSANDS) Net sales to external customers... $3,745,524 $139,109 $109,009 $ -- $3,993,642 Intersegment sales................ -- 1,856 -- (1,856) -- Interest expense.................. 62,184 4,661 861 -- 67,706 Depreciation and amortization..... 40,482 1,752 799 -- 43,033 Segment net margin................ 24,984 9,000 133 -- 34,117 Identifiable segment assets....... 1,162,319 52,020 21,675 -- 1,236,014 Expenditures for long-lived assets.......................... 11,365 627 534 -- 12,526
The company does not have a significant concentration of members in any geographic region of the United States or in any foreign countries. 12. ASSET SALES Effective December 29, 2000, the company sold the assets, primarily inventory, of the lumber and building materials ("LBM") business, comprising fiscal year 2000 sales of approximately $1,100,000, to Builder Marts of America, Inc. ("BMA"). In connection with this sale, the company received consideration of $20,200 in cash (of which $1,000 was held in escrow until December 31, 2001 to satisfy any contingencies or disputes between the parties and which, accordingly, is classified as Restricted cash), a $19,500 note receivable (payable in annual installments through December 31, 2007 and carrying an interest rate of 7.75% per annum) and $4,000 in debit memos to be used as an offset against amounts payable to BMA existing at the date of the sale. Additionally, the company recorded deferred credits totaling $9,500 related to certain F-30 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) non-compete, cooperation, trademark and license, and lease agreements entered into with BMA; such amount will be amortized to income over the lives of the underlying agreements, generally 5-10 years. The company also relieved $4,600 of goodwill (net) and $700 of inventory related to the LBM business at the time of the sale. As a result of the above, the company recognized a gain of $28,900 in the fourth quarter of 2000, which is recorded in Gain on sale of assets. As of December 31, 2002, all but $100 of the note receivable was paid by BMA. Effective October 22, 2001, TruServ sold its ownership interest in TruServ Canada Cooperative, Inc. along with the headquarters and warehouse building and other parcels of real estate to the current management group of the cooperative. Net proceeds from the transaction were $9,654. The company recorded a net gain of $1,550 which is recorded in Gain on sale of assets. In August 2002, TruServ sold its Brookings, South Dakota regional distribution center to Rainbow Play Systems Properties of Brookings, LLC. The net proceeds after all closing costs for this sale of $6,286 were distributed to the senior lenders in the third quarter in accordance with the amended intercreditor agreement to pay down short-term borrowings and prepay long-term senior debt. 13. SALE LEASEBACK On December 31, 2002, TruServ sold seven of its distribution centers to unrelated third parties for an aggregate purchase price of $125,753. The sale resulted in net proceeds to TruServ of $121,438, which were used to pay Senior Debt. The net reduction in Senior Debt was $108,743, as a result of new make-whole notes of $12,695 issued due to the prepayment on senior notes. TruServ then entered into leases with each of three purchasers to lease the distribution centers for a period of 20 years. The transaction was recorded as a real property sale and as operating leases in TruServ's financial statements. The resulting gain on sale of $55,564, recorded as Deferred gain in the balance sheet and to be amortized to income on a straight line basis over the initial 20 year lease term. Each lease is a "triple-net" lease under which TruServ is obligated to pay all operating expenses of the property, all taxes and other impositions related to the property, to maintain and insure the property and, with minor exceptions, to rebuild the improvements after a casualty or condemnation. TruServ also indemnifies the landlord from any loss, cost, damage or liability arising out of the use, ownership or operation of the property, including any liability related to hazardous materials. TruServ's obligation to pay rent under the leases is absolute, with no right to offset or abatement. The three leases are cross-defaulted, such that a default under one of the lease constitutes a default under each of the other leases. Events of default under the leases relate to TruServ's "triple-net" lease obligations, as described above, and do not include any financial covenants. TruServ has no right to terminate any of the leases, with minor exceptions as described in the leases. TruServ sold the distribution facilities located in Corsicana, Texas and Woodland, California to and now leases them from Wrench (DE) Limited Partnership. TruServ sold the distribution facilities located in Kingman, Arizona, Fogelsville, Pennsylvania and Springfield, Oregon to and now leases them from Bolt (DE) Limited Partnership. TruServ sold the distribution facilities located in Jonesboro, Georgia and Kansas City, Missouri to and now leases them from Hammer (DE) Limited Partnership. The three limited partnerships are affiliated with W.P. Carey Investments, an investment firm independent of TruServ. TruServ pays rent under each lease quarterly in January, April, July and October. The aggregate annual rent under all three leases for the first year of the lease totals $12,007. Rent under the leases increases 2% each year during the initial 20 year lease term. TruServ has the right to extend each lease for two additional periods. The first extension period under each lease is for a term of nine years and 11 months and the second is for a term of 10 years. TruServ may elect to renew a lease or leases with respect to any one or more of the properties without renewing the lease or F-31 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) leases with respect to all of the properties subject thereto. TruServ has the right to assign the lease without the landlord's prior written consent, but subject to certain conditions described in the leases. Provided that TruServ assigns the rent thereunder to the landlord, TruServ may sublet all or any part of any property without the landlord's consent. TruServ continues to evaluate opportunities to capitalize on the increase in market value over the historical book value of its owned real estate assets through additional sale leaseback transactions, mortgages or other financing methods. 14. QUARTERLY FINANCIAL SUMMARY (UNAUDITED) Selected quarterly financial information for each of the four quarters in fiscal 2002 and 2001 is as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- ($ IN THOUSANDS) 2002 Revenues......................................... $553,228 $597,856 $499,818 $524,549 Net margin before income taxes................... 4,738 10,493 6,031 150 Net margin....................................... 4,648 10,433 5,934 138 2001 Revenues......................................... $654,350 $747,765 $621,977 $595,342 Net margin/(loss) before income taxes............ (13,900) 2,847 (2,345) (35,912) Net margin/(loss)................................ (13,936) 2,573 (2,477) (36,847)
15. RESTRUCTURING CHARGES AND OTHER RELATED EXPENSES In fiscal 2002, TruServ incurred restructuring and other related charges of $6,284, of which $3,313 related to restructuring, and $2,971 related to other post-employment and asset impairment charges. The restructuring charge of $3,313 in fiscal 2002 resulted from TruServ's continued workforce reductions initiated in fiscal 2000 and 2001 related to distribution center closures and workforce reductions in the organization. This charge was comprised of $2,316 for severance and $2,296 for facility exit costs, offset by a $1,299 reduction in asset impairment charges. The severance charges of $2,316 primarily consisted of additional workforce reductions at the corporate headquarters in Chicago, Illinois. The facility exit costs of $2,296 related to exiting the Hagerstown, Maryland distribution center, which was completed prior to December 31, 2002. The $1,299 reduction of asset impairment charges consisted of a $927 favorable adjustment to the asset value for the closing of the of the Brookings, South Dakota distribution center based on actual proceeds received on the sale of this facility in 2002. It also included a $372 favorable adjustment relating to the transfer of certain Hagerstown, Maryland equipment to other facilities, the value of which had been fully reserved in 2001. The other charges of $2,971 consisted of $1,769 for asset impairment and $1,202 for post-employment charges. The asset impairment charge of $1,769 related to the write-down of the East Butler, Pennsylvania facility. The post-employment charge of $1,202 was comprised of $352 relating to severance charges for the Cary, Illinois facility, and $850 relating to severance charges for the corporate headquarters in Chicago, Illinois. In fiscal 2001, TruServ recorded a charge to income of $38,522, of which $10,722 was for severance, $18,901 was for facility exit costs for the distribution centers, and $8,899 was for asset impairments. The largest component of these exit costs related to the Hagerstown, Maryland distribution center closure, which is subject to a synthetic lease. The difference of approximately $14,800 between the lease obligation at December 31, 2001 of $40,000 and management's estimate of the fair value of the building was the major component of its facility exit costs in 2001. This obligation and the original cost of the facility are not recorded on TruServ's balance sheet because it does not meet the requirement for capital lease treatment under F-32 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." At December 31, 2002, the synthetic lease had a principal balance of $33,383, which is due at the end of the amended lease term, which is the earlier of December 31, 2003 or the termination of the existing revolving credit facility. Restructuring initiatives summary (dollar amounts in thousands):
DECEMBER 31, 2001 ADDITIONAL DECEMBER 31, 2002 RESTRUCTURING RESTRUCTURING ASSET RESTRUCTURING RESERVE CHARGES IMPAIRMENTS PAYMENTS RESERVE ----------------- ------------- ----------- -------- ----------------- ($ IN THOUSANDS) Closure of Henderson, North Carolina distribution center: Severance and outplacement........ $ 150 $ 12 $ -- $ (162) $ -- ------- ------- ------ -------- ------- 150 12 -- (162) -- ------- ------- ------ -------- ------- Closure of Indianapolis, Indiana distribution center: Severance and outplacement........ 78 8 -- (86) -- ------- ------- ------ -------- ------- 78 8 -- (86) -- ------- ------- ------ -------- ------- Closure of Brookings, South Dakota distribution center: Severance and outplacement........ 1,608 165 -- (1,621) 152 Facility exit costs............... 979 -- -- (979) -- Asset impairments................. -- (927) 927 -- -- ------- ------- ------ -------- ------- 2,587 (762) 927 (2,600) 152 ------- ------- ------ -------- ------- Closure of Hagerstown, Maryland distribution center: Severance and outplacement........ 1,122 501 -- (979) 644 Facility exit costs............... 17,000 2,296 -- (8,266) 11,030 Asset impairments................. -- (372) 372 -- -- ------- ------- ------ -------- ------- 18,122 2,425 372 (9,245) 11,674 ------- ------- ------ -------- ------- Corporate headquarter workforce reduction: Severance and outplacement........ 5,312 1,630 -- (3,497) 3,445 ------- ------- ------ -------- ------- 5,312 1,630 -- (3,497) 3,445 ------- ------- ------ -------- ------- Total: Severance and outplacement........ 8,270 2,316 -- (6,345) 4,241 Facility exit costs............... 17,979 2,296 -- (9,245) 11,030 Asset impairments................. -- (1,299) 1,299 -- -- ------- ------- ------ -------- ------- $26,249 $ 3,313 $1,299 $(15,590) $15,271 ======= ======= ====== ======== =======
F-33 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 ADDITIONAL DECEMBER 31, 2001 RESTRUCTURING RESTRUCTURING ASSET RESTRUCTURING RESERVE CHARGES IMPAIRMENTS PAYMENTS RESERVE ----------------- ------------- ----------- -------- ----------------- ($ IN THOUSANDS) Closure of Henderson, North Carolina distribution center: Severance and outplacement......... $ -- $ 569 $ -- $ (419) $ 150 Facility exit costs................ 150 780 -- (930) -- ------ ------- ------- ------- ------- 150 1,349 -- (1,349) 150 ------ ------- ------- ------- ------- Closure of Indianapolis, Indiana distribution center: Severance and outplacement......... 861 106 -- (889) 78 Facility exit costs................ 901 142 -- (1,043) -- ------ ------- ------- ------- ------- 1,762 248 -- (1,932) 78 ------ ------- ------- ------- ------- Closure of Brookings, South Dakota distribution center: Severance and outplacement......... -- 1,656 -- (48) 1,608 Facility exit costs................ -- 979 -- -- 979 Asset impairments.................. -- 5,338 (5,338) -- -- ------ ------- ------- ------- ------- -- 7,973 (5,338) (48) 2,587 ------ ------- ------- ------- ------- Closure of Hagerstown, Maryland distribution center: Severance and outplacement......... -- 1,122 -- -- 1,122 Facility exit costs................ -- 17,000 -- -- 17,000 Asset impairments.................. -- 3,561 (3,561) -- -- ------ ------- ------- ------- ------- -- 21,683 (3,561) -- 18,122 ------ ------- ------- ------- ------- Corporate headquarter workforce reduction: Severance and outplacement......... -- 7,269 -- (1,957) 5,312 ------ ------- ------- ------- ------- -- 7,269 -- (1,957) 5,312 ------ ------- ------- ------- ------- Total: Severance and outplacement......... 861 10,722 -- (3,313) 8,270 Facility exit costs................ 1,051 18,901 -- (1,973) 17,979 Asset impairments.................. -- 8,899 (8,899) -- -- ------ ------- ------- ------- ------- $1,912 $38,522 $(8,899) $(5,286) $26,249 ====== ======= ======= ======= =======
16. SUBSEQUENT EVENTS On March 13, 2003, TruServ amended its synthetic lease, revolving credit facility and senior note agreements primarily to: (1) finalize the financial covenants to allow for the substantial reduction in debt and the corresponding increase in rent payments resulting from the December 31, 2002 sale leaseback transaction (see Note 13) and (2) to extend the maturity date of the Hagerstown facility's synthetic lease obligation to the earlier of December 31, 2003 or a refinancing of the revolving credit facility. On March 7, 2003, TruServ paid patronage dividends in the amount of $20,541 related to the fiscal year ended December 31, 2002. On March 4, 2003, the Commission entered an Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to TruServ Corporation, SEC File No. 3-11050 (the "Order"). TruServ consented to the entry of the Order without admitting or denying the findings in the Order. F-34 TRUSERV CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Commission entered the Order following an investigation by the staff of the Commission of the circumstances that led to significant financial adjustments resulting in the 1999 loss of $131,000. The Order found that, from approximately July 1997 through the end of 1999, TruServ's accounting systems and internal controls related to inventory management were inadequate. The Order also found that these deficiencies caused TruServ to understate expenses, which resulted in overstatement of net income, during 1998 and 1999. According to the Order, TruServ filed erroneous reports on Form 10-Q for the first, second and third quarters of 1998 and 1999 and an erroneous report on Form 10-K for 1998. In 1999, TruServ reported a loss, caused by weaknesses in the accounting practices and internal controls at TruServ, of approximately $131,000. The largest component of the 1999 loss of $131,000 represented adjustments to inventory and merchandise payable. Specifically, the Commission found that TruServ had in 1998 and the first three quarters of 1999 misstated accounts, including unbilled merchandise, claims for returned merchandise from members, and additional stock adjustments, consisting of lost and found merchandise, damaged goods, and others. The Order also found that TruServ and its senior management had notice of its internal control problems as early as February 1997, through a report prepared by its internal audit department. The report noted several specific, recurring problems in data entry concerning inventory management that caused significant discrepancies in TruServ's inventory records. According to the Order, no one acted on the 1997 report, even though it concluded that TruServ did not have adequate internal controls over its inventory systems. TruServ investigated the causes of the inventory and merchandise payable adjustments, and in order to prevent problems from occurring in the future, it adopted several changes in procedure to correct accounting weaknesses. According to the Order, as a result of these systemic flaws, TruServ is not able to restate any of the erroneous filings made in 1998 and 1999. The Commission made no allegations of fraud nor did it seek civil monetary penalties in connection with entering the Order. Pursuant to the Order, TruServ has agreed to continue to maintain the procedures that it has adopted since the Spring of 2000 and otherwise to comply with the accounting, record keeping and internal control provisions of the Securities and Exchange Act of 1934 (the "Exchange Act"). In addition, TruServ will continue to employ as a member of its management team, during the fiscal years ending 2002, 2003 and 2004, a Director of Internal Audit who will be responsible for executing TruServ's internal audit plan and will continue to engage a public accounting firm to assist the Director of Internal Audit in performing internal audit procedures. Also pursuant to the Order, within 90 days after the close of each fiscal year ending 2002, 2003 and 2004, the Director of Internal Audit will prepare and deliver to TruServ's board audit committee, with copies to the Commission, TruServ's auditors and the public accounting firm assisting the Director of Internal Audit, a report describing the scope of the audit plan during the preceding year, confirmation that the audit plan was carried out, an overview of significant control weaknesses identified that require improvement and a review of the steps taken to improve the system of internal controls. On March 4, 2003, the Commission also entered an Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing Cease-and-Desist Order Pursuant to Section 21C of the Securities and Exchange Act of 1934 as to Kerry Kirby, File No. 3-11053 (the "Kirby Order"). The Kirby Order made substantially all of the findings that were made in the Order. In addition, the Kirby Order found that Kerry Kirby, the chief financial officer of TruServ from July 1997 to May 1999, in part due to his failure to act on the internal audit report that TruServ's accounting systems were flawed, was a cause of TruServ's violations of securities laws requiring the accurate financial reporting, accurate books and records and adequate internal controls. F-35 ITEM 14(a)(2). INDEX TO FINANCIAL STATEMENT SCHEDULES.
PAGE(S) ------- Schedule II -- Valuation and Qualifying Accounts............ F-37
F-36 TRUSERV CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 ALLOWANCE FOR DOUBTFUL ACCOUNTS
FISCAL YEAR ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 -------- --------- --------- ($ IN THOUSANDS) Allowance for Doubtful Accounts: Balance at beginning of year.............................. $9,402 $ 7,170 $ 5,613 Provision for doubtful accounts........................... 120 6,275 9,147 Write-offs of doubtful accounts(1)........................ (969) (4,043) (7,590) ------ ------- ------- Balance at end of year.................................... $8,553 $ 9,402 $ 7,170 ====== ======= =======
- --------------- (1) Notes and accounts written off as uncollectible, net of recoveries of accounts previously written off as uncollectible. INVENTORY RESERVES
FISCAL YEAR ENDED DECEMBER 31, -------------------------------- 2002 2001 2000 --------- --------- -------- ($ IN THOUSANDS) Reserve for Inventory: Balance at beginning of year.............................. $ 15,636 $ 12,717 $ 1,142 Provision for inventory reserves.......................... 10,620 14,977 14,204 Write-off of inventory.................................... (15,822) (12,058) (2,629) -------- -------- ------- Balance at end of year.................................... $ 10,434 $ 15,636 $12,717 ======== ======== =======
F-37 ITEM 14(a)(3). INDEX TO EXHIBITS
EXHIBITS ENCLOSED DESCRIPTION -------- ----------- 4-C Specimen certificate of Class A common stock. 4-D Specimen certificate of Class B common stock. 4-E Promissory (subordinated) note form. 4-F Installment note form. 4-U Second Amendment dated December 30, 2002 amends the Amended and Restated Note Purchase Agreement Dated April 14, 2000 for $105,000,000 Amended and Restated Senior Secured Notes due 2008. 4-V Fifth Amendment dated December 30, 2002 to the Amended and Restated Private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America dated November 13, 1997 for $150,000,000 and to Note Agreement of $50,000,000, dated as of April 13, 1992, between Cotter & Company and Prudential. 4-W First Amendment dated December 30, 2002 to the First Amended and Restated Intercreditor Agreement among Bank of America, N.A. as Agent under a Credit Agreement with TruServ Corporation; Allstate Insurance Company and certain financial institutions; The Prudential Insurance Company of America and certain of its affiliates; Shelf Noteholders, TruServ 1998 Trust, Wilmington Trust Company in its individual capacity and as owner trustee, BMO Global Capital Solutions, Inc., Bank of Montreal, as Administrative Agent; Bank of America, N.A., as Collateral Agent and TruServ Corporation, et al. dated as of April 11, 2002. 4-X First Amendment dated December 30, 2002 to the Second Amended and Restated Credit Agreement dated as of April 11, 2002 for $200,000,000 between TruServ Corporation, various financial institutions, and Bank of America. 4-Y Fifth amendment dated as of December 30, 2002 to the Participation Agreement dated as of April 30, 1998 for $40,000,000 between TruServ Corporation, various financial institutions and Bank of Montreal. 4-Z Third Amendment dated March 13, 2003 amends the Amended and Restated Note Purchase Agreement Dated April 14, 2000 for $105,000,000 Amended and Restated Senior Secured Notes due 2008. 4-AA Sixth Amendment dated March 13, 2003 to the Amended and Restated Private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America dated November 13, 1997 for $150,000,000 and to Note Agreement of $50,000,000, dated as of April 13, 1992, between Cotter & Company and Prudential. 4-AB Sixth amendment dated as of March 13, 2003 amends the Participation Agreement dated as of April 30, 1998 for $40,000,000 between TruServ Corporation, various financial institutions and Bank of Montreal. 4-AC Second Amendment dated March 13, 2002 to the Second Amended and Restated Credit Agreement dated as of April 11, 2002 for $200,000,000 between TruServ Corporation, various financial institutions, and Bank of America. 10-C TruServ Corporation Defined Lump Sum Pension Plan as Amended and Restated Effective as of January 1, 1998; including amendments through December 30, 2002. 10-D TruServ Corporation Savings and Compensation Deferral Plan as Amended and Restated Effective January 1, 1998; including amendments through December 2002. 10-E TruServ Supplemental Retirement Plan (As Amended and Restated Effective December 15, 2002). 10-J Lease Agreement by and between Hammer (DE) Limited Partnership, a Delaware limited partnership, as Landlord and TruServ Corporation as Tenant, dated December 26, 2002
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EXHIBITS ENCLOSED DESCRIPTION -------- ----------- 10-K Lease Agreement by and between Bolt (DE) Limited Partnership, a Delaware limited partnership, as Landlord and TruServ Corporation as Tenant, dated December 26, 2002. 10-L Lease Agreement by and between Wrench (DE) Limited Partnership, a Delaware limited partnership, as Landlord and TruServ Corporation as Tenant, dated December 26, 2002. 10-M Termination Agreement and General Release between the company and Robert Ostrov dated March 20, 2003. 21 Subsidiaries 99.1 Section 906 Certification (Chief Executive Officer) 99.2 Section 906 Certification (Chief Financial Officer) 99.3 Code of Ethics
EXHIBITS INCORPORATED BY REFERENCE ------------ 2-A Agreement and Plan of Merger dated as of December 9, 1996 between the company and ServiStar Coast to Coast Corporation ("SCC"). Incorporated by reference--Exhibit 2-A to Registration Statement on Form S-4 (No. 333-18397). 4-A Amended and Restated Certificate of Incorporation of the company, effective July 1, 1997. Incorporated by reference--Exhibit 2-A to Registration Statement on Form S-4 (No. 333-18397). 4-B By-Laws of the company, effective December 17, 2001. Incorporated by reference--Exhibit 4-B to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-G Copy of Note Agreement with Prudential Insurance Company of America dated April 13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-J to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No. 33-39477). 4-H Amended and Restatement dated April 14, 2000 to Credit Agreement dated September 10, 1998 for $105,000,000 Note Purchase Agreement between TruServ Corporation and various purchasers. Incorporated by reference--Exhibit 4-Q to Post Effective Amendment No. 10 to Registration Statement on Form S-2 to Form S-4 (No. 333-18397). 4-I Amended and Restated Private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America dated November 13, 1997 for $150,000,000. Incorporated by reference--Exhibit 4-M to Post-Effective Amendment No. 5 to Registration Statement on Form S-4 (No. 333-18397) 4-J Second Amended and Restated Credit Agreement dated as of April 11, 2002 for $200,000,000 Revolving credit between TruServ Corporation, various financial institutions, and Bank of America. Incorporated by reference--Exhibit 4-J to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-K Amendment dated May 12, 1999 to the Amended and private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America dated November 13, 1997 for $150,000,000. Incorporated by reference--Exhibit 4-M to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 2-20910).
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EXHIBITS INCORPORATED BY REFERENCE ------------ 4-L Amendment dated April 14, 2000 to the Amended and Private Shelf Agreement between TruServ Corporation Prudential Insurance Company of America dated November 13, 1997 for $150,000,000 and to Note Agreement of $50,000,000, dated as of April 13, 1992, between Cotter & Company and Prudential. Incorporated by reference on Exhibit 4-N to Post-Effective Amendment No. 10 to Registration Statement on Form S-2 to Form S-4 (No. 333-18397) 4-M Security Agreement dated as of April 14, 2000 among TruServ Corporation, various subsidiaries of the Company and Bank of America, N.A., as Collateral Agent. Incorporated by reference--Exhibit 4-M to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-N First Amendment dated as of April 11, 2002 amends the Security Agreement dated of as April 14, 2000 among TruServ Corporation, various subsidiaries of the Company and Bank of America, N.A., as Collateral Agent. Incorporated by reference--Exhibit 4-N to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-O Participation Agreement dated April 30, 1998 for $40,000,000 between TruServ Corporation, various financial institutions and Bank of Montreal. Incorporated by reference--Exhibit 4-M to Post-Effective Amendment No. 6 to Registration Statement on Form S-4 (No. 333-18397) 4-P Fourth amendment dated as of April 11, 2002 amends the Participation Agreement dated as of April 30, 1998 for $40,000,000 between TruServ Corporation, various financial institutions and Bank of Montreal. Incorporated by reference--Exhibit 4-P to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-Q Amendment dated as of April 11, 2002 amends the Amended and Restated Note Purchase Agreement dated April 14, 2000 to Credit Agreement dated September 10, 1998 for $105,000,000 Note Purchase Agreement between TruServ Corporation and various purchasers. Incorporated by reference--Exhibit 4-Q to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-R Amendment dated April 11, 2002 to the Amended Private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America for $150,000,000 dated April 14, 2000 to the Amended and Restated Private Shelf Agreement between TruServ Corporation and Prudential Insurance Company of America dated November 13, 1997 for $150,000,000 and to Note Agreement of $50,000,000, dated as of April 13, 1992, between Cotter & Company and Prudential. Incorporated by reference--Exhibit 4-R to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-S First Amended and Restated Intercreditor Agreement among Bank of America, N.A. as Agent under a Credit Agreement with TruServ Corporation, Allstate Insurance Company and certain financial institutions. The Prudential Insurance Company of America and certain of its affiliates. Shelf Noteholders, TruServ 1998 Trust, Wilmington Trust Company in its individual capacity and as owner trustee, BMO Global Capital Solutions, Inc., Bank of Montreal, as Administrative Agent. Bank of America, N.A., as Collateral Agent and TruServ Corporation, et al. dated as of April 11, 2002. Incorporated by reference--Exhibit 4-S to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. 4-T Trust Indenture between Cotter & Company and US Bancorp (formerly First Trust of Illinois). Incorporated by reference--Exhibit T3C to Cotter & Company Form T-3 (No. 22-26210). 10-A Current Form of "Retail Member Agreement with TruServ" between the company and its members that offer primarily hardware and related items. Incorporated by reference-- Exhibit 10-A to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
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EXHIBITS INCORPORATED BY REFERENCE ------------ 10-B Current Form of "Subscription to Shares of TruServ." Incorporated by reference--Exhibit 10-B to Registration Statement on Form S-2 (No. 333-18397). 10-F Retail Conversion Funds Agreement dated as of December 9, 1996 between the company and SCC. Incorporated by reference--Exhibit 10-L to Registration Statement on Form S-4 (No. 333-18397). 10-G Employment Agreement between the company and Pamela Forbes Lieberman dated November 15, 2001. Incorporated by reference--Exhibit 10-H to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
SUPPLEMENTAL INFORMATION ------------ Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants which have not Registered Securities Pursuant to Section 12 of the Act. As of the date of the foregoing Report, no annual report for the Registrant's year ended December 31, 2002 has been sent to security holders. Copies of such Annual Report and proxy soliciting materials will subsequently be furnished to the Securities and Exchange Commission. E-4 EX-4.C 3 c75265exv4wc.txt SPECIMEN CERTIFCATE OF CLASS A COMMON STOCK EXHIBIT 4-C NUMBER TRUSERV SHARES CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CLASS A COMMON STOCK "Individual Members of TruServ Corporation, not as joint tenants, tenants-in-common, tenants by their entireties or any other tenancy with other Member, but as individual, divided and separate owners of that portion hereof as appears on the books and records of TruServ Corporation; this bulk security having been issued for convenience only and without intention to affect any Member's individual ownership of his portion hereof." THIS CERTIFIES THAT VOID IS THE OWNER OF ____________________________________________ _______________________________________________________________________________ full paid and non-assessable share of the par value of $100 each of the Class A Common Stock of TRUSERV CORPORATION transferable on the books of the Company in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. A description of each class of stock and a statement of the designations and the powers, preferences and rights of the classes of stock, and the qualifications, limitations or restrictions thereof, as set forth in the Certificate of Incorporation, and the By-Laws of the Company, appear on the back hereof. This certificate and the shares represented thereby are issued and shall be held subject to the provisions of the Certificate of Incorporation and the By-Laws, and the holder hereof by accepting this certificate expressly assents thereto and is bound thereby. The shares represented hereby, and any distributions thereon, are subject to lien as described on the reverse hereof. IN WITNESS WHEREOF, the said Company has caused this Certificate to be signed by its duly authorized officers and sealed with the Seal of the Company, this _________ day of ___________________, A.D. 20______. VOID VOID _________________________ __________________________ SECRETARY VICE PRESIDENT (C) GOES 860 LITHO IN U.S.A. EXCERPT FROM THE CERTIFICATE OF INCORPORATION FOURTH. The total number of shares of all classes of Common Stock which this Corporation shall have the authority to issue is 4,750,000, consisting of: 750,000 shares of Class A Common Stock, $100 par value; and 4,000,000 shares of Class B Common Stock, $100 par value. The designations and the powers, preferences and rights, and the qualifications, limitations and restrictions of the Class A Common Stock and the Class B Common Stock are as follows: 1. Only the Class A Common Stock shall have voting rights. The holder of record of each outstanding share of Class A Common Stock shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. 2. Except as hereinabove provided with respect to voting rights, neither of the two classes of common stock shall be entitled to any preference or priority over the other. No dividend shall be declared or paid unless at the same rate per share on both classes of common stock at the same time, and in the event of the dissolution, liquidation or winding up of the Corporation, the shares of Class A Common Stock and Class B Common Stock shall be entitled to the same amounts per share without preference or priority of one class over the other. 3. The Corporation shall have a lien upon the shares of Class A Common Stock and Class B Common Stock registered in the name of any stockholder and upon any dividends payable on such shares, to secure the payment of any indebtedness due to the Corporation from such stockholder. The Corporation shall not be required to transfer upon its records the shares of Class A Common Stock or Class B Common Stock of such stockholder or to pay any dividends declared on any such shares until such indebtedness shall have been fully paid, and the Corporation shall have the right to apply the dividends declared from time to time upon the stock of such stockholder to the liquidation, in whole or in part, of the said indebtedness. If the Corporation shall exercise its option as hereinafter in these articles provided to repurchase shares of Class A Common Stock or Class B Common Stock owned by a stockholder who is then indebted to the Corporation, it shall have the right to offset the stockholder's indebtedness against the purchase price of such shares. 4. The number of shares of Class A Common Stock which shall comprise a unit of ownership shall be fixed from time to time by the Board of Directors or in the By-Laws. No shares of Class B Common Stock shall be issued or sold except to persons who are, at the time of such issuance, holders of shares of Class A Common Stock. 5. No holder of any class of stock of the Corporation shall have any preemptive or preferential right to subscribe to or purchase any shares of stock of the Corporation or shares or securities of any kind, either convertible into or evidencing the right to purchase any shares of stock of the Corporation, other than such thereof, if any, as the Board of Directors in its discretion may from time to time determine. 6. Whenever, for any reason, any stockholder shall desire to dispose of any shares of Class A Common Stock or Class B Common Stock of the Corporation (whether by sale, transfer, assignment, gift or in any other manner), or whenever any stockholder shall die or shall suffer any other event by which any of such shares are voluntarily or involuntarily transferred by operation of law or otherwise, the Corporation shall have an option to purchase all shares of Class A Common Stock and Class B Common Stock owned by such stockholder, at the price, and upon the conditions, hereinafter stated. Such option may be exercised by the Corporation at any time within ninety (90) days following the date upon which the Corporation receives from the stockholder written notice of such stockholder's desire to dispose of any of the shares owned by the stockholder or within ninety (90) days following the receipt by the Corporation, from any party in interest, of written notice of the death of the stockholder or other fact giving rise to voluntary or involuntary transfer of any of the shares. The price to be paid by the Corporation upon exercise of its option to purchase such shares shall be an amount equal to the par value thereof; such purchase shall proceed upon such other terms and conditions as may be specified in the By-Laws. Any disposition or attempted disposition of the shares of Class A Common Stock or Class B Common Stock of the Corporation, voluntary or involuntary, by operation of law or otherwise, shall be null and void and no such disposition or attempted disposition shall entitle any person to have any of said shares transferred on the books of the Corporation or to claim or assert any of the rights of a stockholder of the Corporation, unless the Corporation shall have been afforded a proper opportunity to exercise its option for the purchase of said shares as hereinbefore provided and shall have failed to exercise its option within the time limited. Nothing hereinbefore contained shall restrict the right of any stockholder: (a) to pledge (or otherwise subject to a lien) any of the shares of Class A Common Stock or Class B Common Stock of the Corporation in a bona fide transaction as security for a debt or other obligation of the stockholder, or affect the rights which the pledgee or lienholder would otherwise have with respect to said shares; provided, however, that if the pledge or lien shall be foreclosed and the stockholder shall cease to be the owner of said shares, such foreclosure shall be deemed to be an involuntary transfer of the shares and the Corporation shall thereupon have the option to purchase the shares hereinabove provided which shall be exercisable within ninety (90) days after receipt of written notice of the fact of foreclosure; or (b) to sell or otherwise dispose of all or any part of the shares of Class B Common Stock (but not of Class A Common Stock) to a person who is then a holder of shares of Class A Common Stock of the Corporation. Should the Corporation fail or decline to exercise its option and disposition be consummated, the stock shall be subject to all and the same rights and restrictions (including, without limitation, the option set forth herein and any call or similar rights of the Corporation as may be set forth herein, in the By-Laws or elsewhere) in the hands of the new holder as in the hands of the former holder. 7. The Corporation may be obligated or have the option to purchase or redeem its stock and stockholders may be obligated or have the right to sell their stock to the Corporation at par value in such circumstances and upon terms and conditions as may be specified in the By-Laws from time to time. Without limiting the generality of the preceding sentence of this Paragraph 7 of ARTICLE FOURTH or compelling inclusion of any provision in the By-Laws, such right or obligation may be granted with respect to situations where the business relationship of a stockholder and the Corporation terminates. 8. As used in these articles, the term "person" shall mean and include any individual, group or association of individuals however organized, corporation, and any other natural or artificial entity. The term "stockholder" shall mean any person, so defined, who is a stockholder of the Corporation. EXCERPT FROM THE BY-LAWS ARTICLE VII SECTION 6. REDEMPTION OF STOCK. (a) TERMINATION REDEMPTION. Upon termination of a Member Agreement (as referred to in Article VIII hereof) for any reason whatsoever, the stockholder shall sell to the Corporation and the Corporation shall redeem from the stockholder all of its stockholder's capital stock in the Corporation for the par value thereof upon the terms and conditions set forth in section 7 of this Article VII. (b) OPTIONAL REDEMPTION. (i) Whenever the Board of Directors shall by the affirmative vote of two-thirds or more of the directors then in office decide that it is in the best interests of the Corporation that any stockholder shall cease to be associated with the Corporation in that capacity, the Corporation shall have the right, upon written demand addressed to such stockholder at the address as shown on the books of the Corporation, to purchase all (but not less than all) of such stockholder's capital stock in the Corporation for the par value thereof upon the terms and conditions set forth in section 7 of this Article VII. (ii) The Corporation shall, in the discretion of management, have the right to purchase, in cash at par value, all or any portion of outstanding shares of capital stock of the Corporation which are in excess of the number of shares required to be held by a stockholder or which are distributed as non-qualified written notices of allocation. Upon the effective date of the exercise of an option to purchase any stock redeemed pursuant to this section 6(b)(ii), the stock redeemed shall be deemed to be and shall be and become the property of this Corporation; from and after such date all rights and privileges incident to the ownership of the shares shall cease, except only the right to receive the purchase price, without interest, and subject to the Corporation's liens and right of setoff. (c) NOTICE OF REPURCHASE RIGHTS. The right or obligation of purchase or redemption hereby reserved to the Corporation may be stated in the subscription agreement under which the Corporation's stock is sold, in the Member Agreement and on any stock certificates. (d) REPURCHASE RIGHTS NOT EXCLUSIVE. The right or obligation of purchase or redemption provided for in this section 6 of Article VII of the By-Laws is in addition to, and not in derogation of, the rights reserved to the Corporation by the provisions of Article Fourth of the Certificate of Incorporation and any other rights to repurchase, redeem or otherwise acquire its stock that the Corporation may now have or ever obtain. SECTION 7. MECHANICS, TERMS AND CONDITIONS OF REDEMPTION. Any purchase or redemption of shares of stock of this Corporation made pursuant to section 6(a) and 6(b)(i) of these By-Laws or the Certificate of Incorporation, unless expressly provided otherwise, shall proceed as follows: (a) TERMINATION OF RIGHTS AND PRIVILEGES AS STOCKHOLDER. Upon the effective date of the termination of a Member Agreement or upon the date of exercise of any option to repurchase or redeem stock under section 6(b)(i) or upon such other date set by these By-Laws, the Certificate of Incorporation, or the Member and this Corporation, whichever shall be appropriate in the circumstances, all of this Corporation's stock owned by such stockholder (hereinafter referred to as "Terminated Stockholder") shall be deemed to be and shall be and become the property of this Corporation; from and after such date all rights and privileges incident to the ownership of the shares (including but not limited to the right to dividends thereon) shall cease, except only the right to receive the purchase price (as hereinafter provided) plus a sum equal to any dividends declared but unpaid at said date and accrued Patronage Dividends for the relevant year or portion thereof (to be paid in the manner provided for payment of all Patronage Dividends) all without interest and subject to the Corporation's liens and right of setoff. The Terminated Stockholder shall promptly remit any certificates duly endorsed in blank or with stock powers. (b) PAYMENT OF REDEMPTION PRICE. Immediately upon receipt of properly endorsed certificates representing all of a Terminated Stockholder's stock of the Corporation, the Corporation shall remit the redemption price to the Terminated Stockholder in the following manner: (i) Cash equal to the par value of Terminated Stockholder's Class A Common Stock reduced by the amount of any lien or setoff to which the Corporation may be entitled; (ii) Cash equal to the par value of that portion, if any, of Terminated Stockholder's Class B Common Stock which has been designated by the Corporation as "non-qualified" B Common Stock reduced by the amount of any lien or setoff to which the Corporation may be entitled; and (iii) A note in face amount equal to the par value of Terminated Stockholder's remaining Class B Common Stock. The note shall be payable in five (5) equal annual installments of principal, the first of which shall be due on the December 31 next following termination of the Terminated Stockholder's rights and privileges as a stockholder (as provided in section 7(a) of this Article VII) and shall bear a fixed rate of interest, payable with the installments of principal, from the date of the note at a rate equal to the United States Treasury five (5) year notes plus one percent (1%), as determined on the first business day of the calendar year in which termination occurs. The note shall be dated as of the date upon which the Terminated Stockholder's rights as a stockholder terminated (as provided in section 7(a) of this Article VII) and shall be subject to any lien or right of setoff to which the Corporation may be entitled. (c) AVAILABILITY OF FUNDS. Notwithstanding anything to the contrary expressed or implied herein, should the Board of Directors in its discretion determine that the funds of the Corporation available for such purpose are insufficient for immediate payment of all or any part of the redemption price in light of the Corporation's legal or business requirements, or that immediate payment of all or any part of the redemption price is otherwise not in the best interests of the Corporation, the Corporation may delay (without interest) the payment of all or any part of the redemption price (including the issuance of any promissory note) until such time as the Board of Directors determines that sufficient funds are available for such purpose and that it is otherwise in the Corporation's best interests to recommence payments for such purpose, at which time the Corporation shall pay to those entitled thereto, in the chronological order in which such payments were delayed starting with those whose payment has been longest delayed and continuing until sufficient funds are no longer available, or through another equitable manner determined by the Board of Directors, the unpaid redemption price in accordance with Section 7(b), except that any promissory note shall be dated the date of its issuance. (d) HARDSHIP. Notwithstanding the provisions of Paragraph 7(b) of this Article VII, the Board of Directors in its discretion and with due regard for the financial condition and requirements of the Corporation, may authorize and cause payment in cash for all or part of the redemption price which would otherwise be paid by a note if the Board of Directors determines that the prescribed method of payment imposes an undue hardship upon the Terminated Stockholder. The Board of Directors may implement this provision by delegating authority to an officer or officers. SECTION 8. LIEN ON STOCK AND NOTES. The Corporation shall have a lien on, and a right of setoff against, any stock or notes, including those issued as Patronage Dividend and against any cash portion of such Patronage Dividend which is in excess of twenty percent (20%) of the overall patronage dividend payable in any year for such indebtedness of the stockholder to the Corporation as may, for whatever cause, exist. In the event that the Corporation initiates proceedings to recover amounts due it by the stockholder, the Corporation shall be entitled to the recovery of all associated costs, interest and reasonable attorney's fees. For value received, _________________ hereby sell, assign and transfer unto ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS) ________________________________________________________________________________ _________________________________________________________________________ Shares of the Stock represented by the within Certificate and do hereby irrevocably constitute and appoint ________________________________________________ attorney to transfer the same on the books of the within-named Company, with full power of substitution in the premises. Dated ___________________________ In Presence of _________________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. A 23168 EX-4.D 4 c75265exv4wd.txt SPECIMEN CERTIFCATE OF CLASS B COMMON STOCK EXHIBIT 4-D NUMBER TRUSERV SHARES CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE NON-QUALIFIED CLASS B COMMON STOCK NON-VOTING "Individual Members of TruServ Corporation, not as joint tenants, tenants-in-common, tenants by their entireties or any other tenancy with other Member, but as individual, divided and separate owners of that portion hereof as appears on the books and records of TruServ Corporation; this bulk security having been issued for convenience only and without intention to affect any Member's individual ownership of his portion hereof." THIS CERTIFIES THAT VOID IS THE OWNER OF ____________________________________________ _______________________________________________________________________________ full paid and non-assessable share of the par value of $100 each of the Class B Common Stock of TRUSERV CORPORATION transferable on the books of the Company in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. A description of each class of stock and a statement of the designations and the powers, preferences and rights of the classes of stock, and the qualifications, limitations or restrictions thereof, as set forth in the Certificate of Incorporation, and the By-Laws of the Company, appear on the back hereof. This certificate and the shares represented thereby are issued and shall be held subject to the provisions of the Certificate of Incorporation and the By-Laws, and the holder hereof by accepting this certificate expressly assents thereto and is bound thereby. The shares represented hereby, and any distributions thereon, are subject to lien as described on the reverse hereof. IN WITNESS WHEREOF, the said Company has caused this Certificate to be signed by its duly authorized officers and sealed with the Seal of the Company, this _________ day of ___________________, A.D. 20______. VOID VOID _________________________ __________________________ SECRETARY VICE PRESIDENT (C) GOES 858 LITHO IN U.S.A. EXCERPT FROM THE CERTIFICATE OF INCORPORATION FOURTH. The total number of shares of all classes of Common Stock which this Corporation shall have the authority to issue is 4,750,000, consisting of: 750,000 shares of Class A Common Stock, $100 par value; and 4,000,000 shares of Class B Common Stock, $100 par value. The designations and the powers, preferences and rights, and the qualifications, limitations and restrictions of the Class A Common Stock and the Class B Common Stock are as follows: 1. Only the Class A Common Stock shall have voting rights. The holder of record of each outstanding share of Class A Common Stock shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. 2. Except as hereinabove provided with respect to voting rights, neither of the two classes of common stock shall be entitled to any preference or priority over the other. No dividend shall be declared or paid unless at the same rate per share on both classes of common stock at the same time, and in the event of the dissolution, liquidation or winding up of the Corporation, the shares of Class A Common Stock and Class B Common Stock shall be entitled to the same amounts per share without preference or priority of one class over the other. 3. The Corporation shall have a lien upon the shares of Class A Common Stock and Class B Common Stock registered in the name of any stockholder and upon any dividends payable on such shares, to secure the payment of any indebtedness due to the Corporation from such stockholder. The Corporation shall not be required to transfer upon its records the shares of Class A Common Stock or Class B Common Stock of such stockholder or to pay any dividends declared on any such shares until such indebtedness shall have been fully paid, and the Corporation shall have the right to apply the dividends declared from time to time upon the stock of such stockholder to the liquidation, in whole or in part, of the said indebtedness. If the Corporation shall exercise its option as hereinafter in these articles provided to repurchase shares of Class A Common Stock or Class B Common Stock owned by a stockholder who is then indebted to the Corporation, it shall have the right to offset the stockholder's indebtedness against the purchase price of such shares. 4. The number of shares of Class A Common Stock which shall comprise a unit of ownership shall be fixed from time to time by the Board of Directors or in the By-Laws. No shares of Class B Common Stock shall be issued or sold except to persons who are, at the time of such issuance, holders of shares of Class A Common Stock. 5. No holder of any class of stock of the Corporation shall have any preemptive or preferential right to subscribe to or purchase any shares of stock of the Corporation or shares or securities of any kind, either convertible into or evidencing the right to purchase any shares of stock of the Corporation, other than such thereof, if any, as the Board of Directors in its discretion may from time to time determine. 6. Whenever, for any reason, any stockholder shall desire to dispose of any shares of Class A Common Stock or Class B Common Stock of the Corporation (whether by sale, transfer, assignment, gift or in any other manner), or whenever any stockholder shall die or shall suffer any other event by which any of such shares are voluntarily or involuntarily transferred by operation of law or otherwise, the Corporation shall have an option to purchase all shares of Class A Common Stock and Class B Common Stock owned by such stockholder, at the price, and upon the conditions, hereinafter stated. Such option may be exercised by the Corporation at any time within ninety (90) days following the date upon which the Corporation receives from the stockholder written notice of such stockholder's desire to dispose of any of the shares owned by the stockholder or within ninety (90) days following the receipt by the Corporation, from any party in interest, of written notice of the death of the stockholder or other fact giving rise to voluntary or involuntary transfer of any of the shares. The price to be paid by the Corporation upon exercise of its option to purchase such shares shall be an amount equal to the par value thereof; such purchase shall proceed upon such other terms and conditions as may be specified in the By-Laws. Any disposition or attempted disposition of the shares of Class A Common Stock or Class B Common Stock of the Corporation, voluntary or involuntary, by operation of law or otherwise, shall be null and void and no such disposition or attempted disposition shall entitle any person to have any of said shares transferred on the books of the Corporation or to claim or assert any of the rights of a stockholder of the Corporation, unless the Corporation shall have been afforded a proper opportunity to exercise its option for the purchase of said shares as hereinbefore provided and shall have failed to exercise its option within the time limited. Nothing hereinbefore contained shall restrict the right of any stockholder: (a) to pledge (or otherwise subject to a lien) any of the shares of Class A Common Stock or Class B Common Stock of the Corporation in a bona fide transaction as security for a debt or other obligation of the stockholder, or affect the rights which the pledgee or lienholder would otherwise have with respect to said shares; provided, however, that if the pledge or lien shall be foreclosed and the stockholder shall cease to be the owner of said shares, such foreclosure shall be deemed to be an involuntary transfer of the shares and the Corporation shall thereupon have the option to purchase the shares hereinabove provided which shall be exercisable within ninety (90) days after receipt of written notice of the fact of foreclosure; or (b) to sell or otherwise dispose of all or any part of the shares of Class B Common Stock (but not of Class A Common Stock) to a person who is then a holder of shares of Class A Common Stock of the Corporation. Should the Corporation fail or decline to exercise its option and disposition be consummated, the stock shall be subject to all and the same rights and restrictions (including, without limitation, the option set forth herein and any call or similar rights of the Corporation as may be set forth herein, in the By-Laws or elsewhere) in the hands of the new holder as in the hands of the former holder. 7. The Corporation may be obligated or have the option to purchase or redeem its stock and stockholders may be obligated or have the right to sell their stock to the Corporation at par value in such circumstances and upon terms and conditions as may be specified in the By-Laws from time to time. Without limiting the generality of the preceding sentence of this Paragraph 7 of ARTICLE FOURTH or compelling inclusion of any provision in the By-Laws, such right or obligation may be granted with respect to situations where the business relationship of a stockholder and the Corporation terminates. 8. As used in these articles, the term "person" shall mean and include any individual, group or association of individuals however organized, corporation, and any other natural or artificial entity. The term "stockholder" shall mean any person, so defined, who is a stockholder of the Corporation. EXCERPT FROM THE BY-LAWS ARTICLE VII SECTION 6. REDEMPTION OF STOCK. (a) TERMINATION REDEMPTION. Upon termination of a Member Agreement (as referred to in Article VIII hereof) for any reason whatsoever, the stockholder shall sell to the Corporation and the Corporation shall redeem from the stockholder all of its stockholder's capital stock in the Corporation for the par value thereof upon the terms and conditions set forth in section 7 of this Article VII. (b) OPTIONAL REDEMPTION. (i) Whenever the Board of Directors shall by the affirmative vote of two-thirds or more of the directors then in office decide that it is in the best interests of the Corporation that any stockholder shall cease to be associated with the Corporation in that capacity, the Corporation shall have the right, upon written demand addressed to such stockholder at the address as shown on the books of the Corporation, to purchase all (but not less than all) of such stockholder's capital stock in the Corporation for the par value thereof upon the terms and conditions set forth in section 7 of this Article VII. (ii) The Corporation shall, in the discretion of management, have the right to purchase, in cash at par value, all or any portion of outstanding shares of capital stock of the Corporation which are in excess of the number of shares required to be held by a stockholder or which are distributed as non-qualified written notices of allocation. Upon the effective date of the exercise of an option to purchase any stock redeemed pursuant to this section 6(b)(ii), the stock redeemed shall be deemed to be and shall be and become the property of this Corporation; from and after such date all rights and privileges incident to the ownership of the shares shall cease, except only the right to receive the purchase price, without interest, and subject to the Corporation's liens and right of setoff. (c) NOTICE OF REPURCHASE RIGHTS. The right or obligation of purchase or redemption hereby reserved to the Corporation may be stated in the subscription agreement under which the Corporation's stock is sold, in the Member Agreement and on any stock certificates. (d) REPURCHASE RIGHTS NOT EXCLUSIVE. The right or obligation of purchase or redemption provided for in this section 6 of Article VII of the By-Laws is in addition to, and not in derogation of, the rights reserved to the Corporation by the provisions of Article Fourth of the Certificate of Incorporation and any other rights to repurchase, redeem or otherwise acquire its stock that the Corporation may now have or ever obtain. SECTION 7. MECHANICS, TERMS AND CONDITIONS OF REDEMPTION. Any purchase or redemption of shares of stock of this Corporation made pursuant to section 6(a) and 6(b)(i) of these By-Laws or the Certificate of Incorporation, unless expressly provided otherwise, shall proceed as follows: (a) TERMINATION OF RIGHTS AND PRIVILEGES AS STOCKHOLDER. Upon the effective date of the termination of a Member Agreement or upon the date of exercise of any option to repurchase or redeem stock under section 6(b)(i) or upon such other date set by these By-Laws, the Certificate of Incorporation, or the Member and this Corporation, whichever shall be appropriate in the circumstances, all of this Corporation's stock owned by such stockholder (hereinafter referred to as "Terminated Stockholder") shall be deemed to be and shall be and become the property of this Corporation; from and after such date all rights and privileges incident to the ownership of the shares (including but not limited to the right to dividends thereon) shall cease, except only the right to receive the purchase price (as hereinafter provided) plus a sum equal to any dividends declared but unpaid at said date and accrued Patronage Dividends for the relevant year or portion thereof (to be paid in the manner provided for payment of all Patronage Dividends) all without interest and subject to the Corporation's liens and right of setoff. The Terminated Stockholder shall promptly remit any certificates duly endorsed in blank or with stock powers. (b) PAYMENT OF REDEMPTION PRICE. Immediately upon receipt of properly endorsed certificates representing all of a Terminated Stockholder's stock of the Corporation, the Corporation shall remit the redemption price to the Terminated Stockholder in the following manner: (i) Cash equal to the par value of Terminated Stockholder's Class A Common Stock reduced by the amount of any lien or setoff to which the Corporation may be entitled; (ii) Cash equal to the par value of that portion, if any, of Terminated Stockholder's Class B Common Stock which has been designated by the Corporation as "non-qualified" B Common Stock reduced by the amount of any lien or setoff to which the Corporation may be entitled; and (iii) A note in face amount equal to the par value of Terminated Stockholder's remaining Class B Common Stock. The note shall be payable in five (5) equal annual installments of principal, the first of which shall be due on the December 31 next following termination of the Terminated Stockholder's rights and privileges as a stockholder (as provided in section 7(a) of this Article VII) and shall bear a fixed rate of interest, payable with the installments of principal, from the date of the note at a rate equal to the United States Treasury five (5) year notes plus one percent (1%), as determined on the first business day of the calendar year in which termination occurs. The note shall be dated as of the date upon which the Terminated Stockholder's rights as a stockholder terminated (as provided in section 7(a) of this Article VII) and shall be subject to any lien or right of setoff to which the Corporation may be entitled. (c) AVAILABILITY OF FUNDS. Notwithstanding anything to the contrary expressed or implied herein, should the Board of Directors in its discretion determine that the funds of the Corporation available for such purpose are insufficient for immediate payment of all or any part of the redemption price in light of the Corporation's legal or business requirements, or that immediate payment of all or any part of the redemption price is otherwise not in the best interests of the Corporation, the Corporation may delay (without interest) the payment of all or any part of the redemption price (including the issuance of any promissory note) until such time as the Board of Directors determines that sufficient funds are available for such purpose and that it is otherwise in the Corporation's best interests to recommence payments for such purpose, at which time the Corporation shall pay to those entitled thereto, in the chronological order in which such payments were delayed starting with those whose payment has been longest delayed and continuing until sufficient funds are no longer available, or through another equitable manner determined by the Board of Directors, the unpaid redemption price in accordance with Section 7(b), except that any promissory note shall be dated the date of its issuance. (d) HARDSHIP. Notwithstanding the provisions of Paragraph 7(b) of this Article VII, the Board of Directors in its discretion and with due regard for the financial condition and requirements of the Corporation, may authorize and cause payment in cash for all or part of the redemption price which would otherwise be paid by a note if the Board of Directors determines that the prescribed method of payment imposes an undue hardship upon the Terminated Stockholder. The Board of Directors may implement this provision by delegating authority to an officer or officers. SECTION 8. LIEN ON STOCK AND NOTES. The Corporation shall have a lien on, and a right of setoff against, any stock or notes, including those issued as Patronage Dividend and against any cash portion of such Patronage Dividend which is in excess of twenty percent (20%) of the overall patronage dividend payable in any year for such indebtedness of the stockholder to the Corporation as may, for whatever cause, exist. In the event that the Corporation initiates proceedings to recover amounts due it by the stockholder, the Corporation shall be entitled to the recovery of all associated costs, interest and reasonable attorney's fees. For value received, _________________ hereby sell, assign and transfer unto ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS) ________________________________________________________________________________ _________________________________________________________________________ Shares of the Stock represented by the within Certificate and do hereby irrevocably constitute and appoint ________________________________________________ attorney to transfer the same on the books of the within-named Company, with full power of substitution in the premises. Dated ___________________________ In Presence of _________________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. A 43870 EX-4.E 5 c75265exv4we.txt PROMISSORY (SUBORDINATED) NOTE EXHIBIT 4-E (TRUSERV LOGO (R)) % PROMISSORY NOTE FOR VALUE RECEIVED, TRUSERV CORPORATION, a Delaware Corporation (hereinafter called the "Company") HEREBY PROMISES TO PAY to the registered owner hereof, the following listed sum, being the face amount of this note, in lawful money of the United States, at the principal office of the Company. This note shall be payable in five (5) equal annual installments of principal, the first of which shall be paid on the December 31 next following the date of the note and thereafter on December 31 of each year, and shall bear interest on the outstanding principal balance at the rate of ____________ percent ( %) per annum, payable at the time of payment of principal installments. The Company reserves the right and option of redeeming or prepaying this note, in whole or in part at any time or from time to time, upon the making of such total or partial principal payment together with accrued interest to the date of redemption on the portion being redeemed or prepaid. There shall be no premium payable upon such premature redemption or prepayment. The Company shall have a LIEN on this note, and a RIGHT OF SETOFF against amounts which may be or become payable hereunder, for such indebtedness to the Company of the original holder and/or of any subsequent holder hereof as may from time to time exist. In accordance with the Company's By-Laws, if the company exercises its right of setoff, the company shall have the right to discount the note to its then current cash value which shall be the lesser of the face amount of the note or the yield to maturity of the note as discounted at a rate per annum equal to the prime rate in effect at the time of setoff at the Harris Trust and Savings Bank, Chicago, Illinois, plus two percentage points. No transfer of this note shall be valid unless made at the office of the Company by the registered owner in person or by his/her duly authorized attorney and noted hereon, and, except in the case of transfer to banks or other lending institutions or associations, no transfer shall be made to any person other than one who, on the date of such transfer, is a stockholder of the Company. IN WITNESS WHEREOF, TRUSERV CORPORATION has caused this note to be executed by its officers thereunto duly enabled and its corporate seal to be hereunto affixed the date of issue below. PRINCIPAL AMOUNT VOID DOLLARS __________________________________ REASON ISSUED - Redemption of TruServ Corporation Class B Common Stock ($____________) REGISTERED OWNER: VOID FINAL INSTALLMENT DATE - DATE OF ISSUE - TRUSERV CORPORATION CHICAGO, ILLINOIS 60631-3505 FN20 - 080100R EX-4.F 6 c75265exv4wf.txt INSTALLMENT NOTE EXHIBIT 4-F [TRUSERV LOGO] % PROMISSORY (SUBORDINATED) NOTE ------ FOR VALUE RECEIVED, TRUSERV CORPORATION, a Delaware Corporation (hereinafter called the "Company") HEREBY PROMISES TO PAY on or before the maturity date listed below, to the registered owner hereof, the following listed sum, being the face amount of this note, in lawful money of the United States, at the principal office of the Company and to pay interest on the principal balance from time to time remaining unpaid, in like money at said office of the Company, at the rate of _______ per annum, payable semi-annually on the last day of June and the last day of December each year. The Company reserves the right and option of redeeming this note, in whole or in part, on any interest payment date during the term hereof, upon the making of such total or partial principal payment together with accrued interest to the date fixed for redemption. There shall be no premium payable upon such premature redemption. It is a condition of this obligation of the Company, and the holder by the acceptance hereof agrees, that the indebtedness evidenced by and accruing on this note shall be and at all times remain junior and subordinate in right of payment to any and all indebtedness of the Company to banking institutions, institutional lenders, and to trade creditors for merchandise sold and delivered to the Company and to other indebtedness of the Company as specified by its Board of Directors (herein called "Superior Indebtedness") whether now outstanding or hereafter incurred; and to that end (i) in the event of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of the Company, or the proceeds thereof, to creditors of the Company or upon any indebtedness of the Company occurring by reason of liquidation, dissolution or other winding up of the Company or by reason of any execution sale, receivership, insolvency or bankruptcy proceedings or other proceedings for the reorganization or readjustment of the Company or its debts or properties, or (ii) in the event of and during the continuance of a default in payment of any principal of or interest or premium on any Superior Indebtedness (under circumstances when the foregoing clause (i) shall not be applicable), then in any such events Superior Indebtedness shall be first paid and satisfied in full before payment or distribution of any kind or character, whether in cash, property or securities, shall be made on or in respect of principal of or interest on this note and any payment, dividend or distribution upon or in respect of this note made in or resulting from any event or proceeding referred to in the foregoing clause (i) hereof shall be paid over to the holder or holders of such Superior Indebtedness for the pro rata application on such Superior Indebtedness until such Superior Indebtedness has been fully paid and satisfied. Also the holder by acceptance hereof agrees to and with and for the benefit of the holders of any Superior Indebtedness form time to time outstanding that he or it will not use the indebtedness evidenced by or accruing on this note by way of counterclaim, setoff, recoupment or otherwise so as to diminish, discharge or otherwise satisfy in whole or in part any indebtedness or liability of the holder hereof to the Company, whether now existing or hereafter arising. The Company shall have a LIEN on this note, and a RIGHT OF SETOFF against amounts which may be or become payable hereunder, for such indebtedness to the Company or a subsidiary of the Company of the original holder and/or of any subsequent holder hereof as may form time to time exist. In accordance with the Company's By Laws, if the company exercises its right of setoff, shall have the right to discount the note to its then current cash value which shall be the lesser of the face amount of the note or the yield to maturity of the note as discounted at a rate per annum equal to the prime rate in effect at the time of setoff at the Harris Trust and Savings Bank, Chicago, Illinois, plus two percentage points. No transfer of this note shall be valid unless made at the office of the Company by the registered owner in person or by his duly authorized attorney and noted hereon, and, except in the case of transfer to banks or other lending institutions or associations, no transfer shall be made to any person other than one who, on the date of such transfer, is a stockholder of the Company. IN WITNESS WHEREOF, TRUSERV CORPORATION has caused this note to be executed by its officers thereunto duly enabled and its corporate seal to be hereunto affixed the date of issue below. REGISTERED OWNER: AMOUNT VOID DOLLARS TRUSERV CORPORATION ------------------------ CHICAGO, ILLINOIS 60631-3505 ($ ) REASON ISSUE - PATRONAGE DIVIDEND -------- MATURITY DATE - DECEMBER 31, ----- DATE OF ISSUE - JANUARY 1, -----
EX-4.U 7 c75265exv4wu.txt 2ND AMENDMENT TO AMENDED & RESTATED PURCHASE AGMT. EXHIBIT 4-U TRUSERV CORPORATION $105,000,000 AMENDED AND RESTATED SENIOR SECURED NOTES DUE 2008 ---------- SECOND AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 30, 2002 TRUSERV CORPORATION 8600 West Bryn Mawr Avenue Chicago, Illinois 60631 December 30, 2002 To Each of the Purchasers Listed in the Attached Schedule 1 (each, a "PURCHASER") Ladies and Gentlemen: Re: SECOND AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENTS (the "SECOND AMENDMENT") The undersigned, TruServ Corporation, a Delaware corporation formerly known as Cotter & Company (herein called the "COMPANY"), hereby agrees and acknowledges that: A. The Company and each of you are parties (the "PURCHASERS") to separate Note Purchase Agreement each dated as of September 10, 1998, as each were amended by Amendment No. 1 to Note Purchase Agreements dated as of April 1, 1999, and as each were further amended and restated by the Amended and Restated Note Purchase Agreements each dated as of April 14, 2000, as each were amended by the Amendment to the Amended and Restated Note Purchase Agreements each dated as of April 11, 2002 (collectively, the "ORIGINAL NPAs" and individually each an "ORIGINAL NPA"). B. Pursuant to the Original NPAs, the Company issued and sold to each of you $105,000,000 aggregate principal amount of its 6.85% Senior Notes due 2008 (the "NOTES"). C. Each of you and the Company desire to amend the Original NPAs as hereinafter set forth (the Original NPAs as amended by this Second Amendment is referred to herein collectively as the "NPAs" and individually as an "NPA"). Reference is made to the Original NPA for definitions of capitalized terms used herein and not otherwise defined herein. Pursuant to the request of the Company and in accordance with the provisions of Section 15 of the Original NPAs, the parties hereto consent to the amendment of the Original NPAs and agree as follows: 2 SECTION 1. Amendment. From and after the date this Second Amendment becomes effective in accordance with its terms, each Original NPA shall be amended as follows: 1.1 Paragraph 5J Real Estate Documents of the Original NPAs is amended by replacing the last paragraph therein in clause (b) with the following new paragraph: Additionally, in the case of any real property leased by the Company or any Guarantor, the Company shall use its best efforts to, or shall cause such Guarantor to use its best efforts to, provide a consent, in form and substance satisfactory to the Collateral Agent, from the owner and each mortgagee of such property (a) consenting to the Mortgage in favor of the Collateral Agent with respect to such property and (b) waiving any landlord's Lien in respect of personal property kept at the premises subject to such lease; provided, however, consents in connection with the Designated Sale-Leaseback Transactions shall not be required. 1.2 Paragraph 5O(3) of the Original NPAs is amended by replacing the first sentence with the following: For so long as the Intercreditor Agreement is in effect, amounts required to be prepaid under this paragraph 5O shall be paid (subject to the true-up provisions set forth therein), shared and distributed in accordance with the Intercreditor Agreement and, to the extent provided for in the Intercreditor Agreement, the Company's obligation to pay any Make-Whole Amount may be paid prior to the Final True-Up Date (as defined in the Intercreditor Agreement) by the issuance of Make-Whole Notes. 1.3 Paragraph 6A(1) Liens of the Original NPAs is amended by replacing clauses (x) and (xi) therein with the following: (x) (i) Liens in favor of the Collateral Agent, provided that the Intercreditor Agreement shall be in full force and effect and (ii) such Liens on the Special Company Account solely to the extent such Liens secure amounts due and owing Bank of America, N.A. for its services rendered solely in connection with routine administration of such account, provided that the Security Agreement and the Intercreditor Agreement shall both be in full force and effect; (xi) any interest or title of a lessor in property subject to any lease other than (i) subject to clause (vii) above, a Capitalized Lease Obligation, (ii) a lease entered into as part of a sale and leaseback transaction (other than the Designated Sale-Leaseback Transaction; provided, that such interest or title attaches only to the property being leased in connection therewith) or (iii) except as permitted by clause (xv) below, a Synthetic Lease; 3 1.4 Paragraph 6A(3) Sale of Assets of the Original NPAs is amended in its entirety to read as follows: 6A(3)(i). SALE OF ASSETS. Sell, lease, assign, transfer or otherwise dispose of value in the Company or any Subsidiary to any Person (other than the Company or a Subsidiary) of any assets of the Company or any Subsidiary (an "Asset Sale") (it being understood that an Asset Sale shall include (A) the sale and/or issuance of stock of any Subsidiary to Persons other than the Company or any wholly-owned Subsidiary and (B) any dilution of ownership arising from a merger or consolidation of Subsidiaries as permitted by paragraph 6A(3)(ii)), other than in the ordinary course of business, unless the Net Cash Proceeds of all such assets sold, leased or otherwise disposed of outside of the ordinary course of business during the most recent 36-month rolling period when added together, without duplication, with any assets then proposed to be sold outside of the ordinary course of business, do not exceed $10,000,000. Excluded from the foregoing limitation are the disposition of assets the proceeds of which are, within 180 days of such disposition, either (i) reinvested in property or assets for use in the existing business of the Company and its Subsidiaries or paid to the Collateral Agent to be distributed in accordance with the Intercreditor Agreement, or (ii) applied on a pro rata basis to prepay Senior Funded Debt, including, without limitation, the Notes pursuant to paragraph 4B hereof, including the Make-Whole Amount provided for in said paragraph 4B. Notwithstanding the foregoing, TruServ Canada Cooperative Inc. may issue and sell shares of its stock in the ordinary course of business consistent with its practices as of April 13,1992. Notwithstanding the foregoing, an Asset Sale shall not include (i) the sale, lease, assignment, transfer or other disposition of value (each a "DISPOSITION") of inventory in the ordinary course of business, (ii) the Disposition of inventory or receivables to a Guarantor or to the Company, (iii) leases or subleases entered into in the ordinary course of business, (iv) the licensing of intellectual property by the Company or any Subsidiary in the ordinary course of business (so long as such licensing does not prevent the Company or such Subsidiary from using intellectual property material to the business of the Company or such Subsidiary) , (v) any sublease of, or assignment by the Company of its interest as lessee in, properties sold pursuant to a Designated Sale-Leaseback Transaction provided that any such sublease or assignment shall be on an arm's length basis, reasonable and normal commercial terms, and no less frequent than quarterly payment of rent or (vi) the Disposition of other assets having a value not exceeding $250,000 in the aggregate in any fiscal year. 1.5 Paragraph 6B(h) Restricted Investments of the Original NPAs is amended by replacing the clause with the following: (h) (i) maintain the Special Company Account; provided that as of the close of business on any day on which the Total Outstandings (as defined in the BA Credit 4 Agreement) are greater than zero or during the existence of an Event of Default after the commencement of an Enforcement (as defined in the Intercreditor Agreement), the amount maintained in the Special Company Account shall not be greater than zero; and (ii) maintain other deposit accounts with financial institutions in the ordinary course of business; provided that the amount maintained in deposit accounts with financial institutions other than the Lenders (as defined in the BA Credit Agreement) shall not exceed (x) in the case of any one such account, $200,000 for more than three consecutive Business Days; and (y) in the case of all such accounts in the aggregate, $600,000 for more than two consecutive Business Days; 1.6 Paragraph 6H Fixed Charge Coverage Ratio of the Original NPAs is amended in its entirety to read as follows: 6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below for such period:
Fiscal Period(s) ending on or about Ratio ----------------------------------- -------- four quarters ending December 2002 0.70:1.0 four quarters ending March 2003 0.70:1.0 four quarters ending June 2003 0.65:1.0 four quarters ending September 2003 0.65:1.0 four quarters ending December 2003 0.90:1.0 four quarters ending March 2004 0.90:1.0 four quarters ending June 2004 0.90:1.0 each four quarter period thereafter 0.90:1.0
1.7 Paragraph 6I Minimum EBITDA of the Original NPAs is amended in its entirety to read as follows: 6I. MINIMUM ADJUSTED EBITDA. The Company shall not permit the sum of Adjusted EBITDA as of the end of any fiscal period set forth below to be less than the respective amount set forth below:
Fiscal Period(s) ending on or about Amount ----------------------------------- ------------ twelve months ended 12/31/02 $100,000,000 twelve months ended 1/31/03 $ 95,000,000 twelve months ended 2/28/03 $ 95,000,000 twelve months ended 3/31/03 $ 90,000,000 twelve months ended 4/30/03 $ 90,000,000 twelve months ended 5/31/03 $ 85,000,000 twelve months ended 6/30/03 $ 80,000,000 twelve months ended 7/31/03 $ 75,000,000 twelve months ended 8/31/03 $ 70,000,000 twelve months ended 9/30/03 $ 70,000,000 twelve months ended 10/31/03 $ 70,000,000 twelve months ended 11/30/03 $ 70,000,000 twelve months ended 12/31/03 $ 70,000,000 twelve months ended 1/31/04 $ 70,000,000 twelve months ended 2/29/04 $ 70,000,000 twelve months ended 3/31/04 $ 70,000,000 twelve months ended 4/30/04 $ 70,000,000 twelve months ended 5/31/04 $ 70,000,000 twelve months ended 6/30/04 $ 70,000,000 and the twelve month period ended on the last day of each month thereafter $ 70,000,000
5 1.8 Paragraph 6L Minimum Gross Sales of the Original NPAs is amended in its entirety to read as follows: 6L. MINIMUM GROSS SALES. The Company shall not permit the Gross Sales as of the end of any fiscal period set forth below to be less than the applicable amount set forth below:
Fiscal Period(s) ending on or about Amount ----------------------------------- -------------- twelve months ended 12/31/02 $1,975,000,000 twelve months ended 1/31/03 $1,820,000,000 twelve months ended 2/28/03 $1,780,000,000 twelve months ended 3/31/03 $1,740,000,000 twelve months ended 4/30/03 $1,725,000,000 twelve months ended 5/31/03 $1,740,000,000 twelve months ended 6/30/03 $1,720,000,000 twelve months ended 7/31/03 $1,715,000,000 twelve months ended 8/31/03 $1,710,000,000 twelve months ended 9/30/03 $1,700,000,000 twelve months ended 10/31/03 $1,715,000,000 twelve months ended 11/30/03 $1,695,000,000 twelve months ended 12/31/03 $1,700,000,000 twelve months ended 1/31/04 $1,700,000,000 twelve months ended 2/29/04 $1,695,000,000 twelve months ended 3/31/04 $1,690,000,000 twelve months ended 4/30/04 $1,690,000,000 twelve months ended 5/31/04 $1,680,000,000 twelve months ended 6/30/04 $1,670,000,000 and the twelve month period ended on the last day of each month thereafter $1,670,000,000
6 1.9 Paragraph 6M Minimum Interest Coverage Ratio of the Original NPAs is amended in its entirety to read as follows: 6M. MINIMUM INTEREST COVERAGE RATIO. The Company shall not permit the Interest Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below:
Fiscal Period(s) Ratio --------------------------------------------- -------- four quarters ending December 2002 1.75:1.0 four quarters ending March 2003 1.75:1.0 four quarters ending June 2003 2.00:1.0 four quarters ending September 2003 2.00:1.0 four quarters ending December 2003 3.00:1.0 four quarters ending March 2004 3.00:1.0 four quarters ending June 2004 3.00:1.0 and the four quarter period ended on the last day of each month thereafter 3.00:1.0
1.10 Paragraph 6N Maximum Capital Expenditures of the Original NPAs is amended by adding the following proviso at the end thereof: ; provided that the aggregate amount of Capital Expenditures made during any fiscal year ending after December 31, 2002 may be increased by an amount equal to the lesser of (x) $2,000,000 and (y) the excess of the maximum amount of Capital Expenditures permitted to be made in the prior fiscal year over the actual amount of Capital Expenditures made during such prior fiscal year. Such increased permitted Capital Expenditures may be made in any fiscal quarter or fiscal quarters of such fiscal year. 1.11 Paragraph 6O Adjustments to Financial Covenants of the Original NPAs is amended in its entirety to read as follows: 6O. ADJUSTMENTS TO FINANCIAL COVENANTS. The financial covenants contained herein may be adjusted upon the mutual agreement of the Company and the Purchasers to reflect Asset Sales not contemplated in the Business Plan, including but not limited to sale-leaseback transactions; provided, however, that if the parties cannot reach agreement within sixty days of the commencement of their negotiations, such covenant shall remain unchanged. If the sale-leaseback of 7 the regional distribution center located at 333 Harvey Road, Manchester, New Hampshire (the "Manchester RDC") does not occur by February 15, 2003, the Company shall cause the financial covenant levels set forth in paragraph 6 to be amended to reflect the exclusion of the Manchester RDC sale-leaseback from the Business Plan in a manner satisfactory to the Majority Holders in their sole discretion, and such financial covenant levels will be established in a manner reasonably satisfactory to the Majority Holders on the basis of the same methodologies used in preparing the covenant levels incorporated in the Second Amendment. 1.12 Paragraph 7A(xix) Acceleration of the Original NPAs is amended by replacing the clause with the following: (xix) the Company shall, on any date, not have in effect the BA Credit Agreements providing for a revolving loan facility to the Company with a commitment in the amount of at least $200,000,000 as such amount may be reduced by the application of Interim Proceeds as provided in the Intercreditor Agreement and as such amount may be voluntarily reduced by the Company in accordance with the BA Credit Agreements so long as voluntary reductions of the revolving loan facility do not exceed $50,000,000 in the aggregate; provided, that the commitment reductions provided for by Section 2.4.2(a) of the Credit Agreement shall be deemed voluntary reductions for purposes of this Paragraph 7A(xix); or 1.13 Paragraph 10A Defined Terms of the Original NPAs is amended to delete to amend and restate the following defined terms or, if such definitions are not in the Original NPA, to add such defined terms, in the appropriate alphabetical order: "ADJUSTED CASH FLOW" shall mean, with respect to any period, Consolidated Net Earnings for such period less (a) the sum of (i) to extent not already deducted in the calculation of Consolidated Net Earnings, gains from Asset Sales realized during such period, (ii) Capital Expenditures during such period, (iii) amortization of all Indebtedness (including amortization of Indebtedness from payments of Excess Cash Flow but excluding amortization of Indebtedness from the proceeds of Asset Sales) for such period, (iv) patronage dividends accrued in the current fiscal year to be paid in the following fiscal year, (v) any increase in restricted cash during such period, (vi) for the period ended December 31, 2002, $7,500,000 and (vii) Restructuring Charges taken during such period; plus (b) the sum of (i) to the extent deducted in the calculation of Consolidated Net Earnings, losses from Asset Sales realized during such period, (ii) depreciation and amortization expense for such period, 8 (iii) non-cash income tax expense for such period and (iv) any decrease in restricted cash during such period. "BUSINESS PLAN" shall mean the business plan of the Company, which was delivered by the Company to the Purchasers on December 18, 2002; provided, with respect to Paragraph 5A(xiii) and financial reports relating to the periods prior to 2003, the Business Plan shall mean the Business Plan of the Company dated March 20, 2002, which was delivered by the Company to the Purchasers. "DESIGNATED SALE-LEASEBACK TRANSACTION" means the sale by the Company of the regional distribution centers listed on Schedule 6A(3)(i)(v) and the concurrent lease, as lessee, of such properties by the Company and/or one or more Subsidiaries pursuant to documentation substantially in the form previously delivered to the Purchasers. "INTERCREDITOR AGREEMENT" shall mean the First Amended and Restated Intercreditor Agreement dated as of April 11, 2002 among Bank of America, N.A. as agent under the BA Credit Agreements, the Collateral Agent, the Purchasers, The Prudential Insurance Company of America and various other parties in the form of Exhibit G, as amended as of December 30, 2002 in the form attached as Exhibit G-1, as amended from time to time in accordance with its terms. "MANCHESTER RDC" shall have the meaning set forth in Paragraph 6O. "PRUDENTIAL AGREEMENT" shall mean, collectively, (i) Amended and Restated Private Shelf Agreement dated as of November 13, 1997, as amended by letter agreements dated September 9, 1998, May 12, 1999, April 14, 2000, and April 11, 2002 between the Company and The Prudential Insurance Company of America ("Prudential") and each affiliate of Prudential which is bound thereby pursuant to the terms thereof, and (ii) the Note Agreement dated as of April 13, 1992, as amended through the date hereof, between Cotter & Company, the predecessor to the Company, and Prudential, each as amended from time to time. "SECOND AMENDMENT" shall mean the Second Amendment to the Amended and Restated Senior Note Purchase Agreement dated as of December 30, 2002 between the Company and the Purchasers who are signatories thereto. "SECURITY AGREEMENT" shall mean the Security Agreement among the Company, various Subsidiaries and the Collateral Agent, dated April 14, 2000 and as amended by a First Amendment to the Security Agreement dated as of April 11, 2002, in the form of Exhibit I, and a Second Amendment to the Security Agreement as of December 30, 2002 in the form of Exhibit I-1, as 9 amended from time to time in accordance with its terms and the terms of the Intercreditor Agreement. "SPECIAL COMPANY ACCOUNT" shall have the meaning given in the Security Agreement. 1.14 Amendment to Exhibits. Exhibit G--the Intercreditor Agreement to the Original NPA is supplemented with Exhibit G-1--the First Amendment to the Intercreditor Agreement attached to this Second Amendment. Exhibit I--the Security Agreement to the Original NPA is supplemented with Exhibit G-1--the December 2002 Amendment to the Security Agreement attached to this Second Amendment. 1.15 Amendment to Schedules. Schedule 1--Purchasers is deleted in its entirety and replaced with Schedule 1--Purchasers attached to this Second Amendment. The Original NPAs are further amended by the supplement of Schedule 6A(3)(i)(v)--Scheduled RDC Sales attached to this Second Amendment. 1.16 The Schedules and Exhibits attached hereto shall be deemed to amend the previous schedules or exhibits and any new schedules or exhibits attached hereto shall be an integral part of the Original NPAs. SECTION 2. Representations and Warranties. The Company represents, covenants and warrants to each of the Purchasers that, after giving effect hereto as though all conditions of effectiveness have been met, (a) each representation and warranty set forth below is true and correct as of the date of execution and delivery of this Second Amendment by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), subject to in the case of the representations and warranties contained in Paragraph 2D below to the matters disclosed in that Consent to Waiver dated August 26, 2002 executed by the Required Holders, (b) no Event of Default or Default exists, and (c) no fee has been paid or is payable to the Lenders or the Agent (each as defined under the Intercreditor Agreement) in connection with the execution and effectiveness of the First Amendment to the BA Credit Agreements: 2A. ORGANIZATION; QUALIFICATIONS; CORPORATE POWER. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware, each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is formed and the Company and each of its Subsidiaries is duly qualified as a foreign corporation or entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions in which the failure to be so qualified could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has and each Subsidiary has the power to own their respective properties and to carry on their 10 respective businesses as now being conducted. No Subsidiary has outstanding any shares of stock of a class which has priority over any other class as to dividends or in liquidation (except as otherwise disclosed on Schedule 2A). Each of the Company and each Subsidiary has the power and authority to execute and deliver this Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes and all other Note Documents to which it is a party and to perform the provisions hereof and thereof. 2B. AUTHORIZATION, ETC. This Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes and all other Note Documents have been duly authorized by all necessary action on the part of the Company and each Subsidiary party thereto and this Agreement, the Other Agreements, the Guaranty, the Collateral Documents and all other Note Documents constitute, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company and each Subsidiary party thereto enforceable against the Company and each such Subsidiary in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2C. LEGAL RESTRICTIONS; SUBSIDIARIES. (a) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 2C and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (b) Except as otherwise provided in paragraph 5K of the Original NPAs (after giving effect to the Second Amendment), the Subsidiaries that are parties to the Guaranty and the Security Agreement constitute all of the Subsidiaries of the Company. Except as otherwise provided in paragraph 5K of the Original NPAs (after giving effect to the Second Amendment), the Company has pledged, pursuant to the Pledge Agreement, all of the capital stock of each Subsidiary. 2D. FINANCIAL STATEMENTS. (a) The Company has furnished you and each Other Purchaser of any Note with the following financial statements, identified by a Senior Financial Officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as at fiscal year end in each of the three fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 90 days prior to such date for which audited financial statements have not been released) and consolidated statements of operations and cash flows and a consolidated statement of capital stock and retained earnings of the Company and its 11 Subsidiaries for each such year, all reported on by Ernst & Young (or any independent public accounting firm of recognized national standing) and (ii) a consolidated balance sheet of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 60 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of operations and cash flows and a consolidated statement of capital stock and retained earnings for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject as to interim statements to changes resulting from audits and year-end adjustments), have been prepared in accordance with GAAP consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of operations, capital stock and retained earnings and cash flows fairly present the results of the operations of the Company and its Subsidiaries and their cash flows for the periods indicated. (b) There has been no material adverse change in the business, operations, condition (financial or otherwise), assets, properties or prospects of the Company and its Subsidiaries taken as a whole since the end of the most recent fiscal year for which such audited financial statements have been furnished other than as has been previously disclosed by the Company to the Purchasers for any changes through December 30, 2002. The Company is not aware of any facts that (individually or in the aggregate) would result in any material change in the Business Plan. The Business Plan was prepared on the basis of assumptions (all of which were made by the Company in good faith), and reflect the reasonable estimates of the Company of the financial condition, results of operations and other information projected therein. 2E. ACTIONS PENDING. Except as described in reasonable detail on Schedule 2E, there is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which could be reasonably expected to have a Material Adverse Effect. 2F. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraph 6A(2) of the Original NPAs (after giving effect to the Second Amendment). There exists no default under the provisions of any instrument (as defined in the UCC) or agreement evidencing Debt of the Company or 12 any of its Subsidiaries in an amount greater than $250,000 or of any agreement relating thereto (it being understood that the representation and warranty in this sentence is made after giving effect to the April 2002 Modification and the amendments prior thereto). 2G. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has good, marketable and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 2D of this Second Amendment (other than properties and assets disposed of (x) in the ordinary course of business, (y) in connection with the sale of the Brookings regional distribution center, or (z) pursuant to the Designated Sale-Leaseback Transaction), subject to no Lien of any kind except Liens permitted by paragraph 6A(1) of the Original NPAs. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect. The security interests granted under the Security Agreement by the Company and its Subsidiaries (the "Security Interests") are granted as security only and shall not subject the Collateral Agent or any holder of the Notes to, or transfer or in any way affect or modify, any obligation or liability of the Company or any other Debtor (as defined in the Security Agreement) with respect to any of the Collateral (as defined in the Security Agreement) or any transaction in connection therewith. The Security Interests constitute valid security interests under the Uniform Commercial Code as in effect from time to time in the State of Illinois ("UCC") securing the Liabilities (as defined in the Security Agreement). The Security Interests constitute perfected security interests in the Collateral (as defined in the Security Agreement) (except inventory in transit) to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other liens, claims and rights of others therein except for Permitted Liens (as defined in the Security Agreement). 2H. TAXES. The Company has and each of its Subsidiaries has filed all federal, state and other tax returns which are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such unfiled returns and unpaid taxes (i) as are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP or (ii) the non-filing or non-payment of which (a) could not be reasonably expected to have a Material Adverse Effect and (b) does not result in the creation of any Lien other than Liens permitted by paragraph 6A(l)(i) of the Original NPAs. 2I. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which could have a Material Adverse Effect. Neither the execution nor delivery of this Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes or any of the other Note Documents, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and 13 provisions hereof and thereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien (other than the Liens created by the Collateral Documents) upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Schedule 2I attached hereto (as such Schedule 2I may have been modified from time to time by written supplements thereto delivered by the Company and accepted in writing by the Required Holders). 2J. ERISA. No contribution required to have been made to any Plan by the Company or any Subsidiary under the provisions of the Plan or ERISA remains unpaid and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which has caused or could cause a Material Adverse Effect. None of the Company, any Subsidiary or any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which has caused or could cause a Material Adverse Effect. 2K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or any action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Effective Date for any Notes with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 2L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all Environmental Laws, except, in any such case, where failure to so comply could not reasonably be expected to result in a Material Adverse Effect. 14 2M. SECTION 144A. The Notes are not of the same class as securities, if any, of the Company listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. 2N. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 2O. PRIORITY OF NOTES; BENEFITED OBLIGATIONS. The Notes constitute "Superior Indebtedness" as such term is defined in the Company's Promissory (subordinated) Notes, the form of which is attached to the April 2002 Modification as Exhibit A and the Subordinated Debt is subordinated to the Indebtedness owing from time to time by the Company to the holders of the Notes in connection with this Agreement. 2P. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 2P, (i) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; . (ii) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. SECTION 3. Effectiveness. The amendments described in Section 1 above shall become effective as of the date upon which each Purchaser has received the following (the "Second Amendment Effective Date"): (a) To the extent due and payable, payment of all costs and expenses of such Purchaser (including the reasonable fees and disbursements of legal counsel (Bell, Boyd & Lloyd LLC) to the Purchasers) in connection with this Second Amendment and all prior negotiations and documentation; 15 (b) A copy of this Second Amendment duly executed by each party hereto; (c) A copy of each of the amendments to the BA Credit Agreements, the Prudential Agreement, the "Operative Documents" (each as defined in the Intercreditor Agreement) and the Security Agreement, each certified as being in full force and effect and each being in form and substance reasonably satisfactory to the Purchasers and all ancillary documents in connection therewith, including the Confirmation (as attached to the First Amendment to the BA Credit Agreements); (d) A copy of the First Amendment to the Intercreditor Agreement duly executed by all the parties thereto and in form and substance satisfactory to the Purchasers; (e) A copy of those certain leases, deeds and a Closing Agreement, dated as of December 30, 2002, duly executed by TruServ and Bolt (DE) Limited Partnership and all ancillary documents in connection therewith, including such evidence as reasonably satisfactory to the Purchasers to substantiate the execution and completion of the Designated Sale-Leaseback Transaction; (f) Such other documents or certificates as any Purchaser may reasonably request; and (g) Evidence reasonably satisfactory to the Purchasers that all corporate and other proceedings shall have occurred. SECTION 4. Further Assurances. Upon the request of the Purchasers, the Company agrees to provide or cause its Subsidiaries to provide to the Purchasers such additional amendments, consents, reaffirmations and ancillary documentation as necessary or advisable, in the sole reasonable discretion of the Majority Holders, to ensure that the Collateral Documents (as defined in the Intercreditor Agreement) are in full force and effect in all respects. SECTION 5. Reference to and Effect on Original NPAs. Upon the effectiveness of this Second Amendment as set forth in Section 3 above, each reference to the Original NPAs (also referenced in certain other Financing Agreements as the Senior Note Agreements or the Private Placement Agreements) in any other document, instrument or agreement shall mean and be a reference to such agreement as modified by this Second Amendment. Except as specifically set forth in and in conformity with Section 1 above, each Original NPA shall remain in full force and effect and each is hereby ratified and confirmed in all respects. 16 SECTION 6. Waiver. Nothing contained herein shall be construed as a waiver of or consent to any violation of the Original NPAs or any Default or Event of Default under the Original NPAs. SECTION 7. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW IN SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. SECTION 8. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH HOLDER OF NOTES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE ORIGINAL NPAs, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 9. Counterparts; Section Titles. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. The section titles contained in this Second Amendment are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 10. Consents and Waiver. Notwithstanding any provision in the Original NPAs to the contrary, the Purchasers consent to (a) the amendments to the Financing Agreements set forth as Exhibits G-1 and I-1 to the Original NPAs and Exhibits A, B and C hereto (b) the consummation of the Designated Sale-Leaseback Transaction and (c) the release of collateral by the Collateral Agent to the extent subject to the Designated Sale-Leaseback Transaction. Notwithstanding any provision in the Original NPAs to the contrary, the Purchasers hereby confirm that the Make-Whole Amount (as defined in the Intercreditor Agreement) due with respect to the Designated Sale-Leaseback Transaction shall be the Make-Whole Original Amount (as defined in the Intercreditor Agreement) and the Purchasers hereby waive any rights to any Make-Whole Delta Obligations (as defined in the Intercreditor Agreement) in connection with prepayments required in connection with the Designated Sale-Leaseback Transaction. [SIGNATURES ON FOLLOWING PAGE] 17 * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. ALLSTATE INSURANCE COMPANY By: /s/ ROBERT BODETT --------------------------------- Name: Robert Bodett Title: Senior Portfolio Manager By: /s/ RONALD MENDEL --------------------------------- Name: Ronald Mendel Title: Managing Director [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. ALLSTATE LIFE INSURANCE COMPANY By: /s/ ROBERT BODETT --------------------------------- Name: Robert Bodett Title: Senior Portfolio Manager By: /s/ RONALD MENDEL --------------------------------- Name: Ronald Mendel Title: Managing Director [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. KEYPORT LIFE INSURANCE COMPANY BY COLUMBIA MANAGEMENT GROUP AS AGENT By: /s/ RICHARD A HEGWOOD --------------------------------- Name: Richard A. Hegwood Title: Senior Vice President [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. THRIVENT FINANCIAL FOR LUTHERANS F/K/A AID ASSOCIATION FOR LUTHERANS By: /s/ GLEN VANIC --------------------------------- Name: Glen Vanic Title: Portfolio Manager [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. NATIONWIDE LIFE INSURANCE COMPANY By: /s/ MARK W POEPPELMAN --------------------------------- Name: Mark W. Poeppelman Title: Vice President [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. FEDERATED LIFE INSURANCE COMPANY By: /s/ MARK A. HOOD --------------------------------- Name: Mark A. Hood Title: Vice President [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. FEDERATED MUTUAL INSURANCE COMPANY By: /s/ MARK A. HOOD --------------------------------- Name: Mark A. Hood Title: Vice President [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. MODERN WOODMEN OF AMERICA By: /s/ NICK S. COIN --------------------------------------- Name: Nick S. Coin Title: Treasurer and Investment Manager [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. AMERITAS LIFE INSURANCE CORP. BY AMERITAS INVESTMENT ADVISORS, INC. AS AGENT By: /s/ ANDREW S. WHITE --------------------------------- Name: Andrew S. White Title: Vice President [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. NATIONAL GUARDIAN LIFE INSURANCE COMPANY By: /s/ R. A. MUCCI ----------------------------------- Name: R.A. Mucci Title: Vice President and Treasurer [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. FOOTHILL PARTNERS IV, L.P. By: /s/ R. MICHAEL BOHANNON --------------------------------- Name: R. Michael Bohannon Title: Managing Member [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. EVEREST CAPITAL SENIOR DEBT FUND, LP By: /s/ MALCOLM STOTT --------------------------------- Name: Malcolm Stott Title: Chief Operating Officer By: /s/ SIMON ONABOWALE --------------------------------- Name: Simon Onabowale Title: Principal [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. ABRAMS CAPITAL, LLC By: /s/ DAVID ABRAMS --------------------------------- Name: David Abrams Title: Managing Member [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. RAVICH REVOCABLE TRUST OF 1989 By: /s/ JESS M. RAVICH --------------------------------- Name: Jess M. Ravich Title: Trustee [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. JEFFREY D. BENJAMIN By: /s/ JEFFREY D. BENJAMIN --------------------------------- Name: Jeffrey D. Benjamin [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION FUND, L.P. BY CANPARTNERS INVESTMENTS III, L.P., AS GENERAL PARTNER, BY CANYON CAPITAL ADVISORS, LLC, AS GENERAL PARTNER By: /s/ R. C. B. EVENSEN --------------------------------- Name: R.C.B. Evensen Title: Managing Partner [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION FUND (CAYMAN), LTD. By: /s/ R. C. B. EVENSEN --------------------------------- Name: R.C.B. Evensen Title: Director [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION MAC-18, LTD. BY CANYON CAPITAL ADVISORS, LLC, AS INVESTMENT ADVISOR By: /s/ R. C. B. EVENSEN --------------------------------- Name: R.C.B. Evensen Title: Managing Partner [Signature Page to Amendment to Senior Note Purchase Agreement] * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------------- Name: David Shadduck Title: Senior Vice President The foregoing Amendment is hereby accepted as of the date first above written. RICHARD M. COPPERSMITH By: /s/ RICHARD M. COPPERSMITH --------------------------------- Name: Richard M. Coppersmith [Signature Page to Amendment to Senior Note Purchase Agreement] SCHEDULE 6A(3)(I)(V) SCHEDULED RDC SALES
PROPERTY TYPE ADDRESS -------- ---- ------- Allentown Distribution Center 7058 Snowdrift Rd Fogelsville, PA 18087 Atlanta Distribution Center 7600 Jonesboro Rd Jonesboro, GA 30236 Corsicana Distribution Center 2601 East State Highway 31 Corsicana, TX 75153 Kansas City Distribution Center 14900 US Highway 71 Kansas City, MO 64147 Kingman Distribution Center 4005 Mohave Airport Dr Kingman, AZ 86401 Springfield Distribution Center 2150 Olympic Ave Springfield, OR 97477 Woodland Distribution Center 215 N. Pioneer Ave Woodland, CA 95776
[Signature Page to Amendment to Senior Note Purchase Agreement] EXHIBIT G-1 TO ORIGINAL NPAs AMENDMENT TO INTERCREDITOR AGREEMENT Please see attached. EXHIBIT I-1 TO ORIGINAL NPAs AMENDMENT TO SECURITY AGREEMENT Please see attached. SCHEDULE 2A TO SECOND AMENDMENT SUBSIDIARY STOCK WITH A PREFERENCE None. SCHEDULE 2C TO SECOND AMENDMENT LEGAL RESTRICTIONS The Financing Agreements (as defined in the Intercreditor Agreement). SCHEDULE 2E TO SECOND AMENDMENT ACTIONS PENDING None. SCHEDULE 2I TO SECOND AMENDMENT RESTRICTIVE AGREEMENTS 1. Shelf Agreement (as defined in the Intercreditor Agreement). 2. Credit Agreement (as defined in the Intercreditor Agreement). 3. "Operative Documents" referred to in the Synthetic Lease Guaranty (as defined in the Intercreditor Agreement). SCHEDULE 2P TO SECOND AMENDMENT LICENSES, PERMITS None. EXHIBIT A TO SECOND AMENDMENT AMENDMENT TO BA CREDIT AGREEMENTS Please see attached. EXHIBIT B TO SECOND AMENDMENT AMENDMENT TO PRUDENTIAL AGREEMENT Please see attached. EXHIBIT C TO SECOND AMENDMENT AMENDMENT TO SYNTHETIC LEASE Please see attached. EX-4.V 8 c75265exv4wv.txt 5TH AMENDMENT TO AMENDED & RESTATED PRVT. SHELF AG EXHIBIT 4-V [PRUDENTIAL FINANCIAL LOGO] Corporate and Project Workouts 7th Floor Gateway Center Four 100 Mulberry Street Newark, NJ 07102 December 30, 2002 TruServ Corporation 8600 West Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Chief Financial Officer Re: Fifth Amendment of Note Agreement and Private Shelf Agreement Ladies and Gentlemen: Reference is made to that certain Amended and Restated Private Shelf Agreement dated as of November 13, 1997, as amended by letter agreements dated September 9, 1998, May 12, 1999, April 14, 2000, and April 11, 2002 (the "Shelf Note Agreement") between TruServ Corporation, a Delaware corporation ("TruServ"), and The Prudential Insurance Company of America ("Prudential") and each affiliate of Prudential which is bound thereby pursuant to the terms thereof (Prudential together with its affiliates, the "Purchasers"). Reference is also made to that certain Note Agreement dated as of April 13, 1992, as amended through the date hereof, between Cotter & Company, the predecessor to TruServ, and Prudential (the "Cotter Note Agreement" and, together with the Shelf Note Agreement, the "Note Agreements"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Shelf Note Agreement. Pursuant to the request of TruServ and in accordance with the provisions of (i) Paragraph 11C of the Shelf Note Agreement and (ii) Paragraph 11C of the Cotter Note Agreement, the parties hereto consent to the amendment of the Note Agreements and agree as follows: SECTION 1. Amendment. From and after the date this letter agreement becomes effective in accordance with its terms, the Note Agreements shall be respectively amended as follows: 1.1 Paragraph 4A(3) Intercreditor Distributions of the Note Agreements shall be amended by replacing the first sentence with the following: For so long as the Intercreditor Agreement is in effect, amounts required to be prepaid under this paragraph 4(A) shall be paid (subject to the true-up provisions set forth therein), shared and distributed in accordance with the Intercreditor Agreement and, to the extent provided for in the Intercreditor Agreement, the Company's obligation to pay Yield Maintenance Amount may be paid prior to the Final True-Up Date (as defined in the Intercreditor Agreement) by the issuance of Make-Whole Notes. 1.2 Paragraph 5H Real Estate Documents of the Note Agreements is amended by replacing the last paragraph therein in clause (b) with the following new paragraph: Additionally, in the case of any real property leased by the Company or any Guarantor, the Company shall use its best efforts to, or shall cause such Guarantor to use its best efforts to, provide a consent, in form and substance satisfactory to the Required Holder(s), from the owner and each mortgagee of such property (a) consenting to the Mortgage in favor of the Collateral Agent with respect to such property and (b) waiving any landlord's Lien in respect of personal property kept at the premises subject to such lease; provided, however, consents in connection with the Designated Sale-Leaseback Transactions shall not be required. 1.3 Paragraph 6B(1) Liens of the Note Agreements is amended by replacing, respectively, clauses (x) and (xii) therein with the following new clauses: (x) (i) Liens in favor of the Collateral Agent, provided that the Intercreditor Agreement shall be in full force and effect and (ii) such Liens on the Special Company Account solely to the extent such Liens secure amounts due and owing BofA for its services rendered solely in connection with routine administration of such account, provided that the Security Agreement and the Intercreditor Agreement shall both be in full force and effect; (xii) any interest or title of a lessor in property subject to any lease other than (i) subject to clause (vii) above, a Capitalized Lease Obligation, (ii) a lease entered into as part of a sale and leaseback transaction (other than the Designated Sale-Leaseback Transaction; provided, that such interest or title attaches only to the property being leased in connection therewith) or (iii) except as permitted by clause (xvi) below, a Synthetic Lease; 1.3 Paragraph 6H Minimum Fixed Charge Coverage Ratio of the Note Agreements is amended in its entirety to read as follows: 6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below for such period:
Fiscal Period(s) ending on or about Ratio ------------------------------------- ----- four quarters ending December 2002 0.70:1.0 four quarters ending March 2003 0.70:1.0 four quarters ending June 2003 0.65:1.0 four quarters ending September 2003 0.65:1.0 four quarters ending December 2003 0.90:1.0 four quarters ending March 2004 0.90:1.0 four quarters ending June 2004 0.90:1.0 each four quarter period thereafter 0.90:1.0
2 1.4 Paragraph 6I(vii) Restricted Investments of the Note Agreements is amended by replacing the clause with the following: (vii) (i) maintain the Special Company Account; provided that as of the close of business on any day on which the Total Outstandings (as defined in the BA Credit Agreement) are greater than zero or during the existence of an Event of Default after the commencement of an Enforcement (as defined in the Intercreditor Agreement), the amount maintained in the Special Company Account shall not be greater than zero; and (ii) maintain other deposit accounts with financial institutions in the ordinary course of business; provided that the amount maintained in deposit accounts with financial institutions other than the Lenders shall not exceed (x) in the case of any one such account, $200,000 for more than three consecutive Business Days; and (y) in the case of all such accounts in the aggregate, $600,000 for more than two consecutive Business Days, 1.5 Paragraph 6L Minimum Adjusted EBITDA of the Note Agreements is amended in its entirety to read as follows: 6L. MINIMUM ADJUSTED EBITDA. The Company shall not permit the sum of Adjusted EBITDA as of the end of any fiscal period set forth below to be less than the respective amount set forth below:
Fiscal Period(s) ending on or about Amount ----------------------------------- ------ twelve months ended 12/31/02 $100,000,000 twelve months ended 1/31/03 $ 95,000,000 twelve months ended 2/28/03 $ 95,000,000 twelve months ended 3/31/03 $ 90,000,000 twelve months ended 4/30/03 $ 90,000,000 twelve months ended 5/31/03 $ 85,000,000 twelve months ended 6/30/03 $ 80,000,000 twelve months ended 7/31/03 $ 75,000,000 twelve months ended 8/31/03 $ 70,000,000 twelve months ended 9/30/03 $ 70,000,000 twelve months ended 10/31/03 $ 70,000,000 twelve months ended 11/30/03 $ 70,000,000 twelve months ended 12/31/03 $ 70,000,000 twelve months ended 1/31/04 $ 70,000,000 twelve months ended 2/29/04 $ 70,000,000 twelve months ended 3/31/04 $ 70,000,000 twelve months ended 4/30/04 $ 70,000,000 twelve months ended 5/31/04 $ 70,000,000 twelve months ended 6/30/04 $ 70,000,000 each twelve month period ended on the last day of each month thereafter $ 70,000,000
1.6 Paragraph 6N Minimum Gross Sales of the Note Agreements is amended in its entirety to read as follows: 3 6N. MINIMUM GROSS SALES. The Company shall not permit the Gross Sales as of the end of any fiscal period set forth below to be less than the applicable amount set forth below:
Fiscal Period(s) ending on or about Amount ----------------------------------- ------ twelve months ended 12/31/02 $1,975,000,000 twelve months ended 1/31/03 $1,820,000,000 twelve months ended 2/28/03 $1,780,000,000 twelve months ended 3/31/03 $1,740,000,000 twelve months ended 4/30/03 $1,725,000,000 twelve months ended 5/31/03 $1,740,000,000 twelve months ended 6/30/03 $1,720,000,000 twelve months ended 7/31/03 $1,715,000,000 twelve months ended 8/31/03 $1,710,000,000 twelve months ended 9/30/03 $1,700,000,000 twelve months ended 10/31/03 $1,715,000,000 twelve months ended 11/30/03 $1,695,000,000 twelve months ended 12/31/03 $1,700,000,000 twelve months ended 1/31/04 $1,700,000,000 twelve months ended 2/29/04 $1,695,000,000 twelve months ended 3/31/04 $1,690,000,000 twelve months ended 4/30/04 $1,690,000,000 twelve months ended 5/31/04 $1,680,000,000 twelve months ended 6/30/04 $1,670,000,000 each twelve month period ended on the last day of each month thereafter $1,670,000,000
1.7 Paragraph 6O Minimum Interest Coverage Ratio of the Note Agreements is amended in its entirety to read as follows: 6O. MINIMUM INTEREST COVERAGE RATIO. The Company shall not permit the Interest Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below:
Fiscal Period(s) Ratio ---------------------------------- -------- four quarters ending December 2002 1.75:1.0 four quarters ending March 2003 1.75:1.0 four quarters ending June 2003 2.00:1.0 four quarters ending September 2003 2.00:1.0 four quarters ending December 2003 3.00:1.0 four quarters ending March 2004 3.00:1.0 four quarters ending June 2004 3.00:1.0 each twelve month period ended on the last day of each month thereafter 3.00:1.0
1.8 Paragraph 6P Maximum Capital Expenditures of the Note Agreements is amended by adding the following proviso at the end thereof: 4 ; provided that the aggregate amount of Capital Expenditures made during any fiscal year ending after December 31, 2002 may be increased by an amount equal to the lesser of (x) $2,000,000 and (y) the excess of the maximum amount of Capital Expenditures permitted to be made in the prior fiscal year over the actual amount of Capital Expenditures made during such prior fiscal year. Such increased permitted Capital Expenditures may be made in any fiscal quarter or fiscal quarters of such fiscal year. 1.9 Paragraph 6Q Adjustments to Financial Covenants of the Note Agreements is amended in its entirety to read as follows: 6Q. ADJUSTMENTS TO FINANCIAL COVENANTS. The financial covenants contained herein may be adjusted upon the mutual agreement of the Company and the Purchasers to reflect Asset Sales not contemplated in the Business Plan, including but not limited to sale-leaseback transactions; provided, however, that if the parties cannot reach agreement within sixty days of negotiations, such covenant shall remain unchanged. If the sale-leaseback of the regional distribution center located at 333 Harvey Road, Manchester, New Hampshire (the "Manchester RDC") does not occur by February 15, 2003, the Company shall cause the financial covenant levels set forth in Paragraph 6 to be amended to reflect the exclusion of the Manchester RDC sale-leaseback from the Business Plan in a manner satisfactory to the Required Holders in their sole discretion, and such financial covenant levels will be established in a manner reasonably satisfactory to the Required Holders on the basis of the same methodologies used in preparing the covenant levels incorporated in the Fifth Amendment. 1.10 Paragraph 7A(xviii) Acceleration of the Note Agreements is amended by replacing the clause with the following: (xviii) the Company shall, on any date, not have in effect a BA Credit Agreement providing for a revolving loan facility to the Company with a commitment in the amount of at least $200,000,000 as such amount may be reduced by the application of Interim Proceeds as provided in the Intercreditor Agreement and as such amount may be voluntarily reduced by the Company in accordance with the BA Credit Agreement so long as voluntary reductions of the revolving loan facility do not exceed $50,000,000 in the aggregate; provided, that the commitment reductions provided for by Section 2.4.2(a) of the Credit Agreement shall be deemed voluntary reductions for purposes of this Paragraph 7A(xviii); or 1.11 Paragraph 8B Financial Statements of the Note Agreements is amended to (a) replace in the last sentence of the first paragraph the words "Amendment Effective Date" with December 30, 2002; (b) delete the first sentence of the last paragraph thereof; and (c) replace the last sentence of the final paragraph with the following: The Business Plan was prepared on the basis of assumptions (all of which were made by the Company in good faith), and reflects the reasonable estimates of the Company of the financial conditions, results of operations and other information projected therein. 1.12 Paragraph 8E Title to Properties of the Note Agreements is amended in its entirety to read as follows: 5 8E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has good and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of (x) in the ordinary course of business, (y) in connection with the sale of the Brookings regional distribution center or (z) pursuant to the Designated Sale-Leaseback Transaction), subject to no Lien of any kind except Liens permitted by paragraph 6B(1). All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect 1.13 Paragraph 10B Other Terms of the Note Agreements is amended to delete the following defined terms: "Adjusted Cash Flow", "Business Plan", "Intercreditor Agreement", "Private Placement Agreements", and "Security Agreement". 1.14 Paragraph 10B Other Terms of the Note Agreements is amended to add the following defined terms in the appropriate alphabetical order: "ADJUSTED CASH FLOW" means, with respect to any period, Consolidated Net Earnings for such period less (a) the sum of (i) to extent not already deducted in the calculation of Consolidated Net Earnings, gains from Asset Sales realized during such period, (ii) Capital Expenditures during such period, (iii) amortization of all Indebtedness (including amortization of Indebtedness from payments of Excess Cash Flow but excluding amortization of Indebtedness from the proceeds of Asset Sales) for such period, (iv) patronage dividends accrued in the current fiscal year to be paid in the following fiscal year, (v) any increase in restricted cash during such period, (vi) for the period ended December 31, 2002, $7,500,000 and (vii) Restructuring Charges taken during such period; plus (b) the sum of (i) to the extent deducted in the calculation of Consolidated Net Earnings, losses from Asset Sales realized during such period, (ii) depreciation and amortization expense for such period, (iii) non-cash income tax expense for such period and (iv) any decrease in restricted cash during such period. "ASSET SALES" shall mean the sale, lease, assignment, transfer or other disposition of value (each a "Disposition") by the Company or any Subsidiary to any Person (other than the Company or a Subsidiary) of any assets of the Company or such Subsidiary, other than (i) the Disposition of inventory in the ordinary course of business, (ii) the Disposition of inventory or receivables to a Guarantor or to the Company, (iii) leases or subleases entered into in the ordinary course of business, (iv) the licensing of intellectual property by the Company or any Subsidiary in the ordinary course of business (so long as such licensing does not prevent the Company or such Subsidiary from using intellectual property material to the business of the Company or such Subsidiary), (v) any sublease of, or assignment by the Company of its interest as lessee in, properties sold pursuant to a Designated Sale-Leaseback Transaction provided that any such sublease or assignment shall be on an arm's length basis, reasonable and normal commercial terms, and no less frequent than quarterly payment of rent or (vi) the Disposition of other assets having a value not exceeding $250,000 in the aggregate in any fiscal year. 6 "BUSINESS PLAN" shall mean the business plan of the Company, which was delivered by the Company to the Purchasers on December 18, 2002; provided, with respect to Paragraph 5A(v) and financial reports relating to the periods prior to 2003, the Business Plan shall mean the Business Plan of the Company dated March 20, 2002, which was delivered by the Company to the Purchasers. "DESIGNATED SALE-LEASEBACK TRANSACTION" means the sale by the Company of the regional distribution centers listed on Schedule 6B(4)(i)(b) and the concurrent lease, as lessee, of such properties by the Company and/or one or more Subsidiaries pursuant to documentation substantially in the form previously delivered to the Purchasers. "FIFTH AMENDMENT" shall mean the Fifth Amendment of the Note Agreement and the Private Shelf Agreement dated December 30, 2002 between the Company and the Purchasers. "INTERCREDITOR AGREEMENT" shall mean the First Amended and Restated Intercreditor Agreement, dated as of April 11, 2002 and amended as of December 30 2002, among BofA as agent under the BA Credit Agreements, the Collateral Agent, the Purchasers, the holders of the Senior Notes, the Company and its Subsidiaries, and various other parties. "MANCHESTER RDC" shall have the meaning set forth in Paragraph 6Q. "PRIVATE PLACEMENT AGREEMENTS" shall mean the several Note Purchase Agreements dated as of September 10, 1998 among the Company and the purchasers listed in Schedule 1 thereto, pursuant to which the Company issued its 6.85% Senior Notes due July 1, 2008 in the original aggregate principal amount of $105,000,000, as such agreements were amended as of April 1, 1999, as amended and restated as of April 14, 2000, and as further amended as of April 11, 2002 and December 30, 2002. "SECURITY AGREEMENT" shall mean the Security Agreement among the Company, various Subsidiaries and the Collateral Agent, dated April 14, 2000 and as amended by a First Amendment dated as of April 11, 2002 and a Second Amendment as of December 30, 2002. "SPECIAL COMPANY ACCOUNT" shall have the meaning given in the Security Agreement. 1.11 The Schedules and Exhibits attached hereto shall be deemed to amend and restate the previous schedules or exhibits and any new schedules or exhibits attached hereto shall be an integral part of the Note Agreements. SECTION 2. Representations and Warranties. TruServ represents and warrants to each of the Purchasers that, after giving effect hereto as though all conditions of effectiveness have been met, (a) each and every representation and warranty set forth in paragraph 8 of each of the Note Agreements (other than paragraphs 8H, 8I, and 8O) is true and correct as of the date of execution and delivery of this letter agreement by TruServ with the same effect as if made on such date, subject to in the case of the representations and warranties contained in Paragraphs 8B and 8N to the matters disclosed in that Consent to Waiver dated August 26, 2002 executed by the 7 Purchasers, (b) no Event of Default or Default exists, and (c) no fee has been paid or is payable to the Lenders or the Agent (each as defined under the Intercreditor Agreement) in connection with the execution and effectiveness of the First Amendment to the BA Credit Agreements.. SECTION 3. Effectiveness. The amendments described in Section 1 above shall become effective as of the date upon which each Purchaser has received the following (the "Amendment Effective Date"): (a) To the extent due and payable, payment of all costs and expenses of such Purchaser (including the reasonable fees and disbursements of legal counsel (Weil, Gotshal & Manges LLP) to the Purchasers) in connection with this letter agreement and all prior negotiations and documentation; (b) A copy of this letter agreement duly executed by each party hereto; (c) A copy of each of the amendments to the BA Credit Agreements, the Private Placement Agreements, the "Operative Documents" (as defined in the Intercreditor Agreement), and the Security Agreement, each certified as being in full force and effect and each being in form and substance reasonably satisfactory to the Purchasers and all ancillary documents in connection therewith, including the Confirmation (as attached to the First Amendment to the BA Credit Agreements); (d) A copy of the First Amendment to the Intercreditor Agreement duly executed by all the parties thereto and in form and substance satisfactory to the Purchasers; (e) A copy of that certain Leases, deeds and a Closing Agreement, dated as of December 30, 2002, duly executed by TruServ and Bolt (DE) Limited Partnership, and all ancillary documents in connection therewith, including such evidence as reasonably satisfactory to the Purchasers to substantiate the execution and completion of the Designated Sale-Leaseback Transaction; (f) Such other documents or certificates as any Purchaser may reasonably request; and (g) Evidence reasonably satisfactory to the Purchasers that all corporate and other proceedings shall have occurred. SECTION 4. Further Assurances. Upon the request of the Purchasers, the Company agrees to provide or cause its Subsidiaries to provide to the Purchasers such additional amendments, consents, reaffirmations and ancillary documentation as necessary or advisable, in the sole reasonable discretion of the Required Holders, to ensure that the Collateral Documents (as defined in the Intercreditor Agreement) are in full force and effect in all respects. SECTION 5. Reference to and Effect on Note Agreements. Upon the effectiveness of this letter agreement as set forth in Section 3 above, each reference to the Shelf Note Agreement and the Cotter Note Agreement in any other document, instrument or agreement shall mean and be a reference to such agreement as modified by this letter agreement. Except as specifically set forth in and in conformity with Section 1 above, each Note Agreement shall remain in full force and effect and each is hereby ratified and confirmed in all respects. 8 SECTION 6. Waiver. Nothing contained herein shall be construed as a waiver of or consent to any violation of the Note Agreements or any Default or Event of Default under the Note Agreements. SECTION 7. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER TO BE CONSTRUED OR ENFORCED OTHER THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. SECTION 8. Counterparts; Section Titles. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. The section titles contained in this letter agreement are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 9. Consents and Waiver. Notwithstanding any provision in the Note Agreements to the contrary, the Purchasers consent to (a) the amendments to the other Financing Agreements, (b) the consummation of the Designated Sale-Leaseback Transaction and (c) the release of collateral by the Collateral Agent to the extent subject to the Designated Sale-Leaseback Transaction. Notwithstanding any provision in the Note Agreements to the contrary, the Purchasers hereby confirm that the Make-Whole Amount (as defined in the Intercreditor Agreement) due with respect to the Designated Sale-Leaseback Transaction shall be the Make-Whole Original Amount (as defined in the Intercreditor Agreement) and the Purchasers hereby waive any rights to any Make-Whole Delta Obligations (as defined in the Intercreditor Agreement) in connection with prepayments required in connection with the Designated Sale-Leaseback Transaction. [SIGNATURES ON FOLLOWING PAGE] 9 Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ THOMAS E. LUTHER --------------------------- Name: Thomas E. Luther Title: Vice President PRUCO LIFE INSURANCE COMPANY By: /s/ THOMAS E. LUTHER --------------------------- Name: Thomas E. Luther Title: Vice President U.S. PRIVATE PLACEMENT FUND By: PRUDENTIAL PRIVATE PLACEMENT INVESTORS, L.P., Investment Advisor By: PRUDENTIAL PRIVATE PLACEMENT INVESTORS, L.P., its General Partner By: /s/ THOMAS E. LUTHER --------------------------- Name: Thomas E. Luther Title: Vice President Accepted and Agreed: TRUSERV CORPORATION By: /s/ DAVID SHADDUCK --------------------------- Name: David Shadduck Title: Sr. VP & CFO 10 SCHEDULE 6B(4)(i)(b) SCHEDULED RDC SALES
PROPERTY TYPE ADDRESS -------- ---- ------- Allentown Distribution Center 7058 Snowdrift Rd Fogelsville, PA 18087 Atlanta Distribution Center 7600 Jonesboro Rd Jonesboro, GA 30236 Corsicana Distribution Center 2601 East State Highway 31 Corsicana, TX 75153 Kansas City Distribution Center 14900 US Highway 71 Kansas City, MO 64147 Kingman Distribution Center 4005 Mohave Airport Dr Kingman, AZ 86401 Springfield Distribution Center 2150 Olympic Ave Springfield, OR 97477 Woodland Distribution Center 215 N. Pioneer Ave Woodland, CA 95776
11 EX-4.W 9 c75265exv4ww.txt 1ST AMEND. TO 1ST AMENDED & RESTATED INTERCRED. AG EXHIBIT 4-W FIRST AMENDMENT TO THE FIRST AMENDED AND RESTATED INTERCREDITOR AGREEMENT FIRST AMENDMENT (the "First Amendment") to the First Amended And Restated Intercreditor Agreement (the "Original Intercreditor Agreement") dated as of April 11, 2002, entered into among: Bank of America, N.A. ("Bank of America") in its capacity as Agent for various financial institutions under the Credit Agreement defined below (in such capacity, together with its successors and assigns in such capacity, the "Agent") and such various financial institutions named as Lenders under the Credit Agreement; The Prudential Insurance Company of America ("Prudential") and certain of its affiliates (together with their respective successors and assigns, individually each a "Shelf Noteholder" and collectively the "Shelf Noteholders") as holders of certain notes issued by TruServ Corporation (the "Company") under the Shelf Agreement defined below; the holders (together with their respective successors and assigns, individually each a "Senior Noteholder" and, collectively, the "Senior Noteholders") of certain notes issued by the Company under the Senior Note Agreements defined below; Wilmington Trust Company in both its individual capacity and as owner trustee, BMO Global Capital Solutions, Inc., Bank of Montreal each as Synthetic Lease Lenders under the Operative Documents defined below; and Bank of America as Collateral Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Original Intercreditor Agreement. R E C I T A L S A. Pursuant to a Second Amended and Restated Credit Agreement dated as of April 11, 2002 (as amended through the date hereof, the "Credit Agreement") among the Company, certain financial institutions party thereto (together with their respective successors and assigns, individually each a "Lender" and collectively the "Lenders") and the Agent, the Lenders have made available to the Company certain loans and other financial accommodations. B. Pursuant to (i) a Note Agreement dated as of April 13, 1992 (the "Cotter Note Agreement") and (ii) an Amended and Restated Private Shelf Agreement dated as of November 13, 1997 (collectively with the Cotter Note Agreement and each as amended and through the date hereof, the "Shelf Agreement") between the Company (previously known as Cotter & Company) and Prudential, the Company issued and sold certain notes (the "Shelf Notes") to the Shelf Noteholders. C. Pursuant to the Amended and Restated Note Agreements dated April 14, 2000 listed on Schedule I hereto (collectively, as amended through the date hereof, the "Senior Note Agreements"), the Company issued and sold certain notes (the "Senior Notes") to the Senior Noteholders. D. Bank of America (together with its successors and assigns in each one's capacity as a provider of cash management services, the "Cash Management Bank") has provided and may from time to time hereafter provide overdraft protection, Automated Clearing House services and other cash management services to the Company (any arrangement to provide such protection and/or services, a "Cash Management Arrangement"). E. Pursuant to a Guaranty dated as of April 30, 1998 (the "Synthetic Lease Guaranty") issued in favor of TruServ 1998 Trust, Wilmington Trust Company, in its individual capacity and as Owner Trustee, BMO Global Capital Solutions, Inc., as Agent Certificate Holder, BMO Global Capital Solutions, Inc. and various other financial institutions, as Certificate Holders, Bank of Montreal, as Administrative Agent, and Bank of Montreal and various other financial institutions, as Lenders (all of the foregoing, together with their respective successors and assigns, individually each a "Synthetic Lease Lender" and, collectively, the "Synthetic Lease Lenders"), the Company has guaranteed all obligations of Mary Green, LLC under or in connection with the "Operative Documents" referred to in the Synthetic Lease Guaranty (as amended through the date hereof, the "Operative Documents"); NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree that the Original Intercreditor Agreement is hereby amended as follows: SECTION 1. Amendment. From and after the date this First Amendment becomes effective in accordance with its terms, the Intercreditor Agreement shall be respectively amended as follows: 1.1 Section 1 Defined Terms and Interpretation of the Original Intercreditor Agreement is amended as follows: (a) Replacements. The definitions of "Collateral Document", "Credit Agreement Commitment", "Excess Cash Proceeds", "Final True Up Event", "Financing Agreements", Principal Benefited Obligations", and "Scheduled Sales" are replaced, respectively, in their entirety with the following: Collateral Document means each of the documents referred to on Schedule II and any other document or instrument pursuant to which any Debtor grants to the Collateral Agent or any Benefited Party a Lien on any property to secure any of the Benefited Obligations, and as each may be amended from time to time in accordance with its terms. Credit Agreement Commitment means, initially, the $200,000,000 Commitment under the Credit Agreement, and as reduced thereafter by the application of Interim Proceeds distributed to the Lenders, and as voluntarily reduced by the Company from time to time, and as reduced by the Company pursuant to Section 2.4.2(a) of the Credit Agreement. Excess Cash Proceeds means for any fiscal year, commencing with the fiscal year ended on or about December 31, 2002 (or for any other period for which "Excess Cash Page 2 to Intercreditor Flow" (as defined in the Financing Agreements) gives rise to a prepayment obligation under the Financing Agreements), an amount equal to "Excess Cash Flow" (to the extent required to be applied to such payments) with respect to such fiscal year (or such applicable period) as determined pursuant to the Financing Agreements. Final True Up Event means (a) the commencement of a Bankruptcy Proceeding with respect to the Company; (b) the repayment in full of all Principal Benefited Obligations of (i) the Lenders in conjunction with a termination or a reduction to zero of the Credit Agreement Commitment, (ii) the Shelf Noteholders, or (iii) the Senior Noteholders; (c) the refinancing of the Credit Agreement Obligations or the Senior Note Obligations or the Shelf Obligations; (d) the Credit Agreement Commitment is no longer available to the Company or has been terminated; or (e) the acceleration of the Credit Agreement Obligations, the Senior Note Obligations or the Shelf Obligations has occurred. Financing Agreements means the Credit Agreement, the Shelf Agreement, the Shelf Notes, the Senior Note Agreements, the Senior Notes, the Synthetic Lease Guaranty, this Agreement, the Subsidiary Guaranty and the Collateral Documents, as each may be amended, modified, restated or supplemented in conformity with the terms thereof and of each other Financing Agreement. Principal Benefited Obligations means, at any time, the obligations of the Company for: (i) the principal amount outstanding at such time under the Credit Agreement, the Senior Note Agreements and Senior Notes, the Shelf Agreement and Shelf Notes, the RDC Make-Whole Original Notes and (ii) the attributed principal amount of obligations owing under the Synthetic Lease Guaranty but not to exceed the Synthetic Maximum Shortfall at such time. Scheduled Sales means the sales of the Canadian subsidiary, the Indianapolis facility, the lumber business, the Hagerstown Excess, and the sales listed on Schedule III. (b) Revisions to Defined Terms. The definition of "Net Disposition Proceeds" is revised by adding the following as the final sentence thereto: Net Disposition Proceeds shall not include any proceeds received by the Company in respect of any sublease of, or assignment by the Company of its interest as lessee in properties sold pursuant to, the Scheduled RDC Sales to the extent that the related subleases or assignments, as the case may be, are on an arm's length basis, reasonable and normal commercial terms, and no less frequent than quarterly payment of rent. (c) Additional Defined Terms. The following new defined terms are added to Section 1 in the appropriate alphabetical order therein: Make-Whole Notes means any and all notes issued by the Company from time to time to evidence the obligations of the Company to pay any Make-Whole Obligations owed to the Noteholders. Page 3 to Intercreditor Make-Whole RDC Obligations means all obligations of the Company to pay any principal of any Prudential RDC Make-Whole Original Note, any Senior RDC Make-Whole Original Note, and any interest thereon, respectively, at the rates set forth in such notes. Prudential RDC Make-Whole Original Notes means any and all notes (in the form of Exhibit C-1 attached hereto and made a part hereof) issued by the Company from time to time to evidence the obligations of the Company to pay the Make-Whole Original Amounts owed to the Shelf Noteholders in respect of Interim Proceeds from the Scheduled RDC Sales. RDC Make-Whole Original Notes means, collectively, the Prudential RDC Make-Whole Original Notes and the Senior RDC Make-Whole Original Notes. Scheduled RDC Sales means the sales of the seven regional distribution centers of the Company listed on Schedule V. Senior RDC Make-Whole Original Notes means any and all notes (in the form of Exhibit C-2 attached hereto and made a part hereof) issued by the Company from time to time to evidence the obligations of the Company to pay the Make-Whole Original Amounts owed to the Senior Noteholders in respect of Interim Proceeds from the Scheduled RDC Sales. 1.2 Clause (g) of Section 3 Administration; Exercise of Remedies of the Original Intercreditor Agreement is amended by adding the following proviso at the end of subclause (x) therein immediately prior to the "and" at the end thereof: provided, further, the Collateral Agent may release its applicable Liens on the Collateral constituting the seven regional distribution centers listed on Schedule V hereto as the Scheduled RDC Sales upon receipt of the respective proceeds from the "Designated Sale-Leaseback Transactions" (as defined in the Credit Agreement) without providing advance written notice of its impending release to the Benefited Parties 1.3 The sixth paragraph of Section 4 of the Original Intercreditor Agreement is amended by (a) adding a colon and an "(a)" between the words "arising from" and "a Scheduled Sale" therein; (b) adding a semi-colon and the word "and" in place of the period at the end of clause (y); and (c) immediately thereafter adding a new clause (b) as follows: (b) a Scheduled RDC Sale shall be treated as follows: the Make-Whole Original Amount arising from such sale shall be evidenced by a RDC Make-Whole Original Note issued in the appropriate form for the applicable Noteholder and the Make-Whole RDC Obligations, including accrued and unpaid interest in respect thereof, shall be payable in accordance with the terms thereof and, in the event of a Final True-Up Event, the outstanding principal as a Principal Benefited Obligation under clause SECOND of Section 6 Page 4 to Intercreditor and accrued and unpaid interest as a Benefited Obligation under clause FOURTH of Section 6. Consistent with the Financing Agreements, the payment herein by issuance of the RDC Make-Whole Original Notes shall represent the entire Make-Whole Amount due with respect to the Scheduled RDC Sales. 1.4 The final two paragraphs of Section 4 of the Original Intercreditor Agreement are amended by replacing them, respectively, with the following: Each of the parties hereto acknowledge and agree that the foregoing shall not apply to the Make-Whole Amount arising in the event of a sale of the Paint Business or any sale other than, respectively, (i) a Scheduled Sale and (ii) a Scheduled RDC Sale. In the event that the Company proposes to sell the Paint Business, the parties hereto further agree to enter into discussions regarding the terms of payment of the Make-Whole Obligations in respect thereto. Each of the Primary Benefited Parties agree that payments made hereunder and in accordance herewith by the Company of Interim Proceeds to the Collateral Agent for distribution as set forth in this Agreement and payment of Make-Whole Obligations by the issuance of Make-Whole Notes as provided herein and in the Make-Whole Notes shall not constitute a default under their respective Financing Agreements. 1.5 Schedules and Exhibits. Schedule I attached hereto replaces in its entirety the Schedule I attached to the Original Intercreditor Agreement. Schedule II attached hereto is added as a new Schedule V to the Intercreditor Agreement. Exhibits A and B attached hereto are added as new Exhibits C-1 and C-2, respectively, to the Intercreditor Agreement. SECTION 2. Effectiveness. This First Amendment shall become effective on the date when each of the parties hereto shall have received the following: (a) counterparts of this First Amendment executed by the Collateral Agent, the Company, the Agent (acting with the consent of the "Required Lenders" as defined in the Credit Agreement), the "Required Holders" as defined in the Shelf Agreement, the "Majority Holders" as defined in the Senior Note Agreements, and all Benefited Parties; (b) counterparts of the Second Amendment to the Security Agreement and the Confirmation (as attached to the First Amendment to the Credit Agreement), fully executed by the parties thereto; and (c) evidence that the amendments to the Financing Agreements have been fully executed. SECTION 3. Reference to and Effect on Intercreditor Agreement. Upon the effectiveness of this First Amendment as set forth in Section 3 hereinabove, each reference to the Intercreditor Agreement in any Financing Agreement and in any other document, instrument or agreement shall mean and be a reference to such agreement as amended by this First Amendment. Except as specifically amended hereby, the Intercreditor Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. Page 5 to Intercreditor SECTION 4. Waiver. Nothing contained herein shall be construed as a waiver of or a consent to any violation of the Financing Agreements or any Default of Event of Default under the Financing Agreements. SECTION 5. Miscellaneous. (a) This First Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. A facsimile of the signature of any party on any counterpart shall be as effective as the original signature of such party for purposes of the effectiveness of this First Amendment. (b) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS. (c) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS FIRST AMENDMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY ITS EXECUTION AND DELIVERY OF THIS FIRST AMENDMENT, EACH BENEFITED PARTY (I) CONSENTS TO THE JURISDICTION OF SUCH COURTS, (II) IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH COURTS IN RESPECT OF THIS FIRST AMENDMENT; (III) WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS; AND (IV) WAIVES RIGHT TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS FIRST AMENDMENT WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. (d) In case any provision in or obligation under this First Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations in or under this First Amendment, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. (e) The parties hereto agree that in the event of any conflict between any provisions in this First Amendment or the Intercreditor Agreement as amended by this First Amendment and any provision in any Financing Agreement, this First Amendment and the Intercreditor Agreement as amended by this First Amendment shall govern for so long as the Intercreditor Agreement is in full force and effect. Page 6 to Intercreditor IN WITNESS WHEREOF, the undersigned have caused this First Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. BANK OF AMERICA, N.A., as Collateral Agent By: /s/ DAVID A JOHANSON ---------------------------------------------- Title: Vice President 231 South LaSalle Street, 8th floor Chicago, Illinois 60697 Attention: David Johanson Telephone: 312-828-7933 Facsimile: 312-974-9102 BANK OF AMERICA, N.A., as Agent By: /s/ RONALD PRINCE ---------------------------------------------- Title: Senior Vice President 231 South LaSalle Street, 8th floor Chicago, Illinois 60697 Attention: Ronald Prince Telephone: 312-828-1500 Facsimile: 312-987-0234 BANK OF AMERICA, N.A., as a Lender By: /s/ RONALD PRINCE ---------------------------------------------- Title: Senior Vice President 231 South LaSalle Street, 8th floor Chicago, Illinois 60697 Attention: Ronald Prince Telephone: 312-828-1500 Facsimile: 312-987-0234 [Signature Page to First Amendment to the Intercreditor Agreement] BANK OF MONTREAL, as Co-Agent and as a Lender By: /s/ JACK J. KANE ---------------------------------------------- Title: Director BANK ONE, NA (Main Office Chicago), as Co-Agent and as a Lender By: /s/ RICHARD BABCOCK ---------------------------------------------- Title: First Vice President PNC BANK, NATIONAL ASSOCIATION, as Co-Agent and as a Lender By: /s/ GARY BEST ---------------------------------------------- Title: Vice President WACHOVIA BANK, N.A., as Co-Agent and as a Lender By: /s/ JAMES BARWIS ---------------------------------------------- Title: Director THE NORTHERN TRUST COMPANY, as a Lender By: /s/ OLGA GEORGIEV ---------------------------------------------- Title: Vice President [Signature Page to First Amendment to the Intercreditor Agreement] ABN AMRO BANK N.V., as a Lender By: /s/ WILLIAM J. FITZGERALD ---------------------------------------------- Title: Senior Vice President By: /s/ WILLIAM J. TERESKY, JR. ---------------------------------------------- Title: Group Vice President NATIONAL CONSUMER COOPERATIVE BANK, as a Lender By: /s/ MARK W. HILTZ ---------------------------------------------- Title: Managing Director UMB BANK, N.A., as a Lender By: /s/ TERRY DIERKS ---------------------------------------------- Title: Senior Vice President BANK OF AMERICA, N.A., as Cash Management Bank By: /s/ RONALD PRINCE ---------------------------------------------- Title: Senior Vice President 231 South LaSalle Street, 8th floor Chicago, Illinois 60697 Attention: Ronald Prince Telephone: 312-828-1500 Facsimile: 312-987-0234 [Signature Page to First Amendment to the Intercreditor Agreement] BANK OF MONTREAL, as a Synthetic Lease Lender By: /s/ JACK J. KANE ---------------------------------------------- Title: Vice President 115 South LaSalle Street Chicago, Illinois 60603 Attention: Jack Kane Telephone: (312) 750-5900 Facsimile: (312) 750-6057 TRUSERV 1998 TRUST, as a Synthetic Lease Lender By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee By: /s/ CHARLOTTE PAGLIA ---------------------------------------------- Title: Senior Financial Services Officer c/o Wilmington Trust Company 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Telephone: (302) 651-1000 Facsimile: (302) 651-8882 WILMINGTON TRUST COMPANY, as a Synthetic Lease Lender By: /s/ CHARLOTTE PAGLIA ---------------------------------------------- Title: Senior Financial Services Officer 1100 North Market Street Wilmington, Delaware 19890-0001 Attention: Corporate Trust Administration Telephone: (302) 651-1000 Facsimile: (302) 651-8882 [Signature Page to First Amendment to the Intercreditor Agreement] BMO GLOBAL CAPITAL SOLUTIONS, as a Synthetic Lease Lender By: /s/ MICHAEL P. JOYCE ---------------------------------------------- Title: President 115 South LaSalle Street Chicago, Illinois 60603 Attention: Jack Kane Telephone: (312) 750-5900 Facsimile: (312) 750-6057 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as a Shelf Noteholder By: /s/ THOMAS E. LUTHER ---------------------------------------------- Title: Vice President c/ Prudential Capital Group Corporate and Project Workouts 7th Floor, Gateway Center 4 100 Mulberry Street Newark, New Jersey 07102 Attention: Managing Director Facsimile: (973) 802-2333 PRUCO LIFE INSURANCE COMPANY, as a Shelf Noteholder By: /s/ THOMAS E. LUTHER ---------------------------------------------- Title: Vice President c/o Prudential Capital Group Corporate and Project Workouts 7th Floor, Gateway Center 4 100 Mulberry Street Newark, New Jersey 07102 Attention: Managing Director Facsimile: (973) 802-2333 [Signature Page to First Amendment to the Intercreditor Agreement] U.S. PRIVATE PLACEMENT FUND, as a Shelf Noteholder By: Prudential Private Placement Investors, L.P., Investment Advisor By: Prudential Private Placement Investors, Inc., its General Partner By: /s/ THOMAS E. LUTHER ---------------------------------------------- Title: Vice President c/o Prudential Capital Group Corporate and Project Workouts 7th Floor, Gateway Center 4 100 Mulberry Street Newark, New Jersey 07102 Attention: Managing Director Facsimile: (973) 802-2333 ALLSTATE LIFE INSURANCE COMPANY, as a Senior Noteholder By: /s/ ROBERT BODETT ---------------------------------------------- Title: Vice President By: /s/ JERRY D. ZINKULA ---------------------------------------------- Title: Vice President 3075 Sanders Road, Suite G5D Northbrook, IL 60062-7127 Attention: Allen Dick Telephone: 847-402-4342 Facsimile: 847-402-3092 [Signature Page to First Amendment to the Intercreditor Agreement] ALLSTATE INSURANCE COMPANY, as a Senior Noteholder By: /s/ ROBERT BODETT ---------------------------------------------- Title: Senior Portfolio Manager By: /s/ RONALD MENDEL ---------------------------------------------- Title: Managing Director 3075 Sanders Road, Suite G5D Northbrook, IL 60062-7127 Attention: Allen Dick Telephone: 847-402-4342 Facsimile: 847-402-3092 THRIVENT FINANCIAL FOR LUTHERANS F/K/A AID ASSOCIATION FOR LUTHERANS, as a Senior Noteholder By: /s/ GLEN VANIC ---------------------------------------------- Title: Portfolio Manager 625 Fourth Avenue South Minneapolis, MN 55415-1624 Attention: Glen Vanic Telephone: 612-340-4443 Facsimile: 612-340-5776 [Signature Page to First Amendment to the Intercreditor Agreement] KEYPORT LIFE INSURANCE COMPANY, as a Senior Noteholder By: Columbia Management Group, as Agent By: /s/ RICHARD A. HEGWOOD ---------------------------------------- Title: Senior Vice President c/o Columbia Management Group 1 South Wacker Drive Chicago, IL 60606 Attention: Richard A. Hegwood Telephone: 312-368-7700 Facsimile: 312-368-8100 NATIONWIDE LIFE INSURANCE COMPANY, as a Senior Noteholder By: /s/ WARD ARGUST ---------------------------------------------- Title: Vice President One Nationwide Plaza Columbus, OH 43215 Attention: Ward August Telephone: 614-249-9212 Facsimile: 614-249-4157 FEDERATED MUTUAL INSURANCE COMPANY, as a Senior Noteholder By: /s/ MARK HOOD ---------------------------------------------- Title: Vice President 121 East Park Square Owatonna, Minnesota 55060 Attention: Mark Hood Telephone: 507-455-8460 Facsimile: 507-444-6691 [Signature Page to First Amendment to the Intercreditor Agreement] FEDERATED LIFE INSURANCE COMPANY, as a Senior Noteholder By: /s/ MARK HOOD ---------------------------------------------- Title: Vice President 121 East Park Square Owatonna, Minnesota 55060 Attention: Mark Hood Telephone: 507-455-8460 Facsimile: 507-444-6691 MODERN WOODMEN OF AMERICA, as a Senior Noteholder By: /s/ NICK S. COIN ---------------------------------------------- Title: Treasurer and Investment Manager 1701 First Avenue Rock Island, IL 61201 Attention: Doug Pannier Telephone: 309-793-5567 Facsimile: 309-793-5574 AMERITAS LIFE INSURANCE CORP., as a Senior Noteholder By: Ameritas Investment Advisors, Inc., as Agent By: /s/ ANDREW S. WHITE ---------------------------------------------- Title: Vice President 5900 "O" Street Lincoln, NE 68510-2234 Attention: Andrew S. White Telephone: 402-467-6957 Facsimile: 402-467-6970 [Signature Page to First Amendment to the Intercreditor Agreement] NATIONAL GUARDIAN LIFE INSURANCE COMPANY, as a Senior Noteholder By: /s/ R. A. MUCCI ---------------------------------------------- Title: Vice President and Treasurer 2 East Gilman Street Madison, WI 53703 Attention: R.A. Mucci Telephone: 608-257-5612 x5258 Facsimile: 608-257-4282 FOOTHILL PARTNERS IV, L.P., as a Senior Noteholder By: /s/ R. MICHAEL BOHANNON ---------------------------------------------- Title: Managing Member 2450 Colorado Avenue Suite 3000W Santa Monica, CA 90404 Attention: Michael Bohannon Telephone: 310-453-7380 Facsimile: 310-453-7470 EVEREST CAPITAL SENIOR DEBT FUND, as a Senior Noteholder By: /s/ MALCOLM STOTT ---------------------------------------------- Title: Chief Financial Officer By: /s/ SIMON ONABOWALE ---------------------------------------------- Title: Principal The Bank of Butterfield Bldg., 6th flr 65 Front St, PO Box HM 2458 Hamilton, HM JX Bermuda Attention: Damian Resnik Telephone: 441-292-2200 Facsimile: 441-292-0866 [Signature Page to First Amendment to the Intercreditor Agreement] ABRAMS CAPITAL, LLC, as a Senior Noteholder By: /s/ DAVID ABRAMS ---------------------------------------------- Title: Managing Member 222 Berkeley Street Boston, MA 02116 Attention: David Abrams Telephone: 617-646-6100 Facsimile: 617-646-6150 CANYON VALUE REALIZATION FUND, L.P., as a Senior Noteholder By: Canpartners Investment III, L.P., as General Partner By: Canyon Capital Advisors, LLC, as General Partner By: /s/ R. C. B. EVENSEN ---------------------------------------------- Title: Managing Partner 9665 Wilshire Boulevard Suite 200 Beverly Hills, CA 90212 Attention: Dominique Mielle Telephone: 310-858-4227 Facsimile: 310-247-2701 CANYON VALUE REALIZATION FUND (CAYMAN), LTD., as a Senior Noteholder By: /s/ R. C. B. EVENSEN ---------------------------------------------- Title: Managing Director 9665 Wilshire Boulevard Suite 200 Beverly Hills, CA 90212 Attention: Dominique Mielle Telephone: 310-858-4227 Facsimile: 310-247-2701 [Signature Page to First Amendment to the Intercreditor Agreement] CANYON VALUE REALIZATION MAC-18, LTD. as a Senior Noteholder By: Canyon Capital Advisors, LLC, as Investment Advisor By: /s/ R. C. B. EVENSEN ---------------------------------------------- Title: Authorized Signatory 9665 Wilshire Boulevard Suite 200 Beverly Hills, CA 90212 Attention: Dominique Mielle Telephone: 310-858-4227 Facsimile: 310-247-2701 RICHARD COPPERSMITH, as a Senior Noteholder By: /s/ RICHARD COPPERSMITH ---------------------------------------------- 25 Great Hill Farms Road Bedford, New York, 10506 Telephone: 914-764-1854 Facsimile: 914-764-1605 RAVICH REVOCABLE TRUST OF 1989, as a Senior Noteholder By: /s/ JESS RAVICH ---------------------------------------------- Title: Trustee 11766 Wilshire Blvd, Suite 870 Los Angeles, CA 90025 Attention: Jess M. Ravich Telephone: 310-312-5600 Facsimile: 310-230-8201 [Signature Page to First Amendment to the Intercreditor Agreement] JEFFREY D. BENJAMIN, as a Senior Noteholder By:/s/ JEFFREY D. BENJAMIN ---------------------------------------------- Jeffrey D. Benjamin c/o Apollo Management 1301 Avenue of the Americas New York, NY 10019 Telephone: 212-515-3366 Facsimile: 212-515-3284 [Signature Page to First Amendment to the Intercreditor Agreement] TRUSERV CORPORATION By: /s/ DAVID SHADDUCK ---------------------------------------- Name: David Shadduck Title: Senior Vice President & Chief Financial Officer GENERAL PAINT & MANUFACTURING COMPANY By: /s/ ROBERT OSTROV ---------------------------------------------- Name: Robert Ostrov Title: Vice President TRUSERV ACCEPTANCE COMPANY By: /s/ DAVID SHADDUCK ---------------------------------------------- Name: David Shadduck Title: Vice President TRUSERV LOGISTICS COMPANY By: /s/ MICHAEL D. ROSEN ---------------------------------------------- Name: Michael D. Rosen Title: President MARYGREEN, LLC By: /s/ MICHAEL D. ROSEN ---------------------------------------------- Name: Michael D. Rosen Title: President TRUE VALUE.COM CORPORATION By: /s/ ROBERT OSTROV ---------------------------------------------- Name: Robert Ostrov Title: Vice President ADVOCATE SERVICES, INC. By: /s/ BARBARA L. WAGNER ---------------------------------------------- Name: Barbara L. Wagner Title: Vice President SERVISTAR PAINT COMPANY By: /s/ BARBARA L. WAGNER ---------------------------------------------- Name: Barbara L. Wagner Title: Vice President [Signature Page to First Amendment to the Intercreditor Agreement] SCHEDULE I SENIOR NOTE AGREEMENTS The several Amended and Restated Note Purchase Agreements dated April 14, 2000 between the Company and each of the parties named below: Abrams Capital, LLC Allstate Insurance Company Allstate Life Insurance Company Ameritas Life Insurance Corp. Canyon Value Realization Fund (Cayman), Ltd. Canyon Value Realization Fund, L.P. Canyon Value Realization MAC-18, Ltd. Everest Capital Senior Debt Fund, LP Federated Life Insurance Company Federated Mutual Insurance Company Foothill Partners IV, L.P. Jeffrey D. Benjamin Keyport Life Insurance Company Modern Woodmen of America National Guardian Life Insurance Co. Nationwide Life Insurance Company Ravich Revocable Trust of 1989 Richard M. Coppersmith Thrivent Financial for Lutherans f/k/a Aid Association for Lutherans SCHEDULE II SCHEDULED RDC SALES
PROPERTY TYPE ADDRESS -------- ---- ------- Allentown Distribution Center 7058 Snowdrift Rd Fogelsville, PA 18087 Atlanta Distribution Center 7600 Jonesboro Rd Jonesboro, GA 30236 Corsicana Distribution Center 2601 East State Highway 31 Corsicana, TX 75153 Kansas City Distribution Center 14900 US Highway 71 Kansas City, MO 64147 Kingman Distribution Center 4005 Mohave Airport Dr Kingman, AZ 86401 Springfield Distribution Center 2150 Olympic Ave Springfield, OR 97477 Woodland Distribution Center 215 N. Pioneer Ave Woodland, CA 95776
EXHIBIT A [FORM OF PRUDENTIAL RDC MAKE-WHOLE ORIGINAL NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SALE OR TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN PARAGRAPH 9G OF THE [AMENDED AND RESTATED PRIVATE SHELF AGREEMENT DATED AS OF NOVEMBER 13, 1997] [NOTE AGREEMENT DATED AS OF APRIL 13, 1992] BETWEEN TRUSERV CORPORATION AND THE PRUDENTIAL INSURANCE COMPANY OF AMERICA. TRUSERV CORPORATION PRUDENTIAL RDC MAKE-WHOLE ORIGINAL NOTE NOTE NO. ________ MAKE-WHOLE ORIGINAL PRINCIPAL AMOUNT: $_________ ISSUE DATE: December ____, 2002 INTEREST RATE: The Interest Rate for any day, shall be a per annum rate equal to (x) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, N.A. as its "prime rate" plus (y) 5%. [INTEREST PAYMENT DATES: last Business Day of each calendar quarter] FINAL MATURITY DATE: [01/10/03] [6/30/03] FOR VALUE RECEIVED, the undersigned, TruServ Corporation (herein called the "Company" and formerly known as Cotter & Company), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to _____________________ ____________________________________, or registered assigns, the principal sum of _______________________ DOLLARS in cash on the Final Maturity Date specified above with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable in cash [on each Interest Payment Date specified above and] on the Final Maturity Date specified above, [commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable], and (b) on any overdue payment (including any overdue prepayment) of principal, and any overdue payment of interest, [payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand)], at a rate per annum from time to time equal to 2% over the Interest Rate specified above. Payments of principal and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America. This Note is issued in connection with a series of Senior Notes (herein called the "Senior Notes") issued pursuant to [an Amended and Restated Private Shelf Agreement, dated as of November 13, 1997] [Note Agreement dated as of April 13, 1992] (as amended, the "Shelf Agreement"), between the Company, on the one hand, and The Prudential Insurance Company of America and each Prudential Affiliate (as defined in the Shelf Agreement) which becomes party thereto, on the other hand, and is entitled to the benefits thereof. The principal of this Note has been calculated in accordance with the formula for the Make-Whole Original Amount under the Intercreditor Agreement and represents the Yield Maintenance Amount due in respect of the [TruServ Series] [Cotter & Company] Note due [07/01/12] [11/13/07] [11/13/02] [04/01/07] issued on _________ payable to ____________ in the original principal amount of $_________, arising from the required prepayment of proceeds from the Scheduled RDC Asset Sales. This Note is a Prudential RDC Make-Whole Original Note as described in the Intercreditor Agreement and is entitled to all the benefits of such set forth therein, including all benefits in respect of Make-Whole Notes and Make-Whole Obligations. This Note is a registered Note and, as provided in the Shelf Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. This Note is entitled to all the benefits of a Benefited Party (as defined in the Intercreditor Agreement) under the Guaranty and the Collateral Documents. In case an Event of Default shall occur and be continuing, the principal of this Note and all accrued interest thereon may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. Notwithstanding anything contained elsewhere herein or in the Shelf Agreement, this Note is due and payable in full in cash upon the earlier of (x) the occurrence of a "Final True Up Event" as defined in the Intercreditor Agreement and (y) the Final Maturity Date stated above. Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Shelf Agreement. This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the internal laws and decisions (as opposed to the conflicts of law provisions) of such State. TRUSERV CORPORATION By: _________________________________ Title: ______________________________ Exhibit A EXHIBIT B [FORM OF SENIOR RDC MAKE-WHOLE ORIGINAL NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SALE OR TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN PARAGRAPH 9A OF THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENT DATED AS OF APRIL 14, 2000 BETWEEN TRUSERV CORPORATION AND THE PURCHASERS SET FORTH ON SCHEDULE 1 THERETO, AS AMENDED FROM TIME TO TIME. TRUSERV CORPORATION SENIOR RDC MAKE-WHOLE ORIGINAL NOTE PPN: _______ NOTE NO. ________ MAKE-WHOLE ORIGINAL PRINCIPAL AMOUNT: $_________ ISSUE DATE: December ____, 2002 INTEREST RATE: The Interest Rate for any day, shall be a per annum rate equal to (x) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, N.A. as its "prime rate" plus (y) 5%. [INTEREST PAYMENT DATES: last Business Day of each calendar quarter] FINAL MATURITY DATE: [01/10/03] [6/30/03] FOR VALUE RECEIVED, the undersigned, TruServ Corporation (herein called the "Company" and formerly known as Cotter & Company), a corporation organized and existing under the laws of the State of Delaware, hereby promises to pay to ____________________________________, or registered assigns, the principal sum of _______________________ DOLLARS in cash on the Final Maturity Date specified above with interest (computed on the basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable in cash [on each Interest Payment Date specified above] and on the Final Maturity Date specified above, [commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable,] and (b) on any overdue payment (including any overdue prepayment) of principal, and any overdue payment of interest, [payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand)], at a rate per annum from time to time equal to 2% over the Interest Rate specified above. Payments of principal and interest are to be made at the main office of UMB, N.A. in Kansas City, Missouri or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America. This Note is issued in connection with a series of Senior Secured Notes due 2008 issued pursuant to the Amended and Restated Note Purchase Agreements, dated as of April 14, 2000 (as amended and collectively, the "Note Agreement"), between the Company, on the one hand, and the Purchasers set forth on Schedule 1 thereto, as amended from time to time, on the other hand, and is entitled to the benefits thereof and shall be treated as a "Note" thereunder. The principal of this Note has been calculated in accordance with the formula for the Make-Whole Original Amount under the Intercreditor Agreement due in respect of the Senior Secured Note due 2008, arising from the required prepayment of proceeds from the Scheduled RDC Asset Sales. This Note is a Senior RDC Make-Whole Original Note as described in the Intercreditor Agreement and is entitled to all the benefits of such set forth therein, including all benefits in respect of Make-Whole Notes and Make-Whole Obligations. This Note is a registered Note and, as provided in the Note Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. This Note is entitled to all the benefits of a Benefited Party (as defined in the Intercreditor Agreement) under the Guaranty and the Collateral Documents. In case an Event of Default shall occur and be continuing, the principal of this Note and all accrued interest thereon may be declared or otherwise become due and payable in the manner and with the effect provided in the Note Agreement. Notwithstanding anything contained elsewhere herein or in the Note Agreement, this Note is due and payable in full in cash upon the earlier of (x) the occurrence of a "Final True Up Event" as defined in the Intercreditor Agreement and (y) the Final Maturity Date stated above. Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Note Agreement. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York, excluding choice-of-law principles of the law in such State that would require the application of the laws of a jurisdiction other than such State. TRUSERV CORPORATION By: _________________________________ Title: ______________________________ EX-4.X 10 c75265exv4wx.txt 1ST AMENDMENT TO 2ND AMENDED & RESTATED CR. AGMT. EXHIBIT 4-X FIRST AMENDMENT THIS FIRST AMENDMENT dated as of December 30, 2002 (this "Amendment") amends the Second Amended and Restated Credit Agreement dated as of April 11, 2002 (the "Credit Agreement") among TruServ Corporation (the "Company"), various financial institutions from time to time party thereto (the "Lenders") and Bank of America, N.A., as agent for the Lenders (in such capacity, the "Agent"). Capitalized terms used but not otherwise defined herein have the respective meanings given to them in the Credit Agreement. WHEREAS, the Company, the Lenders and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendments. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), the Credit Agreement shall be amended as set forth below: 1.1 Addition of Definitions. The following new definitions are added to Section 1.1 in appropriate sequence: Designated Sale-Leaseback Transaction means the sale by the Company of the regional distribution centers listed on Schedule 1.1(c) and the concurrent lease, as lessee, of such properties by the Company and/or one or more Subsidiaries pursuant to documentation substantially in the form previously delivered to the Agent. First Amendment means the First Amendment to this Agreement dated as of December 30, 2002. Special Company Account has the meaning specified in the Security Agreement. 1.2 Amendments to Definitions. (a) Clause (a) of the definition of "Adjusted Cash Flow" is amended by (i) redesignating clause "(vi)" as clause "(vii)" and (ii) inserting a comma followed by the following new clause (vi) in appropriate sequence: "(vi) for the period ended December 31, 2002, $7,500,000,". (b) The definition of "Asset Sale" is amended by (i) redesignating clause "(v)" as clause "(vi)" and (ii) inserting a comma followed by the following new clause (v) in appropriate sequence: "(v) any sublease of, or assignment by the Company of its interest as lessee in, properties sold pursuant to the Designated Sale-Leaseback Transaction, provided that any such sublease or assignment, as the case may be, shall be on an arm's length basis, shall have reasonable and normal commercial terms, and shall provide for no less frequent than quarterly payment of rent." (c) The definition of "Business Plan" is amended in its entirety to read as follows: Business Plan means the business plan of the Company which was delivered by the Company to the Agent on December 18, 2002; provided that, with respect to financial reports relating to the periods prior to 2003, "Business Plan" means the Business Plan of the Company dated March 20, 2002 which was delivered by the Company to the Agent. (d) The definition of "Intercreditor Agreement" is amended in its entirety to read as follows: Intercreditor Agreement means the First Amended and Restated Intercreditor Agreement dated as of April 11, 2002, among the Agent, the Collateral Agent and various other parties, substantially in the form of Exhibit N, as amended by the First Amendment thereto dated December 30, 2002. (e) The definition of "Security Agreement" is amended in its entirety to read as follows: Security Agreement means the Security Agreement among the Company, various Subsidiaries and the Collateral Agent dated April 14, 2000, as amended by the First Amendment thereto dated as of April 11, 2002 and the Second Amendment thereto dated as of December 30, 2002. (f) The definition of "Unusable Amount" is amended in its entirety to read as follows: Unusable Amount means the following amounts during the following periods:
Minimum Unusable Period Commitment ------ ---------------- 12/31/02 $70,000,000 1/1/03-6/29/03 $ 0 6/30/03 $25,000,000 7/1/03-7/31/03 $15,000,000 8/1/03-8/31/03 $15,000,000 9/1/03-9/29/03 $ 5,000,000 9/30/03-11/29/03 $ 0 11/30/03-12/30/03 $10,000,000 12/31/03 $45,000,000 1/1/04-6/30/04 $ 0
2 1.3 Amendment to Section 2.4.2. Section 2.4.2 is amended in its entirety to read as follows: 2.4.2 Mandatory Reductions of Commitments. (a) The Commitments shall be reduced by an aggregate amount of $5,000,000 on each of June 30, 2003, September 30, 2003 and December 31, 2003. (b) In addition to the reductions described in clause (a) above, upon any required prepayment under Section 2.5.2(b), (c) or (d), the aggregate Commitments shall be reduced by the amount of the required prepayment, even if such reduction is in excess of the outstanding amount of the Loans prior to such required prepayment. Upon the effectiveness of the First Amendment to this Agreement dated as of December 30, 2002 and the repayment related to the Designated Sale-Leaseback Transaction, the Commitments shall be reduced permanently by the amount of such repayment. 1.4 Amendment to Section 5.5. The second parenthetical phrase set forth in Section 5.5 is amended in its entirety to read as follows: "(other than properties and assets disposed of (x) in the ordinary course of business, (y) in connection with the sale of the Brookings regional distribution center or (z) pursuant to the Designated Sale-Leaseback Transaction)". Schedule 5.5 is hereby amended to state as set forth as Schedule 5.5 hereto. 1.5 Addition of Section 6.17. The following new Section 6.17 is added to the Credit Agreement in appropriate sequence to read as follows: 6.17 Amendments to Financial Covenants. If the sale-leaseback of the regional distribution center located at 333 Harvey Road, Manchester, New Hampshire (the "Manchester RDC") does not occur by February 15, 2003, the Company shall cause the financial covenant levels set forth in Article VII to be amended to reflect the exclusion of the Manchester RDC sale-leaseback from the Business Plan in a manner satisfactory to the Required Lenders in their sole discretion, and such financial covenant levels will be established in a manner reasonably satisfactory to the Required Lenders on the basis of the same methodologies used in preparing the covenant levels incorporated in the First Amendment. 1.6 Amendment to Section 7.1. The table set forth in Section 7.1 is amended in its entirety to read as follows: 3
Fiscal quarter ending on or about Minimum Fixed Charge --------------------------------- Coverage Ratio -------------------- December 31, 2002 0.70 to 1 March 31, 2003 0.70 to 1 June 30, 2003 0.65 to 1 September 30, 2003 0.65 to 1 December 31, 2003 0.90 to 1 March 31, 2004 0.90 to 1 June 30, 2004 0.90 to 1
1.7 Amendment to Section 7.2(h). Section 7.2(h)(ii) is amended in its entirety to read as follows: "(ii) a lease entered into as part of a sale and leaseback transaction (other than the Designated Sale-Leaseback Transaction provided that such interest or title attaches only to the property being leased in connection therewith)". 1.8 Amendment to Sections 7.2. Section 7.2 is amended by (a) deleting the word "and" at the end of clause (l), (b) redesignating clause "(m)" as clause "(n)" and (c) inserting the following new clause (m) in appropriate sequence: "(m) Liens in favor of BofA on the Special Company Account with respect to services provided by BofA, and". 1.9 Amendment to Section 7.11. Section 7.11(h) is amended in its entirety to read as follows: (h) (i) maintain the Special Company Account; provided that as of the close of business on any day on which the Total Outstandings are greater than zero or during the existence of an Event of Default after the commencement of an Enforcement (as defined in the Intercreditor Agreement), the amount maintained in the Special Company Account shall not be greater than zero; and (ii) maintain other deposit accounts with financial institutions in the ordinary course of business; provided that the amount maintained in deposit accounts with financial institutions other than the Lenders shall not exceed (x) in the case of any one such account, $200,000 for more than three consecutive Business Days; and (y) in the case of all such accounts in the aggregate, $600,000 for more than two consecutive Business Days. 1.10 Amendment to Section 7.14. The table set forth in Section 7.14 is amended in its entirety to read as follows: 4
Fiscal quarter ending on or about Minimum Interest --------------------------------- Coverage Ratio ---------------- December 31, 2002 1.75 to 1 March 31, 2003 1.75 to 1 June 30, 2003 2.00 to 1 September 30, 2003 2.00 to 1 December 31, 2003 3.00 to 1 March 31, 2004 3.00 to 1 June 30, 2004 3.00 to 1
1.11 Amendment to Section 7.15. The table set forth in Section 7.15 is amended in its entirety to read as follows:
Fiscal period ending on or about Minimum Amount -------------------------------- -------------- December 31, 2002 $1,975,000,000 January 31, 2003 $1,820,000,000 February 28, 2003 $1,780,000,000 March 31, 2003 $1,740,000,000 April 30, 2003 $1,725,000,000 May 31, 2003 $1,740,000,000 June 30, 2003 $1,720,000,000 July 31, 2003 $1,715,000,000 August 31, 2003 $1,710,000,000 September 30, 2003 $1,700,000,000 October 31, 2003 $1,715,000,000 November 30, 2003 $1,695,000,000 December 31, 2003 $1,700,000,000 January 31, 2004 $1,700,000,000 February 29, 2004 $1,695,000,000 March 31, 2004 $1,690,000,000 April 30, 2004 $1,690,000,000 May 31, 2004 $1,680,000,000 June 30, 2004 $1,670,000,000
1.12 Amendment to Section 7.16. Section 7.16 is amended by inserting the following phrase immediately before the sentence set forth below the table therein: "; provided that the aggregate amount of Capital Expenditures made during any fiscal year ending after December 31, 2002 may be increased by an amount equal to the lesser of (a) $2,000,000 and (b) the excess of the maximum amount of Capital Expenditures permitted to be made in the prior fiscal year over the actual amount of Capital Expenditures made during such prior fiscal year. Such increased permitted Capital Expenditures may be made in any fiscal quarter or fiscal quarters of such fiscal year." 5 1.13 Amendment to Section 7.17. The table set forth in Section 7.17 is amended in its entirety to read as follows:
Fiscal period ending on or about Minimum Adjusted -------------------------------- EBITDA ---------------- December 31, 2002 $100,000,000 January 31, 2003 $ 95,000,000 February 28, 2003 $ 95,000,000 March 31, 2003 $ 90,000,000 April 30, 2003 $ 90,000,000 May 31, 2003 $ 85,000,000 June 30, 2003 $ 80,000,000 July 31, 2003 $ 75,000,000 August 31, 2003 $ 70,000,000 September 30, 2003 $ 70,000,000 October 31, 2003 $ 70,000,000 November 30, 2003 $ 70,000,000 December 31, 2003 $ 70,000,000 January 31, 2004 $ 70,000,000 February 29, 2004 $ 70,000,000 March 31, 2004 $ 70,000,000 April 30, 2004 $ 70,000,000 May 31, 2004 $ 70,000,000 June 30, 2004 $ 70,000,000.
1.14 Addition of new Schedule 1.1(c). A new Schedule 1.1(c) is added to the Credit Agreement in the form of Schedule 1.1(c) hereto. SECTION 2 Representations and Warranties. The Company represents and warrants to the Agent and the Lenders that, after giving effect hereto, (a) each representation and warranty set forth in Article V of the Credit Agreement is true and correct as of the date of the execution and delivery of this Amendment by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date) subject, in the case of the representations and warranties contained in Sections 5.2 and 5.12 of the Credit Agreement, to the matters disclosed in the waiver letter dated October 3, 2002 executed by the Lenders, and (b) no Event of Default or Unmatured Event of Default exists. SECTION 3 Effectiveness. The amendments set forth in Section 1 above shall become effective on the date (the "Amendment Effective Date") when the Agent shall have received the following: (a) to the extent then billed, all costs and expenses of the Agent in connection with this Amendment (including reasonable attorneys' fees and charges and all costs, expenses and charges for a field examination); 6 (b) counterparts of this Amendment executed by the Company and the Required Lenders; (c) a Confirmation, substantially in the form of Exhibit A, signed by the Company and each Guarantor; (d) an executed amendment to the Security Agreement substantially in the form of Exhibit B; (e) an executed amendment to the Intercreditor Agreement substantially in the form of Exhibit C; (f) evidence that the Designated Sale-Leaseback Transaction has occurred and that the proceeds thereof have been applied in accordance with the terms of the Intercreditor Agreement; and (g) evidence that the Company shall have entered into amendments to the Senior Note Agreements and the Shelf Note Agreement (each as defined in the Intercreditor Agreement) in form and substance reasonably satisfactory to the Agent, including an agreement by the applicable Noteholders (as defined in the Intercreditor Agreement) (i) to waive payment by the Company of the Make-Whole Delta Amount (as defined in the Intercreditor Agreement) in respect to any payment made with the proceeds of the Designated Sale-Leaseback Transaction and (ii) that the remaining Make-Whole Amount (as defined in the Intercreditor Agreement) shall be payable in two equal installments on January 10, 2003 and June 30, 2003. SECTION 4 Miscellaneous. 4.1 Continuing Effectiveness, etc. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "this Agreement", "the Credit Agreement" or similar terms shall refer to the Credit Agreement as amended hereby. 4.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such state. 4.4 Successors and Assigns. This Amendment shall be binding upon the Company, the Lenders and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Lenders and the Agent and the respective successors and assigns of the Lenders and the Agent. 7 4.5 Consents. Notwithstanding any provision in the Credit Agreement to the contrary, the Required Lenders consent to (a) the amendments to the Financing Agreements set forth as Exhibits D, E and F hereto (b) the consummation of the Designated Sale-Leaseback Transaction and (c) the release of collateral by the Collateral Agent to the extent subject to the Designated Sale-Leaseback Transaction. 4.6 Further Assurances. Upon the request of the Required Lenders, the Company agrees to provide and cause its Subsidiaries to provide to the Lenders such additional amendments, consents, reaffirmations and ancillary documentation as is necessary or advisable, in the sole reasonable discretion of the Required Lenders, to ensure that the Collateral Documents are in full force and effect in all respects. 8 Delivered at Chicago, Illinois, as of the day and year first above written. TRUSERV CORPORATION By: /s/ DAVE SHADDUCK ----------------------------------------- Title: Senior Vice President & Chief Financial Officer -------------------------------------- BANK OF AMERICA, N.A., as Agent By: /s/ RONALD PRINCE ---------------------------------------- Title: Senior Vice President ------------------------------------- BANK OF AMERICA, N.A., as a Lender By: /s/ RONALD PRINCE ---------------------------------------- Title: Senior Vice President ------------------------------------- 9 BANK OF MONTREAL By: /s/ JACK J. KANE ---------------------------------------- Title: Vice President ------------------------------------- 10 BANK ONE, NA (Main Office Chicago) By: /s/ RICHARD BABCOCK ---------------------------------------- Title: First Vice President ------------------------------------- 11 PNC BANK, NATIONAL ASSOCIATION By: /s/ GARY A. BEST ---------------------------------------- Title: Vice President ------------------------------------- 12 WACHOVIA BANK, N.A. By: /s/ JAMES BARWIS ---------------------------------------- Title: Director ------------------------------------- 13 THE NORTHERN TRUST COMPANY By: /s/ OLGA GEORGIEV ---------------------------------------- Title: Vice President ------------------------------------- 14 ABN AMRO BANK N.V. By: /s/ STEVEN C. WIMPENNY ---------------------------------------- Title: Group Senior Vice President ------------------------------------- By: /s/ WILLIAM J. TERESKY, JR. ---------------------------------------- Title: Group Vice President ------------------------------------- 15 NATIONAL CONSUMER COOPERATIVE BANK By: /s/ MARK W. HILTZ ---------------------------------------- Title: Managing Director ------------------------------------- 16 UMB BANK, N.A. By: /s/ TERRY DIERKS ---------------------------------------- Title: Senior Vice President ------------------------------------- 17 SCHEDULE 1.1(c) REGIONAL DISTRIBUTION CENTERS
PROPERTY ADDRESS - -------- ------- Allentown 7058 Snowdrift Road Fogelsville, PA 18087 Atlanta 7600 Jonesboro Road Jonesboro, GA 30236 Corsicana 2601 East Highway 31 Corsicana, TX 75153 Kansas City 14900 US Highway 71 Kansas City, MO 64147 Kingman 4005 Mohave Airport Dr. Kingman, AZ 86401 Springfield 2150 Olympic Avenue Springfield, OR 97477 Woodland 215 N. Pioneer Aven. Woodland, CA 95776
18 SCHEDULE 5.5 REAL ESTATE
PROPERTY TYPE ADDRESS OWNERSHIP - -------- ---- ------- --------- Allentown Distribution Center 7058 Snowdrift Road Lease Fogelsville, PA 18087 Allentown Garage Hickory Lane Lease Wescoesville, PA Allentown Storage Facility 6829B & 6829C Ruppsville Road Lease Allentown, PA 18106 Allentown Storage Facility 7072 Snowdrift Road Lease Upper Mac Township, PA Atlanta Distribution Center 7600 Jonesboro Road Lease Jonesboro, GA 30236 Blackhawk Manufacturing Facility 823 W. Blackhawk St. Own Chicago, IL 60622 Butler Administration One TruServ Way Own East Butler, PA 16029 Cary Manufacturing Facility 203 Jandus Rd. Own Cary, IL 60013 Cleveland (Westlake) Distribution Center 26025 First St. Own Westlake, OH 44145 Cleveland (Westlake) Storage Facility 1400 Lowell St. Lease Northern Ohio Industrial Park Elyria, OH 44035 Corsicana Distribution Center 2601 East Highway 31 Lease Corsicana, TX 75153 Denver Distribution Center 11275 E. 40th Avenue Lease Denver, CO 80239 Fort Smith Unoccupied 8503 Highway 45 Lease Fort Smith, AR 72916 Greenville Garage Greenville, SC Lease Hagerstown Distribution Center 16500 Hunters Green Parkway Lease Hagerstown, MD 21740 Harvard Distribution Center 306, 308 & 320 S. Division St. Lease Harvard, IL 60033 Kansas City Distribution Center 14900 US Highway 71 Lease Kansas City, MO 64147 Kansas City Storage Facility 624 NE Jones Industrial Drive Lease Lee Summit, MO
19
PROPERTY TYPE ADDRESS OWNERSHIP - -------- ---- ------- --------- Kingman Distribution Center 4005 Mohave Airport Dr. Lease Kingman, AZ 86401 Kingman Storage Facility Farner/Orr LLC Lease 7050 Government Way Kingman, AZ 86401 Manchester Distribution Center 333 Harvey Rd. Own Manchester NH 03103 Mankato Distribution Center 2415 3rd Ave. Own Mankato, MN 56001 Mankato Storage Facility 1329 North Riverfront Drive Lease Mankato, MN 56001 Parkesburg Garage R. D. 2 Hammond Drive Lease Parkesburg, PA 19365 Peachtree City Unoccupied Hwy. 74 South Lease Peachtree City, GA 30269 President's Plaza Administration 8600 West Bryn Mawr Ave. Lease Chicago, IL 60631 Springfield Distribution Center 2150 Olympic Avenue Lease Springfield, OR 97477 Springfield Garage 955 A Street South Lease Springfield, OR 97477 Woodland Distribution Center 215 N. Pioneer Avenue Lease Woodland, CA 95776 Woodland Storage Facility 280 N. Pioneer Ave. Lease Woodland, CA
20 EXHIBIT A CONFIRMATION Dated as of December 30, 2002 To: Bank of America, N.A., individually and as Collateral Agent, and the other "Benefited Parties" as defined in the Intercreditor Agreement referred to below Please refer to: (a) the First Amended and Restated Intercreditor Agreement dated as of April 11, 2002 (the "Intercreditor Agreement"; capitalized terms used but not defined herein have the respective meanings ascribed thereto in the Intercreditor Agreement) among various creditors of TruServ Corporation and Bank of America, N.A., as Collateral Agent; (b) the First Amendment dated as of the date hereof to the Credit Agreement; (c) the First Amendments dated as of the date hereof to the Senior Note Agreements; and (d) the First Amendment dated as of the date hereof to the Shelf Note Agreement. Each of the undersigned hereby confirms to the Collateral Agent and each of the other Benefited Parties that, after giving effect to First Amendments referred to in clauses (b), (c) and (d) of the preceding paragraph and the transactions contemplated thereby, the Guaranty and each Collateral Document to which such undersigned is a party continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms. TRUSERV ACCEPTANCE COMPANY TRUSERV LOGISTICS COMPANY GENERAL PAINT & MANUFACTURING COMPANY MARYGREEN, LLC TRUE VALUE.COM CORPORATION COTTER CANADA HARDWARE & VARIETY COMPANY, INC. ADVOCATE SERVICES, INC. SERVISTAR PAINT COMPANY By:___________________________________________ Name Printed:_________________________________ Title:________________________________________ 21 EXHIBIT B FORM OF AMENDMENT TO SECURITY AGREEMENT Please see attached. 22 EXHIBIT C FORM OF AMENDMENT TO INTERCREDITOR AGREEMENT Please see attached. 23 EXHIBITS D-F AMENDMENTS TO FINANCING AGREEMENTS Please see attached. 24 EX-4.Y 11 c75265exv4wy.txt 5TH AMENDMENT TO THE PARTICIPATION AGREEMENT EXHIBIT 4-Y FIFTH AMENDMENT TO PARTICIPATION AGREEMENT THIS FIFTH AMENDMENT dated as of December 30, 2002 (this "Amendment") amends the Participation Agreement dated as of April 30, 1998 (as previously amended, the "Participation Agreement") by and among MARYGREEN, LLC, a Delaware limited liability company, as the Lessee (together with any permitted successors and assigns, the "Lessee"); TRUSERV CORPORATION, a Delaware corporation, as the Lessee Agent, Construction Agent and Guarantor (in its capacity as Lessee Agent, the "Lessee Agent"; in its capacity as Construction Agent, the "Construction Agent"; and in its capacity as Guarantor, the "Guarantor"); TRUSERV 1998 TRUST, a Delaware business trust, as the Lessor Trust (the "Lessor Trust"); WILMINGTON TRUST COMPANY, a Delaware banking corporation, individually as set forth herein and as Trustee under the Lessor Trust ("Owner Trustee"); BMO GLOBAL CAPITAL SOLUTIONS, INC., a Delaware corporation formerly known as BMO Leasing (U.S.), Inc., as a Certificate Holder (together with any permitted successors and assigns thereto, each a "Certificate Holder" and collectively the "Certificate Holders"); BMO GLOBAL CAPITAL SOLUTIONS, INC., a Delaware corporation formerly known as BMO Leasing (U.S.), Inc., as Agent Certificate Holder for the Certificate Holders (in such capacity, the "Agent Certificate Holder"); BANK OF MONTREAL, a Canadian banking organization ("BMO"), and the other various financial institutions as are or may from time to time become lenders (the "Lenders") under the Loan Agreement; and BMO as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders and as Arranger (in such capacity, the "Arranger"). Terms defined in the Participation Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the Lessee, the Guarantor, the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders, the Administrative Agent and the Arranger have entered into the Participation Agreement; and WHEREAS, the parties hereto desire to amend the Participation Agreement and Appendix A to the Participation Agreement as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendment to Participation Agreement and Appendix A. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), the Participation Agreement and Appendix A shall be amended in accordance with this Section: Section 1.1. The definition of "Existing Credit Agreement" appearing in Appendix A is hereby amended by inserting the following phrase at the end thereof: ", as amended by the First Amendment thereto dated as of December 30, 2002". Section 1.2. Administrative Agent and each of the Participants hereby approve, for purposes of Section G of Appendix A, the new definitions and amendments to definitions set forth in the Existing Credit Agreement and such new definitions and changes to definitions shall be incorporated in Appendix A. Section 1.3. The second parenthetical phrase set forth in Section 8.2(g) is amended in its entirety to read as follows: (other than properties and assets disposed of (x) in the ordinary course of business, (y) in connection with the sale of the Brookings regional distribution center or (z) pursuant to the Designated Sale-Leaseback Transaction). Section 1.4. Addition of Section 10.1(q). The following new Section 10.1(q) is added to the Participation Agreement in appropriate sequence to read as follows: (q) Amendments to Financial Covenants. If the sale-leaseback of the regional distribution center located at 333 Harvey Road, Manchester, New Hampshire (the "Manchester RDC") does not occur by February 15, 2003, the Lessee and Guarantor shall cause the financial covenant levels set forth in Section 10.2 to be amended to reflect the exclusion of the Manchester RDC sale-leaseback from the Business Plan in a manner satisfactory to the Required Participants in their sole discretion, and such financial covenant levels will be established in a manner reasonably satisfactory to the Required Participants on the basis of the same methodologies used in preparing the covenant levels incorporated in the Fifth Amendment to Participation Agreement dated as of December 30, 2002. Section 1.5. The table set forth in Section 10.2(a) is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Fixed Charge Coverage Ratio --------------------------------- ----------------------------------- December 31, 2002 0.70 to 1 March 31, 2003 0.70 to 1 June 30, 2003 0.65 to 1 September 30, 2003 0.65 to 1 December 31, 2003 0.90 to 1 March 31, 2004 0.90 to 1 June 30, 2004 0.90 to 1
Section 1.6. Section 10.2(b)(viii)(B) is amended in its entirety to read as follows: (B) a lease entered into as part of a sale and leaseback transaction (other than the Designated Sale-Leaseback Transaction provided that such interest or title attaches only to the property being leased in connection therewith). Section 1.7. Section 10.2(d)(ii) is amended in its entirety to read as follows: -2- (ii) in connection with (A) the sale and leaseback of distribution centers owned by the Guarantor of any Subsidiary and (B) any sublease of, or assignment by the Guarantor of its interest as lessee in, any Designated Sale-Leaseback Transaction, provided, that any such sublease or assignment, as the case may be, shall be on an arm's length basis, shall have reasonable and normal commercial terms and shall provide for no less frequently than quarterly payment of rent Section 1.8. Section 10.2(k)(viii) is amended in its entirety to read as follows: (viii) (A) maintain the Special Company Account; provided that as of the close of business on any day on which the Total Outstandings (as defined in the Existing Credit Agreement) are greater than zero or during the existence of an Event of Default (as defined in the Existing Credit Agreement) after the commencement of an Enforcement (as defined in the Intercreditor Agreement), the amount maintained in the Special Company Account shall not be greater than zero; and (B) maintain other deposit accounts with financial institutions in the ordinary course of business; provided that the amount maintained in deposit accounts with financial institutions other than the Lenders under the Existing Credit Agreement shall not exceed (x) in the case of any one such account, $200,000 for more than three consecutive Business Days; and (y) in the case of all such accounts in the aggregate, $600,000 for more than two consecutive Business Days. Section 1.9. Section 10.2(b) is hereby amended by (i) deleting the word "and" at the end of Section 10.2(b)(xii), (ii) substituting the word "; and" for the "." at the end of Section 10.2(b)(xiii) and (iii) by adding a new Section 10.2(b)(xiv) to read as follows: "(xiv) Liens in favor of Bank of America on the Special Company Account with respect to services provided by Bank of America." Section 1.10. The table set forth in Section 10.2(n) is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Interest Coverage Ratio --------------------------------- ------------------------------- December 31, 2002 1.75 to 1 March 31, 2003 1.75 to 1 June 30, 2003 2.00 to 1 September 30, 2003 2.00 to 1 December 31, 2003 3.00 to 1 March 31, 2004 3.00 to 1 June 30, 2004 3.00 to 1
Section 1.11. The table set forth in Section 10.2(o) is amended in its entirety to read as follows: -3-
Twelve Month Period ending on or about Minimum Amount -------------------------------------- -------------- December 31, 2002 $1,975,000,000 January 31, 2003 $1,820,000,000 February 28, 2003 $1,780,000,000 March 31, 2003 $1,740,000,000 April 30, 2003 $1,725,000,000 May 31, 2003 $1,740,000,000 June 30, 2003 $1,720,000,000 July 31, 2003 $1,715,000,000 August 31, 2003 $1,710,000,000 September 30, 2003 $1,700,000,000 October 31, 2003 $1,715,000,000 November 30, 2003 $1,695,000,000 December 31, 2003 $1,700,000,000 January 31, 2004 $1,700,000,000 February 29, 2004 $1,695,000,000 March 31, 2004 $1,690,000,000 April 30, 2004 $1,690,000,000 May 31, 2004 $1,680,000,000 June 30, 2004 $1,670,000,000
Section 1.12. Section 10.2(p) is amended by inserting the following phrase immediately before the sentence set forth below the table therein: ; provided that the aggregate amount of Capital Expenditures made during any Fiscal Year ending after December 31, 2002 may be increased by an amount equal to the lesser of (a) $2,000,000 and (b) the excess of the maximum amount of Capital Expenditures permitted to be made in the prior fiscal year over the actual amount of Capital Expenditures made during such prior fiscal year. Such increased permitted Capital Expenditures may be made in any fiscal quarter or fiscal quarters of such fiscal year." Section 1.13. The table set forth in Section 10.2(q) is amended in its entirety to read as follows:
Twelve Month Period ending on or about Minimum Adjusted EBITDA -------------------------------------- ----------------------- December 31, 2002 $100,000,000 January 31, 2003 $95,000,000 February 28, 2003 $95,000,000 March 31, 2003 $90,000,000 April 30, 2003 $90,000,000 May 31, 2003 $85,000,000
-4- June 30, 2003 $80,000,000 July 31, 2003 $75,000,000 August 31, 2003 $70,000,000 September 30, 2003 $70,000,000 October 31, 2003 $70,000,000 November 30, 2003 $70,000,000 December 31, 2003 $70,000,000 January 31, 2004 $70,000,000 February 29, 2004 $70,000,000 March 31, 2004 $70,000,000 April 30, 2004 $70,000,000 May 31, 2004 $70,000,000 June 30, 2004 $70,000,000
Section 2. Representations and Warranties. The Guarantor represents and warrants to the Administrative Agent and the Participants that, after giving effect hereto, (a) each representation and warranty (as amended hereby) set forth in Section 8.2 of the Participation Agreement (except for those set forth in Sections 8.2(j), 8.2(l), 8.2(q) and 8.2(t)), is true and correct as of the date of the execution and delivery of this Amendment by the Guarantor with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), provided that the representations and warranties contained in Section 8.2(n) shall be deemed to be made in light of the letter dated August 26, 2002 by the Guarantor to each of the Benefited Parties (as defined in the Intercreditor Agreement) and (b) no Event of Default or Unmatured Event of Default exists. Section 3. Effectiveness. The amendments set forth in Section 1 above shall become effective on the date (the "Amendment Effective Date") when the Administrative Agent shall have received (a) to the extent then billed, all costs and expenses of the Administrative Agent in connection with this Amendment (including reasonable attorneys' fees and charges and all costs, expenses and charges for a field examination) and (b) each of the following documents, each in form and substance satisfactory to the Administrative Agent: (a) counterparts of this Amendment executed by the Guarantor, the Lessee and the Required Participants; (b) evidence that the Designated Sale - Leaseback Transaction has occurred and that the proceeds thereof have been applied in accordance with the terms of the Intercreditor Agreement; and (c) an executed amendment to the Intercreditor Agreement acceptable to Administrative Agent. -5- Section 4. Miscellaneous. Section 4.1. Continuing Effectiveness, etc. As herein amended, the Participation Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Participation Agreement and the other Operative Documents to "Participation Agreement", or similar terms shall refer to the Participation Agreement, as amended hereby. Section 4.2. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. Section 4.3. Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of Illinois. Section 4.4. Successors and Assigns. This Amendment shall be binding upon the Lessee, the Guarantor, the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders, the Administrative Agent and the Arranger and their respective successors and assigns, and shall inure to the benefit of the Lessee, Guarantor the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders and the Administrative Agent and the respective successors and assigns of the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders and the Administrative Agent. Section 4.5. Participation of Guaranty. By execution of this Amendment, Guarantor hereby restates, ratifies and reaffirms in full its obligations under the Guaranty. Section 4.6. Consents. Notwithstanding any provision in the Operative Documents to the contrary, each signatory hereto hereby consents to (a) amendments to the Financing Agreements set forth as Exhibits D, E and F to the First Amendment to the Existing Credit Agreement, (b) the consummation of the Designated Sale-Leaseback Transaction and (c) the release of collateral by the Collateral Agent to the extent subject to the Designated Sale-Leaseback Transaction. Section 4.7. Further Assurances. Upon the request of the Required Participants, the Guarantor agrees to provide and cause its Subsidiaries to provide to the Participants such additional amendments, consents, reaffirmations and ancillary documentation as is necessary or advisable, in the sole reasonable discretion of the Required Participants, to ensure that the Collateral Documents are in full force and effect in all respects. -6- Delivered at Chicago, Illinois, as of the day and year first above written. TRUSERV CORPORATION, as Lessee Agent, Construction Agent and Guarantor By: /s/ DAVE SHADDUCK --------------------------------------- Its Senior Vice President and Chief Financial Officer --------------------------------------- MARY GREEN, LLC, as Lessee By: TruServ Corporation, its sole member By: /s/ ROBERT OSTROV --------------------------------------- Its Corporate Secretary --------------------------------------- BMO GLOBAL CAPITAL SOLUTIONS, INC., formerly known as BMO Leasing (U.S.), Inc., as Agent Certificate Holder and as a Certificate Holder By: /s/ MICHAEL P. JOYCE --------------------------------------- Its President --------------------------------------- BANK OF MONTREAL, as Administrative Agent, Arranger and as a Lender By: /s/ JACK J. KANE --------------------------------------- Its Vice President --------------------------------------- WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly provided herein, but solely as Owner Trustee By: /s/ CHARLOTTE PAGLIA --------------------------------------- Its Senior Financial Services Officer -------------------------------------- -7- TRUSERV 1998 TRUST, as Lessor Trust By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee By: /s/ CHARLOTTE PAGLIA ---------------------------------------- Its Senior Financial Services Officer ---------------------------------------- -8- EX-4.Z 12 c75265exv4wz.txt 3RD AMENDMENT TO AMENDED & RESTATED NOTE PURCH. AG EXHIBIT 4-Z TRUSERV CORPORATION $105,000,000 AMENDED AND RESTATED SENIOR SECURED NOTES DUE 2008 ---------- THIRD AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENT DATED AS OF MARCH 13, 2003 TRUSERV CORPORATION 8600 West Bryn Mawr Avenue Chicago, Illinois 60631 March 13, 2003 To Each of the Purchasers Listed in the Attached Schedule 1 (each, a "PURCHASER") Ladies and Gentlemen: Re: THIRD AMENDMENT TO THE AMENDED AND RESTATED NOTE PURCHASE AGREEMENTS (the "THIRD AMENDMENT") The undersigned, TruServ Corporation, a Delaware corporation formerly known as Cotter & Company (herein called the "COMPANY"), hereby agrees and acknowledges that: A. The Company and each of you are parties (the "PURCHASERS") to separate Note Purchase Agreement each dated as of September 10, 1998, as each were amended by Amendment No. 1 to Note Purchase Agreements dated as of April 1, 1999, as each were further amended and restated by the Amended and Restated Note Purchase Agreements each dated as of April 14, 2000, as each were further amended by the Amendment to the Amended and Restated Note Purchase Agreements each dated as of April 11, 2002 and by the Second Amendment to the Amended and Restated Note Purchase Agreements each dated as of December 30, 2002 (collectively, the "ORIGINAL NPAS" and individually each an "ORIGINAL NPA"). B. Pursuant to the Original NPAs, the Company issued and sold to each of you $105,000,000 aggregate principal amount of its 6.85% Senior Notes due 2008 (the "NOTES"). C. Each of you and the Company desire to amend the Original NPAs as hereinafter set forth (the Original NPAs as amended by this Third Amendment is referred to herein collectively as the "NPAS" and individually as an "NPA"). Reference is made to the Original NPA for definitions of capitalized terms used herein and not otherwise defined herein. 2 Pursuant to the request of the Company and in accordance with the provisions of Section 15 of the Original NPAs, the parties hereto consent to the amendment of the Original NPAs and agree as follows: SECTION 1. Amendment. From and after the date this Third Amendment becomes effective in accordance with its terms, each Original NPA shall be amended as follows: 1.1 Paragraph 6H Fixed Charge Coverage Ratio of the Original NPAs is amended in its entirety to read as follows: 6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below for such period:
Fiscal Period(s) ending on or about Ratio - ----------------------------------- -------- four quarters ending December 2002 0.70:1.0 four quarters ending March 2003 0.76:1.0 four quarters ending June 2003 0.73:1.0 four quarters ending September 2003 0.68:1.0 four quarters ending December 2003 1.01:1.0 four quarters ending March 2004 1.10:1.0 four quarters ending June 2004 1.00:1.0 each four quarter period thereafter 1.00:1.0
1.2 Paragraph 6I Minimum EBITDA of the Original NPAs is amended in its entirety to read as follows: 6I. MINIMUM ADJUSTED EBITDA. The Company shall not permit the sum of Adjusted EBITDA as of the end of any fiscal period set forth below to be less than the respective amount set forth below:
Fiscal Period(s) ending on or about Amount - ----------------------------------- ------------ twelve months ended 12/31/02 $100,000,000 twelve months ended 1/31/03 $ 97,200,000 twelve months ended 2/28/03 $ 92,400,000 twelve months ended 3/31/03 $ 87,400,000 twelve months ended 4/30/03 $ 87,100,000 twelve months ended 5/31/03 $ 83,900,000 twelve months ended 6/30/03 $ 78,400,000 twelve months ended 7/31/03 $ 72,900,000 twelve months ended 8/31/03 $ 70,300,000 twelve months ended 9/30/03 $ 68,200,000
3 twelve months ended 10/31/03 $ 67,100,000 twelve months ended 11/30/03 $ 66,000,000 twelve months ended 12/31/03 $ 68,800,000 twelve months ended 1/31/04 $ 69,400,000 twelve months ended 2/29/04 $ 70,100,000 twelve months ended 3/31/04 $ 73,700,000 twelve months ended 4/30/04 $ 71,600,000 twelve months ended 5/31/04 $ 71,700,000 twelve months ended 6/30/04 $ 73,000,000 and the twelve month period ended on the $ 73,000,000 last day of each month thereafter
1.3 Paragraph 6L Minimum Gross Sales of the Original NPAs is amended in its entirety to read as follows: 6L. MINIMUM GROSS SALES. The Company shall not permit the Gross Sales as of the end of any fiscal period set forth below to be less than the applicable amount set forth below:
Fiscal Period(s) ending on or about Amount - ----------------------------------- -------------- twelve months ended 12/31/02 $1,975,000,000 twelve months ended 1/31/03 $1,834,400,000 twelve months ended 2/28/03 $1,795,700,000 twelve months ended 3/31/03 $1,750,700,000 twelve months ended 4/30/03 $1,737,300,000 twelve months ended 5/31/03 $1,750,900,000 twelve months ended 6/30/03 $1,737,600,000 twelve months ended 7/31/03 $1,728,800,000 twelve months ended 8/31/03 $1,724,800,000 twelve months ended 9/30/03 $1,725,400,000 twelve months ended 10/31/03 $1,728,000,000 twelve months ended 11/30/03 $1,709,100,000 twelve months ended 12/31/03 $1,702,900,000 twelve months ended 1/31/04 $1,700,000,000 twelve months ended 2/29/04 $1,697,600,000 twelve months ended 3/31/04 $1,694,500,000 twelve months ended 4/30/04 $1,690,300,000 twelve months ended 5/31/04 $1,682,900,000 twelve months ended 6/30/04 $1,676,300,000 and the twelve month period ended on the $1,676,300,000 last day of each month thereafter
4 1.4 Paragraph 6M Minimum Interest Coverage Ratio of the Original NPAs is amended in its entirety to read as follows: 6M. MINIMUM INTEREST COVERAGE RATIO. The Company shall not permit the Interest Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below:
Fiscal Period(s) Ratio - ---------------- -------- four quarters ending December 2002 1.75:1.0 four quarters ending March 2003 1.65:1.0 four quarters ending June 2003 1.75:1.0 four quarters ending September 2003 1.85:1.0 four quarters ending December 2003 2.32:1.0 four quarters ending March 2004 2.58:1.0 four quarters ending June 2004 2.74:1.0 and the four quarter period ended on the last 2.74:1.0 day of each month thereafter
1.5 Paragraph 10A Defined Terms of the Original NPAs is amended to delete to amend and restate the following defined terms or, if such definitions are not in the Original NPA, to add such defined terms, in the appropriate alphabetical order: "BUSINESS PLAN" shall mean the business plan of the Company, which was delivered by the Company to the Purchasers on February 14, 2003; provided, with respect to Paragraph 5A(xiii) and financial reports relating to the periods prior to 2003, the Business Plan shall mean the Business Plan of the Company dated March 20, 2002, which was delivered by the Company to the Purchasers. "PRUDENTIAL AGREEMENT" shall mean, collectively, (i) Amended and Restated Private Shelf Agreement dated as of November 13, 1997, as amended by letter agreements dated September 9, 1998, May 12, 1999, April 14, 2000, April 11, 2002 and December 30, 2002 between the Company and The Prudential Insurance Company of America ("Prudential") and each affiliate of Prudential which is bound thereby pursuant to the terms thereof, and (ii) the Note Agreement dated as of April 13, 1992, as amended through the date hereof, between Cotter & Company, the predecessor to the Company, and Prudential, each as amended from time to time. "THIRD AMENDMENT" shall mean the Third Amendment to the Amended and Restated Senior Note Purchase Agreement dated as of March 13, 2003 between the Company and the Purchasers who are signatories thereto. 5 1.6 Amendment to Schedules. Schedule 1--Purchasers is deleted in its entirety and replaced with Schedule 1--Purchasers attached to this Third Amendment. 1.7 The Schedules and Exhibits attached hereto shall be deemed to amend the previous schedules or exhibits and any new schedules or exhibits attached hereto shall be an integral part of the Original NPAs. SECTION 2. Representations and Warranties. The Company represents, covenants and warrants to each of the Purchasers that, after giving effect hereto as though all conditions of effectiveness have been met, (a) each representation and warranty set forth below is true and correct as of the date of execution and delivery of this Third Amendment by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), subject to in the case of the representations and warranties contained in Paragraph 2D below to the matters disclosed in that Consent to Waiver dated August 26, 2002 executed by the Required Holders, (b) no Event of Default or Default exists, and (c) no fee has been paid or is payable to the Lenders or the Agent (each as defined under the Intercreditor Agreement) in connection with the execution and effectiveness of the Second Amendment to the BA Credit Agreements: 2A. ORGANIZATION; QUALIFICATIONS; CORPORATE POWER. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware, each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is formed and the Company and each of its Subsidiaries is duly qualified as a foreign corporation or entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions in which the failure to be so qualified could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has and each Subsidiary has the power to own their respective properties and to carry on their respective businesses as now being conducted. No Subsidiary has outstanding any shares of stock of a class which has priority over any other class as to dividends or in liquidation (except as otherwise disclosed on Schedule 2A). Each of the Company and each Subsidiary has the power and authority to execute and deliver this Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes and all other Note Documents to which it is a party and to perform the provisions hereof and thereof. 2B. AUTHORIZATION, ETC. This Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes and all other Note Documents have been duly authorized by all necessary action on the part of the Company and each Subsidiary party thereto and this Agreement, the Other Agreements, the Guaranty, the Collateral Documents and all other Note Documents constitute, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company 6 and each Subsidiary party thereto enforceable against the Company and each such Subsidiary in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2C. LEGAL RESTRICTIONS; SUBSIDIARIES. (a) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 2C and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (b) Except as otherwise provided in paragraph 5K of the Original NPAs (after giving effect to the Third Amendment), the Subsidiaries that are parties to the Guaranty and the Security Agreement constitute all of the Subsidiaries of the Company. Except as otherwise provided in paragraph 5K of the Original NPAs (after giving effect to the Third Amendment), the Company has pledged, pursuant to the Pledge Agreement, all of the capital stock of each Subsidiary. 2D. FINANCIAL STATEMENTS. (a) The Company has furnished you and each Other Purchaser of any Note with the following financial statements, identified by a Senior Financial Officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as at fiscal year end in each of the three fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 90 days prior to such date for which audited financial statements have not been released) and consolidated statements of operations and cash flows and a consolidated statement of capital stock and retained earnings of the Company and its Subsidiaries for each such year, all reported on by Ernst & Young (or any independent public accounting firm of recognized national standing) and (ii) a consolidated balance sheet of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 60 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of operations and cash flows and a consolidated statement of capital stock and retained earnings for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject as to interim statements to changes resulting from audits and year-end adjustments), 7 have been prepared in accordance with GAAP consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of operations, capital stock and retained earnings and cash flows fairly present the results of the operations of the Company and its Subsidiaries and their cash flows for the periods indicated. (b) There has been no material adverse change in the business, operations, condition (financial or otherwise), assets, properties or prospects of the Company and its Subsidiaries taken as a whole since the end of the most recent fiscal year for which such audited financial statements have been furnished other than as has been previously disclosed by the Company to the Purchasers for any changes through March 13, 2003. The Company is not aware of any facts that (individually or in the aggregate) would result in any material change in the Business Plan. The Business Plan was prepared on the basis of assumptions (all of which were made by the Company in good faith), and reflect the reasonable estimates of the Company of the financial condition, results of operations and other information projected therein. 2E. ACTIONS PENDING. Except as described in reasonable detail on Schedule 2E, there is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which could be reasonably expected to have a Material Adverse Effect. 2F. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraph 6A(2) of the Original NPAs (after giving effect to the Third Amendment). There exists no default under the provisions of any instrument (as defined in the UCC) or agreement evidencing Debt of the Company or any of its Subsidiaries in an amount greater than $250,000 or of any agreement relating thereto (it being understood that the representation and warranty in this sentence is made after giving effect to the April 2002 Modification and the amendments prior thereto). 2G. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has good, marketable and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 2D of this Third Amendment (other than properties and assets disposed of (x) in the ordinary course of business, (y) in connection with the sale of the Brookings regional distribution center, or (z) pursuant to the Designated Sale-Leaseback Transaction), subject to no Lien of any kind except Liens permitted by paragraph 6A(1) of the Original NPAs. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid 8 and subsisting and are in full force and effect. The security interests granted under the Security Agreement by the Company and its Subsidiaries (the "Security Interests") are granted as security only and shall not subject the Collateral Agent or any holder of the Notes to, or transfer or in any way affect or modify, any obligation or liability of the Company or any other Debtor (as defined in the Security Agreement) with respect to any of the Collateral (as defined in the Security Agreement) or any transaction in connection therewith. The Security Interests constitute valid security interests under the Uniform Commercial Code as in effect from time to time in the State of Illinois ("UCC") securing the Liabilities (as defined in the Security Agreement). The Security Interests constitute perfected security interests in the Collateral (as defined in the Security Agreement) (except inventory in transit) to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other liens, claims and rights of others therein except for Permitted Liens (as defined in the Security Agreement). 2H. TAXES. The Company has and each of its Subsidiaries has filed all federal, state and other tax returns which are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such unfiled returns and unpaid taxes (i) as are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP or (ii) the non-filing or non-payment of which (a) could not be reasonably expected to have a Material Adverse Effect and (b) does not result in the creation of any Lien other than Liens permitted by paragraph 6A(l)(i) of the Original NPAs. 2I. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which could have a Material Adverse Effect. Neither the execution nor delivery of this Agreement, the Other Agreements, the Guaranty, the Collateral Documents, the Notes or any of the other Note Documents, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and thereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien (other than the Liens created by the Collateral Documents) upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Schedule 2I attached hereto (as such Schedule 2I may have been modified from time to 9 time by written supplements thereto delivered by the Company and accepted in writing by the Required Holders). 2J. ERISA. No contribution required to have been made to any Plan by the Company or any Subsidiary under the provisions of the Plan or ERISA remains unpaid and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which has caused or could cause a Material Adverse Effect. None of the Company, any Subsidiary or any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which has caused or could cause a Material Adverse Effect. 2K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or any action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Effective Date for any Notes with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 2L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all Environmental Laws, except, in any such case, where failure to so comply could not reasonably be expected to result in a Material Adverse Effect. 2M. SECTION 144A. The Notes are not of the same class as securities, if any, of the Company listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. 2N. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 2O. PRIORITY OF NOTES; BENEFITED OBLIGATIONS. The Notes constitute "Superior Indebtedness" as such term is defined in the Company's Promissory (subordinated) Notes, the form of which is attached to the April 2002 Modification as Exhibit A and the Subordinated Debt is subordinated to the Indebtedness owing from 10 time to time by the Company to the holders of the Notes in connection with this Agreement. 2P. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 2P, (i) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (ii) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. SECTION 3. Effectiveness. The amendments described in Section 1 above shall become effective as of the date upon which each Purchaser has received the following (the "Third Amendment Effective Date"): (a) To the extent due and payable, payment of all costs and expenses of such Purchaser (including the reasonable fees and disbursements of legal counsel (Bell, Boyd & Lloyd LLC) to the Purchasers) in connection with this Third Amendment and all prior negotiations and documentation; (b) A copy of this Third Amendment duly executed by each party hereto; (c) A copy of each of the amendments to the BA Credit Agreements set forth as Exhibit A, the Prudential Agreement set forth as Exhibit B, the "Operative Documents" (each as defined in the Intercreditor Agreement) set forth as Exhibit C, including, without limitation, the extension of the "Synthetic Lease", each certified as being in full force and effect and each being in form and substance reasonably satisfactory to the Purchasers and all ancillary documents in connection therewith, including the Confirmation (as attached to the Second Amendment to the BA Credit Agreements); (d) Such other documents or certificates as any Purchaser may reasonably request; and 11 (e) Evidence reasonably satisfactory to the Purchasers that the appropriate parties to the other Financing Agreements have consented to this Third Amendment; and (f) Evidence reasonably satisfactory to the Purchasers that all corporate and other proceedings shall have occurred. SECTION 4. Affirmation of Guaranties. Each of the Guarantors hereby consents to the terms of this Third Amendment in its capacity as a guarantor and agrees that the terms of this Third Amendment shall not affect in any way its obligations and liabilities under its Guaranty or any other Collateral Document to which it is a party, all of which obligations and liabilities shall remain in full force and effect and each of which is hereby reaffirmed. SECTION 5. Further Assurances. Upon the request of the Purchasers, the Company agrees to provide or cause its Subsidiaries to provide to the Purchasers such additional amendments, consents, reaffirmations and ancillary documentation as necessary or advisable, in the sole reasonable discretion of the Majority Holders, to ensure that the Collateral Documents (as defined in the Intercreditor Agreement) are in full force and effect in all respects. SECTION 6. Reference to and Effect on Original NPAs. Upon the effectiveness of this Third Amendment as set forth in Section 3 above, each reference to the Original NPAs (also referenced in certain other Financing Agreements as the Senior Note Agreements or the Private Placement Agreements) in any other document, instrument or agreement shall mean and be a reference to such agreement as modified by this Third Amendment. Except as specifically set forth in and in conformity with Section 1 above, each Original NPA shall remain in full force and effect and each is hereby ratified and confirmed in all respects. SECTION 7. Waiver. Nothing contained herein shall be construed as a waiver of or consent to any violation of the Original NPAs or any Default or Event of Default under the Original NPAs. SECTION 8. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW IN SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. SECTION 9. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH HOLDER OF NOTES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT 12 OF OR RELATING TO THIS AMENDMENT, THE ORIGINAL NPAS, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 10. Counterparts; Section Titles. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. The section titles contained in this Third Amendment are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 11. Consents and Waiver. Notwithstanding any provision in the Original NPAs to the contrary, the Purchasers consent to the amendments to the Financing Agreements set forth as Exhibits A, B and C hereto. [SIGNATURES ON FOLLOWING PAGE] 13 * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. ALLSTATE INSURANCE COMPANY By: /s/ BILL SCHMIDT ---------------------------------- Name: Bill Schmidt ----------------------------- Title: Authorized Signatory ---------------------------- By: /s/ JERRY D. ZINKULA ---------------------------------- Name: Jerry D. Zinkula ----------------------------- Title: Authorized Signatory ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. ALLSTATE LIFE INSURANCE COMPANY By: /s/ BILL SCHMIDT ---------------------------------- Name: Bill Schmidt ----------------------------- Title: Authorized Signatory ---------------------------- By: /s/ JERRY D. ZINKULA ---------------------------------- Name: Jerry D. Zinkula ----------------------------- Title: Authorized Signatory ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. KEYPORT LIFE INSURANCE COMPANY BY STEIN ROE & FARNHAM INCORPORATED AS AGENT By: /s/ RICHARD A. HEGWOOD ---------------------------------- Name: Richard A. Hegwood ----------------------------- Title: Senior Vice President ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. THRIVENT FINANCIAL FOR LUTHERANS F/K/A AID ASSOCIATION FOR LUTHERANS By: /s/ GLEN J. VANIC ---------------------------------- Name: Glen J. Vanic ----------------------------- Title: Portfolio Manager ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. LIBRA SECURITIES, LLC By: /s/ JESS M. RAVICH ---------------------------------- Name: Jess M. Ravich ----------------------------- Title: CEO ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. FEDERATED LIFE INSURANCE COMPANY By: /s/ MARK A. HOOD ---------------------------------- Name: Mark A. Hood ----------------------------- Title: Vice President ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. FEDERATED MUTUAL INSURANCE COMPANY By: /s/ MARK A. HOOD ---------------------------------- Name: Mark A. Hood ----------------------------- Title: Vice President ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. MODERN WOODMEN OF AMERICA By: /s/ MICHAEL E. DAU ------------------------------------ Name: Michael E. Dau ------------------------------- Title: Manager, Securities Division ------------------------------ * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. AMERITAS LIFE INSURANCE CORP. BY AMERITAS INVESTMENT ADVISORS, INC. AS AGENT By: /s/ ANDREW S. WHITE ---------------------------------- Name: Andrew S. White ----------------------------- Title: Vice President ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. NATIONAL GUARDIAN LIFE INSURANCE COMPANY By: /s/ R. A. MUCCI ---------------------------------- Name: R. A. Mucci ----------------------------- Title: Vice President & Treasurer ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. FOOTHILL PARTNERS IV, L.P. By: /s/ R. MICHAEL BOHANNON ---------------------------------- Name: R. Michael Bohannon ----------------------------- Title: Managing Member ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. EVEREST CAPITAL SENIOR DEBT FUND, LP By: /s/ MALCOLM STOTT ---------------------------------- Name: Malcolm Stott ----------------------------- Title: Chief Operating Officer ---------------------------- By: /s/ ERIC GRAHAM ---------------------------------- Name: Eric Graham ----------------------------- Title: Principal ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. RAVICH FAMILY FOUNDATION By: /s/ JESS M. RAVICH ---------------------------------- Name: Jess M. Ravich ----------------------------- Title: President ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. RAVICH REVOCABLE TRUST OF 1989 By: /s/ JESS M. RAVICH ---------------------------------- Name: Jess M. Ravich ----------------------------- Title: Trustee ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. RAVICH CHILDREN PERMANENT TRUST DATED MAY 11, 1995 By: /s/ KEENAN WOLENS ---------------------------------- Name: Keenan Wolens ----------------------------- Title: Trustee ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. JEFFREY D. BENJAMIN By: ------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION FUND, L.P. BY CANPARTNERS INVESTMENTS III, L.P., AS GENERAL PARTNER, BY CANYON CAPITAL ADVISORS, LLC, AS GENERAL PARTNER By: /s/ JOSHUA S. FRIEDMAN ---------------------------------- Name: Joshua S. Friedman ----------------------------- Title: Managing Director ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION FUND (CAYMAN), LTD. By: /s/ JOSHUA S. FRIEDMAN ---------------------------------- Name: Joshua S. Friedman ----------------------------- Title: Managing Director ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. CANYON VALUE REALIZATION MAC-18, LTD. BY CANYON CAPITAL ADVISORS, LLC, AS INVESTMENT ADVISOR By: /s/ JOSHUA S. FRIEDMAN ---------------------------------- Name: Joshua S. Friedman ----------------------------- Title: Managing Director ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. CMS/CANYON DOF SUBPARTNERSHIP, L.P. By: /s/ JOSHUA S. FRIEDMAN ---------------------------------- Name: Joshua S. Friedman ----------------------------- Title: Managing Director ---------------------------- * * * * * If you are in agreement with the foregoing, please sign this Amendment and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President The foregoing Amendment is hereby accepted as of the date first above written. RICHARD M. COPPERSMITH By: /s/ RICHARD M. COPPERSMITH ---------------------------- Name: Richard M. Coppersmith GENERAL PAINT & MANUFACTURING COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President TRUSERV ACCEPTANCE COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President TRUSERV LOGISTICS COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President MARYGREEN, LLC, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President TRUE VALUE.COM CORPORATION, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President ADVOCATE SERVICES, INC., as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President SERVISTAR PAINT COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER ----------------------- Name: Barbara L. Wagner Title: Vice President SCHEDULE 1 PURCHASERS Allstate Insurance Company Allstate Life Insurance Company Ameritas Life Insurance Corp. Jeffrey D. Benjamin Canyon Value Realization Fund (Cayman), Ltd. Canyon Value Realization Fund, L.P. Canyon Value Realization MAC-18, Ltd. CMS/Canyon DOF Subpartnership, L.P. Richard M. Coppersmith Everest Capital Senior Debt Fund, LP Federated Life Insurance Company Federated Mutual Insurance Company Foothill Partners IV, L.P. Keyport Life Insurance Company c/o Stein Roe Libra Securities, LLC Modern Woodmen of America National Guardian Life Insurance Co. Ravich Children Permanent Trust dated 5/11/95 Ravich Family Foundation Ravich Revocable Trust of 1989 Thrivent Financial for Lutherans f/k/a Aid Association for Lutherans SCHEDULE 2A TO THIRD AMENDMENT SUBSIDIARY STOCK WITH A PREFERENCE None. SCHEDULE 2C TO THIRD AMENDMENT LEGAL RESTRICTIONS The Financing Agreements (as defined in the Intercreditor Agreement). SCHEDULE 2E TO THIRD AMENDMENT ACTIONS PENDING None. SCHEDULE 2I TO THIRD AMENDMENT RESTRICTIVE AGREEMENTS 1. Shelf Agreement (as defined in the Intercreditor Agreement). 2. Credit Agreement (as defined in the Intercreditor Agreement). 3. "Operative Documents" referred to in the Synthetic Lease Guaranty (as defined in the Intercreditor Agreement). SCHEDULE 2P TO THIRD AMENDMENT LICENSES, PERMITS None. EXHIBIT A TO THIRD AMENDMENT AMENDMENT TO BA CREDIT AGREEMENTS EXHIBIT B TO THIRD AMENDMENT AMENDMENT TO PRUDENTIAL AGREEMENT EXHIBIT C TO THIRD AMENDMENT AMENDMENT TO SYNTHETIC LEASE EX-4.AA 13 c75265exv4waa.txt 6TH AMENDMENT TO AMENDED & RESTATED PVT. SHELF AG. EXHIBIT 4-AA (PRUDENTIAL FINANCIAL LOGO) Corporate and Project Workouts 7th Floor Gateway Center Four 100 Mulberry Street Newark, NJ 07102 March 13, 2003 TruServ Corporation 8600 West Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Chief Financial Officer Re: Sixth Amendment of Note Agreement and Private Shelf Agreement Ladies and Gentlemen: Reference is made to that certain Amended and Restated Private Shelf Agreement dated as of November 13, 1997, as amended by letter agreements dated September 9, 1998, May 12, 1999, April 14, 2000, April 11, 2002, and December 30, 2002 (the "Shelf Note Agreement") between TruServ Corporation, a Delaware corporation ("TruServ"), and The Prudential Insurance Company of America ("Prudential") and each affiliate of Prudential which is bound thereby pursuant to the terms thereof (Prudential together with its affiliates, the "Purchasers"). Reference is also made to that certain Note Agreement dated as of April 13, 1992, as amended through the date hereof, between Cotter & Company, the predecessor to TruServ, and Prudential (the "Cotter Note Agreement" and, together with the Shelf Note Agreement, the "Note Agreements"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Shelf Note Agreement. Pursuant to the request of TruServ and in accordance with the provisions of (i) Paragraph 11C of the Shelf Note Agreement and (ii) Paragraph 11C of the Cotter Note Agreement, the parties hereto consent to the amendment of the Note Agreements and agree as follows: SECTION 1. Amendment. From and after the date this letter agreement becomes effective in accordance with its terms, the Note Agreements shall be respectively amended as follows: 1.1 Paragraph 6H Minimum Fixed Charge Coverage Ratio of the Note Agreements is amended in its entirety to read as follows: 6H. FIXED CHARGE COVERAGE RATIO. The Company shall not permit the Fixed Charge Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below for such period:
Fiscal Period(s) ending on or about Ratio ----------------------------------------- ----------- four quarters ending December 2002 0.70:1.0 four quarters ending March 2003 0.76:1.0 four quarters ending June 2003 0.73:1.0
four quarters ending September 2003 0.68:1.0 four quarters ending December 2003 1.01:1.0 four quarters ending March 2004 1.10:1.0 four quarters ending June 2004 1.00:1.0 each four quarter period thereafter 1.00:1.0
1.2 Paragraph 6L Minimum Adjusted EBITDA of the Note Agreements is amended in its entirety to read as follows: 6L. MINIMUM ADJUSTED EBITDA. The Company shall not permit the sum of Adjusted EBITDA as of the end of any fiscal period set forth below to be less than the respective amount set forth below:
Fiscal Period(s) ending on or about Amount ------------------------------------- ---------------- twelve months ended 12/31/02 $100,000,000 twelve months ended 1/31/03 $ 97,200,000 twelve months ended 2/28/03 $ 92,400,000 twelve months ended 3/31/03 $ 87,400,000 twelve months ended 4/30/03 $ 87,100,000 twelve months ended 5/31/03 $ 83,900,000 twelve months ended 6/30/03 $ 78,400,000 twelve months ended 7/31/03 $ 72,900,000 twelve months ended 8/31/03 $ 70,300,000 twelve months ended 9/30/03 $ 68,200,000 twelve months ended 10/31/03 $ 67,100,000 twelve months ended 11/30/03 $ 66,000,000 twelve months ended 12/31/03 $ 68,800,000 twelve months ended 1/31/04 $ 69,400,000 twelve months ended 2/29/04 $ 70,100,000 twelve months ended 3/31/04 $ 73,700,000 twelve months ended 4/30/04 $ 71,600,000 twelve months ended 5/31/04 $ 71,700,000 twelve months ended 6/30/04 $ 73,000,000 each twelve month period ended on the last day of each month thereafter $ 73,000,000
1.3 Paragraph 6N Minimum Gross Sales of the Note Agreements is amended in its entirety to read as follows: 6N. MINIMUM GROSS SALES. The Company shall not permit the Gross Sales as of the end of any fiscal period set forth below to be less than the applicable amount set forth below:
Fiscal Period(s) ending on or about Amount ------------------------------------- ------------------- twelve months ended 12/31/02 $1,975,000,000 twelve months ended 1/31/03 $1,834,400,000 twelve months ended 2/28/03 $1,795,700,000 twelve months ended 3/31/03 $1,750,700,000 twelve months ended 4/30/03 $1,737,300,000 twelve months ended 5/31/03 $1,750,900,000 twelve months ended 6/30/03 $1,737,600,000 twelve months ended 7/31/03 $1,728,800,000
2 twelve months ended 8/31/03 $1,724,800,000 twelve months ended 9/30/03 $1,725,400,000 twelve months ended 10/31/03 $1,728,000,000 twelve months ended 11/30/03 $1,709,100,000 twelve months ended 12/31/03 $1,702,900,000 twelve months ended 1/31/04 $1,700,000,000 twelve months ended 2/29/04 $1,697,600,000 twelve months ended 3/31/04 $1,694,500,000 twelve months ended 4/30/04 $1,690,300,000 twelve months ended 5/31/04 $1,682,900,000 twelve months ended 6/30/04 $1,676,300,000 each twelve month period ended on the last day of each month thereafter $1,670,000,000
1.4 Paragraph 6O Minimum Interest Coverage Ratio of the Note Agreements is amended in its entirety to read as follows: 6O. MINIMUM INTEREST COVERAGE RATIO. The Company shall not permit the Interest Coverage Ratio as of the end of any fiscal period set forth below to be less than the applicable ratio set forth below:
Fiscal Period(s) Ratio ----------------------------------- ---------- four quarters ending December 2002 1.75:1.0 four quarters ending March 2003 1.65:1.0 four quarters ending June 2003 1.75:1.0 four quarters ending September 2003 1.85:1.0 four quarters ending December 2003 2.32:1.0 four quarters ending March 2004 2.58:1.0 four quarters ending June 2004 2.74:1.0 each twelve month period ended on the last day of each month thereafter 3.00:1.0
1.5 Paragraph 8B Financial Statements of the Note Agreements is amended to replace the date therein of " December 30, 2002" with "March 13, 2003". 1.6 Paragraph 10B Other Terms of the Note Agreements is amended to delete the following defined term: "Business Plan". 1.7 Paragraph 10B Other Terms of the Note Agreements is amended to add the following defined terms in the appropriate alphabetical order: "BUSINESS PLAN" shall mean the business plan of the Company, which was delivered by the Company to the Purchasers on February 14, 2003; provided, with respect to Paragraph 5A(v) and financial reports relating to the periods prior to 2003, the Business Plan shall mean the Business Plan of the Company dated March 20, 2002, which was delivered by the Company to the Purchasers. "SIXTH AMENDMENT" shall mean the Sixth Amendment of the Note Agreement and the Private Shelf Agreement dated March 13, 2003 between the Company and the Purchasers. 3 SECTION 2. Representations and Warranties. TruServ represents and warrants to each of the Purchasers that, after giving effect hereto as though all conditions of effectiveness have been met, (a) each and every representation and warranty set forth in paragraph 8 of each of the Note Agreements (other than paragraphs 8H, 8I, and 8O) is true and correct as of the date of execution and delivery of this letter agreement by TruServ with the same effect as if made on such date, subject to in the case of the representations and warranties contained in Paragraphs 8B and 8N to the matters disclosed in that Consent to Waiver dated August 26, 2002 executed by the Purchasers, (b) no Event of Default or Default exists, and (c) no fee has been paid or is payable to the Lenders or the Agent (each as defined under the Intercreditor Agreement) in connection with the execution and effectiveness of the Second Amendment to the BA Credit Agreements. SECTION 3. Effectiveness. The amendments described in Section 1 above shall become effective as of the date upon which each Purchaser has received the following (the "Amendment Effective Date"): (a) To the extent due and payable, payment of all costs and expenses of such Purchaser (including the reasonable fees and disbursements of legal counsel (Weil, Gotshal & Manges LLP) to the Purchasers) in connection with this letter agreement and all prior negotiations and documentation; (b) A copy of this letter agreement duly executed by each party hereto; (c) A copy of each of the amendments to: (1) the BA Credit Agreements (Exhibit A); (2) the Private Placement Agreements (Exhibit B); and (3) the "Operative Documents" (as defined in the Intercreditor Agreement), including, without limitation, the extension of the "Synthetic Lease" (Exhibit C); each certified as being in full force and effect and each being in form and substance reasonably satisfactory to the Purchasers; (d) Such other documents or certificates as any Purchaser may reasonably request; and (e) Evidence reasonably satisfactory to the Purchasers that all corporate and other proceedings shall have occurred. SECTION 4. Affirmation of Guaranties. Each of the Guarantors hereby consents to the terms of this Sixth Amendment in its capacity as a guarantor and agrees that the terms of this Sixth Amendment shall not affect in any way its obligations and liabilities under its Guaranty or any other Collateral Document to which it is a party, all of which obligations and liabilities shall remain in full force and effect and each of which is hereby reaffirmed. SECTION 5. Further Assurances. Upon the request of the Purchasers, the Company agrees to provide or cause its Subsidiaries to provide to the Purchasers such additional amendments, consents, reaffirmations and ancillary documentation as necessary or advisable, in the sole reasonable discretion of the Required Holders, to ensure that the Collateral Documents (as defined in the Intercreditor Agreement) are in full force and effect in all respects. SECTION 6. Reference to and Effect on Note Agreements. Upon the effectiveness of this letter agreement as set forth in Section 3 above, each reference to the Shelf Note Agreement and the Cotter Note Agreement in any other document, instrument or agreement shall mean and be a reference to such agreement as modified by this letter agreement. Except as specifically set 4 forth in and in conformity with Section 1 above, each Note Agreement shall remain in full force and effect and each is hereby ratified and confirmed in all respects. SECTION 7. Waiver. Nothing contained herein shall be construed as a waiver of or consent to any violation of the Note Agreements or any Default or Event of Default under the Note Agreements. SECTION 8. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER TO BE CONSTRUED OR ENFORCED OTHER THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. SECTION 9. Counterparts; Section Titles. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. The section titles contained in this letter agreement are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. SECTION 10.Consents and Waiver. Notwithstanding any provision in the Note Agreements to the contrary, the Purchasers consent to the amendments to the Financing Agreements set forth as Exhibits A, B and C hereto. [SIGNATURES ON FOLLOWING PAGE] 5 Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ THOMAS E. LUTHER -------------------------------- Name: Thomas E. Luther Title: Vice President PRUCO LIFE INSURANCE COMPANY By: /s/ THOMAS E. LUTHER -------------------------------- Name: Thomas E. Luther Title: Vice President U.S. PRIVATE PLACEMENT FUND By: PRUDENTIAL PRIVATE PLACEMENT INVESTORS, L.P., Investment Advisor By: PRUDENTIAL PRIVATE PLACEMENT INVESTORS, INC., its General Partner By: /s/ THOMAS E. LUTHER ------------------------------- Name: Thomas E. Luther Title: Vice President Accepted and Agreed: TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ------------------------------- Name: Barbara L. Wagner Title: Vice President 6 GENERAL PAINT & MANUFACTURING COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President TRUSERV ACCEPTANCE COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President TRUSERV LOGISTICS COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President MARYGREEN, LLC, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President TRUE VALUE.COM CORPORATION, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President ADVOCATE SERVICES, INC., as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President SERVISTAR PAINT COMPANY, as a Guarantor By: /s/ BARBARA L. WAGNER --------------------------------- Name: Barbara L. Wagner Title: Vice President 7 EX-4.AB 14 c75265exv4wab.txt 6TH AMENDMENT TO THE PARTICIPATION AGREEMENT EXHIBIT 4-AB SIXTH AMENDMENT TO PARTICIPATION AGREEMENT THIS SIXTH AMENDMENT dated as of March 13, 2003 (this "Amendment") amends the Participation Agreement dated as of April 30, 1998 (as previously amended, the "Participation Agreement") by and among MARYGREEN, LLC, a Delaware limited liability company, as the Lessee (together with any permitted successors and assigns, the "Lessee"); TRUSERV CORPORATION, a Delaware corporation, as the Lessee Agent, Construction Agent and Guarantor (in its capacity as Lessee Agent, the "Lessee Agent"; in its capacity as Construction Agent, the "Construction Agent"; and in its capacity as Guarantor, the "Guarantor"); TRUSERV 1998 TRUST, a Delaware business trust, as the Lessor Trust (the "Lessor Trust"); WILMINGTON TRUST COMPANY, a Delaware banking corporation, individually as set forth herein and as Trustee under the Lessor Trust ("Owner Trustee"); BMO GLOBAL CAPITAL SOLUTIONS, INC., a Delaware corporation formerly known as BMO Leasing (U.S.), Inc., as a Certificate Holder (together with any permitted successors and assigns thereto, each a "Certificate Holder" and collectively the "Certificate Holders"); BMO GLOBAL CAPITAL SOLUTIONS, INC., a Delaware corporation formerly known as BMO Leasing (U.S.), Inc., as Agent Certificate Holder for the Certificate Holders (in such capacity, the "Agent Certificate Holder"); BANK OF MONTREAL, a Canadian banking organization ("BMO"), and the other various financial institutions as are or may from time to time become lenders (the "Lenders") under the Loan Agreement; and BMO as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders and as Arranger (in such capacity, the "Arranger"). Terms defined in the Participation Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the Lessee, the Guarantor, the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders, the Administrative Agent and the Arranger have entered into the Participation Agreement; and WHEREAS, the parties hereto desire to amend the Participation Agreement and Appendix A to the Participation Agreement as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendment to Participation Agreement and Appendix A. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), the Participation Agreement and Appendix A shall be amended in accordance with this Section: Section 1.1. The definition of "Existing Credit Agreement" appearing in Appendix A is hereby amended by inserting the following phrase at the end thereof: "and the Second Amendment thereto dated as of March 13, 2003." Section 1.2. The definition of "Maturity Date" appearing in Appendix A is hereby amended in its entirety to read as follows: "Maturity Date" means with respect to the Loans and the Certificate Holder Amounts, the earlier of (a) December 31, 2003 and (b) the date on which the Existing Credit Agreement is paid in full. Notwithstanding anything to the contrary in any Operative Document, the period between April 30, 2003 and the Maturity Date, as amended above, shall be deemed to be a "Renewal Term" for purposes of the Operative Documents. Section 1.3. Administrative Agent and each of the Participants hereby approve, for purposes of Section G of Appendix A, the new definitions and amendments to definitions set forth in the Existing Credit Agreement and such new definitions and changes to definitions shall be incorporated in Appendix A. Section 1.4. Section 4.4(e) is hereby amended by deleting the phrase "on each Scheduled Payment Date" and replacing it with "on the last day of March, June, September and December hereafter." Section 1.5. The table set forth in Section 10.2(a) is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Fixed Charge Coverage Ratio - --------------------------------- ----------------------------------- December 31, 2002 0.70 to 1 March 31, 2003 0.76 to 1 June 30, 2003 0.73 to 1 September 30, 2003 0.68 to 1 December 31, 2003 1.01 to 1 March 31, 2004 1.10 to 1 June 30, 2004 1.00 to 1
Section 1.6. The table set forth in Section 10.2(n) is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Interest Coverage Ratio - --------------------------------- ------------------------------- December 31, 2002 1.75 to 1 March 31, 2003 1.65 to 1 June 30, 2003 1.75 to 1 September 30, 2003 1.85 to 1 December 31, 2003 2.32 to 1 March 31, 2004 2.58 to 1 June 30, 2004 2.74 to 1
Section 1.7. The table set forth in Section 10.2(o) is amended in its entirety to read as follows:
Twelve Month Period ending on or about Minimum Amount - -------------------------------------- -------------- December 31, 2002 $1,975,000,000
2 January 31, 2003 $1,834,400,000 February 28, 2003 $1,795,700,000 March 31, 2003 $1,750,700,000 April 30, 2003 $1,737,300,000 May 31, 2003 $1,750,900,000 June 30, 2003 $1,737,600,000 July 31, 2003 $1,728,800,000 August 31, 2003 $1,724,800,000 September 30, 2003 $1,725,400,000 October 31, 2003 $1,728,000,000 November 30, 2003 $1,709,100,000 December 31, 2003 $1,702,900,000 January 31, 2004 $1,700,000,000 February 29, 2004 $1,697,600,000 March 31, 2004 $1,694,500,000 April 30, 2004 $1,690,300,000 May 31, 2004 $1,682,900,000 June 30, 2004 $1,676,300,000
Section 1.8. The table set forth in Section 10.2(q) is amended in its entirety to read as follows:
Twelve Month Period ending on or about Minimum Adjusted EBITDA - -------------------------------------- ----------------------- December 31, 2002 $100,000,000 January 31, 2003 $97,200,000 February 28, 2003 $92,400,000 March 31, 2003 $87,400,000 April 30, 2003 $87,100,000 May 31, 2003 $83,900,000 June 30, 2003 $78,400,000 July 31, 2003 $72,900,000 August 31, 2003 $70,300,000 September 30, 2003 $68,200,000 October 31, 2003 $67,100,000 November 30, 2003 $66,000,000 December 31, 2003 $68,800,000 January 31, 2004 $69,400,000 February 29, 2004 $70,100,000 March 31, 2004 $73,700,000 April 30, 2004 $71,600,000 May 31, 2004 $71,700,000 June 30, 2004 $73,000,000
3 Section 1.9. The Participants agree that notwithstanding anything to the contrary set forth in the Participation Agreement or any other Operative Document, all payments of principal (heretofore and hereafter made) on the Lease Balance other than from proceeds of the sale of the Property shall be first applied to the Loans until the Loans are paid in full and thereafter to the Certificate Holder Amounts. Section 2. Fixed Rent. The Agent Certificate Holder and the Lessee hereby agree that, notwithstanding anything to the contrary contained in any Operative Document, the Fixed Rent shall remain the amount set forth on Schedule III to the Lease Supplement during the Renewal Term. Section 3. Representations and Warranties. The Guarantor represents and warrants to the Administrative Agent and the Participants that, after giving effect hereto, (a) each representation and warranty (as amended hereby) set forth in Section 8.2 of the Participation Agreement (except for those set forth in Sections 8.2(j), 8.2(l), 8.2(q) and 8.2(t)), is true and correct as of the date of the execution and delivery of this Amendment by the Guarantor with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), provided that the representations and warranties contained in Section 8.2(n) shall be deemed to be made in light of the letter dated August 26, 2002 by the Guarantor to each of the Benefited Parties (as defined in the Intercreditor Agreement) and (b) no Event of Default or Unmatured Event of Default exists. Section 4. Effectiveness. The amendments set forth in Section 1 above shall become effective on the date (the "Amendment Effective Date") when the Administrative Agent shall have received (a) to the extent then billed, all costs and expenses of the Administrative Agent in connection with this Amendment (including reasonable attorneys' fees and charges and all costs, expenses and charges for a field examination) and (b) counterparts of this Amendment executed by the Guarantor, the Lessee and the Required Participants Section 5. Miscellaneous. Section 5.1. Continuing Effectiveness, etc. As herein amended, the Participation Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Participation Agreement and the other Operative Documents to "Participation Agreement", or similar terms shall refer to the Participation Agreement, as amended hereby. Section 5.2. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. Section 5.3. Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of Illinois. 4 Section 5.4. Successors and Assigns. This Amendment shall be binding upon the Lessee, the Guarantor, the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders, the Administrative Agent and the Arranger and their respective successors and assigns, and shall inure to the benefit of the Lessee, Guarantor the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders and the Administrative Agent and the respective successors and assigns of the Lessor Trust, the Owner Trustee, the Certificate Holders, the Agent Certificate Holder, the Lenders and the Administrative Agent. Section 5.5. Participation of Guaranty. By execution of this Amendment, Guarantor hereby restates, ratifies and reaffirms in full its obligations under the Guaranty. Section 5.6. Consents. Notwithstanding any provision in the Operative Documents to the contrary, each signatory hereto hereby consents to the Second Amendment to the Existing Credit Agreement and to the amendments to the Financing Agreements set forth as Exhibits B and C thereto. Section 5.7. Further Assurances. Upon the request of the Required Participants, the Guarantor agrees to provide and cause its Subsidiaries to provide to the Participants such additional amendments, consents, reaffirmations and ancillary documentation as is necessary or advisable, in the sole reasonable discretion of the Required Participants, to ensure that the Collateral Documents are in full force and effect in all respects. 5 Delivered at Chicago, Illinois, as of the day and year first above written. TRUSERV CORPORATION, as Lessee Agent, Construction Agent and Guarantor By : /s/ BARBARA L. WAGNER --------------------------------- Its Vice President MARYGREEN, LLC, as Lessee By: TruServ Corporation, its sole member By : /s/ BARBARA L. WAGNER ---------------------------------- Its Vice President BMO GLOBAL CAPITAL SOLUTIONS, INC., formerly known as BMO Leasing (U.S.), Inc., as Agent Certificate Holder and as a Certificate Holder By : /s/ MICHAEL P. JOYCE ---------------------------------- Its President BANK OF MONTREAL, as Administrative Agent, Arranger and as a Lender By : /s/ JACK J. KANE --------------------------------- Its Vice President WILMINGTON TRUST COMPANY, not in its individual capacity, except as expressly provided herein, but solely as Owner Trustee By : /s/ MONICA M. HENRY ---------------------------------- Its Senior Financial Services Officer TRUSERV 1998 TRUST, as Lessor Trust By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee By : /s/ MONICA M. HENRY --------------------------------- Its Senior Financial Services Officer 6 EX-4.AC 15 c75265exv4wac.txt 2ND AMENDMENT TO THE 2ND AMENDED/RESTATED CR. AG. EXHIBIT 4-AC SECOND AMENDMENT THIS SECOND AMENDMENT dated as of March 13, 2003 (this "Amendment") amends the Second Amended and Restated Credit Agreement dated as of April 11, 2002 (as previously amended, the "Credit Agreement") among TruServ Corporation (the "Company"), various financial institutions from time to time party thereto (the "Lenders") and Bank of America, N.A., as agent for the Lenders (in such capacity, the "Agent"). Capitalized terms used but not otherwise defined herein have the respective meanings given to them in the Credit Agreement. WHEREAS, the Company, the Lenders and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendments. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), the Credit Agreement shall be amended as set forth below: 1.1 Amendment to Definition of "Business Plan". The definition of "Business Plan" is amended in its entirety to read as follows: Business Plan means the business plan of the Company which was delivered by the Company to the Agent on February 14, 2003; provided that, with respect to financial reports relating to the periods prior to 2003, "Business Plan" means the Business Plan of the Company dated March 20, 2002 which was delivered by the Company to the Agent. 1.2 Amendment to Section 7.1. The table set forth in Section 7.1 is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Fixed Charge --------------------------------- Coverage Ratio -------------- December 31, 2002 0.70 to 1 March 31, 2003 0.76 to 1 June 30, 2003 0.73 to 1 September 30, 2003 0.68 to 1 December 31, 2003 1.01 to 1 March 31, 2004 1.10 to 1 June 30, 2004 1.00 to 1
1.3 Amendment to Section 7.14. The table set forth in Section 7.14 is amended in its entirety to read as follows:
Fiscal quarter ending on or about Minimum Interest --------------------------------- Coverage Ratio -------------- December 31, 2002 1.75 to 1 March 31, 2003 1.65 to 1 June 30, 2003 1.75 to 1 September 30, 2003 1.85 to 1 December 31, 2003 2.32 to 1 March 31, 2004 2.58 to 1 June 30, 2004 2.74 to 1
1.4 Amendment to Section 7.15. The table set forth in Section 7.15 is amended in its entirety to read as follows:
Fiscal period ending on or about Minimum Amount ------------------------------- -------------- December 31, 2002 $1,975,000,000 January 31, 2003 $1,834,400,000 February 28, 2003 $1,795,700,000 March 31, 2003 $1,750,700,000 April 30, 2003 $1,737,300,000 May 31, 2003 $1,750,900,000 June 30, 2003 $1,737,600,000 July 31, 2003 $1,728,800,000 August 31, 2003 $1,724,800,000 September 30, 2003 $1,725,400,000 October 31, 2003 $1,728,000,000 November 30, 2003 $1,709,100,000 December 31, 2003 $1,702,900,000 January 31, 2004 $1,700,000,000 February 29, 2004 $1,697,600,000 March 31, 2004 $1,694,500,000 April 30, 2004 $1,690,300,000 May 31, 2004 $1,682,900,000 June 30, 2004 $1,676,300,000
2 1.5 Amendment to Section 7.17. The table set forth in Section 7.17 is amended in its entirety to read as follows:
Fiscal period ending on or about Minimum Adjusted -------------------------------- EBITDA ------ December 31, 2002 $100,000,000 January 31, 2003 $ 97,200,000 February 28, 2003 $ 92,400,000 March 31, 2003 $ 87,400,000 April 30, 2003 $ 87,100,000 May 31, 2003 $ 83,900,000 June 30, 2003 $ 78,400,000 July 31, 2003 $ 72,900,000 August 31, 2003 $ 70,300,000 September 30, 2003 $ 68,200,000 October 31, 2003 $ 67,100,000 November 30, 2003 $ 66,000,000 December 31, 2003 $ 68,800,000 January 31, 2004 $ 69,400,000 February 29, 2004 $ 70,100,000 March 31, 2004 $ 73,700,000 April 30, 2004 $ 71,600,000 May 31, 2004 $ 71,700,000 June 30, 2004 $ 73,000,000.
SECTION 2 Representations and Warranties. The Company represents and warrants to the Agent and the Lenders that, after giving effect hereto, (a) each representation and warranty set forth in Article V of the Credit Agreement is true and correct as of the date of the execution and delivery of this Amendment by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date) subject, in the case of the representations and warranties contained in Sections 5.2 and 5.12 of the Credit Agreement, to the matters disclosed in the waiver letter dated October 3, 2002 executed by the Lenders, and (b) no Event of Default or Unmatured Event of Default exists. SECTION 3 Effectiveness. The amendments set forth in Section 1 above shall become effective on the date (the "Amendment Effective Date") when the Agent shall have received the following: (a) to the extent then billed, all costs and expenses of the Agent in connection with this Amendment (including reasonable attorneys' fees and charges and all costs, expenses and charges for a field examination); (b) counterparts of this Amendment executed by the Company and the Required Lenders; 3 (c) a Confirmation, substantially in the form of Exhibit A, signed by the Company and each Guarantor; and (d) evidence that the Company shall have entered into amendments to the Senior Note Agreements and the Shelf Note Agreement (each as defined in the Intercreditor Agreement) in form and substance reasonably satisfactory to the Agent. SECTION 4 Miscellaneous. 4.1 Continuing Effectiveness, etc. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "this Agreement", "the Credit Agreement" or similar terms shall refer to the Credit Agreement as amended hereby. 4.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of Illinois applicable to contracts made and to be performed entirely within such state. 4.4 Successors and Assigns. This Amendment shall be binding upon the Company, the Lenders and the Agent and their respective successors and assigns, and shall inure to the benefit of the Company, the Lenders and the Agent and the respective successors and assigns of the Lenders and the Agent. 4.5 Consents. Notwithstanding any provision in the Credit Agreement to the contrary, the Required Lenders consent to the amendments to the Financing Agreements set forth as Exhibits B, C and D hereto. 4.6 Further Assurances. Upon the request of the Required Lenders, the Company agrees to provide and cause its Subsidiaries to provide to the Lenders such additional amendments, consents, reaffirmations and ancillary documentation as is necessary or advisable, in the sole reasonable discretion of the Required Lenders, to ensure that the Collateral Documents are in full force and effect in all respects. 4 Delivered at Chicago, Illinois, as of the day and year first above written. TRUSERV CORPORATION By: /s/ BARBARA L. WAGNER ---------------------------------- Title: Vice President ------------------------------- BANK OF AMERICA, N.A., as Agent By: /s/ RONALD PRINCE ---------------------------------- Title: Senior Vice President ------------------------------- BANK OF AMERICA, N.A., as a Lender By: /s/ RONALD PRINCE ---------------------------------- Title: Senior Vice President ------------------------------- 5 BANK OF MONTREAL By: /s/ HEATHER TURF --------------------------------- Title: Director ------------------------------ 6 BANK ONE, NA (Main Office Chicago) By: /s/ RICHARD BABCOCK --------------------------------- Title: First Vice President ------------------------------ 7 PNC BANK, NATIONAL ASSOCIATION By: /s/ GARY BEST -------------------------------- Title: Vice President ----------------------------- 8 WACHOVIA BANK, N.A. By: /s/ JAMES BARWIS --------------------------------- Title: Director ------------------------------ 9 THE NORTHERN TRUST COMPANY By: /s/ OLGA GEORGIEV --------------------------------- Title: Vice President ------------------------------ 10 ABN AMRO BANK N.V. By: --------------------------------- Title: ------------------------------ By: --------------------------------- Title: ------------------------------ 11 NATIONAL CONSUMER COOPERATIVE BANK By: /s/ MARK W. HILTZ --------------------------------- Title: Managing Director ------------------------------ 12 UMB BANK, N.A. By: /s/ TERRY DIERKS --------------------------------- Title: Senior Vice President ------------------------------ 13 Exhibit A CONFIRMATION Dated as of March 13, 2003 To: Bank of America, N.A., individually and as Collateral Agent, and the the other "Benefited Parties" as defined in the Intercreditor Agreement referred to below Please refer to: (a) the First Amended and Restated Intercreditor Agreement dated as of April 11, 2002 (the "Intercreditor Agreement"; capitalized terms used but not defined herein have the respective meanings ascribed thereto in the Intercreditor Agreement) among various creditors of TruServ Corporation and Bank of America, N.A., as Collateral Agent; (b) the Second Amendment dated as of the date hereof to the Credit Agreement; (c) the Second Amendments dated as of the date hereof to the Senior Note Agreements; and (d) the Second Amendment dated as of the date hereof to the Shelf Note Agreement. Each of the undersigned hereby confirms to the Collateral Agent and each of the other Benefited Parties that, after giving effect to Second Amendments referred to in clauses (b), (c) and (d) of the preceding paragraph and the transactions contemplated thereby, the Guaranty and each Collateral Document to which such undersigned is a party continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms. TRUSERV ACCEPTANCE COMPANY TRUSERV LOGISTICS COMPANY GENERAL PAINT & MANUFACTURING COMPANY MARYGREEN, LLC TRUE VALUE.COM CORPORATION ADVOCATE SERVICES, INC. SERVISTAR PAINT COMPANY By: /s/ BARBARA L. WAGNER ------------------------------------ Name Printed: Barbara L. Wagner Title: Vice President 14 EXHIBIT B-D AMENDMENTS TO FINANCING AGREEMENTS 15 EX-10.C 16 c75265exv10wc.txt DEFINED LUMP SUM PENSION PLAN EXHIBIT 10-C TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN As Amended and Restated as of January 1, 1998 TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN TABLE OF CONTENTS
PAGE INTRODUCTION -- SECTION 1................................................................................. 1 1.1 History of Plan........................................................................... 1 1.2 Preservation of Rights.................................................................... 1 1.3 Intent to Comply.......................................................................... 1 1.4 Application of Plan....................................................................... 1 DEFINITIONS -- SECTION 2.................................................................................. 2 2.1 Definitions............................................................................... 2 PARTICIPATION -- SECTION 3................................................................................ 10 3.1 Date of Participation..................................................................... 10 3.2 Events Affecting Participation............................................................ 11 3.3 Participation upon Reemployment........................................................... 11 NORMAL PENSION -- SECTION 4............................................................................... 12 4.1 Formula................................................................................... 12 4.2 Eligibility and Commencement -- Normal Pension............................................ 12 4.3 Amount of Normal Pension.................................................................. 12 4.4 Terminations and Retirements Before January 2, 1998....................................... 14 4.5 Uniformed Services Employment and Reemployment Rights..................................... 14 4.6 SERVISTAR Plan............................................................................ 14 IMMEDIATE, EARLY AND LATE PENSION -- SECTION 5............................................................ 15 5.1 Immediate Pension......................................................................... 15 5.2 Early Retirement Pension.................................................................. 15 5.3 SERVISTAR Plan............................................................................ 15 5.4 Late Retirement Pension................................................................... 15 NORMAL FORM OF PAYMENT -- SECTION 6....................................................................... 16 6.1 Normal Form of Payment -- Joint and Survivor.............................................. 16 6.2 Normal Form of Payment -- Single Life Annuity............................................. 16 6.3 Optional Forms of Payment................................................................. 16 6.4 Election of Option........................................................................ 17 6.5 Notice to Participants.................................................................... 17 6.6 SERVISTAR Protected Payment Forms......................................................... 17 6.7 Payment of Pension to the Participant..................................................... 18
TABLE OF CONTENTS (CONTINUED)
PAGE 6.8 Payment Options........................................................................... 18 6.9 Minimum Amounts to be Paid................................................................ 19 6.10 TEFRA Transition Rule Elections........................................................... 20 6.11 Restoration of Retired Participant or Other Former Associate to Service................... 21 6.12 Direct Rollover of Certain Distributions.................................................. 21 SURVIVING SPOUSE BENEFIT -- SECTION 7..................................................................... 22 7.1 Eligibility............................................................................... 22 7.2 Amount.................................................................................... 23 7.3 Payments.................................................................................. 23 7.4 Minimum Benefit and Payment Form.......................................................... 24 TRUST FUND AND TRUSTEE -- SECTION 8....................................................................... 24 8.1 Trust Fund................................................................................ 24 8.2 Trust Fund Applicable Only to Payment of Benefits and Expenses............................ 24 8.3 Trustee Capacity.......................................................................... 24 8.4 Resignation and Removal of Trustee........................................................ 25 8.5 Taxes, Expenses and Compensation of Trustee............................................... 25 8.6 Funding Policy and Investment Managers.................................................... 25 FUNDING OF BENEFITS -- SECTION 9.......................................................................... 26 9.1 Contributions to the Fund................................................................. 26 9.2 Fund for Exclusive Benefit of Participants................................................ 26 9.3 Disposition of Credits and Forfeitures.................................................... 26 PLAN ADMINISTRATOR -- SECTION 10.......................................................................... 26 10.1 Plan Administrator/Appointment of Committee............................................... 26 10.2 Duties and Authority...................................................................... 27 10.3 Removal of Plan Administrator............................................................. 27 10.4 Appointment of Successor Plan Administrator............................................... 28 10.5 Plan Administration -- Miscellaneous...................................................... 28 AMENDMENT AND TERMINATION OF PLAN -- SECTION 11........................................................... 32 11.1 Amendment -- General...................................................................... 33 11.2 Amendment -- Merger or Consolidation of Plan.............................................. 33 11.3 Termination of Plan....................................................................... 33 SECTION 12................................................................................................ 33 12.1 Limitation Concerning Highly Compensated Employees or Highly Compensated Former Employees................................................................................. 33
TABLE OF CONTENTS (CONTINUED)
PAGE SPECIAL PENSION BENEFITS PROVISIONS -- SECTION 13......................................................... 34 13.1 Statutory Maximum Pension Benefits........................................................ 34 13.2 Top-Heavy Provisions...................................................................... 41 SUPPLEMENT A.............................................................................................. 46 SUPPLEMENT B.............................................................................................. 47 SUPPLEMENT C.............................................................................................. 48 SUPPLEMENT D.............................................................................................. 59 SUPPLEMENT E.............................................................................................. 60
INTRODUCTION -- SECTION 1 1.1 HISTORY OF PLAN As of January 1, 1958, Cotter & Company established a program for providing retirement income and other benefits for certain of its Associates and their beneficiaries. This program was set forth in a document entitled the Cotter & Company Pension Plan. Since the Cotter & Company Pension Plan was initially established, it has been amended and restated and its name changed to the Cotter & Company Defined Lump Sum Pension Plan. On July 1, 1997, Cotter & Company and SERVISTAR COAST TO COAST Corporation merged to form TruServ Corporation. In conjunction with the merger, the Cotter & Company Defined Lump Sum Pension Plan changed its name to be known as the TruServ Corporation Defined Lump Sum Pension Plan effective as of January 1, 1998. On January 2, 1998, the TruServ Corporation Defined Lump Sum Pension Plan and the SERVISTAR COAST TO COAST Corporation Retirement Income Plan were combined. Between July 1, 1997 and January 1, 1998, all Associates of the TruServ Corporation who were participants in the SERVISTAR Plan on June 30, 1997 remained participants in the SERVISTAR Plan. All benefit accruals under the SERVISTAR COAST TO COAST Corporation Retirement Income Plan ceased as of December 31, 1997. On January 2, 1998, all participants under the SERVISTAR Plan became Participants under the TruServ Corporation Defined Lump Sum Pension Plan and will be entitled to the retirement benefits described in this Plan, including current accruals beginning on January 1, 1998. 1.2 PRESERVATION OF RIGHTS No provisions, other than those required to maintain this Plan as one qualified under Section 401(a) of the Code, of any previous amendment, this amendment and restatement of the Plan, or any future amendment shall operate to diminish or otherwise adversely affect the amount or terms of retirement income accrued in respect to a Participant's coverage under the Plan prior to the effective date of any such amendment or restatement. 1.3 INTENT TO COMPLY It is the intent of the Employer that the Plan shall be established and maintained (1) as a retirement program which is in full compliance with ERISA, and (2) as a qualified plan under the terms of Section 401(a) of the Internal Revenue Code of 1986 as amended from time to time. 1.4 APPLICATION OF PLAN This Plan supersedes the Cotter & Company Defined Lump Sum Pension Plan and the SERVISTAR COAST TO COAST Corporation Retirement Income Plan, both in effect on December 31, 1997. With respect to all persons who have retired on or prior to December 31, 1997, retirement benefits will be made in accordance with such plan in effect on the date of retirement or separation from service. With respect to all persons who retire or otherwise separate from service on or after January 1, 1998, the retirement benefits will be made in accordance with the terms of the Plan. Notwithstanding the preceding effective dates, the provisions of this amended and restated Plan described in Supplement E shall have effective dates which are prior to January 1, 1998 and are applicable to the Prior Plan, and the SERVISTAR Plan as each plan existed at that time. DEFINITIONS -- SECTION 2 2.1 DEFINITIONS The terms, as capitalized and defined in this Section, shall for all purposes of this Plan have the meaning described in this Section unless the context clearly requires otherwise or as otherwise expressly provided. (A) ACCRUED BENEFIT -- The yearly Pension commencing on the Participant's Normal Retirement Date determined in accordance with Section 4, as if the Participant's termination of employment occurred on the date of determination and he had a Vesting Percentage of 100%. (B) ACTUARIAL EQUIVALENT OR ACTUARIALLY EQUIVALENT -- The amount of equal value when computed on the basis of the actuarial assumptions set forth in Supplement A of the Plan. Application of such assumptions to the computation of benefits under the Plan shall be made uniformly and consistently with respect to all Participants in similar circumstances. (C) ADJUSTMENT FACTOR -- The appropriate adjustment factor(s) which may be applicable to a Participant's Pension in accordance with the further terms of the Plan. (D) AFFILIATED EMPLOYER -- Any company not participating in the Plan which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which also includes as a member the Employer; any trade or business under common control (as defined in Section 414(c) of the Code) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to regulations under Section 414(o) of the Code. Notwithstanding the foregoing sentence, for purposes of Section 13.1, the definitions in Sections 414(b) and (c) of the Code shall be modified as provided in Section 415(h) of the Code. (E) ANNUITY STARTING DATE -- The first day of the first period for which an amount is payable as an annuity or in the case of a lump sum payment the first date on which all events have occurred which entitle a Participant to such benefit. (F) ASSOCIATE -- Any person in the employ of the Employer, but excluding any person who is: (1) a Leased Employee; (2) in a unit of Associates covered by a collective bargaining agreement which does not provide for participation in the Plan; 2 (3) a participant, or eligible to become a participant, in any other retirement or pension plan (except the TruServ Corporation Savings and Compensation Deferral Plan) intended to qualify under Section 401(a) of the Code and which is established by the Employer or to which the Employer makes any contribution; or (4) any person who is treated as being other than a common law employee on the payroll records of the Employer, including any person classified as an independent contractor or consultant by the Employer during the period such person is so classified by the Employer regardless of such person's reclassification for such period by the Internal Revenue Service or other controlling authority for tax withholding purposes. The term "Associate" as used in this Plan means any person who is employed by the Employer or an Affiliated Employer as a common law employee of the Employer or an Affiliated Employer, regardless of whether the person is an "Associate," and any Leased Employee. The term "Leased Employee" as used in the Plan means any person (other than a person in the employ of the Employer) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(b) of the Code), on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an employee of the recipient if: (i) such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Section 415(c) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Section 125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code; (2) immediate participation; and (3) full and immediate vesting; and (ii) leased employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force. (G) AVERAGE COMPENSATION -- Effective January 1, 2002, the annual average of the Compensation of an Associate during three calendar years within the ten calendar years up to and including the calendar year of such Associate's termination of employment which yield the highest average. Prior to January 1, 2002, the annual average of the Compensation of an Associate during the three consecutive calendar years within the ten calendar years up to and including the calendar year of such Associate's termination of employment which yield the highest average. (H) BENEFICIARY -- The person or persons named by a Participant by written designation filed with the Employer to receive payments after the Participant's death as provided in Section 7.4. (I) CODE -- The Internal Revenue Code of 1986, as amended from time to time. 3 (J) COMMITTEE -- The individuals appointed by the Employer to administer the Plan as described in Section 10.1. (K) COMPENSATION -- For any calendar year is the total cash compensation (including commissions, bonuses [other than sign-on bonuses], overtime pay, sick pay, vacation pay and holiday pay) paid to him by the Employer during that calendar year for personal services rendered to an Employer as an Associate, plus elective deferrals under Sections 125 and 401(k) of the Code (and for Plan Years beginning after December 31, 1997, Section 132(f) of the Code) for that calendar year, but excluding severance pay, moving or relocation allowances or bonuses, tuition reimbursements, auto or travel expense allowances or bonuses, or any other extraordinary remuneration. During the period of any Leave of Absence, an Associate shall be deemed to receive Compensation at the annual rate of Compensation actually received by him during such period, or, if no compensation is paid, the annual rate of Compensation immediately prior to the commencement of such Leave of Absence. However, effective on and after the first day of the Plan Year beginning in 1989 and before the first day of the Plan Year beginning in 1994, Compensation taken into account for any purpose under the Plan, including the determination of Average Compensation, shall not exceed $200,000 per year. Except as provided below, as of January 1 of each calendar year on and after January 1, 1990 and before January 1, 1994, the applicable limitation as determined by the Commissioner of Internal Revenue for that calendar year shall become effective as the maximum Compensation to be taken into account for Plan purposes for 12-month compensation computation periods beginning within that calendar year only in lieu of the $200,000 limitation set forth above. Commencing with the Plan Year beginning in 1994, Compensation taken into account for any purpose under the Plan, including the determination of Average Compensation, shall not exceed $150,000 (as adjusted from time to time by the Secretary of the Treasury in accordance with Section 401(a)(17)(B) of the Code). Effective January 1, 1997, the compensation limit shall be applied without regard to the family aggregation provisions of the now repealed Section 414(q)(6) of the Code in determining benefit accruals for Plan Years beginning on and after January 1, 1997, and, to the extent permissible under the Internal Revenue Service rules or regulations, for any earlier Plan Year. Solely for purposes of this subsection 2.1(K), for those individuals who were employed by SERVISTAR Corporation or SERVISTAR COAST TO COAST Corporation and who were participants in the SERVISTAR Corporation Retirement Income Plan or the SERVISTAR COAST TO COAST Corporation Retirement Income Plan, Compensation for periods beginning before January 1, 1998 shall include "Earnings" as defined in the SERVISTAR Plan as restated in Supplement C hereto subject to the above statutory limits and for the purposes of this Plan recasted on a calendar year basis assuming level "Earnings." Compensation shall not include any "Earnings" received by an individual while an Associate of Coast to Coast Stores, Inc. (L) DEFINED LUMP SUM -- The amount determined under Section 4.3(B). (M) DISABILITY INSURANCE PLAN -- Any plan from time to time in force which provides for the payment of income benefits to Associates of an Employer by reason of disability resulting from accident or sickness. 4 (N) EFFECTIVE DATE -- January 1, 1998, unless otherwise noted. (O) EMPLOYER -- On and after July 1, 1997, Employer shall mean TruServ Corporation or any successor by merger, purchase or otherwise, with respect to its Associates. Before July 1, 1997, Employer shall mean Cotter & Company, a Delaware corporation, and any Affiliated Employer which adopted the Plan by resolution of its board of directors and with the consent of Cotter & Company. (P) EMPLOYMENT CONTINUITY -- The period commencing with the date on which an Associate first performs an Hour of Service for an Employer or an Affiliated Employer and ending on the first day of the 12-month period in which the Associate incurs a One-Year Break in Service; provided, however, that if an Associate leaves the employ of the Employer or an Affiliated Employer other than pursuant to an authorized Leave of Absence and does not return until after a One-Year Break in Service, his Employment Continuity upon return to employment by the Employer or an Affiliated Employer shall be determined on the basis of the date on which the Associate first performs an Hour of Service subsequent to his return to the employ of the Employer or an Affiliated Employer. A former Associate who terminates employment and is reemployed by the Employer or an Affiliated Employer before incurring a One-Year Break in Service will not be deemed to have terminated employment with the Employer or an Affiliated Employer. Solely for purposes of determining Employment Continuity with respect to all persons who were active participants in the SERVISTAR Plan on December 31, 1997, for periods on or before June 30, 1997, Employer means SERVISTAR COAST TO COAST Corporation and its predecessors. (Q) ERISA -- The Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and any regulations issued pursuant thereto. (R) FUND -- The fund or funds established by separate written agreement between the Employer and an insurance company and/or trustee or trustees for the purpose of accumulating contributions made in accordance with the Funding of Benefits Section and paying the benefits and expenses described in certain other Sections of this Plan. (S) HIGHLY COMPENSATED EMPLOYEE -- With respect to a Plan Year commencing on or after January 1, 1997, any Associate of the Employer or an Affiliated Employer (whether or not eligible for the Plan) who (i) was a 5% owner of the Employer for such Plan Year or the prior Plan Year, or (ii) for the preceding Plan Year received "statutory compensation" in excess of $80,000. The $80,000 amount is adjusted at the same time and in the same manner as under Section 415(d), except that the base period is the calendar quarter ending September 30, 1996. For purposes of the foregoing, the applicable year of the Plan for which a determination is being made is called a determination year and the preceding 12-month period is called a look-back year. A highly compensated former employee is based on the rules applicable to determining highly compensated employee status as in effect for that determination year, in accordance with Section 5 1.414(q)-1T, A-4 of the Temporary Treasury Regulations and Internal Revenue Service Notice 97-45. Notwithstanding the foregoing, Associates who are nonresident aliens and who receive no earned income from the Employer or an Affiliated Employer which constitutes income from sources within the United States shall be disregarded for all purposes of this Section. The provisions of this definition shall be further subject to such additional requirements as shall be described in Section 414(q) of the Code and its applicable regulations, which shall override any aspects of this Section inconsistent therewith. (T) HOUR OF SERVICE -- With respect to the applicable computation period: (1) each hour for which the Associate is either directly or indirectly paid by the Employer or Affiliated Employer or entitled to payment for the performance of duties for the Employer or an Affiliated Employer; and (2) up to a maximum of 501 hours for reasons other than the performance of duties (such as but not limited to paid sick leave, paid vacation time), irrespective of whether the employment relationship has terminated, which hours shall be credited to the Associate during the computation period in which payment is made or amounts payable to the Associate become due, and (3) each hour for which back pay is either awarded or agreed to by the Employer or an Affiliated Employer, irrespective of mitigation of damages, which hour shall be credited to the Associate for the computation period to which the award, agreement or payment pertains, rather than the period in which the award, agreement or payment was made. The same hours of service shall not be credited under more than one paragraph of this definition. In no event will Hours of Service be allowed and computed in a manner less liberal than the manner described in the Department of labor Regulation 2530.200b-2. Solely for purposes of this subsection 2.1(T), the term Associate shall be deemed to include any person who is in the common law employ of the Employer or an Affiliated Employer so that Associates may be credited under the Plan with Hours of Service for participation purposes for period of employment during which they are not Associates as such term is defined in subsection 2.1(F). (U) LEAVE OF ABSENCE -- A temporary absence from active service with the Employer or an Affiliated Employer that, in the discretion of the Employer or an Affiliated Employer, may be granted to an Associate because of temporary incapacity or other good cause. If an Associate on a Leave of Absence does not return to employment with the Employer or an Affiliated Employer within the period authorized by the Employer or an Affiliated Employer, the Associate's employment shall be deemed to have terminated as of the first day following the period of the Leave of Absence. A Participant shall automatically be entitled to a Leave of 6 Absence during any period of time for which he is eligible to receive a benefit under a Disability Insurance Plan. (V) NAMED FIDUCIARY -- For purposes of ERISA, is the Committee appointed in Section 10. (W) NORMAL RETIREMENT DATE - For benefit eligibility and vesting purposes, the day on which the Participant attains his 65th birthday. For all other purposes, the first day of the month coinciding with or next following the Participant's 65th birthday. (X) ONE-YEAR BREAK IN SERVICE -- For an Associate, a 12-month period commencing on the date of an Associate's termination of employment and on each anniversary thereof during which such Associate is not employed (i.e., does not complete an Hour of Service) with an Employer or an Affiliated Employer. In the case of a maternity or paternity Leave of Absence, the 12-month period beginning on the first day of such absence shall not constitute a One-Year Break in Service. For purposes of this subsection 2.1(X), maternity or paternity Leave of Absence means an absence from work by reason of the Associate's pregnancy, birth of the Associate's child, or placement of a child with the Associate in connection with the adoption of such child, or an absence for the purpose of caring for such child for a period immediately following such birth or placement. (Y) PARTICIPANT -- Any Associate who becomes covered under this Plan. A former Associate who is entitled to a vested Pension under the Plan shall continue to be a Participant until he has received his vested Pension. (Z) PENSION -- Yearly payments (and lump sum payment, if elected) under the Plan in the amount provided in Section 4.1 and the forms provided in Section 7 payable to the Participant or his Beneficiary under the Plan as a consequence of the termination of employment of the Participant. (AA) PLAN -- The TruServ Corporation Defined Lump Sum Pension Plan as set forth in this document, as amended from time to time thereafter. (BB) PLAN ADMINISTRATOR -- The individual or group of individuals designated by the Employer to administer and supervise the Plan as provided in Section 10. (CC) PLAN YEAR -- The 12-month period commencing on a January 1 and ending on the following December 31. (DD) PRIOR PLAN -- The Cotter & Company Pension Plan in effect on December 31, 1995. (EE) PROTECTED BENEFITS -- As of any date of determination, the Accrued Benefit of a Participant and (1) any right of the Participant under the terms of the Plan as of such date to have such Accrued Benefit, and the Prior Plan benefit, commence on a date other than the Normal Retirement Date; (2) any right of the Participant under the terms of the Plan as of such date to have such Accrued Benefit, and the Prior Plan benefit, payable in an optional form of payment; and 7 (3) the methodology under the terms of the Plan as of such date for determining the amount of benefit payable as a result of the exercise of any right of the Participant expressed in paragraph (1) or (2) above. For the sole purposes of paragraph (3) above, any provision of the Plan that requires payment of a Participant's Pension in a form other than that described in Section 6.2 shall be considered to be the exercise of a right by the Participant therefor. See Sections 2.1(OO), 4.1(B), 5.3, 6.6 and 7.4 for any Protected Benefits rights with respect to the SERVISTAR Plan. (FF) QUALIFIED JOINT AND SURVIVOR ANNUITY -- (1) in the case of a 50% Qualified Joint and Survivor Annuity, an annuity for the life of the Participant with a survivor annuity for the life of his Spouse which is one-half of the amount of the annuity payable during the joint lives of the Participant and his Spouse, and which is the Actuarial Equivalent of a single annuity for the life of the Participant in the amount specified by the relevant provision of Section 4; and (2) in the case of a 100% Qualified Joint and Survivor Annuity, an annuity for the life of the Participant with an survivor annuity for the life of his Spouse which is equal to the amount of the annuity payable during the joint lives of the Participant and his Spouse, and which is the Actuarial Equivalent of a single annuity for the life of the Participant in the amount specified by the relevant provision of Section 4. (GG) RETIREMENT DATE -- The date on which the payment of a Participant's Pension is to commence as a result of his termination of employment, as determined in accordance with the further terms of the Plan. (HH) SERVISTAR -- Is SERVISTAR COAST TO COAST Corporation, which merged with Cotter & Company to form the TruServ Corporation on July 1, 1997. (II) SERVISTAR PLAN -- Is the SERVISTAR COAST TO COAST Corporation Retirement Income Plan in effect on December 31, 1997. Certain provisions of the SERVISTAR Plan are contained in Supplement C to this Plan to assist the Committee's administration of this Plan's provisions where they relate to the SERVISTAR Plan provisions. (JJ) SPOUSAL CONSENT - The Spouse's consent to the Participant's election of a form of payment other than Qualified Joint and Survivor Annuity must be in writing, must acknowledge the effect of the election, and the Spouse's signature must be witnessed by a Plan representative or notary public. Additionally, the Spouse's consent must specifically acknowledge any nonspouse Beneficiary designated by the Participant in conjunction with his election of an optional form of payment. The Participant may not subsequently designate another nonspouse Beneficiary without the further written consent of the Spouse. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that such written consent cannot be obtained because there is no Spouse; the Spouse cannot be located; of other circumstances as the Secretary of the 8 Treasury may by regulations prescribe, the Participant's election to waive coverage will be considered valid. Any consent necessary under this provision will be valid only with respect to the Spouse who signs the consent. A Participant is allowed to revoke his election without the consent of his Spouse. The number of his revocations is not limited. (KK) SPOUSE -- The lawful wife of a male Participant, or the lawful husband of a female Participant, on the Participant's Retirement Date, date of death, or other event date as the context requires, if earlier. (LL) TRUST -- The trust established with the Trustee to hold the assets which fund the benefits payable by the Plan. (MM) TRUSTEE - The Trustee of the Fund appointed by the Employer, which may be a bank, trust company or other corporation possessing trust powers under applicable state and Federal law, or one or more individuals or any combination thereof. (NN) VESTING PERCENTAGE -- The percentage which may be applied to a Participant's Accrued Benefit in accordance with the further terms of the Plan as determined below:
Vesting Percentage ---------- If he has 5 Years of Service 100% On his Normal Retirement Date 100% In all other cases 0%
Notwithstanding the above, a Participant shall have a 100% Vesting Percentage in his Accrued Benefit if he: (i) attained age 50, regardless of his Years of Service, and (ii) became a participant in the SERVISTAR Plan before July 1, 1996. (OO) YEAR OF SERVICE -- Shall be credited to each Participant based on the number of days during a Participant's period of Employment Continuity divided by 365.25 rounded to the nearest 1/10 of a year, subject to the following: (1) a Prior Plan participant shall be credited with his Years of Service earned through December 31, 1995 in accordance with provisions of the Prior Plan; (2) a Participant in the SERVISTAR Plan as of December 31, 1997 shall be credited with a minimum number of Years of Service which shall be equal to his Years of Service as of June 30, 1997 under the SERVISTAR Plan; (3) in addition, if an individual was a participant in the SERVISTAR Plan on July 1, 1997 and earned at least 500 hours of service (as defined in the SERVISTAR Plan and included in Supplement C hereto in which the Employer and Affiliated Employer referred to therein has the same meaning as defined in this Plan) during the period July 1, 1997 through December 31, 1997, he shall be credited with an additional one-half Year of 9 Service under this Plan and thereafter shall be credited with a Year of Service (and fractions thereof) as generally provided in this subsection (OO); (4) if a former Participant with no Vesting Percentage in the Plan again becomes a Participant in this Plan, his Years of Service prior to any One-Year Break in Service shall be taken into account only if the number of consecutive One-Year Breaks in Service is less than five; (5) no more than one Year of Service shall be granted to any individual for any period; and (6) notwithstanding any Plan provision to the contrary, for purposes of Section 4.3, no Year of Service shall be credited to any Participant for any of the following periods: (a) periods of employment with Coast to Coast Stores, Inc. occurring prior to July 1, 1996, (b) periods of employment with Advocate Services, Inc. occurring prior to January 1, 1998, (c) periods of employment while such person is in an employment classification, including but not limited to a unit of Associates covered by a collective bargaining agreement which does not provide for participation in this Plan, (d) periods of employment during which an employee was a participant (or eligible to be a participant) in any retirement plan which is intended to be qualified under the Code (except the TruServ Corporation Savings and Compensation Deferral Plan and the SERVISTAR Plan) sponsored by the Employer or an Affiliated Employer, (e) periods of employment as a Leased Employee as defined in Section 414(n) of the Code, (f) periods of employment for which an employee has received or is receiving benefits under this Plan. PARTICIPATION -- SECTION 3 3.1 DATE OF PARTICIPATION (A) Each Associate who: (1) was a Participant in the Cotter & Company Defined Lump Sum Pension Plan on January 1, 1998; or (2) was a Participant in the SERVISTAR Plan on January 1, 1998 shall automatically become a Participant in the Plan on January 2, 1998 provided that his Employment Continuity did not end on January 1, 1998. (B) Each other Associate will become a Participant under the Plan on the January 1 or July 1 which coincides with or next following the date the Associate has completed "one year of employment" and has attained age 21. (C) Notwithstanding any Plan provision to the contrary, each individual, who on January 1, 1998 was employed by Advocate Services, Inc. and who became an Associate of the Employer on January 2, 1998, shall commence participation in the Plan on January 2, 1998. 10 (D) For the purposes of this Section, an Associate shall be credited with "one year of employment" when he completes a 12-month period of employment during his period of Employment Continuity. (E) Notwithstanding any Plan provision to the contrary, for purposes of this Section, each individual who is hired as a temporary employee shall be credited with "one year of employment" for the 12-month computation period beginning on the date he first completes an Hour of Service if he completes at least 1,000 Hours of Service by the end of that period, and he shall become a Participant as provided in (B) above. If a temporary employee terminates employment prior to becoming a Participant, but after having worked 1,000 Hours of Service in the 12-month period during which he was employed, and is subsequently rehired, he shall become a Participant as of the first January 1 or July 1 which coincides with or immediately follows his reemployment. If he terminates employment, is subsequently rehired as a temporary employee, and had not worked 1,000 Hours of Service in the 12-month period commencing with his initial date of hire, his prior service shall be disregarded and he shall begin a new computation period and his Hours of Service shall be counted from his date of rehire. 3.2 EVENTS AFFECTING PARTICIPATION A person's participation in the Plan shall end when he is no longer employed by the Employer, if he is not entitled to either an immediate or a deferred Pension under the Plan. Participation shall continue while on a Leave of Absence or during a period while he is not an Associate but is in the employ of the Employer or an Affiliated Employer, but no Years of Service for the purpose of determining the Accrued Benefit shall be counted for that period, except as specifically provided otherwise in this Plan, and such person's Pension shall be determined in accordance with the provisions of the Plan in effect on the date he ceased to be an Associate. 3.3 PARTICIPATION UPON REEMPLOYMENT (A) If an Associate's participation in the Plan ends and he again becomes an Associate, he shall again become a Participant as of his date of restoration to service as an Associate if his Vesting Percentage was 100% or he had not incurred five One-Year Breaks in Service. In any other case, he will participate in the Plan when he again meets the requirements of Section 3.1 (B) However, if an Associate's employment is terminated before he participates in the Plan and: (i) he is later reemployed before he incurred a One-Year Break in Service, his employment after reemployment shall be aggregated with his previous period of employment and the period between his date of termination and his date of reemployment shall be included in his requirement of one year of employment; or (ii) he incurred at least a One-Year Break in Service and the length of his break in service exceeded his Service prior to his Break, his employment 11 before reemployment shall not be aggregated with his period of employment after his absence, in which case he will participate in the Plan when he meets the requirements of Section 3.1. NORMAL PENSION -- SECTION 4 4.1 FORMULA With respect to a Participant who retires or terminates on or after January 2, 1998, the Pension payable under the Plan is the greatest of (A), (B) or (C): (A) The Vesting Percentage of the Participant's Accrued Benefit determined in Section 4.3; or (B) The Vesting Percentage of the Participant's accrued benefit payable under the SERVISTAR Plan as of January 1, 1998, as modified by Sections 2.1(OO) and 4.6; or (C) The Vesting Percentage of the Participant's accrued benefit under the Prior Plan as of December 31, 1995. 4.2 ELIGIBILITY AND COMMENCEMENT -- NORMAL PENSION Each Participant who retires from the employ of the Employer on his Normal Retirement Date will receive a normal Pension commencing as of such date. 4.3 AMOUNT OF NORMAL PENSION The yearly Pension payable to such Participant will be equal to the amount described in subsections (A), (B), (C), (D) and (E) below (subject, however, to Section 13.1 of this Plan, if applicable, and the election of the Participant to take the Accrued Benefit in a lump sum form under Section 6.8): (A) The Participant's Accrued Benefit shall equal his Defined Lump Sum converted into an Actuarially Equivalent single life annuity payable at the Participant's Normal Retirement Date or, if the Participant retires after his Normal Retirement Date, the age he retires after his Normal Retirement Date. (B) The Participant's Defined Lump Sum equals the sum of (1) and (2) below: (1) the Participant's Average Compensation multiplied by the sum of a+b below: (a) the sum of the annual pension credit percentages in the table below that are earned by the Participant for each Year of Service (and fraction thereof) beginning January 1, 2002 Plus 12
- ------------------------------------------------------------------------------------ YEARS OF SERVICE ANNUAL PENSION YEARS OF SERVICE ANNUAL PENSION WHILE AGE CREDIT PERCENTAGE WHILE AGE CREDIT PERCENTAGE - ------------------------------------------------------------------------------------ Less than 26 1.0% 50 6.0% 26 - 28 1.5% 51 6.5% 29 - 31 2.0% 52 7.0% 32 - 34 2.5% 53 7.5% 35 - 37 3.0% 54 8.0% 38 - 40 3.5% 55 8.5% 41 - 43 4.0% 56 or More 9.0% 44 - 45 4.5% 46 - 47 5.0% 48 - 49 5.5% - ------------------------------------------------------------------------------------
(b) The Participants' accumulated pension credit percentages earned under the Plan as of December 31, 2001, based on the provision of the plan in effect on that date.
- ------------------------------------------------------------------------------------ YEARS OF SERVICE ANNUAL PENSION YEARS OF SERVICE ANNUAL PENSION WHILE AGE CREDIT PERCENTAGE WHILE AGE CREDIT PERCENTAGE - ------------------------------------------------------------------------------------ Less than 26 2.0% 46 7.0% 26 - 28 2.5% 47 7.5% 29 - 31 3.0% 48 8.0% 32 - 33 3.5% 49 8.5% 34 - 35 4.0% 50 9.0% 36 - 37 4.5% 51 9.5% 38 - 39 5.0% 52 10.0% 40 - 41 5.5% 53 10.5% 42 - 43 6.0% 54 11.0% 44 - 45 6.5% 55- 60 11.5% 61 or More 12.0% - ------------------------------------------------------------------------------------
In no event will the sum of a Participant's annual pension credit percentages be less than 10%; (C) With respect to any Participant who is an officer of TruServ Corporation, pursuant to a supplement to the Plan, such Participant's Defined Lump Sum shall not be less than an amount which is equal to the sum of (a) the benefits determined under (B) above, considering only Years of Service prior to becoming an officer, plus(b) 33% of the Participant's Average Compensation for each Year of Service, considering only the Years of Service beginning with the date the Participant became an Officer, in no event will a Participant's total accumulated pension credit percentages under this paragraph exceed 660%. In no event will the benefit described in this subsection be greater than the maximum benefit payable under Code section 415(b). (D) Minimum Benefit Protection (1) With respect to a Participant in the Prior Plan, the lump sum benefit payable under this Plan shall be no less than the Actuarial Equivalent of the Participant's Accrued Benefit under the Prior Plan. Further, for a 13 Participant eligible for an immediate benefit under the Prior Plan, the lump sum shall be no less than the Actuarial Equivalent of the immediate Prior Plan benefit payable to the Participant. (2) With respect to a Participant in the Prior Plan who attains age 62 or completes 30 Years of Service while an active Associate, the lump sum shall be no less than the lump sum calculated in (1) above, assuming the Participant commenced receipt of the lump sum at the later of (a) January 1, 1996, and (b) the first day of the month coincident with or next following the earlier of (i) the date the Associate attains age 62, and (ii) the date the Associate completes 30 Years of Service. (3) With respect to a Participant in the SERVISTAR Plan, the lump sum benefit payable under this Plan will not be less than the Actuarial Equivalent of the Participant's Accrued Benefit under the SERVISTAR Plan. (4) With respect to a Participant in the SERVISTAR Plan who attains age 60 while an active Associate, the lump sum shall be no less than the lump sum calculated in (3) above, assuming the Participant commenced receipt of the lump sum at the later of (a) January 1, 1998, and (b) the first day of the month coincident with or next following the date the Associate attains age 60. 4.4 TERMINATIONS AND RETIREMENTS BEFORE JANUARY 2, 1998 Any pension benefit that a Participant, who terminated his employment or retired prior to January 2, 1998, may be entitled to receive shall be governed by the provisions of the Plan, Prior Plan and/or SERVISTAR Plan as in effect on the date of his termination of employment or retirement. Any Participant who terminated employment or retired prior to January 2, 1998 and who is reemployed on or after January 2, 1998 shall have his benefits calculated in accordance with the Plan as in effect on the date of his subsequent retirement or termination of employment as provided in Section 6.11. With respect to participants in the SERVISTAR Plan who terminated employment or retired on or after July 1, 1997 and before January 2, 1998, a lump sum pension option, calculated as the Actuarial Equivalent of the Participant's Accrued Benefit under the SERVISTAR Plan, was made available, effective June 1, 1998. 4.5 UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS Notwithstanding any Plan provision to the contrary, for re-employments initiated on or after December 12, 1994, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. 4.6 SERVISTAR PLAN On and after January 1, 1998, a participant under the SERVISTAR Plan will cease to be credited with service, credited service, earnings, and/or cash balance credit for purposes of benefit accrual under the SERVISTAR Plan. 14 IMMEDIATE, EARLY AND LATE PENSION -- SECTION 5 5.1 IMMEDIATE PENSION A Participant, whose employment with the Employer or an Affiliated Employer terminates with a 100% Vesting Percentage, may upon such termination of employment prior to his Normal Retirement Date be entitled to receive an immediate Pension. An immediate Pension is the Participant's Accrued Benefit converted into an Actuarially Equivalent single life annuity. With the consent of the Participant and Spousal Consent, if applicable, such immediate Pension shall commence on the first day of the month coinciding with or immediately following the Participant's termination of employment and shall be payable in any form of benefit as described in Section 6. Such Immediate Pension election must be made within 60 days from the date the Pension information and forms are provided to the Participant which will be as soon as administratively practical after the earlier of the submission of the Participant's written notice of termination or the Participant's actual termination from employment 5.2 EARLY RETIREMENT PENSION A Participant who does not timely elect an immediate Pension under Section 5.1 upon his termination of employment may next elect to receive his Pension as an early retirement Pension under the Plan at a date not earlier than his attainment of age 55 (or age 50 for a former SERVISTAR Plan participant) and not later than his Normal Retirement Date. The early retirement Pension shall equal his Accrued Benefit reduced by 2/3 of 1% for each of the first 60 months and by 1/3 of 1% for each of the next 60 months by which payment of his early retirement Pension precedes his Normal Retirement Date (see SERVISTAR Plan application in Section 5.3 below). In no event, however, shall a Participant's early retirement Pension be less than his immediate Pension. With the consent of the Participant and Spousal Consent, if applicable, the early retirement Pension shall be payable in any form of benefit described in Section 6. 5.3 SERVISTAR PLAN For any Participant whose Pension is determined under Section 4.1(B), the calculation of any immediate or early retirement reduction factors will be based upon an age 60 Normal Retirement Date in accordance with the terms of the SERVISTAR Plan in effect at the earlier of his termination, retirement or January 1, 1998, as restated in Supplement C hereto. 5.4 LATE RETIREMENT PENSION If a Participant's employment with the Employer continues after his Normal Retirement Date, such Participant will receive a late retirement Pension commencing on the first day of the month immediately following the calendar month in which his employment ceases by reason other than death. The Participant's late retirement Pension is the Participant's Accrued Benefit. 15 In the event a Participant's Pension is required to begin under Section 6.7 while the Participant is in active service, such required beginning date shall be the Participant's Annuity Starting Date for purposes of Section 6 and the Participant shall receive a late retirement Pension commencing on or before such required beginning date in an amount determined as if he had retired on the last day of the preceding Plan Year. Subsequently, as of the end of each prior Plan Year before the Participant's actual late retirement date (and as of his actual late retirement date), the Participant's Pension shall be recomputed to reflect additional accruals. The Participant's recomputed Pension shall then be paid as of the following January 1. (A) If the Participant's Pension is being paid on an annuity form, the Participant's recomputed Pension shall then be reduced by the Actuarial Equivalent of the total payments of his late retirement Pension which were paid prior to each such recomputation to arrive at the Participant's late retirement Pension; provided that no such reduction shall reduce the Participant's late retirement Pension below the amount of late retirement Pension payable to the Participant prior to the recomputation of such Pension. (B) If the Participant's Pension is being paid in a lump sum payment, additional accrual will be based on that Year of Service only and not be reduced by any prior payments. NORMAL FORM OF PAYMENT -- SECTION 6 6.1 NORMAL FORM OF PAYMENT -- JOINT AND SURVIVOR If the Participant has a Spouse, to whom he was married at least one year prior to his Annuity Starting Date, the normal form of payment is the 50% Qualified Joint and Survivor Annuity form. As an alternative to the 50% Qualified Joint and Survivor Annuity described above, a Participant may elect that his benefit be payable to him in the 100% Qualified Joint and Survivor Annuity form. Such election will not require spousal consent as provided in Section 6.4. 6.2 NORMAL FORM OF PAYMENT -- SINGLE LIFE ANNUITY If the Participant does not have a Spouse on his Annuity Starting Date, the normal form of payment is the single life annuity form. This form provides that payments will be made to the Participant during his lifetime with no payments made after death. 6.3 OPTIONAL FORMS OF PAYMENT In lieu of receiving his Pension in the normal form applicable to his coverage, a Participant may elect to receive a benefit of equal value based on one of the optional forms of payment provided in accordance with the further terms of the Plan, including Sections 6.6 and 6.8. 16 6.4 ELECTION OF OPTION The Participant may elect or revoke an option during the 90-day period before his Annuity Starting Date by filing a written election, including the Spousal Consent, with the Employer. However, a Participant may not elect more than one option to be effective at the same time. No such election or revocation can be made after the Participant's Retirement Date. In addition a Participant may elect or revoke an optional form of payment, to become effective upon his death, at any time on or after his Normal Retirement Date and before his late Retirement Date. To elect an option the Participant must waive surviving Spouse benefit coverage and elect an optional form of payment. His election must include the Spousal Consent to both the waiver and election. If a Participant elects an optional form of payment, the Pension payable to him must be more than 50% of the Actuarial Equivalent of a Pension payable to the Participant had the option not been elected, unless the alternate recipient is the Participant's Spouse; otherwise, such election will be inoperative. 6.5 NOTICE TO PARTICIPANTS The Employer shall furnish to each Participant, no less than 30 days and no more than 90 days, before his Annuity Starting Date a written explanation in nontechnical language of the terms and conditions of the Pension payable to the Participant in the normal and optional forms described in Sections 6.1, 6.2, 6.3, 6.6 and 6.8. Such explanation shall include a general description of the eligibility conditions for, and the material features and relative values of, the optional forms of payment under the Plan, any rights the Participant may have to defer commencement of his Pension, the requirement for Spousal Consent, and the right of the Participant to make, and to revoke, elections under Section 6.4. A Participant's Annuity Starting Date may not occur less than 30 days after receipt of the notice. An election under Section 6.4 shall be made on a form provided by the Plan Administrator and may be made during the 90-day period ending on the Participant's Annuity Starting Date, but not prior to the date the Participant receives the written explanation described in this Section. Notwithstanding any provision to the contrary, the Participant may, after having received the notice, affirmatively elect (with any applicable Spousal Consent) to waive any requirement that the written explanation be provided at least 30 days before his Annuity Starting Date if: (A) the Committee clearly informs the Participant that he has a period of at least 30 days after receiving the notice to decide when to have his benefits begin and, if applicable, to choose a particular optional form of payment; (B) the Participant affirmatively elects a date for his benefit to begin and, if applicable, an optional form of payment, after receiving the notice; (C) the Participant is permitted to revoke his election until the later of his Annuity Starting Date or seven days following the day he received the notice; (D) the distribution of his Pension commences more than 7 days after such explanation is provided to the Participant. 6.6 SERVISTAR PROTECTED PAYMENT FORMS 17 Each Participant who was a participant in the SERVISTAR Plan on January 1, 1998 shall have, in addition to the optional forms of payment available under this Plan, all of the normal and optional forms of payment available under the SERVISTAR Plan, except for the 66-2/3 Joint and Survivor Annuity form, with respect to the payment of his Pension under this Plan. The Participant's Pension payable under said SERVISTAR Plan optional payment forms shall be the Actuarial Equivalent of the single life annuity form of payment for the life of the Participant and all calculations of these forms are based on the provisions contained in the SERVISTAR Plan on December 31, 1997 and restated in Supplement C hereto. 6.7 PAYMENT OF PENSION TO THE PARTICIPANT A Participant's Pension will be payable monthly with each payment equivalent to 1/12 of the yearly amount. The first of such monthly payments will be made at the Participant's Normal Retirement Date or early retirement date, if appropriate, with subsequent monthly payments being made at the first of each month thereafter until the Participant's death occurs, or in the case of a survivor annuity, until the surviving Beneficiary's death occurs. Except as otherwise provided in Sections 4, 5 or 7, unless the Participant elects otherwise, the payment of a Pension shall commence not later than the 60th day after the latest of the close of the Plan Year in which: (A) the Participant attains the earlier of age 65 or his Normal Retirement Date, or (B) the fifth anniversary of the year in which the Participant commenced participation in the Plan occurs, or (C) the Participant terminates his Service with the Employer. Notwithstanding the preceding paragraph, in the case of a Participant in active service of the Employer or an Affiliated Employer, the Participant's Pension shall begin not later than the April 1 following the calendar year in which he attains age 70 1/2. In this situation, the provisions of Section 5.4 shall apply to him. However, a Participant who attains age 70 1/2 prior to January 1, 1988 and who is not a 5% owner (as defined in Section 416(i) of the Code) of the Employer as described above shall not receive payment while in active service under the provisions of this Section 6.7. 6.8 PAYMENT OPTIONS If not made in a lump-sum under the small benefits provisions of Section 10.5(G), payment may be made in one of the following forms upon the Participant's election and with Spousal Consent, if applicable: (A) A monthly pension payable in equal installments for the life of the Participant; provided however, that in the event the Participant dies within the 10-year period following his Annuity Starting Date, monthly payments equal to those payable during the life of the Participant shall be made to the Beneficiary or Spouse of the deceased Participant designated to receive such payments for the remainder of said 10-year period. 18 (B) A lump sum payment equal to the Participant's Defined Lump Sum, as determined under Section 4.3(B) but in no event less than the lump sum amount determined under Section 4.3(E), which payment shall be made as of the first day of the month following the date an election to receive such lump sum payment is made pursuant to this Section. (C) A monthly pension payable in equal installments for the life of a Participant. (D) Any Participant, who was also a participant in the SERVISTAR Plan and terminated employment with the Employer between July 1, 1997 and December 31, 1997, may elect to receive his Accrued Benefit in a lump sum payment effective as of June 1, 1998. Such lump sum payment shall be calculated as provided in Sections 4.3(E)(3) and (4) subject to the following modifications, if applicable: (1) the calculation of the lump sum payment shall include Participant contributions and interest thereon that have not been previously distributed by valuing them based on the Actuarial Equivalent but substituting the May, 1998 rate of interest (5.93%) for the stated lump sum distribution rate of interest. (2) the lump sum payment calculation shall not take into account any previously distributed Participant contributions and interest thereon; (3) for a Participant receiving monthly Pension payments prior to June 1, 1998, the lump sum payment amount calculated hereunder will be reduced by the sum of all previous monthly Pension payments. The Committee will provide notice to any affected Participant of this election and provide a method by which the Participant can elect the lump sum payment with Spousal Consent, if applicable. The Participant must elect the optional forms of payment described in this Section 6.8, subject to the provisions of Section 5.1 and as provided in Section 6.4. Each of the optional forms of payment in this Section 6.8 (except as modified by Section 6.8(D)) shall be the Actuarial Equivalent of the single life annuity form of payment for the life of the Participant. 6.9 MINIMUM AMOUNTS TO BE PAID Notwithstanding any other provision in this Section 6, if the Participant's entire interest is to be paid in other than a lump-sum, then the amount to be paid each year (recognizing the possibility of paying the Cash Balance Benefit in a lump sum in the first year) must be at least an amount equal to the quotient obtained by dividing the Participant's entire interest by the life expectancy of the Participant or joint and last survivor expectancy of the Participant and designated beneficiary. Life expectancy and joint and last survivor expectancy are computed by the use of the return multiples contained in section 1.72-9 of the Income Tax Regulations. For purposes of this computation, a Participant's life expectancy may be recalculated no more frequently than annually, however, the life expectancy of a nonspouse beneficiary may not be recalculated. If the Participant's spouse is not the designated beneficiary, the method of payment selected must assure that at least 50% of the present value of the amount available for payment would be 19 payable within the life expectancy of the Participant. Notwithstanding the preceding in this paragraph, a Participant's interest shall be made and determined in accordance with Section 401(a)(9) of the Code including the minimum incidental distribution benefit requirement of Section 1.401(a)(9)-2 of the Proposed Treasury Regulations. If the Participant dies after payment of his interest has commenced, the remaining portion of such interest shall be paid at least as rapidly as under the method of payment being used prior to the Participant's death. If the Participant dies before payment of his interest commences, the Participant's entire interest must be paid no later than 5 years after the Participant's death except to the extent that an election is made to receive payment in accordance with (a) or (b) below: (A) if any portion of the Participant's interest is payable to a designated beneficiary, such payments shall be made in substantially equal installments over the life or life expectancy of the designated beneficiary and shall commence no later than 1 year after the Participant's death; (B) if, however, the designated beneficiary is the Participant's surviving spouse, the date on which payments are required to begin in accordance with (a) above is not required to be earlier than the date on which the Participant would have attained age 70 1/2; but, if the spouse dies before such payments begin, subsequent payments shall be made as if the spouse had been the Participant. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This provision shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Sections 401(a)(9) of the Code or such other date as may be specified in guidance published by the Internal Revenue Service. 6.10 TEFRA TRANSITION RULE ELECTIONS Notwithstanding the other requirements of this Section and subject to the Qualified Joint and Survivor Annuity requirements, distribution on behalf of any Participant, including a 5% owner of the Employer, may be made in accordance with all of the following requirements (regardless of when such distribution commences): (A) The distribution by the Plan is one which would not have disqualified such Plan under Section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984. (B) The distribution is in accordance with a method of distribution designated by the Participant whose interest in the Plan is being distributed or, if the Participant is deceased, by a beneficiary of such Participant. (C) Such designation was in writing, was signed by the Participant or the beneficiary, and was made before January 1, 1984. (D) The Participant had accrued a benefit under the Plan as of December 31, 1983. 20 (E) The method of distribution designated by the Participant or the beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Participant's death, the beneficiaries of the Participant listed in order of priority. The method of distribution selected must assure that at least 50% of the present value of the amount available for distribution would be payable within the life expectancy of the Participant. A distribution upon death will not be covered by this transition rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Participant. For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant or the beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in subsections (A) and (E) above. If a designation is revoked any subsequent distribution must satisfy the requirements of Section 6.9. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or-indirectly (for example, by altering the relevant measuring life). 6.11 RESTORATION OF RETIRED PARTICIPANT OR OTHER FORMER ASSOCIATE TO SERVICE If a Participant having received his Pension or in receipt of a Pension is restored to service with the Employer or an Affiliated Employer, the following shall apply: (A) Upon his restoration to service he shall not be required or allowed to repay any benefit he has received and, if his Pension is payable in an annuity form, his Pension shall not be suspended and any optional form of payment shall remain in effect; if the Participant had commenced payment prior to his Normal Retirement Date, however, any additional Pension he accrues after his restoration to service shall be paid to his surviving Spouse in accordance with the provisions of Section 7 if he should die in active service. (B) Any Years of Service to which he was entitled when he retired or terminated service shall be restored to him, subject to the provisions of section 2.1(OO) ("Years of Service"). 6.12 DIRECT ROLLOVER OF CERTAIN DISTRIBUTIONS (A) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 21 (B) The following definitions apply to the terms used in this Section: (1) An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income; (2) An "eligible retirement plan" is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity; (3) A "distributee" includes an Associate or former Associate. In addition, the Associate's or former Associate's surviving Spouse and the Associate's or former Associate's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the Spouse or former Spouse; and (4) A "direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee. (C) In the event that the provisions of this Section 6.12 or any part thereof cease to be required by law as a result of subsequent legislation or otherwise, this Section or any applicable part thereof shall be ineffective without the necessity of further amendments to the Plan. SURVIVING SPOUSE BENEFIT -- SECTION 7 7.1 ELIGIBILITY Upon the death of a Participant before his Retirement Date, his Spouse will receive a surviving Spouse benefit as described below in either 7.2(A) or (B) as applicable, if all the following requirements were met when the Participant died: (A) The Participant had a Spouse to whom the Participant had been married at least one full year prior to his death; (B) The Participant dies on or after January 2, 1998; and (C) The Participant's Vesting Percentage is 100%. 22 7.2 AMOUNT (A) If the Participant dies while actively employed by the Employer, the surviving Spouse benefit shall be equal to 55% of the Participant's Defined Lump Sum, but in no event less than 55% of the lump sum amount determined under Section 4.3(E). (B) If the Participant dies after his employment with the Employer is terminated, but prior to commencement of payments under the Plan, the Surviving Spouse benefit shall be equal to 55% of the benefit the Participant would have received if the Participant had survived to age 55 (or the age at his date of death, if older) and elected a 50% Qualified Joint and Survivor Annuity, and died. 7.3 PAYMENTS (A) Subject to the surviving Spouse's right to have the benefit paid at what would have been the Participant's Normal Retirement Date, the surviving Spouse benefit under Section 7.2(A) shall be paid commencing as of the first day of the month coinciding with or immediately following the Participant's death. In lieu of immediate monthly payments for life, the surviving Spouse may elect to receive the benefit immediately as a lump sum. Alternatively, the surviving Spouse may elect to defer commencement of the surviving Spouse benefit until the first day of any month coinciding with or immediately following the date the Participant would have attained age 55 (or age at death, if older), but not later than the first day of the month coinciding with or next following the date that would have been the Participant's Normal Retirement Date (or age at death, if older). If a surviving Spouse elects to defer commencement of the surviving Spouse benefit, the benefit shall be converted to an Actuarially Equivalent monthly annuity for the life of the surviving Spouse commencing on the date that would have been the Participant's Normal Retirement Date. This benefit will be reduced by 2/3 of 1% for each of the first 60 months and 1/3 of 1% for each of the next 60 months by which the benefit commencement date precedes the date that would have been the Participant's Normal Retirement Date. In no event, however, shall this benefit be less than the benefit the surviving Spouse could have received as a monthly annuity for life commencing on the first of the month coinciding with or immediately following the Participant's death. (B) Subject to the surviving Spouse's right to have the benefit paid at what would have been the Participant's Normal Retirement Date, the surviving Spouse benefit under Section 7.2(B) shall be paid commencing as of the first day of the month coinciding with or immediately following the Participant's death. In lieu of such immediate payment, the surviving Spouse may elect to defer receipt of the surviving Spouse benefit to any date which is not later than the Participant's Normal Retirement Date. If such an election is made, the surviving Spouse benefit shall be equal to 55% of the benefit the Participant would have received if the Participant had survived to the date at which the surviving Spouse elects to commence the surviving Spouse benefit and had elected a 50% Qualified Joint and Survivor Annuity. 23 (C) An election by the Spouse to commence receiving payments prior to what would have been the Participant's Normal Retirement Date shall be made on a form provided by the Plan Administrator and may be made during the 90-day period ending on the date the payments to the Spouse commence. 7.4 MINIMUM BENEFIT AND PAYMENT FORM If a Participant, who was a former participant in the SERVISTAR Plan, dies and his Spouse is not eligible to receive the surviving Spouse benefit, his Beneficiary will receive a refund of his available Participant's contributions together with credited interest computed thereon to the date of the Participant's death. Credited interest on a Participant's contributions means interest for the number of full months from the January 1 following the date each such contribution was paid to the Plan to the date specified herein. Prior to January 1, 1960, the rate of credited interest was 2 1/2% per annum, compounded annually. From January 1, 1960 to January 1, 1976, the rate of credited interest was 3% per annum, compounded annually. From January 1, 1976 to July 1, 1983, the rate of credited interest is 5% per annum. On and after July 1, 1983, the rate of credited interest is 7% per annum, compounded on each July 1. Any change in the rate of credited interest will apply to interest allowed for months occurring after the effective date of change. TRUST FUND AND TRUSTEE -- SECTION 8 8.1 TRUST FUND The Employer has heretofore established the Fund which comprises all of the assets of the Plan and into which future contributions to finance this Plan shall be made. The Trust shall hold the Fund, which shall be used to pay benefits or expenses as provided in this Plan pursuant to authorization by the Committee; and such benefits shall be payable only from the Fund. 8.2 TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS AND EXPENSES The fund will be used and applied only in accordance with the provisions of the Plan and the Trust Agreement entered into by the Employer and the Trustee to provide the benefits thereof, and no part of the corpus or income of the Trust fund will be used for, or diverted to, purposes other than for the exclusive benefit of Participants under the Plan and other persons thereunder entitled to benefits except to the extent provided in Sections 9.2 and 11.3 or to pay any reasonable expenses in the administration of the Plan. 8.3 TRUSTEE CAPACITY When there are two or more Trustees, they are authorized to allocate specific responsibilities, obligations or duties among themselves by their written agreement. An executed copy of such written agreement is to be delivered to and retained by the Committee. In the event of more than one Trustee, any action shall be taken at the direction of a majority of such Trustees. 24 8.4 RESIGNATION AND REMOVAL OF TRUSTEE Any Trustee may resign at any time by delivering to the Board of Directors of TruServ Corporation (the "Board of Directors") a written notice of resignation, which notice may be waived by the Board of Directors, to take effect at a date specified therein, which shall not be less than 30 days after the delivery thereof. The Trustee may be removed by the Board of Directors with or without cause, by tendering to the Trustee a written notice of removal to take effect at a date specified therein. Upon such removal or resignation of a Trustee, the Board of Directors shall either appoint a successor Trustee who shall have the same powers and duties as those conferred upon the resigning or discharged Trustee, or, if more than one Trustee is acting, determine that a successor shall not be appointed and the number of Trustees shall be reduced by one. 8.5 TAXES, EXPENSES AND COMPENSATION OF TRUSTEE The Trustee shall deduct from and charge against the Trust any taxes paid by it which may be imposed upon the Trust, or the income thereof, or which the Trustee is required to pay with respect to the interest of any Participant or Beneficiary therein. The Employer may pay the Trustee's reasonable expenses in administering the Plan and a reasonable compensation for its services as Trustee hereunder, either directly or through the Fund, at a rate to be agreed upon from time to time; provided, however, that no full-time Associate shall receive any compensation for acting as Trustee hereunder. 8.6 FUNDING POLICY AND INVESTMENT MANAGERS The Employer or its delegate shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Plan and the requirements of ERISA and shall determine the investment policy for the Plan. However, the Employer or its delegate may appoint one or more investment managers to manage the assets of the Plan (including the power to acquire and dispose of all or part of such assets) as the Employer shall designate. In that event, the authority over and responsibility for the management of the assets so designated shall be the sole responsibility of that investment manager. For purposes of this Article, the term "investment manager" means an individual who: (A) Has the power to manage, acquire or dispose of any asset of the Plan; (B) Is (i) registered as an investment advisor under the Investment Advisors Act of 1940, (ii) is a bank, as defined in that Act, or (iii) is an insurance company qualified to perform services described in paragraph (A) above; and (C) Has acknowledged in writing that he is a fiduciary with respect to the Plan. 25 FUNDING OF BENEFITS -- SECTION 9 9.1 CONTRIBUTIONS TO THE FUND From time to time, the Employer shall make such contributions to the Fund as the Employer determines are required to maintain the Plan on a sound actuarial basis. In determining the amounts and incidence of such contributions, the Employer will take into account such actuarial recommendations as may be provided by an enrolled actuary as defined by ERISA. Contributions by Participants are neither required nor permitted. 9.2 FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS The Fund is for the exclusive benefit of Participants and other persons who may become entitled to benefits hereunder, and may also be used to pay any reasonable expenses arising from the administration of the Plan not assumed and then paid directly by the Employer. Prior to the satisfaction of all liabilities for benefits provided hereunder, no contribution made to the Fund will be refunded to the Employer except in the following circumstances: (A) The Employer's contributions to the Plan are conditioned upon their deductibility under Section 404 of the Code. If all or part of the Employer's deductions for contributions to the Plan are disallowed by the Internal Revenue Service, the portion of the contributions to which that disallowance applies shall be returned to the Employer without interest, but reduced by any investment loss attributable to those contributions. The return shall be made within one year after the date of the disallowance of deduction. (B) The Employer may recover without interest the amount of its contributions to the Plan made on account of a mistake in fact, reduced by any investment loss attributable to those contributions, if recovery is made within one year after the date of those contributions. 9.3 DISPOSITION OF CREDITS AND FORFEITURES No credit or forfeitures arising from the operation of the Plan may be used to increase the benefit of any Participant or group of Participants but will instead be taken into account in determining contributions to be made by the Employer. PLAN ADMINISTRATOR -- SECTION 10 10.1 PLAN ADMINISTRATOR/APPOINTMENT OF COMMITTEE To the extent provided in this Section, the general administration of the Plan and the responsibility for carrying out the provisions of the Plan shall be placed in a Committee of not less than 3 persons appointed from time-to-time by the Board of Directors of TruServ Corporation to serve at the pleasure of the Board of Directors. Any person who is appointed a member of the Committee shall signify his acceptance by filing written acceptance with the Board of Directors and the Secretary of the Committee. Any member 26 of the Committee may resign by delivering his written resignation to the Board of Directors and the Secretary of the Committee. If the Employer does not appoint a Committee, the Employer shall perform the duties of the Committee. 10.2 DUTIES AND AUTHORITY The Plan Administrator shall administer the Plan on behalf of the Employer in a nondiscriminatory manner for the exclusive benefit of Participants and their Beneficiaries. The Plan Administrator shall have the exclusive discretionary power to, and perform all such duties as are necessary to, operate, administer and manage the Plan in accordance with the terms thereof, including but not limited to the following: (A) To determine, in its sole discretion, all questions relating to a Participant's coverage under the Plan, (B) To maintain all necessary records for the administration of the Plan, (C) To compute and authorize the payment of a Pension and other benefit payments to eligible Participants and Beneficiaries, (D) To adopt and amend rules for the administration of the Plan and the transaction of its business subject to the limitations of the Plan. The Plan Administrator shall have the sole and unilateral discretionary authority to interpret the Plan and to make factual determinations (including but not limited to, determination of an individual's eligibility for Plan participation, the right, amount and form of any benefit payable under the Plan and the date on which any individual ceases to be a Participant and to remedy ambiguities, inconsistences and/or omissions). The determinations, acts and decisions of the Plan Administrator shall be final, conclusive and binding on all parties and, subject to the claim procedures in Section 10.7(B), shall not be overturned unless determined to be arbitrary and capricious by a court of competent jurisdiction. (E) To advise or assist Participants regarding any rights, benefits or elections available under the Plan. The Plan Administrator shall take such actions as are necessary to establish and maintain the Plan as a retirement program which is at all times in full and timely compliance with any law or regulation having pertinence to this Plan. The Plan Administrator shall be exclusively granted by the Employer all reasonable discretionary powers necessary or appropriate to accomplish his duties as Plan Administrator. The Plan Administrator shall use that degree of care, skill, prudence and diligence that a prudent man acting in a like capacity and familiar with such matters would use in his conduct of a similar situation. 10.3 REMOVAL OF PLAN ADMINISTRATOR The Plan Administrator may be removed with or without cause by the Employer through delivery to him of written notice of removal, to take effect at a date specified therein. 27 10.4 APPOINTMENT OF SUCCESSOR PLAN ADMINISTRATOR In the event the office of Plan Administrator is vacant, the Employer shall promptly designate a successor Plan Administrator who must signify acceptance of this position in writing. In the event no successor is appointed, the Board of Directors or other governing body of the Employer shall function as the Plan Administrator until a new Plan Administrator has been appointed and has accepted such appointment. 10.5 PLAN ADMINISTRATION -- MISCELLANEOUS (A) Filing a claim for Benefits. A Participant or Beneficiary shall notify the Plan Administrator of a claim for benefits under the Plan. Such request may be in any form adequate to give reasonable notice to the Plan Administrator and shall set forth the basis of such claim. The claim shall also authorize the Plan Administrator to conduct such examinations as may be necessary to determine the validity of the claim and to take such steps as may be necessary to facilitate the payment of any benefits to which the Participant or Beneficiary may be entitled under the Plan. (B) Claims Procedure. The Plan Administrator shall make all determinations as to the right of any person to receive benefits under the Plan. Any denial by the Plan Administrator of a claim for benefits under the Plan by a Participant, Spouse, retired Participant or beneficiary (collectively referred to herein as "claimant") shall be stated in writing by the Plan Administrator and delivered or mailed to the claimant. Such notice shall set forth: (1) the specific reasons for denial; (2) specific reference to pertinent provisions of the Plan upon which the denial is based; (3) a description of any additional material or information necessary for the claimant to perfect his claim with an explanation of why such material or information is necessary; and (4) an explanation of claim review procedures under the Plan written in a manner that may be understood without legal or actuarial counsel. A claimant whose claim for benefits has been wholly or partially denied by the Plan Administrator may, within 90 days following the date of such denial: (i) request a review of such denial in a writing addressed to the Plan Administrator; (ii) submit such issues or comments, in writing or otherwise, as he shall consider relevant to a determination of his claim, and may include in his request a request for a hearing in person before the Plan Administrator; and (iii) request to review any pertinent documents, which may be reviewed prior to his submitting his request for review. 28 The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant. All requests for review shall be promptly resolved. The decision of the Plan Administrator with respect to any such review shall be set forth in writing and such shall be mailed to the claimant not later than 60 days following receipt by the Plan Administrator of the claimant's request unless special circumstances, such as need to hold a hearing, require an extension of time for processing, in which case the decision shall be so mailed not later than 120 days after receipt of such request. All decisions of the Plan Administrator shall be final, conclusive and binding on all parties and shall not be overturned unless such decision is determined by a court of competent jurisdiction to be arbitrary and capricious. (C) Governing Law. To the extent not preempted by ERISA, the Plan shall be construed, regulated and administered under the laws of the State of Illinois. (D) Masculine and Feminine, Singular and Plural. In construing the text of this Plan, the masculine shall include the feminine and the singular shall include the plural, and the plural the singular wherever the context shall plainly so require. (E) Reference to Laws. Any reference herein to any section of the federal Internal Revenue Code, ERISA, TEFRA or any other statute or law shall be deemed to include any successor statute or law of similar import. (F) Non-Assignment. Except as required by any applicable law, no benefit under the Plan shall in any manner be anticipated, assigned, alienated, subject to garnishment, levy, execution or other legal or equitable process, or otherwise subject to the claims of creditors, and any attempt to do so shall be void. However, payment shall be made in accordance with the provisions of any judgment, decree, or order which: (1) creates for, or assigns to, a spouse, former spouse, child or other dependent of a Participant the right to receive all or a portion of the Participant's benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent, (2) is made pursuant to a State domestic relations law, (3) does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan, and (4) otherwise meets the requirements of Section 206(d) of ERISA, as amended, as a "qualified domestic relations order," as determined by the Plan Administrator. If the present value of any series of payments meeting the criteria set forth in clauses (1) through (4) above amounts to $5,000 or less, a lump sum payment of the Actuarial Equivalent of such assigned amount, determined in the manner described in Section 10.5(G), shall be made in lieu of the series of payments. 29 If the amount payable to an alternate payee under a qualified domestic relations order exceeds such $5,000 present value, it may be paid to the alternate payee as soon as practicable after the order has been determined to be qualified by the Plan Administrator if the qualified domestic relations order so provides and the alternate payee consents thereto; otherwise it may not be payable before the earliest of the Participant's termination of employment or earliest retirement date under the Plan. (G) Small Benefits. If the Actuarial Equivalent of the Vesting Percentage of the Participant's Pension under the Plan is $5,000 or less, such Pension shall be distributed without the Participant's consent (or his Spouse's/Beneficiary's consent, if applicable) in the form of a lump sum cash distribution. For purposes of determining such Actuarial Equivalent amount, it shall be assumed that the benefit commencement date is the Participant's Normal Retirement Date. The lump sum payment shall be made as soon as administratively practicable following the Participant's termination of employment or death, but in any event prior to the date his Pension payments would have otherwise commenced. In the event a Participant is not entitled to any Pension upon his termination of employment, he shall be deemed cashed-out under the provisions of this paragraph (G) as of the date he terminated service. However, if a Participant described in the preceding sentence is subsequently restored to service, the provisions of Section 6.11 shall apply to him without regard to such sentence. (H) Conditions of Employment Not Affected by Plan. The establishment of the Plan shall not confer any legal rights upon any Associate or other person for a continuation of employment, nor shall it interfere with the rights of the Employer or an Affiliated Employer to discharge any Associate and to treat him without regard to the effect which that treatment might have upon him as a Participant or potential Participant of the Plan. Participation in the Plan shall not grant any Participant the right to be retained in the service of the Employer or an Affiliated Employer or any other rights other than those to which he is entitled under relevant law or regulations. (I) Clerical Error. If any fact pertaining to eligibility for or amount of benefits payable under the Plan to a Participant or other payee has been misstated, or in the event of clerical error, the benefits will be adjusted by the Plan Administrator on the basis of the correct facts in a manner precluding individual selection. (J) Divestment of Benefits for Cause Precluded. In no event may a Participant be divested for cause of Pension or other benefits which he is eligible to receive. (K) Advisors and Counsel. The Employer, or the Committee acting through the Employer, may employ one or more persons to render advice with respect to any duty or responsibility it may have including, but not limited to, consultants, actuaries, financial advisors, accountants and attorneys. (L) Incompetency. If the Committee receives evidence satisfactory to it that a Participant or his Beneficiary to whom an amount is distributable under this Plan is legally incompetent to receive such amount and give valid receipt therefore, the Committee may cause payment of such amount to be made to the guardian or other legal representative of such Participant or his Beneficiary, or in the absence of a legal guardian or other legal representative, to such other person or institution who is then maintaining and has custody of such Participant or his Beneficiary. 30 Any payments made shall be a complete discharge of liabilities of the Plan for that benefit. (M) Erroneous Payments. In the event that a Participant (or his Beneficiary) receives a distribution under this Plan in excess of the amount, if any, to which he is entitled, by reason of a calculation error or otherwise, the Plan Administrator, in his sole and absolute discretion, may adjust future benefit payments to the Participant (or his Beneficiary) to the extent necessary to recoup the amount which the Participant (or his Beneficiary) received which was in excess of the amount to which he was entitled under the term of the Plan. If the Plan Administrator determines, in his sole and absolute discretion, that it is not feasible or desirable to adjust future benefit payments to the Participant, the Plan Administrator may require the Participant (or his Beneficiary) to repay to the Plan the amount which is in excess of the amount to which the Participant (or his Beneficiary) is entitled under the terms of the Plan. All amounts received by the Participant (or his Beneficiary) under the Plan shall be deemed to be paid subject to these conditions. The determination of the Plan Administrator made pursuant to this Section 10.7(M) shall be final, conclusive and binding on all parties, subject to the claims procedures under Section 10.7(B), and shall not be overturned unless such determinations are arbitrary and capricious. (N) Headings. The headings of the Plan have been inserted for convenience of reference only and are to be ignored in the construction of the Plan. (O) Information. Before any benefit shall be payable by the Plan, each Participant, Spouse, Beneficiary or other person entitled to a benefit shall file with the Committee all the information that the Committee shall require to establish such persons rights and benefits under the Plan. (P) Written Elections. Any elections, notifications or designations made by a Participant or any other individual pursuant to the provisions of the Plan shall be made in writing and filed with the Committee in a time and manner determined by the Committee under rules uniformly applicable to all persons similarly situated. The Committee reserves the right to change from time to time the time and manner for making notifications, elections or designations by such persons under the Plan if it determines after due deliberation that such action is justified in that it improves the administration of the Plan. In the event of a conflict between the provisions for making an election, notification or designation set forth in the Plan and such new administrative procedures, those new administrative procedures shall prevail. (Q) Vested Rights. No person shall have any vested rights under the Plan and Trust except to the extent that such rights may accrue to him as provided under the Plan. Furthermore, any person with vested rights under the Plan and Trust shall look solely to the Plan and Trust and the assets thereunder for satisfaction of such vested rights. (R) Plan Provisions Controlling. In the event of any conflict between the provisions of the Plan and the provisions of a summary or other description of the Plan or the terms of any agreement or instrument related to the Plan, the provisions of the Plan shall control. 31 (S) Interpretation of the Plan. It is the intent of the Employer that the Plan and Trust qualify under Sections 401(a) and 501(a) of the Code, respectively, and meet all applicable requirements of ERISA. Accordingly, the Plan and Trust shall be construed and interpreted in such manner as to give effect to this intent. (T) Limitation of Liability. The Employer, the Board of Directors of the Employer or any Affiliated Employer, the members of the Committee, and any of their officers, Associates, representatives, consultants, counsel, or agents shall not incur any liability individually or on behalf of any other individuals or on behalf of the Employer for any act or failure to act, made in good faith in relation to the Plan or the Funds of the Plan. However, this limitation shall not act to relieve any such individual or the Employer from a responsibility or liability for any fiduciary responsibility, obligation or duty under Part 4, Title I of ERISA. (U) Indemnification. The Employer, members of the Committee, the Board of Directors of the Employer or any Affiliated Employer, and their officers, Associates, representatives, consultants, counsel, and agents shall be indemnified against any and all liabilities arising by reason of any act, or failure to act, in relation to the Plan or the Fund of the Plan, including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan or the Fund of the Plan, and amounts paid in any compromise or settlement relating to the Plan or the Fund of the Plan, except for such liability, losses or costs which result from: (1) their actions or failures to act made in bad faith; (2) their own gross negligence or willful conduct; (3) any settlement, without TruServ Corporation's prior approval, of an action, suit, or preceding; or (4) suits or actions at law or in equity advanced by TruServ Corporation against such party. The foregoing indemnification shall be from the Fund of the Plan to the extent of this Fund and to the extent permitted under applicable law; otherwise from the assets of the Employer. (V) Authority to Act (1) The Employer and the Committee may authorize one or more of its members, Associates, representatives, consultants, counsel, or agents to execute on its behalf instructions or directions to any interested party, and any such interested party may rely thereupon and the information contained therein. (2) Whenever, under the terms of the Plan or Trust Agreement, the Employer is required or permitted to take action (except when related to administrative duties), such action shall be taken under authorization of the Board of Directors, unless otherwise provided by the Plan or the Trust Agreement or by prior action of such Board of Directors. AMENDMENT AND TERMINATION OF PLAN -- SECTION 11 32 11.1 AMENDMENT -- GENERAL The Employer, by action of its Board of Directors, taken at a meeting held either in person or by telephone or other electronic means, or by unanimous written consent in lieu of a meeting, reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan. However, no amendment shall make it possible for any part of the Fund of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan, before the satisfaction of all liabilities with respect to them. No amendment shall be made which has the effect of decreasing the Protected Benefit of any Participant or of reducing the nonforfeitable percentage of the Accrued Benefit of a Participant below the nonforfeitable percentage computed under the Plan as in effect on the date on which the amendment is adopted or, if later, the date on which the amendment becomes effective. 11.2 AMENDMENT -- MERGER OR CONSOLIDATION OF PLAN This Plan may be amended by the Employer to provide for the merger or consolidation of the Plan with another retirement plan, or for the transfer of assets and liabilities hereunder to another retirement plan. Such an event, however, may not occur unless each Participant would receive a retirement benefit under such other retirement plan after the merger, consolidation, or transfer (assuming that plan had then terminated) which is at least as great as the benefit he would have received under this Plan immediately prior to the merger, consolidation, or transfer (assuming this Plan had then terminated). 11.3 TERMINATION OF PLAN The Employer, by action of its Board of Directors, taken at a meeting held either in person or by telephone or other electronic means, or by unanimous written consent in lieu of a meeting, may terminate the Plan for any reason at any time. In case of termination of the Plan, the rights of Participants to their Protected Benefits as of the date of the termination, to the extent then funded or protected by law, if greater, shall be nonforfeitable. The Funds of the Plan shall be used for the exclusive benefit of persons entitled to benefits under the Plan as of the date of termination, except as provided in Section 9.2. However, any funds not required to satisfy all liabilities of the Plan for benefits because of erroneous actuarial computation shall be returned to the Employer. The Plan Administrator shall determine on the basis of actuarial valuation the share of the Fund of the Plan allocable to each person entitled to benefits under the Plan in accordance with Section 4044 of ERISA, or corresponding provision of any applicable law in effect at the time. In the event of a partial termination of the Plan, the provisions of this Section shall be applicable to the Participants affected by that partial termination. RESTRICTION OF BENEFITS UPON EARLY TERMINATION OF THE PLAN -- SECTION 12 12.1 LIMITATION CONCERNING HIGHLY COMPENSATED EMPLOYEES OR HIGHLY COMPENSATED FORMER EMPLOYEES 33 (A) The provisions of this Section shall apply (i) in the event the Plan is terminated, to any Participant who is a Highly Compensated Employee or Former Highly Compensated Employee of the Employer or an Affiliated Employer and (ii) in any other event, to any Participant who is one of the 25 Highly Compensated Employees of former Highly Compensated Employees of the Employer or Affiliated Employer with the greatest compensation in any Plan Year. The amount of the annual payments to any one of the Participants to whom this Section applies shall not be greater than an amount equal to the annual payments that would be made on behalf of the Participant during the year under a single life annuity that is of Actuarial Equivalent to the sum of the Participant's Accrued Benefit and the Participant's other benefits under the Plan. (B) If, (i) after payment of Pension or other benefits to any one of the Participants to whom this Section applies, the value of Plan assets equals or exceeds 110% of the value of current liabilities (as that term is defined in Section 412(l)(7) of the Code) of the Plan, (ii) the value of the Accrued Benefit and other benefits of any one of the Participants to whom this Section applies is less than 1% of the value of current liabilities of the Plan, or (iii) the value of the benefits payable to a Participant to whom this Section applies does not exceed the amount described in Section 411(a)(11)(A) of the Code, the provisions of paragraph (A) above will not be applicable to the payment of benefits to such Participant. (C) If any Participant to whom this Section applies elects to receive a lump sum payment in lieu of his Pension and the provisions of paragraph (B) above are not met with respect to such Participant, the Participant shall be entitled to receive his benefit in full provided he shall agree to repay to the Plan any portion of the lump sum payment which would be restricted by operation of the provisions of paragraph (A), and shall provide adequate security to guarantee that repayment. (D) Notwithstanding paragraph (A) of this Section, in the event the Plan is terminated, the restriction of this Section shall not be applicable if the benefit payable to any Highly Compensated Employee and any former Highly Compensated Employee is limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. (E) If it should subsequently be determined by statute, court decision acquiesced in by the Commissioner of Internal Revenue, or ruling by the Commissioner of Internal Revenue, that the provisions of this Section are no longer necessary to qualify the Plan under the Code, this Section shall be ineffective without the necessity of further amendment to the Plan. SPECIAL PENSION BENEFITS PROVISIONS -- SECTION 13 13.1 STATUTORY MAXIMUM PENSION BENEFITS The statutory maximum amount of yearly Pension payable during any Plan Year, which shall be the limitation year for the purpose attributable to the Employer Accrued Benefit shall be determined in accordance with the further provisions of this Section 13.1. (A) Basic Limitation 34 Regardless of any other provisions of this Plan, other than paragraphs (B)(4), (C) and (D) below, the amount of yearly Pension payable hereunder for any Limitation Year shall not exceed the lesser of (1) $90,000 or (2) 100% of the Participant's average annual remuneration determined with reference to the three consecutive limitation years of Service which he received the highest aggregate remuneration from the Employer or an Affiliated Employer (referred to hereinafter in this Section 13.1 as "highest average compensation"). (B) Secondary Limitations The basic limitation in paragraph (A) shall be reduced or increased, as applicable, for the following situations if they are applicable: (1) Form of Pension other than a life annuity. If the Pension is payable in a form other than a single life annuity, or a Qualified Joint and Survivor Annuity, the basic limitation in paragraph (A) shall be adjusted to its actuarial equivalent based upon the age at which such Pension commences and an interest rate assumption of the greater of the rate of interest specified in Supplement A - Section A.1.(a) or 5%. (2) Less Than 10 Years of Service If the Participant has less than 10 full years of Service, the basic limitations in paragraph (A)(2) shall be reduced by multiplying such limitation by a fraction, the numerator of which is the Participant's years of Service (computed to the nearest full month) and the denominator of which is 10. In addition, if the Participant has not been a Participant of the Plan for at least 10 years, the maximum annual Pension in paragraph (A)(1) above shall be multiplied by the ratio which the number of years of his participation in the Plan bears to 10. In both cases, these limits under this Section 13.1(B)(2) shall not be reduced to an amount less than 1/10 of the applicable limitation in Section 13.1(A). (3) Commencement of Pension For purposes of this Section 13, the Participant's Social Security retirement age shall be the retirement age for the Participant under Section 216(l) of the Social Security Act, but shall be applied without regard to the age increase factor under Section 216(l) of the Social Security Act and as if the early retirement age under the Social Security Act were 62 years of age. If the Pension begins before the Participant's Social Security retirement age, the maximum Pension in paragraph (A)(1) above shall be adjusted to the Actuarial Equivalent amount based on an interest rate assumption of the greater of the rate of interest specified in Supplement A-Section A.1.(a) or 5% per year and the Group Annuity Mortality Table specified in Supplement A - Section A.1.(b). (4) Commencement of Pension After Social Security Retirement Age If the Pension begins after the Participant's Social Security retirement age, the maximum Pension in paragraph (A)(1) above shall be adjusted to the Actuarial Equivalent amount based on an interest rate assumption of the 35 lesser of 5% per year or the interest rate specified in Supplement A-Section A.1.(a). and the Group Annuity Mortality Table specified in Supplement A - Section A.1.(b). (5) Special Provisions Effective under the Small Business Job Protection Act of 1996. (i) This Section 13.1(B)(5) is effective on January 1, 2000. As provided in the Small Business Job Protection Act of 1996, for purposes of this Section 13.1, a Participant's annual benefit provided under this Plan, and compliance with the benefit limitations under Section 415 of the Code, shall be determined in accordance with Revenue Ruling 98-1, 1998-1 C.B. 249, and specifically Q&A-7 and Q&A-8 thereof. The annual benefit for a Participant who is married shall include the benefit payable as a Qualified Joint and Survivor Annuity under Section 6.1. (ii) For purposes of applying Section 415(b) of the Code to an optional form of benefit under Sections 6.3, 6.6, and 6.8 of the Plan that is not subject to Section 417(e)(3) of the Code, the determination as to whether such a benefit satisfies the limitations under Section 415(b) of the Code is made by comparing the equivalent annual benefit determined in Step 1 below with the lesser of the age-adjusted dollar limit determined in Step 2 below and the limitations under Section 415(b) of the Code described in Step 3 below: Step 1: Under Section 415(b)(2)(B) of the Code, determine the annual benefit in the form of a straight life annuity commencing at the same age that is actuarially equivalent to the retirement benefit. In general, Sections 415(b)(2)(E)(i) and (v) of the Code require that the equivalent annual benefit be the greater of the equivalent annual benefit computed using the interest rate and mortality table, specified in Supplement A - Section A.1 of the Plan for actuarial equivalence for the particular form of benefit payable (Plan rate and Plan mortality table, or Plan tabular factor, respectively) and the equivalent annual benefit computed using a 5 percent interest rate assumption and the applicable mortality table. This step does not apply to a benefit that is not required to be converted to a straight life annuity pursuant to Section 415(b)(2)(B) of the Code (for example, a qualified joint and survivor annuity). Step 2: Under Section 415(b)(2)(C) or (D) of the Code, determine the dollar limitation under Section 415(b) of the Code that applies at the age the benefit is payable (age-adjusted dollar limit). The age-adjusted dollar limit is the annual benefit that is actuarially equivalent to an annual benefit equal to dollar limitation under Section 415(b) of the Code payable at the Participant's social security retirement age (as such term is defined in Section 13.1(B)(3)). If the age at which the benefit is payable is 62 or greater, and less than the Participant's social security retirement age, the age-adjusted dollar limit is determined by reducing the dollar limitation under Section 415(b) of the Code at the Participant's social security retirement age using adjustment factors that are consistent with the factors used to reduce old-age insurance benefits under the Social Security Act. Pursuant to Q&A-5 of 36 Notice 87-21, 1987-1 C.B. 458, the dollar limitation under Section 415(b) of the Code at the Participant's Social Security Retirement Age is reduced by 5/9 of 1 percent for each of the first 36 months by which benefits commence before the month in which the Participant's social security retirement age is attained and by 5/12 of 1 percent for each additional month. If the age at which the benefit is payable is less than 62, the age-adjusted dollar limit is determined by reducing the age-adjusted dollar limit at age 62 on an actuarially equivalent basis. In general, Sections 415(b)(2)(E)(i) and (v) of the Code require that the reduced age-adjusted dollar limit be the lesser of the equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under Supplement A - Section A.1 and the amount computed using 5 percent interest and the applicable mortality table under Revenue Ruling 95-6, 1995-1, C.B. 80, (used to the extent described in Q&A-6 of Revenue Ruling 98-1, 1998-1 C.B. 249, which provides that for purposes of adjusting any limitation under Sections 415(b)(2)(C) or (D) of the Code that, to the extent a forfeiture does not occur upon death, the mortality decrement may be ignored prior to age 62 and must be ignored after social security retirement age). If the age at which the benefit is payable is greater than the Participant's social security retirement age, the age-adjusted dollar limit is determined by increasing the dollar limitation under Section 415(b) of the Code at the Participant's social security retirement age on an actuarially equivalent basis. In general, Sections 415(b)(2)(E)(i) and (v) of the Code require that the increased age-adjusted dollar limit be the lesser of the equivalent amount computed using the Plan rate and the Plan mortality table (or Plan tabular factor) used for actuarial equivalence for late retirement benefits under Supplement A - Section A.1 and the equivalent amount computed using 5 percent interest and the applicable mortality table (used to the extent described in Q&A-6 of Revenue Ruling 98-1, 1998-1 C.B. 249, as described in the prior paragraph). Step 3: Determine the Participant's compensation limitation under Section 415(b) of the Code. This limitation is equal to the Participant's compensation averaged over the consecutive three-year period producing the highest average, as provided in Section 415(b)(3) of the Code. The Plan does not satisfy the limitations under Section 415(b) of the Code unless the equivalent annual benefit determined in Step 1 above is not greater than the lesser of the age-adjusted dollar limit determined in Step 2 above and the compensation limitation under Section 415(b) of the Code determined in Step 3 above. (iii) For purposes of applying Section 415(b)(2)(B) of the Code to a benefit that is payable in a form subject to Section 417(e)(3) of the Code, the determination of the equivalent annual benefit is the same as in Step 1 of subsection (2) above, except that, under Section 415(b)(2)(E)(ii) of the Code, the applicable interest rate under Q&A-4 of Revenue Ruling 98-1, 1998-1 C.B. 249, (i.e., "GATT interest rates") is substituted for the 5 percent interest rate under Section 415(b)(2)(E)(i) of the Code. Thus, the 37 equivalent annual benefit must be the greater of the equivalent annual benefit computed using the Plan rate and Plan mortality table (or Plan tabular factor) under Supplement A - Section A.1 and the equivalent annual benefit computed using the applicable interest rate and the applicable mortality table"). (C) Minimum Pension If the Participant's yearly Pension is not more than $10,000, as adjusted in accordance with paragraph (B)(2) above, the Participant may receive such $10,000 without regard to the other secondary limitations, provided the Participant did not at any time participate in a defined contribution plan maintained by the Employer. (D) Cost-of-Living Limitation Adjustment Effective January 1, 1988, and each January 1 thereafter, the $90,000 limitation of paragraph (A) above will be automatically adjusted to the new dollar limitation determined by the Commissioner of Internal Revenue for that calendar year. The new limitation will apply to limitation years in which the dollar limitation is changed. (E) Participation in More Than One Defined Benefit Plan If the Participant participated in more than one defined benefit plan maintained by the Employer or an Affiliated Employer regardless of whether any such plans are terminated, the statutory maximum retirement benefit shall be determined as if there were just one defined benefit plan, but the retirement income so determined will apply on a pro rata basis between, or among, such plans. (F) Annual Additions The sum of: (1) amounts defined as annual additions under applicable defined contribution plans or the Employer or an Affiliated Employer; and (2) the Participant's non-deductible contributions to this and all other defined benefit plans maintained by the Employer or an Affiliated Employer, regardless of whether any such plan is terminated; and (3) amounts allocated in Plan Years commencing after March 31, 1984 to an individual medical account, as defined in Section 415(l)(2) of the Code, which is a part of this or any other defined benefit plan maintained by the Employer or an Affiliated Employer; and (4) amounts derived from contributions paid or accrued attributable to post-retirement medical benefits allocated to the separate account of a key Associate, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer or an Affiliated Employer. (G) Participation in one or more Defined Contribution Plans 38 This Section is effective for Plan Years beginning before January 1, 2000. If any Participant is or has been a Participant in a defined contribution plan maintained by the Employer regardless of whether any such plans are terminated, the Participant may not have contributions made to the defined contribution plan(s) which would cause the sum of the defined benefit plan fraction and the defined contribution plan fraction to exceed l.0. This shall be accomplished by reducing the Pension otherwise determined under this Plan to the extent necessary to preclude such excess. (1) Defined Benefit Fraction A fraction, the numerator of which is the sum of the Participant's projected annual benefit under each defined benefit plan maintained by the Employer or an Affiliated Employer regardless of whether any such plans are terminated, and the denominator of which is the lesser of 125% of the dollar limitation in effect for the limitation year under Section 415(b)(1)(A) of the Code or 140% of the "highest average compensation." Notwithstanding the above, if the Participant was a Participant in one or more defined benefit plans maintained by the Employer which were in existence on July 1, 1982, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such plans which the Participant had accrued as of December 31, 1982. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code as in effect at the end of the 1982 Limitation Year. The projected annual benefit shall be the yearly Pension to which a Participant is entitled under the terms of each applicable defined benefit plan assuming continued employment until normal retirement age, or current age if later, and Compensation and all other relevant factors used to determine benefits under the plan remaining constant until normal retirement age, or current age if later. (2) Defined Contribution Fraction A fraction, the numerator of which is the sum of the Annual Additions to the Participant's account under all the defined contribution plans maintained by the Employer or an Affiliated Employer regardless of whether any such plans are terminated for the current and all prior limitation years and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any limitation year is the lesser of 125% of the dollar limitation in effect under Section 415(c)(1)(A) of the Code or 140% multiplied by 25% of the Participant's Compensation for such year. If the Associate was a Participant in one or more defined contribution plans maintained by the Employer which were in existence on July 1, 1982, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the 39 excess of the sum of the fractions over 1.0 multiplied by (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the later of the end of the last Limitation Year beginning before January 1, 1983 or June 30, 1983. This adjustment also will be made if, at the end of the last limitation year beginning before January 1, 1984, the sum of the fractions exceeds 1.0 because of accruals or additions that were made before the limitations of this Article became effective to any Plan of the Employer in existence on July 1, 1982. (H) Remuneration For the purposes of this Section 13.1 and the following Section 13.2, a Participant's remuneration means his earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the employer maintaining the plan determined for purposes of Section 13.1 before any pre-tax contributions under a "qualified cash or deferred arrangement" (as defined under Section 401(k) of the Code and its applicable regulations) or under a "cafeteria plan" (as defined under Section 125 of the Code and its applicable regulations) or that are a "qualified transportation" fringe benefit (as defined under Section 132(f) of the Code) (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses [except as excluded below]), and excluding the following: (1) Employer contributions to a plan of deferred compensation which are not included in the Associate's gross income for the taxable year in which contributed or employer contributions under a simplified Associate pension plan to the extent such contributions are deductible by the Associate, or any distributions from a plan of deferred compensation; (2) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Associate either becomes freely transferable or is no longer subject to a substantial risk or forfeiture; (3) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; (4) Other amounts which received special tax benefits, or contributions made by the employer (whether or not under a salary reduction agreement) towards the purchase of an annuity described in section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Associate). Remuneration for any limitation year is the remuneration actually paid or includible in gross income during such year. (I) Discrepancy With Code The limitations set forth in this Section 13.1 are intended to comply with the provisions of Section 415 of the Code and any regulations issued pursuant thereto, so that the maximum Pension shall be exactly equal to the maximum amount 40 allowed under said Section 415, and any regulations issued pursuant thereto. Should there be any discrepancy between the provisions of this Section 13.1 and those of said Section 415 and any regulations issued pursuant thereto, such discrepancy shall be resolved by giving full effect to the provisions of said Section 415 and any regulations issued pursuant thereto. 13.2 TOP-HEAVY PROVISIONS As required by TEFRA, the following provisions shall become effective in any Plan Year subsequent to the 1983 Plan Year in which this Plan is a Top-Heavy Plan. The provisions of this Section 13.2 will apply to both active and frozen plans and, with the exception of the minimum Pension and minimum Vesting Percentage provisions, will apply to any terminated plans which were maintained at any time during the five years ending on the Determination Date. (A) Top-heavy Plan Status. This Plan will be a Top-Heavy Plan as of a Determination Date if: (1) this Plan is not a Plan that is required to be aggregated and the ratio of the Present Value of Accrued Benefits of Participants who are Key Employees to the Present Value of the Accrued Benefits of all Participants in the Plan exceeds 6/10; or (2) this Plan is part of a Required Aggregation Group and the ratio of the Present Value of Accrued Benefits of Participants who are Key Employees to the Present Value of Accrued Benefits of all Participants in the Required Aggregation Group exceeds 6/10. Notwithstanding anything in (A)(2) to the contrary, the determination of whether this Plan is a Top-Heavy Plan of a Determination Date shall be made after aggregating all Plans in the Required Aggregation Group, and after aggregating any other Plans which are in the Permissive Aggregation Group, if such permissive aggregation thereby eliminates the Top-Heavy status of the Required Aggregation Group. Regardless of the results of any aggregation, a Plan that was not part of the Required Aggregation Group will not be top-heavy. (B) Super Top-Heavy Plan. This Plan will be a Super Top-Heavy Plan for a given Plan Year in which the ratio defined in A, above, exceeds 9/10. (C) Key Employee. The term Key Employee means any Associate or former Associate (including deceased Associates) of the Employer who at any time during the Plan Year or the four preceding Plan Years is: (1) An officer of the Employer, but in no event if there are more than 500 Associates, shall more than 50 Associates or, if there are less than 500 Associates, shall the greater of three Associates or 10% of all Associates, be taken into account under this subsection as Key Employees; In no event shall an officer whose annual Compensation, as defined in Section 13.1(I) of this Plan, is less than 50% of the limitation in effect under 41 Section 415(b)(1)(A) of the Code as adjusted from time to time, be a Key Employee for any such Plan Year. (2) One of the ten Associates owning (or considered as owning within the meaning of Section 318 of the Code) the largest interest in the Employer, or, if the Employer is other than a corporation, one of the ten Associates owning the largest interest of the capital or profits interest in the Employer. If two or more Associates own equal interests in the Employer the ranking of ownership share will be in descending order of the Associates' Earnings; In no event shall an Associate who meets the requirements of the prior paragraph but whose interest in the Employer is not greater than 1/2% or whose Compensation is less than the dollar limitation in effect under Section 415(c)(i)(A) of the Code, as adjusted from time to time, be a Key Employee. (3) Associates owning (or considered as owning within the meaning of Section 318 of the Code, as modified by Section 416(i)(1)(B)(i) of the Code) 5% or more of the outstanding stock of the Employer or stock possessing 5% or more of the total combined voting power of all stock of the Employer, or, if the Employer is other than a corporation, any Associate owning 5% or more of the capital or profits interest in the Employer; (4) Associates owning (or considered as owning within the meaning of Section 318 of the Code, as modified by Section 416(i)(1)(B)(ii) of the Code) 1% or more of the outstanding stock of the Employer or stock possessing 1% or more of the total combined voting power of all stock of the Employer and whose annual Compensation from the Employer is $150,000 or more, or, if the Employer is other than a corporation, any Associate owning 1% or more of the capital or profits interest in the Employer, and whose annual Compensation from the Employer is $150,000 or more; The beneficiary of any deceased Associate who was a Key Employee shall be considered a Key Employee for the same period as the deceased Associate would have been so considered. (D) Non-Key Employee. A Non-Key Employee means any Associate who is not a Key Employee. Any Associate who previously was a Key Employee and is now a Non-Key Employee will be excluded entirely from the calculation done to determine Top-heavy Status. (E) Employer. For purposes of Section 13.2 the Employer is the Employer who adopts this Plan, and any Affiliated Employer. (F) Accrued Benefit. The Accrued Benefit is the yearly Pension commencing on the Participant's Normal Retirement Date determined in accordance with Section 4 as if the Participant's Termination of Employment had occurred as of the most recent valuation date prior to the Determination Date. For purposes of Section 13.2 the Accrued Benefit will not include the accrued benefit attributable to any Associate who has not performed an Hour of Service during the five-year period ending on the Determination Date, but will include any distribution made to a Key Employee or Non-Key Employee during the five-year period ending on the Determination Date. 42 The extent to which rollover contributions and transfers are to be taken into account in determining the Accrued Benefit will be determined in accordance with Section 416(g)(4)(A) of the Code and IRS Regulation 1.416-1, T-32. (G) Present Value. Present Value shall be based on the actuarial assumptions specified in Supplement A - Section A.1. If this Plan is part of a Required or Permissive Aggregation Group, the mortality and interest assumptions shall be the same for all plans within the Group. In determining Present Value, proportional subsidies shall not be taken into account, but nonproportional subsidies shall be taken into account. The Present Value will be determined as of the valuation date occurring during the twelve-month period ending on the Determination Date. The valuation date is the date used in computing Plan costs for minimum funding. (H) Required Aggregation Group. The term Required Aggregation Group means all of the plans of the Employer which cover a Key Employee during the five-year period ending on the relevant Determination Date, or those plans which during said five-year period were aggregated, so that a plan which covers a Key Employee would satisfy the requirements of Sections 401(a)(4) or 410 of the Code. (I) Permissive Aggregation Group. The term Permissive Aggregation Group means all of the plans of the Employer which are included in the Required Aggregation Group plus any plans of the Employer which provide comparable benefits to the benefits provided by plans in the Required Aggregation Group and are not included in the Required Aggregation Group, but which satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group. (J) Determination Date. The term Determination Date means, with respect to a Plan Year, the last day of the preceding Plan Year, or, in the case of the first Plan Year of a plan, the last day of the first Plan Year. (K) Minimum Pension Benefit. The yearly amount of Pension as described in Section 4.1 for a Participant who is a Non-Key Employee, shall not be less than the Participant's average yearly Compensation, during the Participant's five highest-paid consecutive calendar years, multiplied by the lesser of (1) 2%, multiplied by the number of the Participant's years of Service after December 31, 1983 in which this Plan is a Top-Heavy Plan, or (2) 20%. This minimum amount is assumed to be payable on a single life annuity basis, commencing on his Normal Retirement Date. If a Participant who is a Non-Key Employee is covered under this Plan and a defined contribution plan maintained by the Employer, the yearly amount of Pension, for such Participant, determined in the preceding paragraph shall not be applicable to such Participant if the minimum contribution under such defined contribution plan is equal to 5% of the Participant's Compensation (or is equal to 7 1/2% of the Participant's Compensation if the Employer uses a factor of 1.25 in computing the denominators of the defined benefit and defined contribution fractions under Section 415(e) of the Code). If this Plan is not Super Top-Heavy, such 2% benefit accrual shall be increased to 3% and such 20% by one percentage point for any year in which the Employer also maintains a defined contribution plan if such increase is necessary to avoid 43 the application of Section 416(h)(1) of the Code relating to special adjustments to Section 415 of the Code limitations for plans which are Top-Heavy, if the adjusted limitations of said Section 416(h)(1) would otherwise be exceeded if such minimum contribution were not so increased. If the minimum Pension payable on a basis other than a single life annuity or on a date other than Normal Retirement Date, it shall be adjusted to be the actuarial equivalent of the single life annuity form payable at Normal Retirement Date. (L) Minimum Vesting Percentage. Notwithstanding any other Vesting Percentage provision of this Plan to the contrary unless it would produce a greater Vesting Percentage, the Vesting Percentage that is applied to the Participant's Accrued Benefit, on and after this Plan becomes a Top-Heavy Plan, shall, in accordance with the further terms of this Plan, be as determined below:
- -------------------------------------------------------------------------------- YEARS OF SERVICE PERCENTAGE - -------------------------------------------------------------------------------- If he has less than 2 years 0% If he has 2 years 20% If he has 3 years 40% If he has 4 years 60% If he has 5 years 100% - --------------------------------------------------------------------------------
(M) Modification to Section 13.1 When a Plan is a Top-Heavy Plan. For any Limitation Year in which the Plan is determined to be a Top-Heavy Plan, the definitions of the "Defined Benefit Fraction" and "Defined Contribution Fraction" shall be changed by substituting in the denominator of each Fraction "100%" for "125%". 44 I, Diane T. Nauer, Secretary of TruServ Corporation, hereby certify that the attached document is a correct Copy of the TruServ Corporation Defined Lump Sum Pension Plan, as amended and restated as of January 1, 1998. Dated this 28th day of February, 2002. /s/ DIANE T. NAUER - ----------------------------- Secretary as Aforesaid (Corporate Seal) 45 SUPPLEMENT A ACTUARIAL ASSUMPTIONS A.1. LUMP SUM DISTRIBUTIONS For purposes of determining "Actuarially Equivalent" or "Actuarial Equivalent" lump sum distributions under the Plan, the following actuarial assumptions are used: (a) Rate of Interest: The rate in use during a Plan Year shall be the annual rate of interest on 30-year Treasury securities for the month of November immediately preceding such Plan Year as specified by the Commissioner for such month in the Internal Revenue Bulletin but not greater than 8.0%. (b) Mortality: The mortality table prescribed by the Secretary of the Treasury in revenue rulings, notices, or other guidance pursuant to Section 807(d)(5)(A) of the Code that has been published in the Internal Revenue Bulletin as of the date such lump sum distribution is being determined. A.2. TYPE OF ANNUITY For purposes of determining "Actuarially Equivalent" or "Actuarial Equivalent" benefits under the Plan, the following factors shall be used in determining benefits that are actuarially equivalent to the normal single annuity for the life of the Participant form of benefit provided under the Plan (in no event will a factor exceed one): (a) 50% Qualified Joint and Survivor Annuity: 90%, plus (or minus) 0.4 of 1% for each full year that the Participant is younger (or older) than the Participant's spouse; except that, if the Participant's age at the Annuity Starting Date is less than 55 years, "94%" shall be substituted for "90%." In no event will this factor exceed 100%. (b) 100% Qualified Joint and Survivor Annuity: 81%, plus (or minus) 0.7 of 1% for each full year that the Participant is younger (or older) than the Participant's spouse; except that, if the Participant's age at the Annuity Starting Date is less than 55 years, "89%" shall be substituted for "81%." In no event will this factor exceed 100%. (c) Life and 10-Year Certain Annuity: 94%; except that, if the Participant's age at the Annuity Starting Date is less than 55 years, "98%" shall be substituted for "94%." 46 SUPPLEMENT B MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN WITH AND INTO PRIOR PLAN B.1. MERGER Effective as of January 1, 1990, the Northern Wholesale Hardware Co. Retirement Plan ("Northern Plan") was amended, continued and merged with the Cotter & Company Pension Plan ("Prior Plan"). B.2. PARTICIPATION On January 1, 1990, each former participant in the Northern Plan ("Northern Participant") became a Participant in the Prior Plan and will have benefits determined and paid in accordance with this Plan. B.3. PRESERVATION OF ACCRUED BENEFIT Notwithstanding any provisions of the Plan to the contrary, in no event shall a Northern Participant's accrued benefit under the Prior Plan as in effect on January 1, 1990 be less than the accrued earned by such Northern Participant under the Northern Plan as at December 31, 1989. B.4. YEARS OF SERVICE Each Northern Participant will be credited with the Years of Service before January 1, 1990 that such Northern Participant had earned under the Northern Plan as in effect on December 31, 1989 for participation, vesting and accrued benefit purposes. B.5. RECORDS The Committee shall maintain such records as it deems necessary and desirable to demonstrate the amount of each Northern Participant's benefits and Years of Service under Paragraphs B.3 and B.4 above pursuant to applicable Internal Revenue Service regulations. B.6. EFFECTIVE DATE The effective date of this Supplement B is January 1, 1990. 47 SUPPLEMENT C SERVISTAR COAST TO COAST CORPORATION RETIREMENT INCOME PLAN PROVISIONS The following provisions from the SERVISTAR Plan are included herein (with slight modification if appropriate) to assist the administration of this Plan as it requires inclusion of the SERVISTAR Plan provisions or the calculation of the Participant's Accrued Benefit under the SERVISTAR Plan: Certain defined terms from the SERVISTAR Plan are referred to in this Supplement C, but are not reproduced in the interest of conciseness. The terms - Accrued Benefit, Code, Contingent Pensioner, Credited Interest, Employee, Employer, Excess Benefit Plan, Long-Term Disability, Normal Retirement Date, Participant Pension, Retirement Date, Termination of Employment - should not need further defining and are intended to continue their meaning from the SERVISTAR Plan. The term "Plan" was used in the SERVISTAR Plan to refer to itself, but will be used herein to refer to this Plan. Any reference to "Plan" from the SERVISTAR Plan document is changed herein to "SERVISTAR Plan" where appropriate. Any use of the term "Plan Year" in Supplement C will refer to the SERVISTAR Plan Year (July 1 to June 30) unless otherwise indicated. The method used to recast SERVISTAR Plan "Earnings" for this Plan is described in Plan Section 2.1(K). Vesting Percentage as used herein is now defined in Section 2.1(NN) of the Plan. SERVISTAR PLAN SECTION REFERENCES HAVE BEEN CHANGED TO SUPPLEMENT C SECTIONS IF INCLUDED IN THIS SUPPLEMENT C, OTHERWISE SERVISTAR PLAN REFERENCES HAVE BEEN MAINTAINED. The provisions of this Supplement C are subject to Section 4.6 of the Plan which provides that SERVISTAR Plan service, credited service, earnings and cash balance credits shall cease on January 2, 1998. In the event of a conflict in the terms of the SERVISTAR Plan as included in Supplement C and the SERIVSTAR Plan itself, the terms of the SERVISTAR Plan shall control. C.1 EARNINGS Includes basic salary or wages paid to an Employee for services rendered to the Employer, determined prior to any pre-tax contributions under a "qualified cash or deferred arrangement" (as defined under Section 401(k) of the Code and its applicable regulations) under a "cafeteria plan" (as defined under Section 125 of the Code and its applicable regulations), or that are a "qualified transportation" fringe benefit (as defined under Section 132(f) of the Code), including executive bonuses, pay for which no duties are performed due to vacation pay, holiday pay, sick pay, and any other authorized policy pay, safe driver awards and perfect attendance awards (effective July 1, 1994), gain sharing (effective July 1, 1995) and overtime payments received from the Employer during each Plan Year, excluding Employer contributions to Social Security, contributions to this or through any other profit sharing or retirement plan or program, capital income compensation or the value of any other fringe benefits (including any long-term disability payments) provided at the expense of the Employer which are not specifically included herein. If, in a Plan Year, a Participant has lower Earnings than he had the preceding Plan Year because he was paid either Worker's Compensation or Long-Term Disability, or both, Earnings will be considered to be his Earnings received in the preceding Plan Year. These higher Earnings calculations will continue for the period of time that benefits are 48 paid under either Worker's Compensation or Long-Term Disability, or both. Notwithstanding the immediately preceding two sentences, for Plan Years beginning on or after July 1, 1996, if a Participant is disabled in any Plan Year, only the Participant's Earnings in such Plan Year shall be taken into account for any purpose under the SERVISTAR Plan. Notwithstanding any SERVISTAR Plan provision to the contrary, Earnings for any Participant, who transferred employment from Coast to Coast Corporation to SERVISTAR Corporation prior to July 1, 1996, shall only include such remuneration paid by SERVISTAR Corporation. C.2 HOUR OF SERVICE (1) each hour for which the Employee is either directly or indirectly paid by the Employer or Affiliated Employer or entitled to payment, (a) for duties performed during the applicable computation period, and (b) for reasons other than the performance of duties (such as but not limited to paid sick leave, paid vacation time), irrespective of whether the employment relationship has terminated, and (2) any additional hours as normally would have been credited to the Employee had he worked on a nonovertime basis during the following periods for the Employer or an Affiliated Employer: (a) temporary layoff, (b) leave of absence of up to two years, as authorized by the Employer pursuant to the Employer's established leave policy, and (c) military leave while the Employee's reemployment rights are protected by law, provided that any such periods qualify as Service in accordance with the terms of the Service definition, and (3) each hour for which back pay is either awarded or agreed to by the Employer or an Affiliated Employer, irrespective of mitigation of damages. Hours of Service shall be credited to the Employee for the computation period(s): (1) in which the duties are performed or payments are due, (2) in which payments would have been due during a covered unpaid leave of absence or layoff, or (3) to which the back pay award or agreement pertains. The same Hours of Service shall not be credited under more than one paragraph of this definition. In no event will Hours of Service be allowed and computed in a manner less liberal than the manner described in the Department of Labor Regulation 2530.200b-2. C.3 SERVISTAR PLAN PRIOR FORMULA With respect to each Participant who retires or terminates on or after July 1, 1996, the yearly amount of basic Pension payable under the Plan is equal to the greater of (A) or (B) plus (C): 49 (A) Is (i) less (ii) where: (i) is 2% of a Participant's Final Earnings multiplied by the years and fraction of Credited Service, up to a maximum of 25, 1/2 of 1% of a Participant's Final Earnings multiplied by the years and fraction of Credited Service over 25 years, and (ii) is 3/4 of 1% of the Participant's Offset Earnings multiplied by the years and fraction of Credited Service, up to a maximum of 25, plus 1/4 of 1% of (a) the Participant's Offset Earnings, or (b) effective July 1, 1994 the Participant's Final Earnings (if smaller), multiplied by the years and fractions of Credited Service over 25 years, provided that this offset will not be applied until the first of the month following or coincident with the Participant's attainment of Social Security Retirement Age. Notwithstanding any Plan provision to the contrary, for purposes of calculating the benefit under Supplement C Section C.3(A)(i) and (ii), Credited Service shall not include any period after June 30, 1996. (B) Is the amount the Participant would have received under the terms of Section 4.1(B) of the SERVISTAR Plan (referring to the SERVISTAR Plan as in effect on June 30, 1983) assuming level Earnings from that time forward, using Credited Service through June 30, 1994 only. (C) With respect to each Participant who contributed to the SERVISTAR Plan in accordance with its terms prior to July 1, 1974, the Employee Accrued Benefit, unless: (1) if a cash refund of the Participant's Contributions with Credited Interest is elected on or after July 1, 1994, the Employee Accrued Benefit is not payable under this paragraph (C); (2) if a refund of the Participant's contributions with Credited Interest is elected prior to January 1, 1994, the benefit calculated under this paragraph (C) is equal to the excess, if any, of the amount determined in paragraph (a) over paragraph (b), where: (a) is a yearly amount beginning on the Participant's Normal Retirement Date determined on an equivalent Value (using the monthly interest rate in effect when the refund is paid instead of the yearly rate) to the cash refund of the Participant's contributions; and (b) is the Employee Accrued Benefit; provided, however, that the yearly benefit under Supplement C Section C.3 of a Participant who is affected by the imposition of the $150,000 limitation on Earnings shall be equal to the greater of (a) the Participant's benefit calculated under the provisions of Supplement C Section C.3 as determined with regard to such imposition, or (b) the benefit equal to the Participant's Accrued Benefit determined as of the last day of the Plan Year beginning in 1993, plus the Participant's Accrued Benefit based solely on Credited Service after such date under the provisions of Supplement C Section C.3 as determined with regard to such imposition. For purposes of the SERVISTAR Plan, the Accrued Benefit 50 determined as of the last day of the Plan Year beginning in 1993 shall be equal to the greater of (c) the Participant's Accrued Benefit determined as of the last day of the Plan Year beginning in 1993 as determined with regard to the $200,000 limitation on Earnings, or (d) the Participant's Accrued Benefit determined as of the last day of the Plan Year beginning in 1988, plus the Participant's Accrued Benefit based solely on Credited Service after such date under the provisions of the SERVISTAR Plan as determined with regard to such limitation. In no event will the Pension determined for a Participant on his Retirement Date to be less than the highest amount of Pension the Participant would have received in the same form of payment had his Credited Service ceased at any time prior to his Retirement Date when he was eligible to receive an immediate Pension. In no event will any amendment to the SERVISTAR Plan reduce the Accrued Benefit to the effective date of such amendment including, but not limited to, any Pension payable as a result of the delayed application of the offset in Supplement C Section C.3.(A)(ii). In addition, effective July 1, 1988, in no event will the annuities purchased for Participants in the Employer's Excess Benefit Plan plus retirement income payable under the Plan (as limited by the maximums outlined in Section 13.1 of the Plan) exceed the total retirement income as calculated in this Supplement C Section C.3 and the Cash Balance Formula under Section 4.4 of the SERVISTAR Plan (assuming the maximums in Section 13.1 of the Plan had not been in effect). Any excess will be subtracted from the yearly amount of retirement income payable under the Plan after reduction to comply with the maximums as outlined in Section 13.1 of the Plan. This provision will not reduce the amount of retirement income accrued under the SERVISTAR Plan as of July 1, 1988. C.4 FINAL EARNINGS The highest average Earnings received in any five consecutive Plan Years ending on or before June 30, 1996, excluding any Plan Year in which the Credited Service is not granted under Supplement C Section C.5. Notwithstanding the foregoing, for the purposes of determining a Participant's Final Earnings, all Earnings received during the Plan Year starting January 1, 1976 and ending July 1, 1976 shall be annualized and counted as a full Plan Year's Earnings. C.5 CREDITED SERVICE That portion of a Participant's Service which is included for purposes of determining the amount of his accrued Pension attributable to the Prior Formula. With respect to any employment period, a Participant's Credited Service shall include employment with the Employer corresponding with Service allowed except: (1) Any Plan Year in which the Participant has less than 1,000 Hours of Service, except for the Plan Year commencing on January 1, 1976, as determined in Supplement C Section C.6. (2) Service prior to a break-in-service if the Participant received a lump sum payment equal to the equivalent Value of his vested accrued Pension at the time of his latest termination. 51 A Participant's Credited Service shall be counted in whole years and full months. In no event will a Participant receive Credited Service for a period that is considered a "break-in-service," as determined in the Service definition. Notwithstanding any Plan provision to the contrary, Credited Service shall not include any Service for periods after June 30, 1996. C.6 SERVICE Shall be the aggregate number of years of employment with the Employer excluding any period or portion of any period as determined in accordance with the following rules. Service is used to determine an Employee's participation and vesting status, and effective for Plan Years beginning on or after July 1, 1996, Service also is used to determine the Participant's Plan Year Cash Balance Formula benefit credit under Section 4.4 of the SERVISTAR Plan. (1) With respect to any employment periods prior to January 1, 1976, an Employee's last period of continuous employment immediately prior to such date will be counted as Service. (2) With respect to any employment periods on and after January 1, 1976 and before January 2, 1998: (a) If in any Plan Year an Employee has at least 1000 hours of Service, he will be credited with one year of Service. (b) If in any Plan Year an Employee has less than 1000 Hours of Service, no Service will be credited for such Plan Year but a break-in service" will not be deemed to have occurred. (c) If in any Plan Year an Employee has 500 or less Hours of Service, no Service will be credited for such Plan Year, and a "break-in-service" will be deemed to have occurred. Solely for purposes of determining whether a one year break-in-service has occurred in a Plan Year, an Employee who is absent from work for maternity or paternity reasons shall receive credit for up to 501 Hours of Service which would otherwise have been credited to such Employer but for such absence, or in any case in which such hours cannot be determined 8 Hours of Service per day of such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence: (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 52 The Hours of Service credited under this paragraph shall be credited (a) in the Plan Year in which the absence begins if the crediting is necessary to prevent a break-in-service in that period, or (b) in all other cases, in the following Plan Year. (3) Service prior to a break-in-service which occurs before July 1, 1985 will be determined in accordance with the terms of the SERVISTAR Plan as of the date the break-in-service occurred. (4) If an Employee who has a break-in-service which occurs after July 1, 1985 is later reemployed by the Employer, the following special rule shall apply: Service prior to his most recent break-in-service shall be counted along with any Service earned on or after the Employee's reemployment date: (a) he was entitled to any vested Pension attributable to Employer contributions in accordance with Section 6 of the SERVISTAR Plan prior to his most recent break-in-service, or (b) he was not entitled to any vested Pension attributable to Employer contributions and the length of his latest break-in-service did not equal or exceed the greater of: (i) the Employee's aggregate number of years of prebreak Service; or (ii) 5 years. If a reemployed Employee fails to meet any of the tests described in (a) or (b) above, any Service earned prior to his most recent break-in-service shall be disregarded. (5) Absence from employment shall be counted as Service if the following circumstances apply: (a) temporary layoff, (b) subject to Section 2.1(L) of the SERVISTAR Plan, a leave of absence of up to two years, as authorized by the Employer pursuant to the Employer's established leave policy, (c) military leave while the Employee's re-employment rights are protected by law, provided that the Employee returns to active employment with the Employer when recalled (if temporary layoff), within 2 years (if leave of absence), or within 90 days after he becomes eligible for release from active duty (if military leave). Except as required by law for military leaves, if the Employee does not return to active employment with the Employer, his Service will be deemed to have ceased on the date his absence commenced, and he will receive credit for 501 Hours of Service for each year of continuous absence. The Employer's leave policy shall be applied in a uniform and nondiscriminatory manner to all Employees under similar circumstances. 53 (6) Employment with a predecessor company shall be counted as Service to the extent required by ERISA. (7) Transfers and Service with an Affiliated Employer or as a Leased Employee (a) If an Employee (i) becomes employed by the Employer in any capacity other than as an Employee, or (ii) becomes employed by an Affiliated Employer, or (iii) becomes a Leased Employee, he shall retain any Credited Service he has under the SERVISTAR Plan. Upon his later retirement or termination of employment with the Employer or Affiliated Employer (or upon benefit commencement in the case of a Leased Employee), any benefits to which the Employee is entitled under the SERVISTAR Plan shall be determined under the SERVISTAR Plan provisions in effect on the date he ceases to be an Employee, and only on the basis of his Credited Service accrued while he was an Employee. (b) Subject to the break-in-service provisions of this Supplement C Section C.6, in the case of a person who (i) was originally employed by the Employer in any capacity other than as an Employee, or (ii) was originally employed by an Affiliated Employer, or (iii) was originally providing services to the Employer as a Leased Employee, and thereafter becomes an Employee, upon his later retirement or termination of employment, the benefits payable under the SERVISTAR Plan shall be computed under the SERVISTAR Plan provisions in effect at that time, and only on the basis of the Credited Service accrued while he is an Employee. (c) Any Participant who was formerly employed with Coast to Coast Stores, Inc. (as it was formerly known) shall receive credit for service with Coast to Coast Stores, Inc. prior to May 29, 1990 (as defined at that time by Coast to Coast Stores, Inc.) for purposes of calculating his Service for the Vested Percentage. (d) For any Participant who is an Employee of the Employer on July 1, 1996, Service, with respect to Plan Years beginning on or after July 1, 1996, shall include all service recognized under the Coast Profit Sharing and Savings Plan for purposes of vesting thereunder and credited to the Participant as of June 30, 1996. C.7 OFFSET EARNINGS The average of the Employee's Earnings for the three consecutive Plan Years preceding the Plan Year in which the Employee's employment ceases or June 30, 1996, if earlier. In determining the Offset Earnings, any Earnings for a Plan Year in excess of the taxable wage base in effect under Section 230 of the Social Security Act shall be disregarded. Prior to June 30, 1994, Offset Earnings shall not include any Plan Year excluded from Credited Service under Supplement C Section C.5 and shall be the average of the Employee's Earnings for the three highest consecutive Plan Years ending with the Plan Year that the Employee's employment ceases. Notwithstanding the foregoing, Offset Earnings shall not exceed Covered Compensation for the Plan Year in which the Employee's employment ceases. C.8 COVERED COMPENSATION 54 For any Participant, the average of the taxable wage bases in effect under Section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the Participant attains his Social Security Retirement Age rounded to the nearest $600 or such other similar amount designated by the Internal Revenue Service. In determining a Participant's Covered Compensation for any Plan Year, the taxable wage base for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as the taxable wage base in effect as of the beginning of the Plan Year for which the determination is made. C.9 SOCIAL SECURITY RETIREMENT AGE Age 65 with respect to a Participant who was born before January 1, 1938; age 66 with respect to a Participant who was born after December 31, 1937 and before January 1, 1955; and age 67 with respect to a Participant who was born after December 31, 1954. For employees who terminate prior to July 1, 1994, Social Security Act means the age (in years and months) at which he or she qualifies for unreduced old age Social Security benefits. C.10 NORMAL RETIREMENT DATE For benefit eligibility and vesting purposes, the day on which the Participant attains his 60th birthday. For all other purposes, the first day of the month coinciding with or next following the Participant's 60th birthday. C.11 VALUE With respect to the refund of a Participant's contribution under Supplement C Section C.20 or the calculation of the monthly benefit derived from the Participant's contributions under Supplement C Section C.3(C)(2)(a), Value means the present value of a Participant's Pension based upon the Pension Benefit Guaranty Corporation's male annuity rates, factors, tables, assumptions and procedures for lump sum payments in effect for the month in which the refund is distributed. For all other Pensions based on the provisions of the SERVISTAR Plan: (i) for terminations occurring on or after July 1, 1996, Value shall mean the equivalent actuarial value of the Ten-Year Certain and Life form of payment as described in Supplement C Section C.17 computed on the basis of the Participant's age at distribution (or the Beneficiary's age, if the benefit is payable due to the Participant's death prior to commencement of benefits), the 1983 Group Annuity Mortality Table as set forth in Revenue Ruling 95-28 or such other mortality table as may be required by the Internal Revenue Service in any ruling superseding Revenue Ruling 95-28, with interest at the annual rate of interest on 30-Year Treasury securities. The rate of interest shall be fixed for each Plan Year and shall be determined by the rate of interest on 30-year Treasury securities set in April and published by the Board of Governors of the Federal Reserve System in May of the preceding Plan Year; and (ii) for terminations occurring before July 1, 1996, Value shall mean the equivalent actuarial value calculated as above but based on the Pension Benefit Guaranty Corporation's male annuity rates, factors, tables, assumptions and procedures for lump sum payments in effect at the beginning of the Plan Year in which the distribution is made. 55 C.12 ADJUSTMENT FACTOR The appropriate adjustment factor(s) which may be applicable to a Participant's Pension under the SERVISTAR Plan in accordance with the further terms of the SERVISTAR Plan. With respect to each Participant whose Retirement Date occurs after August 1, 1983, the appropriate Adjustment Factors are the applicable gender-neutral Adjustment Factors based on the 1971 GAM, 6% interest and the gender mix as shown in the Tables attached hereto and, with respect to Participants who are retiring after the Normal Retirement Date, the late retirement Adjustment Factors. Table A shall apply to Accrued Benefit as of June 30, 1994 in accordance with the procedures in Section 5.4 of the SERVISTAR Plan. C.13 CASH BALANCE ACCOUNT Is the bookkeeping account established for eligible Participants who accrue Service under the SERVISTAR Plan after June 30, 1996 and who are entitled to a Cash Balance Benefit. C.14 CASH BALANCE BENEFIT The benefit described in Cash Balance Formula under Section 4.4 of the SERVISTAR Plan derived from a Participant's Cash Balance Account, which if not distributed in a lump sum, will be the annual benefit which has a Value equal to the Participant's Cash Balance Account, adjusted as necessary to reflect the form of payment elected by the Participant by applying the Adjustment Factor. C.15 AMOUNT OF EARLY PENSION REDUCTION During the period commencing July 1, 1994 and ending June 30, 1996, the yearly amount of early Pension payable to the Participant will be equal to the amount determined in Supplement C Section C.3, based on Credited Service to the date the Participant's employment ceases or June 30, 1996, if earlier, and then reduced by 1/4 of 1%, for each month (3% per year) by which the early retirement date precedes the Normal Retirement Date up to 60 months early (5 years) and then 2/5 of 1% for each month (4.8% per year) thereafter. C.16 NORMAL FORM OF PAYMENT - JOINT AND SURVIVOR If the Participant has a Spouse on his Retirement Date, the normal form of payment is the Joint and Survivor form. This form provides that, upon the Participant's death on or after his Retirement Date, 50% of the Pension payable to the Participant, will be paid to such Spouse, if surviving the Participant, for the balance of the Spouse's life. However, if the Participant dies within the ten-year period commencing on his Retirement Date, a Pension in the same amount as the Participant would have received will be paid until the end of such ten-year period. As an alternative to the 50% continuation described above, a Participant may elect that 66-2/3% or 100% of the benefit payable to him, be continued to his Spouse upon his death. Such election will not require Spousal Consent as provided in the Plan. 56 C.17 NORMAL FORM OF PAYMENT - TEN-YEARS CERTAIN If the Participant does not have a Spouse on his Retirement Date or if his Termination of Employment occurred prior to January 1, 1976, the normal form of payment is the Ten Years Certain form. This form provides that payments will be made to the Participant in an amount determined in accordance with Supplement C Section C.3 and the Cash Balance Formula under Section 4.4 of the SERVISTAR Plan during his lifetime and that, if his death occurs within the 10-year period commencing upon his Retirement Date, a Pension in the same amount as the Participant would have received will be paid to the Beneficiary designated by the Participant for the balance of the 10-year period. C.18 CONTINGENT PENSION OPTION Subject to the right to elect the lump sum payment of the Cash Balance Benefit, the Participant who elects this option will receive a reduced Pension amount during his lifetime so that, after his death, a Pension in the same amount or 66-2/3% or 50% thereof (as specified in the election) will be paid for the life of the Contingent Pensioner designated by the Participant if surviving the Participant. However, if the Participant dies within the ten-year period commencing on his Retirement Date, payments will not be reduced to the elected percentage until the tenth anniversary of his Retirement Date. If the option is in effect on the Participant's Retirement Date, the amount of Pension payable to the Participant will be determined using the same procedures specified in Section 4.3(A) of the Plan except that the Contingent Pensioner Adjustment Factor will be applied instead of the Joint and Survivor Adjustment Factor. This option will be inoperative if the Contingent Pensioner dies before the Participant's Retirement Date or the Participant dies before his Retirement Date and the terms of the next paragraph are not applicable. If a Participant who has elected this option dies on or after his Normal Retirement Date, but before his Pension is due to commence, his Contingent Pensioner will receive Pension payments beginning on the first day of the month next following the Participant's death and continuing for the balance of his life. Prior to the tenth anniversary of such first day of the month, these Pension payments will be equal to the amount of Pension which would have been payable to the Participant had he retired hereunder on such first day of the month with the option in effect; any such payments payable thereafter will be adjusted by the continuation percentage (100%, 66-2/3%, or 50%) elected by the Participant. C.19 CASH BALANCE BENEFIT PAYMENT OPTION Notwithstanding any Plan provision to the contrary, the entire Vesting Percentage of the Cash Balance Benefit portion of the Participant's Pension may be distributed in a cash lump sum form of payment if elected by the Participant, or his Beneficiary if applicable. Such distribution may commence as soon as practicable after the earliest to occur of the following: the Participant's death, disability, or retirement, or termination of service and in no event later than the dates described in Section 8.9 of the Plan. The spousal consent rules described in Section 8.4 of the Plan shall apply to such distribution. 57 C.20 REFUND OF PARTICIPANT'S CONTRIBUTIONS TO PARTICIPANT If a Participant's Service ceases by reason other than death prior to his Normal Retirement Date, he may elect prior to or on his Retirement Date to receive a refund of his Participant's contributions made prior to July 1, 1974, together with Credited Interest computed thereon to the date the election is made. Effective July 1, 1994, the cash refund of the Participant's contributions shall be no less than the equivalent Value of the yearly amount of Pension that can be provided by the Participant's contributions with Credited Interest computed to the date such amount is applied to purchase this Pension in accordance with the rates in Table C. Such benefit shall be on a Full Cash Refund - Ten-Year Certain Form of payment. Credited Interest on a Participant's Contributions means interest for the number of full months from the January 1 following the date each such contribution was paid to the Fund to the date specified herein. Prior to January 1, 1960, the rate of Credited Interest was 2 1/2% per annum, compounded annually. From January 1, 1960 to January 1, 1976, the rate of Credited Interest was 3% per annum, compounded annually. From January 1, 1976 to July 1, 1983, the rate of Credited Interest is 5% per annum. On and after July 1, 1983, the rate of Credited Interest is 7% per annum, compounded on each July 1. Any change in the rate of Credited Interest will apply to interest allowed for months occurring after the effective date of change. 58 SUPPLEMENT D 1999 SPECIAL RETIREMENT OPPORTUNITY I. Each Participant employed at the Employer's World Headquarters location (other than the Employer's corporate officers) who will be at least age 55 and have at least 5 Years of Service on December 31, 1999 and who elects to retire by filing a written notice and waiver agreement with the Employer on or before August 9, 1999 will be eligible to retire between July 1 and December 31, 1999. The actual date of retirement will be determined by the Participant's department management. Any Participant electing to so retire will be entitled to an enhanced Pension. The Pension will be calculated by adding 5 Years of Service and 5 years of age to the Participant's Years of Service and age at his retirement date. All other benefit provisions will be applied as stated in the Plan. Any Participant who is eligible for this Special Retirement Opportunity and does not elect to retire as provided herein shall not have this Opportunity available at any future time. II. Each Participant employed at the Employer's West Loop Facility whose employment was terminated as a result of that Facility's closing in July, 1999 and who would have attained at least 30 Years of Service by the end of the year 2000 if he had continued employment with the Employer will be eligible for a Pension at the time of such termination calculated on the basis of the Years of Service he would have at December 31, 2000. All other benefit provisions will be applied as stated in the Plan. Any Participant who is eligible for this Pension enhancement and transfers employment within the Employer or Affiliated Employer rather than retire shall not have this enhancement available at any future time. 59 SUPPLEMENT E EFFECTIVE DATES PRIOR TO 1998 The following Sections of the Plan shall apply to the Prior Plan and the SERVISTAR Plan effective as of the indicated dates prior to January 1, 1998 as a part of such plans as each had existed prior to January 1, 1998.
- ---------------------------------------------- PLAN SECTION EFFECTIVE DATES - ---------------------------------------------- 2.1(K) January 1, 1995 - ---------------------------------------------- 2.1(s) January 1, 1997 - ---------------------------------------------- 4.5 December 12, 1994 - ---------------------------------------------- 6.7 January 1, 1997 - ---------------------------------------------- Supplement A.1 January 1, 1995 - ---------------------------------------------- Supplement C.3 January 1, 1995 - ----------------------------------------------
60 TABLE A LATE RETIREMENT ADJUSTMENT FACTOR
- -------------------------------------------------------------------------------------------------------------------- Number of Years and Months from Normal Retirement Date to Late Retirement Date - -------------------------------------------------------------------------------------------------------------------- Months: Years: 0 1 2 3 4 5 6 7 8 9 10 - -------------------------------------------------------------------------------------------------------------------- 0 107.2% 114.4% 122.8% 131.2% 140.8% 150.4% 161.2% 172.0% 182.8% 193.6% 1 100.6% 107.8 115.1 123.5 132.0 141.6 151.3 162.1 172.9 183.7 2 101.2 108.4 115.8 124.2 132.8 142.4 152.2 163.0 173.8 184.6 3 101.8 109.0 116.5 124.9 133.6 143.2 153.1 163.9 174.7 185.5 4 102.4 109.6 117.2 125.6 134.4 144.0 154.0 164.8 175.6 186.4 5 103.0 110.2 117.9 126.3 135.2 144.8 154.9 165.7 176.5 187.3 6 103.6 110.8 118.6 127.0 136.0 145.6 155.8 166.6 177.4 188.2 7 104.2 111.4 119.3 127.7 136.8 146.4 156.7 167.5 178.3 189.1 8 104.8 112.0 120.0 128.4 137.6 147.2 157.6 168.4 179.2 190.0 9 105.4 112.6 120.7 129.1 138.4 148.0 158.5 169.3 180.1 190.9 10 106.0 113.2 121.4 129.8 139.2 148.8 159.4 170.2 181.0 191.8 11 106.6 113.8 122.1 130.5 140.0 149.6 160.3 171.1 181.9 192.7 - --------------------------------------------------------------------------------------------------------------------
Factors for other years and months will be determined in a manner consistent with the manner used in determining these factors. TABLE B CONTINGENT PENSIONER ADJUSTMENT FACTORS JOINT AND SURVIVOR ADJUSTMENT FACTORS 50% CONTINUATION
- ------------------------------------------------------------------------- Participant - ------------------------------------------------------------------------- Age* 55 56 57 58 59 60 61 - ------------------------------------------------------------------------- C 41 89.1 88.4 87.7 86.9 86.2 85.4 84.6 O 42 89.3 88.7 88.0 87.2 86.4 85.7 84.9 N 43 89.6 89.0 88.2 87.5 86.7 86.0 85.2 T 44 89.9 89.3 88.5 87.8 87.0 86.3 85.5 I 45 90.1 89.5 88.8 88.1 87.3 86.6 85.8 G ------------------------------------------------------------------- E 46 90.4 89.8 89.1 88.4 87.7 86.9 86.2 N 47 90.7 90.2 89.4 88.7 88.0 87.3 86.6 T 48 91.0 90.5 89.8 89.0 88.3 87.6 86.9 49 91.3 90.8 90.1 89.4 88.7 88.0 87.3 50 91.6 91.1 90.4 89.7 89.0 89.3 87.6 ------------------------------------------------------------------- 51 91.9 91.4 90.7 90.1 89.4 88.7 88.0 52 92.3 91.7 91.1 90.4 89.8 89.1 88.4 53 92.6 92.1 91.4 90.8 90.1 89.5 88.8 54 92.9 92.4 91.8 91.1 90.5 89.9 89.2 55 93.2 92.7 92.1 91.5 90.9 90.3 89.6 ------------------------------------------------------------------- P 56 93.5 93.1 92.5 91.9 91.3 90.7 90.1 E 57 93.8 93.4 92.8 92.2 91.7 91.1 90.5 N 58 94.2 93.7 93.2 92.6 92.1 91.5 90.9 S 59 94.5 94.1 93.5 93.0 92.4 91.9 91.4 I 60 94.8 94.4 93.9 93.4 92.8 92.3 91.8 O ------------------------------------------------------------------- N 61 95.1 94.7 94.2 93.7 93.2 92.7 92.2 E 62 95.4 95.0 94.6 94.1 93.6 93.1 92.6 R 63 95.7 95.4 94.9 94.4 94.0 93.5 93.1 64 96.0 95.7 95.2 94.8 94.4 93.9 93.5 65 96.3 96.0 95.6 95.2 94.8 94.3 93.9 ------------------------------------------------------------------- 66 96.5 96.3 95.9 95.5 95.1 94.7 94.7 67 96.8 96.5 96.2 95.8 95.5 95.1 94.7 68 97.1 96.8 96.5 96.1 95.8 95.5 95.1 69 97.3 97.1 96.8 96.5 96.1 95.8 95.5 70 97.6 97.4 97.1 96.8 96.5 96.2 95.9 ------------------------------------------------------------------- 71 97.8 97.6 97.3 97.0 96.8 96.5 96.2 72 98.0 97.8 97.5 97.3 97.0 96.8 96.5 73 98.2 98.0 97.8 97.6 97.3 97.1 96.9 74 98.4 98.2 98.0 97.8 97.6 97.4 97.2 75 98.6 98.4 98.3 98.1 97.9 97.7 97.5 - -------------------------------------------------------------------------
* Age nearest birthday on Retirement Date, or on date option becomes effective, if later. Factors for other age combinations will be determined in a manner consistent with the manner used in determining these factors. TABLE B (CONTINUED) CONTINGENT PENSIONER ADJUSTMENT FACTORS 66-2/3% CONTINUATION
- ------------------------------------------------------------------------- Participant - ------------------------------------------------------------------------- Age* 55 56 57 58 59 60 61 - ------------------------------------------------------------------------- C 41 85.9 85.2 84.2 83.3 82.4 81.4 80.5 O 42 86.3 85.5 84.6 83.6 82.7 81.8 80.9 N 43 86.6 85.8 84.9 84.0 83.1 82.2 81.2 T 44 86.9 86.2 85.3 84.3 83.4 82.5 81.6 I 45 87.3 86.5 85.6 84.7 83.8 82.9 82.0 G ------------------------------------------------------------------- E 46 87.6 86.9 86.0 85.1 84.2 83.3 82.4 N 47 88.0 87.3 86.4 85.5 84.6 83.7 82.9 T 48 88.4 87.7 86.8 85.9 85.0 84.2 83.3 49 88.8 88.1 87.2 86.3 85.5 84.6 83.7 50 89.1 88.4 87.6 86.7 85.9 85.0 84.2 ------------------------------------------------------------------- 51 89.5 88.9 88.0 87.2 86.3 85.5 84.7 52 89.9 89.3 88.5 87.6 86.8 86.0 85.2 53 90.3 89.7 88.9 88.1 87.3 86.5 85.7 54 90.7 90.1 89.3 88.5 87.7 87.0 86.2 55 91.1 90.5 89.8 89.0 88.2 87.4 86.7 ------------------------------------------------------------------- P 56 91.5 91.0 90.2 89.5 88.7 87.9 87.2 E 57 91.9 91.4 90.7 89.9 89.2 88.5 87.7 N 58 92.4 91.8 91.1 90.4 89.7 89.0 88.3 S 59 92.8 92.2 91.6 90.9 90.2 89.5 88.8 I 60 93.2 92.7 92.0 91.3 90.7 90.0 89.3 O ------------------------------------------------------------------- N 61 93.6 93.1 92.4 91.8 91.2 90.5 89.9 E 62 93.9 93.5 92.9 92.3 91.7 91.0 90.4 R 63 94.3 93.9 93.3 92.7 92.2 91.6 91.0 64 94.7 94.3 93.8 93.2 92.6 92.1 91.5 65 95.1 94.7 94.2 93.7 93.1 92.6 92.1 ------------------------------------------------------------------- 66 95.4 95.1 94.6 94.1 93.6 93.1 92.6 67 95.8 95.4 95.0 94.5 94.0 93.6 93.1 68 96.1 95.8 95.4 94.9 94.5 94.0 93.6 69 96.4 96.2 95.8 95.3 94.9 94.5 94.1 70 96.8 96.5 96.1 95.8 95.4 95.0 94.6 ------------------------------------------------------------------- 71 97.0 96.8 96.5 96.1 95.7 95.4 95.1 72 97.3 97.1 96.8 96.4 96.1 95.8 95.5 73 97.6 97.4 97.1 96.8 96.5 96.2 95.9 74 97.8 97.7 97.4 97.1 96.8 96.6 96.3 75 98.1 97.9 97.7 97.4 97.2 97.0 96.7 - -------------------------------------------------------------------------
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner option becomes effective, if later. Factors for other age combinations will be determined in a manner consistent with the manner used in determining these factors. TABLE B (CONTINUED) CONTINGENT PENSIONER ADJUSTMENT FACTORS 66-2/3% CONTINUATION
- ------------------------------------------------------------------------- Participant - ------------------------------------------------------------------------- Age* 62 63 64 65 66 67 68 - ------------------------------------------------------------------------- C 41 79.5 78.5 77.5 76.5 75.5 74.5 73.5 O 42 79.9 78.9 77.9 76.9 75.9 74.9 73.9 N 43 80.2 79.2 78.2 77.2 76.2 75.3 74.3 T 44 80.6 79.6 78.6 77.6 76.6 75.7 74.7 I 45 81.0 80.0 79.0 78.0 77.0 76.1 75.1 G ------------------------------------------------------------------- E 46 81.4 80.4 79.5 78.5 77.5 76.5 75.6 N 47 81.9 80.9 79.9 78.9 78.0 77.0 76.1 T 48 82.3 81.4 80.4 79.4 78.4 77.5 76.5 49 82.8 81.8 80.8 79.9 78.9 78.0 77.0 50 83.2 82.3 81.3 80.3 79.4 78.4 77.5 ------------------------------------------------------------------- 51 83.7 82.8 81.8 80.9 79.9 79.0 78.1 52 84.2 83.3 82.4 81.4 80.5 79.6 78.6 53 84.7 83.8 82.9 82.0 81.1 80.1 79.2 54 85.3 84.3 83.4 82.5 81.6 80.7 79.8 55 85.8 84.9 84.0 83.1 82.2 81.3 80.4 ------------------------------------------------------------------- P 56 86.3 85.4 84.6 83.7 82.8 81.9 81.0 E 57 86.9 86.0 85.2 84.3 83.4 82.6 81.7 N 58 87.4 86.6 85.8 84.9 84.1 83.2 82.3 S 59 88.0 87.2 86.3 85.5 84.7 83.8 83.0 I 60 88.5 87.7 86.9 86.1 85.3 84.5 83.7 O ------------------------------------------------------------------- N 61 89.1 88.3 87.6 86.8 86.0 85.2 84.4 E 62 89.7 88.9 88.2 87.4 86.7 85.9 85.1 R 63 90.3 89.5 88.8 88.1 87.4 86.6 85.8 64 90.8 90.1 89.4 88.8 88.1 87.3 86.6 65 91.4 90.7 90.1 89.4 88.7 88.0 87.3 ------------------------------------------------------------------- 66 91.9 91.3 90.7 90.0 89.4 88.7 88.0 67 92.5 91.9 91.3 90.7 90.1 89.4 88.7 68 93.0 92.5 91.9 91.3 90.7 90.1 89.5 69 93.6 93.0 92.5 92.0 91.4 90.8 90.2 70 94.1 93.6 93.1 92.6 92.1 91.5 90.9 ------------------------------------------------------------------- 71 94.6 94.1 93.6 93.1 92.7 92.1 91.6 72 95.0 94.6 94.1 93.7 93.3 92.7 92.2 73 95.5 95.1 94.7 94.2 93.8 93.4 92.9 74 95.9 95.5 95.2 94.8 94.4 94.0 93.5 75 96.4 96.0 95.7 95.4 95.0 94.6 94.2 - -------------------------------------------------------------------------
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner option becomes effective, if later. Factors for other age combinations will be determined in a manner consistent with the manner used in determining these factors. TABLE B (CONTINUED) CONTINGENT PENSIONER ADJUSTMENT FACTORS 100% CONTINUATION
- ------------------------------------------------------------------------- Participant - ------------------------------------------------------------------------- Age* 55 56 57 58 59 60 61 - ------------------------------------------------------------------------- C 41 80.3 79.3 78.1 76.9 75.7 74.5 73.4 O 42 80.8 79.7 78.5 77.4 76.2 75.0 73.8 N 43 81.2 80.2 79.0 77.8 76.6 75.5 74.3 T 44 81.6 80.6 79.4 78.3 77.1 75.9 74.7 I 45 82.1 81.0 79.9 78.7 77.5 76.4 75.2 G ------------------------------------------------------------------- E 46 82.6 81.6 80.4 79.2 78.1 76.9 75.8 N 47 83.1 82.1 80.9 79.8 78.6 77.5 76.3 T 48 83.6 82.6 81.4 80.3 79.2 78.0 76.9 49 84.1 83.1 82.0 80.8 79.7 78.6 77.4 50 84.6 83.6 82.5 81.4 80.2 79.1 78.0 ------------------------------------------------------------------- 51 85.1 84.2 83.1 82.0 80.9 79.8 78.6 52 85.6 84.7 83.7 82.6 81.5 80.4 79.3 53 86.2 85.3 84.2 83.2 82.1 81.0 79.9 54 86.7 85.9 84.8 83.8 82.7 81.7 80.6 55 87.3 86.4 85.4 84.4 83.3 82.3 81.2 ------------------------------------------------------------------- P 56 87.8 87.0 86.0 85.0 84.0 83.0 82.0 E 57 88.4 87.6 86.6 85.6 84.7 83.7 82.7 N 58 89.0 88.2 87.3 86.3 85.3 84.4 83.4 S 59 89.5 88.8 87.9 86.9 86.0 85.0 84.1 I 60 90.1 89.4 88.5 87.6 86.7 85.7 84.8 O ------------------------------------------------------------------- N 61 90.6 90.0 89.1 88.2 87.3 86.5 85.6 E 62 91.2 90.6 89.7 88.9 88.0 87.2 86.3 R 63 91.7 91.1 90.3 89.5 88.7 87.9 87.1 64 92.3 91.7 90.9 90.2 89.4 88.6 87.8 65 92.8 92.3 91.5 90.8 90.1 89.3 88.6 ------------------------------------------------------------------- 66 93.3 92.8 92.1 91.4 90.7 90.0 89.7 67 93.8 93.3 92.7 92.0 91.3 90.7 90.0 68 94.3 93.8 93.2 92.6 92.0 91.3 90.7 69 94.8 94.4 93.8 93.2 92.6 92.0 91.4 70 95.3 94.9 94.3 93.8 93.2 92.7 92.1 ------------------------------------------------------------------- 71 95.6 95.3 94.8 94.3 93.8 93.2 92.7 72 96.0 95.7 95.2 94.8 94.3 93.8 93.3 73 96.4 96.1 95.7 95.2 94.8 94.4 93.9 74 96.8 96.5 96.1 95.7 95.3 94.9 94.5 75 97.2 96.9 96.6 96.2 95.9 95.5 95.1 - -------------------------------------------------------------------------
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner option becomes effective, if later. Factors for other age combinations will be determined in a manner consistent with the manner used in determining these factors. TABLE B (CONTINUED) CONTINGENT PENSIONER ADJUSTMENT FACTORS 100% CONTINUATION
- ------------------------------------------------------------------------- Participant - ------------------------------------------------------------------------- Age* 62 63 64 65 66 67 68 - ------------------------------------------------------------------------- C 41 72.1 70.9 69.7 68.5 67.2 66.1 65.0 O 42 72.6 71.4 70.1 68.9 67.7 66.6 65.4 N 43 73.1 71.8 70.6 69.4 68.2 67.0 65.9 T 44 73.5 72.3 71.1 69.8 68.6 67.5 66.3 I 45 74.0 72.8 71.5 70.3 69.1 67.9 66.8 G ------------------------------------------------------------------- E 46 74.5 73.3 72.1 70.9 69.7 68.5 67.4 N 47 75.1 73.9 72.7 71.5 70.2 69.1 68.0 T 48 75.7 74.5 73.2 72.0 70.8 69.7 68.5 49 76.2 75.0 73.8 72.6 71.4 70.3 69.1 50 76.8 75.6 74.4 73.2 72.0 70.8 69.7 ------------------------------------------------------------------- 51 77.5 76.3 75.1 73.9 72.7 71.5 70.4 52 78.1 76.9 75.7 74.6 73.4 72.2 71.1 53 78.8 77.6 76.4 75.2 74.1 72.9 71.8 54 79.4 78.3 77.1 75.9 74.8 73.6 72.5 55 80.1 78.9 77.8 76.6 75.5 74.3 73.2 ------------------------------------------------------------------- P 56 80.8 79.7 78.5 77.4 76.3 75.2 74.0 E 57 81.6 80.4 79.3 78.2 77.1 76.0 74.9 N 58 82.3 81.2 80.1 79.0 77.9 76.8 75.7 S 59 83.0 81.9 80.9 79.8 78.7 77.6 76.5 I 60 83.8 82.7 81.6 80.6 79.5 78.4 77.4 O ------------------------------------------------------------------- N 61 84.5 83.5 82.5 81.4 80.4 79.4 78.3 E 62 85.3 84.3 83.3 82.3 81.3 80.3 79.2 R 63 86.1 85.1 84.2 83.2 82.2 81.2 80.2 64 86.9 85.9 85.0 84.0 83.1 82.1 81.1 65 87.7 86.7 85.8 84.9 84.0 83.0 82.1 ------------------------------------------------------------------- 66 88.4 87.5 86.7 85.8 84.9 84.0 83.1 67 89.2 88.3 87.5 86.7 85.8 84.9 84.0 68 89.9 89.1 88.3 87.5 86.8 85.9 85.0 69 90.7 89.9 89.2 88.4 87.7 86.8 86.0 70 91.4 90.7 90.0 89.3 88.6 87.8 87.0 ------------------------------------------------------------------- 71 92.1 91.4 90.7 90.1 89.4 88.7 87.9 72 92.7 92.1 91.5 90.9 90.2 89.5 88.8 73 93.4 92.8 92.2 91.6 91.1 90.4 89.7 74 94.0 93.5 92.9 92.4 91.9 91.3 90.6 75 94.7 94.2 93.7 93.2 92.7 92.1 91.5 - -------------------------------------------------------------------------
* Age nearest birthday on Retirement Date, or on date Contingent Pensioner option becomes effective, if later. Factors for other age combinations will be determined in a manner consistent with the manner used in determining these factors. TABLE C IMMEDIATE ANNUITY 10-YEAR CERTAIN ANNUITY MONTHLY INCOME PER 1000
- --------------------------------------------- Age* Monthly Income - --------------------------------------------- 45 7.72 46 7.81 47 7.89 48 7.98 49 8.07 50 8.16 51 8.26 52 8.36 53 8.46 54 8.57 55 8.68 56 8.80 57 8.93 58 9.05 59 9.19 60 9.33 61 9.47 62 9.62 63 9.77 64 9.93 65 10.10 66 10.26 - ---------------------------------------------
* Age, nearest birthday, or annuity commencement date. Purchase of retirement annuity with employee contributions plus Credited Interest. FIRST AMENDMENT OF TRUSERV CORPORATION DEFINED LUMP SUM PENSION PLAN (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998) WHEREAS, TruServ Corporation (the "Company") has established and maintains the Truserv Corporation Defined Lump Sum Pension Plan (the "Plan"); and WHEREAS, the Company desires to amend the Plan to reflect: (i) certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"); (ii) revised mortality tables promulgated under Internal Revenue Service Revenue Ruling 2002-62; and (iii) 2002 Final and Temporary Regulations under Section 401(a)(9) of the Internal Revenue Code of 1986, as amended, and intends that this amendment be in good faith compliance with the requirements thereof; and NOW, THEREFORE, by virtue and in exercise of the power reserved to the Company by Section 11.01 of the Plan and pursuant to the authority delegated to the undersigned officer of the Company by resolution of its Board of Directors, the Plan be and is hereby amended in the following particulars: 1. By adding the following to the end of the second paragraph of Section 2.1(k) of the Plan as a part thereof: "Commencing with the Plan Year beginning in 2002, Compensation taken into account for any purpose under the Plan, including the determination of Average Compensation, shall not exceed $200,000 per year (as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code). Prior to January 1, 2002, the cost-of-living adjustment in effect for a calendar year applies to Compensation for the Plan Year that begins with or within such calendar year. For purposes of determining Accrued Benefits in a Plan Year beginning after December 31, 2001, Compensation for prior Plan Years shall be limited to $160,000 for any Plan Year beginning in 1997, 1998, or 1999; and $170,000 for any Plan Year beginning in 2000 or 2001." 2. By adding the following at the end of Sections 5.4, 6.7 and 6.9 of the Plan as parts thereof: "Notwithstanding any other provision of the Plan to the contrary, with respect to distributions under the Plan made for calendar years beginning on or after January 1, 2003 pursuant to Section 401(a)(9) of the Code, the minimum distribution requirements set out in Section 6.13 shall apply." 3. By substituting the following for the last sentence of Section 6.12(B)(2) of the Plan: "An 'eligible retirement plan' shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from the Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code." 4. By adding the following new Section 6.13 at the end of Section 6 of the Plan as a part thereof: "6.13 Minimum Distribution Requirements After December 31, 2002. (A) Requirements of Treasury Regulations Incorporated. All distributions after December 31, 2002 required under this Section 6.13 will be determined and made in accordance with Treasury Regulations under Section 401(a)(9) of the Code. (B) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section 6.13, distributions may be made as elected under and in accordance with Section 6.10. (C) Time and Manner of Distributions. (1) Required Beginning Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's required beginning date. (2) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (i) If the Participant's surviving Spouse is the Participant's sole designated Beneficiary, distributions to the surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later. (ii) If the Participant's surviving spouse is not the Participant's sole designated Beneficiary, distributions to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. (iii) If there is no designated Beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (iv) If the Participant's surviving spouse is the Participant's sole designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 6.13(C), other than Section 6.13(C), will apply as if the surviving spouse were the Participant. (v) If the Participant or his designated Beneficiary so elects no later than the earlier of September 30 of the calendar year in which distribution would be required to begin in Sections (i) or (ii) above or by September 30 of the calendar year which contains the fifth anniversary of the Participant's (or, if applicable, surviving spouse's) death, such Participant or Beneficiary may receive the Participant's entire interest by December 31 of the calendar year containing the fifth anniversary of the Participant's death. For purposes of this Section 6.13(C)(2) and Section 6.13(F), distributions are considered to begin on the Participant's required beginning date (or, if Section 6.13(C)(2)(iv) applies, the date distributions are required to begin to the surviving Spouse under Section 6.13(C)(2)(i)). If annuity payments irrevocably commence to the Participant before the Participant's required beginning date (or to the Participant's surviving Spouse before the date distributions are required to begin to the surviving Spouse under Section 6.13(C)(2)(i)), the date distributions are considered to begin is the date distributions actually commence. (3) Form of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 6.13(D), (E), and (F). If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations. Any part of the Participant's interest which is in the form of an individual account described in Section 414(k) of the Code will be distributed in a manner satisfying the requirements of Section 401(a)(9) of the Code and the Treasury Regulations that apply to individual accounts. (D) Determination of Amount to be Distributed Each Year. (1) General Annuity Requirements. If the Participant's interest is paid in the form of annuity distributions under the Plan, payments under the annuity will satisfy the following requirements: (i) the annuity distributions will be paid in periodic payments made at intervals not longer than one year; (ii) the distribution period will be over a life (or lives) or over a period certain not longer than the period described in Section 6.13(E) or (F); (iii) once payments have begun over a period certain, the period certain will not be changed even if the period certain is shorter than the maximum permitted; (iv) payments will either be nonincreasing or increase only as follows: (a) by an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the U.S. Bureau of Labor Statistics; (b) to the extent of the reduction in the amount of the Participant's payments to provide for a survivor benefit upon death, but only if the Beneficiary whose life was being used to determine the distribution period described in Section 6.13(E) dies or is no longer the Participant's Beneficiary pursuant to a qualified domestic relations order within the meaning of Section 414(p) of the Code; (c) to provide cash refunds of Associate contributions upon the Participant's death; or (d) to pay increased benefits that result from a Plan amendment. (2) Amount Required to be Distributed by Required Beginning Date. The amount that must be distributed on or before the Participant's required beginning date (or, if the Participant dies before distributions begin, the date distributions are required to begin under Section 6.13(C)(2)(i) or (ii)) is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, e.g., bi-monthly, monthly, semi-annually, or annually. All of the Participant's benefit accruals as of the last day of the first distribution calendar year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Participant's required beginning date. (3) Additional Accruals After First Distribution Calendar Year. Any additional benefits accruing to the Participant in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. (E) Requirements For Annuity Distributions That Commence During Participant's Lifetime (Period Certain Annuities). Unless the Participant's Spouse is the sole designated Beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the Participant's lifetime may not exceed the applicable distribution period for the Participant under the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations for the calendar year that contains the Annuity Starting Date. If the Annuity Starting Date precedes the year in which the Participant reaches age 70, the applicable distribution period for the Participant is the distribution period for age 70 under the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations plus the excess of 70 over the age of the Participant as of the Participant's birthday in the year that contains the Annuity Starting Date. If the Participant's Spouse is the Participant's sole designated Beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the Participant's applicable distribution period, as determined under this Section 6.13(E)(2), or the joint life and last survivor expectancy of the Participant and the Participant's Spouse as determined under the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant's and Spouse's attained ages as of the Participant's and Spouse's birthdays in the calendar year that contains the Annuity Starting Date. (F) Requirements For Minimum Distributions Where Participant Dies Before Date Distributions Begin. (1) Participant Survived by a Designated Beneficiary. Except as provided in Section 6.13(C)(2)(v), if the Participant dies before the date distribution of his or her interest begins and there is a designated Beneficiary, the Participant's entire interest will be distributed, beginning no later than the time described in Section 6.13(C)(2)(i) or (ii), over the life of the designated Beneficiary or over a period certain not exceeding: (i) unless the Annuity Starting Date is before the first distribution calendar year, the life expectancy of the designated Beneficiary determined using the Beneficiary's age as of the Beneficiary's birthday in the calendar year immediately following the calendar year of the Participant's death; or (ii) if the Annuity Starting Date is before the first distribution calendar year, the life expectancy of the designated Beneficiary determined using the Beneficiary's age as of the Beneficiary's birthday in the calendar year that contains the Annuity Starting Date. (2) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (3) Death of Surviving Spouse Before Distributions to Surviving Spouse Begin. If the Participant dies before the date distribution of his or her interest begins, the Participant's surviving Spouse is the Participant's sole designated beneficiary, and the surviving spouse dies before distributions to the surviving spouse begin, this Section 6.13(F) will apply as if the surviving Spouse were the Participant, except that the time by which distributions must begin will be determined without regard to Section 6.13(C)(2)(i). (G) Definitions. These definitions apply to the terms used in Sections 6.13(C)-(G). (1) Designated Beneficiary. The designated Beneficiary is the individual who is designated as the Beneficiary under Section 2.9(H) and is the designated beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations. (2) Distribution calendar year. A distribution calendar year is a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to Section 6.9(B). (3) Life expectancy. Life expectancy is the life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations. (4) Required beginning date. A Participant's required beginning date is the April 1 of the calendar year following the later of (I) the calendar year in which the Participant attains age 70 1/2, or (II) if the Participant is not a 5% owner (as defined in Section 416(i) of the Code) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2, the calendar year in which the Participant retires." 5. By substituting the following for Section 13.1(A) of the Plan: "Regardless of any other provisions of this Plan, other than paragraphs (B)(4), (C) and (D) below, the amount of yearly Pension payable hereunder for any Limitation Year shall not exceed the lesser of (1) the Defined Benefit Dollar Limitation or (2) 100% of the Participant's average annual remuneration determined with reference to the three consecutive limitation years of Service which he received the highest aggregate remuneration from the Employer or an Affiliated Employer (referred to hereinafter in this Section 13.1 as 'highest average compensation'). The 'Defined Benefit Dollar Limitation' is $160,000, as adjusted, effective January 1 of each year, under Section 415(d) of the Code in such manner as the Secretary of the Treasury shall prescribe, and payable in the form of a straight life annuity. A limitation as adjusted under Section 415(d) of the Code will apply to limitation years ending with or within the calendar year for which the adjustment applies." 6. By substituting the following for Section 13.1(B)(3) of the Plan: "If the Pension of a Participant begins prior to age 62, the Defined Benefit Dollar Limitation applicable to the Participant at such earlier age is an annual benefit payable in the form of a straight life annuity beginning at the earlier age that is the actuarial equivalent of the Defined Benefit Dollar Limitation applicable to the Participant at age 62 (adjusted under Section 13.1(B)(2), if required). The Defined Benefit Dollar Limitation applicable at an age prior to age 62 is determined as the lesser of (i) the actuarial equivalent (at such age) of the Defined Benefit Dollar Limitation computed using the interest rate and Group Annuity Mortality Table specified in Supplement A - Section A.1. and (ii) the actuarial equivalent (at such age) of the Defined Benefit Dollar Limitation computed using a 5 percent interest rate and the Group Annuity Mortality Table as specified in Supplement A - Section A.1.(b). Any decrease in the Defined Benefit Dollar Limitation determined in accordance with this Section 13(B)(3) shall not reflect a mortality decrement if benefits are not forfeited upon the death of the Participant. If any benefits are forfeited upon death, the full mortality decrement is taken into account. 7. By substituting the following Section 13.1(B)(4) of the Plan: "If the Pension benefit of a Participant begins after the Participant attains age 65, the Defined Benefit Dollar Limitation applicable to the Participant at the later age is the annual benefit payable in the form of a straight life annuity beginning at the later age that is actuarially equivalent to the Defined Benefit Dollar Limitation applicable to the Participant at age 65 (adjusted under Section 13.1(B)(2), if required). The actuarial equivalent of the Defined Benefit Dollar Limitation applicable at an age after age 65 is determined as (i) the lesser of the actuarial equivalent (at such age) of the Defined Benefit Dollar Limitation computed using the interest rate and Group Annuity Mortality Table specified in Supplement A - Section A.1. and (ii) the actuarial equivalent (at such age) of the Defined Benefit Dollar Limitation computed using a 5 percent interest rate assumption and the applicable Group Annuity Mortality Table specified in Supplement A - Section A.1.(b). For these purposes, mortality between age 65 and the age at which benefits commence shall be ignored. 8. By adding the following new subsection (iv) to the end of Section 13.1(B)(5) of the Plan as a part thereof: "(iv) Notwithstanding any other Plan provisions to the contrary, any reference to the mortality table under Revenue Ruling 95-6, 1995-1 C.B. 80, shall be construed as a reference to the mortality table prescribed in Revenue Ruling 2001-62, 2001-2 C.B. 632, for all purposes under the Plan. For any distribution with an Annuity Starting Date on or after the effective date of this subsection and before the adoption date of this subsection, if application of this subsection as of the Annuity Starting Date would have caused a reduction in the amount of any distribution, such reduction is not reflected in any payment made before the adoption date of this subsection. However, the amount of any such reduction that is required under Code Section 415(b)(2)(B) must be reflected actuarially over any remaining payments to the Participant." 9. By adding the following new Section 13.1(B)(6) to Section 13 of the Plan as a part thereof: "(b) Notwithstanding the above, for limitation years beginning before January 1, 2002, the maximum permissible benefit will not exceed the Defined Benefit Dollar Limitation. In the case of a Participant who has fewer than 10 years of Service with the Employer, the Defined Benefit Compensation Dollar Limitation shall be multiplied by a fraction, (i) the numerator of which is the number of years (or part thereof) of Service and (ii) the denominator of which is 10." 10. By deleting the phrase "or the four preceding Plan Years" where it appears in the first sentence of Section 13.2(c) of the Plan. 11. By substituting the following for the first paragraph of 13.2(C)(1) of the Plan: "An officer of the Employer having annual compensation (within the meaning of Code Section 415(c)(3)) greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), but in no event if there are more than 500 Associates, shall more than 50 Associates or, if there are less than 500 Associates, shall the greater of three Associates or 10% of all Associates, be taken into account under this subsection as Key Employees." 12. By deleting Section 13.2(C)(2) of the Plan and redesignating Sections 13.2(C)(3) and (4) as Sections 13.2(C)(2) and (3), respectively. 13. By substituting the phrase "compensation (within the meaning of Code Section 415(c)(3))" for the word "Compensation" where it appears in Section 13.2(C)(3) of the Plan as amended by particular 12 above. 14. By adding the following sentence to the end of Section 13.2(K) of the Plan as a part thereof: "In determining Years of Service with the Employer for purposes of determining a Participant's minimum Pension benefit under this Section 13.2(K), any Service with the Employer shall be disregarded to the extent that such Service occurs during a Plan Year when the Plan benefits (within the meaning of Section 410(b) of the Code) no Key Employee." 15. By adding the following new Section 13.2(N) immediately following Section 13.2(M) of the Plan as follows: "(N) Determination of Present Values and Amounts. This Section 13.2(N) shall apply for purposes of determining the present values of Accrued Benefits and the amounts of account balances of Participants as of the Determination Date. (1) Distributions during year ending on the Determination Date. The present values of Accrued Benefits and the amounts of account balances of a Participant as of the Determination Date shall be increased by the distributions made with respect to the Participant under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting '5-year period' for '1-year period.' (2) Participants not performing services during the year ending on the Determination Date. The Accrued Benefits and accounts of any individual who has not performed Service for the Employer during the 1-year period ending on the Determination Date shall not be taken into account." 16. By adding the following to the end of Supplement A - Section A.1.(a) of the Plan as a part thereof: "Notwithstanding any other Plan provisions to the contrary (with exception of Section 13.1(B)(5)(iv)), the applicable mortality table used for purposes of adjusting any benefit or limitation under Section 415(b)(2)(B), (C), or (D) of the Code and satisfying the requirements of Section 417(e) of the Code is the table prescribed in Revenue Ruling 2001-62, 2001-2 C.B. 632. For any distribution with an Annuity Starting Date on or after the effective date of this subsection and before the adoption date of this subsection, if application of this paragraph as of the Annuity Starting Date would have caused a reduction in the amount of any distribution, such reduction is not reflected in any payment made before the adoption date of this subsection. However, the amount of any such reduction that is required under Code Section 415(b)(2)(B) must be reflected actuarially over any remaining payments to the Participant." * * * * * Particulars 2 and 4 shall be effective for distributions with required beginning dates on or after January 1, 2003. Particulars 6, 7, and 9 shall be effective for all Participants who have one Hour of Service after December 31, 2002. All remaining particulars shall be effective on January 1, 2002. IN WITNESS WHEREOF, Company has caused this amendment to be executed on its behalf by its duly authorized officer, this 30th day of December, 2002. TruServ Corporation By: /s/ AMY MYSEL -------------------------------------- Its: Vice President of Human Resources ------------------------------------- ATTEST: By: /s/ BILL EVANS ------------------------------ Its: Director of Employee Benefits ------------------------------ EX-10.D 17 c75265exv10wd.txt SAVINGS AND COMPENSATION DEFERRAL PLAN AS AMENDED EXHIBIT 10-D TRUSERV CORPORATION SAVINGS AND COMPENSATION DEFERRAL PLAN As Amended and Restated as of January 1, 1998 Including amendments through December 2002 TRUSERV CORPORATION SAVINGS AND COMPENSATION DEFERRAL PLAN (AS AMENDED & RESTATED EFFECTIVE JANUARY 1, 1998) TABLE OF CONTENTS
PAGE Article 1. Definitions .............................................................. 1 Article 2. Participation and Entry Date ............................................. 15 2.01 Eligibility for Income Deferral Contributions .......................... 15 2.02 Participation .......................................................... 15 2.03 Eligibility upon Reemployment .......................................... 16 2.04 Transferred Participants ............................................... 16 Article 3. Income Deferral Contributions ............................................ 16 3.01 Income Deferral Contributions .......................................... 16 3.02 Matching Contributions ................................................. 18 3.03 Rollover Contributions ................................................. 19 3.04 Change in Contributions ................................................ 20 3.05 Suspension of Contributions ............................................ 20 3.06 Actual Deferral Percentage Test ........................................ 21 3.07 Contribution Percentage Test ........................................... 23 3.08 Aggregate Contribution Limitation ...................................... 25 3.09 Additional Discrimination Testing Provisions ........................... 25 3.10 Annual Additions Limitations ........................................... 27 3.11 Contributions Not Contingent Upon Profits .............................. 32 3.12 Contributions During Period of Military Leave .......................... 32 3.13 Refund of Contributions ................................................ 33 Article 4. Accounts and Investment Funds ............................................ 34 4.01 Accounts ............................................................... 34 4.02 Investment Funds and Participant Directions ............................ 35 4.03 Crediting of Investment Results ........................................ 37 4.04 Annual Statements ...................................................... 38 4.05 Merger of Cotter Plan and SERVISTAR Plan Accounts ...................... 38 Article 5. Vesting of Accounts ...................................................... 39 5.01 All Accounts Except Matching Account ................................... 39
-i- TABLE OF CONTENTS (CONTINUED)
PAGE 5.02 Company Matching Account ............................................... 39 5.03 Allocation of Forfeitures .............................................. 41 5.04 Restoration of Forfeited Accrued Benefit ............................... 41 Article 6. Payment of Benefits ..................................................... 42 6.01 Time of Payment of Accrued Benefit ..................................... 42 6.02 Age 70 1/2Distribution ................................................. 43 6.03 Small Benefits ......................................................... 43 6.04 Method of Payment of Accrued Benefit ................................... 44 6.05 Status of Accounts Pending Distribution ................................ 49 6.06 Proof of Death and Right of Beneficiary or Other Person ................ 50 6.07 Direct Rollover of Certain Distributions ............................... 50 Article 7. Withdrawals and Loans .................................................... 51 7.01 Savings Account Withdrawals ............................................ 51 7.02 Deferral Account Withdrawals After Age 59 1/2 .......................... 51 7.03 Deferral Account Withdrawals ........................................... 51 7.04 Withdrawal Procedures .................................................. 53 7.05 Loans to Participants .................................................. 54 7.06 Missing Participants and Beneficiaries ................................. 57 Article 8. Administration of the Plan ............................................... 58 8.01 Committee .............................................................. 58 8.02 Meeting, Majority Rule ................................................. 59 8.03 Responsibility for Administration of the Plan .......................... 60 8.04 Compensation and Expenses .............................................. 62 8.05 Limitation of Liability ................................................ 62 8.06 Indemnification ........................................................ 62 8.07 Prudent Conduct ........................................................ 63 8.08 Service in More Than One Fiduciary Capacity ............................ 63 8.09 Written Elections ...................................................... 64 8.10 Claims Procedure ....................................................... 64 Article 9. Management of Funds ...................................................... 66
-ii- TABLE OF CONTENTS (CONTINUED)
PAGE 9.01 Trust Agreement ........................................................ 66 9.02 Exclusive Benefit Rule ................................................. 66 9.03 Appointment of Investment Manager ...................................... 66 Article 10. Amendment, Termination, Mergers and Consolidations of the Plan .......... 67 10.01 Plan Amendment ......................................................... 67 10.02 Plan Termination ....................................................... 67 10.03 Mergers and Consolidations of Plans .................................... 69 10.04 Distribution of Accounts Upon a Sale of Assets or a Sale of a Subsidiary 69 10.05 Reorganizations ........................................................ 70 Article 11. General Provisions ...................................................... 70 11.01 Applicable Law ......................................................... 70 11.02 Nonalienation .......................................................... 71 11.03 Severability of Provisions ............................................. 72 11.04 Facility of Payment .................................................... 72 11.05 Gender and Number ...................................................... 72 11.06 Conditions of Employment Not Affected by Plan .......................... 72 11.07 Erroneous Allocations .................................................. 73 11.08 Additional Participating Employers ..................................... 73 Article 12. Top-Heavy Provisions .................................................... 74 12.01 Top-Heaviness Defined .................................................. 74 12.02 Company Contributions .................................................. 78 12.03 Impact on Maximum Benefits ............................................. 79 SUPPLEMENT A ......................................................................... 80
-iii- ARTICLE 1. DEFINITIONS 1.01 Account means the entire interest of a Participant in the Trust Fund as of the date of reference. A Participant's Account shall consist of his Deferral Account, Profit Sharing Account, Matching Account, Savings Account, Pension Account and Rollover Account and, if applicable, his loan fund under Section 7.03. 1.02 Accrued Benefit means the amount standing in a Participant's Account as of any date, derived from both Company contributions and Associate contributions, if any. 1.03 Actual Deferral Percentage means, with respect to a specified group of Associates, the average of the ratios, calculated separately for each Associate in that group, of (a) the amount of Income Deferral Contributions made pursuant to Article 3. hereof for a Plan Year (including Income Deferral Contributions returned to a Highly Compensated Employee under Section 3.01(c) and Income Deferral Contributions returned to any Associate pursuant to Section 3.01(d), to (b) the Associates' Compensation for that entire Plan Year, provided that, upon direction of the Committee, Compensation for a Plan Year shall only be counted if received during the period an Associate is, or is eligible to become, a Participant. The Actual Deferral Percentage for each group and the ratio determined for each Associate in the group shall be calculated to the nearest one one-hundredth of one percent. For purposes of determining the Actual Deferral Percentage for a Plan Year, Income Deferral Contributions may be taken into account for a Plan Year only if they: (a) relate to compensation that either would have been received by the Associate in the Plan Year but for the deferral election, or are attributable to services performed by the Associate in the Plan Year and would have been received by the Associate within 2 1/2 months after the close of the Plan Year but for the deferral election, (b) are allocated to the Associate as of a date within that Plan Year and the allocation is not contingent on the participation or performance of service after such date, and (c) are actually paid to the Trustee no later than 12 months after the end of the Plan Year to which the contributions relate. 1.04 Adjustment Factor means the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code for calendar years beginning on or after January 1, 1988, and applied to such items and in such manner as the Secretary shall provide. 1.05 Affiliated Company means any company not participating in the Plan which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which also includes as a member TruServ Corporation, any trade or business under common control (as defined in Section 414(c) of the Code) with TruServ Corporation, a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes TruServ Corporation, or any other entity required to be aggregated with TruServ Corporation pursuant to Regulations under Section 414(o) of the Code, except that with respect to Section 3.10 and the definition of "leased employee" in Section 1.09 "more than 50%" shall be substituted for "at least 80%" where it appears in Section 1563(a)(1) of the Code. 1.06 Anniversary Date means the last day in each Plan Year. 1.07 Annual Dollar Limit means $150,000 commencing with the 1994 Plan Year. The Annual Dollar Limit shall be adjusted in accordance with Section 401(a)(17)(B) of the Code. 2 1.08 Annuity Starting Date means the first day of the first period for which an amount is paid as an annuity or any other form following a Participant's retirement or other termination of employment. 1.09 Associate means any person employed by the Company who receives stated compensation other than a pension, severance pay, retainer or fee under contract and is a member of a group of Associates to whom the Plan has been and continues to be extended by the Company. Any person considered to be an independent contractor or consultant by the Company shall be excluded from the definition of Associate, regardless of such person's classification by the Internal Revenue Service for tax withholding purposes. Associate shall not include any "leased employee" and any person who is included in a unit of Associates covered by a collective bargaining agreement which does not provide for his participation in the Plan. The term "leased employee" means any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A leased employee shall not be considered an employee of the recipient if: (i) such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Section 125, 3 Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code; (2) immediate participation; and (3) full and immediate vesting; and (ii) leased employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force. In the case of any person who is a leased employee immediately before or after a period of service as an Associate, the entire period during which he has performed services for the Company or an Affiliated Company as a leased employee shall be counted as service as an Associate for all purposes of the Plan, except that he shall not, by reason of that status, become a Participant of the Plan. 1.10 Beneficiary means any person, persons or entity named by a Participant by written designation filed with the Committee to receive benefits payable in the event of the Participant's death. However, if the Participant is married, his spouse shall be deemed to be the Beneficiary unless another Beneficiary has been named by a written designation filed with the Committee which has been signed by the Participant with Spousal Consent. If no such designation is in effect at the time of death of the Participant, or if no person, persons or entity so designated shall survive the Participant, the Participant's surviving spouse, if any, shall be deemed to be the Beneficiary; otherwise the Beneficiary(ies) shall be, at the Committee's discretion, any relative by blood, adoption or marriage in such proportion as the Committee determines or the estate of the last to die of the Participant or his designated Beneficiary. 1.11 Board of Directors means the Board of Directors of the Company. 1.12 Break in Service means an event affecting forfeitures, which shall occur as of the Participant's Severance Date if he is not reemployed by the Company or an Affiliated Company within one year after a Severance Date. However, if an Associate is absent from 4 work immediately following his active employment, irrespective of whether the Associate's employment is terminated, because of the Associate's pregnancy, the birth of the Associate's child, the placement of a child with the Associate in connection with the adoption of that child by the Associate or for purposes of caring for that child for a period beginning immediately following that birth or placement and that absence from work began on or after the first day of the Plan Year which began in 1985, a Break in Service shall occur only if the Participant does not return to work within two years of his Severance Date. A Break in Service shall not occur during an approved leave of absence which is included in the Associate's Service pursuant to Section 1.44. 1.13 Coast Plan means the SERVISTAR/Coast to Coast Profit Sharing and Savings Plan sponsored by the SERVISTAR/Coast to Coast Corporation, which was merged into the SERVISTAR plan as of August 1, 1996. 1.14 Code means the Internal Revenue Code of 1986, as amended. 1.15 Committee means the committee named as such pursuant to the provisions of Article 8. 1.16 Company means TruServ Corporation and any successor entity thereto which adopts this Plan. Cotter & Company and SERVISTAR COAST TO COAST Corporation merged on July 1, 1997 and became TruServ Corporation. 1.17 Compensation means the total remuneration actually paid to the Participant by the Company during the Plan Year to which reference is made, determined prior to any pre-tax contributions under a "qualified cash or deferred arrangement" (as defined under Section 401(k) of the Code and its applicable regulations), under a "cafeteria plan" (as defined under 5 Section 125 of the Code and its applicable regulations) or, effective January 1, 2000, that is a "qualified transportation fringe benefit" (as defined under Section 132(f) of the Code). Compensation shall include basic salary or wages (including commissions, bonuses (other than sign-on bonuses)), and all other direct current remuneration, such as vacation, holiday and sick pay, but shall not include severance pay, moving or relocation allowances or bonuses, tuition reimbursements, automobile or travel allowances or bonuses, or long-term disability pay paid during the period the Participant is an active Participant, Company Contributions to Social Security, contributions to this or any other deferred profit sharing or retirement plan or program, stock options, or the value of any other fringe benefits provided at the expense of the Company and not specifically included herein. However, Compensation shall not exceed the Annual Dollar Limit, provided that such Annual Dollar Limit shall not be applied in determining Highly Compensated Employees under Section 1.27. 1.18 Contribution Percentage means, with respect to a specified group of Associates, the average of the ratios, calculated separately for each Associate in that group, of (a) the amount of Participant's Matching Contributions (excluding any Matching Contributions forfeited under the provisions of Sections 3.01 and 3.06), to (b) the Associate's Compensation for that Plan Year, provided that upon direction of the Committee, Compensation for a Plan Year shall only be counted if received during the period an Associate is, or is eligible to become, a Participant. The Contribution Percentage for each group and the ratio determined for each Associate in the group shall be calculated to the nearest one one-hundredth of one percent. 6 1.19 Cotter Plan means the Cotter & Company Employees' Savings and Compensation Deferral Plan, originally effective January 1, 1976, which was merged with the SERVISTAR Plan effective January 1, 1998 to create this Plan. 1.20 Date of Employment means the first date on which an Associate completes an Hour of Service as an Associate, provided that in the case of a Break in Service the "Date of Employment" shall be the first date thereafter on which he completes an Hour of Service. 1.21 Deferral Account means so much of the Participant's Account as is attributable to a Participant's Income Deferral Contributions, adjusted as provided herein for investment income, gain or loss and expenses. The Deferral Account shall hold: (a) the Participant's "Deferral Account" under the Cotter Plan, (b) the Participant's "Pre-Tax Account" under the SERVISTAR Plan (known as the "Savings Plus Account" prior to July 1, 1996), which also includes (c) the Participant's Coast Plan "Pre-Tax Account" merged into the SERVISTAR Plan as of August 1, 1996. 1.22 Disability means total and permanent physical or mental disability, as evidenced by: (a) receipt of Social Security disability pension, or (b) receipt of disability payments under the Company's long-term disability program. 1.23 Earnings means the amount of earnings to be returned with any excess deferrals, excess contributions or excess aggregate contributions under Section 3.01, 3.06, 3.07 or 3.08 for a Plan Year, determined as of the last day of such Plan Year under the Plan's method of allocating income to Participants' Accounts pursuant to Section 4.03. 7 1.24 Effective Date means January 1, 1998 for this amended and restated Plan. Notwithstanding this Effective Date, the provisions described in Supplement A of this Plan shall have effective dates which are prior to January 1, 1998 as set forth in Supplement A. 1.25 Entry Date means any day of the Plan Year following an Associate's completion of one year of Service. 1.26 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.27 Highly Compensated Employee means any Associate of the Company or an Affiliated Company (whether or not eligible for membership in the Plan) who: (a) was a 5% owner of the Company (as defined in Section 416(i) of the Code) for such Plan Year or the prior Plan Year, or (b) for the preceding Plan Year received Compensation in excess of $80,000 commencing with the 1997 Plan Year. The $80,000 amount referenced above is adjusted at the same time and in the same manner as under Section 415(d) of the Code, except that the base period is the calendar quarter ending September 30, 1996. A highly compensated former employee is based on the rules applicable to determining highly compensated employee status as in effect for that determination year, in accordance with Section 1.414(q)-1T, A-4 of the temporary Treasury Regulations and Internal Revenue Service Notice 97-45. The Company's preceding Plan Year election as described above, shall be used consistently in determining Highly Compensated Employees for determination years of all Associate 8 benefit plans of the Company and any Affiliated Company for which Section 414(q) of the Code applies (other than a multiemployer plan) that begin with or within the same calendar year, until such election is changed by Plan amendment in accordance with Internal Revenue Service requirements. Notwithstanding the foregoing, the consistency provision in the preceding sentence shall not apply for the Plan Year beginning in 1997, and for Plan Years beginning in 1998 and 1999, shall apply only with respect to all qualified retirement plans (other than a multiemployer plan) of the Company and any Affiliated Company. Notwithstanding the foregoing, Associates who are nonresident aliens and who receive no earned income from the Company or an Affiliated Company which constitutes income from sources within the United States shall be disregarded for all purposes of this Section. The provisions of this Section shall be further subject to such additional requirements as shall be described in Section 414(q) of the Code and its applicable regulations, which shall override any aspects of this Section inconsistent therewith. 1.28 Hour of Service means each hour for which an Associate is directly or indirectly paid, or entitled to payment, by the Company or an Affiliated Company for the performance of duties. 1.29 Income Deferral Contributions means amounts contributed pursuant to Section 3.01. 1.30 Investment Fund means any one of or all of the investment funds available to a Participant as provided in Section 4.02. 1.31 Matching Account means so much of a Participant's Account as is attributable to the Company's Matching Contributions, adjusted as provided herein for investment income, gain 9 or loss and expenses. The Matching Account shall also hold the Participant's match account under any plan merged, either directly or indirectly, into this Plan. 1.32 Matching Contributions means amounts contributed by the Company pursuant of Section 3.02. 1.33 Nonhighly Compensated Employees means for any Plan Year an Associate of the Company or an Affiliated Company who is not a Highly Compensated Employee for that Plan Year. 1.34 Normal Retirement Age means attainment of age 65. 1.35 Participant means any person who is an Associate and who has been admitted to participation in this Plan pursuant to the eligibility provisions of Article 2. A Participant ceases to be a Participant when all assets in his Account to which he is entitled under the Plan have been distributed in accordance with the Plan. 1.36 Pension Account means so much of the Participant's Account which was credited the "Participant's Pension Account" under the Coast Plan which had been transferred into the SERVISTAR Plan on behalf of the Participant from the Coast America Retirement Savings Plan, adjusted as provided herein for investment income, gain or loss and expenses. 1.37 Plan means the TruServ Corporation Savings and Compensation Deferral Plan as set forth herein, and as the same may from time to time hereafter be amended. This Plan was created by merger of the Cotter & Company Employees' Savings and Compensation Deferral Plan and the SERVISTAR COAST TO COAST Corporation Supplemental Retirement Plan, effective January 1, 1998. 10 1.38 Plan Year means the twelve-month period commencing each January 1. 1.39 Profit Sharing Account means so much of a Participant's Account as is attributable to the SERVISTAR Plan "Profit Sharing Account" merged into this Plan as of January 1, 1998, adjusted as provided herein for investment income, gain or loss and expenses. This SERVISTAR Plan "Profit Sharing Account" was called the "Company Contribution Account" prior to July 1, 1996. The "Profit Sharing Account" shall also hold the Participant's Coast Plan "Retirement Account" merged into the SERVISTAR Plan as of August 1, 1996. 1.40 Qualified Joint and Survivor Annuity means an annuity payable for the life of a Participant, and, after the Participant's death, an annuity payable to his spouse for life at the rate of not less than 50% nor more than 100% of the amount payable to the Participant. 1.41 Rollover Account means so much of the Participant's Account into which shall be credited the Rollover Contributions made by a Participant as set forth in Section 3.03, adjusted as provided herein for investment income, gain or loss and expenses. This Rollover Account shall also hold the Participant's Cotter Plan "Rollover Account" and SERVISTAR Plan "Rollover Account" (which includes the Coast Plan "Rollover Account" merged as of August 1, 1996) merged into this Plan as of January 1, 1998. 1.42 Rollover Contributions means amounts contributed pursuant to Section 3.03. 1.43 Savings Account means so much of a Participant's Account as is attributable to a Participant's after-tax contributions under the Cotter Plan or the SERVISTAR Plan or any other plan previously merged into them, adjusted as provided herein for investment income, 11 gain or loss and expenses. This Savings Account was called the Employee Contribution Account prior to July 1, 1986. The Savings Account shall hold the Participant's Coast Plan "Employee Thrift Account" merged into this Plan as of August 1, 1996. 1.44 Service means, with respect to any Associate, his period of employment with the Company or an Affiliated Company, whether or not as an Associate, beginning on the date he first completes an Hour of Service (or the date he first completes an Hour of Service upon reemployment after a Break in Service) and ending on his Severance Date, provided that: (a) if his employment terminates and he is reemployed within one year of the earlier of: (i) his date of termination, or (ii) the first day of an absence from service immediately preceding his date of termination, the period between his Severance Date and his date of reemployment shall be included in his Service; (b) to the extent provided by the Company in a written agreement, an Associate's service with any predecessor to the Company will be considered as employment by the Company, thus, Service shall include an Associate's continuous employment with Cotter & Company under the provisions of the Cotter Plan, "Years of Service" with the SERVISTAR Corporation under the provisions of the SERVISTAR Plan, and continuous service with the Coast-to-Coast Corporation prior to its acquisition by the SERVISTAR Corporation, as recognized under the provisions of the Coast-to-Coast Corporation qualified retirement plan; (c) if he is on a leave of absence, any portion of that period of leave which is not otherwise included in his Service shall be included in his Service. A leave of absence means any of the following: 12 (i) Absence on leave granted by the Company or an Affiliated Company for any cause for the period stated in such leave and any extension that the Company or an Affiliated Company may grant in writing. For the purpose of this subsection, the Company or an Affiliated Company shall give uniform treatment to all Associates in similar circumstances; (ii) Absence in any circumstances so long as the Associate continues to receive his regular pay from the Company or an Affiliated Company; or (iii) Absence by reason of vacation, holidays, illness, disability, maternity or jury duty. When a leave of absence ceases and the Associate does not return to Service, the last day of the leave shall be deemed a Severance Date unless his Service actually terminated prior to the expiration of the leave. (d) if a former Associate who is not vested with respect to any portion of his Deferral Account or Matching Account is reemployed by the Company or an Affiliated Company after he has incurred five consecutive one-year Breaks in Service, his period of Service prior to such five consecutive one-year Breaks in Service shall be disregarded for purposes of determining the vested portion of his Matching Account upon his reemployment if the consecutive number of his one-year Breaks in Service equal or exceed his years of Service. In no event shall a period of Service after an Associate has incurred five consecutive one-year Breaks in Service be taken into account in determining the vested portion of his Matching Account attributable to Service prior to such five year Break in Service. 1.45 SERVISTAR Plan means the SERVISTAR COAST TO COAST Corporation Supplemental Retirement Plan, originally effective July 1, 1964, which was merged with the Cotter Plan effective January 1, 1998 to create this Plan. 13 1.46 Severance Date means the earlier of: (a) the date an Associate quits, retires, is discharged or dies, or (b) the first anniversary of the date on which an Associate is first absent from service, with or without pay, for any reason such as vacation, sickness, disability, layoff or leave of absence. 1.47 Spousal Consent means the written consent of a Participant's spouse to the Participant's election of a specified form of benefit or designation of a specified Beneficiary. The specified form or specified Beneficiary shall not be changed unless further Spousal Consent is given. Spousal Consent shall be duly witnessed by a Plan representative or notary public and shall acknowledge the effect on the spouse of the Participant election. The requirement for Spousal Consent may be waived by the Committee in the event that the Participant establishes to its satisfaction that he has no spouse, that such spouse cannot be located, or under such other circumstances as may be permitted under applicable Treasury Department regulations. Spousal Consent shall be applicable only to the particular spouse who provides such consent. 1.48 Trust Fund means such money or property as shall from time to time be paid to the Trustee under this Plan, and such earnings, profits, increments, additions and appreciation thereto, decreased by losses, depreciation, benefits paid and expenses incurred in the administration of the Plan and Trust. 1.49 Trustee means the party or parties so designated pursuant to a trust agreement by the Company for this Plan and any duly appointed successor Trustee or Trustees acting hereunder. 14 1.50 Valuation Date means any business day of the Plan Year. ARTICLE 2. PARTICIPATION AND ENTRY DATE 2.01 ELIGIBILITY FOR INCOME DEFERRAL CONTRIBUTIONS Any Participant in the Cotter Plan or SERVISTAR Plan on December 31, 1997 shall be a Participant in this Plan on January 1, 1998 based on his contribution election in effect in each respective plan on December 31, 1997. Any Associate who was eligible to participate on December 31, 1997 shall be eligible to become a Participant on January 1, 1998 provided he is then still an Associate. Each other Associate shall be eligible to make Income Deferral Contributions on any Entry Date coinciding with or immediately following the date he completes one year of Service. Any former Associate of Advocate Services, Inc. who becomes an Associate on or after January 1, 1998, shall be eligible to become a Participant when he becomes an Associate. 2.02 PARTICIPATION An eligible Associate shall become a Participant for purposes of Section 2.01 on the first Entry Date coinciding with or immediately following the date he completes one year of Service, provided he has completed the enrollment procedures established by the Committee for: (a) making an election for Income Deferral Contributions under Section 3.01; (b) authorizing the Company to reduce his Compensation; (c) making an investment election; and (d) designating a Beneficiary. 15 2.03 ELIGIBILITY UPON REEMPLOYMENT Any Associate whose employment terminates and who is subsequently reemployed shall become a Participant in accordance with Section 2.01. Upon reemployment, the eligible Associate must complete the enrollment procedures under Section 2.02. 2.04 TRANSFERRED PARTICIPANTS A Participant who remains in the employ of the Company or an Affiliated Company but ceases to be an Associate (e.g., the Associate enters a nonparticipating collective bargaining unit) shall continue to be a Participant of the Plan but shall not be eligible to receive allocations of Income Deferral Contributions or Matching Contributions while his employment status is other than as an Associate. ARTICLE 3. INCOME DEFERRAL CONTRIBUTIONS 3.01 INCOME DEFERRAL CONTRIBUTIONS (a) A Participant may elect on his application filed under Section 2.02 hereof to reduce his Compensation payable while a Participant by not less than 1% and not more than 15%, in multiples of 1% as elected by the Participant, and have that amount contributed to the Plan by the Company in a manner to be determined by the Committee. The Income Deferral Contributions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Company's general assets, but no later than the 15th day of the month following the month in which the Income Deferral Contributions were made and shall be credited to the Participant's Deferral Account. A Participant shall be 100% vested at all times in his Deferral Account. Income Deferral Contributions shall be further limited as provided below and in Sections 3.01(b), 3.06 and 3.10. 16 (b) In no event shall the Participant's Income Deferral Contributions and similar contributions made on his behalf by the Company or an Affiliated Company to all plans, contracts or arrangements subject to the provisions of Section 401(a)(30) of the Code in any calendar year exceed $9,500, as adjusted from time to time for the cost-of-living pursuant to Section 402(g) of the Code. If a Participant's Income Deferral Contributions in a calendar year reach that dollar limitation, his election of Income Deferral Contributions for the remainder of the calendar year will be canceled. As of the first pay period of the following calendar year, the Participant's election of Income Deferral Contributions shall again become effective in accordance with his previous election, unless the Participant elects otherwise. (c) In the event that the sum of the Income Deferral Contributions and similar contributions to any other qualified defined contribution plan maintained by the Company or an Affiliated Company exceeds the dollar limitation in subsection (b) above for any calendar year, the Participant shall be deemed to have elected a return of Income Deferral Contributions in excess of such limit ("excess deferrals") from this Plan. The excess deferrals, together with Earnings, shall be returned to the Participant no later than the April 15 following the end of the calendar year in which the excess deferrals were made. The amount of excess deferrals to be returned for any calendar year shall be reduced by any Income Deferral Contributions previously returned to the Participant under Section 3.06 for that calendar year. In the event any Income Deferral Contributions returned under this paragraph (b) were matched by Matching Contributions under Section 3.02, those Matching Contributions, together with Earnings, shall be forfeited and used to reduce Company contributions. (d) If a Participant makes tax-deferred contributions under another qualified defined contribution plan for any calendar year and those contributions when added to his Income Deferral Contributions under this Plan exceed the dollar limitation under 17 subsection (b) above for that calendar year, the Participant may allocate all or a portion of such excess deferrals to this Plan. In that event, the excess deferrals, with Earnings thereon, as allocated shall be returned to the Participant no later than the April 15 following the end of the calendar year in which the excess deferrals were made. However, the Plan shall not be required to return excess deferrals unless the Participant notifies the Committee, in writing, by March 1 of that following calendar year of the amount of the excess deferrals allocated to this Plan. The amount of excess deferrals to be returned for any calendar year shall be reduced by any Income Deferral Contributions previously returned to the Participant under Section 3.06 for that calendar year. In the event any Income Deferral Contributions returned under this paragraph (d) were matched by Matching Contributions under Section 3.02, those Matching Contributions, together with Earnings, shall be forfeited and used to reduce Company contributions. 3.02 MATCHING CONTRIBUTIONS Effective as of the first payroll period ending after July 1, 2000 (a) the Company may thereafter authorize Matching Contributions on behalf of each Participant who elects to make Income Deferral Contributions in an amount equal to a percentage of such Income Deferral Contributions with such maximum percentage amount as determined from time to time by the Company in its sole discretion; (b) any such Matching Contributions shall be allocated on an annual basis only to the accounts of Participants who are actively employed by the Company as of the Anniversary Date, who are on authorized medical leave of absence as of the Anniversary Date, or whose employment has terminated during the Plan Year after attainment of Normal Retirement Age, as a result of involuntary termination by the Company, or as a result of death or Disability; and (c) the Company reserves the right not to make any Matching Contributions for any reason it deems appropriate. The Matching Contributions 18 are made expressly conditional on the Plan satisfying the provisions of Sections 3.01, 3.06, 3.07 and 3.08. If any portion of the Income Deferral Contributions to which the Matching Contribution relates is returned to the Participant under Sections 3.01, 3.06 and 3.08, the corresponding Matching Contribution shall be forfeited and if any amount of the Matching Contribution is deemed an excess aggregate contribution under Section 3.07, such amount shall be forfeited in accordance with the provisions of that Section. For contributions made prior to July 1, 2000 the Company shall contribute on behalf of each Participant who elects to make Income Deferral Contributions an amount equal to 100% of the first 3% plus 50% of the next 3% of Compensation which is contributed as Income Deferral Contributions on behalf of or by the Participant to the Plan during each payroll period. In no event, however, shall the Matching Contributions pursuant to this Section exceed 4.5% of the Participant's Compensation while a Participant with respect to a particular Plan Year. 3.03 ROLLOVER CONTRIBUTIONS (a) With the permission of the Committee and without regard to any limitations on contributions set forth in Article 3, the Plan may receive from a Participant, or an Associate who has not yet met the eligibility requirements for membership, in cash, any amount previously received (or deemed to be received) by him from a qualified plan. The Plan may receive such amount either directly from the Participant or Associate or from an individual retirement account or from a qualified plan in the form of a direct rollover. Notwithstanding the foregoing, the Plan shall not accept any amount unless such amount is eligible to be rolled over to a qualified trust in accordance with applicable law and the Participant provides evidence satisfactory to the Committee that such amount qualifies for rollover treatment. Unless received by the Plan in the form of a direct rollover, the Rollover Contribution must be paid to the 19 Trustee on or before the 60th day after the day it was received by the Participant. No "rollover amount" will be accepted, directly or indirectly, from an individual retirement account to which the Associate contributed on his own behalf or which consists, in whole or in part, of insurance contracts. (b) The Trustee shall establish a Rollover Account on whose behalf such "rollover amount" was received. (c) All "rollover amounts" shall be fully vested in the Associate on whose behalf they are established. (d) The assets held on behalf of any Associate in a rollover account shall be aggregated with any other vested interest he may have in this Plan for the purpose of distribution and shall be distributed at the same time and by the same method as the remainder of his vested interest in this Plan. 3.04 CHANGE IN CONTRIBUTIONS The percentages of Compensation designated by a Participant under Section 3.01 shall automatically apply to increases and decreases in his Compensation. Subject to the provisions of Section 3.01, a Participant may change the percentage of his authorized payroll deduction or reduction at any time. The changed percentage shall become effective as soon as administratively feasible following receipt of notice by the Committee, according to rules established by the Committee. 3.05 SUSPENSION OF CONTRIBUTIONS A Participant may suspend his contributions under Section 3.01 and/or revoke his election under Section 3.01 at any time by giving notice to the Committee. The suspension or revocation shall become effective as soon as administratively feasible following receipt of notice by the Committee or its delegate, according to rules established by the Committee. A 20 Participant who has suspended and/or revoked his contributions under Section 3.01 may apply to the Committee to have them resumed and to have his Compensation reduced in accordance with Section 3.01 as soon as administratively feasible following receipt of notice by the Committee or its delegate, according to rules established by the Committee. 3.06 ACTUAL DEFERRAL PERCENTAGE TEST With respect to each Plan Year commencing on or after January 1, 1997, the Actual Deferral Percentage for that Plan Year for Highly Compensated Employees who are Participants or eligible to become Participants for that Plan Year shall not exceed the Actual Deferral Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year multiplied by 1.25. If the Actual Deferral Percentage for such Highly Compensated Employees does not meet the foregoing test, the Actual Deferral Percentage for such Highly Compensated Employees for that Plan Year may not exceed the Actual Deferral Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year by more than two percentage points, and such Actual Deferral Percentage for such Highly Compensated Employees for the Plan Year may not be more than 2.0 times the Actual Deferral Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year (or such lesser amount as the Committee shall determine to satisfy the provisions of Section 3.08). Notwithstanding the foregoing, the Company may elect to use the Actual Deferral Percentage for Nonhighly Compensated Employees for the Plan Year being tested rather than the preceding Plan Year provided that such election must be evidenced by a Plan amendment and once made may not be changed except as provided by the Secretary of the Treasury. 21 The Committee may implement rules limiting the Income Deferral Contributions which may be made on behalf of some or all Highly Compensated Employees so that this limitation is satisfied. If the Committee determines that the limitation under this Section has been exceeded in any Plan Year as a result of the level of Income Deferral Contributions made on behalf of some or all Highly Compensated Employees, the portion of such Income Deferral Contributions that cause the Plan to exceed such limitations ("excess contributions") shall be determined and distributed to such Highly Compensated Employees as follows: (a) The Income Deferral Contributions of the Highly Compensated Employee with the highest dollar amount of Income Deferral Contributions shall be reduced to the extent necessary so that the Plan does not exceed the limitations of this section or by the amount required to cause that Highly Compensated Employee's Income Deferral Contributions to equal the dollar amount of the Income Deferral Contributions of the Highly Compensated Employee with the next highest dollar amount of Income Deferral Contributions. This procedure is repeated until all excess contributions are allocated. The amount of excess contributions distributed to a Highly Compensated Employee, shall be distributed to him or her with Earnings thereon and in accordance with the provisions of paragraph (b). (b) The excess contributions, together with Earnings thereon, allocated to a Participant shall be paid to the Participant before the close of the Plan Year following the Plan Year in which the excess contributions were made, and to the extent practicable, within 2 1/2 months of the close of the Plan Year in which the excess contributions were made. However, any excess contributions for any Plan Year shall be reduced by any Income Deferral Contributions previously returned to the Participant under Section 3.01 for that Plan Year. In the event any Income Deferral Contributions returned under this Section were matched by Matching Contributions, such 22 corresponding Matching Contributions, with Earnings thereon, shall be forfeited and used to reduce Company contributions. 3.07 CONTRIBUTION PERCENTAGE TEST With respect to each Plan Year commencing on or after January 1, 1997, the Contribution Percentage for that Plan Year for Highly Compensated Employees who are Participants or eligible to become Participants for that Plan Year shall not exceed the Contribution Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year multiplied by 1.25. If the Contribution Percentage for such Plan Year for such Highly Compensated Employees does not meet the foregoing test, the Contribution Percentage for such Highly Compensated Employees for the Plan Year may not exceed the Contribution Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year by more than two percentage points, and the Contribution Percentage for such Highly Compensated Employees for the Plan Year may not be more than 2.0 times the Contribution Percentage for the preceding Plan Year for all Nonhighly Compensated Employees for the preceding Plan Year who were Participants or eligible to become Participants during the preceding Plan Year (or such lesser amount as the Committee shall determine to satisfy the provisions of Section 3.08). Notwithstanding the foregoing, the Company may elect to use the Actual Contribution Percentage for Nonhighly Compensated Employees for the Plan Year being tested rather than the preceding Plan Year provided that such election must be evidenced by a Plan amendment and once made may not be changed except as provided by the Secretary of the Treasury. 23 If the Committee determines that the limitation under this Section 3.07 has been exceeded in any Plan Year as a result of the level of Matching Contributions made on behalf of some or all Highly Compensated Employees, the portion of such contributions that causes the Plan to exceed such limitations ("excess aggregate contributions") shall be determined and distributed to such Highly Compensated Employees or forfeited as follows: (a) The Matching Contributions of the Highly Compensated Employee with the highest dollar amount of such contributions shall be reduced to the extent necessary so that the Plan does not exceed the limitations of this Section or by the amount required to cause that Highly Compensated Employee's Matching Contributions to equal the dollar amount of matching contributions of the Highly Compensated Employee with the next highest dollar amount of such Contributions. This procedure is repeated until all excess aggregate contributions are allocated. The amount of excess aggregate contributions allocated to each Highly Compensated Employee, together with Earnings thereon, shall be distributed or forfeited in accordance with the provisions of paragraph (b) below. (b) Excess aggregate contributions allocated to a Highly Compensated Employee under paragraph (a) above shall be distributed or forfeited as follows: so much of the Matching Contributions, together with Earnings, as shall be necessary to equal the balance of the excess aggregate contributions shall be reduced, with the vested Matching Contributions, together with applicable Earnings, being paid to the Participant and the Matching Contributions which are forfeitable under the Plan, together with applicable Earnings, being forfeited and applied to reduce Company contributions. (c) Any repayment or forfeiture of excess aggregate contributions shall be made before the close of the Plan Year following the Plan Year for which the excess aggregate contributions were made, and to the extent practicable, any repayment or forfeiture 24 shall be made within 2 1/2 months of the close of the Plan Year in which the excess aggregate contributions were made. 3.08 AGGREGATE CONTRIBUTION LIMITATION Notwithstanding the provisions of Sections 3.06 and 3.07, in no event shall the sum of the Actual Deferral Percentage of the group of eligible Highly Compensated Employees and the Contribution Percentage of such group, after applying the provisions of Sections 3.06 and 3.07, exceed the "aggregate limit" as provided in Section 401(m)(9) of the Code and the regulations issued thereunder. In the event the aggregate limit is exceeded for any Plan Year, the Contribution Percentages of the Highly Compensated Employees shall be reduced to the extent necessary to satisfy the aggregate limit in accordance with the procedure set forth in Section 3.07. 3.09 ADDITIONAL DISCRIMINATION TESTING PROVISIONS (a) If any Highly Compensated Employee is a member of another qualified plan of the Company or an Affiliated Company, other than an employee stock ownership plan described in Section 4975(e)(7) of the Code or any other qualified plan which must be mandatorily disaggregated under Section 410(b) of the Code, under which deferred cash contributions or matching contributions are made on behalf of the Highly Compensated Employee or under which the Highly Compensated Employee makes after-tax contributions, the Committee shall implement rules, which shall be uniformly applicable to all Associates similarly situated, to take into account all such contributions for the Highly Compensated Employee under all such plans in applying the limitations of Sections 3.06, 3.07 and 3.08. If any other such qualified plan has a plan year other than the Plan Year defined in Section 1.38, the contributions to be 25 taken into account in applying the limitations of Sections 3.06, 3.07 and 3.08 will be those made in the plan years ending with or within the same calendar year. (b) In the event that this Plan is aggregated with one or more other plans to satisfy the requirements of Sections 401(a)(4) and 410(b) of the Code (other than for purposes of the average benefit percentage test) or if one or more other plans is aggregated with this Plan to satisfy the requirements of such sections of the Code, then the provisions of Sections 3.06, 3.07 and 3.08 shall be applied by determining the Actual Deferral Percentage and Contribution Percentage of Associates as if all such plans were a single plan. If this Plan is permissively aggregated with any other plan or plans for purposes of satisfying the provisions of Section 401(k)(3) of the Code, the aggregated plans must also satisfy the provisions of Sections 401(a)(4) and 410(b) of the Code as though they were a single plan. Plans may be aggregated under this paragraph (b) only if they have the same plan year. (c) The Company may elect to use Income Deferral Contributions to satisfy the tests described in Sections 3.07 and 3.08, provided that the test described in Section 3.06 is met prior to such election, and continues to be met following the Company's election to shift the application of those Income Deferral Contributions to Sections 3.06 and 3.07. (d) The Company may authorize that special "qualified nonelective contributions" shall be made for a Plan Year, which shall be allocated in such amounts and to such Participants, who are Nonhighly Compensated Employees, as the Committee shall determine. The Committee shall establish such separate accounts as may be necessary. Qualified nonelective contributions shall be 100% nonforfeitable when made. Any qualified nonelective contributions made on or after January 1, 1989 and any earnings credited on any qualified nonelective contributions after such date shall only be available for withdrawal under the provisions of Section 7.03. Qualified 26 nonelective contributions made for the Plan Year may be used to satisfy the tests described in Sections 3.06, 3.07 and 3.08, where necessary. (e) For Plan Years commencing on and after January 1, 1999, if the Company elects to apply the provisions of Section 410(b)(4)(B) to satisfy the requirements of Section 401(k)(3)(A)(i) of the Code, the Company may apply the provisions of Sections 3.06, 3.07 and 3.08 by excluding from consideration all eligible Associates (other than Highly Compensated Employees) who have not met the minimum age and service requirements of Section 410(a)(1)(A) of the Code. 3.10 ANNUAL ADDITIONS LIMITATIONS (a) Notwithstanding the provisions of Sections 3.01 or 3.02, in no event shall the "annual addition" to a Participant's Account for any Plan Year (which shall be the "limitation year"), when added to the Participant's "annual addition" for that Plan Year under any other qualified defined contribution plan of the Company and an Affiliated Company, exceed the lesser of $30,000 (as revised for the Adjustment Factor) or 25% of such Participant's aggregate remuneration for that Plan Year as defined hereinafter. (b) For purposes of this Section, the "annual addition" to a Participant's Account under this Plan or any other qualified defined contribution plan maintained by the Company or an Affiliated Company shall be the sum of: (i) the total of contributions, including Income Deferral Contributions made on the Participant's behalf, by the Company and any Affiliated Company, (ii) all Participant contributions (disregarding in any event Rollover Contributions), and (iii) forfeitures, if applicable, that have been allocated to the Participant's Account under this Plan or his accounts under any other such qualified defined contribution plan, and solely for purposes of the 25% limitation stated above, 27 (iv) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code allocated to the Participant. For purposes of this paragraph (b), any Income Deferral Contributions distributed under Sections 3.06 and any after-tax or Matching Contributions distributed under the provisions of Sections 3.01, 3.06, 3.07 or 3.08 shall be included in the annual addition for the year allocated. However (i) any loan repayment made under Article 7; (ii) amounts required to be repaid under Section 5.04 as a condition of the restoration of a Participant's forfeited Account balance; and (iii) any excess deferrals timely distributed from the Plan under Section 3.01(c) or (d) shall be excluded from the definition of annual addition. (c) For purposes of this Section, the term "remuneration" with respect to any Participant shall mean the wages, salaries and other amounts paid in respect of that Participant by the Company or an Affiliated Company for personal services actually rendered, including, but not limited to, bonuses, overtime payments and commissions, but excluding deferred compensation, stock options and other distributions which receive special tax benefits under the Code. Notwithstanding the foregoing, for limitation years commencing prior to January 1, 1998, remuneration shall exclude amounts contributed by the Company pursuant to a salary reduction agreement which are not includible in the gross income of the Associate under Sections 125, 402(g)(3) or 457 of the Code. (d) The Committee shall have the duty and responsibility to monitor each Participant's Account and to determine if any annual additions may be in excess of the aforementioned limits, and, if so, the amount by which the annual additions should be reduced for such Plan Year. 28 (e) If an excess results from the application of any of these limits, the annual addition to the Participant's Account shall be reduced to the extent necessary to bring such annual addition within these limitations in the following order: (i) the Participant's unmatched Income Deferral Contributions under Section 3.01 shall be reduced to the extent necessary. The amount of the reduction shall be returned to the Participant, together with any earnings on the contributions to be returned. (ii) the Participant's matched Income Deferral Contributions under Section 3.01 and corresponding Matching Contributions shall be reduced to extent necessary. The amount of the reduction attributable to the Participant's matched Income Deferral Contributions shall be returned to the Participant together with any earnings on those contributions to be returned, and the amount attributable to the Matching Contributions shall be forfeited and used to reduce subsequent Matching Contributions payable by the Company. Any Income Deferral Contributions returned to a Participant under this paragraph (e) shall be disregarded in applying the dollar limitation on Income Deferral Contributions under Section 3.01(b), and in performing the Actual Deferral Percentage Test under Section 3.06. Any Matching Contributions returned under this paragraph (e) shall be disregarded in performing the Contribution Percentage Test under Section 3.07. (g) Participation in one or more Defined Benefit Plans This Section is effective for Plan Years beginning before January 1, 2000. If any Participant is or has been a Participant in a defined benefit plan maintained by the Company regardless of whether any such plans are terminated, the Participant may not have contributions made to this Plan which would cause the sum of the defined benefit plan fraction and the defined contribution plan fraction to exceed l.0. This shall 29 be accomplished by reducing contributions to Participants under this Plan to the extent necessary to preclude such excess. (1) Defined Benefit Fraction A fraction, the numerator of which is the sum of the Participant's projected annual benefit under each defined benefit plan maintained by the Company or any Affiliated Company regardless of whether any such plans are terminated, and the denominator of which is the lesser of 125% of the dollar limitation in effect for the limitation year under Section 415(b)(1)(A) of the Code or 140% of the "highest average compensation." Notwithstanding the above, if the Participant was a Participant in one or more defined benefit plans maintained by the Company which were in existence on July 1, 1982, the denominator of this fraction will not be less than 125% of the sum of the annual benefits under such plans which the Participant had accrued as of December 31, 1982. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Section 415 of the Code as in effect at the end of the 1982 Limitation Year. The projected annual benefit shall be the yearly pension to which a Participant is entitled under the terms of each applicable defined benefit plan assuming continued employment until normal retirement age, or current age if later, and compensation and all other relevant factors used to determine benefits under the plan remaining constant until normal retirement age, or current age if later. (2) Defined Contribution Fraction A fraction, the numerator of which is the sum of the Annual Additions to the Participant's account under all the defined contribution plans maintained by the Company or an Affiliated Company regardless of whether any such plans are terminated for the current and all prior limitation years and the denominator of 30 which is the sum of the maximum aggregate amounts for the current and all prior limitation years of service with the Company (regardless of whether a defined contribution plan was maintained by the Company). The maximum aggregate amount in any limitation year is the lesser of 125% of the dollar limitation in effect under Section 415(c)(1)(A) of the Code or 140% multiplied by 25% of the Participant's Compensation for such year. If the Associate was a Participant in one or more defined contribution plans maintained by the Company which were in existence on July 1, 1982, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 multiplied by (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the later of the end of the last limitation year beginning before January 1, 1983 or June 30, 1983. This adjustment also will be made if, at the end of the last limitation year beginning before January 1, 1984, the sum of the fractions exceeds 1.0 because of accruals or additions that were made before the limitations of this section became effective to any Plan of the Company in existence on July 1, 1982. 31 3.11 CONTRIBUTIONS NOT CONTINGENT UPON PROFITS The Company may make contributions to the Plan without regard to the existence or the amount of current and accumulated earnings and profits. Notwithstanding the foregoing, however, this Plan is designed to qualify as a "profit sharing plan" for all purposes of the Code. 3.12 CONTRIBUTIONS DURING PERIOD OF MILITARY LEAVE (a) Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. Without regard to any limitations on contributions set forth in this Article 3, a Participant who is reemployed on or after August 1, 1990 and is credited with Service under the provisions of Section 1.44 because of a period of service in the uniformed services of the United States, may elect to contribute to the Plan the Income Deferral Contributions that could have been contributed to the Plan in accordance with the provisions of the Plan had he remained continuously employed by the Company throughout such period of absence ("make-up contributions"). The amount of make-up contributions shall be determined on the basis of the Participant's Compensation in effect immediately prior to the period of absence, and the terms of the Plan at such time. Any Income Deferral Contributions so determined shall be limited as provided in Sections 3.01(b), 3.02, 3.06, 3.07 and 3.08 with respect to the Plan Year or Years to which such contributions relate rather than the Plan Year in which payment is made. Any payment to the Plan described in this paragraph shall be made during the applicable repayment period. The repayment period shall equal three times the period of absence, but not longer than five years and shall begin on the latest of: (i) the Participant's date of reemployment, 32 (ii) October 13, 1996, or (iii) the date the Company notifies the Associate of his rights under this Section. Earnings (or losses) on make-up contributions shall be credited commencing with the date the make-up contribution is made in accordance with the provisions of Article 4. (b) With respect to a Participant who makes the election described in paragraph (a) above, the Company shall make Matching Contributions as in effect for the Plan Year to which such make-up contributions relate. Matching Contributions under this paragraph shall be made during the period described in paragraph (a) above. Earnings (or losses) on Matching Contributions shall be credited commencing with the date the contributions are made in accordance with the provisions of Article 4. Any limitations on Matching Contributions described in Sections 3.02, 3.06, 3.07 and 3.08 shall be applied with respect to the Plan Year or Years to which such contributions relate rather than the Plan Year or Years in which payment is made. 3.13 REFUND OF CONTRIBUTIONS All contributions made by the Company are made for the exclusive benefit of the Participants and their Beneficiaries and such contributions shall not be used for nor diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries (including the costs of maintaining and administering the Plan and Trust Fund). Notwithstanding the foregoing, amounts contributed to the Trust Fund by the Company may be refunded to the Company by the Trustee under the following circumstances and subject to the following limitations: (a) To the extent that a federal income tax deduction is disallowed by the Internal Revenue Service for any contribution made by the Company, the Trustee shall refund to the Company upon demand the amount so disallowed or the net asset 33 value of such amount, whichever is less. For this purpose, all contributions made by the Company are expressly declared to be conditioned upon their deductibility under Section 404 of the Code. (b) In the case of a contribution which is made in whole or in part by reason of a mistake of fact, so much of such contribution as is attributable to the mistake of fact or the net asset value of such contribution, whichever is less shall be returnable to the Company on demand. The aforesaid demand must be satisfactory to the Trustee and the demand and repayment must be effectuated within one year after the date of such disallowance or payment of the contribution to which the mistake applies. All refunds shall be limited in amount, circumstance and timing to the provisions of Section 403(c) of ERISA. (c) In the event that Income Deferral Contributions made under Article 3 hereof are returned to the Company in accordance with the provisions of this Section 3.13, the elections to reduce Compensation which were made by Participants on whose behalf those contributions were made shall be void retroactively to the beginning of the period for which those contributions were made. The Income Deferral Contributions so returned shall be distributed in cash to those Participants for whom those contributions were made. ARTICLE 4. ACCOUNTS AND INVESTMENT FUNDS 4.01 ACCOUNTS The Committee shall also cause to be established and maintained accounts in the name of each Participant as follows: (a) Deferral Account, to which shall be credited the respective Income Deferral Contributions of each Participant. 34 (b) Matching Account, to which shall be credited for each active Participant who elects to make Income Deferral Contributions, a Matching Contribution as determined in Section 3.02. (c) Profit Sharing Account, to which shall be credited the balance in a Participant's profit sharing account under the SERVISTAR Plan, which is merged into this Plan. (d) Rollover Account, to which shall be credited rollovers for each Participant who elects to roll over amounts from another qualified plan pursuant to Section 3.03. (e) Savings Account, to which shall be credited the balances in a Participant's after-tax accounts under the Cotter Plan or the SERVISTAR Plan, which are merged into this Plan. (f) Pension Account, to which shall be credited the "Member's Pension Account" under the Coast Plan. 4.02 INVESTMENT FUNDS AND PARTICIPANT DIRECTIONS Every Participant shall have the right to designate the Investment Funds in which the Trustee is to invest Trust Fund assets held on behalf of such Participant. (a) The Trust Fund shall consist of such Investment Fund(s) as the Committee shall determine from time to time. Pending investment, reinvestment or distribution as provided in the Plan, the Trustee may temporarily retain the assets of any one or more of the Investment Funds in cash, commercial paper, short-term obligations or undivided interests or participations in common or collective short-term investment funds. Any Investment Fund may be partially or totally invested in any common or commingled trust fund, in any group annuity, deposit administration or separate account contract issued by a legal reserve life insurance company which is invested generally in property of the kind specified for the Investment Fund, in mutual funds, or in any other property so specified by the Committee. The Committee, in its 35 discretion, may direct the Trustee to establish Investment Funds or terminate Investment Funds as it shall from time to time consider appropriate and in the best interest of Participants. Investment Funds will be described in materials provided under the summary plan description for this Plan or in investment materials supplementing the summary plan description. (b) Each Participant may elect to have a percentage or all of his contributions invested in one or any of the Investment Funds (in multiplies of 1%). This election will also apply to any subsequent contributions allocated to his Account. A Participant may change a percentage designation made by him and such change will apply to any contributions on or after the date such change is implemented by the Trustee. (c) Subject to any restrictions on the transfer from or to a particular Investment Fund which may be established by the Committee, each Participant may elect to transfer amounts credited to his Account under one Investment Fund to his Account under any other Investment Fund, in increments of 1% or a specified dollar amount of such Participant's Account balances. Such transfers (the number and frequency of which shall be established from time to time by the Committee) will occur as of any Valuation Date or as soon as practicable thereafter provided that the Participant makes his transfer election according to procedures established by the Committee for this purpose. (d) Subject to such rules and restrictions as the Committee may establish, any election described in this subsection shall be made pursuant to one of the following methods as determined by the Committee in its sole discretion: (i) in writing, by filing a written election form specified by the Committee, (ii) by telephone (to the extent permitted by law), through a telephone system designated by the Committee for this purpose, or 36 (iii) by any other method (to the extent permitted by law) designated by the Committee. If the Committee in its discretion determines that elections under this subsection shall be made in a manner other than in writing, any Participant who makes an election pursuant to such method shall receive written confirmation of such election; further, any such election and confirmation will be the equivalent of a writing for all purposes. (e) In the absence of any Participant designation of Investment Fund preference in accordance with Article 4, the Trustee shall invest the Participant Account balance as directed by the Committee. (f) In the event the Participant is a borrower from the Fund, the Trustee shall establish a "loan fund" as provided in Section 7.05. (g) Each Participant is solely responsible for the selection of his investment options. The Trustee, the Committee, the Company, and the officers, supervisors and other Associates of the Company are not empowered to advise a Participant as to the manner in which his Accounts shall be invested. The fact that an Investment Fund is available to Participants for investment under the Plan shall not be construed as a recommendation for investment in that Investment Fund. (h) An administration fee established from time to time by the Committee may be assessed during each Plan Year. 4.03 CREDITING OF INVESTMENT RESULTS As of each Valuation Date, the Committee shall cause adjustment in the Participant's Accounts in the Investment Funds as follows: charge (or credit) to the proper Accounts all withdrawals, distributions, loans or transfers made since the last preceding Valuation Date that have not been charged (or credited) previously, credit each Participant's Account with its 37 prorata share of any increase, or charge the Account with its prorata share of any decrease, in the value of the "adjusted net worth," as defined below, of the Investment Fund as of that date that has not been credited or charged previously, credit Participant's Income Deferral Contributions, if any, that are to be credited to the proper Accounts as of that date that have not been credited previously, and credit Matching Contributions and forfeitures, if any, that are to be credited as of that date that have not been credited previously. The "adjusted net worth" of an Investment Fund as at any Valuation Date means the then net worth of that Fund (that is, the fair market value of the Fund, less its liabilities other than liabilities to persons entitled to benefits under the Plan) as reported to or determined by the Trustee, less an amount equal to the sum of the portions of the Income Deferral Contributions and Matching Contributions paid to the Trustee which are invested in that Fund and which have not been credited to the Accounts of Participants as of a prior Valuation Date. Each Participant's Accounts will reflect the amounts invested in each Investment Fund(s) established under the Plan. 4.04 ANNUAL STATEMENTS At least once a year, each Participant shall be furnished with a statement setting forth the value of his Accounts and the vested portion of his Accounts. 4.05 MERGER OF COTTER PLAN AND SERVISTAR PLAN ACCOUNTS The Participant account balances in the Cotter Plan and SERVISTAR Plan merged into this Plan effective as of January 1, 1998 shall be allocated to the Accounts indicated in Article 1 of this Plan and will be administrated in accordance with the general provisions applicable to the respective Accounts unless a specific provision provides for different administrative procedures. 38 ARTICLE 5. VESTING OF ACCOUNTS 5.01 ALL ACCOUNTS EXCEPT MATCHING ACCOUNT A Participant shall at all times be 100% vested in, and have a nonforfeitable right to, his Savings Account, Deferral Account, Pension Account, Profit Sharing Account and Rollover Account. Any Participant in the SERVISTAR Plan on December 31, 1997 who becomes a Participant in this Plan on January 1, 1998 shall be 100% vested in his Profit Sharing Account balance under the SERVISTAR Plan which was merged into this Plan effective as of January 1, 1998. 5.02 COMPANY MATCHING ACCOUNT (a) If a Participant's employment terminates prior to his Normal Retirement Age, then for each year of Service he shall receive a vested percentage of his Matching Account equal to the following vesting schedule:
PARTICIPANT'S YEARS OF SERVICE VESTED PERCENTAGE ------------------------------ ----------------- Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 year or more 100%
(b) In addition to the foregoing, a Participant shall be 100% vested in, and have a nonforfeitable right to, his Matching Account upon (i) death, (ii) termination of Service due to a Disability, (iii) early retirement from service with the Company after attaining age 55 with 3 years of Service, or (iv) after attaining Normal Retirement Age. Any Participant in the SERVISTAR Plan on December 31, 1997 who became a Participant in this Plan on January 1, 1998 shall be credited with an additional year of 39 Service on January 1, 1998 and, upon his attaining age 50, also be 100% vested in his Matching Account. In addition, any Participant whose Service is terminated as a result of the Company permanently closing a facility or eliminating a job position on or after January 1, 1997, shall be 100% vested in his Accounts. A Participant will be considered to have terminated employment with the Company or any Affiliated Company for purposes of a Disability if he is no longer on the payroll (and performing services for) the Company or any Affiliated Company. If a Participant is transferred from employment with the Company to employment with an Affiliated Company, his termination date will not be considered to have occurred until his employment with the Company and any Affiliated Company has terminated. (c) A Participant's forfeiture, if any, of his Accrued Benefit derived from Matching Contributions shall occur under the Plan as of the Anniversary Date of the Plan Year in which the Participant: (i) receives a cash-out distribution of the vested percentage of his Accrued Benefit as a result of his termination of participation in the Plan, or, if earlier and if applicable; (ii) first incurs five consecutive one-year Breaks in Service. The Committee shall determine the percentage of a Participant's Accrued Benefit forfeiture, if any, under this Section solely by reference to the vesting schedule of this Section. 40 5.03 ALLOCATION OF FORFEITURES Any amounts in a Participant Matching Account forfeited during the Plan Year in accordance with Section 5.02(c) hereof shall be applied to reduce the Company's subsequent Matching Contributions or to restore forfeited Accrued Benefits in accordance with Section 5.04 hereof. 5.04 RESTORATION OF FORFEITED ACCRUED BENEFIT (a) If an amount of a Participant's Matching Account has been forfeited under Section 5.02(c), that amount shall be subsequently restored to the Participant's Matching Account, provided he is reemployed by the Company or an Affiliated Company before he has incurred five consecutive one-year Breaks in Service. Upon reemployment, the Committee shall restore to such Participants' Matching Account an amount equal to X where X = P(AB + D) - D, where: P is the vested interest that the Participant had in his Matching Account at the relevant time; AB is the Matching Account balance at the relevant time; D is the amount of the distribution; R is the ratio of the account balance at the relevant time to this account balance after distribution; and the relevant time is the time at which, under the Plan, the vested percentage in the Matching Account cannot increase. (b) To restore the Participant's Accrued Benefit, the Committee, to the extent necessary, shall allocate to the Participant's Account in the following order: (i) the amount, if any, of Participant forfeitures the Committee would otherwise allocate under Section 5.03; and (ii) to the extent the amount(s) available for restoration for a particular Plan Year are insufficient to enable the Committee to make the required restoration, the Company shall contribute, such additional amount as is necessary to enable the Committee to make the required restoration. The Committee shall not 41 take into account the allocation(s) under this Section in applying the limitation on allocations under Section 3.10. ARTICLE 6. PAYMENT OF BENEFITS 6.01 TIME OF PAYMENT OF ACCRUED BENEFIT (a) Upon a Participant's termination of employment his vested Accrued Benefit shall be distributed as provided in this Article. (b) Unless a Participant elects in writing, his vested Accrued Benefit will commence to be distributed as soon as administratively practical following the later of: (i) The date the Participant attains his Normal Retirement Age (except that for any participant in the SERVISTAR Plan on December 31, 1997 who became a participant in this Plan on January 1, 1998, the date shall be the date the Participant attains his age 62); or (ii) The date the Participant terminates employment with the Company or any Affiliated Company (but no later than 60 days after the close of the Plan Year in which the later of (i) or (ii) occurs). (c) In lieu of a distribution as described in subsection (b) above, a Participant may, in accordance with such procedures as the Committee shall prescribe, elect to have the distribution of his vested Accrued Benefit commence as soon as administratively practicable following: (i) his termination of Service, or (ii) as of any subsequent date following his termination of Service, which is before his Normal Retirement Age. 42 6.02 AGE 70 1/2 DISTRIBUTION (a) Notwithstanding any provision of the Plan to the contrary, if a Participant is a 5% owner (as defined in Section 416(i) of the Code), distribution of the Participant's Accounts shall begin no later than the April 1 following the calendar year in which he attains age 70 1/2 provided that such commencement in active service shall not be required with respect to a Participant who elected by filing a written designation with the Committee prior to January 1, 1984 to have distribution of his Account balance made in accordance with the terms and provisions of the Cotter Plan as in effect immediately before January 1, 1984, who will have distributions made in accordance with such election. However, if a Participant who is not a 5% owner (as defined in Section 416(i) of the Code) remains in service after the April 1 following the calendar year in which he attains age 70 1/2, he may (but does not have to) elect to have the provisions of paragraph (b) apply as if the Participant was a 5% owner. Such election shall be made in accordance with such administrative procedures as the Committee shall prescribe. (b) In the event a Participant is required or elects to begin receiving payments while in service under the provisions of paragraph (a) above, the Participant will receive one lump sum payment on or before such Participant's required beginning date equal to his entire Account balance and annual lump sum payments thereafter of amounts accrued during each Plan Year. The commencement of payments under this Section 6.02 shall not constitute an Annuity Starting Date for purposes of Sections 72, 401(a)(11) and 417 of the Code. Upon the Participant's subsequent termination of employment, payment of the Participant's Accounts shall be made in accordance with the provisions of Section 6.04. 6.03 SMALL BENEFITS 43 Notwithstanding any provision of the Plan to the contrary, a lump sum payment shall be made in lieu of all vested benefits if the value of the Participant's nonforfeitable Accrued Benefit as of his termination of employment or as of any subsequent Anniversary Date is $5,000 or less. The lump sum payment shall automatically be made as soon as administratively practicable following the Participant's termination date or the last day of any Plan Year thereafter. For this purpose, the termination date is (a) for periods prior to January 1, 2000, the Participant's last active day of service plus all remaining earned or accrued vacation and any other accrued benefit days, and (b) for periods after December 31, 1999, the Participant's last active day of service. To the extent permitted by law, if the Participant's nonforfeitable Accrued Benefit exceeds $5,000 upon an initial determination, the Participant's nonforfeitable Accrued Benefit shall be reviewed annually as of the last day of each subsequent Plan Year. If at that time its value is $5,000 or less, a lump sum benefit payable shall be made as soon as practicable following that determination. In no event shall a lump sum payment be made following the date payments have commenced as an annuity or in installments. 6.04 METHOD OF PAYMENT OF ACCRUED BENEFIT (a) Subject to Section 5.04, after all required accounting adjustments, the Trustee shall make payment of the Participant's vested Accrued Benefit in a lump sum distribution except as provided under the provisions of Section 6.04(b) in relation to the account balances merged from the Cotter Plan, under Section 6.04(c) in relation to the account balances merged from the SERVISTAR Plan, and under Section 6.04(d) and (e) in relation to the account balances merged from the Coast Plan. (b) For account balances merged into this Plan from the Cotter Plan effective as of January 1, 1998, in the case of a Participant (or Beneficiary) in the Cotter Plan who had an Account balance in that plan on January 1, 1989, the Account balance 44 merged into this Plan may also be distributed in a series of quarterly installments over a period of fifteen years (or, if less, the life expectancy of the Participant and his designated Beneficiary; provided that, if such Beneficiary is not the Participant's spouse and is more than ten years younger than the Participant, the installments shall be paid over a period not exceeding the joint life expectancy of the Participant and a Beneficiary ten years younger than the Participant). (c) For Account balances merged into this Plan from the SERVISTAR Plan effective as of January 1, 1998, a Participant shall have an additional method of payment available in relation to those merged accounts. A Participant may elect, in such manner as the Committee shall prescribe, to receive payment in substantially equal installments under a fixed reasonable period of time, not exceeding the life expectancy of the Participant, or the joint life and last survivor expectancy of the Participant and an individual the Participant designates as his Beneficiary. Furthermore, upon the Participant's written request, the Committee, in his sole discretion, may accelerate the payment of all, or any portion, of the Participant's unpaid Accrued Benefit. (d) For account balances merged into the SERVISTAR Plan from the Coast Plan effective as of October 21, 1996, and subsequently merged into this Plan as of January 1, 1998, a Participant shall have an additional method of payment available in relation to those merged accounts (except as provided in Section 6.04(e) relating to the Pension Account). A Participant may elect, in such manner as the Committee shall prescribe, to receive a purchased nonforfeitable fixed annuity, in the form of a Qualified Joint and Survivor Annuity. A Participant may elect not to take the Qualified Joint and Survivor Annuity and to take instead a life annuity or a lump sum payment. Elections under this subsection shall be in writing and in the event of an 45 election of a life annuity or a lump sum payment by a married Participant, shall be subject to receipt by the Committee of Spousal Consent to that election. (e) (i) Notwithstanding the foregoing provisions of this Article, the amounts credited to the Participant's Pension Account shall be paid: (A) In the form of a life annuity if the Participant is unmarried on his Annuity Starting Date; or (B) In the form of a Qualified Joint and Survivor Annuity if the Participant is married on his Annuity Starting Date; unless the Participant elects otherwise pursuant to subsection (ii) below. Annuities shall be purchased from an insurance company in accordance with such procedures as the Committee shall prescribe. (ii) Alternatively, a married Participant may elect to receive his Pension Account in the form of a life annuity or in a lump sum payment. An election pursuant to this subsection (ii) shall be in writing and filed with the Committee at any time during the 90-day period ending on the Participant's Annuity Starting Date. A married Participant's election of a lump sum or life annuity shall not be effective without Spousal Consent. (iii) Notwithstanding the foregoing provisions of this Article, if a Participant dies before his Accounts have been distributed, the value of his Pension Account shall be distributed as follows: (A) if the Participant is unmarried on his date of death, it shall be paid in a lump sum to his Beneficiary as soon as practicable; or (B) if the Participant is married on his date of death, it shall be used to purchase a nonforfeitable fixed annuity for the life of his spouse unless the spouse elects, in accordance with such procedures as the Committee shall prescribe, to receive a lump sum payment in lieu 46 thereof. Annuity payments shall commence as soon as administratively practicable following the Valuation Date coincident with or next following what would have been the Participant's 62nd birthday, unless the spouse elects to have reduced annuity payments commence as soon as administratively practicable following the Valuation Date coincident with or next following the Participant's date of death. (f) The Committee shall furnish to each Participant a written explanation in nontechnical language of the terms and conditions of the payments available to the Participant in the normal and optional forms. Such explanation shall include a general description of the eligibility conditions for, and the material features and relative values of, the optional forms of payment under the Plan, any rights the Participant may have to defer commencement of his payment, the requirement for Spousal Consent, and the right of the Participant to make, and to revoke, elections. The Committee must provide the notice no more than 90 days and no less than 30 days prior to the Participant's Annuity Starting Date. A Participant's Annuity Starting Date may not occur less than 30 days after receipt of the notice. An election shall be made on a form provided by the Committee and may be made during the 90-day period ending on the Participant's Annuity Starting Date, but not prior to the date the Participant receives the written explanation described herein. However, a Participant may, after having received the notice, affirmatively elect to have his benefit commence sooner than 30 days following his receipt of the notice, provided all of the following requirements are met: (i) the Committee clearly informs the Participant that he has a period of at least 30 days after receiving the notice to decide when to have his benefits begin and, if applicable, to choose a particular optional form of payment; 47 (ii) the Participant affirmatively elects a date for his benefits to begin and, if applicable, an optional form of payment, after receiving the notice; (iii) the Participant is permitted to revoke his election until the later of his Annuity Starting Date or seven days following the day he received the notice; and (iv) payment does not commence less than seven days following the day after the notice is received by the Participant. An election of an option may be revoked on a form provided by the Committee, and subsequent elections and revocations may be made at any time and from time to time during the election period. An election of an optional benefit shall be effective on the Participant's Annuity Starting Date and may not be modified or revoked after his Annuity Starting Date unless otherwise provided. A revocation of any election shall be effective when the completed form is filed with the Committee. If a Participant who has elected an optional benefit dies before the date the election of the option becomes effective, the election shall be revoked. If the Beneficiary designated under an option dies before the date the election of the option becomes effective, the election shall be revoked. (g) Upon the death of the Participant, the Committee shall direct the Trustee to pay the Participant's vested Accrued Benefit in accordance with this subsection. If the Participant's death occurs after the Trustee has commenced payment of the Participant's vested Accrued Benefit, the Committee shall direct the Trustee to complete payment over a period which does not exceed the payment period which had commenced. If the Participant's death occurs prior to the time the Trustee commences payment of the Participant's vested Accrued Benefit, the payment shall be a lump sum payment except as otherwise provided herein and in no event will the Committee direct the Trustee to make payment over a period exceeding (i) five years after the date of the Participant's death, or (ii) if the Beneficiary is a designated 48 Beneficiary, in installments over the Beneficiary's life expectancy. The Committee shall not direct payment of the Participant's vested Accrued Benefit over a period described in (i) unless the Trustee will commence payment to the designated Beneficiary no later than one year after the date of the Participant's death or, if later, and the designated Beneficiary is the Participant's surviving spouse, the date the Participant would have attained age 70 1/2. The Committee will not recalculate life expectancies. (h) Notwithstanding any other provision of this Article 6, all distributions from this Plan shall conform to the regulations issued under Section 401(a)(9) of the Code, including the incidental death benefit provisions of Section 401(a)(9)(G) of the Code and Section 1.401(a)(9)-2 of the proposed Treasury Regulations. Further, such regulations shall override any Plan provision that is inconsistent with Section 401(a)(9) of the Code. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This provision shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Sections 401(a)(9) of the Code or such other date as may be specified in guidance published by the Internal Revenue Service. 6.05 STATUS OF ACCOUNTS PENDING DISTRIBUTION Until completely distributed under Section 6.01 or 6.02 the Accounts of a Participant who is entitled to a distribution shall continue to be invested as part of the Investment Funds of the Plan. 49 6.06 PROOF OF DEATH AND RIGHT OF BENEFICIARY OR OTHER PERSON The Committee may require and rely upon such proof of death and such evidence of the right of any Beneficiary or other person to receive the value of the Accounts of a deceased Participant as the Committee may deem proper and its determination of the right of that Beneficiary or other person to receive payment shall be conclusive. 6.07 DIRECT ROLLOVER OF CERTAIN DISTRIBUTIONS Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The following definitions apply to the terms used in this Section: (a) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated Beneficiary, or for a specified period of 10 years or more, any distribution to the extent such distribution is required under Section 401(a)(9) of the Code, and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities) and for distributions made after December 31, 1999, any Deferral Account withdrawal made under Section 7.03; (b) "Eligible retirement plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 50 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity; (c) "Distributee" means an Associate or former Associate. In addition, the Associate's or former Associate's surviving spouse and the Associate's or former Associate's spouse or former spouse who is the alternate payee under a qualified domestic relations order as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse; and (d) "Direct rollover" means a payment by the Plan to the eligible retirement plan specified by the distributee. ARTICLE 7. WITHDRAWALS AND LOANS 7.01 SAVINGS ACCOUNT WITHDRAWALS The Participant may withdraw from the Trust Fund all or part of his Savings Account. 7.02 DEFERRAL ACCOUNT WITHDRAWALS AFTER AGE 59 1/2 A Participant who has attained age 59 1/2 may elect to withdraw any portion or all of his Deferral Account balance while continuing to be employed by the Company or an Affiliated Company. Each election by a Participant under this Section 7.02 shall be made at such time and in such manner as the Committee shall determine. 7.03 DEFERRAL ACCOUNT WITHDRAWALS 51 A Participant who has withdrawn the total amount available for withdrawal under the Sections 7.01 and 7.02 may elect to withdraw all or part of the Income Deferral Contributions (but not the earnings thereon) made on his behalf to his Deferral Account upon furnishing proof to the Committee that a financial hardship has caused an immediate and heavy financial need on the Participant. For the purposes of this subsection, a financial hardship shall include: (a) expenses for medical care described in Section 213(d) of the Code incurred by the Participant, his spouse or dependents (as defined in Section 152 of the Code), or not yet incurred but necessary for those persons to obtain medical care; (b) costs directly related to the purchase of a principal residence of the Participant (excluding mortgage payments); (c) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, his spouse, his children or dependents; or (d) payment of amounts necessary to prevent the eviction of the Participant from his principal residence or to avoid foreclosure in the mortgage of the Participant's principal residence. The amount to be withdrawn shall not exceed the amount required to meet the immediate financial need created by the hardship, including amounts necessary to pay any taxes or penalties reasonably anticipated to result from the withdrawal. The Participant must request, on such form as the Committee shall prescribe, that the Committee make its determination of the necessity for the withdrawal solely on the basis of his application. In that event, the Committee shall make such determination, provided all of the following requirements are met: 52 (e) the Participant has obtained all distributions, other than distributions available only on account of hardship, and all nontaxable loans currently available under all plans of the Company and any Affiliated Company, (f) the Participant is prohibited from making Income Deferral Contributions to the Plan and all other plans of the Company and any Affiliated Company under the terms of such plans or by means of an otherwise legally enforceable agreement for at least 12 months after receipt of the distribution, and (g) the limitation on elective deferrals described in Section 3.01(b) under all plans of the Company and any Affiliated Company for the calendar year following the year in which the withdrawal is made must be reduced by the Participant's elective deferral made in the calendar year of the distribution for hardship. For purposes of subsection (f), "all other plans of the Company and any Affiliated Company" shall include stock option plans, stock purchase plans, qualified and nonqualified deferred compensation plans and such other plans as may be designated under regulations issued under Section 401(k) of the Code, but shall not include health and welfare benefit plans or the mandatory employee contribution portion of a defined benefit plan. However, such rules shall not require a Participant to take any action that would increase, rather than alleviate the financial hardship. 7.04 WITHDRAWAL PROCEDURES Withdrawal requests must be made on forms provided by the Committee. Any withdrawals will be made pro rata from each of the Participant's Investment Funds based on the values determined on the Valuation Date immediately preceding the withdrawal. An administrative fee as established from time to time by the Committee may be assessed on each with- 53 drawal. If a loan and a hardship withdrawal are processed as of the same Valuation Date, the amount available for the hardship withdrawal will equal the vested portion of the Participant's Accounts on such Valuation Date reduced by the amount of the loan. Subject to the provisions of Section 6.07, all payments to Participants under this Article shall be made in cash as soon as practicable. 7.05 LOANS TO PARTICIPANTS (a) A Participant who is an Associate of the Company or an Affiliated Company may borrow, on written application to the Committee and on approval by the Committee under such uniform rules as it shall adopt, an amount which, when added to the outstanding balance of any other loans to the Participant from the Plan, does not exceed the lesser of (i) 50% of the vested portion of his Accounts (excluding the Pension Account), or (ii) $50,000 reduced by the excess, if any, of (A) the highest outstanding balance of loans to the Participant from the Plan during the one year period ending on the day before the day the loan is made, over (B) the outstanding balance of loans to the Participant from the Plan on the date on which the loan is made. The minimum loan shall be $1,000. (b) A reasonable interest rate to be charged on loans made shall be determined at the time of the loan application and shall be specified by the Committee. The interest rate so determined for purposes of the Plan shall be fixed for the duration of each loan. (c) The amount of the loan is to be transferred from the Participant's Accounts, in the following order: first, from the Deferral Account, then from the Savings Account, then from the Rollover Account, then from the Matching Account, and last from the Profit 54 Sharing Account, pro rata from each Investment Fund thereunder to a special "loan fund" for the Participant under the Plan. The loan fund consists solely of the amount of the Participant's Account transferred to the loan fund and is invested solely in the loan made to the Participant. The amount of the Participant's Account transferred to the loan fund shall be pledged as security for the loan. Payments of principal on the loan will reduce the amount held in the Participant's loan fund. Those payments, together with the attendant interest payment, will be credited to the Participant's Accounts in the following order: first, to the Profit Sharing Account, then to the Matching Account, then to the Rollover Account, then to the Savings Account, and finally to the Deferral Account, and invested in the Investment Funds in accordance with the Participant's then effective investment election. (d) In addition to such rules and regulations as the Committee may adopt, all loans shall comply with the following terms and conditions: (i) An application for a loan by a Participant may be made by telephone to the Trustee or its agent, who will process the application for approval by a Plan representative, whose action in approving or disapproving the application shall be made pursuant to uniform nondiscriminatory policies and shall be final; (ii) Each loan shall be evidenced by a promissory note payable to the Plan containing terms deemed necessary by the Committee to protect the Plan's investment; (iii) The period of repayment for any loan shall be arrived at by mutual agreement between the Committee and the Trustee or its agent, but that period shall not exceed 60 months unless the loan is to be used in conjunction with the purchase of a dwelling which within a reasonable time is 55 to be used (determined at the time of the loan) as the principal residence of the Participant in which event the period shall not exceed 180 months; (iv) Payments of principal and interest will be made by payroll deductions or in a manner agreed to by the Participant and the Trustee or its agent in substantially level amounts, but no less frequently than quarterly, in an amount sufficient to amortize the loan over the repayment period; (v) Loan repayments will be suspended under this Plan as permitted under Section 414(u) of the Code; (vi) A loan may be prepaid in full as of any date following the first three months of the loan period, without penalty (partial prepayment of principal is not permitted); (vii) Only one loan may be outstanding at any given time, except that any loans outstanding as of January 1, 1998 may continue until repaid under their established terms. (viii) A loan processing fee and annual maintenance fee may be charged by the Plan, as determined by the Committee. (e) If a loan is not repaid in accordance with the terms contained in the promissory note and a default occurs, the Plan may execute upon its security interest in the Participant's Account under the Plan to satisfy the debt and any other security held by the Plan; however, the Plan shall not levy against any portion of the loan fund attributable to amounts held in the Participant's Deferral Account or Matching Account or Profit Sharing Account until such time as a distribution of the Deferral Account or Matching Account or Profit Sharing Account could otherwise be made under the Plan. (f) Any additional rules or restrictions as may be necessary to implement and administer the loan program shall be in writing and communicated to Associates. Such further 56 documentation is hereby incorporated into the Plan by reference, and the Committee is hereby authorized to make such revisions to these rules as it deems necessary or appropriate, on the advice of counsel. (g) To the extent required by law and under such rules as the Committee shall adopt, loans shall also be made available on a reasonably equivalent basis to any Beneficiary or former Associate (i) who maintains an account balance under the Plan and (ii) who is still a party-in-interest (within the meaning of Section 3(14) of ERISA). (h) If, on a Participant's Severance Date, any loan or portion of a loan made to him under the Plan, together with the accrued interest thereon, remains unpaid, the entire amount of the unpaid loan and accrued interest shall be due and payable by the Participant; provided that, if such amount is not repaid, an amount equal to such loan or any part thereof, together with the accrued interest thereon, shall be charged to the Participant's Accounts after all other adjustments required under the Plan, but before any distribution pursuant to Section 6.04. (i) All loans made prior to January 1, 1998 shall be subject to the rules in effect under the Plan at that time the loan was made. 7.06 MISSING PARTICIPANTS AND BENEFICIARIES Each Participant and each designated Beneficiary must file with the Committee from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant or Beneficiary at his last post office address filed with the Committee, or if no address is filed with the Committee then, in the case of a Participant, at his last post office address as shown on the Company's records, will be binding on the Participant and his Beneficiary for all purposes of the Plan. Neither the Company nor the Committee will be required to search for or locate a Participant or Beneficiary. If the Committee notifies a Participant or Beneficiary that he is entitled to a 57 payment and also notifies him of the provisions of this subsection, and the Participant or Beneficiary fails to claim his benefits or make his whereabouts known to the Committee within three years after the notification, the benefits of the Participant or Beneficiary will be disposed of, to the extent permitted by applicable law, as follows: (a) If the whereabouts of the Participant then is unknown to the Committee but the whereabouts of the Participant's spouse then is known to the Committee, payment will be made to the spouse; (b) If the whereabouts of the Participant and his spouse, if any, then is unknown to the Committee but the whereabouts of the Participant's designated Beneficiary then is known to the Committee, payment will be made to the designated Beneficiary; (c) If the whereabouts of the Participant, his spouse and the Participant's designated Beneficiary then is unknown to the Committee but the whereabouts of one or more relatives by blood, adoption or marriage of the Participant is known to the Committee, the Committee may direct the Trustee to pay the Participant's benefits to one or more of such relatives and in such proportions as the Committee decides; or (d) If the whereabouts of such relatives and the Participant's designated Beneficiary then is unknown to the Committee, then benefits of such Participant or Beneficiary will be disposed of in an equitable manner permitted by law under rules adopted by the Committee. ARTICLE 8. ADMINISTRATION OF THE PLAN 8.01 COMMITTEE This Plan administrator shall be the Committee composed of five or more persons who may, but need not be, Associates of the Company, as appointed by the Company. Any Committee member may be dismissed at any time, with or without cause, on 10 days' notice 58 from the Company. Any Committee member may resign by delivering his written resignation to the Company with 10 day's notice. Vacancies rising by the death, resignation or removal of a Committee member shall be filled by the Company. 8.02 MEETING, MAJORITY RULE (a) The Committee shall hold meetings upon such notice, at such place or places and at such time or times as it may from time to time determine. Notice shall not be required if waived in writing. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions take by the Committee at any meeting shall be by majority vote of the members of the Committee. Resolutions may be adopted or other action taken without a meeting upon written consent, signed by a majority of the members of the Committee. If, because of the number qualified to act, there is an even division of opinion among the Committee members as to a matter, a disinterested party selected by the Committee shall decide the matter and his decision shall control. (b) The Committee shall appoint one of its members to act as its chairman and shall appoint a secretary, who need not be a member of the Committee, who shall keep all records of the meetings and of any action taken by the Committee and who shall perform such other services as may be prescribed by the Committee. All third parties may rely on a certificate of the Committee's secretary or a majority of the Committee members that the Committee has taken or authorized any action. A Committee member by writing may delegate any or all of his rights, powers, duties or discretions to any other member, with the consent of the latter. Except as otherwise provided by law, no member of the Committee shall be liable or responsible for an act or omission of the other Committee members in which the former has not concurred. 59 (c) The Committee may, by written majority decision, delegate to each or any of its number or to its secretary authority to sign any documents on its behalf, or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Committee, even though he alone may sign any document required by third parties. If at any time there will be less than three members of the Committee in office, pending the appointment of a successor(s) to fill an existing vacancy, the remaining members shall have the authority to act as Committee. (d) If a member of the Committee is also a Participant in the Plan, he may not decide or determine any matter or question concerning distributions of any kind to be made to him or the nature or mode of settlement of his benefits unless such decision or determination could be made by him under the Plan if he were not serving on the Committee. 8.03 RESPONSIBILITY FOR ADMINISTRATION OF THE PLAN The Committee shall have complete discretionary control of the management, operation and administration of this Plan with all powers necessary to enable it to carry out its duties in that respect, including to adopt such rules or procedures and regulations as in its opinion and sole discretion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and Trust Agreement. The Committee shall be designated agent for service of legal process. Without limiting the foregoing, the Committee shall have the following specific discretionary duties and responsibilities: 60 (a) to maintain and retain records relating to Plan Participants, former Participants and each of their Beneficiaries, and all other records necessary for the proper operation of the Plan and to furnish the Company or any Affiliated Company with such information as may be required by them; (b) to prepare and furnish during normal business hours to Participants all information required under Federal law or provisions of this Plan to be furnished to them; (c) to prepare and furnish to the Trustee sufficient Associate data and the amount of contributions received from all sources so that the Trustee may maintain separate Accounts for Participants and make required payments of benefits; (d) to provide directions to the Trustee with respect to the methods of benefit payment, all other matters where called for in the Plan or requested by the Trustee; (e) to prepare and file or publish with the Secretary of Labor, the Secretary of the Treasury, their delegates and all other appropriate government official all reports, forms, documents, and other information required under law to be so filed or published; (f) in its sole discretion, to construe and interpret the provisions of the Plan, to correct defects therein, to supply omissions thereto and determine all questions of fact (including, but not limited to, discretionary determination of an individual's eligibility to Plan participation, the right and amount to any benefit payable under the Plan, and the date on which any individual ceases to be a Participant) that may arise thereunder and any such construction or determination shall be conclusively binding upon all persons interested in the Plan to the extent permitted by applicable law; (g) to engage such assistants or representatives as deemed necessary for the effective exercise of duties and to allocate and delegate to such assistants or representatives any powers or duties, both ministerial and discretionary, as deemed expedient and 61 appropriate, provided that any allocation or delegation and the acceptance thereof shall be in writing; (h) to engage such professional consultants in its sole discretion, deemed necessary or advisable, including, but not limited to, accountants, attorneys, consultants, and medical practitioners; (i) to arrange for bonding as required by law; and (j) in its sole discretion, to provide procedures for determination of claims for benefits. 8.04 COMPENSATION AND EXPENSES The members of the Committee and any individual who receives full-time pay from the Company or any Affiliated Company shall serve without compensation for their services to the Plan but shall be reimbursed by the Company for all necessary expenses incurred in the discharge of their duties. 8.05 LIMITATION OF LIABILITY The Company, any Affiliated Company, their Board of Directors, the Committee, and any officer, Associate or agent of the Company or an Affiliated Company shall not incur any liability individually or on behalf of any other individuals or on behalf of the Company or an Affiliated Company for any act or failure to act, made in good faith in relation to the Plan or the funds of the Plan. However, this limitation shall not act to relieve any such individual or the Company or an Affiliated Company from a responsibility or liability for any fiduciary responsibility, obligation or duty under Part 4, Title I of ERISA. 8.06 INDEMNIFICATION The Company, any Affiliated Company, their Board of Directors, the Committee and the officers, Associates and agents of the Company or an Affiliated Company shall be 62 indemnified against any and all liabilities arising by reason of any act, or failure to act, in relation to the Plan or the funds of the Plan, including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan or the funds of the Plan, and amounts paid in any compromise or settlement relating to the Plan or the funds of the Plan, except such liability, losses or costs which result from: (a) actions or failures to act made in bad faith; (b) their own gross negligence or willful misconduct; (c) any settlement, without the Company's prior approval, of an action, suit, or proceeding; or (d) suits or actions at law or in equity advanced by the Company against such party. Indemnification shall be from the funds of the Plan to the extent of those funds and to the extent permitted under applicable law; otherwise from the assets of the Company. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the Committee member may be entitled pursuant to the by-laws of the Company. Service on the Committee shall be deemed in partial fulfillment of the Committee member's function as an Associate, officer and/or director of the Company, if he serves in such other capacity as well. The foregoing shall not relieve any one of them from any responsibility or liability for responsibility, obligation or duty that they may have pursuant to ERISA. 8.07 PRUDENT CONDUCT The Committee shall use that degree of care, skill, prudence and diligence that a prudent man acting in a like capacity and familiar with such matters would use in his conduct of a similar situation and shall administer the Plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all persons similarly situated. 8.08 SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY 63 Any individual, entity or group of persons may serve in more than one fiduciary capacity with respect to the Plan and/or the funds of the Plan. 8.09 WRITTEN ELECTIONS Any elections, notifications or designations made by a Participant pursuant to the provisions of the Plan shall be made in writing and filed with the Committee in a time and manner determined by the Committee under rules uniformly applicable to all Associates similarly situated. The Committee reserves the right to change from time to time the time and manner for making notifications, elections or designations by Participants under the Plan if it determines after due deliberation that such action is justified in that it improves the administration of the Plan. In the event of a conflict between the provisions for making an election, notification or designation set forth in the Plan and such new administrative procedures, those new administrative procedures shall prevail. 8.10 CLAIMS PROCEDURE The Committee shall make all determinations as to the right of any person to receive benefits under the Plan. Any denial by the Committee of a claim for benefits under the Plan by a Participant, Spouse, retired Participant or beneficiary (collectively referred to herein as "claimant") shall be stated in writing by the Committee and delivered or mailed to the claimant. Such notice shall set forth: (1) the specific reasons for denial; (2) specific reference to pertinent provisions of the Plan upon which the denial is based; 64 (3) a description of any additional material or information necessary for the claimant to perfect his claim with an explanation of why such material or information is necessary; and (4) an explanation of claim review procedures under the Plan written in a manner that may be understood without legal counsel. A claimant whose claim for benefits has been wholly or partially denied by the Committee may, within 90 days following the date of such denial: (i) request a review of such denial in a writing addressed to the Committee; (ii) submit such issues or comments, in writing or otherwise, as he shall consider relevant to a determination of his claim, and may include in his request a request for a hearing in person before the Committee; and (iii) request to review any pertinent documents, which may be reviewed prior to his submitting his request for review. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of his choice, provided that the fees and expenses of such counsel shall be borne by the claimant. All requests for review shall be promptly resolved. The decision of the Committee with respect to any such review shall be set forth in writing and such shall be mailed to the claimant not later than 60 days following receipt by the Committee of the claimant's request unless special circumstances, such as need to hold a hearing, require an extension of time for processing, in which case the decision shall be so mailed not later than 120 days after receipt of such request. All decisions of the Committee shall be final, conclusive and binding on all parties and 65 shall not be overturned unless such decision is determined by a court of competent jurisdiction to be arbitrary and capricious. ARTICLE 9. MANAGEMENT OF FUNDS 9.01 TRUST AGREEMENT All the funds of the Plan shall be held by a Trustee appointed from time to time by the Board of Directors under a Trust Agreement adopted, or as amended, by the Board of Directors for use in providing the benefits of the Plan and paying its expenses not paid directly by the Company. The Company shall have no liability for the payment of benefits under the Plan nor for the administration of the funds paid over to the Trustee. Neither the Committee nor the Company or any Affiliated Company in any way guarantees the Trust Fund from loss or depreciation. 9.02 EXCLUSIVE BENEFIT RULE Except as otherwise provided in the Plan, no part of the corpus or income of the funds of the Plan shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants and other persons entitled to benefits under the Plan and paying the expenses of the Plan not paid directly by the Company. No person shall have any interest in or right to any part of the earnings of the funds of the Plan, or any right in, or to, any part of the assets held under the Plan, except as and to the extent expressly provided in the Plan. 9.03 APPOINTMENT OF INVESTMENT MANAGER The Company may, in its discretion, appoint one or more investment managers (within the meaning of Section 3(38) of ERISA) to manage (including the power to acquire and dispose of) all or part of the assets of the Plan, as the Company shall designate. In that event 66 authority over and responsibility for the management of the assets so designated shall be the sole responsibility of that investment manager. ARTICLE 10. AMENDMENT, TERMINATION, MERGERS AND CONSOLIDATIONS OF THE PLAN 10.01 PLAN AMENDMENT The Company, by action of its Board of Directors, reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan. However, no amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan. No amendment shall be made which has the effect of decreasing the balance of the Accounts of any Participant or of reducing the nonforfeitable percentage of the balance of the Accounts of a Participant below the nonforfeitable percentage computed under the Plan as in effect on the date on which the amendment is adopted or, if later, the date on which the amendment becomes effective. Notwithstanding the foregoing, the duties and liabilities of the Committee cannot be changed substantially without its consent. 10.02 PLAN TERMINATION (a) The Company expects to continue this Plan and the payment of its contributions hereunder indefinitely, but the continuance of this Plan is not assumed as a contractual obligation of the Company, and the Company expressly reserves the right to discontinue the Plan in its entirety at any time for any reason whatsoever upon 30 day's advance written notice of termination given to the Committee, the Trustee and any other participating Affiliated Companies. 67 (b) In the event of the full or partial termination of this Plan or upon the permanent discontinuance of Company contributions under the Plan, the rights of all affected Participants to the amounts credited to the affected Participants' Accounts shall be nonforfeitable. Said Plan termination or discontinuance of contributions shall be effective as of the date specified by resolution of the Board of Directors. (c) Termination of the Plan shall have no effect upon payment of installments and benefits to former Participant and their Beneficiaries, whose benefit payments commenced prior to Plan termination. The Trustee shall retain sufficient assets to complete any such payments, and shall have the right, upon direction by the Committee, to purchase annuity contracts to assure the completion of such payments or to pay the value of the remaining payments in a lump sum distribution. (d) The Company shall instruct the Trustee either (1) to continue to manage and administer the assets of the Trust for the benefit of the Participants and their Beneficiaries pursuant to the terms and provisions of the applicable trust agreement, or (2) to pay over to each Participant (and any vested former Participant) the value of his vested interest, and to thereupon dissolve the Trust Fund. (e) Upon termination of the Plan, Income Deferral Contributions, with earnings thereon, shall only be distributed to Participants if (1) neither the Company nor an Affiliated Company establishes or maintains a successor defined contribution plan, and (2) payment is made to the Participants in the form of a lump sum distribution (as defined in Section 402(d)(4) of the Code, without regard to clauses (i) through (iv) of subparagraph (A), subparagraph (B), or subparagraph (F) thereof). For purposes of this paragraph, a "successor defined contribution plan" is a defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code ("ESOP") or a simplified employee pension as defined in Section 408(k) of the Code ("SEP")) which exists at the time the Plan is terminated or within the 12- 68 month period beginning on the date all assets are distributed. However, in no event shall a defined contribution plan be deemed a successor plan if fewer than 2% of the Associates who are eligible to participate in the Plan at the time of its termination are or were eligible to participate under another defined contribution plan of the Company or an Affiliated Company (other than an ESOP or a SEP) at any time during the period beginning 12 months before and ending 12 months after the date of the Plan's termination. 10.03 MERGERS AND CONSOLIDATIONS OF PLANS In the event of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each Participant in the event of termination shall have a benefit in the surviving or transferee plan (determined as if such plan were then terminated immediately after such merger, etc.) that is equal to or greater than the benefit he would have been entitled to receive immediately before such merger, etc. in this Plan (had this Plan been terminated at that time). For the purposes hereof, former Participants and Beneficiaries shall be considered Participants. 10.04 DISTRIBUTION OF ACCOUNTS UPON A SALE OF ASSETS OR A SALE OF A SUBSIDIARY Upon the disposition by the Company of at least 85% of the assets (within the meaning of Section 409(d)(2) of the Code) used by the Company in a trade or business or upon the disposition by the Company of its interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code), Income Deferral Contributions, with earnings thereon, may be distributed to those Participants who continue in employment with the employer acquiring such assets or with the sold subsidiary, provided that: (a) the Company maintains the Plan after the disposition, 69 (b) the buyer does not adopt the Plan or otherwise become a participating employer in the Plan and does not accept any transfer of assets or liabilities from the Plan to a plan it maintains in a transaction subject to Section 414(l)(1) of the Code, and (c) payment is made to the Participant in the form of a lump sum distribution (as defined in Section 402(d)(4) of the Code, without regard to clauses (i) through (iv) of subparagraph (A), subparagraph (B), or subparagraph (F) thereof). 10.05 REORGANIZATIONS No Plan termination will occur solely as a result of the judicially declared bankruptcy or insolvency of the Company or any participating Affiliated Company, or the dissolution, merger, consolidation or reorganization of the Company or any participating Affiliated Company, or the sale by the Company or any participating Affiliated Company of all or substantially all of its assets, or the termination or complete discontinuance of contributions by any Company. However, arrangements may be made with the consent of the Company whereby the Plan will be continued by any successor to the Company or any participating Affiliated Company or any purchaser of all or substantially all of its assets, in which case the successor or purchaser will be substituted for the Company or any participating Affiliated Company under the Plan and the Trust Agreement; provided that, if the Company or any participating Affiliated Company is merged, dissolved, or in any other way organized into, or consolidated with, any other employer, the Plan as applied to the Company or any participating Affiliated Company will automatically continue in effect without a termination thereof. ARTICLE 11. GENERAL PROVISIONS 11.01 APPLICABLE LAW 70 This Plan shall be construed, regulated and administered under the laws of the State of Illinois, except where ERISA controls. 11.02 NONALIENATION (a) Except as required by applicable law or by paragraph (c), no benefit under the Plan shall in any manner be anticipated, assigned or alienated, and any attempt to do so shall be void. However, payment shall be made in accordance with the provisions of any judgment, decree, or order which: (i) creates for, or assigns to, a spouse, former spouse, child or other dependent of a Participant the right to receive all or a portion of the Participant's benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent, (ii) is made pursuant to a State domestic relations law, (iii) does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan, and (iv) otherwise meets the requirements of Section 206(d) of ERISA, as amended, as a qualified domestic relations order, as determined by the Committee. (b) Notwithstanding anything herein to the contrary, if the amount payable to the alternate payee under the qualified domestic relations order is $5,000 or less such amount shall be paid in one lump sum as soon as practicable following the qualification of the order. If the amount exceeds $5,000, it may be paid as soon as practicable following the qualification of the order if the qualified domestic relations order so provides and the alternate payee consents thereto; otherwise it may not be payable before the earliest of (i) the Participant's termination of employment, (ii) the time such amount could be withdrawn under Article 7 or (iii) the Participant's attainment of age 50. 71 (c) A Participant's benefit under the Plan shall be offset or reduced by the amount the Participant is required to pay to the Plan under the circumstances set forth in Section 401(a)(13)(C) of the Code. 11.03 SEVERABILITY OF PROVISIONS If any provision of this Plan shall be held invalid and unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. 11.04 FACILITY OF PAYMENT If the Committee shall find that a Participant or other person entitled to a benefit is unable to care for his affairs because of illness or accident or because he is a minor, the Committee may direct that any benefit due him, unless claim shall have been made for the benefit by a duly appointed legal representative, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides. Any payment so made shall be a complete discharge of the liabilities of the Plan for that benefit. 11.05 GENDER AND NUMBER Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. 11.06 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN The establishment of the Plan shall not confer any legal rights upon any Associate or other person for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any Associate and to treat him without regard to the effect which that treatment might have upon him as a Participant or potential Participant of the Plan. 72 11.07 ERRONEOUS ALLOCATIONS Notwithstanding any provision of the Plan to the contrary, if a Participant's Account is credited with an erroneous amount due to a mistake in fact or law, the Committee shall adjust such Account in such equitable manner as it deems appropriate to correct the erroneous allocation. 11.08 ADDITIONAL PARTICIPATING EMPLOYERS (a) If any company is or becomes an United States subsidiary of or Associated with the Company, the Board of Directors may include the Associates of that subsidiary or Associated company in the membership of the Plan upon appropriate action by that company necessary to adopt the Plan. In that event, or if any persons become Associates of the Company as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Board of Directors shall determine to what extent, if any, previous service with the subsidiary, Associated or other company shall be recognized under the Plan, but subject to the continued qualification of the trust for the Plan as tax-exempt under the Code. (b) Any subsidiary or Associated company may terminate its participation in the Plan upon appropriate action by it. In that event the funds of the Plan held on account of Participant in the employ of that company, and any unpaid balances of the Accounts of all Participants who have separated from the employ of that company, shall be determined by the Committee. Those funds shall be distributed as provided in Section 10.02 if the Plan should be terminated, or shall be segregated by the Trustee as a separate trust, pursuant to certification to the Trustee by the Committee, continuing the Plan as a separate plan for the Associates of that company under 73 which the board of directors of that company shall succeed to all the powers and duties of the Board of Directors, including the appointment of the members of the committee. ARTICLE 12. TOP-HEAVY PROVISIONS The provisions of this Article shall become applicable under the circumstances described in the following special provisions. In the event that the provisions contained in this Article are inconsistent with the terms contained in the remainder of the Plan, the provisions contained in this Article shall take precedence. 12.01 TOP-HEAVINESS DEFINED (a) For purposes of this Article, the Plan shall be "top-heavy" if, as of the Determination Date, (i) the value of the aggregate of the account balances under the Plan for key employees exceeds 60% of the value of the aggregate of the Account balances under the Plan for all Associates, or (ii) the Plan is part of a required aggregation group, and the sum of the present values of the cumulative account balances and the aggregate present values of accrued benefits of key employees in all plans in the required aggregation group exceeds 60% of a similar sum determined for all Associates. Notwithstanding the results of the said 60% test, the Plan shall not be considered top-heavy for any Plan Year in which the Plan is in a required aggregation group or the Company elects to treat the Plan as a part of a permissive aggregation group and such group is not determined to be top-heavy. 74 (b) For purposes of this Article, the following terms shall be interpreted according to the definitions assigned to them: (i) "Account balance" means the sum of (i) the balance of a Participant's Accounts as of the most recent Valuation Date occurring within the 12-month period ending on the determination date, and (ii) the value of any contributions actually made after the Valuation Date but on or prior to the determination date. The term shall include the aggregate distributions made with respect to such Participant under the Plan during the five-year period ending on the determination date but shall not include any qualifying rollover distributions (or similar transfers) initiated by the Associate, and shall not include the account balance of a non-key employee who was a key employee for any prior Plan Year, or the account balance of any Participant who has not performed services for the Company during the five-year period ending on the determination date. (ii) "Compensation" means the amount paid to the Associate by the Company as stated on the Associate's Form W-2 for the calendar year that ends with or within the applicable Plan Year, but such amount shall be deemed not to exceed the Annual Dollar Limit. (iii) "Defined benefit plan" means a qualified pension plan which is not a defined contribution plan; however, in the case of a defined benefit plan which provides a benefit which is based partly on the balance of the separate account of a Participant, that plan shall be treated as a defined contribution plan to the extent benefits are based on the separate account of a Participant and as a defined benefit plan with respect to the remaining portion of the benefits under the plan. 75 (iv) "Defined contribution plan" means a qualified plan which provides for an individual account for each Participant and for benefits based solely upon the amount contributed to the Participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other Participants which may be allocated to that Participant's accounts, subject to (iii) above. (v) "Determination date" means the last day of the preceding Plan Year, or in the case of the first Plan Year, the last day of that Plan Year. (vi) "5% owner of the Company" means any person who either directly or constructively (as defined in Section 318 of the Code) owns more than 5% of either the value of the outstanding stock of the Company or the total combined voting power of all of the Company's stock. (vii) Associate includes such Beneficiary or beneficiaries who obtain an interest in the Plan by Beneficiary designation, will, devise or through the laws of intestacy. (viii) "Key Employee" means any Associate or former Associate in this Plan who, at any time during the Plan Year ending on the determination date, or during any of the four preceding Plan Years which began after 1982, was: (A) An officer of the Company, (B) A 5% owner of the Company, (C) One of the top ten owners of the Company, or (D) A 1% owner of the Company having an annual compensation of more than $150,000. The term shall also include beneficiaries of key employees. (ix) "Non-key employee" means any Associate who is not a key employee. (x) "Officer" means at any time during the Plan Year or any four preceding Plan Years an Associate who serves as an administrative executive for the 76 Company or an Affiliated Company on a regular and continuous basis and during the applicable year has annual compensation from the Company or an Affiliated Company greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code. The maximum number of Associates who shall be deemed to be officers for purposes of this Article shall be the lesser of: (A) 50, or (B) The greater of 3, or 10% of all Associates. If the actual number of officers of the Company exceeds the maximum number of Associates who are deemed to be officers hereunder, the maximum number of officers for purposes of this Article shall include those officers who had the highest one-year compensation while serving as an officer of the Company during any applicable Plan Year. (xi) "1% owner of the Company" means any person, who either directly or constructively (as defined in Section 318 of the Code) owns more than 1% of either the outstanding stock of the Company or the total combined voting power of all of the Company's stock. (xii) "Permissive aggregation group" means each qualified plan in the required aggregation group and any other qualified defined benefit and defined contribution plan of the Company or an Affiliated Company with contributions or benefits at least comparable to the contributions or benefits under this Plan in which all members are non-key employees, if the resulting aggregation group continues to meet the requirements of Section 401(a)(4) and 410 of the Code. (xiii) "Required aggregation group" includes: 77 (A) Each qualified defined benefit plan and defined contribution plan of the Company or an Affiliated Company (regardless of whether the Plan terminated within the past five years) in which a key employee is a Participant, and (B) Each other qualified defined benefit and defined contribution plan of the Company or an Affiliated Company which enables any plan described in paragraph (xiii)(A), above, to meet the requirements of Section 401(a)(4) or 410 of the Code. (xiv) "Top ten owner" means the 10 Associates who own directly or constructively (as defined in Section 318 of the Code) both more than 1/2% ownership interest in value and the largest percentage ownership interest in value of the Company and any Affiliated Company and during the applicable year have annual compensation from the Company or an Affiliated Company greater than 100% of the amount in effect under Section 415(c)(1)(A) of the Code. 12.02 COMPANY CONTRIBUTIONS The following provisions shall be applicable to Participants for any Plan Year with respect to which the Plan is top-heavy: (a) If the required minimum contribution is not provided by the Plan for any Participant who is a non-key employee, then in each Plan Year, in addition to the contributions otherwise provided under the Plan, the Company shall make contributions on behalf of any such Participant (or each Associate eligible to become a Participant) who is a non-key employee and who has not separated from service as of the last day of the Plan Year (regardless of whether the non-key employee elects to make Income Deferral Contributions) which, when added to the Company contributions allocated to his Matching Account for the Plan Year (and not needed to meet the Contribution 78 Percentage Test) will be equal to a percentage of the Participant's compensation for the Plan Year, that percentage to be the lesser of 3% or the percentage rate, determined for the key employee for whom that percentage is the highest, equivalent to the fraction the numerator of which is the contribution allocated to that key employee in accordance with this Section 12.02 and the denominator of which is the compensation of the key employee for that Plan Year. (b) For purposes of this Section 12.02, all defined contribution plans required to be included in a required aggregation group shall be treated as one plan. This Section 12.02 shall not apply if this Plan is required to be included in a required aggregation group under Section 12.01 and if this Plan enables a defined benefit plan required to be included in such group to meet the requirements of Section 401(a)(4) or 410 of the Code. (c) Notwithstanding the foregoing provisions, no minimum contribution shall be made with respect to a Participant (or an Associate eligible to become a Participant) if the required minimum benefit under Section 416(c)(1) of the Code is provided under a Company sponsored defined benefit plan. 12.03 IMPACT ON MAXIMUM BENEFITS For any Plan Year in which the Plan is a top-heavy plan, Section 3.10 shall be read by substituting the number "1.0" for the number "1.25" wherever it appears therein except such substitution shall not have the effect of reducing any benefit accrued under a defined benefit plan sponsored by the Company prior to the first day of the Plan Year in which this provision becomes applicable. 79 I, Diane T. Nauer, Secretary of TruServ Corporation, hereby certify that the attached document is a correct Copy of the TruServ Corporation Savings and Compensation Deferral Plan, as amended and restated as of January 1, 1998. Dated this 28th day of February, 2002. /s/ DIANE T. NAUER - ----------------------------- Secretary as Aforesaid (Corporate Seal) SUPPLEMENT A TO TRUSERV CORPORATION SAVINGS AND COMPENSATION DEFERRAL PLAN The following Sections of the Plan shall apply to the Plan, the Coast Plan and the SERVISTAR Plan effective as of the indicated dates prior to January 1, 1998 as a part of such plans as each had existed prior to January 1, 1998:
Plan Section Effective Date ------------ -------------- 1.07 January 1, 1994 1.09 January 1, 1997 1.27 January 1, 1997 3.06 January 1, 1997 3.07 January 1, 1997 3.12 December 12, 1994 6.02 January 1, 1997 6.04(h) January 1, 1997
SECOND AMENDMENT OF TRUSERV CORPORATION SAVINGS AND COMPENSATION DEFERRAL PLAN (AS AMENDED AND RESTATED EFFECTIVE AS OF JANUARY 1, 1998) WHEREAS, TruServ Corporation (the "Company") has established and maintains the TruServ Corporation Savings and Compensation Deferral Plan (the "Plan"); and WHEREAS, the Company desires to amend the Plan to reflect: (i) certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001; and (ii) Final and Temporary Regulations under ss.401(a)(9) of the Internal Revenue Code of 1986, as amended, and intends that this amendment be in good faith compliance with the requirements thereof; and NOW, THEREFORE, by virtue and in exercise of the power reserved to the Company by Section 10.01 of the Plan and pursuant to the authority delegated to the undersigned officer of the Company by resolution of its Board of Directors, the Plan be and is hereby amended in the following particulars: 1. By substituting the following for Section 1.07 of the Plan: "Annual Dollar Limit means $150,000 commencing with the 1994 Plan Year ($200,000 commencing with the 2002 Plan Year). The Annual Dollar Limit shall be adjusted in accordance with Section 401(a)(17)(B) of the Code." 2. By substituting "50%" for "15%" where it appears in Section 3.01(a) of the Plan. 3. By substituting the following for the first sentence of Section 3.01(b) of the Plan: "In no event shall the Participant's Income Deferral Contributions and similar contributions made on his behalf by the Company or an Affiliated Company to all plans, contracts, or arrangements subject to the provisions of Section 401(a)(30) of the Code in any calendar year exceed the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Section 3.01(e) and Section 414(v) of the Code, if applicable." 4. By adding the following new Section (e) immediately following Section 3.01(d) of the Plan as a part thereof: "(e) All Participants who are eligible to make Income Deferral Contributions and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Sections 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Sections 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. A Participant's catch-up contributions shall not be included in his Income Deferral Contributions for purposes of receiving Matching Contributions under Section 3.02. A Participant's catch-up contribution shall be held in the Participant's Deferral Account." 5. By substituting the following for Section 3.03(a) of the Plan: "(a) With the permission of the Committee and without regard to any limitations on contributions set forth in Article 3, the Plan may receive from a Participant, or an Associate who has not yet met the eligibility requirements for membership, in cash, any amount (other than after-tax employee contributions) previously received (or deemed to be received) by him from a qualified plan described in Section 401(a) or 403(a) of the Code. In addition, at the time and in the manner prescribed by the Committee, the Plan may also receive from such Participant or Associate, any amount (other than after-tax employee contributions) received (or deemed to be received) by him from an annuity contract described in Section 403(b) of the Code, from an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. The Plan may receive such amount either directly from the Participant or Associate or from an individual retirement account or from a qualified plan in the form of a direct rollover. Notwithstanding the foregoing, the Plan shall not accept any amount unless such amount is eligible to be rolled over to a qualified trust in accordance with applicable law and the Participant provides evidence satisfactory to the Committee that such amount qualifies for rollover treatment. Unless received by the Plan in the form of a direct rollover, the Rollover Contribution must be paid to the Trustee on or before the 60th day after the day it was received by the Participant. No `rollover amount' will be accepted, directly or indirectly, from an individual retirement account to which the Associate contributed on his own behalf or which consists, in whole or in part, of insurance contracts." 6. By adding the following to the end of Section 3.08 of the Plan as a part thereof: "This Section 3.08 shall not be effective for Plan Years beginning on or after January 1, 2002." 7. By substituting the following for Section 3.10(a) of the Plan: "Notwithstanding the provisions of Sections 3.01 or 3.02 and except to the extent permitted under Section 3.01(e) and Section 414(v) of the Code, in no event shall the `annual addition' to the Participant's Account for any Plan Year (which shall be the `limitation year'), when added to the Participant's `annual addition' for that Plan Year under any other qualified defined contribution plan of the Company and an Affiliated Company, exceed the lesser of $40,000 (as revised for the Adjustment Factor) or 100% of such Participant's compensation (within the meaning of Section 415(c)(3) of the Code) for that Plan Year. The compensation limit above shall not apply to any contribution for medical benefits after separation from Service (within the meaning of Sections 401(h) or 419A(f)(2) of the Code) which is otherwise treated as an annual addition under Section 3.10(b)." 8. By adding the following immediately following the third sentence of Section 6.02 and the fourth sentence of Section 6.04(h) of the Plan as parts thereof: "Notwithstanding any provision of the Plan to the contrary (including any provisions of this Section), with respect to distributions under the Plan made for calendar years beginning on or after January 1, 2003 pursuant to Section 401(a)(9) of the Code, the Plan will apply the minimum distribution requirements set out in Section 6.08." 9. By substituting the following for the first sentence of Section 6.03 of the Plan: "Notwithstanding any provision of the Plan to the contrary, a lump sum payment shall be made in lieu of all vested benefits if the value of the Participant's nonforfeitable Accrued Benefit (determined without regard to Rollover Contributions (and earnings allocable thereto) within the meaning of Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code) as of his termination of employment or as of any subsequent Anniversary Date is $5,000 or less." 10. By substituting the following for the last sentence of Section 6.07(b) of the Plan: "An 'eligible retirement plan' shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from the Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code." 11. By adding the following new Section 6.08 to the end of Article 6 of the Plan as a part thereof: "6.08 Minimum Distribution Requirements after December 31, 2002 (a) Requirements of Treasury Regulations Incorporated. All distributions after December 31, 2002 required under this Section 6.08 will be determined and made in accordance with the Treasury Regulations under Section 401(a)(9) of the Code. (b) TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Section 6.08, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (`TEFRA') and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA. (c) Time and Manner of Distributions. (i) Required Beginning Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's required beginning date. (ii) Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (A) If the Participant's surviving spouse is the Participant's sole designated Beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later. (B) If the Participant's surviving spouse is not the Participant's sole designated Beneficiary, then distributions to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. (C) If there is no designated Beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (D) If the Participant's surviving spouse is the Participant's sole designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 6.08(c)(ii), other than Section 6.08(c)(ii)(A), will apply as if the surviving spouse were the Participant. (E) If the Participant or his designated Beneficiary so elects no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under Sections (A) or (B) above, or by September 30 of the calendar year which contains the fifth anniversary of the Participant's (or, if applicable, surviving spouses) death, such Participant or Beneficiary will receive the Participant's entire interest by December 31 of the calendar year containing the fifth anniversary of the Participant's death. For purposes of this Section 6.08(c)(ii) and Section 6.08(e), unless Section 6.08(c)(ii)(D) applies, distributions are considered to begin on the Participant's required beginning date. If Section 6.08(c)(ii)(D) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 6.08(c)(ii)(A). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant's required beginning date (or to the Participant's surviving spouse before the date distributions are required to begin to the surviving spouse under Section 6.08(c)(ii)(A)), the date distributions are considered to begin is the date distributions actually commence. (iii) Forms of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 6.08(d) and (e). If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations. (d) Required Minimum Distributions During Participant's Lifetime. (i) Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of: (A) the quotient obtained by dividing the Participant's Account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant's age as of the Participant's birthday in the distribution calendar year; or (B) if the Participant's sole designated Beneficiary for the distribution calendar is the Participant's spouse, the quotient obtained by dividing the Participant's Account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant's and spouse's attained ages as of the Participant's and spouse's birthdays in the distribution calendar year. (ii) Lifetime Required Minimum Distributions Continue Through Year of Participant's Death. Required minimum distributions will be determined under this Section 6.08(d) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant's date of death. (e) Required Minimum Distributions After Participant's Death. (i) Death On or After Date Distributions Begin. (A) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's Account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant's designated Beneficiary, determined as follows: (I) The Participant's remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. (II) If the Participant's surviving spouse is the Participant's sole designated Beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant's death using the surviving spouse's age as of the spouse's birthday in that year. For distribution calendar years after the year of the surviving spouse's death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year. (III) If the Participant's surviving spouse is not the Participant's sole designated Beneficiary, the designated Beneficiary's remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant's death, reduced by one for each subsequent year. (B) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated Beneficiary as of September 30 of the year after the year of the Participant's death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's Account balance by the Participant's remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. (ii) Death Before Date Distributions Begin. (A) Participant Survived by Designated Beneficiary. Except as provided in Section 6.08(c)(ii)(E), if the Participant dies before the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's Account balance by the remaining life expectancy of the Participant's designated Beneficiary, determined as provided in Section 6.08(e)(i). (B) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (C) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant's surviving spouse is the Participant's sole designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 6.08(c)(ii)(A), this Section 6.08(e)(ii) will apply as if the surviving spouse were the Participant." (f) Definitions. (i) Designated Beneficiary. The designated Beneficiary is the individual who is designated as the Beneficiary under Section 1.10 of the Plan and is the designated beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations. (ii) Distribution calendar year. A distribution calendar year is a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 6.08(c). The required minimum distribution for the Participant's first distribution calendar year will be made on or before the Participant's required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant's required beginning date occurs, will be made on or before December 31 of that distribution calendar year. (iii) Life expectancy. Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations. (iv) Participant's Account balance. A Participant's Account balance is the Account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year. (v) Required beginning date. A Participant's required beginning date is the April 1 of the calendar year following the later of (I) the calendar year in which the Participant attains age 70 1/2, or (II) if the Participant is not a 5% owner (as defined in Section 416(i) of the Code) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2, the calendar year in which the Participant retires." 12. By substituting the phrase "6 months" for the phrase "12 months" where it appears in Section 7.03(f) of the Plan. 13. By substituting the following for Section 12.01(b)(viii) of the Plan: "(viii) `Key Employee' means any Associate or former Associate in this Plan who, at any time during the Plan Year ending on the Determination Date, was: (A) An officer of the Company having annual compensation (within the meaning of Code Section 415(c)(3)) greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), (B) A 5% owner of the Company, or (C) A 1% owner of the Company having an annual compensation (within the meaning of Code Section 415(c)(3)) of more than $150,000. The term shall also include beneficiaries of key employees." 14. By inserting a new Section 12.01(c) immediately following Section 12.01(b) of the Plan as follows: "(c) Special Top-Heavy Rule. (i) For purposes of determining the present values of Accrued Benefits and the amounts of Account balances of Associates as of the Determination Date, the present values and amounts shall be increased by the distributions made with respect to the Associate under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from Service, death, or disability, this provision shall be applied by substituting '5-year period' for '1-year period.' (ii) The Accrued Benefits and Accounts of any individual who has not performed Service for the Company during the 1-year period ending on the Determination Date shall not be taken into account." * * * * * Particulars 8 and 11 shall be effective for distributions with required beginning dates after January 1, 2003. Particular 9 shall be effective on January 1, 2003. All remaining particulars shall be effective on January 1, 2002. IN WITNESS WHEREOF, Company has caused this amendment to be executed on its behalf by its duly authorized officer this 30th day of December, 2002. TruServ Corporation By: /s/ AMY MYSEL -------------------------------------- Its: Vice President of Human Resources ------------------------------------- ATTEST: By: /s/ BILL EVANS ------------------------------- Its: Director of Employee Benefits ------------------------------ EX-10.E 18 c75265exv10we.txt SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10-E TRUSERV CORPORATION SUPPLEMENTAL RETIREMENT PLAN (AS AMENDED AND RESTATED EFFECTIVE DECEMBER 15, 2002) TABLE OF CONTENTS
PAGE ARTICLE I. PURPOSE AND EFFECTIVE DATE........................................................1 1.1. History and Purpose...............................................................1 1.2. Effective Date....................................................................1 ARTICLE II. DEFINITIONS.......................................................................1 2.1. "Actuarial Equivalent"............................................................1 2.2. "Administrator"...................................................................1 2.3. "Beneficiary".....................................................................1 2.4. "Board"...........................................................................1 2.5. "Cause"...........................................................................1 2.6. "Change in Corporate Structure"...................................................2 2.7. "Code"............................................................................2 2.8. "Company".........................................................................2 2.9. "Compensation"....................................................................2 2.10. "ERISA"...........................................................................2 2.11. "Final Average Compensation"......................................................3 2.12. "Officer".........................................................................3 2.13. "Participant".....................................................................3 2.14. "Predecessor Corporation".........................................................3 2.15. "Qualified Retirement Plan".......................................................3 2.16. "Termination Date"................................................................3 2.17. "Years of Service"................................................................3 ARTICLE III. PARTICIPATION.....................................................................4 3.1. Eligibility.......................................................................4 3.2. Condition of Participation........................................................4 ARTICLE IV. PLAN BENEFITS.....................................................................4 4.1. Amount of Benefit.................................................................4 4.2. Vesting...........................................................................5 4.3. Death Benefit.....................................................................5 4.4. Effect of Trust...................................................................6 ARTICLE V. PAYMENT OF BENEFITS...............................................................6 5.1. Payment of Benefits...............................................................6 5.2. Withholding.......................................................................6 5.3. Change in Corporate Structure.....................................................6 ARTICLE VI. ADMINISTRATION....................................................................7 6.1. Authority of Administrator........................................................7 6.2. Participant's Duty to Furnish Information.........................................7 6.3. Claims Procedure..................................................................7
-i- TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE VII. AMENDMENT AND TERMINATION.........................................................8 ARTICLE VIII. MISCELLANEOUS.....................................................................8 8.1. No Implied Rights.................................................................8 8.2. No Employment Rights..............................................................8 8.3. Unfunded Plan.....................................................................8 8.4. Nontransferability................................................................9 8.5. Offset............................................................................9 8.6. Facility of Payment...............................................................9 8.7. Successors and Assigns...........................................................10 8.8. Applicable Law...................................................................10 EXHIBIT A ELIGIBLE OFFICERS................................................................12
-ii- TRUSERV CORPORATION SUPPLEMENTAL RETIREMENT PLAN (As Amended and Restated Effective December 15, 2002) ARTICLE I. Purpose and Effective Date 1.1. History and Purpose. The TruServ Corporation Supplemental Retirement Plan was previously established by TruServ Corporation to assist in providing retirement and other benefits to certain employees of the Company and its subsidiaries. The Plan is not intended to qualify under Section 401(a) of the Code or to be subject to Parts 2, 3, or 4 of Title I of ERISA. The Plan is maintained for the purpose of providing supplemental retirement benefits for Company Officers within the meaning of Section 301(a)(3) of ERISA. 1.2. Effective Date. The following provisions constitute an amendment and restatement of the Plan as of December 15, 2002; the "Effective Date" of the Plan as set forth herein. ARTICLE II. DEFINITIONS 2.1. "Actuarial Equivalent" means a payment whose actuarial reserve (the amount required to provide such payment) as of a specified date is equal to the actuarial reserve as of the same date to provide another form of payment, determined using the mortality and interest factors set forth in the Qualified Retirement Plan. 2.2. "Administrator" means the Chief Executive Officer of the Company or the individual or committee appointed by the Chief Executive Officer to act as the Administrator under the Plan. 2.3. "Beneficiary" means the person(s) or entity designated to receive a Participant's benefit under the Plan in the event of the Participant's death. If the Participant does not designate one or more Beneficiaries to receive his or her Plan benefits, or none of the Participant's designated Beneficiaries is living at the time of the Participant's death, the Participant's Beneficiary shall be his or her beneficiary under the Qualified Retirement Plan and, if the Participant does not have a beneficiary under the Qualified Plan, the Beneficiary under this Plan shall be his or her estate. 2.4. "Board" means the Board of Directors of the Company. 2.5. "Cause" means, in the reasonable judgment of the Board, (i) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the -1- Company, monetarily or otherwise, (ii) the Participant's conviction of a felony in connection with the Participant's employment with the Company, (iii) the Participant's embezzlement or misappropriation of the Company's money or property, or (iv) the finding by the Securities and Exchange Commission or other government regulatory agency that the Participant has violated a rule or policy of such agency in connection with his or her employment with the Company and its subsidiaries. 2.6. "Change in Corporate Structure" means the occurrence of any of the following events: (a) a merger, consolidation, reorganization, or change in control of the Company with or involving any other corporation or entity, in which the Company is not the surviving entity; or (b) the sale or disposition of all or substantially all of the Company's assets. 2.7. "Code" means the Internal Revenue Code of 1986, as amended. 2.8. "Company" means TruServ Corporation, a Delaware corporation. 2.9. "Compensation" means, for any calendar year, the base salary plus short-term incentive pay, which is paid for goal or performance achievements (except as provided below) to the Participant in such year related to prior year performance, plus pre-tax deferrals of base salary or short-term incentive pay under Sections 401(k) or 125 of the Code or under a nonqualified deferred compensation plan maintained by the Company during such year, but excluding amounts earned and/or paid to the Participant under any long-term incentive plan authorized by the Board during the year, and also excluding distributions to the Participant from any nonqualified plan during the year. Payments under one-time bonus or incentive plans and arrangements, recognition awards and other similar special incentives shall not be treated as eligible Compensation under the Plan. Notwithstanding the foregoing provisions of this Section 2.9, in no event shall a Participant's Compensation include continued salary or other compensation received by the Participant pursuant to the terms of a severance agreement or similar type arrangement under which the Participant receives salary or compensation for periods that he or she is not expected to perform any significant duties for the Company. For purposes of the Plan, Compensation shall cease on the last date that the Participant performs any significant services on a full-time basis for the Company, as determined by the Administrator. Consulting services compensation is excluded from the definition of Compensation. 2.10. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. -2- 2.11. "Final Average Compensation" means, as of any date, the Participant's average annual Compensation during the three calendar years in which the Participant's Compensation was the highest out of the ten calendar years of continuous employment with the Company or a Predecessor Company immediately preceding such date. In the event of a Change in Corporate Structure, if the Participant does not have three calendar years of Compensation in such ten year period, the Participant's average annual Compensation will be calculated based on the number of calendar years of Compensation available. If such Participant has less than a full calendar year of Compensation on such date, the Participant's base salary paid in the calendar year of the Change in Corporate Structure through the Change in Corporate Structure date shall be used as Final Average Compensation. 2.12. "Officer" means an employee who is employed in the position of Vice President or above. The Officers who are eligible for the Plan as of the Effective Date are set forth in Exhibit A. The Administrator shall have the authority to revise Exhibit A from time to time, and any such revised Exhibit A shall be included as a part of the Plan without the need for further amendment. 2.13. "Participant" means an Officer who is eligible for participation in the Plan, determined in accordance with Article III. 2.14. "Predecessor Corporation" means, unless the Administrator in its sole discretion determines otherwise, a corporation or other entity which has been acquired by the Company or which becomes a part of the Company through merger, consolidation, reorganization or a similar type transaction. 2.15. "Qualified Retirement Plan" means any pension benefit plan which is maintained by the Company or any subsidiary thereof which is intended to be qualified under Section 401(a) of the Code, excluding the TruServ Corporation Employee Savings and Compensation Deferral Plan and any successor thereto. 2.16. "Termination Date" means the date that a Participant ceases to perform services for the Company and its subsidiaries for any reason. 2.17. "Years of Service" means, as of any date, a Participant's number of eligible "years of service" calculated in accordance with the service crediting rules in the Qualified Retirement Plan under which the Participant is covered, subject to the following provisions of this Section 2.17. (a) For individuals who first become Participants in the Plan on or after the Effective Date, Years of Service shall be calculated using only service from the date the individual first becomes an Officer of the Company. (b) If a Participant terminates employment and is rehired on or after the Effective Date, such Participant's Years of Service under the Plan, if any, -3- after his or her rehire date, shall include only Years of Service as an Officer since the Participant's rehire date. (c) Notwithstanding any provision of the Plan to the contrary, in no event shall a Participant be credited with Years of Service for any period that the Participant is receiving salary or other compensation pursuant to the terms of a severance agreement or consulting agreement or similar type arrangement. Service credit shall end on the last date that the Participant performs any significant services for the Company, as determined by the Administrator, unless such severance agreement or arrangement specifically provides that a different date will be used for purposes of this Plan. ARTICLE III. PARTICIPATION 3.1. Eligibility. Each employee of the Company or its subsidiaries who is an Officer shall be eligible to participate in the Plan as of the date such employee is first employed as an Officer. 3.2. Condition of Participation. Notwithstanding any other provision of the Plan to the contrary, if the Administrator determines that participation by one or more Participants shall cause the Plan to be subject to Part 2, 3 or 4 of Subtitle B of Title I of ERISA, the entire interest of such Participants under the Plan shall be immediately paid to them, or shall otherwise be segregated from the Plan in the discretion of the Administrator, and such Participants shall cease to have any interest under the Plan. ARTICLE IV. PLAN BENEFITS 4.1. Amount of Benefit. A Participant's benefit under the Plan, as of any date, will be an amount equal to (a) below, minus (b) below: (a) the sum of the Participant's Final Average Pay, multiplied by 33%, multiplied by the Participant's number of Years of Service earned under the Plan, up to a maximum of 660% of the Participant's Final Average Compensation; LESS (b) the lump sum Actuarial Equivalent value of the benefit under the Qualified Retirement Plan that was paid or payable to the Participant as of such date. -4- 4.2. Vesting. Subject to Section 5.3 and the following provisions of this Section 4.2, a Participant shall become fully vested in his or her benefit under the Plan after five "years of service" (within the meaning of the Qualified Retirement Plan). If a Participant's Termination Date occurs for reasons of Cause, the Participant's benefit under the Plan shall be permanently forfeited and no amount will be payable to the Participant or his or her Beneficiary. If, within 90 days of the Participant's Termination Date, it is determined by the Board that prior to such Termination Date, events (or the absence of events) existed that would have justified the Participant's employment being terminated by the Company for Cause, the Participant's Termination Date will be deemed to be for Cause for purposes of the Plan. If, following payment of a Participant's Plan benefits, it is found by a court, the SEC or other government agency of competent jurisdiction, that the Participant has engaged in acts (or omissions) that would have justified the Participant's employment being terminated for Cause, all amounts previously paid to the Participant under the Plan shall be repaid to the Company. If the Participant fails to repay such amount after demand by the Company, the Participant shall be required to reimburse the Company for any legal fees and other costs incurred by the Company in obtaining such repayment. If the Participant terminates employment prior to the date the Participant is vested in his or her Plan benefits, such benefits shall be permanently forfeited and if the Participant is later rehired, such Participant shall be treated as a new Participant for purposes of determining the amount of benefits payable under the Plan, if any, after his or her rehire date. 4.3. Death Benefit. If the Participant's Termination Date occurs by reason of death, the Participant's Beneficiary shall be entitled to a death benefit under the Plan equal to (a) below, multiplied by (b) below, minus (c) below: (a) the sum of the Participant's Final Average Pay, multiplied by 33%, multiplied by the Participant's number of Years of Service earned under the Plan, up to a maximum of 660% of the Participant's Final Average Compensation; MULTIPLIED BY (b) 55%; LESS (c) the lump sum Actuarial Equivalent value of the Participant's benefit that was paid or payable to the Participant's beneficiary, if any, under the Qualified Retirement Plan as of such Termination Date. If the Participant dies after his or her Termination Date but prior to the time payment of Plan benefits has been made, payment of the Participant's benefit under Section 4.1 shall be made to the Beneficiary in lieu of the death benefit -5- provided under this Section 4.3. If a Participant who is terminated and not vested at the Termination Date dies after termination but before the 90 day normal payout period, there is no death benefit payable under the Plan. 4.4. Effect of Trust. If the Company has established a trust under Section 8.3 for purposes of assisting it in meeting its Plan obligations, then the amount of any benefits payable from the general assets of the Company under the Plan pursuant to this Article IV shall be reduced by the amount of any benefits paid to the Participant or Beneficiary, as applicable, from such trust. ARTICLE V. PAYMENT OF BENEFITS 5.1. Payment of Benefits. A Participant's benefit determined in accordance with Section 4.1 shall be paid in a lump sum cash payment 90 days after the Participant's Termination Date or as soon as administratively practicable thereafter. If the Participant's Termination Date occurs by reason of death, the benefit determined in accordance with Section 4.3 shall be paid to the Participant's Beneficiary in a lump sum cash payment 90 days after the Participant's Termination Date or as soon as administratively practicable thereafter. If payment is not made within 120 days of the Participant's Termination Date, the benefit payable shall accrue interest, compounded annually, from the 121st day following the Participant's Termination Date until the date on which payment is made, at the applicable short-term federal rate (within the meaning of Section 1274(d) of the Code). The short-term federal rate shall be the rate in effect on the Participant's Termination Date. Notwithstanding the foregoing provisions of this Section 5.1, the Board, in its discretion, may defer the payment of benefits under this Section 5.1 to the extent that it determines such deferral is necessary to prevent a default under the terms of any financing or similar agreement(s) between the Company and a lender or group of lenders, or if the Company is already in default under such an agreement(s) and unable to secure a waiver to make such payment. Any such deferred payment shall accrue interest as described in the foregoing provisions of this Section 5.1. 5.2. Withholding. All benefits and payments under the Plan are subject to the withholding of all applicable Federal, state, local and employment taxes. 5.3. Change in Corporate Structure. As of the effective date of a Change in Corporate Structure all Participants shall become fully vested in their benefits under the Plan. Unless the surviving or successor employer in a Change in Corporate Structure agrees to continue the Plan or provide Participants with a substitute nonqualified retirement plan, in either case with terms no less favorable than those under the Plan as in effect prior to the Change in Corporate Structure, all Plan -6- benefits shall be paid in a lump sum cash payment as of the effective date of the Change in Corporate Structure. ARTICLE VI. ADMINISTRATION 6.1. Authority of Administrator. The Administrator shall have full power and authority to carry out the terms of the Plan. The Administrator's interpretation, construction and administration of the Plan, including any adjustment of the amount or recipient of the payments to be made, shall be binding and conclusive on all persons for all purposes. Neither the Company, including its officers, employees or directors, nor the Administrator or the Board or any member thereof, shall be liable to any person for any action taken or omitted in connection with the interpretation, construction and administration of the Plan. 6.2. Participant's Duty to Furnish Information. Each Participant shall furnish to the Administrator such information as it may from time to time request for the purpose of the proper administration of this Plan. 6.3. Claims Procedure. If a Participant or Beneficiary ("Claimant") is denied all or a portion of an expected benefit under this Plan for any reason, he or she may file a claim with the Administrator. The Administrator shall notify the Claimant within 90 days of receipt of the claim of allowance or denial of the claim, unless the Claimant receives written notice from the Administrator prior to the end of the 90-day period stating that special circumstances require an extension (of up to 90 additional days) of the time for decision. The notice of the decision shall be in writing, sent by certified mail to Claimant's last known address, and if a denial of the claim, shall contain the following information: (a) the specific reasons for the denial; (b) specific reference to pertinent provisions of the Plan on which the denial is based; and (c) if applicable, a description of any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary, and an explanation of the claims review procedure. A Claimant is entitled to request a review of any denial of his or her claim by the Board. The request for review must be submitted within 60 days of mailing of notice of the denial. Absent a request for review within the 60-day period, the claim shall be deemed to be conclusively denied. The Claimant or his or her representatives shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing. The Board shall render a review decision in writing within 60 days after receipt of a request for a review, provided that, in special circumstances the Board may extend the time for decision by not more than 60 days upon written notice to the Claimant. The Claimant shall receive written notice of the Board's review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan. -7- ARTICLE VII. AMENDMENT AND TERMINATION The Board may amend or terminate the Plan at any time; provided that no such amendment or termination shall have a material adverse effect on any Participant's rights under the Plan accrued as of the date of such amendment or termination. Upon termination of the Plan, all Plan benefits shall be paid to Participants in a lump sum cash payment within 90 days of such termination date; provided, however, if the Company is then in default under the terms of any financing or similar agreement(s) between the Company and lender or group of lenders and is unable to secure a waiver for such payment, or if the Board determines that such payment would result in a default under such an agreement(s), payment shall be deferred until a waiver can be secured or the Board determines that payment can be made without causing a default. Any payment deferred pursuant to the preceding sentence shall accrue interest from the 121st day following the termination date in the manner described in Section 5.1. If the Plan is terminated following a Change in Corporate Structure, all Plan benefits shall be paid in a lump sum cash payment as soon as practicable following such termination date. ARTICLE VIII. MISCELLANEOUS 8.1. No Implied Rights. Neither the establishment of the Plan nor any amendment thereof shall be construed as giving any Participant, Beneficiary or any other person, individually or as a member of a group, any legal or equitable right unless such right shall be specifically provided for in the Plan or conferred by specific action of the Board or the Administrator in accordance with the terms and provisions of the Plan. Except as expressly provided in this Plan, neither the Company nor any of its subsidiaries shall be required or be liable to make any payment under the Plan. 8.2. No Employment Rights. Nothing herein shall constitute a contract of employment or of continuing service or in any manner obligate the Company or any subsidiary to continue the services of any Participant, or obligate any Participant to continue in the service of the Company or subsidiaries, or as a limitation of the right of the Company or subsidiaries to discharge any of their employees, with or without cause. 8.3. Unfunded Plan. No funds shall be segregated or earmarked for any current or former Participant, Beneficiary or other person under the Plan. However, the Company may establish one or more trusts to assist in meeting its obligations under the Plan, the assets of which shall be subject to the claims of the Company's general creditors. No current or former Participant, Beneficiary or other person, -8- individually or as a member of a group, shall have any right, title or interest in any account, fund, grantor trust, or any asset that may be acquired by the Company in respect of its obligations under the Plan (other than as a general creditor of the Company with an unsecured claim against its general assets). In no event shall Participants' benefits under the Plan be treated as administrative claims or receive any priority for payment in any liquidation, bankruptcy or similar-type proceeding. The Company may also choose to use life insurance to assist it in meeting its obligations under the Plan. As a condition of participation in the Plan, each Participant agrees to execute any documents that may be required in connection with obtaining such insurance and to cooperate with any reasonable life insurance underwriting requirements. 8.4. Nontransferability. Except as specifically provided by the Company, prior to payment thereof, no benefit under the Plan shall be assignable or subject to any manner of alienation, sale, transfer, claims of creditors, pledge, attachment or encumbrances of any kind, except pursuant to a domestic relations order awarding vested benefits to an "alternate payee" (within the meaning of Code Section 414(p)(8)) that the Administrator determines satisfies the criteria set forth in paragraphs (1), (2) and (3) of Code Section 414(p) (a "DRO"). Notwithstanding any provision of the Plan to the contrary, the Plan benefits awarded to an alternate payee under a DRO shall be paid in a single lump sum to the alternate payee at the same time as Plan benefits are payable to the Participant or Beneficiary, as applicable, and the amount payable to the alternate payee will be deducted from the Participant's benefit determined under Section 4.1 or, if applicable, the Beneficiary's benefit determined under Section 4.3, prior to payment thereof. 8.5. Offset. If, at the time payment is to be made under the Plan, the Participant or Beneficiary is indebted to or obligated to the Company, then any payment to be made to the Participant or Beneficiary, as applicable, may, at the discretion of the Administrator, be reduced by the amount of such indebtedness or obligation; provided that the election by the Administrator not to reduce such payment shall not constitute a waiver of the Company's claim for such indebtedness or obligation. 8.6. Facility of Payment. If the Administrator receives evidence that a Participant or Beneficiary entitled to benefits under the Plan is physically or mentally incompetent in any way so as to be unable to manage his or her financial affairs, and another person or institution is maintaining or has custody of such Participant or Beneficiary, and no guardian, committee or other representative of the estate of such person has been duly appointed by a court of competent jurisdiction, then the Administrator may make payment under the Plan to such other person or institution. Any such determination by the Administrator shall be final and binding on all persons and any payment made pursuant to this Section 8.6 shall be a valid and complete discharge of the obligations of the Company under the Plan. -9- 8.7. Successors and Assigns. The rights, privileges, benefits and obligations under the Plan are intended to be, and shall be treated as legal obligations of and binding upon the Company, its successors and assigns, including successors by merger, consolidation, reorganization or otherwise. 8.8. Applicable Law This Plan is established under and will be construed according to the laws of the State of Illinois, to the extent not preempted by the laws of the United States. * * * -10- IN WITNESS WHEREOF, the undersigned has caused this Plan to be executed in the name of and on behalf of the Company, this 16th day of December, 2002. TRUSERV CORPORATION By /s/ PAMELA FORBES LIEBERMAN ------------------------------------------- Its President and Chief Executive Officer ------------------------------------------ -11- EXHIBIT A ELIGIBLE OFFICERS As of December 15, 2002 PAMELA FORBES LIEBERMAN WILLIAM F. GODWIN NEIL A. HASTIE BRIAN C. KIERNAN JON M. JOHNSON MANFRED L. KIRST AMY W. MYSEL ROBERT OSTROV MICHAEL D. ROSEN DAVID A. SHADDUCK BARBARA L. WAGNER CAROL W. WENTWORTH By: /s/ PAMELA FORBES LIEBERMAN ----------------------------------- Administrator Date: December 16, 2002 ------------------------------ -12- EX-10.J 19 c75265exv10wj.txt LEASE AGREEMENT EXHIBIT 10-J LEASE AGREEMENT by and between HAMMER (DE) LIMITED PARTNERSHIP, a Delaware limited partnership as LANDLORD and TRUSERV CORPORATION a Delaware corporation, as TENANT Premises: 1. Jonesboro, Georgia 2. Kansas City, Missouri Dated as of: December 26, 2002 TABLE OF CONTENTS Page 1. Demise of Premises.................................................... 1 2. Certain Definitions................................................... 1 3. Title and Condition; Single Lease Transaction......................... 10 4. Use of Leased Premises; Quiet Enjoyment............................... 12 5. Term.................................................................. 13 6. Basic Rent............................................................ 14 7. Additional Rent....................................................... 15 8. Net Lease: Non-Terminability.......................................... 16 9. Payment of Impositions................................................ 16 10. Compliance with Laws and Easement Agreements; Environmental Matters... 18 11. Liens; Recording...................................................... 19 12. Maintenance and Repair................................................ 20 13. Alterations and Improvements.......................................... 20 14. Permitted Contests.................................................... 22 15. Indemnification....................................................... 22 16. Insurance............................................................. 24 17. Casualty and Condemnation............................................. 27 18. Termination Events.................................................... 29 19. Restoration........................................................... 30 20. Intentionally Omitted................................................. 31 21. Assignment and Subletting: Prohibition against Leasehold Financing.... 31 22. Events of Default..................................................... 34 23. Remedies and Damages Upon Default..................................... 37 24. Notices............................................................... 40 25. Estoppel Certificate.................................................. 40 26. Surrender............................................................. 41 27. No Merger of Title.................................................... 41 28. Books and Records..................................................... 41 29. Intentionally Omitted................................................. 42 30. Non-Recourse as to Landlord........................................... 42 31. Financing............................................................. 42 32. Subordination, Non-Disturbance and Attornment......................... 43
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33. Tax Treatment; Reporting.............................................. 43 34. Miscellaneous......................................................... 43
EXHIBITS Exhibit "A" - Land Exhibit "B" - Fixtures Exhibit "C" - Schedule of Permitted Encumbrances Exhibit "D" - Rent Schedule Exhibit "E" - Form of Subordination, Non-disturbance and Attornment Agreement Exhibit "F" - Premises Percentage Allocation of Basic Rent Exhibit "G" - Patriot's Act Certification Exhibit "H" - Post-closing Obligations -ii- LEASE AGREEMENT, made as of this 26th day of December, 2002, between HAMMER (DE) LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), with an address c/o W. P. Carey & Co. LLC, 50 Rockefeller Plaza, 2nd Floor, New York, New York 10020, and TRUSERV CORPORATION, a Delaware corporation ("Tenant") with an address at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631. In consideration of the rents and provisions herein stipulated to be paid and performed, Landlord and Tenant hereby covenant and agree, with the intent to be legally bound, as follows: 1. Demise of Premises. Landlord hereby demises and lets to Tenant, and Tenant hereby takes and leases from Landlord, for the term and upon the provisions hereinafter specified, the following described property (hereinafter referred to collectively as the "Leased Premises" and individually as the "Missouri Premises", "Georgia Premises": (a) the land described in Exhibit "A" attached hereto, together with the Appurtenances (collectively, the "Land"); (b) the buildings containing approximately 1,033,630 square feet in the aggregate, structures and other improvements now or hereafter constructed on the Land (collectively, the "Improvements"); and (c) the fixtures, machinery, equipment and other property described in Exhibit "B" hereto (collectively, the "Fixtures"). 2. Certain Definitions. "Additional Rent" shall mean Additional Rent as defined in Paragraph 7. "Adjoining Property" shall mean all sidewalks, driveways, curbs, gores and vault spaces adjoining any of the Leased Premises that Landlord is required to maintain, replace and/or repair pursuant to any Legal Requirement or Permitted Encumbrance. "Affected Premises" shall mean the Affected Premises as defined in Paragraph 18. "Affiliate Leases" shall mean that certain lease agreement by and between Wrench (DE) Limited Partnership and Tenant with respect to property situate in Corsicana, Texas and Woodland, California dated as of the date of this Lease and that certain lease agreement by and between BOLT (DE) Limited Partnership and Tenant with respect to property situate in Kingman, Arizona, Manchester, Springfield, Oregon and Fogelsville, Pennsylvania also dated as of the date of this Lease, each as amended or modified from time to time. "Alterations" shall mean all changes, additions, improvements or repairs to, all alterations or removals of and all substitutions or replacements for any of the Improvements or Fixtures, both interior and exterior, structural and non-structural, and ordinary and extraordinary. "Appurtenances" shall mean all tenements, hereditaments, easements, rights-of-way, rights, privileges in and to the Land, including (a) easements over other lands granted by any Easement Agreement, (b) any streets, ways, alleys, vaults, gores or strips of land adjoining the Land, and (c) all water, irrigation and drainage rights (whether riparian, appropriative or otherwise) and all electrical users' rights, in or relating to or used in connection with the Land; all shares of stock evidencing any such rights; and all fixtures and equipment used for production or distribution of water or electricity in connection with any use of the Land. "Assignment" shall mean any first priority assignment of rents and leases from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified from time to time. "Basic Rent" shall mean Basic Rent as defined in Paragraph 6. "Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as defined in Paragraph 6. "Bifurcated Lease" shall mean Bifurcated Lease as defined in Paragraph 21(a)(i). "Bifurcated Premises" shall mean Bifurcated Premises as defined in Paragraph 21(a)(i). "Business Day" shall mean any weekday, except for a national holiday or a day on which national banks are closed in either Illinois or New York. "Casualty" shall mean any damage to or destruction of or which affects the Leased Premises or Adjoining Property. "Closing Agreement" shall mean that certain Closing Agreement by and between Tenant and Landlord dated as of the date hereof. "Commencement Date" shall mean Commencement Date as defined in Paragraph 5. "Competitor" shall mean any Person whose primary business is and who receives at least 10% of its revenues from the operation of a hardware cooperative or the wholesale or retail sale or distribution of home improvement and/or hardware products. "Complete Assignment" shall mean Complete Assignment as defined in Paragraph 21(a)(i). "Condemnation" shall mean a Taking. "Condemnation Notice" shall mean notice or knowledge of the institution of or intention to institute any proceeding for Condemnation. "Control Event" shall mean the failure by Tenant to perform and observe, or a violation or breach of, Paragraphs 4(a), 4(c), 8(d), 10 (except with respect to an Environmental Violation caused by any subtenant or Person who is not controlled by or in control of or under common control with Tenant or any Environmental Violation that Tenant is diligently endeavoring to cure but fails to cure within the cure period specified in Paragraph 2 22(b)), 11, 12, 13, 14, 15, 16 (except for insurance required under Paragraph 16(a) that cannot be obtained from any insurance carrier at any cost despite Tenant's best efforts), 17, 19, 21, 24, 25, 26, 28, 31, 32, 34(l). "Costs" of a Person or associated with a specified transaction shall mean all reasonable costs and expenses incurred by such Person or associated with such transaction, including without limitation, reasonable attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title insurance premiums, mortgage commitment fees, mortgage points, recording fees and transfer taxes, as the circumstances require. "Default Rate" shall mean the Default Rate as defined in Paragraph 7(a)(iv). "Easement Agreement" shall mean any conditions, covenants, restrictions, easements, declarations, licenses and other agreements listed as Permitted Encumbrances or as may hereafter affect either Related Premises. "Environmental Law" shall mean (i) whether in effect as of the Commencement Date or thereafter enacted or promulgated, any applicable federal, state, foreign and local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, consent, court order, judgment, decree, injunction, code, requirement or agreement with any governmental entity, (x) relating to pollution (or the cleanup thereof), or the protection of air, water vapor, surface water, groundwater, drinking water supply, land (including land surface or subsurface), plant, aquatic and animal life from injury caused by a Hazardous Substance or (y) concerning exposure to, or the use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, handling, labeling, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity, in each case as amended and as now or hereafter in effect, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations or injuries or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act, the federal Clean Air Act, the federal Clean Water Act, the federal Resources Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act, the federal Occupational Safety and Health Act of 1970, the federal National Environmental Policy Act and the federal Hazardous Materials Transportation Act, each as amended and as now or hereafter in effect and any similar state or local Law. "Environmental Violation" shall mean (a) any direct or indirect discharge, disposal, spillage, emission, escape, pumping, pouring, injection, leaching, release, seepage, filtration or transporting of any Hazardous Substance at, upon, under, onto or within the Leased Premises, or from the Leased Premises to the environment, in violation of any Environmental Law or which could reasonably be anticipated to result in any liability to Landlord, Tenant or 3 Lender, any Federal, state or local government or any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (b) any deposit, storage, dumping, placement or use of any Hazardous Substance at, upon, under, within or migrating from the Leased Premises in violation of any Environmental Law which could reasonably be anticipated to result in any liability to any Federal, state or local government or to any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (c) the abandonment or discarding of any barrels, containers or other receptacles containing any Hazardous Substances in violation of any Environmental Laws, (d) any activity, occurrence or condition which could result in any liability, cost or expense to Landlord or Lender or any other owner or occupier of the Leased Premises, or which could reasonably be anticipated to result in a creation of a lien on either Related Premises as a result of any violation of any Environmental Law or (e) any violation of or noncompliance with any Environmental Law. "Escrow Charges" shall mean Escrow Charges as defined in Paragraph 9. "Escrow Payment" shall mean Escrow Payment as defined in Paragraph 9. "Fitch" shall mean Fitch, Inc. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "Environmental Violation Extension Term" shall mean Environmental Violation Extension Term as defined in Paragraph 10(e). "Estoppel Certificate" shall mean Estoppel Certificate as defined in Paragraph 25. "Event of Default" shall mean an Event of Default as defined in Paragraph 22(a). "Expiration Date" shall mean Expiration Date as defined in Paragraph 5. "Fair Market Rent" shall mean Fair Market Rent as defined in Paragraph 5(b). "Federal Funds" shall mean federal or other immediately available funds which at the time of payment are legal tender for the payment of public and private debts in the United States of America. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "GAAP" shall mean GAAP as defined in Paragraph 28. "Hazardous Activity" means any activity, process, procedure or undertaking which directly or indirectly (i) procures, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the release, seepage, spill, leak, flow, discharge or emission of any Hazardous Substance into the environment (including 4 the air, ground water, watercourses or water systems), (iii) involves the containment or storage of any Hazardous Substance; or (iv) would cause any of the Leased Premises or any portion thereof to become a hazardous waste treatment, recycling, reclamation, processing, storage or disposal facility within the meaning of any Environmental Law. "Hazardous Condition" means any condition which would support any claim or liability under any Environmental Law, including the presence of underground storage tanks. "Hazardous Substance" means (i) any substance, material, product, petroleum, petroleum product, derivative, compound or mixture, mineral (including asbestos), chemical, gas, medical waste, or other pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous or acutely hazardous to the environment or public health or safety or (ii) any substance supporting a claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. Hazardous Substances include, without limitation, any toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum or petroleum-derived substances or waste, radon, radioactive materials, asbestos, asbestos containing materials, urea formaldehyde foam insulation, lead, polychlorinated biphenyls. "Impositions" shall mean the Impositions as defined in Paragraph 9(a). "Improvements" shall mean the Improvements as defined in Paragraph 1. "Insurance Requirements" shall mean the requirements of all insurance policies maintained in accordance with this Lease. "Investment Grade Rating" means any of the following: (a) an unsecured senior debt rating of Baa2 or better from Moody's, (b) an unsecured senior debt rating of BBB or better by S&P or Fitch, or (c) if none of the Rating Agencies furnish such ratings, then a comparable rating by any rating agency reasonably acceptable to Landlord and Lender. "Land" shall mean the Land as defined in Paragraph 1. "Late Charge" shall mean Late Charge as defined in Paragraph 7(a)(ii). "Law" shall mean any constitution, statute, rule of law, code, ordinance, order, judgment, decree, injunction, rule, regulation, policy, requirement or administrative or judicial determination, even if unforeseen or extraordinary, of every duly constituted governmental authority, court or agency, now or hereafter enacted or in effect. "Lease" shall mean this Lease Agreement. "Lease Bifurcation" shall mean Lease Bifurcation as defined in Paragraph 21(a)(i). "Lease Year" shall mean, with respect to the first Lease Year, the period commencing on the Commencement Date and ending at midnight on the last day of the twelfth 5 (12th) consecutive calendar month following the month in which the Commencement Date occurred, and each succeeding twelve (12) month period during the Term, except that for the purposes of calculating Basic Rent in the thirtieth (30th) Lease Year the thirtieth (30th) Lease Year shall be eleven (11) months. "Leased Premises" shall mean the Leased Premises as defined in Paragraph 1, except for Affected Premises and Bifurcated Premises after termination of this Lease with respect thereto. "Legal Requirements" shall mean the requirements of all present and future Laws (including but not limited to Environmental Laws and Laws related to accessibility to, usability by, and discrimination against, disabled individuals) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to any of the Leased Premises or Related Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of any of the Leased Premises or Related Premises, even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Leased Premises or Related Premises or requires Tenant to carry insurance other than as required by this Lease. "Lender" shall mean any person or entity (and its respective successors and assigns) which may, on or after the date hereof, make a Loan to Landlord or be the holder of a Note secured by a Mortgage, or, if more than one Note is secured by a Mortgage, then Lender shall mean the agent or trustee for such Note holders, provided that, in each case, Landlord has identified such Lender in a written notice to Tenant together with contact information for such Lender. "Limited Remedy Default" shall mean an Event of Default specified in the following clauses of Paragraph 22(a): clause (ii) unless such default is a Control Event, clause (iii) if the misrepresentation is with respect to the last sentence of Paragraph A.2 of the Closing Agreement, the first sentence of Paragraph A.3 or the first sentence of Paragraph A.7 of the Closing Agreement, clause (iv), clause (v), clause (viii) or clause (xiv) unless such default is not a Limited Remedy Default under either of the Affiliated Leases. "Loan" shall mean any loan made by one or more Lenders to Landlord, which loan is secured by a Mortgage and an Assignment and evidenced by a Note. "Major Alteration" means any structural, or series of related Alterations, other than a Major Replacement, which will cost more than $750,000. "Major Replacement" means any structural repair or structural replacement which will cost more than $750,000. "Monetary Obligations" shall mean Rent and all other sums payable by Tenant under this Lease to Landlord or to any third party on behalf of Landlord. "Moody's" shall mean Moody's Investors Services, Inc. 6 "Mortgage" shall mean any first priority mortgage or deed of trust from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Net Award" shall mean (a) the entire award payable to Landlord or Lender by reason of a Condemnation whether pursuant to a judgment or by agreement or otherwise, or (b) the entire proceeds of any insurance required under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v) or (vi) of Paragraph 16(a), as the case may be, less any expenses incurred by Landlord and Lender in collecting such award or proceeds. "Non-Preapproved Assignee" shall mean Non-Preapproved Assignee as defined in Paragraph 21(a)(ii). "Non-Preapproved Assignment" shall mean Non-Preapproved Assignment as defined in Paragraph 21(a)(ii). "Note" shall mean any promissory note evidencing Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Partial Assignment" shall mean Partial Assignment as defined in Paragraph 21(a)(i). "Partial Casualty" shall mean any Casualty which does not constitute a Termination Event. "Partial Condemnation" shall mean any Condemnation which does not constitute a Termination Event. "Permitted Encumbrances" shall mean those covenants, restrictions, reservations, liens, conditions and easements and other encumbrances, other than any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing shall not be deemed to revive any such encumbrances that have expired or terminated or are otherwise invalid or unenforceable). "Permitted Violations" shall mean Permitted Violations as defined in Paragraph 14. "Person" shall mean an individual, partnership, association, corporation, limited liability company, governmental entity or other entity. "Pre-Approved Alteration" means (a) any non-structural Alteration, (b) regardless of cost, the installation, removal or alteration of non-loadbearing interior partition walls, exterior fences or loading docks or the installation or alteration (but not the sealing) of dock doors, and (c) any other structural Alteration which will cost $750,000 or less provided that TruServ Corporation or a Preapproved Assignee is the Tenant of the Related Premises which is the subject of the Alteration. "Preapproved Assignee" shall mean Preapproved Assignee as defined in Paragraph 21(a)(i). 7 "Preapproved Assignment" shall mean Preapproved Assignment as defined in Paragraph 21(a)(i). "Preapproved Sublet" shall mean Preapproved Sublet as defined in Paragraph 21(b). "Premises Percentage Allocation" shall mean the percentage allocated to each Related Premises in Exhibit "F" to this Lease as the same may be adjusted in accordance with the formula specified in Exhibit "F". "Present Value" of any amount shall mean such amount discounted by seven (7%) percent per annum. "Prime Rate" shall mean the interest rate per annum as published, from time to time, in The Wall Street Journal as the "Prime Rate" in its column entitled "Money Rate". The Prime Rate may not be the lowest rate of interest charged by any "large U.S. money center commercial banks" and Landlord makes no representations or warranties to that effect. In the event The Wall Street Journal ceases publication or ceases to publish the "Prime Rate" as described above, the Prime Rate shall be the average per annum discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from time to time by the United States Treasury at its most recent auction, plus three hundred (300) basis points. If no such 91-day Treasury Bills are then being issued, the Discount Rate shall be the discount rate on Treasury Bills then being issued for the period of time closest to ninety-one (91) days. "Protected Sublease" shall mean Protected Sublease as defined in Paragraph 21(b)(ii). "Protected Subtenant" shall mean Protected Subtenant as defined in Paragraph 21(b). "Rating Agency" shall mean Moody's, S&P or Fitch. "Related Premises" shall mean any one of the Georgia Premises and Missouri Premises. "Remaining Obligations" shall mean Remaining Obligations as defined in Paragraph 18(c). "Remaining Premises" shall mean the Related Premises which are not Affected Premises under Paragraph 18 or Bifurcated Premises under Paragraph 21. "Renewal Date" shall mean Renewal Date as defined in Paragraph 5. "Renewal Term" shall mean Renewal Term as defined in Paragraph 5. "Rent" shall mean, collectively, Basic Rent and Additional Rent. 8 "Requesting Party" shall mean Requesting Party as defined in Paragraph 25. "Responding Party" shall mean Responding Party as defined in Paragraph 25. "Restoration Fund" shall mean Restoration Fund as defined in Paragraph 19(a). "Review Criteria" shall mean Review Criteria as defined in Paragraph 21(a)(ii). "S&P" shall mean Standard & Poor's Corporation. "Set-Off" shall mean Set-Off as defined in Paragraph 5. "Site Assessment" shall mean a Site Assessment as defined in Paragraph 10(c). "Surviving Obligations" shall mean any obligations of Tenant under this Lease, actual or contingent, which arise on or prior to the expiration or prior termination of this Lease or which survive such expiration or termination by their own terms. "Taking" shall mean (a) any taking or damaging of all or a portion of any of the Leased Premises (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special, or (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding, or (iii) by any other means, or (b) any de facto condemnation. The Taking shall be considered to have taken place as of the later of the date actual physical possession is taken by the condemnor. "Term" shall mean Term as defined in Paragraph 5. "Termination Date" shall mean Termination Date as defined in Paragraph 18. "Termination Event" shall mean Termination Event as defined in Paragraph 18. "Termination Notice" shall mean Termination Notice as defined in Paragraph 18(a). "Third Party Purchaser" shall mean Third Party Purchaser as defined in Paragraph 21 (g). "Threshold Amount" shall mean (i) $500,000 if TruServ Corporation or a Preapproved Assignee is the Tenant and, (ii) in all other instances, $100,000. "Warranties" shall mean Warranties as defined in Paragraph 3(d). 9 "Work" shall mean Work as defined in Paragraph 13(b). 3. Title and Condition; Single Lease Transaction. (a) The Leased Premises are demised and let subject to (i) the Mortgage and Assignment presently in effect, (ii) the rights of any Persons in possession of the Leased Premises, (iii) the existing state of title of any of the Leased Premises, including any Permitted Encumbrances, (iv) any state of facts which an accurate survey or physical inspection of the Leased Premises might show, (v) all Legal Requirements, including any existing violation of any thereof, and (vi) the condition of the Leased Premises as of the commencement of the Term, without representation or warranty by Landlord. (b) Tenant acknowledges that the Leased Premises are in good condition and repair at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS WHERE IS AND WITH ALL FAULTS. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY (xiv) OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, OR (xvi) COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE. (c) Tenant represents to Landlord that Tenant has examined the title to the Leased Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for the purposes contemplated hereby. Tenant acknowledges that (i) Tenant has only a leasehold estate in the Leased Premises, as provided herein, and (ii) to the best of Tenant's 10 knowledge, (A) except as set forth in the property condition reports, environmental reports, zoning reports or any other reports delivered to Landlord, the Improvements conform to all material Legal Requirements and all Insurance Requirements, (B) all easements necessary or appropriate for the use or operation of the Leased Premises have been obtained, (C) all contractors and subcontractors who have performed work on or supplied materials to the Leased Premises have been fully paid, and all materials and supplies have been fully paid for, (D) the Improvements have been completed in all material respects in a workmanlike manner of quality consistent with industry standards, and (E) all Fixtures necessary or appropriate for the use or operation of the Leased Premises have been installed and are presently operative in all material respects. (d) Landlord hereby assigns to Tenant, without recourse or warranty whatsoever, all assignable warranties, guaranties, indemnities and similar rights (collectively "Warranties") which Landlord may have against any manufacturer, seller (other than Tenant), engineer, contractor or builder in respect of any of the Leased Premises. Such assignment shall remain in effect until the expiration or earlier termination of this Lease, whereupon such assignment shall cease and all of the Warranties shall automatically revert to Landlord. In confirmation of such reversion Tenant shall execute and deliver promptly any certificate or other document reasonably required by Landlord. Landlord shall also retain the right to enforce any guaranties upon the occurrence of an Event of Default. Tenant shall enforce all Warranties in accordance with their respective terms. (e) TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS THE EXPRESS INTENT OF LANDLORD AND TENANT TO CREATE, AND THAT THIS LEASE CONSTITUTES A SINGLE LEASE WITH RESPECT TO EACH AND EVERY PARCEL OF LAND, IMPROVEMENTS AND FIXTURES INCLUDED IN EACH AND ALL OF THE RELATED PREMISES (WHEREVER LOCATED) AND, EXCEPT AS EXPRESSLY SET FORTH HEREIN, THIS LEASE SHALL NOT BE (OR BE DEEMED TO BE) DIVISIBLE OR SEVERABLE INTO SEPARATE LEASES FOR ANY PURPOSE WHATSOEVER, AND TENANT, ON BEHALF OF ITSELF AND ANY TRUSTEE OR LEGAL REPRESENTATIVE UNDER THE FEDERAL BANKRUPTCY CODE OR ANY SIMILAR STATE INSOLVENCY PROCEEDING HEREBY, WAIVES ANY RIGHT TO CLAIM OR ASSERT A CONTRARY POSITION IN ANY ACTION OR PROCEEDING; IT BEING FURTHER UNDERSTOOD AND AGREED BY TENANT THAT THE PERCENTAGE ALLOCATION OF BASIC RENT AS SET FORTH ON EXHIBIT "F" HEREOF IS INCLUDED TO PROVIDE A FORMULA FOR RENT ADJUSTMENT, AND TO FACILITATE THE RIGHTS OF TENANT, EACH PREAPPROVED ASSIGNEE AND EACH PROTECTED SUBTENANT IN THE CASES OF ASSIGNMENT AND SUBLETTING, PARTIAL RENEWAL, CASUALTY, CONDEMNATION OR OTHER PROVISIONS WITH RESPECT TO AFFECTED PREMISES, BIFURCATED PREMISES, PROTECTED SUBLEASES AND LEASE TERMINATION UNDER CERTAIN CIRCUMSTANCES. ANY EVENT OF DEFAULT SHALL BE DEEMED TO BE AN EVENT OF DEFAULT WITH RESPECT TO THE ENTIRE LEASED PREMISES (WHEREVER LOCATED). THE FOREGOING AGREEMENTS AND WAIVERS BY TENANT IN THIS PARAGRAPH 3(E) ARE MADE AS A MATERIAL INDUCEMENT TO LANDLORD TO ENTER INTO THE TRANSACTION CONTEMPLATED BY THIS LEASE AND THAT, BUT FOR THE 11 FOREGOING AGREEMENTS AND WAIVERS BY TENANT, LANDLORD WOULD NOT CONSUMMATE THIS LEASE TRANSACTION. 4. Use of Leased Premises; Quiet Enjoyment. (a) The Leased Premises may be used and occupied for any lawful purpose subject to the terms and conditions of this Paragraph 4. No Related Premises shall be used or occupied, nor shall Tenant or any assignee or subtenant do or permit anything to be done in or on either Related Premises leased by such Person in a manner which would (i) violate any Law, Legal Requirement or Permitted Encumbrance, the violation of which could reasonably be anticipated to adversely affect the ability to use, maintain or occupy the applicable Related Premises, (ii) take any action that would invalidate any insurance policy required under Paragraph 16, (iii) constitute waste of either Related Premises or in any way materially increases the risk of fire or other hazard arising out of the operation of either Related Premises relative to the risks arising from the use of the applicable Related Premises as the date hereof or impair the value of either Related Premises in any material respect, (iv) materially increase the risk of environmental damage, an Environmental Violation or danger to human health or the environment relative to the risk arising from the use of the applicable Related Premises as of the date hereof, or (v) materially increase the wear and tear to the applicable Related Premises relative to the wear and tear arising from the use of the applicable Related Premises as of the date hereof. (b) Subject to the provisions hereof, so long as no Event of Default has occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the Leased Premises throughout the Term, without any hindrance, ejection or molestation by Landlord with respect to matters that arise after the date hereof, provided that Landlord or its agents may after reasonable notice to Tenant, and, except as provided in Paragraph 10, at Landlord's sole expense unless an Event of Default exists, but in any event not less than (2) Business Days notice (except in the case of any emergency, in which event only advance telephonic notice shall be required) enter upon and examine any of the Leased Premises at such reasonable times during normal business hours as Landlord may request (but not more often than twice each Lease Year or at any time during the existence of an Event of Default) for the purpose of inspecting the Leased Premises, verifying compliance or non-compliance by Tenant with its obligations hereunder and the existence or non-existence of an Event of Default or event which with the passage of time and/or notice would constitute an Event of Default, subject to such reasonable restrictions as Tenant may impose, showing the Leased Premises (or the applicable Related Premises) to prospective Lenders and purchasers and taking such other action with respect to the Leased Premises as is permitted by any provision hereof. (c) In no event shall any portion of the Leased Premises be used or occupied or permitted to be used or occupied for any of the following purposes: (i) any dumping, disposing, incineration or reduction of garbage (exclusive of appropriately screened dumpsters and/or recycling bins located in the rear of any building and garbage disposal in the ordinary course of business); (ii) any retail gas station; (iii) any central laundry or dry cleaning plant or laundromat; or (iv) any vehicle repair, other than truck or trailer repair in conjunction with the use of either Related Premises as a distribution facility. 12 5. Term. (a) Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term (such term, as extended or renewed in accordance with the provisions hereof, being called the "Term") commencing on the date hereof (the "Commencement Date") and ending on December 31, 2022 (the "Expiration Date"). (b) Tenant shall have the option to extend the initial twenty (20) year Term as to the entire Leased Premises or either Related Premises for up to two periods of, a first renewal term of nine years and eleven months and a second renewal term of ten (10) years (each, a "Renewal Term") beginning, respectively, on the day after the Expiration Date and the day after the date that is nine years and eleven months after the Expiration Date (each, a "Renewal Date"). Tenant shall notify Landlord in writing of its election to exercise the applicable option as to either Related Premises no later than twelve (12) months prior to the applicable Renewal Date, provided that the time within which Tenant is obligated to give notice of the exercise of its option with respect to the second Renewal Term for any applicable Related Premises shall be extended to the date which is 10 days after Fair Market Rent is determined for such Related Premises unless the delay in the determination thereof was caused by Tenant. The annual Basic Rent for the first Renewal Term shall be the amount set forth on Exhibit "D" (adjusted to reflect either Related Premises no longer included in the Leased Premises during the first Renewal Term). The annual Basic Rent for the second Renewal Term shall be the sum of the annual Fair Market Rent for each applicable Related Premises during the second Renewal Term. All of the provisions of this Lease, as the same may be amended, supplemented or modified shall apply during each Renewal Term (except that Tenant shall not have the right to any additional Renewal Terms). "Fair Market Rent" as used herein shall mean an amount of annual rent for the Related Premises for the second Renewal Term equivalent to the then-current fair market rate of annual effective net rentals received in the general market area in which the applicable Related Premises is located pursuant to an absolute net lease, for a similar lease term with respect to real property having comparable characteristics, including, but not limited to, age, location, condition and classification of the Improvements, existing parking facilities and for tenants with a financial condition similar to the then current financial condition of Tenant. The rental rate or other terms of any then existing sublease or subleases of the applicable Related Premises shall not be considered in establishing Fair Market Rent. In order to exercise its option to extend the Term for the second Renewal Term, Tenant shall first give Landlord written notice of Tenant's interest in doing so and requesting the determination of the Fair Market Rent for each applicable Related Premises for the second Renewal Term ("Tenant's Interest Notice"). Tenant's Interest Notice shall be given not earlier than eighteen (18) months prior to the Renewal Date for the second Renewal Term, and not later than fifteen (15) months prior to the Renewal Date for the second Renewal Term. The latest date upon which Tenant may give the Tenant's Interest Notice is referred to as the "Interest Deadline Date." The Fair Market Rent for the second Renewal Term shall be separately determined in accordance with the following procedure. The parties shall first attempt to agree on the Fair Market Rent for the second Renewal Term. If the parties do not agree on the Fair Market Rent within fifteen (15) days following the receipt by Landlord of Tenant's Interest Notice then, within ten (10) days after the expiration of such fifteen (15)-day period, the parties shall attempt to agree upon an appraiser. If the parties agree upon an appraiser, the appraiser so selected shall determine the Fair Market Rent within thirty (30) days after selection. If the parties fail to so agree upon the selection of one such appraiser within such 13 ten (10)-day period, then Tenant and Landlord shall each designate in a written notice to the other, within fifteen (15) Business Days from the end of such ten (10)-day period, one appraiser to determine the Fair Market Rent. In the event either party fails to so select its own appraiser, the appraiser selected by the other party shall determine Fair Market Rent. If two appraisers are so selected, each appraiser shall independently determine the Fair Market Rent for such Related Premises and complete and forward to Landlord and Tenant its separate appraisal report within thirty (30) days after the expiration of such fifteen (15)-business day period. Any appraisal report not so forwarded within such time period shall be excluded. If only one such report is timely forwarded, then the appraisal set forth therein shall be the Fair Market Rent. In the event the two reports are both timely forwarded and the lower appraisal is at least ninety percent (90%) of the higher appraisal, then the arithmetic mean of the two appraisals shall be the Fair Market Rent. In the event the lower appraisal is less than ninety percent (90%) of the higher appraisal then, within fifteen (15) business days after the end of such thirty (30)-day period, the two appraisers shall meet and select a third appraiser. In the event the two appraisers fail to so select a third appraiser, either party may obtain court appointment of such third appraiser. The third appraiser shall select one of the appraisals for each applicable Related Premises as most accurately determining Fair Market Rent for such Related Premises and promptly complete and forward its report to Landlord and Tenant. The Fair Market Rent determined in such selected appraisal shall be the Fair Market Rent for such Related Premises. All appraisers shall be members in good standing of the American Institute of Real Estate Appraisers or any organization succeeding thereto and shall have had not less than ten (10) years experience with commercial real estate of the type of such Related Premises in the location where such Related Premises is located. Tenant shall pay the fees of all appraisers. (c) If Tenant does not exercise its option pursuant to Paragraph 5(b) to have the Term extended with respect to a Related Premises, or if an Event of Default occurs, then Landlord shall have the right during the remainder of the Term then in effect and, in any event, Landlord shall have the right during the last year of the Term, to (i) advertise the availability of any of the Leased Premises, or in the event that the Term is not extended with respect to such Related Premises, for sale or reletting and to erect upon any of the Leased Premises signs (in size and content and in locations reasonably acceptable to Tenant) indicating such availability and (ii) show any of the Leased Premises, or the applicable Related Premises in the event that the Term is not extended with respect to such Related Premises, to prospective purchasers or tenants or their agents at such reasonable times as Landlord may select. 6. Basic Rent. Tenant shall pay to Landlord, as annual rent for the Leased Premises during the Term, the amounts determined in accordance with Exhibit "D" hereto ("Basic Rent"), commencing on the twentieth (20th) day of January, 2003, and continuing on the twentieth (20th) day of each April, July, October, January thereafter during the Term, provided that if the twentieth (20th) day of such month is not a Business Day, the applicable Basic Rent payment shall be due on the first Business Day following the twentieth (20th) day of such month (each such day being a "Basic Rent Payment Date"). Tenant shall pay Basic Rent for the period from the Commencement Date through January 19, 2003 on the Commencement Date. Each such rental payment shall be made in Federal Funds to Landlord, pursuant to wire transfer instructions delivered to Tenant from time to time or to such other Person, pursuant to wire transfer instructions delivered to Tenant from time to time as Landlord may direct by not less 14 than fifteen (15) days' prior written notice to Tenant (in which event Tenant shall give Landlord notice of each such payment promptly upon the making thereof). 7. Additional Rent. (a) Tenant shall pay and discharge, as additional rent (collectively, "Additional Rent"): (i) except as otherwise specifically provided herein, all reasonable costs and expenses of Tenant and Landlord which are incurred in connection or associated with (A) the ownership, use, non-use, occupancy, monitoring, possession, operation, condition, design, construction, maintenance, alteration, repair or restoration of any of the Leased Premises, except for Landlord's general overhead, (B) the performance of any of Tenant's obligations under this Lease, (C) any Condemnation proceedings, (D) the adjustment, settlement or compromise of any insurance claims involving or arising from any of the Leased Premises, (E) the prosecution, defense or settlement of any litigation involving or arising from any of the Leased Premises (unless caused by the gross negligence or willful misconduct of Landlord or its agents), this Lease, or the sale of the Leased Premises to Landlord provided, however, that in the event of any litigation involving only Landlord and Tenant, Tenant shall be responsible for such costs and expenses only if and to the extent that Tenant is not the prevailing party in such litigation, (F) the exercise or successful enforcement by Landlord, its successors and assigns, of any of its rights under this Lease, (G) any amendment to or modification or termination of this Lease made at the request of Tenant, (H) Costs of Landlord's counsel and reasonable out-of-pocket Costs of Landlord incurred in connection with the preparation, negotiation and execution of this Lease, or incurred in connection with any act undertaken by Landlord (or its counsel) at the request of Tenant, or incurred in connection with any act of Landlord performed on behalf of Tenant to the extent authorized by this Lease (I) the reasonable out-of-pocket Costs of Landlord incurred in connection with any act undertaken by Landlord at the request of Tenant or Tenant's failure to act promptly in an emergency situation, (J) all costs and fees associated with the wire transfers of Rent payments, and (K) any other items specifically required to be paid by Tenant under this Lease; (ii) after the date all or any portion of any installment of Basic Rent is due and not paid by the applicable Basic Rent Payment Date, an amount (the "Late Charge") equal to five percent (5%) of the amount of such unpaid installment or portion thereof provided, however, that with respect to the first late payment of all or any portion of any installment of Basic Rent in any Lease Year, the Late Charge shall not be due and payable unless the Basic Rent has not been paid within five (5) days' following the due date thereof; (iii) interest at the rate (the "Default Rate") of four percent (4%) over the Prime Rate per annum on the following sums until paid in full: (A) all overdue installments of Basic Rent from five (5) days' following its due date unless such overdue installments are paid in full within such five (5) day period, (B) all overdue amounts of Additional Rent relating to obligations which Landlord shall have paid on behalf of Tenant, from the date of payment thereof by Landlord, and (C) all other overdue amounts of Additional Rent, from the date when any such amount becomes overdue; 15 (b) If Landlord does not provide written notice to Tenant of the sums owing pursuant to Paragraphs 7(a)(ii) and (iii) within ninety (90) days after the date that the applicable Late Charge or default interest becomes due and owing, Tenant shall not be liable for such amounts. (c) Tenant shall pay and discharge (i) any Additional Rent referred to in Paragraph 7(a)(i) when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within ten (10) Business Days after Landlord's demand for payment thereof, and (ii) any other Additional Rent, within ten (10) Business Days after Landlord's demand for payment thereof. (d) In no event shall amounts payable under Paragraph 7(a)(ii) and (iii) exceed the maximum amount permitted by applicable Law. 8. Net Lease: Non-Terminability. (a) This is a net lease and all Monetary Obligations shall be paid without notice or demand (except as herein required) and without set-off, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense (collectively, a "Set-Off"). (b) Except as specifically provided herein, this Lease and the rights of Landlord and the obligations of Tenant hereunder shall not be affected by any event or for any reason or cause whatsoever foreseen or unforeseen. (c) The obligations of Tenant hereunder shall be separate and independent covenants and agreements, all Monetary Obligations shall continue to be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. The obligation to pay Rent or amounts equal thereto shall not be affected by any collection of rents by any governmental body pursuant to a tax lien arising out of the act or omission of Tenant, even though such obligation results in a double payment of Rent. All Rent payable by Tenant hereunder shall constitute "rent" for all purposes (including Section 502(b)(6) of the Federal Bankruptcy Code). (d) Except as otherwise expressly provided herein, Tenant shall have no right and hereby waives all rights which it may have under any Law (i) to quit, terminate or surrender this Lease or any of the Leased Premises, or (ii) to any Set-Off of any Monetary Obligations. 9. Payment of Impositions. (a) Tenant shall, before interest or penalties are due thereon, pay and discharge all taxes (including real and personal property, franchise, sales, use, gross receipts and rent taxes, transaction privilege, education or other excise taxes), all charges for any easement or agreement maintained for the benefit of any of the Leased Premises, all assessments and levies, all permit, inspection and license fees, all rents and charges for water, sewer, utility and 16 communication services relating to any of the Leased Premises, all ground rents and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii) Tenant's possessory interest in the Leased Premises, (iii) any of the Leased Premises, (iv) Landlord as a result of or arising in respect of the acquisition, ownership, occupancy, leasing, use, possession or sale to Landlord of any of the Leased Premises, any activity conducted on any of the Leased Premises, or the Rent, or (v) any Lender by reason of any Note, Mortgage, Assignment or other document evidencing or securing a Loan and which (as to this clause (v)) Landlord has agreed to pay (collectively, the "Impositions"); provided, that nothing herein shall obligate Tenant to pay (A) income, excess profits or other taxes of Landlord (or Lender) which are determined on the basis of Landlord's (or Lender's) net income or net worth (unless such taxes are in lieu of or a substitute for any other tax, assessment or other charge upon or with respect to the Leased Premises which, if it were in effect, would be payable by Tenant under the provisions hereof or by the terms of such tax, assessment or other charge), (B) any estate, inheritance, succession, gift or similar tax imposed on Landlord or (C) any capital gains tax or real property transfer or intangibles tax imposed on Landlord in connection with the sale of the Leased Premises to any Person. If any Imposition may be paid in installments without interest or penalty, Tenant shall have the option to pay such Imposition in installments; in such event, Tenant shall be liable only for those installments which accrue or become due and payable during the Term. Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions. Tenant shall deliver to Landlord (1) copies of all settlements and notices pertaining to the Impositions which may be issued by any governmental authority within ten (10) days after Tenant's receipt thereof, (2) receipts for payment of all taxes required to be paid by Tenant hereunder within thirty (30) days after the due date thereof and (3) receipts for payment of all other Impositions within ten (10) days after Landlord's request therefor. (b) Following the occurrence of an Event of Default, Tenant shall pay to Landlord such amounts (each an "Escrow Payment") monthly or quarterly, at the option of Landlord (but not more often than monthly), so that there shall be in an escrow account an amount sufficient to pay the Escrow Charges (as hereinafter defined) as they become due provided, however, that each Escrow Payment shall not be greater than one twelfth (in the case of monthly payments) or one quarter (in the case of quarterly payments) of the annual amount of the annual Escrow Charges as estimated by Landlord. As used herein, "Escrow Charges" shall mean real estate taxes and assessments on or with respect to the Leased Premises or payments in lieu thereof and premiums on any insurance required by this Lease. Landlord shall reasonably determine the amount of the Escrow Charges (it being agreed that if required by a Lender, such amount shall equal any corresponding escrow installments required to be paid by Landlord) and the amount of each Escrow Payment, taking into account any balance remaining in escrow at the beginning of each Lease Year. The Escrow Payments may not be commingled with other funds of Landlord or other Persons. Landlord shall apply the Escrow Payments to the payment of the Escrow Charges in such order or priority as they become due or as required by law. If at any time the Escrow Payments theretofore paid to Landlord shall be insufficient for the payment of the Escrow Charges, Tenant, within ten (10) Business Days after Landlord's demand therefor, shall pay the amount of the deficiency to Landlord. At the end of the Term any Escrow Payments held by Landlord or Lender which are applicable to any period after the expiration of the Term or the termination of this Lease shall be promptly refunded to Tenant. Notwithstanding anything to the contrary in this Paragraph 9(b), payment of Escrow Charges shall be required 17 only for six (6) months following the date on which the Event of Default which gave rise to the requirement to make Escrow Payments is cured, provided, however, that if a third Event of Default occurs, Landlord shall have the right to require Tenant to pay and Tenant shall pay such Escrow Charges for the balance of the Term. 10. Compliance with Laws and Easement Agreements; Environmental Matters. (a) Tenant shall, at its expense, cause the Leased Premises and any other Person occupying any part of the Leased Premises to comply with and conform to, all Insurance Requirements and Legal Requirements (including all applicable Environmental Laws). Tenant shall not at any time (i) cause, permit or suffer to occur any Environmental Violation, (ii) permit any sublessee, assignee or other Person occupying the Leased Premises under or through Tenant to cause, permit or suffer to occur any Environmental Violation and, at the request of Landlord or Lender, Tenant shall promptly remediate or undertake any other appropriate response action to correct any existing Environmental Violation, and (iii) without the prior written consent of Landlord and Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. Any and all reports prepared for or by Landlord with respect to the Leased Premises shall be for the sole benefit of Landlord and Lender and no other Person shall have the right to rely on any such reports. (b) Tenant, at its sole cost and expense, will at all times promptly and faithfully abide by, discharge and perform all of the covenants, conditions and agreements contained in any Easement Agreement on the part of Landlord or the occupier to be kept and performed thereunder. Tenant will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement unless (i) Landlord gives its written consent, (ii) such alteration, modification, amendment or termination does not reduce the value of the applicable Related Premises or impair its use, and (iii) Tenant delivers to Landlord and Lender, at Tenant's sole expense, a title endorsements satisfactory to Landlord and Lender with respect thereto. Notwithstanding the foregoing, Landlord's consent shall be deemed given if Landlord fails to object in writing (stating its reasons for objecting) to such amendment or termination within thirty (30) days after Landlord's receipt of written request for consent so long as Tenant's request for consent is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR CONSENT SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". (c) Upon prior written notice from Landlord, Tenant shall permit such persons as Landlord may designate ("Site Reviewers") to visit the Leased Premises and perform, as agents of Tenant, environmental site investigations and assessments ("Site Assessments") on the Leased Premises (i) in connection with any sale, financing or refinancing of the Leased Premises, (ii) within the six month period prior to the expiration of the Term with respect to a Related Premises, (iii) if required by Lender or the terms of any credit facility to which Landlord is bound, (iv) if an Event of Default exists, or (v) at any other time that, in the opinion of Landlord or Lender, a reasonable basis exists to believe that an Environmental Violation or any condition that could reasonably be expected to result in any Environmental Violation exists. 18 Such Site Assessments shall not include any invasive testing (i.e. testing requiring boring, digging, demolition or similar activities) unless Landlord has a reasonable belief that an Environmental Violation exists. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Leased Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting Site Assessments shall be paid by Tenant if an Environmental Violation is disclosed by such Site Assessment. In all other events, the cost of performing and reporting such Site Assessments shall be paid for by Landlord. (d) If Tenant fails to promptly commence to comply with, and thereafter diligently pursue compliance with, any requirement of any Environmental Law in connection with any Environmental Violation which occurs or is found to exist, Landlord shall have the right (but no obligation) to take any and all actions as Landlord shall deem necessary or advisable in order to cure such Environmental Violation provided that, except in the case of an emergency, Landlord shall provide Tenant at least ten (10) days written notice prior to the commencement of any such remediation by Landlord. (e) Tenant shall notify Landlord promptly after becoming aware of any Environmental Violation (or alleged Environmental Violation) or noncompliance with any of the covenants contained in this Paragraph 10 and shall forward to Landlord promptly upon receipt thereof copies of all orders, reports, notices, permits, applications or other communications relating to any such violation or noncompliance. (f) All future leases, subleases or concession agreements relating to the Leased Premises entered into by Tenant shall contain covenants of the other party thereto which are identical to the covenants contained in Paragraph 10(a). 11. Liens; Recording. (a) Subject to Paragraph 14 hereof, Tenant shall not, directly or indirectly, create or permit to be created or to remain and shall promptly discharge or remove any lien, levy or encumbrance on any of the Leased Premises or on any Rent or any other sums payable by Tenant under this Lease, other than any Mortgage or Assignment, the Permitted Encumbrances and any mortgage, lien, encumbrance or other charge created by or resulting solely from any act or omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES. TO THE EXTENT REQUIRED BY LAW, LANDLORD MAY AT ANY TIME POST ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD. (b) Tenant shall execute, deliver and record, file or register (collectively, "record") all such instruments as may be required by any present or future Law in 19 order to evidence the respective interests of Landlord and Tenant in any of the Leased Premises, and shall cause a memorandum of this Lease (or, if such a memorandum cannot be recorded, this Lease), and any supplement hereto or thereto, to be recorded in such manner and in such places as may be required by any present or future Law in order to protect the validity and priority of this Lease. 12. Maintenance and Repair. (a) Tenant shall at all times maintain each Related Premises and the Adjoining Property in as good repair and appearance as each is in on the date hereof and fit to be used for their intended use in accordance with the better of the practices generally recognized as then acceptable by other companies in its industry or observed by Tenant with respect to the other real properties owned or operated by it, and, in the case of the Fixtures, in as good mechanical condition as it was on the later of the date hereof or the date of its installation, except for ordinary wear and tear and, subject to Paragraph 17, damage by Casualty or Condemnation. Tenant shall take every other action necessary or appropriate for the preservation and safety of each Related Premises. Tenant shall promptly make all Alterations of every kind and nature, whether foreseen or unforeseen, which may be required to comply with the foregoing requirements of this Paragraph 12(a). Landlord shall not be required to make any Alteration, whether foreseen or unforeseen, or to maintain either Related Premises or Adjoining Property in any way, and Tenant hereby expressly waives any right which may be provided for in any Law now or hereafter in effect to make Alterations at the expense of Landlord or to require Landlord to make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12 shall be made in conformity with the provisions of Paragraph 13. (b) If any Improvement hereafter constructed shall (i) encroach upon any setback or any property, street or right-of-way adjoining any of the Leased Premises, (ii) violate the provisions of any restrictive covenant affecting any of the Leased Premises, (iii) hinder or obstruct any easement or right-of-way to which any of the Leased Premises is subject or (iv) impair the rights of others in, to or under any of the foregoing, Tenant shall, promptly after receiving notice or otherwise acquiring knowledge thereof, either (A) obtain from all necessary parties waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord, Tenant or both, or (B) take such action as shall be necessary to remove all such encroachments, hindrances or obstructions and to end all such violations or impairments, including, if necessary, making Alterations. 13. Alterations and Improvements. (a) Subject in each case to the requirements of Paragraph 13(b), Tenant shall have the right, without having obtained the prior written consent of Landlord or Lender and provided that no Event of Default then exists, (i) to make Pre-Approved Alterations and (ii) to install or replace Fixtures or accessions to the Fixtures. If Tenant desires to make any Major Alteration to either Related Premises the prior written approval of Landlord and Lender shall be required. Withholding of such approval shall be deemed reasonable only if the proposed Major Alteration will, in the judgment of Landlord or Lender, as applicable, in each case exercised reasonably and in good faith, fail to meet the requirements of Paragraph 13(b). Any 20 such withholding of approval shall be evidenced by notice to Tenant, given within thirty (30) days after Tenant has submitted to Landlord design drawings prepared by a licensed architect or engineer if a building permit is required, or, if no building permit is required, such other reasonably detailed description of the proposed Major Alteration, which shall be sufficient to permit Landlord and Lender to make the determination required hereby, setting forth the reason(s) for such withholding of approval. Tenant shall promptly furnish Landlord with such other information as Landlord may reasonably request during such thirty (30) day period regarding such proposed Major Alteration. In the absence of such notice by Landlord or Lender, Landlord and Lender's approval of the proposed Major Alteration shall be deemed given so long as Tenant's request for approval is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR APPROVAL SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". Upon not less than thirty (30) days prior notice (which notice shall include design drawings or other description sufficient to permit Landlord and Lender to make the determination required hereby), Tenant shall have the right to make Major Replacements unless, within said thirty (30) day period, Landlord furnishes Tenant with a notice objecting to the Major Replacement, which Landlord notice shall be accompanied by the certification of an independent architect or, if applicable, engineer that the proposed Major Replacement constitutes a material modification of the structure it is replacing (and, therefore, constitutes a Major Alteration) or such Major Replacement, if completed in the manner proposed, will be of such lesser quality or utility as to be below any reasonable standards for comparable buildings in the applicable locale. Tenant shall not construct upon the Land any additional buildings (other than storage sheds or garages not requiring foundations) or install any underground storage tanks without having first obtained the prior written consent of Landlord and Lender which as to underground storage tanks may be withheld by Landlord or Lender in their sole and absolute discretion. Upon the expiration or termination of the Term with respect to a Related Premises, Landlord shall have the right to require Tenant to remove any Alterations except for Pre-Approved Alterations which complied with Paragraph 13(b), Major Replacements, Alterations required by Law and Alterations which Landlord approved in writing, unless such approval was specifically conditioned upon removal of such Alteration. (b) If Tenant makes any Alterations pursuant to this Paragraph 13 or as required by Paragraph 12 or 17 (such Alterations and actions being hereinafter collectively referred to as "Work"), then (i) the market value and utility of the applicable Related of Premises shall not be lessened by any such Work, (ii) all such Work shall be performed by Tenant in a good and workmanlike manner, (iii) all such Work shall be expeditiously completed in compliance with all Legal Requirements, (iv) all such Work shall comply with the requirements of all insurance policies required to be maintained by Tenant hereunder, (v) if any such Work involves the replacement of Fixtures or parts thereto, all replacement Fixtures or parts shall have a value and useful life equal to (A) if the Fixtures are being replaced because they are obsolete or worn out, the value and useful life on the date hereof of the Fixtures being replaced or (B) if the Fixtures are being replaced because of damage or the occurrence of a Casualty, the value and useful life of the Fixtures being replaced immediately prior to the occurrence of the event which required its replacement (assuming such replaced Fixtures were then in the condition required by this Lease), (vi) subject to Paragraph 14, Tenant shall promptly discharge or remove all liens filed against any of the Leased Premises arising out of such Work, (vii) Tenant shall procure and pay for all permits and licenses required in connection with any such Work, (viii) all such Work 21 shall be the property of Landlord and shall be subject to this Lease, and Tenant shall execute and deliver to Landlord any document requested by Landlord evidencing the assignment to Landlord of all estate, right, title and interest (other than the leasehold estate created hereby) of Tenant or any other Person thereto or therein, (ix) if any such Alterations are Major Alterations or Major Replacements, Tenant shall provide to Landlord reasonable financial assurances of the availability of funds necessary to complete such Alterations and (x) Tenant shall comply, to the extent requested by Landlord or required by this Lease, with the provisions of Paragraphs 12(a) and 19(a), whether or not such Work involves restoration of the Leased Premises. 14. Permitted Contests. Notwithstanding any other provision of this Lease, Tenant shall not be required to (a) pay any Imposition, (b) discharge or remove any lien referred to in Paragraph 11 or 13 or (c) take any action with respect to any encroachment, violation, hindrance, obstruction or impairment referred to in Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter referred to collectively as "Permitted Violations") and may dispute or contest the same, so long as at the time of such non-compliance no Event of Default with respect to the Related Premises to which the Permitted Violation pertains, exists and so long as Tenant shall contest, in good faith, the existence, amount or validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord's liability therefor by appropriate proceedings which shall operate during the pendency thereof to prevent or stay (i) the collection of, or other realization upon, the Permitted Violation so contested, (ii) the sale, forfeiture or loss of any of the applicable Related Premises or any Rent to satisfy or to pay any damages caused by any Permitted Violation, (iii) any interference with the use or occupancy of any of the applicable Related Premises, (iv) any interference with the payment of any Rent, or (v) the cancellation or increase in the rate of any insurance policy or a statement by the carrier that coverage will be denied. Tenant shall provide Landlord security which is satisfactory, in Landlord's reasonable judgment, to assure that such Permitted Violation is corrected, including all Costs, interest and penalties that may be incurred or become due in connection therewith. While any proceedings which comply with the requirements of this Paragraph 14 are pending and the required security is held by Landlord, Landlord shall not have the right to correct any Permitted Violation thereby being contested unless Landlord is required by Law to correct such Permitted Violation and Tenant's contest does not prevent or stay such requirement as to Landlord. Each such contest shall be promptly and diligently prosecuted by Tenant to a final conclusion, except that Tenant, so long as the conditions of this Paragraph 14 are at all times complied with, has the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay any and all losses, judgments, decrees and Costs in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest and Costs thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil or criminal liability. 15. Indemnification. (a) Tenant shall pay, protect, indemnify, defend, save and hold harmless Landlord from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including reasonable attorneys' fees and costs), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, without regard 22 to the form of action and whether based on strict liability, negligence or any other theory of recovery at law or in equity (except for gross negligence or willful misconduct in connection with any act or omission by the Landlord seeking indemnification), arising from (i) any matter pertaining to the acquisition (except for any acquisition fees or similar payments to W.P. Carey & Co. LLC or any of its affiliates), ownership, leasing, use, non-use, occupancy, operation, management, condition, design, construction, maintenance, repair or restoration of any of the Leased Premises or the condition, use, repair or restoration of the Adjoining Property, (ii) any casualty in any manner arising from any of the Leased Premises or of the Adjoining Property, whether or not Landlord has or should have knowledge or notice of any defect or condition causing or contributing to said casualty, (iii) any violation by Tenant of any provision of this Lease, any contract or agreement to which Tenant is a party, any Legal Requirement or any Permitted Encumbrance or any encumbrance Tenant consented to or the Mortgage or Assignment or (iv) any alleged, threatened or actual Environmental Violation first occurring prior to the later of the termination of this Lease with respect to, or Tenant's vacation of, the applicable Related Premises, including (A) liability for response costs and for costs of removal and remedial action incurred by the United States Government, any state or local governmental unit or any other Person, or damages from injury to or destruction or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss, incurred pursuant to Section 107 of CERCLA, or any successor section or act or provision of any similar state or local Law, (B) liability for costs and expenses of abatement, correction or clean-up, fines, damages, response costs or penalties which arise from the provisions of any of the other Environmental Laws and (C) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance or for carrying on of a dangerous activity. (b) Landlord shall pay, protect, indemnify, defend, save and hold harmless Tenant from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including attorneys' fees and costs reasonably and actually incurred), causes of action, suits, claims, demands or judgments arising from the gross negligence or intentional misconduct of Landlord. (c) In case any action or proceeding is brought against Tenant or Landlord by reason of any such claim, (i) Landlord or Tenant, as the case may be, may, except in the event of a conflict of interest or a dispute between Tenant and any Landlord or during the continuance of an Event of Default, retain its own counsel and defend such action (it being understood that Landlord or Tenant, as the case may be, may employ counsel of its choice to monitor the defense of any such action, the cost of which shall be paid by the indemnifying party) and (ii) such Landlord or Tenant shall notify Landlord or Tenant, as the case may be, to resist or defend such action or proceeding by retaining counsel reasonably satisfactory to such Landlord or Tenant, as the case may be, and such Landlord or Tenant, as the case may be, will cooperate and assist in the defense of such action or proceeding if reasonably requested to do so by Tenant or Landlord, as the case may be. In the event of a conflict of interest or dispute or during the continuance of an Event of Default, Landlord shall have the right to select counsel, and the reasonable and actual cost of such counsel shall be paid by Tenant. (d) The obligations of Tenant and Landlord under this Paragraph 15 shall survive any termination, expiration or rejection in bankruptcy of this Lease. 23 THE INDEMNITY SET FORTH IN THIS SECTION 15 SHALL NOT BE IMPAIRED OR AFFECTED BY NEGLIGENCE ON THE PART OF LANDLORD OR ANYONE ACTING BEHALF OF LANDLORD. 16. Insurance. (a) Tenant shall maintain the following insurance on or in connection with the Leased Premises: (i) Insurance against risk of physical loss or damage to the Improvements and Fixtures as provided under "All Risk" coverage, and including customarily excluded perils of hail, windstorm, flood coverage (if the Leased Premises is in a flood zone), earthquake and, to the extent required by Lender, terrorism insurance in amounts not less than the actual replacement cost of the Improvements and Fixtures; provided that, if Tenant's insurance company is unable or unwilling to include any of all of such excluded perils, Tenant shall have the option of purchasing coverage against such perils from another insurer on a "Difference in Conditions" form or through a stand-alone policy. Such policies shall contain Replacement Cost and Agreed Amount Endorsements and shall contain deductibles not more than $250,000 per occurrence (except terrorism insurance at either Related Premises, which shall have a deductible of not more than two (2%) of the actual replacement value of the Improvements and Fixtures at the applicable Related Premises). If any of the Improvements constitute a legal non-conforming structure under applicable building, zoning or land use laws, such policies shall also include an ordinance or law coverage endorsement which will contain Coverage A: "Loss Due to Operation of Law" (with a minimum liability limit equal to Replacement Cost with a waiver of any co-insurance provisions or an Agreed Value Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of Construction" coverages. Notwithstanding the foregoing, terrorism insurance coverage shall not be required if it is not available at commercially reasonable rates (as determined by Landlord and Lender in their sole discretion); provided however, if a rating agency in connection with a securitization of a Loan or in connection with its rating surveillance of the certificates issued pursuant to a securitization of a Loan would not provide or maintain a rating for any portion of such Loan or such certificates which would otherwise be available but for the failure to maintain such terrorism insurance, Tenant will so maintain such terrorism insurance if obtainable from any insurer or any governmental authority with the deductibles set forth above. (ii) Commercial General Liability Insurance and Business Automobile Liability Insurance (including Non-Owned and Hired Automobile Liability) against claims for personal and bodily injury, death or property damage occurring on, in or as a result of the use of the Leased Premises, in an amount not less than $15,000,000 per occurrence/annual aggregate and all other coverage extensions that are usual and customary for properties of this size and type provided, however, that the Landlord shall have the right to require such higher limits as may be reasonable and customary for properties of this size and type. (iii) Worker's compensation insurance covering all persons employed by Tenant in connection with any work done on or about any of the Leased Premises for which claims for death, disease or bodily injury may be asserted against Landlord, Tenant or any of the Leased Premises or, in lieu of such Workers' Compensation Insurance, a program of 24 self-insurance complying with the rules, regulations and requirements of the appropriate agency of the State or States in which the Leased Premises are located. (iv) Comprehensive Boiler and Machinery Insurance on any of the Fixtures or any other equipment on or in the Leased Premises in an amount not less than $5,000,000 per accident for damage to property. Either such Boiler and Machinery policy or the All-Risk policy required in (i) above shall include Off-Premises Service Interruption with limits of $1,500,000 per occurrence for property damage, $1,500,000 per occurrence for time element; $750,000 per occurrence for expediting expense; $275,000 per occurrence for ammonia contamination; and $375,000 per occurrence for hazardous materials clean-up and with a deductible not to exceed $250,000. (v) Business Interruption Insurance at limits to cover 100% of losses and/or expenses incurred over the period of indemnity not less than twelve (12) months from time of loss. Such insurance shall name Landlord as loss payee solely with respect to Rent payable to or for the benefit of the Landlord under this Lease. (vi) During any period in which substantial Alterations at either Related Premises are being undertaken, Tenant shall cause each contractor to obtain builder's risk insurance covering in the aggregate the total completed value including any "soft costs" with respect to the Improvements being altered or repaired (on a completed value, non-reporting basis), replacement cost of work performed and equipment, supplies and materials furnished in connection with such construction or repair of Improvements or Fixtures, together with such "soft cost" endorsements and such other endorsements as Landlord may reasonably require and general liability, workers' compensation and automobile liability insurance with respect to the Improvements being constructed, altered or repaired. (vii) Such other insurance (or other terms with respect to any insurance required pursuant to this Paragraph 16, including without limitation amounts of coverage, deductibles, form of mortgagee clause) on or in connection with any of the Leased Premises as Landlord or Lender may reasonably require for properties of similar location, size, type, value and use (b) The insurance required by Paragraph 16(a) shall be written by companies which (i) have a Best's rating of A:X or above and a claims paying ability rating of AA or better by S&P or equivalent rating agency approved by Landlord and Lender in their sole discretion and (ii) are approved to write insurance policies by, the State Insurance Department for the states in which the Leased Premises are located. Notwithstanding clause "(i)" of the preceding sentence, provided that each of the following insurance carriers meet the requirements of clause "(ii)" of the preceding sentence, then, (A) the insurance required pursuant to Paragraph 16(a)(i) may be on policies written by (1) Continental Casualty Co. so long as it maintains an S&P claims paying ability rating of A- or better, (2) American Guaranty Ins. Co. so long is it maintains an S&P claims paying ability rating of A+ or better, and (3) Liberty Mutual Insurance Co. so long as it maintains an S&P claims paying ability rating of A+ or better, and (B) the insurance required pursuant to Paragraph 16(a)(iv) may be on policies written by Commonwealth Insurance Co. so long as it maintains an S&P claims paying ability rating of BBB or better, provided, however, that in the event that any of the preceding insurance carriers fails to maintain 25 its corresponding rating set forth above, then such insurance carrier shall be replaced with an insurance carrier meeting the requirements set forth in the first sentence of this Paragraph 16(b). The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. The insurance referred to in Paragraphs 16(a)(i), 16(a)(iv), 16(a)(v) and 16(a)(vi) shall name Landlord and Lender as loss payees and Tenant as its interest may appear. The insurance referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as additional insureds. If said insurance or any part thereof shall expire, be withdrawn, become void, voidable, unreliable or unsafe for any reason, including a breach of any condition thereof by Tenant or the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance satisfying the requirements of this Paragraph 16. If the availability of the types and amounts of insurance coverages required under Paragraph 16(a) shall change in the commercial insurance marketplace for properties that are of a similar size, scope, location and usage as any applicable Related Premises, at Tenant's request Landlord shall review such coverages available at the time and, if Landlord deems appropriate (in its sole and absolute discretion), adjust the types and amounts of insurance required. (c) Each insurance policy referred to in clauses (i), (iv), (v) and (vi) of Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in favor of and acceptable to Lender. Each policy required by any provision of Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be cancelled substantially modified or allowed to lapse on any renewal date except after thirty (30) days' prior notice to Landlord and Lender. Each such policy shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Leased Premises for purposes more hazardous than those permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Mortgage, Note, Assignment or other document evidencing or securing the Loan upon the happening of an event of default therein or (iv) any change in title to or ownership of any of the Leased Premises. (d) Tenant shall pay as they become due all premiums for the insurance required by Paragraph 16(a), shall renew or replace each policy and deliver to Landlord evidence of the payment of the full premium therefor or installment then due prior to the expiration date of such policy, and shall promptly deliver to Landlord all original certificates of insurance at least fifteen (15) days prior to the expiration date thereof, which certificates shall bear notations evidencing payment of applicable premiums and, if required by Lender, certified policies as soon as available. (e) Anything in this Paragraph 16 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may be carried under a "blanket" or umbrella policy or policies covering other properties or liabilities of Tenant, provided that such "blanket" or umbrella policy or policies otherwise comply with the provisions of this Paragraph 16 and provided further that Tenant shall provide to Landlord a Statement of Values which shall be reviewed annually and amended as necessary based on Replacement Cost Valuations. The original or a certified copy of each such "blanket" or umbrella policy shall promptly be delivered to Landlord. 26 (f) Tenant shall promptly comply with and conform to (i) all provisions of each insurance policy required by this Paragraph 16 and (ii) all requirements of the insurers thereunder applicable to Landlord, Tenant or any of the Leased Premises or to the use, manner of use, occupancy, possession, operation, maintenance, alteration or repair of any of the Leased Premises, even if such compliance necessitates Alterations or results in interference with the use or enjoyment of any of the Leased Premises. (g) Tenant shall not carry separate insurance concurrent in form or contributing in the event of a Casualty with that required in this Paragraph 16 unless (i) Landlord and Lender are included therein as named insureds, with loss payable as provided herein, and (ii) such separate insurance complies with the other provisions of this Paragraph 16. Tenant shall immediately notify Landlord of such separate insurance and shall deliver to Landlord the original policies or certified copies thereof. (h) All policies shall contain effective waivers by the carrier against all claims for insurance premiums against Landlord and shall contain full waivers of subrogation against the Landlord. (i) All proceeds of any insurance required under Paragraph 16(a) shall be payable as follows: (i) Proceeds payable under clauses (ii), (iii) and (iv) of Paragraph 16(a) and proceeds attributable to the general liability coverage of Builder's Risk insurance under clause (vi) of Paragraph 16(a) shall be payable to the Person entitled to receive such proceeds. (ii) Proceeds of insurance required under clause (i) of Paragraph 16(a) and proceeds attributable to Builder's Risk insurance (other than its general liability coverage provisions) under clause (vi) of Paragraph 16(a) shall be payable to Landlord or Lender and applied as set forth in Paragraph 17 or, if applicable, Paragraph 18. Tenant shall apply the Net Award to restoration of the Leased Premises in accordance with the applicable provisions of this Lease unless a Termination Event shall have occurred and Tenant has given a Termination Notice in which event the Net Award shall be retained by Landlord. 17. Casualty and Condemnation. (a) If any Casualty to either of the Related Premises occurs the insurance proceeds for which are reasonably estimated by Tenant to be equal to or in excess of the Threshold Amount, Tenant shall give Landlord and Lender immediate notice thereof. So long as (i) no Event of Default, exists, and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is hereby authorized to adjust, collect and compromise all claims under any of the insurance policies required by Paragraph 16(a) (except public liability insurance claims payable to a Person other than Tenant, Landlord or Lender) and to execute and deliver on behalf of Landlord all necessary proofs of loss, receipts, vouchers and releases required by the insurers and Landlord shall have the right to join with Tenant therein. Any final adjustment, settlement or compromise of any such claim shall be subject to the prior written approval of Landlord and Lender, and Landlord and Lender shall have the right to prosecute or contest, or to require 27 Tenant to prosecute or contest, any such claim, adjustment, settlement or compromise. If an Event of Default exists, Tenant shall not be entitled to adjust, collect or compromise any such claim or to participate with Landlord in any adjustment, collection and compromise of the Net Award payable in connection with a Casualty and, in such event, agrees to sign, upon the request of Landlord, all such accurate proofs of loss, receipts, vouchers and releases. Each insurer is hereby authorized and directed to make payment under said policies, if required by the Mortgage, to Lender instead of to Landlord and Tenant jointly. The rights of Landlord under this Paragraph 17(a) shall be extended to Lender if and to the extent that any Mortgage so provides. (b) Tenant, promptly upon receiving a Condemnation Notice, shall notify Landlord and Lender thereof. So long as (i) no Event of Default, exists and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is authorized to collect, settle and compromise the amount of any Net Award and Landlord shall have the right to join with Tenant herein. If an Event of Default exists, Landlord shall be authorized to collect, settle and compromise the amount of any Net Award and Tenant shall not be entitled to participate with Landlord in any Condemnation proceeding or negotiations under threat thereof or to contest the Condemnation or the amount of the Net Award therefor. No agreement with any condemnor in settlement or under threat of any Condemnation shall be made by Tenant without the written consent of Landlord. Subject to the provisions of this Paragraph 17(b), Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant is or may be entitled by reason of any Condemnation, whether the same shall be paid or payable for Tenant's leasehold interest hereunder or otherwise; but nothing in this Lease shall impair Tenant's right to any award or payment on account of Tenant's trade fixtures, equipment or other tangible property which is not part of the Fixtures, moving expenses or loss of business, if available, to the extent that and so long as (i) Tenant shall have the right to make, and does make, a separate claim therefor against the condemnor and (ii) such claim does not in any way reduce either the amount of the award otherwise payable to Landlord for the Condemnation of Landlord's fee interest in the applicable Related Premises or the amount of the award (if any) otherwise payable for the Condemnation of Tenant's leasehold interest hereunder. The rights of Landlord under this Paragraph 17(b) shall also be extended to Lender if and to the extent that any Mortgage so provides. (c) If any Partial Casualty (whether or not insured against) or Partial Condemnation shall occur to either Related Premises, this Lease shall continue, notwithstanding such event, and there shall be no abatement or reduction of any Monetary Obligations. Promptly after such Partial Casualty or Partial Condemnation, Tenant, as required in Paragraph 12(a), shall commence and diligently continue to restore the applicable Related Premises as nearly as possible to its value, condition and character immediately prior to such event (assuming such Related Premises to have been in the condition required by this Lease). So long as no Event of Default exists, any Net Award up to and including the Threshold Amount shall, unless such Casualty or Condemnation resulting in the Net Award is a Termination Event, be paid by Landlord to Tenant and Tenant shall restore the applicable Related Premises in accordance with the requirements of Paragraph 13(b) of this Lease. Any Net Award in excess of the Threshold Amount shall (unless such Casualty or Condemnation resulting in the Net Award is a Termination Event) be made available by Landlord (or Lender if the terms of the Mortgage so require) to Tenant for the restoration of any of the applicable Related Premises pursuant to and in accordance with and subject to the provisions of Paragraph 19 hereof. If any Casualty or 28 Condemnation which is not a Partial Casualty or Partial Condemnation shall occur, Tenant shall comply with the terms and conditions of Paragraph 18. 18. Termination Events. (a) If either (i) all of either Related Premises shall be taken by a Taking, or (ii) any substantial portion of either Related Premises shall be taken by a Taking or (iii) all or any substantial portion of either Related Premises shall be damaged or destroyed by a Casualty during the last twelve (12) months of the Term and at the time of such Casualty no Event of Default exists (any one or all of the Related Premises described in the above clauses (i) and (ii) above being hereinafter referred to as the "Affected Premises" and each of the events described in the above clauses (i), (ii) and (iii) shall hereinafter be referred to as a "Termination Event"), then (x) in the case of (i) above, Tenant shall be obligated, within thirty (30) days after Tenant receives a Condemnation Notice and (y) in the case of (ii)or (iii) above, Tenant shall have the option, within thirty (30) days after Tenant receives a Condemnation Notice or thirty (30) days after the Casualty, as the case may be, to give to Landlord written notice (a "Termination Notice") in the form described in Paragraph 18(b) of the Tenant's election to terminate this Lease as to the Affected Premises. If Tenant elects under clause (y) above not to give Landlord a Termination Notice, then Tenant shall rebuild or repair the Leased Premises in accordance with Paragraphs 17 and 19. (b) A Termination Notice shall contain notice of Tenant's intention to terminate this Lease as to the Affected Premises thirty (30) days after delivery of the Termination Notice (the "Termination Date") and any amounts prepaid by Tenant and attributable to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (c) This Lease shall terminate as to the Affected Premises on the Termination Date or, in the case of a Casualty at such later date on which, (A) Tenant has paid all insurance deductibles associated with the Net Award and (B) Landlord has received confirmation that the insurance proceeds payable pursuant to Paragraph 16(a)(i) shall be paid to Landlord in full without offset and deduction. If Tenant has not satisfied all Monetary Obligations and all other non-contingent obligations and liabilities under this Lease which have arisen as to the Affected Premises (collectively, "Remaining Obligations") on or prior to the Termination Date, then Landlord may, at its option, extend the Termination Date as to the Affected Premises to a date which is no later than thirty (30) days after the date on which Tenant has satisfied all Remaining Obligations. Upon such termination (i) all obligations of Tenant hereunder as to the Affected Premises shall terminate except for any Surviving Obligations, (ii) Tenant shall immediately vacate and shall have no further right, title or interest in or to the Affected Premises and (iii) the Net Award shall be retained by Landlord and (iv) any amounts prepaid by Tenant and attributed to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (d) In the event of the termination of this Lease as to the Affected Premises as hereinabove provided, this Lease shall remain in full force and effect as to the Remaining Premises; provided, that the Basic Rent for the Remaining Premises to be paid after such termination shall be the Basic Rent otherwise payable hereunder with respect to the Leased 29 Premises multiplied by a percentage equal to the percentage set forth on Exhibit "F" for the Remaining Premises. 19. Restoration. (a) If any Net Award is in excess of the Threshold Amount, Landlord (or Lender if required by any Mortgage) shall hold the Net Award in a fund (the "Restoration Fund") and disburse amounts from the Restoration Fund only in accordance with the following conditions: (i) prior to commencement of restoration, (A) the architects, contracts, contractors, plans and specifications and a budget, which budget may include a redevelopment fee payable to Tenant or its designee, for the restoration shall have been approved by Landlord, (B) Landlord and Lender shall be provided with mechanics' lien insurance (if available) and performance and payment bonds in customary form and amounts issued by a surety reasonably acceptable to Landlord, and name Landlord and Lender as additional dual obligees, and (C) if the Related Premises being restored is the Pennsylvania Premises, appropriate waivers of mechanics' and materialmen's liens shall have been filed; (ii) at the time of any disbursement, no Event of Default, shall exist and no mechanics' or materialmen's liens (other than those being contested in compliance with Paragraph 14) shall have been filed against the applicable Related Premises and remain undischarged; (iii) disbursements shall be made from time to time in an amount not exceeding the cost of the work completed since the last disbursement, upon receipt of (A) satisfactory evidence, including architects' certificates, of the stage of completion, the estimated total cost of completion and performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (B) waivers of liens, (C) contractors' and subcontractors' sworn statements as to completed work and the cost thereof for which payment is requested, (D) a satisfactory bringdown of title insurance and (E) other reasonable evidence of cost and payment so that Landlord and Lender can verify that the amounts disbursed from time to time are represented by work that is completed, in place and free and clear of mechanics' and materialmen's lien claims; (iv) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such work and, upon completion of the work, also stating that, to the best knowledge of such person, the work has been fully completed and complies with the applicable requirements of this Lease; (v) Landlord may retain ten percent (10%) of the Restoration Fund until the restoration is fully completed; (vi) the Restoration Fund shall not be commingled with Landlord's other funds and shall bear interest at a rate agreed to by Landlord and Tenant; and 30 (vii) such other reasonable and customary conditions as Landlord or Lender may impose. (b) Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the restoration work free and clear of all liens, as reasonably determined by Landlord, exceeds the amount of the Net Award available for such restoration, the amount of such excess shall, upon demand by Landlord, be paid by Tenant to Landlord to be added to the Restoration Fund. Any sum so added by Tenant which remains in the Restoration Fund upon completion of restoration shall be refunded to Tenant. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of restoration, the Net Award shall be deemed to be disbursed prior to any amount added by Tenant. (c) If any sum remains in the Restoration Fund after completion of the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum shall be retained by Landlord or, if required by a Note or Mortgage, paid by Landlord to a Lender. 20. Intentionally Omitted. 21. Assignment and Subletting: Prohibition against Leasehold Financing. (a) (i) Except as specifically provided in this Paragraph 21 and subject to the terms hereof, Tenant shall not assign this Lease, voluntarily or involuntarily, whether by operation of law or otherwise. Tenant shall have the right, upon thirty (30) days prior written notice to Landlord and Lender, with no consent of Landlord or Lender being required or necessary ("Preapproved Assignment") (A) to assign this Lease either in its entirety ("Complete Assignment") or (B) from time to time to cause Landlord to bifurcate this Lease into two leases ("Lease Bifurcation"), one lease for one Related Premises (the "Bifurcated Premises") to be leased to a Preapproved Assignee (as hereinafter defined) upon the terms and conditions set forth in this Lease (but shall specifically provide that it is not cross-defaulted this Lease), and one lease for the remaining Related Premises which will continue to be subject to this Lease, as amended (each, a "Bifurcated Lease"), provided that (1) the Basic Rent under each such Bifurcated Lease shall be allocated among each of the Related Premises as provided in Exhibit "F", (2) Tenant assigns its interest in this Lease with respect to the Bifurcated Premises (each such Lease Bifurcation, a "Partial Assignment") in accordance with the terms and conditions of this Paragraph 21, and (3) any such Complete Assignment or each Partial Assignment is to a Person (a "Preapproved Assignee") which meets the following applicable criteria: (x) in the case of a Complete Assignment which, as a matter of Law, results from a merger, the successor Tenant shall have, after giving effect to such merger, a net worth at least equal to Tenant's net worth immediately prior to such merger, (y) in the case of the sale of all or substantially all of the assets of Tenant, (i) the sale shall result in a Complete Assignment, and (ii) immediately after giving effect to such purchase, the assignee shall have a net worth at least equal to Tenant's net worth immediately prior to such purchase, and (z) in all other cases, immediately following such assignment the assignee will have an Investment Grade Rating. All determinations of net worth in this Paragraph 21(a)(i) shall be made in accordance with GAAP. 31 (ii) If Tenant desires to assign this Lease, whether by operation of law, through a Complete Assignment or a Partial Assignment, or otherwise, to a Person (a "Non-Preapproved Assignee") who would not be a Preapproved Assignee (a "Non-Preapproved Assignment") then Tenant shall, not less than ninety (90) days prior to the date on which it desires to make a Non-Preapproved Assignment submit to Landlord and Lender information regarding the following with respect to the Non-Preapproved Assignee (collectively, the "Review Criteria"): (A) credit, (B) capital structure, (C) management, (D) operating history, (E) proposed use of the Leased Premises and (F) risk factors associated with the proposed use of the Leased Premises by the Non-Preapproved Assignee, taking into account factors such as environmental concerns, product liability and the like. Landlord and Lender shall review such information and shall approve or disapprove the Non-Preapproved Assignee no later than the thirtieth (30th) day following receipt of all such information, and Landlord and Lender shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on their review of the Review Criteria applying prudent business judgment. If a response is not received by Tenant from Landlord and Lender by the expiration of such thirty (30) day period such Non-Preapproved Assignee shall be deemed disapproved. (iii) If Tenant assigns its rights and interest under this Lease except as expressly set forth below, the assignee under such assignment shall expressly assume all the obligations of Tenant hereunder, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such assignment, by a written instrument delivered to Landlord at the time of such assignment. With respect to each assignment, the assignee shall not be required to assume the obligations of Tenant which may have arisen on or prior to the date of such assignment with respect to the Leased Premises or the Bifurcated Premises, as applicable, if Tenant provides Landlord evidence satisfactory to Landlord in its reasonable discretion that (1) the Leased Premises or the Bifurcated Premises, as applicable, is in the physical condition required by this Lease as evidenced by report issued by an independent thirty party engineering firm reasonably acceptable to Landlord, (2) no Environmental Violation exists as evidenced by a report issued by an environmental consulting firm reasonably acceptable to Landlord, and (3) all applicable Impositions have been properly adjusted between Tenant and the assignee as of the assignment date. Upon a Complete Assignment to a Preapproved Assignee which has an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease arising after such Complete Assignment. Upon a Complete Assignment where the assignee is a Preapproved Assignee solely on the basis of clause "(y)" of Paragraph 21(a)(i), Tenant shall be relieved of all of its obligations under this Lease, whether arising before or after such Complete Assignment, provided that such Preapproved Assignee assumes all of Tenant's obligations under the Lease, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such Complete Assignment, by a written instrument delivered to Landlord at the time of such assignment. Upon a Partial Assignment of this Lease to a Preapproved Assignee which has an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease with respect to the Bifurcated Premises arising after such assignment. No assignment shall impose any additional obligations on Landlord under this Lease, and, except as expressly set forth above, no assignment shall affect or reduce any of the obligations of Tenant (including but not limited to Tenant's liability with respect to Surviving Obligations), which shall remain in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment had been made. 32 (b) (i) Tenant shall not have the right to sublet all or any portion of either Related Premises without having obtained the approval of Landlord which consent shall not be unreasonably withheld or delayed. Landlord agrees that it shall not have the right to withhold or delay its consent to any proposed subletting so long as Tenant agrees in writing at the time consent to such subletting is requested to assign to Landlord the subrents collected thereunder in accordance with the terms and provisions of Paragraph 21(e) (a "Preapproved Sublet"). (ii) With respect to any sublease of an entire Related Premises for a term of at least five (5) years or, if less, the balance of the Term minus one day which sublease requires the subtenant to pay Rent at least equal to Basic Rent and Additional Rent allocable to such Related Premises and comply with all other terms and conditions of this Lease to the extent applicable to the Related Premises (such sublease being referred to as a "Protected Sublease") and such subtenant either (A) meets the criteria of a Preapproved Assignee pursuant to Paragraph 21(a)(i) or (B) has been approved by Landlord and Lender in accordance with the procedure set forth in clause (ii) of Paragraph 21(a), (each such subtenant, a "Protected Subtenant"), so that if this Lease is terminated by reason of the occurrence of an Event of Default, Landlord will recognize such Protected Sublease as a direct lease of the Related Premises. Such recognition and agreement by Landlord to treat such sublease as a Protected Sublease, shall not be effective unless such Protected Subtenant executes and delivers to Landlord a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit "E" (modified as appropriate to govern the Landlord and such subtenant as the parties and the sublease as the protected leasehold). With respect to a proposed Protected Subtenant pursuant to clause "(B)" above, Landlord shall provide its approval or disapproval in writing within thirty (30) days of Tenant's written request and submission of all required information and any disapproval by Landlord shall state the reasons for such disapproval. (iii) Each sublease of either of the Related Premises shall (A) subject to the provisions of Paragraphs 21(b) and 32, be expressly subject and subordinate to this Lease and any Mortgage encumbering the Leased Premises; (B) not extend beyond the then current Term minus one day; (C) subject to the provisions of Paragraphs 21(b) and 32, terminate upon any termination of this Lease, unless Landlord elects in writing, to cause the sublessee to attorn to and recognize Landlord as the lessor under such sublease, whereupon such sublease shall continue as a direct lease between the sublessee and Landlord upon all the terms and conditions of such sublease; and (D) bind the sublessee to all covenants contained in Paragraphs 4(a), 10 and 12 with respect to subleased premises to the same extent as if the sublessee were the Tenant. No sublease shall affect or reduce any of the obligations of Tenant hereunder or, except as provided in Paragraph 21(b)(ii), impose any additional obligations on Landlord under this Lease. (c) Concurrently with Tenant's execution of any assignment or sublease, Tenant shall provide to Landlord a completed certification substantially in the form attached hereto as Exhibit "G", executed by the proposed assignee/sublessee and, in connection with a Preapproved Assignment or Protected Sublease, such other information reasonably required by Landlord to establish that any proposed Preapproved Assignment or Protected Sublease satisfies the criteria set forth above. 33 (d) Tenant shall, within ten (10) Business Days after the execution and delivery of any assignment or sublease, deliver a duplicate original copy thereof to Landlord which, in the event of an assignment, shall be in recordable form. (e) The provisions of this Paragraph 21(e) shall be applicable in the event of a request by Tenant for consent to a Preapproved Sublet pursuant to Paragraph 21(b) or with respect to any Protected Sublease. Tenant shall grant, convey and assign to Landlord all right, title and interest of Tenant in and to such sublease any and all extensions, modifications and renewals thereof and all rents, issues and profits therefrom which assignment shall not be subject to any assignment from Tenant to any other Person. Landlord shall grant to Tenant a license to collect and enjoy all rents and other sums of money payable under such sublease, provided, however, that during the continuance of an Event of Default, Landlord shall have the absolute right at any time upon notice to Tenant and any subtenants to revoke said license and to collect such rents and sums of money and to apply the same to Rent next due and owing. Tenant shall not consent to, cause or allow any modification or alteration of any of the terms, conditions or covenants of any Protected Subleases or the termination thereof, without the prior written approval of Landlord which consent shall not be unreasonably withheld nor shall Tenant accept any rents more than thirty (30) days in advance of the accrual thereof. (f) Tenant shall not have the power to mortgage, pledge or otherwise encumber its interest under this Lease or any sublease of either of the Related Premises, and any such mortgage, pledge or encumbrance made in violation of this Paragraph 21 shall be void and of no force and effect. (g) Landlord may sell or transfer its interest in the Leased Premises at any time without Tenant's consent to any third party (each a "Third Party Purchaser"), provided, however, Landlord shall not, without Tenant's prior written consent which consent shall not be unreasonably withheld, delayed or conditioned, sell the Leased Premises or assign its interest in this Lease to (i) to a Competitor of Tenant or (ii) a Person with which Tenant would be required to consolidate its financial statements under GAAP. In the event of any such transfer not in violation of this Paragraph 21(g), Tenant shall attorn to any Third Party Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify Tenant in writing of such transfer. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such agreements do not increase the liabilities and obligations of Tenant hereunder. 22. Events of Default. (a) The occurrence of any one or more of the following (after expiration of any applicable cure period as provided in Paragraph 22(b)) shall, at the sole option of Landlord, constitute an "Event of Default" under this Lease. (i) a failure by Tenant to make any payment of any Monetary Obligation on or prior to its due date, regardless of the reason for such failure; 34 (ii) a failure by Tenant duly to perform and observe, or a violation or breach of, any other provision hereof not otherwise specifically mentioned in this Paragraph 22(a); (iii) any representation or warranty made by Tenant herein or in any certificate, demand or request made pursuant hereto proves to be incorrect in any material adverse respect and the circumstances giving rise to such misrepresentation or breach of warranty are continuing and would reasonably be anticipated to have a material adverse effect upon Tenant's ability to perform its obligations under this Lease or upon either Related Premises, in each case with Landlord applying commercially reasonable standards; (iv) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or trustee for itself or for either of the Related Premises, (C) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (D) make a general assignment for the benefit of creditors; (v) a court shall enter an order, judgment or decree appointing, without the consent of Tenant, a receiver or trustee for it or for either of the Related Premises or approving a petition filed against Tenant which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain undischarged or unstayed ninety (90) days after it is entered; (vi) either Related Premises (A) shall have been vacated other than (1) due to a Casualty to or Condemnation of such Related Premises so long as Tenant is diligently negotiating an insurance settlement or endeavoring to restore the Related Premises or (2) as a result of Tenant having decided to cease its business operations at such location so long as Tenant is diligently seeking an assignment or sublet (which diligence shall be deemed evidenced by a listing of such Related Premises with a real estate broker or agent at market terms), or (B) shall have been abandoned; (vii) Tenant shall voluntarily liquidate or dissolve or shall begin proceedings towards its liquidation or dissolution except by filing bankruptcy proceedings; (viii) the estate or interest of Tenant in either of the Related Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated or discharged within sixty (60) days after it is made; (ix) a failure by Tenant to perform or observe, or a violation or breach of, or a misrepresentation by Tenant under any document between Tenant and Lender or from Tenant to Lender, if such failure, violation, breach or misrepresentation gives rise to a default beyond any applicable cure period with respect to any Loan; (x) a failure by Tenant to maintain in effect any material license or permit necessary for the use, occupancy or operation of either Related Premises, in each case with Landlord applying commercially reasonable standards; 35 (xi) Tenant shall in a single transaction or series of related transactions sell, convey, transfer or lease all or substantially all of its assets unless concurrently with such sale the interest of Tenant in this Lease is assigned to the purchaser, lessee or transferee of such assets who complies with the requirements of Paragraph 21 of this Lease and who shall assume in writing all of the obligations of Tenant hereunder; (xii) Tenant shall fail to deliver the Estoppel Certificate described in Paragraph 25 within the time period specified therein provided that such request for an Estoppel Certificate clearly states that the failure to provide said Estoppel Certificate will be an Event of Default under this Lease if not delivered within said time period; (xiii) Tenant shall fail to execute and deliver the subordination, non-disturbance and attornment agreement in accordance with the requirements of Paragraph 32 within fifteen (15) Business Days of written request by Landlord provided that such request clearly states that the failure to execute and deliver such agreement will be an Event of Default under this Lease if not delivered within said time period; or (xiv) An Event of Default (as that term is defined in each of the Affiliate Leases) under either of the Affiliate Leases shall occur. (b) No notice or cure period shall be required in any one or more of the following events: (A) the occurrence of an Event of Default under clause (i) (except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii) or (xiv) of Paragraph 22(a); (B) a failure to provide any insurance required by Paragraph 16 or an assignment or sublease entered into in violation of Paragraph 21; or (C) the default is such that any delay in the exercise of a remedy by Landlord could reasonably be expected to cause irreparable harm to Landlord. If the default consists of the failure to pay any Monetary Obligation under clause (i) of Paragraph 22(a), the applicable cure period shall be five (5) Business Days from the date on which notice is given, but if the default consists of the failure to pay Basic Rent, Landlord shall not be obligated to give notice of such default in more than one (1) time within any Lease Year. If the default consists of a default under clause (ii) of Paragraph 22(a), other than the events specified in clauses (B) and (C) of the first sentence of this Paragraph 22(b), the applicable cure period shall be thirty (30) days from the date on which notice is given provided Tenant has commenced to cure such default with such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same or, if the default cannot be cured within such thirty (30) day period and Tenant, in the reasonable opinion of Landlord and Lender, thereafter diligently and expeditiously proceeds to cure same (and delay in the exercise of a remedy would not, in Landlord's reasonable judgment, cause any material adverse harm to Landlord or any of the Leased Premises) the cure period shall be extended for so long as it shall require Tenant in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of one hundred and five (105) days unless (x) Landlord determines in its reasonable discretion that Tenant is diligently and expeditiously curing the applicable default and (y) the applicable default does not relate to an Environmental Violation (except for an Environmental Violation that cannot be cured within such one hundred and five (105) day period due solely to the failure of a governmental agency to approve a remediation plan or provide any permit required for Tenant to remediate in which case the one hundred and five (105) day period shall be extended, so long as Tenant is diligently and expeditiously curing 36 the applicable default, by the number of days elapsed between the date Tenant submits a remediation plan or applies for a permit to the appropriate governmental authority and the date such plan is approved or permit is issued by the appropriate governmental authority, but in no event shall such extension exceed one year from the date notice was originally given by Landlord to Tenant of such default). 23. Remedies and Damages Upon Default. (a) If an Event of Default shall have occurred and is continuing, Landlord shall have the right, at its sole option, then or at any time thereafter, to exercise its remedies and to collect damages from Tenant in accordance with this Paragraph 23, subject in all events to applicable Law, without further demand upon or notice to Tenant except as otherwise provided in Paragraph 22(b) and this Paragraph 23. (i) Landlord may give Tenant notice of Landlord's intention to terminate this Lease on a date specified in such notice. Upon such date, this Lease, the estate hereby granted and all rights of Tenant hereunder shall expire and terminate. Upon such termination, Tenant shall immediately surrender and deliver possession of the Leased Premises to Landlord in accordance with Paragraph 26. If Tenant does not so surrender and deliver possession of all of the Leased Premises, Landlord may re-enter and repossess any of the Leased Premises not surrendered, with or without legal process, by peaceably entering any of the Leased Premises and changing locks or by summary proceedings, ejectment or any other lawful means or procedure. (ii) Landlord may repossess the Leased Premises without terminating the Lease after obtaining an appropriate order from a court of competent jurisdiction, and thereafter peacefully enter the Leased Premises and changing locks or by other summary judicial proceedings. (iii) Upon or at any time after taking possession of any of the Leased Premises pursuant to Paragraph 23(a)(i) or 23(a)(ii), Landlord may, by peaceable means or legal process, remove any Persons or property therefrom. Landlord shall be under no liability for or by reason of any such entry, repossession or removal. Notwithstanding such entry or repossession, Landlord may collect the damages set forth in Paragraph 23(b)(i) and 23(b)(ii). (iv) After repossession of any of the Leased Premises pursuant to clause (i) or (ii) above, Landlord shall have the right to relet any of the Leased Premises to such tenant or tenants, for such term or terms, for such rent, on such conditions and for such uses as Landlord in its sole discretion may determine, and collect and receive any rents payable by reason of such reletting. Landlord may make such Alterations in connection with such reletting as it may deem advisable in its sole discretion. Notwithstanding any such reletting, Landlord may collect the damages set forth in Paragraph 23(b)(ii). Landlord shall consider any tenants or subtenants reasonably proposed by Tenant and prepared to lease or sublet the Leased Premises or either Related Premises on reasonable terms so as to mitigate Tenant's damages, but Landlord shall be under no obligation to accept such proposed tenants or subtenants. 37 (v) Landlord may declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for the remainder of the then current Term to be immediately due and payable. Tenant shall immediately pay to Landlord all such Basic Rent discounted to its Present Value, all accrued Rent then due and unpaid, all other Monetary Obligations which are then due and unpaid and all Monetary Obligations which arise or become due by reason of such Event of Default (including any Costs of Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and Monetary Obligations, this Lease shall remain in full force and effect and Tenant shall have the right to possession of the Leased Premises from the date of such receipt by Landlord to the end of the Term, and subject to all the provisions of this Lease, including the obligation to pay all increases in Basic Rent and all Monetary Obligations that subsequently become due, except that (A) no Basic Rent which has been prepaid hereunder shall be due thereafter during the said Term, and (B) Tenant shall have no option to extend or renew the Term. (b) The following constitute damages to which Landlord shall be entitled if Landlord exercises its remedies under Paragraph 23(a)(i), (ii) and (iii): (i) If Landlord exercises its remedy under Paragraphs 23(a)(i) or (ii) but not its remedy under Paragraph 23(a)(iv) (or attempts to exercise such remedy and is unsuccessful in reletting the Leased Premises) then, upon written demand from Landlord, Tenant shall pay to Landlord, as liquidated and agreed final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the Present Value of the excess, if any, of (A) all Basic Rent allocated for each Related Premises based on Exhibit "F" from the date of such demand to the date on which the Term is scheduled to expire hereunder in the absence of any earlier termination, re-entry or repossession over (B) the then fair market rental value of each Related Premises for the same period. Tenant shall also pay to Landlord all of Landlord's Costs in connection with the repossession of the Leased Premises and any attempted reletting thereof, including all brokerage commissions, legal expenses, reasonable attorneys' fees, employees' expenses, costs of Alterations and expenses and preparation for reletting. (ii) If Landlord exercises its remedy or remedies under Paragraphs 23(a)(i), (ii), (iii) or (iv), then Tenant shall, until the end of what would have been the Term in the absence of the termination of the Lease, and whether or not any of the Leased Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages all Monetary Obligations which would be payable under this Lease by Tenant in the absence of such termination less the net proceeds, if any, of any reletting pursuant to Paragraph 23(a)(iv), after deducting from such proceeds all of Landlord's Costs (including the items listed in the last sentence of Paragraph 23(b)(i) hereof) incurred in connection with such repossessing and reletting; provided, that if Landlord has not relet the Leased Premises, such Costs of Landlord shall be considered to be Monetary Obligations payable by Tenant. Tenant shall be and remain liable for all sums aforesaid, and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages. Nothing herein contained shall be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired by its own terms had there been no such Event of Default. 38 (c) Intentionally Omitted. (d) Notwithstanding anything to the contrary herein contained, in lieu of or in addition to any of the foregoing remedies and damages, Landlord may exercise any remedies and collect any damages available to it at law or in equity; provided, however, with respect to a Limited Remedy Default, the aggregate amount Tenant shall be required to pay to Landlord (pursuant to paragraph 23(a)(v) or otherwise) from and after the date of the occurrence of such Limited Remedy Default (the "Occurrence Date") with respect to Basic Rent, Additional Rent and indemnification obligations under Paragraph 15(a) shall be limited to the sum of (i) the present value as of the Occurrence Date, discounted at the annual rate of eleven and 15/100 percent (11.15%), of all Basic Rent reserved hereunder for the unexpired portion after the Occurrence Date) of the Term devised herein as if this Lease had not expired or been terminated, (ii) any amounts of Additional Rent which are due and payable or have accrued under this Lease through the Occurrence Date, and (iii) any amounts of Additional Rent which are due and payable or have accrued under this Lease after the Occurrence Date while the Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, after any Limited Remedy Default that relates to Impositions, insurance, utilities, repairs, maintenance, environmental maintenance, remediation and compliance and other routine and customary costs and expenses of operating and maintaining the Leased Premises or the applicable Related Premises, as applicable. Notwithstanding the foregoing, if Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, and assumes, ratifies or affirms this Lease during any pending bankruptcy or other event described in 22(a)(iv) or (v), then Tenant shall be obligated to pay all Basic Rent and Additional Rent which become due and payable under this Lease without limitation by this paragraph 23(d). Nothing contained in this paragraph 23(d) shall limit any amounts payable by Tenant with respect to Basic Rent or Additional Rent if any Event of Default that is not a Limited Remedy Default has occurred. (e) Except as specifically provided in Paragraphs 23(a)(iv), Landlord shall not be required to mitigate any of its damages hereunder unless required to by applicable Law. If any Law shall validly limit the amount of any damages provided for herein to an amount which is less than the amount agreed to herein, Landlord shall be entitled to the maximum amount available under such Law. (f) No termination of this Lease, repossession or reletting of any of the Leased Premises, exercise of any remedy or collection of any damages pursuant to this Paragraph 23 shall relieve Tenant of any Surviving Obligations. (g) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD OR TENANT HEREUNDER, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. (h) Intentionally Omitted. (i) Upon the occurrence of any Event of Default, Landlord shall have the right (but no obligation) to perform any act required of Tenant hereunder and, if performance of such act requires that Landlord enter the Leased Premises, Landlord may enter the Leased Premises for such purpose. 39 (j) No failure of Landlord (i) to insist at any time upon the strict performance of any provision of this Lease or (ii) to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof. A receipt by Landlord of any sum in satisfaction of any Monetary Obligation with knowledge of the breach of any provision hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in a writing signed by Landlord. (k) Tenant hereby waives and surrenders, for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which it or any of them may have under any present or future Law to redeem any of the Leased Premises or to have a continuance of this Lease after termination of this Lease or of Tenant's right of occupancy or possession pursuant to any court order or any provision hereof, and (ii) the benefits of any present or future Law which exempts property from liability for debt or for distress for rent. (l) Except as otherwise provided herein, all remedies are cumulative and concurrent and no remedy is exclusive of any other remedy. Each remedy may be exercised at any time an Event of Default has occurred and is continuing and may be exercised from time to time. No remedy shall be exhausted by any exercise thereof. 24. Notices. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease shall be in writing and shall be deemed to have been given and received for all purposes when delivered in person or by Federal Express or other reliable 24-hour delivery service or five (5) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at its address stated on page one of this Lease or when delivery is refused. Notices sent to Landlord shall be to the attention of Director, Asset Management, and notices sent to Tenant shall be to the attention of Chief Financial Officer. A copy of any notice given by Tenant to Landlord shall simultaneously be given by Tenant to Reed Smith LLP, One Liberty Place, Philadelphia, PA 19103, Attention: Chairman, Real Estate Department. A copy of any notice by Landlord to Tenant shall simultaneously be given by Landlord to Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., 55 East Monroe Street, Suite 3700, Chicago, Illinois 60603. For the purposes of this Paragraph, any party may substitute another address stated above (or substituted by a previous notice) for its address by giving fifteen (15) days' notice of the new address to the other party, in the manner provided above. 25. Estoppel Certificate. At any time upon not less than fifteen (15) Business Days' prior written request by either Landlord or Tenant (the "Requesting Party") to the other party (the "Responding Party"), on not more than three (3) occasions during any Lease Year, the Responding Party shall deliver to the Requesting Party a statement in writing (the "Estoppel Certificate"), executed by an authorized officer of the Responding Party, certifying (a) that, except as otherwise specified, this Lease is unmodified and in full force and effect, (b) the dates to which Basic Rent, Additional Rent and all other Monetary Obligations have been paid, (c) that, to the knowledge of the signer of such certificate and except as otherwise specified, no default by either Landlord or Tenant exists hereunder, and (d) such other matters as the Requesting Party may reasonably request. Any such statements by the Responding Party may be 40 relied upon for estoppel purposes only by the Requesting Party, any Person whom the Requesting Party notifies the Responding Party in its request for the Estoppel Certificate is an intended recipient or beneficiary of the Estoppel Certificate, any Lender or their assignees and by any prospective purchaser or mortgagee of any of the Leased Premises. Any Estoppel Certificate required under this Paragraph 25 and delivered by Tenant shall state that, in the opinion of each person signing the same, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to the subject matter of such Estoppel Certificate, and shall briefly state the nature of such examination or investigation. 26. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises or Affected Premises, is applicable, to Landlord in the same condition in which the Leased Premises or Affected Premises, if applicable, was at the commencement of this Lease, except as repaired, rebuilt, restored, altered, replaced or added to as permitted or required by any provision of this Lease, and except for ordinary wear and tear. Upon such surrender, Tenant shall (a) remove from the Leased Premises or Affected Premises, if applicable, all property which is owned by Tenant or third parties other than Landlord and (b) repair any damage caused by such removal. Property not so removed shall become the property of Landlord, and Landlord may, after five (5) Business Days' prior notice to Tenant, thereafter cause such property to be removed from the Leased Premises or Affected Premises, if applicable. The cost of removing and disposing of such property and repairing any damage to any of the Leased Premises or Affected Premises, if applicable, caused by such removal shall be paid by Tenant to Landlord upon demand. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any such property which becomes the property of Landlord pursuant to this Paragraph 26. 27. No Merger of Title. There shall be no merger of the leasehold estate created by this Lease with the fee estate in any of the Leased Premises by reason of the fact that the same Person may acquire or hold or own, directly or indirectly, (a) the leasehold estate created hereby or any part thereof or interest therein and (b) the fee estate in any of the Leased Premises or any part thereof or interest therein, unless and until all Persons having any interest in the interests described in (a) and (b) above which are sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 28. Books and Records. (a) Tenant shall keep adequate records and books of account with respect to the finances and business of Tenant generally, and with respect to the Leased Premises, which records and books with respect to the finances and business of Tenant shall be kept in accordance with generally accepted accounting principles ("GAAP") consistently applied, and shall permit Landlord and Lender by their respective agents, accountants and attorneys, upon reasonable notice to Tenant, to visit and inspect the Leased Premises and examine (and make copies of at the inspecting party's expense) the records and books of account and to discuss the finances and business with the officers of Tenant, at such reasonable times during normal business hours as may be requested by Landlord and at Landlord's expense, provided, however, that Landlord and Lender shall be limited to one personal visit per Lease Year to discuss the finances and business of Tenant with the officers of Tenant. Upon the request of Lender or 41 Landlord (either telephonically or in writing), Tenant shall provide the requesting party with copies of any information to which such party would be entitled in the course of a personal visit. (b) Tenant shall deliver to Landlord and to Lender within one hundred twenty (120) days of the close of each fiscal year, annual audited financial statements of Tenant prepared by nationally recognized independent certified public accountants. Tenant shall also furnish to Landlord within sixty (60) days after the end of each of the three remaining quarters unaudited financial statements and all other quarterly reports of Tenant, certified by Tenant's chief financial officer, and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law. All financial statements of Tenant shall be prepared in accordance with GAAP consistently applied. All annual financial statements shall be accompanied (i) by an opinion of said accountants (A) stating that such financial statements present fairly the financial position for the periods indicated, in conformity with GAAP applied on a consistent basis with prior years and (B) which shall not be qualified or limited because of a restricted or limited examination by the accountants of any material portion of Tenant's records and (ii) by a certificate of the president or a vice president of Tenant, dated within five (5) days of the delivery of such statement, stating that such officer knows of no Event of Default, or event which, upon notice or the passage of time or both, would become an Event of Default which has occurred and is continuing hereunder or, if any such event has occurred and is continuing, specifying the nature and period of existence thereof and what action Tenant has taken or proposes to take with respect thereto. 29. Intentionally Omitted. 30. Non-Recourse as to Landlord. Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease shall be limited to actual damages and shall be enforced only against Landlord's interest in the Leased Premises and not against any other assets, properties or funds of (a) Landlord, (b) any director, member, officer, general partner, limited partner, employee or agent of Landlord, or any general partner of Landlord, any of its general partners or shareholders (or any legal representative, heir, estate, successor or assign of any thereof), (c) any predecessor or successor partnership or corporation (or other entity) of Landlord, or any of its general partners, either directly or through Landlord or its general partners or any predecessor or successor partnership or corporation or their shareholders, officers, directors, employees or agents (or other entity), or (d) any other Person (including Carey Property Advisors, Carey Fiduciary Advisors, Inc., W. P. Carey & Co., LLC, Carey Management LLC, and any Person affiliated with any of the foregoing, or any director, officer, employee or agent of any thereof). 31. Financing. (a) Tenant agrees to pay all costs and expenses incurred by Landlord in connection with Landlord's purchase, leasing and initial financing of the Leased Premises including, without limitation, the cost of appraisals, environmental reports, structural reports, title insurance, surveys, legal fees and expenses, and Lender's points and commitment fee. Tenant shall not be responsible for any acquisition or similar fee payable to W.P. Carey & Co. 42 LLC or its affiliates or any costs or expenses incurred by Landlord in connection with any financing of the Leased Premises subsequent to the initial financing. (b) If Landlord desires to obtain or refinance any Loan, Tenant shall negotiate in good faith with Landlord concerning any request made by any Lender or proposed Lender for changes or modifications in this Lease. In particular, Tenant shall agree, upon request of Landlord, to supply any such Lender with such notices and information as Tenant is required to give to Landlord hereunder and to extend the rights of Landlord hereunder to any such Lender and to consent to such financing if such consent is requested by such Lender. 32. Subordination, Non-Disturbance and Attornment. This Lease and Tenant's interest hereunder shall be superior to any Mortgage, other security instrument or lien hereafter placed upon the Leased Premises by Landlord, and to any and all advances made or to be made thereunder, to the interest thereon, or any ground lease entered into by Landlord and all renewals, replacements and extensions thereof, provided that Tenant hereby agrees to subordinate this Lease to any Mortgage, ground lease or other security instrument so long as such mortgagee, holder of a security interest or ground lessor enters into an agreement with Tenant in substantially in the form of Exhibit "E", subject to any modifications reasonably required by any Lender or ground lessor, with respect to each Related Premises which do not materially affect Tenant's rights hereunder. 33. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that each shall treat this transaction as a true lease for state law purposes and shall report this transaction as a Lease for Federal income tax purposes. For Federal income tax purposes each shall report this Lease as a true lease with Landlord as the owner of the Leased Premises and Fixtures and Tenant as the lessee of such Leased Premises and Fixtures including: (i) treating Landlord as the owner of the property eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Leased Premises and Fixtures, (ii) Tenant reporting its Rent payments as rent expense under Section 162 of the Code, and (iii) Landlord reporting the Rent payments as rental income. 34. Miscellaneous. (a) The paragraph headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease. (b) As used in this Lease, the singular shall include the plural and any gender shall include all genders as the context requires and the following words and phrases shall have the following meanings: (i) "including" shall mean "including without limitation"; (ii) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty, agreement, liability, covenant and/or condition"; (v) "any of the Leased Premises" shall mean "the Leased Premises or any part thereof or interest therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or interest therein"; (vii) "any of the Improvements" shall mean "the Improvements or any part thereof or interest therein"; (viii) "any of the Fixtures" shall mean "the 43 Fixtures or any part thereof or interest therein"; (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or any part thereof"; and (x) "best of knowledge of Tenant" (or words of similar effect) shall mean to the actual knowledge of Tenant's then-current Chief Financial Officer, Treasurer, General Counsel, Associate General Counsel for Real Estate or, as to matters pertaining to either Related Premises, the Distribution Center Manager for such Related Premises. (c) Any act which Landlord is permitted to perform under this Lease may be performed at any time and from time to time by Landlord, Lender or any person or entity designated by Landlord. Except as otherwise specifically permitted herein to the contrary, Landlord and Lender shall not unreasonably withhold, condition or delay their respective consent or approval whenever such consent or approval is required under this Lease, except as otherwise provided herein. Time is of the essence with respect to the performance by Tenant and Landlord of their respective obligations under this Lease. (d) Landlord shall in no event be construed for any purpose to be a partner, joint venturer or associate of Tenant or of any subtenant, operator, concessionaire or licensee of Tenant with respect to any of the Leased Premises or otherwise in the conduct of their respective businesses. (e) This Lease and any documents which may be executed by Tenant on or about the effective date hereof at Landlord's request constitute the entire agreement between the parties and supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the Leased Premises and the transactions provided for herein. Landlord and Tenant are business entities having substantial experience with the subject matter of this Lease and have each fully participated in the negotiation and drafting of this Lease. Accordingly, this Lease shall be construed without regard to the rule that ambiguities in a document are to be construed against the drafter. (f) This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. (g) If the date for performance of any obligation of Landlord or Tenant under this Lease is not a Business Day, the date for performance of such obligation shall be the first Business Day following the date for performance of such obligation. (h) The covenants of this Lease shall run with the land and bind Tenant, Landlord, and their respective its successors and permitted assigns and all present and subsequent encumbrancers and subtenants of any of the Leased Premises, and shall inure to the benefit of Landlord, Tenant, and their respective successors and permitted assigns. (i) Notwithstanding any provision in this Lease to the contrary, all Surviving Obligations of Tenant shall survive the expiration or termination of this Lease with respect to each Related Premises for a period of ten (10) years. (j) If any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, 44 illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (k) All exhibits attached hereto are incorporated herein as if fully set forth. (l) Each of Landlord and Tenant hereby agree that the State of New York has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limiting the generality of the foregoing, matters of construction, validity and performance) this Lease and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed therein and all applicable law of the United States of America; except that, at all times, the provisions for the creation of the leasehold estate, enforcement of Landlord's rights and remedies with respect to right of re-entry and repossession, surrender, delivery, ejectment, dispossession, eviction or other in-rem proceeding or action regarding either Related Premises pursuant to Paragraph 23 hereof shall be governed by and construed according to the Laws of the State in which the applicable Related Premises is located, it being understood that, to the fullest extent permitted by law of such State, the law of the State of New York shall govern the validity and the enforceability of the Lease, and the obligations arising hereunder. To the fullest extent permitted by law, Tenant hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Lease. Any legal suit, action or proceeding against Tenant arising out of or relating to this Lease may be instituted in any federal or state court sitting in the County of New York, State of New York, and Tenant waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in such County and State, and Tenant hereby expressly and irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. Notwithstanding the foregoing, nothing herein shall prevent or prohibit Landlord from instituting any suit, action or proceeding in any other proper venue or jurisdiction in which Tenant is located or where service of process can be effectuated. (m) Landlord covenants and agrees to comply with all requirements of GAAP in effect as of the Commencement Date to the extent necessary to prevent Tenant from being required to be consolidated with Landlord for GAAP financial reporting purposes and to consider any proposed modification to this Lease (which Landlord may approve or disapprove in its sole and absolute discretion) and which is necessary to preserve such status and the treatment of the Lease as an operating lease under GAAP. From time to time, Landlord will furnish Tenant with such information regarding Landlord as Tenant may reasonably request to permit Tenant and Tenant's accountants to determine the treatment of the Lease for financial reporting purposes. (n) This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Lease. 45 IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed under seal as of the day and year first above written. LANDLORD: HAMMER (DE) LIMITED PARTNERSHIP, a Delaware limited partnership, By: HAMMER (DE) QRS 15-32, INC., its general partner By: /s/ BENJAMIN P. HARRIS --------------------------------- Name: Benjamin P. Harris Title: First Vice President ATTEST: TENANT: TRUSERV CORPORATION, a Delaware corporation By: /s/ PATRICIA C. LYDON By: /s/ BARBARA L. WAGNER --------------------------- --------------------------------------- Name: Patricia C. Lydon Name: Barbara Wagner Title: Title: Vice President and Treasurer [Corporate Seal] 46 EXHIBIT A LAND 1. Georgia Premises A tract or parcel of land lying and being in Land Lot 49 of the 12th District of Clayton County, Georgia, and being more particularly described as follows: Beginning at a 1 inch pipe found on the easterly right-of-way of Georgia State Highway 54 also known as Jonesboro Road (R/W varies), said point being 1840.8 feet southwest of the southeasterly intersection of State Highway 54 and Battlecreek Road; thence South 88 degrees 15 minutes 00 seconds East a distance of 1027.32 feet to a 1/2 inch rebar set on the westerly right-of-way of Old Morrow Road (50' R/W); thence along said right-of-way South 04 degrees 22 minutes 01 seconds East a distance of 700.15 feet to a point; thence continuing along said right-of-way on a curve to the right an arc distance of 534.21 feet (said arc being subtended by a chord of 533.62 feet, a bearing South 01 degrees 35 minutes 50 seconds West and a radius of 3304.29 feet) to a 1/2 inch rebar set, thence North 82 degrees 19 minutes 34 seconds West a distance of 1382.13 feet to a 1/2 inch rebar found on the easterly right-of-way of Georgia State Highway 54; thence along said right-of-way North 15 degrees 46 minutes 02 seconds East a distance of 1120.51 feet to said point of beginning, said tract containing 32.6348 acres as shown on plat of survey by Pearson & Associates dated September 30, 1998. Also including all that tract or parcel of land lying and being in Land Lot 49 of the 12th District of Clayton County, Georgia, and being more particularly described as follows: To find the true point of beginning commence at a 1 inch pipe found on the easterly right-of-way of Georgia State Highway 54 also known as Jonesboro Road (R/W varies); said point being 1840.8 feet southwest of the southeasterly intersection of State Highway 54 and Battlecreek Road; thence South 88 degrees 15 minutes 00 seconds East a distance of 1077.61 feet to a 1/2 inch rebar set on the easterly right-of-way of Old Morrow Road (50' R/W) to the true point of beginning; thence South 88 degrees 15 minutes 00 seconds East a distance 10.74 feet to a 1/2 inch rebar found on the westerly right-of-way of Central of Georgia Railroad (100' R/W); thence along said right-of-way South 06 degrees 20 minutes 30 seconds East a distance of 794.24 feet to a point; thence continuing along said right-of-way a curve to the right an arc distance of 327.83 feet (said arc being subtended by a chord of 327.75 feet, a bearing of South 05 degrees 08 minutes 20 seconds East and a radius of 4478.58 feet) to a point; thence continuing along said right-of-way a curve to the right an arc distance of 132.87 feet (said arc being subtended by a chord of 132.84 feet, a bearing of South 00 degrees 31 minutes 02 seconds East and a radius of 1818.62 feet) to a 1/2 inch rebar set; thence North 82 degrees 19 minutes 34 seconds West a distance of 92.11 feet to a 1/2 inch rebar set on the easterly right-of-way of Old Morrow Road; thence along said right-of-way a curve to the left an arc distance of 544.13 feet (said arc being subtended by a chord of 543.54 feet, a bearing of North 01 degrees 36 minutes 11 seconds East and a radius of 3354.23 feet) to a point; thence continuing along said right-of-way North 04 degrees 22 minutes 01 seconds West a distance of 695.37 feet to said true point of beginning; said tract containing 1.1443 acres as shown on plat of survey by Pearson & Associates dated September 30, 1998. EXHIBIT A - 1 2. Missouri Premises LOTS 1, 2, 3 and 4, HIGHWAY INDUSTRIAL PARK, a subdivision in Kansas City, Jackson County, Missouri, according to the recorded plat thereof; Less and Except the land granted to the State of Missouri, acting by and through the Missouri Highway and Transportation Commission, in the instrument filed as Document No. 1999K0028171, which purports to transfer fee simple title to the following described property: All that part of Grantor's real property and real property rights and interests located in LOT 1, HIGHWAY INDUSTRIAL PARK, a subdivision in Kansas City, Jackson County, Missouri, lying within the widths on the right or Southerly side of the following described Westbound land of the Route 150 improvement centerline, to-wit: Beginning with a width of 39 meters (127.953 feet) at Station 8+375; thence decreasing uniformly to a width of 26.6 meters (87.270 feet) at Station 8+462.703; including all rights of direct access, if any, between the highway now known as Route 150 and TruServ Corporation's land in LOT 1, HIGHWAY INDUSTRIAL PARK, a subdivision in Kansas City, Jackson County, Missouri. For reference, the Westbound lane of the Route 150 improvement centerline is located and described as follows: Commencing at the Southeast corner of Section 26, Township 47 North, Range 33 West; thence North 82 degrees 18minutes 38.81 seconds West, a distance of 243.873 meters to a point on the Route 150 Westbound centerline at Station 8+453.660; thence said centerline extends South 86degrees 17miutes 19 seconds East a distance of 9.043 meters to Station 8+462.703. And also from said Station 8+453.660, the centerline extends North 86 degrees 17 minutes 19 seconds West, a distance of 78.660 meters to Station 8+375. 2 EXHIBIT B FIXTURES All fixtures, machinery, apparatus, fittings and appliances of every kind and nature whatsoever now or hereafter affixed or attached to or installed in any of the Leased Premises (except as hereafter provided), including all electrical, anti-pollution, heating, lighting (including hanging fluorescent lighting), incinerating, power, air cooling, air conditioning, humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and ventilating systems, devices and machinery and all engines, pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil burners, boilers, doors, windows, loading platforms, lavatory facilities, stairwells, fencing (including cyclone fencing), passenger and freight elevators, overhead cranes and garage units, together with all additions thereto, substitutions therefor and replacements thereof required or permitted by this Lease, but excluding all personal property and all trade fixtures, racking, rolling stock, machinery, office, manufacturing and warehouse equipment which are not necessary to the operation of the Improvements which constitute part of the Leased Premises. EXHIBIT B - 1 EXHIBIT C PERMITTED ENCUMBRANCES MISSOURI PREMISES 1. The lien of general city, state and county taxes for the year 2002, due but not delinquent before January 1, 2003 and subsequent years, not yet due or payable. 2. Utility easement established by the recorded plat of said subdivision over the West 10 feet of the land, as shown on survey prepared by Lovelace & Associates, dated November 20, 2002, project no. 01687a (the "Survey"). 3. 25 foot planting screen to be approved by the City Plan Department on all sides of the land, as shown on the diagram of the recorded plat of said subdivision and as shown on the Survey. 4. Building setback line over the North, East and West 50 feet and over the South 70 feet of the land as established by the plat of said subdivision and as shown on the Survey. 5. Right of way granted to the gas service company, by instrument filed in Book K-253, at Page 1018. As Document No. K-115749, as shown on the Survey. 6. Easement to support embankments and sloping the sides of cuts back, as established under Ordinance No. 39632 in the grading of 149th Street Terrace. 7. Easement granted to Kansas City by the instrument filed in Book K-266, at Page 1215. As Document No. K-121609, as shown on the Survey. 8. Easement granted to gas service company by the instrument filed in Book K-464, at Page 1927. As Document No. K-205570, as shown on the Survey. 9. Sewer easement granted to Kansas City by the instrument filed in Book K-763, at Page 1159, as Document No. K-331458, as shown on the Survey. 10. Sewer easement granted to Kansas City by the instrument filed in Book K-772, at Page 1225. As Document No. K-335164, as shown on the Survey. 11. Terms and provisions of the instrument entitled "Grant of Sewer Access and Covenant Running With the Land" recorded in Book K-772, Page 1228, as Document No. K-335165. 12. Easement granted to Kansas City by the instrument filed in Book K-2507, at Page 111, as Document No. K-1120683, as shown on the Survey. 13. Easement granted to KN Interstate Gas Transmission Company, it's successors and assigns, as described in the document recorded in Document No. 97-K25358, as shown on the Survey. 14. Lack of direct access to Route 150 from the land, such right of access having been granted to the State of Missouri by the Deed recorded in Document No. 1999K 0028171. (affects lot 1). EXHIBIT C - 1 15. Matters disclosed on the survey, as follows: Overhead power lines from property adjoining to the West over and onto the subject property without any apparent easement therefor. GEORGIA PREMISES 1. The lien of general county taxes for the year 2003 and subsequent years, or taxes due for previous years due to reassessment, reappraisal and rebill, none now due or payable. 2. Easements in favor of Georgia Power company, as follows: a. Dated November 10, 1945, recorded in Deed Book 44, Page 347, Clayton County, Georgia Records. b. Dated July 26, 1971, recorded in Deed Book 616, Page 152, Clayton County, Georgia Records. c. Dated July 3, 1962, recorded in Deed Book 275, Page 596, Clayton County, Georgia Records. 3. Easements in favor of Clayton County dated March 27, 1979, recorded in Deed Book 947, Page 574, Clayton County, Georgia Records. 4. Easement in favor of Clayton County Water Authority dated July 3, 1962, recorded in Deed Book 275, Page 596, Clayton County, Georgia Records. 5. Easement in favor of Clayton County, the State of Georgia and the public generally in and to the property within the bounds of the Old Morrow Road extending and adjacent to the Central of Georgia Railroad right of way as set forth in that certain Warranty Deed dated August 4, 1959, recorded in Deed Book 199, Page 291, Clayton County, Georgia Records and the Quitclaim Deed recorded in Deed Book 199, Page 239, Clayton County, Georgia. 6. Obligations contained within that Easement and Right of Way Deed from Nalco Chemical Company, dated January 13, 1971, filed January 15, 1971, and recorded at Deed Book 593, Page 572, Clayton County, Georgia Records. 7. Matters disclosed on the Survey, as follows: A. Various utility lines and pipes over and across the subject property without any apparent easement therefor; B. Railroad spur track; C. Building encroaches 31.60' over the setback line on the east of the subject property; D. Fence at the northeast corner of subject property encroaches 0.3' into the right of way of Old Morrow Road; and E. Detention pond. 2 EXHIBIT D BASIC RENT PAYMENTS 1. Basic Rent. (a) Basic Rent payable in respect of the Term shall be payable quarterly in advance on each Basic Rent Payment Date, in equal installments as set forth below. For purposes of clarification, the first Lease Year shall include payments due on January 20, 2003, April 20, 2003, July 20, 2003, and October 20, 2003. Pro rata Basic Rent for the period from the date hereof through the nineteenth day of January 2003 shall be paid on the date hereof, and the final quarterly installment of Basic Rent shall be reduced pro rata to reflect the actual number of days remaining in the Term.
Lease Year Annual Basic Rent Quarterly Installments 1 $3,147,328.95 $786,832.24 2 $3,193,442.10 $798,360.53 3 $3,240,801.24 $810,200.31 4 $3,305,617.26 $826,404.32 5 $3,371,729.61 $842,932.40 6 $3,439,164.20 $859,791.05 7 $3,507,947.48 $876,986.87 8 $3,578,106.43 $894,526.61 9 $3,649,668.56 $912,417.14 10 $3,722,661.93 $930,665.48 11 $3,797,115.17 $949,278.79 12 $3,873,057.48 $968,264.37 13 $3,950,518.63 $987,629.66 14 $4,029,529.00 $1,007,382.25 15 $4,110,119.58 $1,027,529.89 16 $4,192,321.97 $1,048,080.49 17 $4,276,168.41 $1,069,042.10 18 $4,361,691.78 $1,090,422.94 19 $4,448,925.61 $1,112,231.40 20 $4,537,904.12 $1,134,476.03 21 $4,628,662.21 $1,157,165.55 22 $4,721,235.45 $1,180,308.86 23 $4,815,660.16 $1,203,915.04 24 $4,911,973.36 $1,227,993.34 25 $5,010,212.83 $1,252,553.21 26 $5,110,417.09 $1,277,604.27 27 $5,212,625.43 $1,303,156.36 28 $5,316,877.94 $1,329,219.48 29 $5,423,215.50 $1,355,803.87 30* $5,070,706.49 1st, 2nd, 3rd Payment $1,382,919.95 4th Payment $921,946.63 31-40 FMV
EXHIBIT D -1- EXHIBIT E FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT FORM OF --------------------------------------------- SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT --------------------------------------------- ----------------------------------------------- (Lender) (collectively, Lender) - and - ----------------- (Tenant) - and - ------------------------------- (Landlord) Dated: ___________ Location: ___________ County: ___________ PREPARED BY AND UPON RECORDATION RETURN TO: SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of __________ by and among ________________________________________________, a ____________________, each having an address at ___________________________________________________, Attention: _____________ (collectively, "Lender"), TruServ Corporation, a Delaware corporation, having an address at 8600 W. Bryn Mawr Avenue, Chicago, Illinois 60631, Attention: _____________ ("Tenant"), and ____________________, a _________________, having an address at __________________ ("Landlord"). RECITALS: A. Lender is the present owner and holder of a certain Deed of Trust and, Security Agreement (the "Security Instrument") dated as of ________________, given by Landlord to Lender which encumbers the fee simple absolute estate of Landlord in certain premises described in Exhibit A attached hereto (the "Property") and which, among other security instruments, secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated December __ 2002, given by Landlord to Lender (the "Note"). B. Tenant is the holder of a leasehold estate in the Property under and pursuant to the provisions of a certain lease dated _________________ between Landlord, as landlord, and Tenant, as tenant (as amended from time to time the "Lease"). All capitalized terms used in this Agreement and not otherwise defined herein, shall have the meanings ascribed to such terms in the Lease. C. The Lease governs the use and occupancy of the Property and the other Related Premises. Under the terms of the Lease, Tenant has the right to assign the Lease as to one or more of the Related Premises to a Preapproved Assignee, and upon such assignment Landlord is obligated to enter into a separate Lease with such Preapproved Assignee. In addition, the Lease provides that with respect to Protected Subleases, Landlord is obligated to recognize each Protected Sublease as a direct lease with Landlord in the event an Event of Default results in the termination of the Lease and no default exists under the Protected Sublease. D. On the terms and conditions hereinafter set forth, Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease, any Preapproved Assignee under a Bifurcated Lease and any subtenant under a Protected Sublease. Accordingly, references herein to Tenant are intended to refer to Tenant, any Preapproved Assignee, any Non-Preapproved which is approved by Landlord for a Complete Assignment or a Partial Assignment or any Protected Subtenant, as applicable, and references herein to the Lease are intended to refer to the Lease, any Bifurcated Lease or any Protected Sublease, as applicable. AGREEMENT: For good and valuable consideration, Tenant, Lender and Landlord agree as follows: 1. Subordination. Subject to Sections 2 and 3, the Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument, as of the date hereof, and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease. 2. Non-Disturbance. If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant's possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the Lease shall be in full force and effect and (b) Tenant shall not be in default under any terms, covenants or conditions of the Lease or of this Agreement on Tenant's part to be observed or performed. 3. Attornment. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as "Purchaser"), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a "Prior Landlord") to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser's obligations under the Lease to correct any conditions of a continuing nature that existed as of the date Purchaser shall become the owner of the Property; provided further, however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease; (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, -2- (c) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than three (3) months in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser, (d) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease, or any voluntary surrender of the premises demised under the Lease, made without Lender's prior written consent or (e) bound by any assignment of the Lease or sublease of the Property, or any portion thereof, made prior to the time Purchaser succeeded to Landlord's interest other than if pursuant to the provisions of the Lease. Alternatively, upon the written request of Lender or its successors or assigns, Tenant shall enter into a new lease of the Premises with Lender or such successor or assign, at Lender's or such successor or assign's cost and expense, for the then remaining term of the Lease, upon the same terms and conditions as contained in the Lease, except as otherwise specifically provided in this Agreement. 4. Notice to Tenant. After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall (but subject at all times to compliance with applicable law) thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments. 5. Lender's Consent; Proceeds and Awards. Tenant shall not, without obtaining the prior written consent of Lender, (a) enter into any agreement materially amending, modifying or terminating the Lease, (b) prepay any of the rents, additional rents or other sums due under the Lease for more than three (3) months in advance of the due dates thereof, (c) voluntarily surrender the premises demised under the Lease or terminate the Lease without cause or shorten the term thereof other than pursuant to the provisions of the Lease, or (d) assign the Lease or sublet the premises demised under the Lease or any part thereof other than pursuant to the provisions of the Lease; and any such amendment, modification, termination, prepayment, voluntarily surrender, assignment or subletting, without Lender's prior consent, shall not be binding upon Lender. Lender acknowledges that in the event that Lender's consent or approval is required under the terms of the Lease, Lender shall be bound by the standards and time periods set forth in the Lease for granting or withholding such consent or approval. Lender agrees that it will consider for approval, which may be withheld by Lender in its sole and absolute discretion, any amendments to the Lease proposed by Landlord and Tenant which are intended to preserve the treatment of the Lease as an operating lease under generally accepted accounting principles. Lender acknowledges that it is bound by the provisions of the Lease concerning the payment and application of insurance proceeds and condemnation awards, subject to Lender's rights under the Lease to hold and disburse such proceeds. 6. Notice to Lender and Right to Cure. Tenant shall notify Lender of any default by Landlord under the Lease as to which Tenant gives notice to Landlord and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or -3- of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and (i) in the case of any such default that can be cured by the payment of money, until forty-five (45) days shall have elapsed following the giving of such notice or (ii) in the case of any other such default, until a reasonable period for remedying such default shall have elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Instrument to remedy the same, including such time as may be necessary to acquire possession of the Property if possession is necessary to effect such cure, provided Lender, with reasonable diligence, shall (a) pursue such remedies as are available to it under the Security Instrument so as to be able to remedy the default, and (b) thereafter shall have commenced and continued to remedy such default or cause the same to be remedied. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default. 7. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Tenant: TruServ Corporation 8600 W. Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Chief Financial Officer Facsimile No. ------------------ With a copy to: Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd. 55 East Monroe Street, Suite 3700 Chicago, Illinois 60603 Attention: ------------------ Facsimile No. (312) 332-2196 If to Lender: ---------------------------- ---------------------------- ---------------------------- Attention: ------------------ With a copy to: ---------------------------- ---------------------------- ---------------------------- ---------------------------- Attention: ------------------ -4- or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 7, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the state or commonwealth where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant, Purchaser and their respective successors and assigns. 9. Governing Law. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State or Commonwealth where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State or Commonwealth where the Property is located. 10. Miscellaneous. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 11. Joint and Several Liability. If Tenant consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. 12. Definitions. The term "Lender" as used herein shall include the successors and assigns of Lender and any person, party or entity which shall become the owner of the Property by reason of a foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or otherwise. The term "Landlord" as used herein shall mean and include the present landlord under the Lease and such landlord's predecessors and successors in interest under the Lease, but shall not mean or include Lender unless and until Lender has succeeded to the interest of Landlord under the Lease. The term "Property" as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Security Instrument. The terms "Tenant" and "Lease" shall have the alternative meanings set forth in Recital D above. 13. Further Acts. Tenant will, at the cost of Tenant, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts and assurances as Lender shall, from time to time, require, for the better assuring and confirming unto Lender the property and rights hereby intended now or hereafter so to be, or for carrying out the intention or facilitating -5- the performance of the terms of this Agreement or for filing, registering or recording this Agreement, or for complying with all applicable laws. 14. Limitations on Purchaser's Liability. In no event shall the Purchaser, nor any heir, legal representative, successor, or assignee of the Purchaser have any personal liability for the obligations of Landlord under the Lease and should the Purchaser succeed to the interests of the Landlord under the Lease, Tenant shall look only to the estate and property of any such Purchaser in the Property for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Purchaser as landlord under the Lease, and no other property or assets of any Purchaser shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to the Lease; provided, however, that the Tenant may exercise any other right or remedy provided thereby or by law in the event of any failure by Landlord to perform any such obligation. 15. Estoppel Certificate. Not more than once during any 12 month period, Tenant, shall, from time to time, within fifteen (15) days after request by Lender, execute, acknowledge and deliver to Lender a statement by Tenant as required pursuant to Paragraph 25 of the Lease. 16. Recording. Either Landlord or Tenant may record this Agreement. [NO FURTHER TEXT ON THIS PAGE] -6- IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement as of the date first above written. LENDER: [LENDER], a _________________ By:_______________________________________ Name:_____________________________________ Its:______________________________________ TENANT: TRUSERV CORPORATION, a Delaware corporation By:_______________________________________ Name:_____________________________________ Its:______________________________________ LANDLORD: [LANDLORD], a _________________ By:_______________________________________ Name:_____________________________________ Its:______________________________________ -7- STATE OF___________ ) ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. _____________________________ Notary Public in and for said County and State Name:_____________________ (SEAL) STATE OF___________ ) ) ss. COUNTY OF _________ ) On _____________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ---------------------- Notary Public in and for said County and State Name:__________________ (SEAL) -8- STATE OF___________ ) ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Notary Public in and for said County and State Name:__________________ (SEAL) -9- EXHIBIT A TO SNDA LEGAL DESCRIPTION OF PROPERTY EXHIBIT F PREMISES PERCENTAGE ALLOCATION OF BASIC RENT Georgia Premises 62.43% Missouri Premises 37.57% Total: 100%
If one Related Premises ceases to be subject to this Lease, the percentage shown on this Exhibit F for the Related Premises which remains subject to this Lease shall be adjusted to equal 100%. EXHIBIT G CERTIFICATION RELATED TO THE USA PATRIOT ACT On behalf of [Insert name of subtenant/assignee] ("[Subtenant/Assignee]"), I hereby certify to the following: 1. [Subtenant/Assignee] maintains a place of business that is located at a fixed address (other than an electronic address or post office box) know as________________________. 2. [Subtenant/Assignee] is subject to the laws of the United State and has no knowledge that it is not in full compliance with laws relating to bribery, corruption, fraud, money laundering and the Foreign Corrupt Practices Act. 3. None of said Assignee/Subtenant or its, officers or directors appears on any of the following lists maintained by the United States government ("Government Lists"): a. The two lists maintained by the United States Department of Commerce (Denied Persons and Entities; the Denied Persons list can be found at www.bxa.doc.gov/DPL/Default.shtm; the Entity List can be found at www.bxa.doc.gov/Entities/Default.htm; b. The list maintained by the United States Department of Treasury (Specially Designated Nationals and Blocked Persons, which can be found at www.ustreas.gov/ofac/t11sdn.pdf); c. Two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties; the State Department List of Terrorists can be found at www.state.gov/s/ct/rls/fs/2001/6531.htm; the List of Debarred Parties can be found at www.pmdtc.org/debar059.htm); and d. Any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of Office of Foreign Assets Control, U.S. Department of the Treasury, or by any other government. 4. To the best of [Subtenant/Assignee's] knowledge, [Subtenant/Assignee] does not transact business on behalf of, or for the direct or indirect benefit of, any individual or entity named on any Government List. I, _____________________, certify that I have read and understand this Certification and that the statements made in this certification and the attached Annexes are true and correct. This Certification is made on behalf of [[Subtenant/Assignee]]. ---------------------------------- (Signature) ---------------------------------- (Title) Executed on this _____ day of ___________, 200_. EXHIBIT "H" TENANT'S POST-CLOSING OBLIGATIONS 1. Environmental Obligations (a) Tenant shall conduct the following actions at Tenant's sole cost and expense and shall provide Landlord with a written status report, on or before the 10th day of each April, July, October and January until satisfactory completion of the activities listed below. Each of the activities listed below in Paragraph 1(c) of this Exhibit "H" shall be completed no later than the first anniversary of the Commencement Date unless a shorter time period is noted below. Landlord shall, within thirty (30) days of written request of Tenant (which request shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF ENVIRONMENTAL OBLIGATIONS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), confirm that any action or actions listed in Paragraph 1(c) of this Exhibit "H" which are described in Tenant's request for confirmation have been satisfactorily completed or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the action or actions described in such request for confirmation from Tenant have been satisfactorily completed. (b) Tenant shall reimburse Landlord for all of Landlord's reasonable costs, including reasonable attorneys fees, incurred by Landlord in reviewing Tenant's progress in completing the activities listed below. Tenant's failure to timely comply with any of the obligations hereunder shall constitute an Event of Default. (c) Tenant shall comply with the following: (i) Georgia Premises A. Asbestos Containing Materials - By April 10, 2003, Tenant shall have prepared an asbestos operation and maintenance ("O&M") plan which complies with the requirements of 29 CFR Section 1910.1001 et seq. to manage the identified asbestos containing materials ("ACM"). The O&M plan shall provide that all obligations relating to the identification of ACM, notification to employees and other requirements of 29 C.F.R. Section 1910.1001 et seq. shall be undertaken by, and be the responsibility of, Tenant. A copy of the O&M plan shall be submitted to Landlord for Landlord's review and approval. (ii) Missouri Premises A. Asbestos Containing Materials - By April 10, 2003, Tenant shall have prepared an asbestos O&M plan which complies with the requirements of 29 CFR Section 1910.1001 et seq. to manage the identified ACM. The O&M plan shall provide that all obligations relating to the identification of ACM, notification to employees and other requirements of 29 C.F.R. Section 1910.1001 et seq. shall be undertaken by, and be the responsibility of, Tenant. A copy of the O&M plan shall be submitted to Landlord for Landlord's review and approval. B. On-Site Monitoring Wells - By June 30, 2003, Tenant shall have retained a qualified contractor and shall have properly closed/abandoned the four (4) monitoring wells currently located on the Missouri Premises. Within ten (10) days of completion of abandonment/closure, Tenant shall provide Landlord with adequate documentation demonstrating the proper abandonment/closure of these monitoring wells. C. Underground Storage Tank Closure Documentation - Tenant shall obtain and provide Landlord with copies of the closure documentation which was submitted to the Missouri Department of Natural Resources to document the removal of four underground storage tanks ("USTs") in June 1998. (b) The quarterly status reports and all other written reports or submissions required to be made by Tenant in accordance with the provisions of Paragraph 1 of this Exhibit "H" shall be addressed to: Donna Neiley Asset Management Department W. P. Carey & Co., Inc. 50 Rockefeller Plaza 2nd Floor New York, NY 10020 (212) 492-1100 telephone (212) 429-3022 fax dneiley@wpcarey.com with a second copy to: Louis A. Naugle, Esquire Reed Smith LLP 435 Sixth Avenue Pittsburgh, PA 15219 (412) 288-8587 telephone (412) 288-3063 fax lnaugle@reedsmith.com 2. Repair and Replacement Obligations. Except as set forth below, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord of the completion of the following repairs or replacements no later than the first anniversary of the Commencement Date, provided, however any items listed below relating to the Americans with Disability Act compliance may be satisfied by Tenant providing evidence reasonably satisfactory to Landlord that the noted repair is not required in order to comply with the Americans with Disabilities Act or any other applicable Laws provided that Tenant delivers to Landlord such evidence no later than the first anniversary of the Commencement Date. Landlord shall, within thirty (30) days of request from Tenant, confirm whether the completion evidence provided by Tenant is satisfactory with respect to each item which is described in Tenant's request for confirmation (which request from Tenant shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF REPAIRS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the actions listed in Tenant's request for confirmation have been satisfactorily completed. a) Georgia Premises: i) Stripe and install signage for six (6) handicapped accessible parking spaces, including one van accessible parking space. ii) Install ramp at main building entrance. iii) Install ADA required signage throughout the building designating the path of travel and room names, raised symbols on toilet rooms, mechanical rooms, etc. b) Missouri Premises: (i) Stripe and install signage for six (6) additional handicapped accessible parking spaces, for a total of twelve (12) handicapped spaces. EX-10.K 20 c75265exv10wk.txt LEASE AGREEMENT EXHIBIT 10-K LEASE AGREEMENT by and between BOLT (DE) LIMITED PARTNERSHIP, a Delaware limited partnership as LANDLORD and TRUSERV CORPORATION a Delaware corporation, as TENANT Premises: 1. Kingman, Arizona 2. Springfield, Oregon 3. Fogelsville, Pennsylvania Dated as of: December 26, 2002 TABLE OF CONTENTS
Page ---- 1. Demise of Premises.................................................... 1 2. Certain Definitions................................................... 1 3. Title and Condition; Single Lease Transaction......................... 10 4. Use of Leased Premises; Quiet Enjoyment............................... 12 5. Term.................................................................. 13 6. Basic Rent............................................................ 15 7. Additional Rent....................................................... 15 8. Net Lease: Non-Terminability.......................................... 16 9. Payment of Impositions................................................ 17 10. Compliance with Laws and Easement Agreements; Environmental Matters... 18 11. Liens; Recording...................................................... 20 12. Maintenance and Repair................................................ 20 13. Alterations and Improvements.......................................... 21 14. Permitted Contests.................................................... 22 15. Indemnification....................................................... 23 16. Insurance............................................................. 24 17. Casualty and Condemnation............................................. 28 18. Termination Events.................................................... 29 19. Restoration........................................................... 30 20. Intentionally Omitted................................................. 31 21. Assignment and Subletting: Prohibition against Leasehold Financing.... 31 22. Events of Default..................................................... 35 23. Remedies and Damages Upon Default..................................... 37 24. Notices............................................................... 40 25. Estoppel Certificate.................................................. 41 26. Surrender............................................................. 41 27. No Merger of Title.................................................... 42 28. Books and Records..................................................... 42 29. Intentionally Omitted................................................. 42 30. Non-Recourse as to Landlord........................................... 43 31. Financing............................................................. 43 32. Subordination, Non-Disturbance and Attornment......................... 43
-i- 33. Tax Treatment; Reporting.............................................. 43 34. Miscellaneous......................................................... 44
EXHIBITS Exhibit "A" - Land Exhibit "B" - Fixtures Exhibit "C" - Schedule of Permitted Encumbrances Exhibit "D" - Rent Schedule Exhibit "E" - Form of Subordination, Non-disturbance and Attornment Agreement Exhibit "F" - Premises Percentage Allocation of Basic Rent Exhibit "G" - Patriot's Act Certification Exhibit "H" - Post-closing Obligations -ii- LEASE AGREEMENT, made as of this 26th day of December, 2002, between BOLT (DE) LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), with an address c/o W. P. Carey & Co. LLC, 50 Rockefeller Plaza, 2nd Floor, New York, New York 10020, and TRUSERV CORPORATION, a Delaware corporation ("Tenant") with an address at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631. In consideration of the rents and provisions herein stipulated to be paid and performed, Landlord and Tenant hereby covenant and agree, with the intent to be legally bound, as follows: 1. Demise of Premises. Landlord hereby demises and lets to Tenant, and Tenant hereby takes and leases from Landlord, for the term and upon the provisions hereinafter specified, the following described property (hereinafter referred to collectively as the "Leased Premises" and individually as the "Arizona Premises", "Oregon Premises", "Pennsylvania Premises": (a) the land described in Exhibit "A" attached hereto, together with the Appurtenances (collectively, the "Land"); (b) the buildings containing approximately 1,459,793 square feet in the aggregate, structures and other improvements now or hereafter constructed on the Land (collectively, the "Improvements"); and (c) the fixtures, machinery, equipment and other property described in Exhibit "B" hereto (collectively, the "Fixtures"). 2. Certain Definitions. "Additional Rent" shall mean Additional Rent as defined in Paragraph 7. "Adjoining Property" shall mean all sidewalks, driveways, curbs, gores and vault spaces adjoining any of the Leased Premises that Landlord is required to maintain, replace and/or repair pursuant to any Legal Requirement or Permitted Encumbrance. "Affected Premises" shall mean the Affected Premises as defined in Paragraph 18. "Affiliate Leases" shall mean that certain lease agreement by and between Wrench (DE) Limited Partnership and Tenant with respect to property situate in Corsicana, Texas and Woodland, California dated as of the date of this Lease and that certain lease agreement by and between Hammer (DE) Limited Partnership and Tenant with respect to property situate in Jonesboro, Georgia and Kansas City, Missouri also dated as of the date of this Lease each as amended from time to time. "Alterations" shall mean all changes, additions, improvements or repairs to, all alterations or removals of and all substitutions or replacements for any of the Improvements or Fixtures, both interior and exterior, structural and non-structural, and ordinary and extraordinary. "Appurtenances" shall mean all tenements, hereditaments, easements, rights-of-way, rights, privileges in and to the Land, including (a) easements over other lands granted by any Easement Agreement, (b) any streets, ways, alleys, vaults, gores or strips of land adjoining the Land, and (c) all water, irrigation and drainage rights (whether riparian, appropriative or otherwise) and all electrical users' rights, in or relating to or used in connection with the Land; all shares of stock evidencing any such rights; and all fixtures and equipment used for production or distribution of water or electricity in connection with any use of the Land. "Assignment" shall mean any first priority assignment of rents and leases from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified from time to time. "Basic Rent" shall mean Basic Rent as defined in Paragraph 6. "Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as defined in Paragraph 6. "Bifurcated Lease" shall mean Bifurcated Lease as defined in Paragraph 21(a)(i). "Bifurcated Premises" shall mean Bifurcated Premises as defined in Paragraph 21(a)(i). "Business Day" shall mean any weekday, except for a national holiday or a day on which national banks are closed in either Illinois or New York. "Casualty" shall mean any damage to or destruction of or which affects the Leased Premises or Adjoining Property. "Closing Agreement" shall mean that certain Closing Agreement by and between Tenant and Landlord dated as of the date hereof. "Commencement Date" shall mean Commencement Date as defined in Paragraph 5. "Competitor" shall mean any Person whose primary business is and who receives at least 10% of its revenues from the operation of a hardware cooperative or the wholesale or retail sale or distribution of home improvement and/or hardware products. "Complete Assignment" shall mean Complete Assignment as defined in Paragraph 21(a)(i). "Condemnation" shall mean a Taking. "Condemnation Notice" shall mean notice or knowledge of the institution of or intention to institute any proceeding for Condemnation. "Control Event" shall mean the failure by Tenant to perform and observe, or a violation or breach of, Paragraphs 4(a), 4(c), 8(d), 10 (except with respect to an Environmental Violation caused by any subtenant or Person who is not controlled by or in control of or under common control with Tenant or any Environmental Violation that Tenant is diligently endeavoring to cure but fails to cure within the cure period specified in Paragraph 2 22(b)), 11, 12, 13, 14, 15, 16 (except for insurance required under Paragraph 16(a) that cannot be obtained from any insurance carrier at any cost despite Tenant's best efforts), 17, 19, 21, 24, 25, 26, 28, 31, 32, 34(l). "Costs" of a Person or associated with a specified transaction shall mean all reasonable costs and expenses incurred by such Person or associated with such transaction, including without limitation, reasonable attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title insurance premiums, mortgage commitment fees, mortgage points, recording fees and transfer taxes, as the circumstances require. "Default Rate" shall mean the Default Rate as defined in Paragraph 7(a)(iv). "Easement Agreement" shall mean any conditions, covenants, restrictions, easements, declarations, licenses and other agreements listed as Permitted Encumbrances or as may hereafter affect any Related Premises. "Environmental Law" shall mean (i) whether in effect as of the Commencement Date or thereafter enacted or promulgated, any applicable federal, state, foreign and local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, consent, court order, judgment, decree, injunction, code, requirement or agreement with any governmental entity, (x) relating to pollution (or the cleanup thereof), or the protection of air, water vapor, surface water, groundwater, drinking water supply, land (including land surface or subsurface), plant, aquatic and animal life from injury caused by a Hazardous Substance or (y) concerning exposure to, or the use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, handling, labeling, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity, in each case as amended and as now or hereafter in effect, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations or injuries or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act, the federal Clean Air Act, the federal Clean Water Act, the federal Resources Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act, the federal Occupational Safety and Health Act of 1970, the federal National Environmental Policy Act and the federal Hazardous Materials Transportation Act, each as amended and as now or hereafter in effect and any similar state or local Law. "Environmental Violation" shall mean (a) any direct or indirect discharge, disposal, spillage, emission, escape, pumping, pouring, injection, leaching, release, seepage, filtration or transporting of any Hazardous Substance at, upon, under, onto or within the Leased Premises, or from the Leased Premises to the environment, in violation of any Environmental Law or which could reasonably be anticipated to result in any liability to Landlord, Tenant or 3 Lender, any Federal, state or local government or any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (b) any deposit, storage, dumping, placement or use of any Hazardous Substance at, upon, under, within or migrating from the Leased Premises in violation of any Environmental Law which could reasonably be anticipated to result in any liability to any Federal, state or local government or to any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (c) the abandonment or discarding of any barrels, containers or other receptacles containing any Hazardous Substances in violation of any Environmental Laws, (d) any activity, occurrence or condition which could result in any liability, cost or expense to Landlord or Lender or any other owner or occupier of the Leased Premises, or which could reasonably be anticipated to result in a creation of a lien on any Related Premises as a result of any violation of any Environmental Law or (e) any violation of or noncompliance with any Environmental Law. "Escrow Charges" shall mean Escrow Charges as defined in Paragraph 9. "Escrow Payment" shall mean Escrow Payment as defined in Paragraph 9. "Fitch" shall mean Fitch, Inc. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "Environmental Violation Extension Term" shall mean Environmental Violation Extension Term as defined in Paragraph 10(e). "Estoppel Certificate" shall mean Estoppel Certificate as defined in Paragraph 25. "Event of Default" shall mean an Event of Default as defined in Paragraph 22(a). "Expiration Date" shall mean Expiration Date as defined in Paragraph 5. "Fair Market Rent" shall mean Fair Market Rent as defined in Paragraph 5(b). "Federal Funds" shall mean federal or other immediately available funds which at the time of payment are legal tender for the payment of public and private debts in the United States of America. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "GAAP" shall mean GAAP as defined in Paragraph 28. "Hazardous Activity" means any activity, process, procedure or undertaking which directly or indirectly (i) procures, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the release, seepage, spill, leak, flow, discharge or emission of any Hazardous Substance into the environment (including 4 the air, ground water, watercourses or water systems), (iii) involves the containment or storage of any Hazardous Substance; or (iv) would cause any of the Leased Premises or any portion thereof to become a hazardous waste treatment, recycling, reclamation, processing, storage or disposal facility within the meaning of any Environmental Law. "Hazardous Condition" means any condition which would support any claim or liability under any Environmental Law, including the presence of underground storage tanks. "Hazardous Substance" means (i) any substance, material, product, petroleum, petroleum product, derivative, compound or mixture, mineral (including asbestos), chemical, gas, medical waste, or other pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous or acutely hazardous to the environment or public health or safety or (ii) any substance supporting a claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. Hazardous Substances include, without limitation, any toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum or petroleum-derived substances or waste, radon, radioactive materials, asbestos, asbestos containing materials, urea formaldehyde foam insulation, lead, polychlorinated biphenyls. "Impositions" shall mean the Impositions as defined in Paragraph 9(a). "Improvements" shall mean the Improvements as defined in Paragraph 1. "Insurance Requirements" shall mean the requirements of all insurance policies maintained in accordance with this Lease. "Investment Grade Rating" means any of the following: (a) an unsecured senior debt rating of Baa2 or better from Moody's, (b) an unsecured senior debt rating of BBB or better by S&P or Fitch, or (c) if none of the Rating Agencies furnish such ratings, then a comparable rating by any rating agency reasonably acceptable to Landlord and Lender. "Land" shall mean the Land as defined in Paragraph 1. "Late Charge" shall mean Late Charge as defined in Paragraph 7(a)(ii). "Law" shall mean any constitution, statute, rule of law, code, ordinance, order, judgment, decree, injunction, rule, regulation, policy, requirement or administrative or judicial determination, even if unforeseen or extraordinary, of every duly constituted governmental authority, court or agency, now or hereafter enacted or in effect. "Lease" shall mean this Lease Agreement. "Lease Bifurcation" shall mean Lease Bifurcation as defined in Paragraph 21(a)(i). "Lease Year" shall mean, with respect to the first Lease Year, the period commencing on the Commencement Date and ending at midnight on the last day of the twelfth 5 (12th) consecutive calendar month following the month in which the Commencement Date occurred, and each succeeding twelve (12) month period during the Term, except that for the purposes of calculating Basic Rent in the thirtieth (30th) Lease Year the thirtieth (30th) Lease Year shall be eleven (11) months. "Leased Premises" shall mean the Leased Premises as defined in Paragraph 1, except for Affected Premises and Bifurcated Premises after termination of this Lease with respect thereto. "Legal Requirements" shall mean the requirements of all present and future Laws (including but not limited to Environmental Laws and Laws related to accessibility to, usability by, and discrimination against, disabled individuals) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to any of the Leased Premises or Related Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of any of the Leased Premises or Related Premises, even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Leased Premises or Related Premises or requires Tenant to carry insurance other than as required by this Lease. "Lender" shall mean any person or entity (and its respective successors and assigns) which may, on or after the date hereof, make a Loan to Landlord or be the holder of a Note secured by a Mortgage, or, if more than one Note is secured by a Mortgage, then Lender shall mean the agent or trustee for such Note holders, provided that, in each case, Landlord has identified such Lender in a written notice to Tenant together with contact information for such Lender. "Limited Remedy Default" shall mean an Event of Default specified in the following clauses of Paragraph 22(a): clause (ii) unless such default is a Control Event, clause (iii) if the misrepresentation is with respect to the last sentence of Paragraph A.2 of the Closing Agreement, the first sentence of Paragraph A.3 or the first sentence of Paragraph A.7 of the Closing Agreement, clause (iv), clause (v), clause (viii) or clause (xiv) unless such default is not a Limited Remedy Default under either of the Affiliated Leases. "Loan" shall mean any loan made by one or more Lenders to Landlord, which loan is secured by a Mortgage and an Assignment and evidenced by a Note. "Major Alteration" means any structural, or series of related Alterations, other than a Major Replacement, which will cost more than $750,000. "Major Replacement" means any structural repair or structural replacement which will cost more than $750,000. "Monetary Obligations" shall mean Rent and all other sums payable by Tenant under this Lease to Landlord or to any third party on behalf of Landlord. "Moody's" shall mean Moody's Investors Services, Inc. 6 "Mortgage" shall mean any first priority mortgage or deed of trust from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Net Award" shall mean (a) the entire award payable to Landlord or Lender by reason of a Condemnation whether pursuant to a judgment or by agreement or otherwise, or (b) the entire proceeds of any insurance required under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v) or (vi) of Paragraph 16(a), as the case may be, less any expenses incurred by Landlord and Lender in collecting such award or proceeds. "Non-Preapproved Assignee" shall mean Non-Preapproved Assignee as defined in Paragraph 21(a)(ii). "Non-Preapproved Assignment" shall mean Non-Preapproved Assignment as defined in Paragraph 21(a)(ii). "Note" shall mean any promissory note evidencing Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Partial Assignment" shall mean Partial Assignment as defined in Paragraph 21(a)(i). "Partial Casualty" shall mean any Casualty which does not constitute a Termination Event. "Partial Condemnation" shall mean any Condemnation which does not constitute a Termination Event. "Permitted Encumbrances" shall mean those covenants, restrictions, reservations, liens, conditions and easements and other encumbrances, other than any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing shall not be deemed to revive any such encumbrances that have expired or terminated or are otherwise invalid or unenforceable). "Permitted Violations" shall mean Permitted Violations as defined in Paragraph 14. "Person" shall mean an individual, partnership, association, corporation, limited liability company, governmental entity or other entity. "Pre-Approved Alteration" means (a) any non-structural Alteration, (b) regardless of cost, the installation, removal or alteration of non-loadbearing interior partition walls, exterior fences or loading docks or the installation or alteration (but not the sealing) of dock doors, and (c) any other structural Alteration which will cost $750,000 or less provided that TruServ Corporation or a Preapproved Assignee is the Tenant of the Related Premises which is the subject of the Alteration. "Preapproved Assignee" shall mean Preapproved Assignee as defined in Paragraph 21(a)(i). 7 "Preapproved Assignment" shall mean Preapproved Assignment as defined in Paragraph 21(a)(i). "Preapproved Sublet" shall mean Preapproved Sublet as defined in Paragraph 21(b). "Premises Percentage Allocation" shall mean the percentage allocated to each Related Premises in Exhibit "F" to this Lease as the same may be adjusted in accordance with the formula specified in Exhibit "F". "Present Value" of any amount shall mean such amount discounted by seven (7%) percent per annum. "Prime Rate" shall mean the interest rate per annum as published, from time to time, in The Wall Street Journal as the "Prime Rate" in its column entitled "Money Rate". The Prime Rate may not be the lowest rate of interest charged by any "large U.S. money center commercial banks" and Landlord makes no representations or warranties to that effect. In the event The Wall Street Journal ceases publication or ceases to publish the "Prime Rate" as described above, the Prime Rate shall be the average per annum discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from time to time by the United States Treasury at its most recent auction, plus three hundred (300) basis points. If no such 91-day Treasury Bills are then being issued, the Discount Rate shall be the discount rate on Treasury Bills then being issued for the period of time closest to ninety-one (91) days. "Protected Sublease" shall mean Protected Sublease as defined in Paragraph 21(b)(ii). "Protected Subtenant" shall mean Protected Subtenant as defined in Paragraph 21(b). "Rating Agency" shall mean Moody's, S&P or Fitch. "Related Premises" shall mean any one of the Arizona Premises, Oregon Premises, and Pennsylvania Premises. "Remaining Obligations" shall mean Remaining Obligations as defined in Paragraph 18(c). "Remaining Premises" shall mean the Related Premises which are not Affected Premises under Paragraph 18 or Bifurcated Premises under Paragraph 21. "Renewal Date" shall mean Renewal Date as defined in Paragraph 5. "Renewal Term" shall mean Renewal Term as defined in Paragraph 5. "Rent" shall mean, collectively, Basic Rent and Additional Rent. 8 "Requesting Party" shall mean Requesting Party as defined in Paragraph 25. "Responding Party" shall mean Responding Party as defined in Paragraph 25. "Restoration Fund" shall mean Restoration Fund as defined in Paragraph 19(a). "Review Criteria" shall mean Review Criteria as defined in Paragraph 21(a)(ii). "S&P" shall mean Standard & Poor's Corporation. "Set-Off" shall mean Set-Off as defined in Paragraph 5. "Site Assessment" shall mean a Site Assessment as defined in Paragraph 10(c). "Surviving Obligations" shall mean any obligations of Tenant under this Lease, actual or contingent, which arise on or prior to the expiration or prior termination of this Lease or which survive such expiration or termination by their own terms. "Taking" shall mean (a) any taking or damaging of all or a portion of any of the Leased Premises (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special, or (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding, or (iii) by any other means, or (b) any de facto condemnation. The Taking shall be considered to have taken place as of the later of the date actual physical possession is taken by the condemnor. "Term" shall mean Term as defined in Paragraph 5. "Termination Date" shall mean Termination Date as defined in Paragraph 18. "Termination Event" shall mean Termination Event as defined in Paragraph 18. "Termination Notice" shall mean Termination Notice as defined in Paragraph 18(a). "Third Party Purchaser" shall mean Third Party Purchaser as defined in Paragraph 21 (g). "Threshold Amount" shall mean (i) $500,000 if TruServ Corporation or a Preapproved Assignee is the Tenant and, (ii) in all other instances, $100,000. "Warranties" shall mean Warranties as defined in Paragraph 3(d). 9 "Work" shall mean Work as defined in Paragraph 13(b). 3. Title and Condition; Single Lease Transaction. (a) The Leased Premises are demised and let subject to (i) the Mortgage and Assignment presently in effect, (ii) the rights of any Persons in possession of the Leased Premises, (iii) the existing state of title of any of the Leased Premises, including any Permitted Encumbrances, (iv) any state of facts which an accurate survey or physical inspection of the Leased Premises might show, (v) all Legal Requirements, including any existing violation of any thereof, and (vi) the condition of the Leased Premises as of the commencement of the Term, without representation or warranty by Landlord. (b) Tenant acknowledges that the Leased Premises are in good condition and repair at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS WHERE IS AND WITH ALL FAULTS. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY (xiv) OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, OR (xvi) COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE. (c) Tenant represents to Landlord that Tenant has examined the title to the Leased Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for the purposes contemplated hereby. Tenant acknowledges that (i) Tenant has only a leasehold estate in the Leased Premises, as provided herein, and (ii) to the best of Tenant's 10 knowledge, (A) except as set forth in the property condition reports, environmental reports, zoning reports or any other reports delivered to Landlord, the Improvements conform to all material Legal Requirements and all Insurance Requirements, (B) all easements necessary or appropriate for the use or operation of the Leased Premises have been obtained, (C) all contractors and subcontractors who have performed work on or supplied materials to the Leased Premises have been fully paid, and all materials and supplies have been fully paid for, (D) the Improvements have been completed in all material respects in a workmanlike manner of quality consistent with industry standards, and (E) all Fixtures necessary or appropriate for the use or operation of the Leased Premises have been installed and are presently operative in all material respects. (d) Landlord hereby assigns to Tenant, without recourse or warranty whatsoever, all assignable warranties, guaranties, indemnities and similar rights (collectively "Warranties") which Landlord may have against any manufacturer, seller (other than Tenant), engineer, contractor or builder in respect of any of the Leased Premises. Such assignment shall remain in effect until the expiration or earlier termination of this Lease, whereupon such assignment shall cease and all of the Warranties shall automatically revert to Landlord. In confirmation of such reversion Tenant shall execute and deliver promptly any certificate or other document reasonably required by Landlord. Landlord shall also retain the right to enforce any guaranties upon the occurrence of an Event of Default. Tenant shall enforce all Warranties in accordance with their respective terms. (e) TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS THE EXPRESS INTENT OF LANDLORD AND TENANT TO CREATE, AND THAT THIS LEASE CONSTITUTES A SINGLE LEASE WITH RESPECT TO EACH AND EVERY PARCEL OF LAND, IMPROVEMENTS AND FIXTURES INCLUDED IN EACH AND ALL OF THE RELATED PREMISES (WHEREVER LOCATED) AND, EXCEPT AS EXPRESSLY SET FORTH HEREIN, THIS LEASE SHALL NOT BE (OR BE DEEMED TO BE) DIVISIBLE OR SEVERABLE INTO SEPARATE LEASES FOR ANY PURPOSE WHATSOEVER, AND TENANT, ON BEHALF OF ITSELF AND ANY TRUSTEE OR LEGAL REPRESENTATIVE UNDER THE FEDERAL BANKRUPTCY CODE OR ANY SIMILAR STATE INSOLVENCY PROCEEDING HEREBY, WAIVES ANY RIGHT TO CLAIM OR ASSERT A CONTRARY POSITION IN ANY ACTION OR PROCEEDING; IT BEING FURTHER UNDERSTOOD AND AGREED BY TENANT THAT THE PERCENTAGE ALLOCATION OF BASIC RENT AS SET FORTH ON EXHIBIT "F" HEREOF IS INCLUDED TO PROVIDE A FORMULA FOR RENT ADJUSTMENT, AND TO FACILITATE THE RIGHTS OF TENANT, EACH PREAPPROVED ASSIGNEE AND EACH PROTECTED SUBTENANT IN THE CASES OF ASSIGNMENT AND SUBLETTING, PARTIAL RENEWAL, CASUALTY, CONDEMNATION OR OTHER PROVISIONS WITH RESPECT TO AFFECTED PREMISES, BIFURCATED PREMISES, PROTECTED SUBLEASES AND LEASE TERMINATION UNDER CERTAIN CIRCUMSTANCES. ANY EVENT OF DEFAULT SHALL BE DEEMED TO BE AN EVENT OF DEFAULT WITH RESPECT TO THE ENTIRE LEASED PREMISES (WHEREVER LOCATED). THE FOREGOING AGREEMENTS AND WAIVERS BY TENANT IN THIS PARAGRAPH 3(E) ARE MADE AS A MATERIAL INDUCEMENT TO LANDLORD TO ENTER INTO THE TRANSACTION CONTEMPLATED BY THIS LEASE AND THAT, BUT FOR THE 11 FOREGOING AGREEMENTS AND WAIVERS BY TENANT, LANDLORD WOULD NOT CONSUMMATE THIS LEASE TRANSACTION. 4. Use of Leased Premises; Quiet Enjoyment. (a) The Leased Premises may be used and occupied for any lawful purpose subject to the terms and conditions of this Paragraph 4. No Related Premises shall be used or occupied, nor shall Tenant or any assignee or subtenant do or permit anything to be done in or on any Related Premises leased by such Person in a manner which would (i) violate any Law, Legal Requirement or Permitted Encumbrance, the violation of which could reasonably be anticipated to adversely affect the ability to use, maintain or occupy the applicable Related Premises, (ii) take any action that would invalidate any insurance policy required under Paragraph 16, (iii) constitute waste of any Related Premises or in any way materially increases the risk of fire or other hazard arising out of the operation of any Related Premises relative to the risks arising from the use of the applicable Related Premises as the date hereof or impair the value of any Related Premises in any material respect, (iv) materially increase the risk of environmental damage, an Environmental Violation or danger to human health or the environment relative to the risk arising from the use of the applicable Leased Premises as of the date hereof, or (v) materially increase the wear and tear to the applicable Related Leased Premises relative to the wear and tear arising from the use of the applicable Related Premises as of the date hereof. (b) Subject to the provisions hereof, so long as no Event of Default has occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the Leased Premises throughout the Term, without any hindrance, ejection or molestation by Landlord with respect to matters that arise after the date hereof, provided that Landlord or its agents may after reasonable notice to Tenant, and, except as provided in Paragraph 10, at Landlord's sole expense unless an Event of Default exists, but in any event not less than (2) Business Days notice (except in the case of any emergency, in which event only advance telephonic notice shall be required) enter upon and examine any of the Leased Premises at such reasonable times during normal business hours as Landlord may request (but not more often than twice each Lease Year or at any time during the existence of an Event of Default) for the purpose of inspecting the Leased Premises, verifying compliance or non-compliance by Tenant with its obligations hereunder and the existence or non-existence of an Event of Default or event which with the passage of time and/or notice would constitute an Event of Default, subject to such reasonable restrictions as Tenant may impose, showing the Leased Premises (or the applicable Related Premises) to prospective Lenders and purchasers and taking such other action with respect to the Leased Premises as is permitted by any provision hereof. (c) In no event shall any portion of the Leased Premises be used or occupied or permitted to be used or occupied for any of the following purposes: (i) any dumping, disposing, incineration or reduction of garbage (exclusive of appropriately screened dumpsters and/or recycling bins located in the rear of any building and garbage disposal in the ordinary course of business); (ii) any retail gas station; (iii) any central laundry or dry cleaning plant or laundromat; or (iv) any vehicle repair, other than truck or trailer repair in conjunction with the use of any Related Premises as a distribution facility. 12 5. Term. (a) Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term (such term, as extended or renewed in accordance with the provisions hereof, being called the "Term") commencing on the date hereof (the "Commencement Date") and ending on December 31, 2022 (the "Expiration Date"). (b) Tenant shall have the option to extend the initial twenty (20) year Term as to the entire Leased Premises or as to one or more of the Related Premises for up to two periods of, a first renewal term of nine years and eleven months and a second renewal term of ten (10) years (each, a "Renewal Term") beginning, respectively, on the day after the Expiration Date and the day after the date that is nine years and eleven months after the Expiration Date (each, a "Renewal Date"). Tenant shall notify Landlord in writing of its election to exercise the applicable option as to one or more of the Related Premises no later than twelve (12) months prior to the applicable Renewal Date, provided that the time within which Tenant is obligated to give notice of the exercise of its option with respect to the second Renewal Term for any applicable Related Premises shall be extended to the date which is 10 days after Fair Market Rent is determined for such Related Premises unless the delay in the determination thereof was caused by Tenant. The annual Basic Rent for the first six Lease Years of the first Renewal Term shall be the amount set forth on Exhibit "D" (adjusted to reflect any Related Premises no longer included in the Leased Premises during the first Renewal Term). The annual Basic Rent for the last four Lease Years of the first Renewal Term shall be the greater of (i) the amount set forth on Exhibit "D" (adjusted to reflect any Related Premises no longer included in the Leased Premises during the first Renewal Term) and (ii) the sum of the Fair Market Rent for each applicable Related Premises. The annual Basic Rent for the second Renewal Term shall be the sum of the annual Fair Market Rent for each applicable Related Premises during the second Renewal Term. In the event that the Fair Market Rent has not been determined in accordance with the terms of this Paragraph 5 prior to the commencement of the seventh Lease Year of the first Renewal Term, Tenant shall pay as Basic Rent the applicable amount set forth on Exhibit "D" until the Fair Market Rent is determined and upon such determination, any overpayment or underpayment, as the case may be, shall be promptly refunded to Landlord or Tenant, as the case may be. Six months prior to the commencement of the seventh Lease Year, Landlord and Tenant shall commence the procedure described below for the determination of Fair Market Rent. All of the provisions of this Lease, as the same may be amended, supplemented or modified shall apply during each Renewal Term (except that Tenant shall not have the right to any additional Renewal Terms). "Fair Market Rent" as used herein shall mean an amount of annual rent for the Related Premises for the last four Lease Years of the first Renewal Term and the second Renewal Term equivalent to the then-current fair market rate of annual effective net rentals received in the general market area in which the applicable Related Premises is located pursuant to an absolute net lease, for a similar lease term with respect to real property having comparable characteristics, including, but not limited to, age, location, condition and classification of the Improvements, existing parking facilities and for tenants with a financial condition similar to the then current financial condition of Tenant. The rental rate or other terms of any then existing sublease or subleases of the applicable Related Premises shall not be considered in establishing Fair Market Rent. In order to exercise its option to extend the Term for the second Renewal Term, Tenant shall first give Landlord written notice of Tenant's interest in doing so and requesting the determination of the Fair Market Rent for each applicable Related Premises for the second 13 Renewal Term ("Tenant's Interest Notice"). Tenant's Interest Notice shall be given not earlier than eighteen (18) months prior to the Renewal Date for the second Renewal Term, and not later than fifteen (15) months prior to the Renewal Date for the second Renewal Term. The latest date upon which Tenant may give the Tenant's Interest Notice is referred to as the "Interest Deadline Date." The Fair Market Rent for each applicable Related Premises for the last four years of the first Renewal Term and for the entire second Renewal Term shall be separately determined in accordance with the following procedure. The parties shall first attempt to agree on the Fair Market Rent for the last four Lease Years of the first Renewal Term or entire second Renewal Term, as the case may be. If the parties do not agree on the Fair Market Rent within fifteen (15) days following the receipt by Landlord of Tenant's Interest Notice or within fifteen (15) days of either party determining that the parties are unable to agree on Fair Market Rent with respect to the last four Lease Years of the first Renewal Term, as applicable, then, within ten (10) days after the expiration of such fifteen (15)-day period, the parties shall attempt to agree upon an appraiser. If the parties agree upon an appraiser, the appraiser so selected shall determine the Fair Market Rent within thirty (30) days after selection. If the parties fail to so agree upon the selection of one such appraiser within such ten (10)-day period, then Tenant and Landlord shall each designate in a written notice to the other, within fifteen (15) Business Days from the end of such ten (10)-day period, one appraiser to determine the Fair Market Rent. In the event either party fails to so select its own appraiser, the appraiser selected by the other party shall determine Fair Market Rent. If two appraisers are so selected, each appraiser shall independently determine the Fair Market Rent for such Related Premises and complete and forward to Landlord and Tenant its separate appraisal report within thirty (30) days after the expiration of such fifteen (15)-business day period. Any appraisal report not so forwarded within such time period shall be excluded. If only one such report is timely forwarded, then the appraisal set forth therein shall be the Fair Market Rent. In the event the two reports are both timely forwarded and the lower appraisal is at least ninety percent (90%) of the higher appraisal, then the arithmetic mean of the two appraisals shall be the Fair Market Rent. In the event the lower appraisal is less than ninety percent (90%) of the higher appraisal then, within fifteen (15) business days after the end of such thirty (30)-day period, the two appraisers shall meet and select a third appraiser. In the event the two appraisers fail to so select a third appraiser, either party may obtain court appointment of such third appraiser. The third appraiser shall select one of the appraisals for each applicable Related Premises as most accurately determining Fair Market Rent for such Related Premises and promptly complete and forward its report to Landlord and Tenant. The Fair Market Rent determined in such selected appraisal shall be the Fair Market Rent for such Related Premises. All appraisers shall be members in good standing of the American Institute of Real Estate Appraisers or any organization succeeding thereto and shall have had not less than ten (10) years experience with commercial real estate of the type of such Related Premises in the location where such Related Premises is located. Tenant shall pay the fees of all appraisers. (c) If Tenant does not exercise its option pursuant to Paragraph 5(b) to have the Term extended with respect to a Related Premises, or if an Event of Default occurs, then Landlord shall have the right during the remainder of the Term then in effect and, in any event, Landlord shall have the right during the last year of the Term, to (i) advertise the availability of any of the Leased Premises, or in the event that the Term is not extended with respect to such Related Premises, for sale or reletting and to erect upon any of the Leased Premises signs (in size and content and in locations reasonably acceptable to Tenant) indicating such availability and (ii) show any of the Leased Premises, or the applicable Related Premises in 14 the event that the Term is not extended with respect to such Related Premises, to prospective purchasers or tenants or their agents at such reasonable times as Landlord may select. 6. Basic Rent. Tenant shall pay to Landlord, as annual rent for the Leased Premises during the Term, the amounts determined in accordance with Exhibit "D" hereto ("Basic Rent"), commencing on the twentieth (20th) day of January, 2003, and continuing on the twentieth (20th) day of each April, July, October, and January thereafter during the Term, provided that if the twentieth (20th) day of such month is not a Business Day, the applicable Basic Rent payment shall be due on the first Business Day following the twentieth (20th) day of such month (each such day being a "Basic Rent Payment Date"). Tenant shall pay Basic Rent for the period from the Commencement Date through January 19, 2003 on the Commencement Date. Each such rental payment shall be made in Federal Funds to Landlord, pursuant to wire transfer instructions delivered to Tenant from time to time or to such other Person, pursuant to wire transfer instructions delivered to Tenant from time to time as Landlord may direct by not less than fifteen (15) days' prior written notice to Tenant (in which event Tenant shall give Landlord notice of each such payment promptly upon the making thereof). 7. Additional Rent. (a) Tenant shall pay and discharge, as additional rent (collectively, "Additional Rent"): (i) except as otherwise specifically provided herein, all reasonable costs and expenses of Tenant and Landlord which are incurred in connection or associated with (A) the ownership, use, non-use, occupancy, monitoring, possession, operation, condition, design, construction, maintenance, alteration, repair or restoration of any of the Leased Premises, except for Landlord's general overhead, (B) the performance of any of Tenant's obligations under this Lease, (C) any Condemnation proceedings, (D) the adjustment, settlement or compromise of any insurance claims involving or arising from any of the Leased Premises, (E) the prosecution, defense or settlement of any litigation involving or arising from any of the Leased Premises (unless caused by the gross negligence or willful misconduct of Landlord or its agents), this Lease, or the sale of the Leased Premises to Landlord provided, however, that in the event of any litigation involving only Landlord and Tenant, Tenant shall be responsible for such costs and expenses only if and to the extent that Tenant is not the prevailing party in such litigation, (F) the exercise or successful enforcement by Landlord, its successors and assigns, of any of its rights under this Lease, (G) any amendment to or modification or termination of this Lease made at the request of Tenant, (H) Costs of Landlord's counsel and reasonable out-of-pocket Costs of Landlord incurred in connection with the preparation, negotiation and execution of this Lease, or incurred in connection with any act undertaken by Landlord (or its counsel) at the request of Tenant, or incurred in connection with any act of Landlord performed on behalf of Tenant to the extent authorized by this Lease (I) the reasonable out-of-pocket Costs of Landlord incurred in connection with any act undertaken by Landlord at the request of Tenant or Tenant's failure to act promptly in an emergency situation, (J) all costs and fees associated with the wire transfers of Rent payments, and (K) any other items specifically required to be paid by Tenant under this Lease; 15 (ii) after the date all or any portion of any installment of Basic Rent is due and not paid by the applicable Basic Rent Payment Date, an amount (the "Late Charge") equal to five percent (5%) of the amount of such unpaid installment or portion thereof provided, however, that with respect to the first late payment of all or any portion of any installment of Basic Rent in any Lease Year, the Late Charge shall not be due and payable unless the Basic Rent has not been paid within five (5) days' following the due date thereof; (iii) interest at the rate (the "Default Rate") of four percent (4%) over the Prime Rate per annum on the following sums until paid in full: (A) all overdue installments of Basic Rent from five (5) days' following its due date unless such overdue installments are paid in full within such five (5) day period, (B) all overdue amounts of Additional Rent relating to obligations which Landlord shall have paid on behalf of Tenant, from the date of payment thereof by Landlord, and (C) all other overdue amounts of Additional Rent, from the date when any such amount becomes overdue; (b) If Landlord does not provide written notice to Tenant of the sums owing pursuant to Paragraphs 7(a)(ii) and (iii) within ninety (90) days after the date that the applicable Late Charge or default interest becomes due and owing, Tenant shall not be liable for such amounts. (c) Tenant shall pay and discharge (i) any Additional Rent referred to in Paragraph 7(a)(i) when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within ten (10) Business Days after Landlord's demand for payment thereof, and (ii) any other Additional Rent, within ten (10) Business Days after Landlord's demand for payment thereof. (d) In no event shall amounts payable under Paragraph 7(a)(ii) and (iii) exceed the maximum amount permitted by applicable Law. 8. Net Lease: Non-Terminability. (a) This is a net lease and all Monetary Obligations shall be paid without notice or demand (except as herein required) and without set-off, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense (collectively, a "Set-Off"). (b) Except as specifically provided herein, this Lease and the rights of Landlord and the obligations of Tenant hereunder shall not be affected by any event or for any reason or cause whatsoever foreseen or unforeseen. (c) The obligations of Tenant hereunder shall be separate and independent covenants and agreements, all Monetary Obligations shall continue to be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. The obligation to pay Rent or amounts equal thereto shall not be affected by any collection of rents by any governmental body pursuant to a tax lien arising out of the act or omission of Tenant, even though such obligation results in a double payment of Rent. All Rent payable by Tenant 16 hereunder shall constitute "rent" for all purposes (including Section 502(b)(6) of the Federal Bankruptcy Code). (d) Except as otherwise expressly provided herein, Tenant shall have no right and hereby waives all rights which it may have under any Law (i) to quit, terminate or surrender this Lease or any of the Leased Premises, or (ii) to any Set-Off of any Monetary Obligations. 9. Payment of Impositions. (a) Tenant shall, before interest or penalties are due thereon, pay and discharge all taxes (including real and personal property, franchise, sales, use, gross receipts and rent taxes, transaction privilege, education or other excise taxes), all charges for any easement or agreement maintained for the benefit of any of the Leased Premises, all assessments and levies, all permit, inspection and license fees, all rents and charges for water, sewer, utility and communication services relating to any of the Leased Premises, all ground rents and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii) Tenant's possessory interest in the Leased Premises, (iii) any of the Leased Premises, (iv) Landlord as a result of or arising in respect of the acquisition, ownership, occupancy, leasing, use, possession or sale to Landlord of any of the Leased Premises, any activity conducted on any of the Leased Premises, or the Rent, or (v) any Lender by reason of any Note, Mortgage, Assignment or other document evidencing or securing a Loan and which (as to this clause (v)) Landlord has agreed to pay (collectively, the "Impositions"); provided, that nothing herein shall obligate Tenant to pay (A) income, excess profits or other taxes of Landlord (or Lender) which are determined on the basis of Landlord's (or Lender's) net income or net worth (unless such taxes are in lieu of or a substitute for any other tax, assessment or other charge upon or with respect to the Leased Premises which, if it were in effect, would be payable by Tenant under the provisions hereof or by the terms of such tax, assessment or other charge), (B) any estate, inheritance, succession, gift or similar tax imposed on Landlord or (C) any capital gains tax or real property transfer or intangibles tax imposed on Landlord in connection with the sale of the Leased Premises to any Person. If any Imposition may be paid in installments without interest or penalty, Tenant shall have the option to pay such Imposition in installments; in such event, Tenant shall be liable only for those installments which accrue or become due and payable during the Term. Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions. Tenant shall deliver to Landlord (1) copies of all settlements and notices pertaining to the Impositions which may be issued by any governmental authority within ten (10) days after Tenant's receipt thereof, (2) receipts for payment of all taxes required to be paid by Tenant hereunder within thirty (30) days after the due date thereof and (3) receipts for payment of all other Impositions within ten (10) days after Landlord's request therefor. (b) Following the occurrence of an Event of Default, Tenant shall pay to Landlord such amounts (each an "Escrow Payment") monthly or quarterly, at the option of Landlord (but not more often than monthly), so that there shall be in an escrow account an amount sufficient to pay the Escrow Charges (as hereinafter defined) as they become due provided, however, that each Escrow Payment shall not be greater than one twelfth (in the case of monthly payments) or one quarter (in the case of quarterly payments) of the annual amount of 17 the annual Escrow Charges as estimated by Landlord. As used herein, "Escrow Charges" shall mean real estate taxes and assessments on or with respect to the Leased Premises or payments in lieu thereof and premiums on any insurance required by this Lease. Landlord shall reasonably determine the amount of the Escrow Charges (it being agreed that if required by a Lender, such amount shall equal any corresponding escrow installments required to be paid by Landlord) and the amount of each Escrow Payment, taking into account any balance remaining in escrow at the beginning of each Lease Year. The Escrow Payments may not be commingled with other funds of Landlord or other Persons. Landlord shall apply the Escrow Payments to the payment of the Escrow Charges in such order or priority as they become due or as required by law. If at any time the Escrow Payments theretofore paid to Landlord shall be insufficient for the payment of the Escrow Charges, Tenant, within ten (10) Business Days after Landlord's demand therefor, shall pay the amount of the deficiency to Landlord. At the end of the Term any Escrow Payments held by Landlord or Lender which are applicable to any period after the expiration of the Term or the termination of this Lease shall be promptly refunded to Tenant. Notwithstanding anything to the contrary in this Paragraph 9(b), payment of Escrow Charges shall be required only for six (6) months following the date on which the Event of Default which gave rise to the requirement to make Escrow Payments is cured, provided, however, that if a third Event of Default occurs, Landlord shall have the right to require Tenant to pay and Tenant shall pay such Escrow Charges for the balance of the Term. 10. Compliance with Laws and Easement Agreements; Environmental Matters. (a) Tenant shall, at its expense, cause the Leased Premises and any other Person occupying any part of the Leased Premises to comply with and conform to, all Insurance Requirements and Legal Requirements (including all applicable Environmental Laws). Tenant shall not at any time (i) cause, permit or suffer to occur any Environmental Violation, (ii) permit any sublessee, assignee or other Person occupying the Leased Premises under or through Tenant to cause, permit or suffer to occur any Environmental Violation and, at the request of Landlord or Lender, Tenant shall promptly remediate or undertake any other appropriate response action to correct any existing Environmental Violation, and (iii) without the prior written consent of Landlord and Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof except with respect to rights of Persons other than Tenant or any subtenant (pursuant to its rights as a subtenant) set forth in the instrument in favor of SF Pacific Properties, Inc. recorded May 24, 1991, Reception No. 9124177, Reel 1697 in the Official Records of Lane County, Oregon with respect to the Oregon Premises and the patent in favor of the United States recorded in Book 34, page 303 of the Official Records of Mohave County, Arizona, with respect to the Arizona Premises. Any and all reports prepared for or by Landlord with respect to the Leased Premises shall be for the sole benefit of Landlord and Lender and no other Person shall have the right to rely on any such reports. (b) Tenant, at its sole cost and expense, will at all times promptly and faithfully abide by, discharge and perform all of the covenants, conditions and agreements contained in any Easement Agreement on the part of Landlord or the occupier to be kept and performed thereunder. Tenant will not alter, modify, amend or terminate any Easement 18 Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement unless (i) Landlord gives its written consent, (ii) such alteration, modification, amendment or termination does not reduce the value of the applicable Related Premises or impair its use, and (iii) Tenant delivers to Landlord and Lender, at Tenant's sole expense, a title endorsements satisfactory to Landlord and Lender with respect thereto. Notwithstanding the foregoing, Landlord's consent shall be deemed given if Landlord fails to object in writing (stating its reasons for objecting) to such amendment or termination within thirty (30) days after Landlord's receipt of written request for consent so long as Tenant's request for consent is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR CONSENT SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". (c) Upon prior written notice from Landlord, Tenant shall permit such persons as Landlord may designate ("Site Reviewers") to visit the Leased Premises and perform, as agents of Tenant, environmental site investigations and assessments ("Site Assessments") on the Leased Premises (i) in connection with any sale, financing or refinancing of the Leased Premises, (ii) within the six month period prior to the expiration of the Term with respect to a Related Premises, (iii) if required by Lender or the terms of any credit facility to which Landlord is bound, (iv) if an Event of Default exists, or (v) at any other time that, in the opinion of Landlord or Lender, a reasonable basis exists to believe that an Environmental Violation or any condition that could reasonably be expected to result in any Environmental Violation exists. Such Site Assessments shall not include any invasive testing (i.e. testing requiring boring, digging, demolition or similar activities) unless Landlord has a reasonable belief that an Environmental Violation exists. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Leased Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting Site Assessments shall be paid by Tenant if an Environmental Violation is disclosed by such Site Assessment. In all other events, the cost of performing and reporting such Site Assessments shall be paid for by Landlord. (d) If Tenant fails to promptly commence to comply with, and thereafter diligently pursue compliance with, any requirement of any Environmental Law in connection with any Environmental Violation which occurs or is found to exist, Landlord shall have the right (but no obligation) to take any and all actions as Landlord shall deem necessary or advisable in order to cure such Environmental Violation provided that, except in the case of an emergency, Landlord shall provide Tenant at least ten (10) days written notice prior to the commencement of any such remediation by Landlord. (e) Tenant shall notify Landlord promptly after becoming aware of any Environmental Violation (or alleged Environmental Violation) or noncompliance with any of the covenants contained in this Paragraph 10 and shall forward to Landlord promptly upon receipt thereof copies of all orders, reports, notices, permits, applications or other communications relating to any such violation or noncompliance. 19 (f) All future leases, subleases or concession agreements relating to the Leased Premises entered into by Tenant shall contain covenants of the other party thereto which are identical to the covenants contained in Paragraph 10(a). 11. Liens; Recording. (a) Subject to Paragraph 14 hereof, Tenant shall not, directly or indirectly, create or permit to be created or to remain and shall promptly discharge or remove any lien, levy or encumbrance on any of the Leased Premises or on any Rent or any other sums payable by Tenant under this Lease, other than any Mortgage or Assignment, the Permitted Encumbrances and any mortgage, lien, encumbrance or other charge created by or resulting solely from any act or omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES. TO THE EXTENT REQUIRED BY LAW, LANDLORD MAY AT ANY TIME POST ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD. (b) Tenant shall execute, deliver and record, file or register (collectively, "record") all such instruments as may be required by any present or future Law in order to evidence the respective interests of Landlord and Tenant in any of the Leased Premises, and shall cause a memorandum of this Lease (or, if such a memorandum cannot be recorded, this Lease), and any supplement hereto or thereto, to be recorded in such manner and in such places as may be required by any present or future Law in order to protect the validity and priority of this Lease. 12. Maintenance and Repair. (a) Tenant shall at all times maintain each Related Premises and the Adjoining Property in as good repair and appearance as each is in on the date hereof and fit to be used for their intended use in accordance with the better of the practices generally recognized as then acceptable by other companies in its industry or observed by Tenant with respect to the other real properties owned or operated by it, and, in the case of the Fixtures, in as good mechanical condition as it was on the later of the date hereof or the date of its installation, except for ordinary wear and tear and, subject to Paragraph 17, damage by Casualty or Condemnation. Tenant shall take every other action necessary or appropriate for the preservation and safety of each Related Premises. Tenant shall promptly make all Alterations of every kind and nature, whether foreseen or unforeseen, which may be required to comply with the foregoing requirements of this Paragraph 12(a). Landlord shall not be required to make any Alteration, whether foreseen or unforeseen, or to maintain any of the Related Premises or Adjoining Property in any way, and Tenant hereby expressly waives any right which may be provided for in any Law now or hereafter in effect to make Alterations at the expense of Landlord or to require Landlord to make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12 shall be made in conformity with the provisions of Paragraph 13. 20 (b) If any Improvement hereafter constructed shall (i) encroach upon any setback or any property, street or right-of-way adjoining any of the Leased Premises, (ii) violate the provisions of any restrictive covenant affecting any of the Leased Premises, (iii) hinder or obstruct any easement or right-of-way to which any of the Leased Premises is subject or (iv) impair the rights of others in, to or under any of the foregoing, Tenant shall, promptly after receiving notice or otherwise acquiring knowledge thereof, either (A) obtain from all necessary parties waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord, Tenant or both, or (B) take such action as shall be necessary to remove all such encroachments, hindrances or obstructions and to end all such violations or impairments, including, if necessary, making Alterations. 13. Alterations and Improvements. (a) Subject in each case to the requirements of Paragraph 13(b), Tenant shall have the right, without having obtained the prior written consent of Landlord or Lender and provided that no Event of Default then exists, (i) to make Pre-Approved Alterations and (ii) to install or replace Fixtures or accessions to the Fixtures. If Tenant desires to make any Major Alteration to any Related Premises the prior written approval of Landlord and Lender shall be required. Withholding of such approval shall be deemed reasonable only if the proposed Major Alteration will, in the judgment of Landlord or Lender, as applicable, in each case exercised reasonably and in good faith, fail to meet the requirements of Paragraph 13(b). Any such withholding of approval shall be evidenced by notice to Tenant, given within thirty (30) days after Tenant has submitted to Landlord design drawings prepared by a licensed architect or engineer if a building permit is required, or, if no building permit is required, such other reasonably detailed description of the proposed Major Alteration, which shall be sufficient to permit Landlord and Lender to make the determination required hereby, setting forth the reason(s) for such withholding of approval. Tenant shall promptly furnish Landlord with such other information as Landlord may reasonably request during such thirty (30) day period regarding such proposed Major Alteration. In the absence of such notice by Landlord or Lender, Landlord and Lender's approval of the proposed Major Alteration shall be deemed given so long as Tenant's request for approval is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR APPROVAL SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". Upon not less than thirty (30) days prior notice (which notice shall include design drawings or other description sufficient to permit Landlord and Lender to make the determination required hereby), Tenant shall have the right to make Major Replacements unless, within said thirty (30) day period, Landlord furnishes Tenant with a notice objecting to the Major Replacement, which Landlord notice shall be accompanied by the certification of an independent architect or, if applicable, engineer that the proposed Major Replacement constitutes a material modification of the structure it is replacing (and, therefore, constitutes a Major Alteration) or such Major Replacement, if completed in the manner proposed, will be of such lesser quality or utility as to be below any reasonable standards for comparable buildings in the applicable locale. Tenant shall not construct upon the Land any additional buildings (other than storage sheds or garages not requiring foundations) or install any underground storage tanks without having first obtained the prior written consent of Landlord and Lender which as to underground storage tanks may be withheld by Landlord or Lender in 21 their sole and absolute discretion. Upon the expiration or termination of the Term with respect to a Related Premises, Landlord shall have the right to require Tenant to remove any Alterations except for Pre-Approved Alterations which complied with Paragraph 13(b), Major Replacements, Alterations required by Law and Alterations which Landlord approved in writing, unless such approval was specifically conditioned upon removal of such Alteration. (b) If Tenant makes any Alterations pursuant to this Paragraph 13 or as required by Paragraph 12 or 17 (such Alterations and actions being hereinafter collectively referred to as "Work"), then (i) the market value and utility of the applicable Related of Premises shall not be lessened by any such Work, (ii) all such Work shall be performed by Tenant in a good and workmanlike manner, (iii) all such Work shall be expeditiously completed in compliance with all Legal Requirements, (iv) all such Work shall comply with the requirements of all insurance policies required to be maintained by Tenant hereunder, (v) if any such Work involves the replacement of Fixtures or parts thereto, all replacement Fixtures or parts shall have a value and useful life equal to (A) if the Fixtures are being replaced because they are obsolete or worn out, the value and useful life on the date hereof of the Fixtures being replaced or (B) if the Fixtures are being replaced because of damage or the occurrence of a Casualty, the value and useful life of the Fixtures being replaced immediately prior to the occurrence of the event which required its replacement (assuming such replaced Fixtures were then in the condition required by this Lease), (vi) subject to Paragraph 14, Tenant shall promptly discharge or remove all liens filed against any of the Leased Premises arising out of such Work, (vii) Tenant shall procure and pay for all permits and licenses required in connection with any such Work, (viii) all such Work shall be the property of Landlord and shall be subject to this Lease, and Tenant shall execute and deliver to Landlord any document requested by Landlord evidencing the assignment to Landlord of all estate, right, title and interest (other than the leasehold estate created hereby) of Tenant or any other Person thereto or therein, (ix) if any such Alterations are Major Alterations or Major Replacements, Tenant shall provide to Landlord reasonable financial assurances of the availability of funds necessary to complete such Alterations and (x) Tenant shall comply, to the extent requested by Landlord or required by this Lease, with the provisions of Paragraphs 12(a) and 19(a), whether or not such Work involves restoration of the Leased Premises. 14. Permitted Contests. Notwithstanding any other provision of this Lease, Tenant shall not be required to (a) pay any Imposition, (b) discharge or remove any lien referred to in Paragraph 11 or 13 or (c) take any action with respect to any encroachment, violation, hindrance, obstruction or impairment referred to in Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter referred to collectively as "Permitted Violations") and may dispute or contest the same, so long as at the time of such non-compliance no Event of Default with respect to the Related Premises to which the Permitted Violation pertains, exists and so long as Tenant shall contest, in good faith, the existence, amount or validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord's liability therefor by appropriate proceedings which shall operate during the pendency thereof to prevent or stay (i) the collection of, or other realization upon, the Permitted Violation so contested, (ii) the sale, forfeiture or loss of any of the applicable Related Premises or any Rent to satisfy or to pay any damages caused by any Permitted Violation, (iii) any interference with the use or occupancy of any of the applicable Related Premises, (iv) any interference with the payment of any Rent, or (v) the cancellation or increase in the rate of any insurance policy or a statement by the carrier that coverage will be denied. Tenant shall provide Landlord security which is satisfactory, in Landlord's reasonable 22 judgment, to assure that such Permitted Violation is corrected, including all Costs, interest and penalties that may be incurred or become due in connection therewith. While any proceedings which comply with the requirements of this Paragraph 14 are pending and the required security is held by Landlord, Landlord shall not have the right to correct any Permitted Violation thereby being contested unless Landlord is required by Law to correct such Permitted Violation and Tenant's contest does not prevent or stay such requirement as to Landlord. Each such contest shall be promptly and diligently prosecuted by Tenant to a final conclusion, except that Tenant, so long as the conditions of this Paragraph 14 are at all times complied with, has the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay any and all losses, judgments, decrees and Costs in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest and Costs thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil or criminal liability. 15. Indemnification. (a) Tenant shall pay, protect, indemnify, defend, save and hold harmless Landlord from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including reasonable attorneys' fees and costs), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, without regard to the form of action and whether based on strict liability, negligence or any other theory of recovery at law or in equity (except for gross negligence or willful misconduct in connection with any act or omission by the Landlord seeking indemnification), arising from (i) any matter pertaining to the acquisition (except for any acquisition fees or similar payments to W.P. Carey & Co. LLC or any of its affiliates), ownership, leasing, use, non-use, occupancy, operation, management, condition, design, construction, maintenance, repair or restoration of any of the Leased Premises or the condition, use, repair or restoration of the Adjoining Property, (ii) any casualty in any manner arising from any of the Leased Premises or of the Adjoining Property, whether or not Landlord has or should have knowledge or notice of any defect or condition causing or contributing to said casualty, (iii) any violation by Tenant of any provision of this Lease, any contract or agreement to which Tenant is a party, any Legal Requirement or any Permitted Encumbrance or any encumbrance Tenant consented to or the Mortgage or Assignment or (iv) any alleged, threatened or actual Environmental Violation first occurring prior to the later of the termination of this Lease with respect to, or Tenant's vacation of, the applicable Related Premises, including (A) liability for response costs and for costs of removal and remedial action incurred by the United States Government, any state or local governmental unit or any other Person, or damages from injury to or destruction or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss, incurred pursuant to Section 107 of CERCLA, or any successor section or act or provision of any similar state or local Law, (B) liability for costs and expenses of abatement, correction or clean-up, fines, damages, response costs or penalties which arise from the provisions of any of the other Environmental Laws and (C) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance or for carrying on of a dangerous activity. 23 (b) Landlord shall pay, protect, indemnify, defend, save and hold harmless Tenant from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including attorneys' fees and costs reasonably and actually incurred), causes of action, suits, claims, demands or judgments arising from the gross negligence or intentional misconduct of Landlord. (c) In case any action or proceeding is brought against Tenant or Landlord by reason of any such claim, (i) Landlord or Tenant, as the case may be, may, except in the event of a conflict of interest or a dispute between Tenant and any Landlord or during the continuance of an Event of Default, retain its own counsel and defend such action (it being understood that Landlord or Tenant, as the case may be, may employ counsel of its choice to monitor the defense of any such action, the cost of which shall be paid by the indemnifying party) and (ii) such Landlord or Tenant shall notify Landlord or Tenant, as the case may be, to resist or defend such action or proceeding by retaining counsel reasonably satisfactory to such Landlord or Tenant, as the case may be, and such Landlord or Tenant, as the case may be, will cooperate and assist in the defense of such action or proceeding if reasonably requested to do so by Tenant or Landlord, as the case may be. In the event of a conflict of interest or dispute or during the continuance of an Event of Default, Landlord shall have the right to select counsel, and the reasonable and actual cost of such counsel shall be paid by Tenant. (d) The obligations of Tenant and Landlord under this Paragraph 15 shall survive any termination, expiration or rejection in bankruptcy of this Lease. THE INDEMNITY SET FORTH IN THIS SECTION 15 SHALL NOT BE IMPAIRED OR AFFECTED BY NEGLIGENCE ON THE PART OF LANDLORD OR ANYONE ACTING BEHALF OF LANDLORD. 16. Insurance. (a) Tenant shall maintain the following insurance on or in connection with the Leased Premises: (i) Insurance against risk of physical loss or damage to the Improvements and Fixtures as provided under "All Risk" coverage, and including customarily excluded perils of hail, windstorm, flood coverage (if the Leased Premises is in a flood zone), earthquake and, to the extent required by Lender, terrorism insurance in amounts not less than the actual replacement cost of the Improvements and Fixtures; provided that, if Tenant's insurance company is unable or unwilling to include any of all of such excluded perils, Tenant shall have the option of purchasing coverage against such perils from another insurer on a "Difference in Conditions" form or through a stand-alone policy. Such policies shall contain Replacement Cost and Agreed Amount Endorsements and shall contain deductibles not more than $250,000 per occurrence (except terrorism insurance at any Related Premises, which shall have a deductible of not more than two (2%) of the actual replacement value of the Improvements and Fixtures at the applicable Related Premises). If any of the Improvements constitute a legal non-conforming structure under applicable building, zoning or land use laws, such policies shall also include an ordinance or law coverage endorsement which will contain Coverage A: "Loss Due to Operation of Law" (with a minimum liability limit equal to Replacement Cost with a waiver of any co-insurance provisions or an Agreed Value 24 Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of Construction" coverages. Notwithstanding the foregoing, terrorism insurance coverage shall not be required if it is not available at commercially reasonable rates (as determined by Landlord and Lender in their sole discretion); provided however, if a rating agency in connection with a securitization of a Loan or in connection with its rating surveillance of the certificates issued pursuant to a securitization of a Loan would not provide or maintain a rating for any portion of such Loan or such certificates which would otherwise be available but for the failure to maintain such terrorism insurance, Tenant will so maintain such terrorism insurance if obtainable from any insurer or any governmental authority with the deductibles set forth above. (ii) Commercial General Liability Insurance and Business Automobile Liability Insurance (including Non-Owned and Hired Automobile Liability) against claims for personal and bodily injury, death or property damage occurring on, in or as a result of the use of the Leased Premises, in an amount not less than $15,000,000 per occurrence/annual aggregate and all other coverage extensions that are usual and customary for properties of this size and type provided, however, that the Landlord shall have the right to require such higher limits as may be reasonable and customary for properties of this size and type. (iii) Worker's compensation insurance covering all persons employed by Tenant in connection with any work done on or about any of the Leased Premises for which claims for death, disease or bodily injury may be asserted against Landlord, Tenant or any of the Leased Premises or, in lieu of such Workers' Compensation Insurance, a program of self-insurance complying with the rules, regulations and requirements of the appropriate agency of the State or States in which the Leased Premises are located. (iv) Comprehensive Boiler and Machinery Insurance on any of the Fixtures or any other equipment on or in the Leased Premises in an amount not less than $5,000,000 per accident for damage to property. Either such Boiler and Machinery policy or the All-Risk policy required in (i) above shall include Off-Premises Service Interruption with limits of $1,500,000 per occurrence for property damage, $1,500,000 per occurrence for time element; $750,000 per occurrence for expediting expense; $275,000 per occurrence for ammonia contamination; and $375,000 per occurrence for hazardous materials clean-up and with a deductible not to exceed $250,000. (v) Business Interruption Insurance at limits to cover 100% of losses and/or expenses incurred over the period of indemnity not less than twelve (12) months from time of loss. Such insurance shall name Landlord as loss payee solely with respect to Rent payable to or for the benefit of the Landlord under this Lease. (vi) During any period in which substantial Alterations at any Related Premises are being undertaken, Tenant shall cause each contractor to obtain builder's risk insurance covering in the aggregate the total completed value including any "soft costs" with respect to the Improvements being altered or repaired (on a completed value, non-reporting basis), replacement cost of work performed and equipment, supplies and materials furnished in connection with such construction or repair of Improvements or Fixtures, together with such "soft cost" endorsements and such other endorsements as Landlord may reasonably require and 25 general liability, workers' compensation and automobile liability insurance with respect to the Improvements being constructed, altered or repaired. (vii) Such other insurance (or other terms with respect to any insurance required pursuant to this Paragraph 16, including without limitation amounts of coverage, deductibles, form of mortgagee clause) on or in connection with any of the Leased Premises as Landlord or Lender may reasonably require for properties of similar location, size, type, value and use (b) The insurance required by Paragraph 16(a) shall be written by companies which (i) have a Best's rating of A:X or above and a claims paying ability rating of AA or better by S&P or equivalent rating agency approved by Landlord and Lender in their sole discretion and (ii) are approved to write insurance policies by, the State Insurance Department for the states in which the Leased Premises are located. Notwithstanding clause "(i)" of the preceding sentence, provided that each of the following insurance carriers meet the requirements of clause "(ii)" of the preceding sentence, then, (A) the insurance required pursuant to Paragraph 16(a)(i) may be on policies written by (1) Continental Casualty Co. so long as it maintains an S&P claims paying ability rating of A- or better, (2) American Guaranty Ins. Co. so long is it maintains an S&P claims paying ability rating of A+ or better, and (3) Liberty Mutual Insurance Co. so long as it maintains an S&P claims paying ability rating of A+ or better, and (B) the insurance required pursuant to Paragraph 16(a)(iv) may be on policies written by Commonwealth Insurance Co. so long as it maintains an S&P claims paying ability rating of BBB or better, provided, however, that in the event that any of the preceding insurance carriers fails to maintain its corresponding rating set forth above, then such insurance carrier shall be replaced with an insurance carrier meeting the requirements set forth in the first sentence of this Paragraph 16(b). The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. The insurance referred to in Paragraphs 16(a)(i), 16(a)(iv), 16(a)(v) and 16(a)(vi) shall name Landlord and Lender as loss payees and Tenant as its interest may appear. The insurance referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as additional insureds. If said insurance or any part thereof shall expire, be withdrawn, become void, voidable, unreliable or unsafe for any reason, including a breach of any condition thereof by Tenant or the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance satisfying the requirements of this Paragraph 16. If the availability of the types and amounts of insurance coverages required under Paragraph 16(a) shall change in the commercial insurance marketplace for properties that are of a similar size, scope, location and usage as any applicable Related Premises, at Tenant's request Landlord shall review such coverages available at the time and, if Landlord deems appropriate (in its sole and absolute discretion), adjust the types and amounts of insurance required. (c) Each insurance policy referred to in clauses (i), (iv), (v) and (vi) of Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in favor of and acceptable to Lender. Each policy required by any provision of Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be cancelled substantially modified or allowed to lapse on any renewal date except after thirty (30) days' prior notice to Landlord and Lender. Each such policy shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or 26 use of any of the Leased Premises for purposes more hazardous than those permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Mortgage, Note, Assignment or other document evidencing or securing the Loan upon the happening of an event of default therein or (iv) any change in title to or ownership of any of the Leased Premises. (d) Tenant shall pay as they become due all premiums for the insurance required by Paragraph 16(a), shall renew or replace each policy and deliver to Landlord evidence of the payment of the full premium therefor or installment then due prior to the expiration date of such policy, and shall promptly deliver to Landlord all original certificates of insurance at least fifteen (15) days prior to the expiration date thereof, which certificates shall bear notations evidencing payment of applicable premiums and, if required by Lender, certified policies as soon as available. (e) Anything in this Paragraph 16 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may be carried under a "blanket" or umbrella policy or policies covering other properties or liabilities of Tenant, provided that such "blanket" or umbrella policy or policies otherwise comply with the provisions of this Paragraph 16 and provided further that Tenant shall provide to Landlord a Statement of Values which shall be reviewed annually and amended as necessary based on Replacement Cost Valuations. The original or a certified copy of each such "blanket" or umbrella policy shall promptly be delivered to Landlord. (f) Tenant shall promptly comply with and conform to (i) all provisions of each insurance policy required by this Paragraph 16 and (ii) all requirements of the insurers thereunder applicable to Landlord, Tenant or any of the Leased Premises or to the use, manner of use, occupancy, possession, operation, maintenance, alteration or repair of any of the Leased Premises, even if such compliance necessitates Alterations or results in interference with the use or enjoyment of any of the Leased Premises. (g) Tenant shall not carry separate insurance concurrent in form or contributing in the event of a Casualty with that required in this Paragraph 16 unless (i) Landlord and Lender are included therein as named insureds, with loss payable as provided herein, and (ii) such separate insurance complies with the other provisions of this Paragraph 16. Tenant shall immediately notify Landlord of such separate insurance and shall deliver to Landlord the original policies or certified copies thereof. (h) All policies shall contain effective waivers by the carrier against all claims for insurance premiums against Landlord and shall contain full waivers of subrogation against the Landlord. (i) All proceeds of any insurance required under Paragraph 16(a) shall be payable as follows: (i) Proceeds payable under clauses (ii), (iii) and (iv) of Paragraph 16(a) and proceeds attributable to the general liability coverage of Builder's Risk 27 insurance under clause (vi) of Paragraph 16(a) shall be payable to the Person entitled to receive such proceeds. (ii) Proceeds of insurance required under clause (i) of Paragraph 16(a) and proceeds attributable to Builder's Risk insurance (other than its general liability coverage provisions) under clause (vi) of Paragraph 16(a) shall be payable to Landlord or Lender and applied as set forth in Paragraph 17 or, if applicable, Paragraph 18. Tenant shall apply the Net Award to restoration of the Leased Premises in accordance with the applicable provisions of this Lease unless a Termination Event shall have occurred and Tenant has given a Termination Notice in which event the Net Award shall be retained by Landlord. 17. Casualty and Condemnation. (a) If any Casualty to any of the Related Premises occurs the insurance proceeds for which are reasonably estimated by Tenant to be equal to or in excess of the Threshold Amount, Tenant shall give Landlord and Lender immediate notice thereof. So long as (i) no Event of Default, exists, and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is hereby authorized to adjust, collect and compromise all claims under any of the insurance policies required by Paragraph 16(a) (except public liability insurance claims payable to a Person other than Tenant, Landlord or Lender) and to execute and deliver on behalf of Landlord all necessary proofs of loss, receipts, vouchers and releases required by the insurers and Landlord shall have the right to join with Tenant therein. Any final adjustment, settlement or compromise of any such claim shall be subject to the prior written approval of Landlord and Lender, and Landlord and Lender shall have the right to prosecute or contest, or to require Tenant to prosecute or contest, any such claim, adjustment, settlement or compromise. If an Event of Default exists, Tenant shall not be entitled to adjust, collect or compromise any such claim or to participate with Landlord in any adjustment, collection and compromise of the Net Award payable in connection with a Casualty and, in such event, agrees to sign, upon the request of Landlord, all such accurate proofs of loss, receipts, vouchers and releases. Each insurer is hereby authorized and directed to make payment under said policies, if required by the Mortgage, to Lender instead of to Landlord and Tenant jointly. The rights of Landlord under this Paragraph 17(a) shall be extended to Lender if and to the extent that any Mortgage so provides. (b) Tenant, promptly upon receiving a Condemnation Notice, shall notify Landlord and Lender thereof. So long as (i) no Event of Default, exists and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is authorized to collect, settle and compromise the amount of any Net Award and Landlord shall have the right to join with Tenant herein. If an Event of Default exists, Landlord shall be authorized to collect, settle and compromise the amount of any Net Award and Tenant shall not be entitled to participate with Landlord in any Condemnation proceeding or negotiations under threat thereof or to contest the Condemnation or the amount of the Net Award therefor. No agreement with any condemnor in settlement or under threat of any Condemnation shall be made by Tenant without the written consent of Landlord. Subject to the provisions of this Paragraph 17(b), Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant is or may be entitled by reason of any Condemnation, whether the same shall be paid or payable for Tenant's leasehold interest hereunder or otherwise; but nothing in this Lease shall impair Tenant's right to any award or payment on account of Tenant's trade fixtures, equipment or other tangible property which is 28 not part of the Fixtures, moving expenses or loss of business, if available, to the extent that and so long as (i) Tenant shall have the right to make, and does make, a separate claim therefor against the condemnor and (ii) such claim does not in any way reduce either the amount of the award otherwise payable to Landlord for the Condemnation of Landlord's fee interest in the applicable Related Premises or the amount of the award (if any) otherwise payable for the Condemnation of Tenant's leasehold interest hereunder. The rights of Landlord under this Paragraph 17(b) shall also be extended to Lender if and to the extent that any Mortgage so provides. (c) If any Partial Casualty (whether or not insured against) or Partial Condemnation shall occur to any Related Premises, this Lease shall continue, notwithstanding such event, and there shall be no abatement or reduction of any Monetary Obligations. Promptly after such Partial Casualty or Partial Condemnation, Tenant, as required in Paragraph 12(a), shall commence and diligently continue to restore the applicable Related Premises as nearly as possible to its value, condition and character immediately prior to such event (assuming such Related Premises to have been in the condition required by this Lease). So long as no Event of Default exists, any Net Award up to and including the Threshold Amount shall, unless such Casualty or Condemnation resulting in the Net Award is a Termination Event, be paid by Landlord to Tenant and Tenant shall restore the applicable Related Premises in accordance with the requirements of Paragraph 13(b) of this Lease. Any Net Award in excess of the Threshold Amount shall (unless such Casualty or Condemnation resulting in the Net Award is a Termination Event) be made available by Landlord (or Lender if the terms of the Mortgage so require) to Tenant for the restoration of any of the applicable Related Premises pursuant to and in accordance with and subject to the provisions of Paragraph 19 hereof. If any Casualty or Condemnation which is not a Partial Casualty or Partial Condemnation shall occur, Tenant shall comply with the terms and conditions of Paragraph 18. 18. Termination Events. (a) If either (i) all of any Related Premises shall be taken by a Taking, or (ii) any substantial portion of any Related Premises shall be taken by a Taking or (iii) all or any substantial portion of any Related Premises shall be damaged or destroyed by a Casualty during the last twelve (12) months of the Term and at the time of such Casualty no Event of Default exists (any one or all of the Related Premises described in the above clauses (i) and (ii) above being hereinafter referred to as the "Affected Premises" and each of the events described in the above clauses (i), (ii) and (iii) shall hereinafter be referred to as a "Termination Event"), then (x) in the case of (i) above, Tenant shall be obligated, within thirty (30) days after Tenant receives a Condemnation Notice and (y) in the case of (ii)or (iii) above, Tenant shall have the option, within thirty (30) days after Tenant receives a Condemnation Notice or thirty (30) days after the Casualty, as the case may be, to give to Landlord written notice (a "Termination Notice") in the form described in Paragraph 18(b) of the Tenant's election to terminate this Lease as to the Affected Premises. If Tenant elects under clause (y) above not to give Landlord a Termination Notice, then Tenant shall rebuild or repair the Leased Premises in accordance with Paragraphs 17 and 19. (b) A Termination Notice shall contain notice of Tenant's intention to terminate this Lease as to the Affected Premises thirty (30) days after delivery of the 29 Termination Notice (the "Termination Date") and any amounts prepaid by Tenant and attributable to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (c) This Lease shall terminate as to the Affected Premises on the Termination Date or, in the case of a Casualty at such later date on which, (A) Tenant has paid all insurance deductibles associated with the Net Award and (B) Landlord has received confirmation that the insurance proceeds payable pursuant to Paragraph 16(a)(i) shall be paid to Landlord in full without offset and deduction. If Tenant has not satisfied all Monetary Obligations and all other non-contingent obligations and liabilities under this Lease which have arisen as to the Affected Premises (collectively, "Remaining Obligations") on or prior to the Termination Date, then Landlord may, at its option, extend the Termination Date as to the Affected Premises to a date which is no later than thirty (30) days after the date on which Tenant has satisfied all Remaining Obligations. Upon such termination (i) all obligations of Tenant hereunder as to the Affected Premises shall terminate except for any Surviving Obligations, (ii) Tenant shall immediately vacate and shall have no further right, title or interest in or to the Affected Premises and (iii) the Net Award shall be retained by Landlord and (iv) any amounts prepaid by Tenant and attributed to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (d) In the event of the termination of this Lease as to the Affected Premises as hereinabove provided, this Lease shall remain in full force and effect as to the Remaining Premises; provided, that the Basic Rent for the Remaining Premises to be paid after such termination shall be the Basic Rent otherwise payable hereunder with respect to the Leased Premises multiplied by a percentage equal to the sum of the percentages set forth on Exhibit "F" for the Remaining Premises. 19. Restoration. (a) If any Net Award is in excess of the Threshold Amount, Landlord (or Lender if required by any Mortgage) shall hold the Net Award in a fund (the "Restoration Fund") and disburse amounts from the Restoration Fund only in accordance with the following conditions: (i) prior to commencement of restoration, (A) the architects, contracts, contractors, plans and specifications and a budget, which budget may include a redevelopment fee payable to Tenant or its designee, for the restoration shall have been approved by Landlord, (B) Landlord and Lender shall be provided with mechanics' lien insurance (if available) and performance and payment bonds in customary form and amounts issued by a surety reasonably acceptable to Landlord, and name Landlord and Lender as additional dual obligees, and (C) if the Related Premises being restored is the Pennsylvania Premises, appropriate waivers of mechanics' and materialmen's liens shall have been filed; (ii) at the time of any disbursement, no Event of Default, shall exist and no mechanics' or materialmen's liens (other than those being contested in compliance with Paragraph 14) shall have been filed against the applicable Related Premises and remain undischarged; 30 (iii) disbursements shall be made from time to time in an amount not exceeding the cost of the work completed since the last disbursement, upon receipt of (A) satisfactory evidence, including architects' certificates, of the stage of completion, the estimated total cost of completion and performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (B) waivers of liens, (C) contractors' and subcontractors' sworn statements as to completed work and the cost thereof for which payment is requested, (D) a satisfactory bringdown of title insurance and (E) other reasonable evidence of cost and payment so that Landlord and Lender can verify that the amounts disbursed from time to time are represented by work that is completed, in place and free and clear of mechanics' and materialmen's lien claims; (iv) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such work and, upon completion of the work, also stating that, to the best knowledge of such person, the work has been fully completed and complies with the applicable requirements of this Lease; (v) Landlord may retain ten percent (10%) of the Restoration Fund until the restoration is fully completed; (vi) the Restoration Fund shall not be commingled with Landlord's other funds and shall bear interest at a rate agreed to by Landlord and Tenant; and (vii) such other reasonable and customary conditions as Landlord or Lender may impose. (b) Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the restoration work free and clear of all liens, as reasonably determined by Landlord, exceeds the amount of the Net Award available for such restoration, the amount of such excess shall, upon demand by Landlord, be paid by Tenant to Landlord to be added to the Restoration Fund. Any sum so added by Tenant which remains in the Restoration Fund upon completion of restoration shall be refunded to Tenant. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of restoration, the Net Award shall be deemed to be disbursed prior to any amount added by Tenant. (c) If any sum remains in the Restoration Fund after completion of the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum shall be retained by Landlord or, if required by a Note or Mortgage, paid by Landlord to a Lender. 20. Intentionally Omitted. 21. Assignment and Subletting: Prohibition against Leasehold Financing. (a) (i) Except as specifically provided in this Paragraph 21 and subject to the terms hereof, Tenant shall not assign this Lease, voluntarily or involuntarily, whether by operation of law or otherwise. Tenant shall have the right, upon thirty (30) days 31 prior written notice to Landlord and Lender, with no consent of Landlord or Lender being required or necessary ("Preapproved Assignment") (A) to assign this Lease either in its entirety ("Complete Assignment") or (B) from time to time to cause Landlord to bifurcate this Lease into two leases ("Lease Bifurcation"), one lease for one or more Related Premises (the "Bifurcated Premises") to be leased to a Preapproved Assignee (as hereinafter defined) upon the terms and conditions set forth in this Lease (but shall specifically provide that it is not cross-defaulted this Lease), and one lease for each remaining Related Premises which will continue to be subject to this Lease, as amended (each, a "Bifurcated Lease"), provided that (1) the Basic Rent under each such Bifurcated Lease shall be allocated among each of the Related Premises as provided in Exhibit "F", (2) Tenant assigns its interest in this Lease with respect to the Bifurcated Premises (each such Lease Bifurcation, a "Partial Assignment") in accordance with the terms and conditions of this Paragraph 21, and (3) any such Complete Assignment or each Partial Assignment is to a Person (a "Preapproved Assignee") which meets the following applicable criteria: (x) in the case of a Complete Assignment which, as a matter of Law, results from a merger, the successor Tenant shall have, after giving effect to such merger, a net worth at least equal to Tenant's net worth immediately prior to such merger, (y) in the case of the sale of all or substantially all of the assets of Tenant, (i) the sale shall result in a Complete Assignment, and (ii) immediately after giving effect to such purchase, the assignee shall have a net worth at least equal to Tenant's net worth immediately prior to such purchase, and (z) in all other cases, immediately following such assignment the assignee will have an Investment Grade Rating. All determinations of net worth in this Paragraph 21(a)(i) shall be made in accordance with GAAP. (ii) If Tenant desires to assign this Lease, whether by operation of law, through a Complete Assignment or a Partial Assignment, or otherwise, to a Person (a "Non-Preapproved Assignee") who would not be a Preapproved Assignee (a "Non-Preapproved Assignment") then Tenant shall, not less than ninety (90) days prior to the date on which it desires to make a Non-Preapproved Assignment submit to Landlord and Lender information regarding the following with respect to the Non-Preapproved Assignee (collectively, the "Review Criteria"): (A) credit, (B) capital structure, (C) management, (D) operating history, (E) proposed use of the Leased Premises and (F) risk factors associated with the proposed use of the Leased Premises by the Non-Preapproved Assignee, taking into account factors such as environmental concerns, product liability and the like. Landlord and Lender shall review such information and shall approve or disapprove the Non-Preapproved Assignee no later than the thirtieth (30th) day following receipt of all such information, and Landlord and Lender shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on their review of the Review Criteria applying prudent business judgment. If a response is not received by Tenant from Landlord and Lender by the expiration of such thirty (30) day period such Non-Preapproved Assignee shall be deemed disapproved. (iii) If Tenant assigns its rights and interest under this Lease except as expressly set forth below, the assignee under such assignment shall expressly assume all the obligations of Tenant hereunder, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such assignment, by a written instrument delivered to Landlord at the time of such assignment. With respect to each assignment, the assignee shall not be required to assume the obligations of Tenant which may have arisen on or prior to the date of such assignment with respect to the Leased Premises or the Bifurcated Premises, as applicable, if Tenant provides Landlord evidence satisfactory to Landlord in its 32 reasonable discretion that (1) the Leased Premises or the Bifurcated Premises, as applicable, is in the physical condition required by this Lease as evidenced by report issued by an independent thirty party engineering firm reasonably acceptable to Landlord, (2) no Environmental Violation exists as evidenced by a report issued by an environmental consulting firm reasonably acceptable to Landlord, and (3) all applicable Impositions have been properly adjusted between Tenant and the assignee as of the assignment date. Upon a Complete Assignment to a Preapproved Assignee which has an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease arising after such Complete Assignment. Upon a Complete Assignment where the assignee is a Preapproved Assignee solely on the basis of clause "(y)" of Paragraph 21(a)(i), Tenant shall be relieved of all of its obligations under this Lease, whether arising before or after such Complete Assignment, provided that such Preapproved Assignee assumes all of Tenant's obligations under the Lease, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such Complete Assignment, by a written instrument delivered to Landlord at the time of such assignment. Upon a Partial Assignment of this Lease to a Preapproved Assignee which has an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease with respect to the Bifurcated Premises arising after such assignment. No assignment shall impose any additional obligations on Landlord under this Lease, and, except as expressly set forth above, no assignment shall affect or reduce any of the obligations of Tenant (including but not limited to Tenant's liability with respect to Surviving Obligations), which shall remain in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment had been made. (b) (i) Tenant shall not have the right to sublet all or any portion of any Related Premises without having obtained the approval of Landlord which consent shall not be unreasonably withheld or delayed. Landlord agrees that it shall not have the right to withhold or delay its consent to any proposed subletting so long as Tenant agrees in writing at the time consent to such subletting is requested to assign to Landlord the subrents collected thereunder in accordance with the terms and provisions of Paragraph 21(e) (a "Preapproved Sublet"). (ii) With respect to any sublease of an entire Related Premises for a term of at least five (5) years or, if less, the balance of the Term minus one day which sublease requires the subtenant to pay Rent at least equal to Basic Rent and Additional Rent allocable to such Related Premises and comply with all other terms and conditions of this Lease to the extent applicable to the Related Premises (such sublease being referred to as a "Protected Sublease") and such subtenant either (A) meets the criteria of a Preapproved Assignee pursuant to Paragraph 21(a)(i) or (B) has been approved by Landlord and Lender in accordance with the procedure set forth in clause (ii) of Paragraph 21(a), (each such subtenant, a "Protected Subtenant"), so that if this Lease is terminated by reason of the occurrence of an Event of Default, Landlord will recognize such Protected Sublease as a direct lease of the Related Premises. Such recognition and agreement by Landlord to treat such sublease as a Protected Sublease, shall not be effective unless such Protected Subtenant executes and delivers to Landlord a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit "E" (modified as appropriate to govern the Landlord and such subtenant as the parties and the sublease as the protected leasehold). With respect to a proposed Protected Subtenant pursuant to clause "(B)" above, Landlord shall provide its approval or disapproval in 33 writing within thirty (30) days of Tenant's written request and submission of all required information and any disapproval by Landlord shall state the reasons for such disapproval. (iii) Each sublease of any of the Related Premises shall (A) subject to the provisions of Paragraphs 21(b) and 32, be expressly subject and subordinate to this Lease and any Mortgage encumbering the Leased Premises; (B) not extend beyond the then current Term minus one day; (C) subject to the provisions of Paragraphs 21(b) and 32, terminate upon any termination of this Lease, unless Landlord elects in writing, to cause the sublessee to attorn to and recognize Landlord as the lessor under such sublease, whereupon such sublease shall continue as a direct lease between the sublessee and Landlord upon all the terms and conditions of such sublease; and (D) bind the sublessee to all covenants contained in Paragraphs 4(a), 10 and 12 with respect to subleased premises to the same extent as if the sublessee were the Tenant. No sublease shall affect or reduce any of the obligations of Tenant hereunder or, except as provided in Paragraph 21(b)(ii), impose any additional obligations on Landlord under this Lease. (c) Concurrently with Tenant's execution of any assignment or sublease, Tenant shall provide to Landlord a completed certification substantially in the form attached hereto as Exhibit "G", executed by the proposed assignee/sublessee and, in connection with a Preapproved Assignment or Protected Sublease, such other information reasonably required by Landlord to establish that any proposed Preapproved Assignment or Protected Sublease satisfies the criteria set forth above. (d) Tenant shall, within ten (10) Business Days after the execution and delivery of any assignment or sublease, deliver a duplicate original copy thereof to Landlord which, in the event of an assignment, shall be in recordable form. (e) The provisions of this Paragraph 21(e) shall be applicable in the event of a request by Tenant for consent to a Preapproved Sublet pursuant to Paragraph 21(b) or with respect to any Protected Sublease. Tenant shall grant, convey and assign to Landlord all right, title and interest of Tenant in and to such sublease any and all extensions, modifications and renewals thereof and all rents, issues and profits therefrom which assignment shall not be subject to any assignment from Tenant to any other Person. Landlord shall grant to Tenant a license to collect and enjoy all rents and other sums of money payable under such sublease, provided, however, that during the continuance of an Event of Default, Landlord shall have the absolute right at any time upon notice to Tenant and any subtenants to revoke said license and to collect such rents and sums of money and to apply the same to Rent next due and owing. Tenant shall not consent to, cause or allow any modification or alteration of any of the terms, conditions or covenants of any Protected Subleases or the termination thereof, without the prior written approval of Landlord which consent shall not be unreasonably withheld nor shall Tenant accept any rents more than thirty (30) days in advance of the accrual thereof. (f) Tenant shall not have the power to mortgage, pledge or otherwise encumber its interest under this Lease or any sublease of any of the Related Premises, and any such mortgage, pledge or encumbrance made in violation of this Paragraph 21 shall be void and of no force and effect. 34 (g) Landlord may sell or transfer its interest in the Leased Premises at any time without Tenant's consent to any third party (each a "Third Party Purchaser"), provided, however, Landlord shall not, without Tenant's prior written consent which consent shall not be unreasonably withheld, delayed or conditioned, sell the Leased Premises or assign its interest in this Lease to (i) to a Competitor of Tenant or (ii) a Person with which Tenant would be required to consolidate its financial statements under GAAP. In the event of any such transfer not in violation of this Paragraph 21(g), Tenant shall attorn to any Third Party Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify Tenant in writing of such transfer. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such agreements do not increase the liabilities and obligations of Tenant hereunder. 22. Events of Default. (a) The occurrence of any one or more of the following (after expiration of any applicable cure period as provided in Paragraph 22(b)) shall, at the sole option of Landlord, constitute an "Event of Default" under this Lease. (i) a failure by Tenant to make any payment of any Monetary Obligation on or prior to its due date, regardless of the reason for such failure; (ii) a failure by Tenant duly to perform and observe, or a violation or breach of, any other provision hereof not otherwise specifically mentioned in this Paragraph 22(a); (iii) any representation or warranty made by Tenant herein or in any certificate, demand or request made pursuant hereto proves to be incorrect in any material adverse respect and the circumstances giving rise to such misrepresentation or breach of warranty are continuing and would reasonably be anticipated to have a material adverse effect upon Tenant's ability to perform its obligations under this Lease or upon any Related Premises, in each case with Landlord applying commercially reasonable standards; (iv) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or trustee for itself or for any of the Related Premises, (C) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (D) make a general assignment for the benefit of creditors; (v) a court shall enter an order, judgment or decree appointing, without the consent of Tenant, a receiver or trustee for it or for any of the Related Premises or approving a petition filed against Tenant which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain undischarged or unstayed ninety (90) days after it is entered; (vi) any Related Premises (A) shall have been vacated other than (1) due to a Casualty to or Condemnation of such Related Premises so long as Tenant is diligently negotiating an insurance settlement or endeavoring to restore the Related Premises or (2) as a result of Tenant having decided to cease its business operations at such location so long 35 as Tenant is diligently seeking an assignment or sublet (which diligence shall be deemed evidenced by a listing of such Related Premises with a real estate broker or agent at market terms), or (B) shall have been abandoned; (vii) Tenant shall voluntarily liquidate or dissolve or shall begin proceedings towards its liquidation or dissolution except by filing bankruptcy proceedings; (viii) the estate or interest of Tenant in any of the Related Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated or discharged within sixty (60) days after it is made; (ix) a failure by Tenant to perform or observe, or a violation or breach of, or a misrepresentation by Tenant under any document between Tenant and Lender or from Tenant to Lender, if such failure, violation, breach or misrepresentation gives rise to a default beyond any applicable cure period with respect to any Loan; (x) a failure by Tenant to maintain in effect any material license or permit necessary for the use, occupancy or operation of any of the Related Premises, in each case with Landlord applying commercially reasonable standards; (xi) Tenant shall in a single transaction or series of related transactions sell, convey, transfer or lease all or substantially all of its assets unless concurrently with such sale the interest of Tenant in this Lease is assigned to the purchaser, lessee or transferee of such assets who complies with the requirements of Paragraph 21 of this Lease and who shall assume in writing all of the obligations of Tenant hereunder; (xii) Tenant shall fail to deliver the Estoppel Certificate described in Paragraph 25 within the time period specified therein provided that such request for an Estoppel Certificate clearly states that the failure to provide said Estoppel Certificate will be an Event of Default under this Lease if not delivered within said time period; (xiii) Tenant shall fail to execute and deliver the subordination, non-disturbance and attornment agreement in accordance with the requirements of Paragraph 32 within fifteen (15) Business Days of written request by Landlord provided that such request clearly states that the failure to execute and deliver such agreement will be an Event of Default under this Lease if not delivered within said time period; (xiv) An Event of Default (as that term is defined in each of the Affiliate Leases) under either of the Affiliate Leases shall occur; or (xv) Tenant shall fail to comply with the terms of Paragraph 2(c)(i) of Exhibit "H". (b) No notice or cure period shall be required in any one or more of the following events: (A) the occurrence of an Event of Default under clause (i) (except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xv) of Paragraph 22(a); (B) a failure to provide any insurance required by Paragraph 16 or an 36 assignment or sublease entered into in violation of Paragraph 21; or (C) the default is such that any delay in the exercise of a remedy by Landlord could reasonably be expected to cause irreparable harm to Landlord. If the default consists of the failure to pay any Monetary Obligation under clause (i) of Paragraph 22(a), the applicable cure period shall be five (5) Business Days from the date on which notice is given, but if the default consists of the failure to pay Basic Rent, Landlord shall not be obligated to give notice of such default in more than one (1) time within any Lease Year. If the default consists of a default under clause (ii) of Paragraph 22(a), other than the events specified in clauses (B) and (C) of the first sentence of this Paragraph 22(b), the applicable cure period shall be thirty (30) days from the date on which notice is given provided Tenant has commenced to cure such default with such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same or, if the default cannot be cured within such thirty (30) day period and Tenant, in the reasonable opinion of Landlord and Lender, thereafter diligently and expeditiously proceeds to cure same (and delay in the exercise of a remedy would not, in Landlord's reasonable judgment, cause any material adverse harm to Landlord or any of the Leased Premises) the cure period shall be extended for so long as it shall require Tenant in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of one hundred and five (105) days unless (x) Landlord determines in its reasonable discretion that Tenant is diligently and expeditiously curing the applicable default and (y) the applicable default does not relate to an Environmental Violation (except for an Environmental Violation that cannot be cured within such one hundred and five (105) day period due solely to the failure of a governmental agency to approve a remediation plan or provide any permit required for Tenant to remediate in which case the one hundred and five (105) day period shall be extended, so long as Tenant is diligently and expeditiously curing the applicable default, by the number of days elapsed between the date Tenant submits a remediation plan or applies for a permit to the appropriate governmental authority and the date such plan is approved or permit is issued by the appropriate governmental authority, but in no event shall such extension exceed one year from the date notice was originally given by Landlord to Tenant of such default). 23. Remedies and Damages Upon Default. (a) If an Event of Default shall have occurred and is continuing, Landlord shall have the right, at its sole option, then or at any time thereafter, to exercise its remedies and to collect damages from Tenant in accordance with this Paragraph 23, subject in all events to applicable Law, without further demand upon or notice to Tenant except as otherwise provided in Paragraph 22(b) and this Paragraph 23. (i) Landlord may give Tenant notice of Landlord's intention to terminate this Lease on a date specified in such notice. Upon such date, this Lease, the estate hereby granted and all rights of Tenant hereunder shall expire and terminate. Upon such termination, Tenant shall immediately surrender and deliver possession of the Leased Premises to Landlord in accordance with Paragraph 26. If Tenant does not so surrender and deliver possession of all of the Leased Premises, Landlord may re-enter and repossess any of the Leased Premises not surrendered, with or without legal process, by peaceably entering any of the Leased Premises and changing locks or by summary proceedings, ejectment or any other lawful means or procedure (including but not limited to the procedure set forth in ORS 105.105-168 with respect to the Oregon Premises). 37 (ii) Landlord may repossess the Leased Premises without terminating the Lease after obtaining an appropriate order from a court of competent jurisdiction, and thereafter peacefully enter the Leased Premises and changing locks or by other summary judicial proceedings. (iii) Upon or at any time after taking possession of any of the Leased Premises pursuant to Paragraph 23(a)(i) or 23(a)(ii), Landlord may, by peaceable means or legal process, remove any Persons or property therefrom. Landlord shall be under no liability for or by reason of any such entry, repossession or removal. Notwithstanding such entry or repossession, Landlord may collect the damages set forth in Paragraph 23(b)(i) and 23(b)(ii). (iv) After repossession of any of the Leased Premises pursuant to clause (i) or (ii) above, Landlord shall have the right to relet any of the Leased Premises to such tenant or tenants, for such term or terms, for such rent, on such conditions and for such uses as Landlord in its sole discretion may determine, and collect and receive any rents payable by reason of such reletting. Landlord may make such Alterations in connection with such reletting as it may deem advisable in its sole discretion. Notwithstanding any such reletting, Landlord may collect the damages set forth in Paragraph 23(b)(ii). Landlord shall consider any tenants or subtenants reasonably proposed by Tenant and prepared to lease or sublet the Leased Premises or any Related Premises on reasonable terms so as to mitigate Tenant's damages, but Landlord shall be under no obligation to accept such proposed tenants or subtenants. (v) Landlord may declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for the remainder of the then current Term to be immediately due and payable. Tenant shall immediately pay to Landlord all such Basic Rent discounted to its Present Value, all accrued Rent then due and unpaid, all other Monetary Obligations which are then due and unpaid and all Monetary Obligations which arise or become due by reason of such Event of Default (including any Costs of Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and Monetary Obligations, this Lease shall remain in full force and effect and Tenant shall have the right to possession of the Leased Premises from the date of such receipt by Landlord to the end of the Term, and subject to all the provisions of this Lease, including the obligation to pay all increases in Basic Rent and all Monetary Obligations that subsequently become due, except that (A) no Basic Rent which has been prepaid hereunder shall be due thereafter during the said Term, and (B) Tenant shall have no option to extend or renew the Term. (b) The following constitute damages to which Landlord shall be entitled if Landlord exercises its remedies under Paragraph 23(a)(i), (ii) and (iii): (i) If Landlord exercises its remedy under Paragraphs 23(a)(i) or (ii) but not its remedy under Paragraph 23(a)(iv) (or attempts to exercise such remedy and is unsuccessful in reletting the Leased Premises) then, upon written demand from Landlord, Tenant shall pay to Landlord, as liquidated and agreed final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the Present Value of the excess, if any, of (A) all Basic Rent allocated for each Related Premises based on Exhibit "F" from the date of such demand to the date on which the Term is scheduled to expire 38 hereunder in the absence of any earlier termination, re-entry or repossession over (B) the then fair market rental value of each Related Premises for the same period. Tenant shall also pay to Landlord all of Landlord's Costs in connection with the repossession of the Leased Premises and any attempted reletting thereof, including all brokerage commissions, legal expenses, reasonable attorneys' fees, employees' expenses, costs of Alterations and expenses and preparation for reletting. (ii) If Landlord exercises its remedy or remedies under Paragraphs 23(a)(i), (ii), (iii) or (iv), then Tenant shall, until the end of what would have been the Term in the absence of the termination of the Lease, and whether or not any of the Leased Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages all Monetary Obligations which would be payable under this Lease by Tenant in the absence of such termination less the net proceeds, if any, of any reletting pursuant to Paragraph 23(a)(iv), after deducting from such proceeds all of Landlord's Costs (including the items listed in the last sentence of Paragraph 23(b)(i) hereof) incurred in connection with such repossessing and reletting; provided, that if Landlord has not relet the Leased Premises, such Costs of Landlord shall be considered to be Monetary Obligations payable by Tenant. Tenant shall be and remain liable for all sums aforesaid, and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages. Nothing herein contained shall be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired by its own terms had there been no such Event of Default. (c) Intentionally Omitted. (d) Notwithstanding anything to the contrary herein contained, in lieu of or in addition to any of the foregoing remedies and damages, Landlord may exercise any remedies and collect any damages available to it at law or in equity; provided, however, with respect to a Limited Remedy Default, the aggregate amount Tenant shall be required to pay to Landlord (pursuant to paragraph 23(a)(v) or otherwise) from and after the date of the occurrence of such Limited Remedy Default (the "Occurrence Date") with respect to Basic Rent, Additional Rent and indemnification obligations under Paragraph 15(a) shall be limited to the sum of (i) the present value as of the Occurrence Date, discounted at the annual rate of eleven and 15/100 percent (11.15%), of all Basic Rent reserved hereunder for the unexpired portion after the Occurrence Date) of the Term devised herein as if this Lease had not expired or been terminated, (ii) any amounts of Additional Rent which are due and payable or have accrued under this Lease through the Occurrence Date, and (iii) any amounts of Additional Rent which are due and payable or have accrued under this Lease after the Occurrence Date while the Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, after any Limited Remedy Default that relates to Impositions, insurance, utilities, repairs, maintenance, environmental maintenance, remediation and compliance and other routine and customary costs and expenses of operating and maintaining the Leased Premises or the applicable Related Premises, as applicable. Notwithstanding the foregoing, if Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, and assumes, ratifies or affirms this Lease during any pending bankruptcy or other event described in 22(a)(iv) or (v), then Tenant shall be obligated to pay all Basic Rent and Additional Rent which become due and payable under this Lease without limitation by this paragraph 23(d). Nothing contained in this 39 paragraph 23(d) shall limit any amounts payable by Tenant with respect to Basic Rent or Additional Rent if any Event of Default that is not a Limited Remedy Default has occurred. (e) Except as specifically provided in Paragraphs 23(a)(iv), Landlord shall not be required to mitigate any of its damages hereunder unless required to by applicable Law. If any Law shall validly limit the amount of any damages provided for herein to an amount which is less than the amount agreed to herein, Landlord shall be entitled to the maximum amount available under such Law. (f) No termination of this Lease, repossession or reletting of any of the Leased Premises, exercise of any remedy or collection of any damages pursuant to this Paragraph 23 shall relieve Tenant of any Surviving Obligations. (g) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD OR TENANT HEREUNDER, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. (h) Intentionally Omitted. (i) Upon the occurrence of any Event of Default, Landlord shall have the right (but no obligation) to perform any act required of Tenant hereunder and, if performance of such act requires that Landlord enter the Leased Premises, Landlord may enter the Leased Premises for such purpose (j) No failure of Landlord (i) to insist at any time upon the strict performance of any provision of this Lease or (ii) to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof. A receipt by Landlord of any sum in satisfaction of any Monetary Obligation with knowledge of the breach of any provision hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in a writing signed by Landlord. (k) Tenant hereby waives and surrenders, for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which it or any of them may have under any present or future Law to redeem any of the Leased Premises or to have a continuance of this Lease after termination of this Lease or of Tenant's right of occupancy or possession pursuant to any court order or any provision hereof, and (ii) the benefits of any present or future Law which exempts property from liability for debt or for distress for rent. (l) Except as otherwise provided herein, all remedies are cumulative and concurrent and no remedy is exclusive of any other remedy. Each remedy may be exercised at any time an Event of Default has occurred and is continuing and may be exercised from time to time. No remedy shall be exhausted by any exercise thereof. 24. Notices. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease shall be in writing and shall be deemed to have been given and received for all purposes when delivered in person or by Federal Express or other reliable 24- 40 hour delivery service or five (5) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at its address stated on page one of this Lease or when delivery is refused. Notices sent to Landlord shall be to the attention of Director, Asset Management, and notices sent to Tenant shall be to the attention of Chief Financial Officer. A copy of any notice given by Tenant to Landlord shall simultaneously be given by Tenant to Reed Smith LLP, One Liberty Place, Philadelphia, PA 19103, Attention: Chairman, Real Estate Department. A copy of any notice by Landlord to Tenant shall simultaneously be given by Landlord to Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., 55 East Monroe Street, Suite 3700, Chicago, Illinois 60603. For the purposes of this Paragraph, any party may substitute another address stated above (or substituted by a previous notice) for its address by giving fifteen (15) days' notice of the new address to the other party, in the manner provided above. 25. Estoppel Certificate. At any time upon not less than fifteen (15) Business Days' prior written request by either Landlord or Tenant (the "Requesting Party") to the other party (the "Responding Party"), on not more than three (3) occasions during any Lease Year, the Responding Party shall deliver to the Requesting Party a statement in writing (the "Estoppel Certificate"), executed by an authorized officer of the Responding Party, certifying (a) that, except as otherwise specified, this Lease is unmodified and in full force and effect, (b) the dates to which Basic Rent, Additional Rent and all other Monetary Obligations have been paid, (c) that, to the knowledge of the signer of such certificate and except as otherwise specified, no default by either Landlord or Tenant exists hereunder, and (d) such other matters as the Requesting Party may reasonably request. Any such statements by the Responding Party may be relied upon for estoppel purposes only by the Requesting Party, any Person whom the Requesting Party notifies the Responding Party in its request for the Estoppel Certificate is an intended recipient or beneficiary of the Estoppel Certificate, any Lender or their assignees and by any prospective purchaser or mortgagee of any of the Leased Premises. Any Estoppel Certificate required under this Paragraph 25 and delivered by Tenant shall state that, in the opinion of each person signing the same, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to the subject matter of such Estoppel Certificate, and shall briefly state the nature of such examination or investigation. 26. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises or Affected Premises, is applicable, to Landlord in the same condition in which the Leased Premises or Affected Premises, if applicable, was at the commencement of this Lease, except as repaired, rebuilt, restored, altered, replaced or added to as permitted or required by any provision of this Lease, and except for ordinary wear and tear. Upon such surrender, Tenant shall (a) remove from the Leased Premises or Affected Premises, if applicable, all property which is owned by Tenant or third parties other than Landlord and (b) repair any damage caused by such removal. Property not so removed shall become the property of Landlord, and Landlord may, after five (5) Business Days' prior notice to Tenant, thereafter cause such property to be removed from the Leased Premises or Affected Premises, if applicable. The cost of removing and disposing of such property and repairing any damage to any of the Leased Premises or Affected Premises, if applicable, caused by such removal shall be paid by Tenant to Landlord upon demand. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any such property which becomes the property of Landlord pursuant to this Paragraph 26. 41 27. No Merger of Title. There shall be no merger of the leasehold estate created by this Lease with the fee estate in any of the Leased Premises by reason of the fact that the same Person may acquire or hold or own, directly or indirectly, (a) the leasehold estate created hereby or any part thereof or interest therein and (b) the fee estate in any of the Leased Premises or any part thereof or interest therein, unless and until all Persons having any interest in the interests described in (a) and (b) above which are sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 28. Books and Records. (a) Tenant shall keep adequate records and books of account with respect to the finances and business of Tenant generally, and with respect to the Leased Premises, which records and books with respect to the finances and business of Tenant shall be kept in accordance with generally accepted accounting principles ("GAAP") consistently applied, and shall permit Landlord and Lender by their respective agents, accountants and attorneys, upon reasonable notice to Tenant, to visit and inspect the Leased Premises and examine (and make copies of at the inspecting party's expense) the records and books of account and to discuss the finances and business with the officers of Tenant, at such reasonable times during normal business hours as may be requested by Landlord and at Landlord's expense, provided, however, that Landlord and Lender shall be limited to one personal visit per Lease Year to discuss the finances and business of Tenant with the officers of Tenant. Upon the request of Lender or Landlord (either telephonically or in writing), Tenant shall provide the requesting party with copies of any information to which such party would be entitled in the course of a personal visit. (b) Tenant shall deliver to Landlord and to Lender within one hundred twenty (120) days of the close of each fiscal year, annual audited financial statements of Tenant prepared by nationally recognized independent certified public accountants. Tenant shall also furnish to Landlord within sixty (60) days after the end of each of the three remaining quarters unaudited financial statements and all other quarterly reports of Tenant, certified by Tenant's chief financial officer, and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law. All financial statements of Tenant shall be prepared in accordance with GAAP consistently applied. All annual financial statements shall be accompanied (i) by an opinion of said accountants (A) stating that such financial statements present fairly the financial position for the periods indicated, in conformity with GAAP applied on a consistent basis with prior years and (B) which shall not be qualified or limited because of a restricted or limited examination by the accountants of any material portion of Tenant's records and (ii) by a certificate of the president or a vice president of Tenant, dated within five (5) days of the delivery of such statement, stating that such officer knows of no Event of Default, or event which, upon notice or the passage of time or both, would become an Event of Default which has occurred and is continuing hereunder or, if any such event has occurred and is continuing, specifying the nature and period of existence thereof and what action Tenant has taken or proposes to take with respect thereto. 29. Intentionally Omitted. 42 30. Non-Recourse as to Landlord. Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease shall be limited to actual damages and shall be enforced only against Landlord's interest in the Leased Premises and not against any other assets, properties or funds of (a) Landlord, (b) any director, member, officer, general partner, limited partner, employee or agent of Landlord, or any general partner of Landlord, any of its general partners or shareholders (or any legal representative, heir, estate, successor or assign of any thereof), (c) any predecessor or successor partnership or corporation (or other entity) of Landlord, or any of its general partners, either directly or through Landlord or its general partners or any predecessor or successor partnership or corporation or their shareholders, officers, directors, employees or agents (or other entity), or (d) any other Person (including Carey Property Advisors, Carey Fiduciary Advisors, Inc., W. P. Carey & Co., LLC, Carey Management LLC, and any Person affiliated with any of the foregoing, or any director, officer, employee or agent of any thereof). 31. Financing. (a) Tenant agrees to pay all costs and expenses incurred by Landlord in connection with Landlord's purchase, leasing and initial financing of the Leased Premises including, without limitation, the cost of appraisals, environmental reports, structural reports, title insurance, surveys, legal fees and expenses, and Lender's points and commitment fee. Tenant shall not be responsible for any acquisition or similar fee payable to W.P. Carey & Co. LLC or its affiliates or any costs or expenses incurred by Landlord in connection with any financing of the Leased Premises subsequent to the initial financing. (b) If Landlord desires to obtain or refinance any Loan, Tenant shall negotiate in good faith with Landlord concerning any request made by any Lender or proposed Lender for changes or modifications in this Lease. In particular, Tenant shall agree, upon request of Landlord, to supply any such Lender with such notices and information as Tenant is required to give to Landlord hereunder and to extend the rights of Landlord hereunder to any such Lender and to consent to such financing if such consent is requested by such Lender. 32. Subordination, Non-Disturbance and Attornment. This Lease and Tenant's interest hereunder shall be superior to any Mortgage, other security instrument or lien hereafter placed upon the Leased Premises by Landlord, and to any and all advances made or to be made thereunder, to the interest thereon, or any ground lease entered into by Landlord and all renewals, replacements and extensions thereof, provided that Tenant hereby agrees to subordinate this Lease to any Mortgage, ground lease or other security instrument so long as such mortgagee, holder of a security interest or ground lessor enters into an agreement with Tenant in substantially in the form of Exhibit "E", subject to any modifications reasonably required by any Lender or ground lessor, with respect to each Related Premises which do not materially affect Tenant's rights hereunder. 33. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that each shall treat this transaction as a true lease for state law purposes and shall report this transaction as a Lease for Federal income tax purposes. For Federal income tax purposes each shall report this Lease as a true lease with Landlord as the owner of the Leased Premises and Fixtures and Tenant as the lessee of such Leased Premises and Fixtures including: (i) treating 43 Landlord as the owner of the property eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Leased Premises and Fixtures, (ii) Tenant reporting its Rent payments as rent expense under Section 162 of the Code, and (iii) Landlord reporting the Rent payments as rental income. 34. Miscellaneous. (a) The paragraph headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease. (b) As used in this Lease, the singular shall include the plural and any gender shall include all genders as the context requires and the following words and phrases shall have the following meanings: (i) "including" shall mean "including without limitation"; (ii) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty, agreement, liability, covenant and/or condition"; (v) "any of the Leased Premises" shall mean "the Leased Premises or any part thereof or interest therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or interest therein"; (vii) "any of the Improvements" shall mean "the Improvements or any part thereof or interest therein"; (viii) "any of the Fixtures" shall mean "the Fixtures or any part thereof or interest therein"; (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or any part thereof"; and (x) "best of knowledge of Tenant" (or words of similar effect) shall mean to the actual knowledge of Tenant's then-current Chief Financial Officer, Treasurer, General Counsel, Associate General Counsel for Real Estate or, as to matters pertaining to any Related Premises, the Distribution Center Manager for such Related Premises. (c) Any act which Landlord is permitted to perform under this Lease may be performed at any time and from time to time by Landlord, Lender or any person or entity designated by Landlord. Except as otherwise specifically permitted herein to the contrary, Landlord and Lender shall not unreasonably withhold, condition or delay their respective consent or approval whenever such consent or approval is required under this Lease, except as otherwise provided herein. Time is of the essence with respect to the performance by Tenant and Landlord of their respective obligations under this Lease. (d) Landlord shall in no event be construed for any purpose to be a partner, joint venturer or associate of Tenant or of any subtenant, operator, concessionaire or licensee of Tenant with respect to any of the Leased Premises or otherwise in the conduct of their respective businesses. (e) This Lease and any documents which may be executed by Tenant on or about the effective date hereof at Landlord's request constitute the entire agreement between the parties and supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the Leased Premises and the transactions provided for herein. Landlord and Tenant are business entities having substantial experience with the subject matter of this Lease and have each fully participated in the negotiation and drafting of this Lease. 44 Accordingly, this Lease shall be construed without regard to the rule that ambiguities in a document are to be construed against the drafter. (f) This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. (g) If the date for performance of any obligation of Landlord or Tenant under this Lease is not a Business Day, the date for performance of such obligation shall be the first Business Day following the date for performance of such obligation. (h) The covenants of this Lease shall run with the land and bind Tenant, Landlord, and their respective its successors and permitted assigns and all present and subsequent encumbrancers and subtenants of any of the Leased Premises, and shall inure to the benefit of Landlord, Tenant, and their respective successors and permitted assigns. (i) Notwithstanding any provision in this Lease to the contrary, all Surviving Obligations of Tenant shall survive the expiration or termination of this Lease with respect to any Related Premises for a period of ten (10) years. (j) If any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (k) All exhibits attached hereto are incorporated herein as if fully set forth. (l) Each of Landlord and Tenant hereby agree that the State of New York has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limiting the generality of the foregoing, matters of construction, validity and performance) this Lease and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed therein and all applicable law of the United States of America; except that, at all times, the provisions for the creation of the leasehold estate, enforcement of Landlord's rights and remedies with respect to right of re-entry and repossession, surrender, delivery, ejectment, dispossession, eviction or other in-rem proceeding or action regarding any Related Premises pursuant to Paragraph 23 hereof shall be governed by and construed according to the Laws of the State in which the applicable Related Premises is located, it being understood that, to the fullest extent permitted by law of such State, the law of the State of New York shall govern the validity and the enforceability of the Lease, and the obligations arising hereunder. To the fullest extent permitted by law, Tenant hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Lease. Any legal suit, action or proceeding against Tenant arising out of or relating to this Lease may be instituted in any federal or state court sitting in the County of New York, State of New York, and Tenant waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or 45 proceeding in such County and State, and Tenant hereby expressly and irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. Notwithstanding the foregoing, nothing herein shall prevent or prohibit Landlord from instituting any suit, action or proceeding in any other proper venue or jurisdiction in which Tenant is located or where service of process can be effectuated. (m) Landlord covenants and agrees to comply with all requirements of GAAP in effect as of the Commencement Date to the extent necessary to prevent Tenant from being required to be consolidated with Landlord for GAAP financial reporting purposes and to consider any proposed modification to this Lease (which Landlord may approve or disapprove in its sole and absolute discretion) and which is necessary to preserve such status and the treatment of the Lease as an operating lease under GAAP. From time to time, Landlord will furnish Tenant with such information regarding Landlord as Tenant may reasonably request to permit Tenant and Tenant's accountants to determine the treatment of the Lease for financial reporting purposes. (n) This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Lease. 46 IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed under seal as of the day and year first above written. LANDLORD: BOLT (DE) LIMITED PARTNERSHIP, a Delaware limited partnership, By: BOLT (DE) QRS 15-26, INC., its general partner By: /s/ BENJAMIN P. HARRIS ----------------------------------- Name: Benjamin P. Harris Title: First Vice President ATTEST: TENANT: TRUSERV CORPORATION, a Delaware corporation By: /s/ PATRICIA C. LYDON By: /s/ BARBARA L. WAGNER ---------------------------- ----------------------------------- Name: Patricia C. Lydon Name: Barbara Wagner Title: Title: Vice President and Treasurer [Corporate Seal] 47 EXHIBIT A LAND 1. OREGON PREMISES PARCEL 1: Lot 1, SOUTHERN PACIFIC INDUSTRIAL PARK NO. 1, as platted and recorded in Book 67, Page 23, Lane County Oregon Plat Records, in Lane County, Oregon. EXCEPTING THEREFROM that portion of said property lying below a depth of five hundred (500) feet measured vertically from the contour of the surface thereof. PARCEL 2: Lot 2 and the West 93.65 feet of Lot 3, SOUTHERN PACIFIC INDUSTRIAL PARK NO. 1, as platted and recorded in Book 67, Page 23, Lane County Oregon Plat Records, in Lane County, Oregon. 2. ARIZONA PREMISES PARCEL VI-E-A, as shown on Original Segregation Survey recorded February 8, 1990, in Book 6 of Records of Surveys, page 2, at Reception No. 90-8833, in the Office of the County Recorder of Mohave County, Arizona, being situate in Sections 23 and 26, Township 22 North, Range 16 West of the Gila and Salt River Base and Meridian, Mohave County, AZ. Said land is also described as follows: A portion of the Southwest Quarter of Section 23 and the Northwest Quarter of Section 26, T22N, R16W, of the G&SRM, Mohave County, Arizona, being more particularly described as follows: COMMENCING at the southwest corner of said Section 23, being a found U.S.G.L.O. brass cap on a standard pipe, circa 1911; Thence South 89(degree) 41' 12" East, along the south line of said Section 23, a distance of 719.53 feet, more or less, to a point on the southwesterly line of Parcel V1-E-A (the subject property), and a point on the northeasterly right-of-way line of Mohave Airport Drive; Thence North 46(degree) 35' 49" West along said right-of-way line, a distance of 357.83 feet to the westernmost corner of said parcel and the true point of beginning, from which a brass nail & tag LS 8904 bears South 38(degree) 25' 20" West, a distance of 2.89 feet; Thence North 38(degree) 25' 20" East along the southeasterly right-of-way line of the A.T.&S.F. Railroad, a distance of 1494.67 feet to a found 5/8" rebar with an orange plastic cap stamped RLS 25074, Holmquist; EXHIBIT A - 1 Thence South 44(degree) 52' 26" East along the common line between Parcels V1-E-A and V1-E-D, a distance of 1271.51 feet to a found 5/8" rebar without identification affixed thereto; Thence South 45(degree) 07' 34" West along the northwesterly right-of-way line of Commerce Drive, a distance of 739.14 feet to a point on the south line of said Section 23; Thence South 45(degree) 07' 34" West into said Section 26 and along said right-of-way line, a distance of 659.39 feet to a found 5/8" rebar without identification affixed thereto; Thence along a tangent curve right, a distance of 47.13 feet, having a radius of 30.00 feet and a central angle of 90(degree) 00' 20" to a found 5/8" rebar without identification affixed thereto; Thence North 44(degree) 52' 07" West, along the northeasterly right-of-way line of Mohave Airport Drive, a distance of 403.76 feet to a set cut-nail and brass tag, stamped LS 25074; Thence North 46(degree) 35' 49" West, along said right-of-way line, a distance of 305.74 feet to a point on the north line of said Section 26; Thence North 46(degree) 35' 49" West into said Section 23 and along said right-of-way line, a distance of 357.83 feet, returning to the true point of beginning. 3. PENNSYLVANIA PREMISES ALL THAT CERTAIN parcel or tract of ground, situate in the Township of Upper Macungie, County of Lehigh and Commonwealth of Pennsylvania, bounded and described according to Plan of 32.5002 acre tract at Iron Run made by A.W. Martin Associates, Inc., Engineers and Surveyors, Allentown, Pennsylvania, dated August 30, 1973 and last revised February 1, 1974, as follows, to wit: BEGINNING at a point in the center line of Ruppsville Road (T-570) (80 feet wide) being at the distance of 1093.20 feet measured South 16 degrees 51 minutes 32 seconds East along the center line of Ruppsville Road from its intersection with the Southerly right of way line of L.R. 443 Par. (60 feet wide), thence extending from said beginning point South 16 degrees 51 minutes 59 seconds East, along the center line of Ruppsville Road 61.32 feet to a point, thence extending South 11 degrees 46 minutes 26 seconds West crossing an iron pin set on the Southwesterly side of Ruppsville Road 80 feet wide and along land now or late of Reading Railroad Catasauqua and Foglesville Branch 136.83 feet to an iron pin, thence extending along the Easterly side of a 30 foot wide General Utility Easement and along land of the Reading Railroad aforesaid, and land now or late of Alan H. and George G. Sipps, Jr. the five following courses and distances (1) South 10 degrees 11 minutes 26 seconds West 100.65 feet to an iron pin, (2) South 4 degrees 36 minutes 26 seconds West 137.39 feet to an iron pin, (3) South 73 degrees 38 minutes 26 seconds West 13 feet to an iron pin, (4) South 00 degrees 51 minutes 34 seconds East 168 feet to an iron pin and (5) South 6 degrees 12 minutes 58 seconds East 85.26 2 feet to an iron pin set on the Northerly side of U.S. Route 22 (140 feet wide) thence extending along the Southerly side of a 30 feet wide underground utility easement and the Northerly side of U.S. Route 22 the two following courses and distances (1) Southwestwardly on the arc of a circle curving to the right having a radius of 5659.65 feet the arc distance of 915.94 feet to an iron pin and (2) South 75 degrees 4 minutes 34 seconds West 334.32 feet to an iron pin, thence extending North 16 degrees 48 minutes 39 seconds West along the Westerly side of a 15 feet wide underground utility easement and land now or late of Iron Run passing through part of the cul-de-sac of Snowdrift Road 1050.36 feet to an iron pin set in the middle of a 21 foot wide rail easement, thence extending along the middle of said 21 feet wide rail easement the two following courses and distances (1) North 73 degrees 11 minutes 21 seconds East 1014.35 feet to an iron pin and (2) Northeastwardly, Eastwardly and Southeastwardly on the arc of a circle curving to the right having a radius of 410.28 feet the arc distance of 607.34 feet to an iron pin, thence extending North 73 degrees 11 minutes 21 seconds East crossing the Easterly side of said rail easement and an iron pin set for the Southwesterly side of Ruppsville Road (80 feet wide) 61.20 feet to the first mentioned point and place of beginning. BEING FOLIO NO. HO 7 SW 1-6-1 TAX PARCEL #H7SW1-6-1C 3 EXHIBIT B FIXTURES All fixtures, machinery, apparatus, fittings and appliances of every kind and nature whatsoever now or hereafter affixed or attached to or installed in any of the Leased Premises (except as hereafter provided), including all electrical, anti-pollution, heating, lighting (including hanging fluorescent lighting), incinerating, power, air cooling, air conditioning, humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and ventilating systems, devices and machinery and all engines, pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil burners, boilers, doors, windows, loading platforms, lavatory facilities, stairwells, fencing (including cyclone fencing), passenger and freight elevators, overhead cranes and garage units, together with all additions thereto, substitutions therefor and replacements thereof required or permitted by this Lease, but excluding all personal property and all trade fixtures, racking, rolling stock, machinery, office, manufacturing and warehouse equipment which are not necessary to the operation of the Improvements which constitute part of the Leased Premises. EXHIBIT B - 1 EXHIBIT C PERMITTED ENCUMBRANCES OREGON PREMISES 1. Limited access as set forth in deed from Chester A. Chase and Veda Chase, husband and wife, et al to the State of Oregon, by and through its State Highway Commission, recorded December 14, 1961, Recorder's No. 53325 which provides that no right of easement or right of access to, from or across the State Highway, other than expressly provided for, shall attach to the abutting property. Affects: Access to I-105 on the North 2. Easement(s) for the purpose(s) shown below and rights incidental thereto as delineated or as offered for dedication, on the plat of said property. - Floodway channel - Water service - Sewer (Northerly 14 feet) - Railroad 3. Easement reserved by Southern Pacific Transportation Company, a Delaware corporation for Railroad and recorded December 12, 1974, Recorder's No. 7452378, Book 720. 4. Easement reserved by Southern Pacific Transportation Company, a Delaware corporation for Railroad and recorded July 20, 1979, Recorder's No. 7943153, Book 1009 (affects Parcel 2). 5. Reservation of all mineral rights, interests, and royalties, including without limiting the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals in and under said property, as reserved by SF Pacific Properties Inc., a corporation, in instrument recorded May 24, 1991, Reception No. 9124177, Reel 1697, Official Records of Lane County, Oregon (affects Parcel 2). 6. Matters contained in that certain document entitled "Improvement Agreement and Application for Sewer Hookup", dated October 24, 1994, by and between Servistar/Coast to Coast Corp. and the City of Springfield, recorded November 16, 1994, Recorder's No. 9480417, Book 2013 (affects Parcel 1). 7. Matters disclosed on the Survey prepared by Krush & Associates Ltd., dated December 4, 2002, Project No. 02-31, as follows: a. Sewer, water and electric lines over and across the subject property without any apparent easements therefor. b. Discrepancy regarding the Railroad Easement in favor of Southern Pacific Transportation Company between the plat of Southern Pacific Industrial Park No. EXHIBIT C - 1 1 and the Bargain and Sale Deed recorded in Reel 720R, Instrument No. 7452378, Lane County Oregon Deed Records. c. Railroad tracks fall outside depicted easement. ARIZONA PREMISES 1. Taxes for the second half of the year 2002, not yet due. 2. The liabilities and obligations against said land by reason of its inclusion within the boundaries of the following districts: KINGMAN UNIFIED SCHOOL DISTRICT and MOHAVE UNION HIGH SCHOOL DISTRICT, paid current to date. 3. Easements as shown on the recorded plat of said property, as recorded February 8, 1990, in Book 6 of Records of Surveys, page 2, at Reception No. 90-8833, in the office of the County Recorder of Mohave County, Arizona. 4. Reservations as contained in UNITED STATES PATENT recorded in Book 34 of Deeds, page 303, reading as follows: "Subject to any vested and accrued water rights for mining, agricultural, manufacturing or other purposes, and right to ditches and reservoirs used in connection with such water rights as may be recognized by the local customs, laws and decisions of Courts, and there is reserved from the land hereby granted a right of way thereon for ditches or canals constructed by the authority of the United States." 5. All matters set forth in Restrictions, (deleting therefrom any restrictions indicating any preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status or national origin), as contained in instruments recorded in Book 646 of Official Records, Page 767, in Book 1239 of Official Records, Page 432, and in Book 2305 of Official Records, Page 401. Matters disclosed on the Survey prepared by R.W. Holmquist & Associates, dated December 3, 2002, as follows: Sewer, water and electric lines over and across the subject property without any apparent easements therefor. PENNSYLVANIA PREMISES 1. Title to that portion of premises lying within the bed of Ruppsville Road (T-570) and Snowdrift Road is subject to public and private rights therein. 2. Subject to 21 feet wide Rail Easement, as shown on survey. 3. Right of Way granted to UGI Corporation as in Misc. Book Volume 457 page 522, as shown on survey. 4. Right of Way granted to Pennsylvania Power & Light Company as in Misc. Book Volume 347 page 604, as shown on survey. 2 5. Covenants and Conditions as in Deed Book Volume 1189 page 534, Right of Repurchase was released by document recorded in Volume 380, page 459. 6. Drainage and general utility easement and building restriction line as shown on plan made by A.W. Martin Associates, Inc., dated 9/30/1973 and last revised 2/1/1974, as shown on survey. 7. Additional conditions as disclosed on ALTA/ACSM Land Title Survey prepared for TruServ Corporation by Robert H. McKinney, Jr. Associates, Inc., Consulting Engineers dated 11/29/02: a. Notes; b. Right of Way for the cul-de-sac (Snowdrift Road) encroaches onto subject property 19.66'. Taxes or special assessments which are not shown as existing liens by the public record and are not yet due or payable. 3 EXHIBIT D BASIC RENT PAYMENTS 1. Basic Rent. (a) Basic Rent payable in respect of the Term shall be payable quarterly in advance on each Basic Rent Payment Date, in equal installments as set forth below. For purposes of clarification, the first Lease Year shall include payments due on January 20, 2003, April 20, 2003, July 20, 2003, and October 20, 2003. Pro rata Basic Rent for the period from the date hereof through the nineteenth day of January 2003 shall be paid on the date hereof, and the final quarterly installment of Basic Rent shall be reduced pro rata to reflect the actual number of days remaining in the Term.
Lease Year Annual Basic Rent Quarterly Installments ---------- ----------------- ---------------------- 1 $4,875,630.97 $1,218,907.74 2 $4,947,066.38 $1,236,766.59 3 $5,020,431.98 $1,255,107.99 4 $5,120,840.61 $1,280,210.15 5 $5,223,257.43 $1,305,814.36 6 $5,327,722.58 $1,331,930.64 7 $5,434,277.03 $1,358,569.26 8 $5,542,962.57 $1,385,740.64 9 $5,653,821.82 $1,413,455.45 10 $5,766,898.26 $1,441,724.56 11 $5,882,236.22 $1,470,559.06 12 $5,999,880.95 $1,499,970.24 13 $6,119,878.56 $1,529,969.64 14 $6,242,276.14 $1,560,569.03 15 $6,367,121.66 $1,591,780.41 16 $6,494,464.09 $1,623,616.02 17 $6,624,353.37 $1,656,088.34 18 $6,756,840.44 $1,689,210.11 19 $6,891,977.25 $1,722,994.31 20 $7,029,816.79 $1,757,454.20 21 $7,170,413.13 $1,792,603.28 22 $7,313,821.39 $1,828,455.35 23 $7,460,097.82 $1,865,024.46 24 $7,609,299.78 $1,902,324.94 25 $7,761,485.77 $1,940,371.44 26 $7,916,715.49 $1,979,178.87 27 $8,075,049.80 $2,018,762.45 28 $8,236,550.79 $2,059,137.70 29 $8,401,281.81 $2,100,320.45 30* $7,855,198.49 1st, 2Nd, 3Rd Payment $2,142,326.86 4Th Payment $1,428,217.91 31-40 FMV
EXHIBIT D -1- * The first renewal term is only 9 years 11 months, therefore rent for Year 30 only reflects 11 months. EXHIBIT D -2- EXHIBIT E FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT FORM OF --------------------------------------------- SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT --------------------------------------------- ---------------------------------------------- (Lender) (collectively, Lender) - and - ----------------- (Tenant) - and - ------------------------------- (Landlord) Dated: ___________ Location: ___________ County: ___________ PREPARED BY AND UPON RECORDATION RETURN TO: SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of __________ by and among ________________________________________________, a ____________________, each having an address at ___________________________________________________, Attention: _____________ (collectively, "Lender"), TruServ Corporation, a Delaware corporation, having an address at 8600 W. Bryn Mawr Avenue, Chicago, Illinois 60631, Attention: _____________ ("Tenant"), and ____________________, a _________________, having an address at __________________ ("Landlord"). RECITALS: A. Lender is the present owner and holder of a certain Deed of Trust and, Security Agreement (the "Security Instrument") dated as of ________________, given by Landlord to Lender which encumbers the fee simple absolute estate of Landlord in certain premises described in Exhibit A attached hereto (the "Property") and which, among other security instruments, secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated December __ 2002, given by Landlord to Lender (the "Note"). B. Tenant is the holder of a leasehold estate in the Property under and pursuant to the provisions of a certain lease dated _________________ between Landlord, as landlord, and Tenant, as tenant (as amended from time to time the "Lease"). All capitalized terms used in this Agreement and not otherwise defined herein, shall have the meanings ascribed to such terms in the Lease. C. The Lease governs the use and occupancy of the Property and the other Related Premises. Under the terms of the Lease, Tenant has the right to assign the Lease as to one or more of the Related Premises to a Preapproved Assignee, and upon such assignment Landlord is obligated to enter into a separate Lease with such Preapproved Assignee. In addition, the Lease provides that with respect to Protected Subleases, Landlord is obligated to recognize each Protected Sublease as a direct lease with Landlord in the event an Event of Default results in the termination of the Lease and no default exists under the Protected Sublease. D. On the terms and conditions hereinafter set forth, Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease, any Preapproved Assignee under a Bifurcated Lease and any subtenant under a Protected Sublease. Accordingly, references herein to Tenant are intended to refer to Tenant, any Preapproved Assignee, any Non-Preapproved which is approved by Landlord for a Complete Assignment or a Partial Assignment or any Protected Subtenant, as applicable, and references herein to the Lease are intended to refer to the Lease, any Bifurcated Lease or any Protected Sublease, as applicable. AGREEMENT: For good and valuable consideration, Tenant, Lender and Landlord agree as follows: 1. Subordination. Subject to Sections 2 and 3, the Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument, as of the date hereof, and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease. 2. Non-Disturbance. If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant's possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the Lease shall be in full force and effect and (b) Tenant shall not be in default under any terms, covenants or conditions of the Lease or of this Agreement on Tenant's part to be observed or performed. 3. Attornment. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as "Purchaser"), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a "Prior Landlord") to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser's obligations under the Lease to correct any conditions of a continuing nature that existed as of the date Purchaser shall become the owner of the Property; provided further, however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease; (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, -2- (c) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than three (3) months in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser, (d) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease, or any voluntary surrender of the premises demised under the Lease, made without Lender's prior written consent or (e) bound by any assignment of the Lease or sublease of the Property, or any portion thereof, made prior to the time Purchaser succeeded to Landlord's interest other than if pursuant to the provisions of the Lease. Alternatively, upon the written request of Lender or its successors or assigns, Tenant shall enter into a new lease of the Premises with Lender or such successor or assign, at Lender's or such successor or assign's cost and expense, for the then remaining term of the Lease, upon the same terms and conditions as contained in the Lease, except as otherwise specifically provided in this Agreement. 4. Notice to Tenant. After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall (but subject at all times to compliance with applicable law) thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments. 5. Lender's Consent; Proceeds and Awards. Tenant shall not, without obtaining the prior written consent of Lender, (a) enter into any agreement materially amending, modifying or terminating the Lease, (b) prepay any of the rents, additional rents or other sums due under the Lease for more than three (3) months in advance of the due dates thereof, (c) voluntarily surrender the premises demised under the Lease or terminate the Lease without cause or shorten the term thereof other than pursuant to the provisions of the Lease, or (d) assign the Lease or sublet the premises demised under the Lease or any part thereof other than pursuant to the provisions of the Lease; and any such amendment, modification, termination, prepayment, voluntarily surrender, assignment or subletting, without Lender's prior consent, shall not be binding upon Lender. Lender acknowledges that in the event that Lender's consent or approval is required under the terms of the Lease, Lender shall be bound by the standards and time periods set forth in the Lease for granting or withholding such consent or approval. Lender agrees that it will consider for approval, which may be withheld by Lender in its sole and absolute discretion, any amendments to the Lease proposed by Landlord and Tenant which are intended to preserve the treatment of the Lease as an operating lease under generally accepted accounting principles. Lender acknowledges that it is bound by the provisions of the Lease concerning the payment and application of insurance proceeds and condemnation awards, subject to Lender's rights under the Lease to hold and disburse such proceeds. 6. Notice to Lender and Right to Cure. Tenant shall notify Lender of any default by Landlord under the Lease as to which Tenant gives notice to Landlord and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or -3- of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and (i) in the case of any such default that can be cured by the payment of money, until forty-five (45) days shall have elapsed following the giving of such notice or (ii) in the case of any other such default, until a reasonable period for remedying such default shall have elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Instrument to remedy the same, including such time as may be necessary to acquire possession of the Property if possession is necessary to effect such cure, provided Lender, with reasonable diligence, shall (a) pursue such remedies as are available to it under the Security Instrument so as to be able to remedy the default, and (b) thereafter shall have commenced and continued to remedy such default or cause the same to be remedied. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default. 7. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Tenant: TruServ Corporation 8600 W. Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Chief Financial Officer Facsimile No. _______________ With a copy to: Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd. 55 East Monroe Street, Suite 3700 Chicago, Illinois 60603 Attention: __________________ Facsimile No. (312) 332-2196 If to Lender: ---------------------------- ---------------------------- ---------------------------- Attention: ------------------- With a copy to: ---------------------------- ---------------------------- ---------------------------- Attention: ------------------ -4- or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 7, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the state or commonwealth where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant, Purchaser and their respective successors and assigns. 9. Governing Law. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State or Commonwealth where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State or Commonwealth where the Property is located. 10. Miscellaneous. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 11. Joint and Several Liability. If Tenant consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. 12. Definitions. The term "Lender" as used herein shall include the successors and assigns of Lender and any person, party or entity which shall become the owner of the Property by reason of a foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or otherwise. The term "Landlord" as used herein shall mean and include the present landlord under the Lease and such landlord's predecessors and successors in interest under the Lease, but shall not mean or include Lender unless and until Lender has succeeded to the interest of Landlord under the Lease. The term "Property" as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Security Instrument. The terms "Tenant" and "Lease" shall have the alternative meanings set forth in Recital D above. 13. Further Acts. Tenant will, at the cost of Tenant, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts and assurances as Lender shall, from time to time, require, for the better assuring and confirming unto Lender the property and rights hereby intended now or hereafter so to be, or for carrying out the intention or facilitating -5- the performance of the terms of this Agreement or for filing, registering or recording this Agreement, or for complying with all applicable laws. 14. Limitations on Purchaser's Liability. In no event shall the Purchaser, nor any heir, legal representative, successor, or assignee of the Purchaser have any personal liability for the obligations of Landlord under the Lease and should the Purchaser succeed to the interests of the Landlord under the Lease, Tenant shall look only to the estate and property of any such Purchaser in the Property for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Purchaser as landlord under the Lease, and no other property or assets of any Purchaser shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to the Lease; provided, however, that the Tenant may exercise any other right or remedy provided thereby or by law in the event of any failure by Landlord to perform any such obligation. 15. Estoppel Certificate. Not more than once during any 12 month period, Tenant, shall, from time to time, within fifteen (15) days after request by Lender, execute, acknowledge and deliver to Lender a statement by Tenant as required pursuant to Paragraph 25 of the Lease. 16. Recording. Either Landlord or Tenant may record this Agreement. [NO FURTHER TEXT ON THIS PAGE] -6- IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement as of the date first above written. LENDER: [LENDER], a _________________ By:_______________________________________ Name:_____________________________________ Its:______________________________________ TENANT: TRUSERV CORPORATION, a Delaware corporation By:_______________________________________ Name:_____________________________________ Its:______________________________________ LANDLORD: [LANDLORD], a _________________ By:_______________________________________ Name:_____________________________________ Its:______________________________________ -7- STATE OF___________ ) ______ ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. --------------------------- Notary Public in and for said County and State Name:_____________________ (SEAL) STATE OF___________ ) ) ss. COUNTY OF _________ ) On _____________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ---------------------- Notary Public in and for said County and State Name:__________________ (SEAL) -8- STATE OF___________ ) ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ----------------------- Notary Public in and for said County and State Name:__________________ (SEAL) -9- EXHIBIT A TO SNDA LEGAL DESCRIPTION OF PROPERTY EXHIBIT F PREMISES PERCENTAGE ALLOCATION OF BASIC RENT Arizona Premises 19.40% Oregon Premises 37.31% Pennsylvania Premises 43.28% Total: 100%
If any of the Related Premises ceases to be subject to this Lease, the percentage shown on this Exhibit F for each of the Related Premises which remains subject to this Lease shall be adjusted proportionately so that the total of such percentages shall be 100%. EXHIBIT G CERTIFICATION RELATED TO THE USA PATRIOT ACT On behalf of [Insert name of subtenant/assignee] ("[Subtenant/Assignee]"), I hereby certify to the following: 1. [Subtenant/Assignee] maintains a place of business that is located at a fixed address (other than an electronic address or post office box) know as______________________. 2. [Subtenant/Assignee] is subject to the laws of the United State and has no knowledge that it is not in full compliance with laws relating to bribery, corruption, fraud, money laundering and the Foreign Corrupt Practices Act. 3. None of said Assignee/Subtenant or its, officers or directors appears on any of the following lists maintained by the United States government ("Government Lists"): a. The two lists maintained by the United States Department of Commerce (Denied Persons and Entities; the Denied Persons list can be found at www.bxa.doc.gov/DPL/Default.shtm; the Entity List can be found at www.bxa.doc.gov/Entities/Default.htm; b. The list maintained by the United States Department of Treasury (Specially Designated Nationals and Blocked Persons, which can be found at www.ustreas.gov/ofac/t11sdn.pdf); c. Two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties; the State Department List of Terrorists can be found at www.state.gov/s/ct/rls/fs/2001/6531.htm; the List of Debarred Parties can be found at www.pmdtc.org/debar059.htm); and d. Any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of Office of Foreign Assets Control, U.S. Department of the Treasury, or by any other government. 4. To the best of [Subtenant/Assignee's] knowledge, [Subtenant/Assignee] does not transact business on behalf of, or for the direct or indirect benefit of, any individual or entity named on any Government List. I, _____________________, certify that I have read and understand this Certification and that the statements made in this certification and the attached Annexes are true and correct. This Certification is made on behalf of [[Subtenant/Assignee]]. ---------------------------------- (Signature) ---------------------------------- (Title) Executed on this _____ day of ___________, 200_. EXHIBIT "H" TENANT'S POST-CLOSING OBLIGATIONS 1. Environmental Obligations (a) Tenant shall conduct the following actions at Tenant's sole cost and expense and shall provide Landlord with a written status report, on or before the 10th day of each April, July, October and January until satisfactory completion of the activities listed below. Each of the activities listed below in Paragraph 1(c) of this Exhibit "H" shall be completed no later than the first anniversary of the Commencement Date unless a shorter time period is noted below. Landlord shall, within thirty (30) days of written request of Tenant (which request shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF ENVIRONMENTAL OBLIGATIONS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), confirm that any action or actions listed in Paragraph 1(c) of this Exhibit "H" which are described in Tenant's request for confirmation have been satisfactorily completed or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the action or actions described in such request for confirmation from Tenant have been satisfactorily completed. (b) Tenant shall reimburse Landlord for all of Landlord's reasonable costs, including reasonable attorneys fees, incurred by Landlord in reviewing Tenant's progress in completing the activities listed below. Tenant's failure to timely comply with any of the obligations hereunder shall constitute an Event of Default. (c) Tenant shall comply with the following: (i) Pennsylvania Premises A. Discharge of Used Cleaning Solution - By April 10, 2003, Tenant shall have permanently ceased the discharge of used cleaning fluid to the on-site retention pond. By April 10, 2003, Tenant shall upon such cessation of discharge, provide Landlord with a written explanation of the alternative disposal arrangement selected by Tenant for the disposal of used cleaning fluid containing caustic floor cleaner. B. Exterior Property Inspection - By April 10, 2003, Tenant shall arrange for a representative of ATC to inspect the exterior area of the property which could not be observed during the December 2002 site visit due to snow cover and shall have received a report of ATC's observations of any environmental conditions disclosed during the exterior site inspection. Tenant shall promptly provide a copy of ATC's report to Landlord and shall promptly correct or remediate any Environmental Violations disclosed in the ATC report. (ii) Oregon Premises A. Asbestos Containing Materials - By April 10, 2003, Tenant shall prepare an asbestos O&M plan which complies with the requirements of 29 CFR Section 1910.1001 et seq. to manage the identified ACM. The O&M plan shall provide that all obligations relating to the identification of ACM, notification to employees and other requirements of 29 C.F.R. Section 1910.1001 et seq. shall be undertaken by, and be the responsibility of, Tenant. By April 10, 2003, a copy of the O&M plan shall be submitted to Landlord for Landlord's review and approval. B. On-Site Well Caps - By June 30, 2003, Tenant shall retain a qualified contractor and shall have properly closed/abandoned the two (2) well caps located on the western edge of the warehouse building. By June 30, 2003, upon completion of abandonment/closure, Tenant shall provide Landlord with adequate documentation demonstrating the proper abandonment/closure of these well caps. C. Documentation for Underground Storage Tank Closure/Remediation - Tenant shall obtain and provide Landlord with copies of the closure documentation which was submitted to the Oregon Department of Environmental Quality to document the removal of three USTs in October 1991. D. Investigation of Former Automobile Repair/Service Area - By April 10, 2003, Tenant shall arrange for a representative of ATC Associates, Inc. ("ATC") to have inspected the former automobile repair/service area located to the north of the retail area and shall obtain a report from ATC regarding any observed environmental conditions in this area. Tenant shall promptly provide a copy of such report to Landlord and shall promptly address or remediate any Environmental Violation disclosed in the ATC report. (iv) Arizona Premises A. General Housekeeping Issues - Tenant shall remove and arrange for the proper disposal of the empty, unused former waste oil AST and all empty 55-gallon drums observed by ATC during their site inspection of the property. Tenant shall also repair or remove any leaking drums in the truck maintenance shop and shall have steam cleaned or used other reasonable efforts to remove all visible stainage. Tenant shall repair all sources of leaks observed by ATC beneath the automotive batteries in the fire protection building and beneath the battery chargers in the maintenance area and shall have steam cleaned or used other reasonable efforts to remove all visible stainage. B. Aboveground Storage Tanks - Tenant shall provide Landlord with a written statement from a qualified environmental consultant or other qualified party which address the compliance status of each AST with any permitting requirements of the state fire marshall's office and/or applicable local and state agencies. Tenant shall promptly take appropriate measures to obtain permits for any ASTs for which a permit is required, but has not been obtained. Tenant shall provide secondary containment for all ASTs and drum storage areas. Tenant shall provide Landlord with written confirmation of the nature of the secondary containment provided. (d) The quarterly status reports and all other written reports or submissions required to be made by Tenant in accordance with the provisions of Paragraph 1 of this Exhibit "H" shall be addressed to: Donna Neiley Asset Management Department W. P. Carey & Co., Inc. 50 Rockefeller Plaza 2nd Floor New York, NY 10020 (212) 492-1100 telephone (212) 429-3022 fax dneiley@wpcarey.com with a second copy to: Louis A. Naugle, Esquire Reed Smith LLP 435 Sixth Avenue Pittsburgh, PA 15219 (412) 288-8587 telephone (412) 288-3063 fax lnaugle@reedsmith.com 2. Repair and Replacement Obligations. Except as set forth below, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord of the completion of the following repairs or replacements no later than the first anniversary of the Commencement Date, provided, however any items listed below relating to the Americans with Disability Act compliance may be satisfied by Tenant providing evidence reasonably satisfactory to Landlord that the noted repair is not required in order to comply with the Americans with Disabilities Act or any other applicable Laws provided that Tenant delivers to Landlord such evidence no later than the first anniversary of the Commencement Date. Landlord shall, within thirty (30) days of request from Tenant, confirm whether the completion evidence provided by Tenant is satisfactory with respect to each item which is described in Tenant's request for confirmation (which request from Tenant shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF REPAIRS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the actions listed in Tenant's request for confirmation have been satisfactorily completed. (a) Oregon Premises: (i) Metal legs previously installed supporting the wall mounted sinks in the employee toilet rooms shall be removed from one sink per toilet room to permit wheelchair access to the sinks. (b) Arizona Premises: (i) Install a dropped curb into the existing curb to permit wheelchair access to the sidewalk from the parking lot with a maximum slope not to exceed 1:12. (ii) Install handicap grab bars in each toilet room anchored to the metal stud/gypsum board walls or partitions. (iii) Stripe and install signage for three (3) additional handicapped accessible parking spaces, for a total of six (6) handicapped spaces, one of which must be van accessible. In addition, install signage with respect to each existing handicapped accessible parking stall. (iv) Install wrapped insulation or insulation padding around exposed unprotected drain piping under common toilet room sinks to prevent accidental injury to wheelchaired persons. (c) Pennsylvania Premises: (i) Replace one-half of the roof by the first anniversary of the Commencement Date and the balance by the second anniversary of the Commencement Date. Tenant shall also (A) on or before the first anniversary of the Commencement Date, provide Landlord with copies of invoices marked "paid" with respect to the replacement of one half of the roof at the Pennsylvania Premises (the "PA Roof Replacement") showing that the cost for replacing one half of the roof has been paid and on or before the second anniversary of the Commencement Date, provide Landlord with copies of invoices marked "paid" with respect to the replacement of the balance of the roof at the Pennsylvania Premises showing that the cost for replacing entire of the roof has been paid. (B) certify that the PA Roof Replacement has been completed in compliance with the terms of Paragraph 13(b): (C) cause an independent third party consultant selected by Lender or Landlord to certify that the PA Roof Replacement has been satisfactorily replaced in a good and workmanlike manner; and (D) pay the reasonable fees of the consultant referenced in clause "(iii)" above along with any charges of Lender associated with Lender confirming that the PA Roof Replacement has been satisfactorily completed pursuant to the preceding schedule. (ii) Scrape and paint steel deck underside. (iii) Install signage for handicapped accessible parking stalls and install one van accessible handicapped parking stall with signage EX-10.L 21 c75265exv10wl.txt LEASE AGREEMENT EXHIBIT 10-L LEASE AGREEMENT by and between WRENCH (DE) LIMITED PARTNERSHIP, a Delaware limited partnership as LANDLORD and TRUSERV CORPORATION a Delaware corporation, as TENANT Premises: 1. Woodland, California 2. Corsicana, Texas Dated as of: December 26, 2002 TABLE OF CONTENTS
Page ---- 1. Demise of Premises ................................................ 1 2. Certain Definitions ............................................... 1 3. Title and Condition; Single Lease Transaction ..................... 10 4. Use of Leased Premises; Quiet Enjoyment ........................... 12 5. Term .............................................................. 13 6. Basic Rent ........................................................ 14 7. Additional Rent ................................................... 15 8. Net Lease: Non-Terminability ...................................... 16 9. Payment of Impositions ............................................ 16 10. Compliance with Laws and Easement Agreements; Environmental Matters .......................................................... 18 11. Liens; Recording .................................................. 19 12. Maintenance and Repair ............................................ 20 13. Alterations and Improvements ...................................... 20 14. Permitted Contests ................................................ 22 15. Indemnification ................................................... 23 16. Insurance ......................................................... 24 17. Casualty and Condemnation ......................................... 27 18. Termination Events ................................................ 29 19. Restoration ....................................................... 30 20. Intentionally Omitted ............................................. 31 21. Assignment and Subletting: Prohibition against Leasehold Financing. 31 22. Events of Default ................................................. 34 23. Remedies and Damages Upon Default ................................. 37 24. Notices ........................................................... 41 25. Estoppel Certificate .............................................. 42 26. Surrender ......................................................... 42 27. No Merger of Title ................................................ 42 28. Books and Records ................................................. 43 29. Intentionally Omitted ............................................. 43 30. Non-Recourse as to Landlord ....................................... 43 31. Financing ......................................................... 44 32. Subordination, Non-Disturbance and Attornment ..................... 44
-i- 33. Tax Treatment; Reporting .......................................... 44 34. Miscellaneous ..................................................... 45
EXHIBITS Exhibit "A" - Land Exhibit "B" - Fixtures Exhibit "C" - Schedule of Permitted Encumbrances Exhibit "D" - Rent Schedule Exhibit "E" - Form of Subordination, Non-disturbance and Attornment Agreement Exhibit "F" - Premises Percentage Allocation of Basic Rent Exhibit "G" - Patriot's Act Certification Exhibit "H" - Post-closing Obligations -ii- LEASE AGREEMENT, made as of this 26th day of December, 2002, between WRENCH (DE) LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), with an address c/o W. P. Carey & Co. LLC, 50 Rockefeller Plaza, 2nd Floor, New York, New York 10020, and TRUSERV CORPORATION, a Delaware corporation ("Tenant") with an address at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631. In consideration of the rents and provisions herein stipulated to be paid and performed, Landlord and Tenant hereby covenant and agree, with the intent to be legally bound, as follows: 1. Demise of Premises. Landlord hereby demises and lets to Tenant, and Tenant hereby takes and leases from Landlord, for the term and upon the provisions hereinafter specified, the following described property (hereinafter referred to collectively as the "Leased Premises" and individually as the "California Premises", "Texas Premises": (a) the land described in Exhibit "A" attached hereto, together with the Appurtenances (collectively, the "Land"); (b) the buildings containing approximately 1,134,733 square feet in the aggregate, structures and other improvements now or hereafter constructed on the Land (collectively, the "Improvements"); and (c) the fixtures, machinery, equipment and other property described in Exhibit "B" hereto (collectively, the "Fixtures"). 2. Certain Definitions. "Additional Rent" shall mean Additional Rent as defined in Paragraph 7. "Adjoining Property" shall mean all sidewalks, driveways, curbs, gores and vault spaces adjoining any of the Leased Premises that Landlord is required to maintain, replace and/or repair pursuant to any Legal Requirement or Permitted Encumbrance. "Affected Premises" shall mean the Affected Premises as defined in Paragraph 18. "Affiliate Leases" shall mean that certain lease agreement by and between Hammer (DE) Limited Partnership and Tenant with respect to property situate in Springfield, Oregon and Jonesboro, Georgia dated as of the date of this Lease and that certain lease agreement by and between BOLT (DE) Limited Partnership and Tenant with respect to property situate in Kingman, Arizona, Springfield, Oregon and Fogelsville, Pennsylvania also dated as of the date of this Lease, each as amended or modified from time to time. "Alterations" shall mean all changes, additions, improvements or repairs to, all alterations or removals of and all substitutions or replacements for any of the Improvements or Fixtures, both interior and exterior, structural and non-structural, and ordinary and extraordinary. "Appurtenances" shall mean all tenements, hereditaments, easements, rights-of-way, rights, privileges in and to the Land, including (a) easements over other lands granted by any Easement Agreement, (b) any streets, ways, alleys, vaults, gores or strips of land adjoining the Land, and (c) all water, irrigation and drainage rights (whether riparian, appropriative or otherwise) and all electrical users' rights, in or relating to or used in connection with the Land; all shares of stock evidencing any such rights; and all fixtures and equipment used for production or distribution of water or electricity in connection with any use of the Land. "Assignment" shall mean any first priority assignment of rents and leases from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified from time to time. "Basic Rent" shall mean Basic Rent as defined in Paragraph 6. "Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as defined in Paragraph 6. "Bifurcated Lease" shall mean Bifurcated Lease as defined in Paragraph 21(a)(i). "Bifurcated Premises" shall mean Bifurcated Premises as defined in Paragraph 21(a)(i). "Business Day" shall mean any weekday, except for a national holiday or a day on which national banks are closed in either Illinois or New York. "Casualty" shall mean any damage to or destruction of or which affects the Leased Premises or Adjoining Property. "Closing Agreement" shall mean that certain Closing Agreement by and between Tenant and Landlord dated as of the date hereof. "Commencement Date" shall mean Commencement Date as defined in Paragraph 5. "Competitor" shall mean any Person whose primary business is and who receives at least 10% of its revenues from the operation of a hardware cooperative or the wholesale or retail sale or distribution of home improvement and/or hardware products. "Complete Assignment" shall mean Complete Assignment as defined in Paragraph 21(a)(i). "Condemnation" shall mean a Taking. "Condemnation Notice" shall mean notice or knowledge of the institution of or intention to institute any proceeding for Condemnation. "Control Event" shall mean the failure by Tenant to perform and observe, or a violation or breach of, Paragraphs 4(a), 4(c), 8(d), 10 (except with respect to an Environmental Violation caused by any subtenant or Person who is not controlled by or in control of or under common control with Tenant or any Environmental Violation that Tenant is diligently endeavoring to cure but fails to cure within the cure period specified in Paragraph 2 22(b)), 11, 12, 13, 14, 15, 16 (except for insurance required under Paragraph 16(a) that cannot be obtained from any insurance carrier at any cost despite Tenant's best efforts), 17, 19, 21, 24, 25, 26, 28, 31, 32, 34(l). "Costs" of a Person or associated with a specified transaction shall mean all reasonable costs and expenses incurred by such Person or associated with such transaction, including without limitation, reasonable attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title insurance premiums, mortgage commitment fees, mortgage points, recording fees and transfer taxes, as the circumstances require. "Default Rate" shall mean the Default Rate as defined in Paragraph 7(a)(iv). "Easement Agreement" shall mean any conditions, covenants, restrictions, easements, declarations, licenses and other agreements listed as Permitted Encumbrances or as may hereafter affect either Related Premises. "Environmental Law" shall mean (i) whether in effect as of the Commencement Date or thereafter enacted or promulgated, any applicable federal, state, foreign and local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, consent, court order, judgment, decree, injunction, code, requirement or agreement with any governmental entity, (x) relating to pollution (or the cleanup thereof), or the protection of air, water vapor, surface water, groundwater, drinking water supply, land (including land surface or subsurface), plant, aquatic and animal life from injury caused by a Hazardous Substance or (y) concerning exposure to, or the use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, handling, labeling, production, disposal or remediation of any Hazardous Substance, Hazardous Condition or Hazardous Activity, in each case as amended and as now or hereafter in effect, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations or injuries or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act, the federal Clean Air Act, the federal Clean Water Act, the federal Resources Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act, the federal Occupational Safety and Health Act of 1970, the federal National Environmental Policy Act and the federal Hazardous Materials Transportation Act, each as amended and as now or hereafter in effect and any similar state or local Law. "Environmental Violation" shall mean (a) any direct or indirect discharge, disposal, spillage, emission, escape, pumping, pouring, injection, leaching, release, seepage, filtration or transporting of any Hazardous Substance at, upon, under, onto or within the Leased Premises, or from the Leased Premises to the environment, in violation of any Environmental Law or which could reasonably be anticipated to result in any liability to Landlord, Tenant or 3 Lender, any Federal, state or local government or any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (b) any deposit, storage, dumping, placement or use of any Hazardous Substance at, upon, under, within or migrating from the Leased Premises in violation of any Environmental Law which could reasonably be anticipated to result in any liability to any Federal, state or local government or to any other Person for the costs of any removal or remedial action or natural resources damage or for bodily injury or property damage, (c) the abandonment or discarding of any barrels, containers or other receptacles containing any Hazardous Substances in violation of any Environmental Laws, (d) any activity, occurrence or condition which could result in any liability, cost or expense to Landlord or Lender or any other owner or occupier of the Leased Premises, or which could reasonably be anticipated to result in a creation of a lien on either Related Premises as a result of any violation of any Environmental Law or (e) any violation of or noncompliance with any Environmental Law. "Escrow Charges" shall mean Escrow Charges as defined in Paragraph 9. "Escrow Payment" shall mean Escrow Payment as defined in Paragraph 9. "Fitch" shall mean Fitch, Inc. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "Environmental Violation Extension Term" shall mean Environmental Violation Extension Term as defined in Paragraph 10(e). "Estoppel Certificate" shall mean Estoppel Certificate as defined in Paragraph 25. "Event of Default" shall mean an Event of Default as defined in Paragraph 22(a). "Expiration Date" shall mean Expiration Date as defined in Paragraph 5. "Fair Market Rent" shall mean Fair Market Rent as defined in Paragraph 5(b). "Federal Funds" shall mean federal or other immediately available funds which at the time of payment are legal tender for the payment of public and private debts in the United States of America. "Fixtures" shall mean the Fixtures as defined in Paragraph 1. "GAAP" shall mean GAAP as defined in Paragraph 28. "Hazardous Activity" means any activity, process, procedure or undertaking which directly or indirectly (i) procures, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the release, seepage, spill, leak, flow, discharge or emission of any Hazardous Substance into the environment (including 4 the air, ground water, watercourses or water systems), (iii) involves the containment or storage of any Hazardous Substance; or (iv) would cause any of the Leased Premises or any portion thereof to become a hazardous waste treatment, recycling, reclamation, processing, storage or disposal facility within the meaning of any Environmental Law. "Hazardous Condition" means any condition which would support any claim or liability under any Environmental Law, including the presence of underground storage tanks. "Hazardous Substance" means (i) any substance, material, product, petroleum, petroleum product, derivative, compound or mixture, mineral (including asbestos), chemical, gas, medical waste, or other pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous or acutely hazardous to the environment or public health or safety or (ii) any substance supporting a claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. Hazardous Substances include, without limitation, any toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum or petroleum-derived substances or waste, radon, radioactive materials, asbestos, asbestos containing materials, urea formaldehyde foam insulation, lead, polychlorinated biphenyls. "Impositions" shall mean the Impositions as defined in Paragraph 9(a). "Improvements" shall mean the Improvements as defined in Paragraph 1. "Insurance Requirements" shall mean the requirements of all insurance policies maintained in accordance with this Lease. "Investment Grade Rating" means any of the following: (a) an unsecured senior debt rating of Baa2 or better from Moody's, (b) an unsecured senior debt rating of BBB or better by S&P or Fitch, or (c) if none of the Rating Agencies furnish such ratings, then a comparable rating by any rating agency reasonably acceptable to Landlord and Lender. "Land" shall mean the Land as defined in Paragraph 1. "Late Charge" shall mean Late Charge as defined in Paragraph 7(a)(ii). "Law" shall mean any constitution, statute, rule of law, code, ordinance, order, judgment, decree, injunction, rule, regulation, policy, requirement or administrative or judicial determination, even if unforeseen or extraordinary, of every duly constituted governmental authority, court or agency, now or hereafter enacted or in effect. "Lease" shall mean this Lease Agreement. "Lease Bifurcation" shall mean Lease Bifurcation as defined in Paragraph 21(a)(i). "Lease Year" shall mean, with respect to the first Lease Year, the period commencing on the Commencement Date and ending at midnight on the last day of the twelfth 5 (12th) consecutive calendar month following the month in which the Commencement Date occurred, and each succeeding twelve (12) month period during the Term, except that for the purposes of calculating Basic Rent in the thirtieth (30th) Lease Year the thirtieth (30th) Lease Year shall be eleven (11) months. "Leased Premises" shall mean the Leased Premises as defined in Paragraph 1, except for Affected Premises and Bifurcated Premises after termination of this Lease with respect thereto. "Legal Requirements" shall mean the requirements of all present and future Laws (including but not limited to Environmental Laws and Laws related to accessibility to, usability by, and discrimination against, disabled individuals) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to any of the Leased Premises or Related Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of any of the Leased Premises or Related Premises, even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Leased Premises or Related Premises or requires Tenant to carry insurance other than as required by this Lease. "Lender" shall mean any person or entity (and its respective successors and assigns) which may, on or after the date hereof, make a Loan to Landlord or be the holder of a Note secured by a Mortgage, or, if more than one Note is secured by a Mortgage, then Lender shall mean the agent or trustee for such Note holders, provided that, in each case, Landlord has identified such Lender in a written notice to Tenant together with contact information for such Lender. "Limited Remedy Default" shall mean an Event of Default specified in the following clauses of Paragraph 22(a): clause (ii) unless such default is a Control Event, clause (iii) if the misrepresentation is with respect to the last sentence of Paragraph A.2 of the Closing Agreement, the first sentence of Paragraph A.3 or the first sentence of Paragraph A.7 of the Closing Agreement, clause (iv), clause (v), clause (viii) or clause (xiv) unless such default is not a Limited Remedy Default under either of the Affiliated Leases. "Loan" shall mean any loan made by one or more Lenders to Landlord, which loan is secured by a Mortgage and an Assignment and evidenced by a Note. "Major Alteration" means any structural, or series of related Alterations, other than a Major Replacement, which will cost more than $750,000. "Major Replacement" means any structural repair or structural replacement which will cost more than $750,000. "Monetary Obligations" shall mean Rent and all other sums payable by Tenant under this Lease to Landlord or to any third party on behalf of Landlord. "Moody's" shall mean Moody's Investors Services, Inc. 6 "Mortgage" shall mean any first priority mortgage or deed of trust from Landlord to a Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Net Award" shall mean (a) the entire award payable to Landlord or Lender by reason of a Condemnation whether pursuant to a judgment or by agreement or otherwise, or (b) the entire proceeds of any insurance required under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v) or (vi) of Paragraph 16(a), as the case may be, less any expenses incurred by Landlord and Lender in collecting such award or proceeds. "Non-Preapproved Assignee" shall mean Non-Preapproved Assignee as defined in Paragraph 21(a)(ii). "Non-Preapproved Assignment" shall mean Non-Preapproved Assignment as defined in Paragraph 21(a)(ii). "Note" shall mean any promissory note evidencing Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified. "Partial Assignment" shall mean Partial Assignment as defined in Paragraph 21(a)(i). "Partial Casualty" shall mean any Casualty which does not constitute a Termination Event. "Partial Condemnation" shall mean any Condemnation which does not constitute a Termination Event. "Permitted Encumbrances" shall mean those covenants, restrictions, reservations, liens, conditions and easements and other encumbrances, other than any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing shall not be deemed to revive any such encumbrances that have expired or terminated or are otherwise invalid or unenforceable). "Permitted Violations" shall mean Permitted Violations as defined in Paragraph 14. "Person" shall mean an individual, partnership, association, corporation, limited liability company, governmental entity or other entity. "Pre-Approved Alteration" means (a) any non-structural Alteration, (b) regardless of cost, the installation, removal or alteration of non-loadbearing interior partition walls, exterior fences or loading docks or the installation or alteration (but not the sealing) of dock doors, and (c) any other structural Alteration which will cost $750,000 or less provided that TruServ Corporation or a Preapproved Assignee is the Tenant of the Related Premises which is the subject of the Alteration. "Preapproved Assignee" shall mean Preapproved Assignee as defined in Paragraph 21(a)(i). 7 "Preapproved Assignment" shall mean Preapproved Assignment as defined in Paragraph 21(a)(i). "Preapproved Sublet" shall mean Preapproved Sublet as defined in Paragraph 21(b). "Premises Percentage Allocation" shall mean the percentage allocated to each Related Premises in Exhibit "F" to this Lease as the same may be adjusted in accordance with the formula specified in Exhibit "F". "Present Value" of any amount shall mean such amount discounted by seven (7%) percent per annum. "Prime Rate" shall mean the interest rate per annum as published, from time to time, in The Wall Street Journal as the "Prime Rate" in its column entitled "Money Rate". The Prime Rate may not be the lowest rate of interest charged by any "large U.S. money center commercial banks" and Landlord makes no representations or warranties to that effect. In the event The Wall Street Journal ceases publication or ceases to publish the "Prime Rate" as described above, the Prime Rate shall be the average per annum discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from time to time by the United States Treasury at its most recent auction, plus three hundred (300) basis points. If no such 91-day Treasury Bills are then being issued, the Discount Rate shall be the discount rate on Treasury Bills then being issued for the period of time closest to ninety-one (91) days. "Protected Sublease" shall mean Protected Sublease as defined in Paragraph 21(b)(ii). "Protected Subtenant" shall mean Protected Subtenant as defined in Paragraph 21(b). "Rating Agency" shall mean Moody's, S&P or Fitch. "Related Premises" shall mean any one of the Texas Premises and California Premises. "Remaining Obligations" shall mean Remaining Obligations as defined in Paragraph 18(c). "Remaining Premises" shall mean the Related Premises which are not Affected Premises under Paragraph 18 or Bifurcated Premises under Paragraph 21. "Renewal Date" shall mean Renewal Date as defined in Paragraph 5. "Renewal Term" shall mean Renewal Term as defined in Paragraph 5. "Rent" shall mean, collectively, Basic Rent and Additional Rent. 8 "Requesting Party" shall mean Requesting Party as defined in Paragraph 25. "Responding Party" shall mean Responding Party as defined in Paragraph 25. "Restoration Fund" shall mean Restoration Fund as defined in Paragraph 19(a). "Review Criteria" shall mean Review Criteria as defined in Paragraph 21(a)(ii). "S&P" shall mean Standard & Poor's Corporation. "Set-Off" shall mean Set-Off as defined in Paragraph 5. "Site Assessment" shall mean a Site Assessment as defined in Paragraph 10(c). "Surviving Obligations" shall mean any obligations of Tenant under this Lease, actual or contingent, which arise on or prior to the expiration or prior termination of this Lease or which survive such expiration or termination by their own terms. "Taking" shall mean (a) any taking or damaging of all or a portion of any of the Leased Premises (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special, or (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding, or (iii) by any other means, or (b) any de facto condemnation. The Taking shall be considered to have taken place as of the later of the date actual physical possession is taken by the condemnor. "Term" shall mean Term as defined in Paragraph 5. "Termination Date" shall mean Termination Date as defined in Paragraph 18. "Termination Event" shall mean Termination Event as defined in Paragraph 18. "Termination Notice" shall mean Termination Notice as defined in Paragraph 18(a). "Third Party Purchaser" shall mean Third Party Purchaser as defined in Paragraph 21 (g). "Threshold Amount" shall mean (i) $500,000 if TruServ Corporation or a Preapproved Assignee is the Tenant and, (ii) in all other instances, $100,000. "Warranties" shall mean Warranties as defined in Paragraph 3(d). 9 "Work" shall mean Work as defined in Paragraph 13(b). 3. Title and Condition; Single Lease Transaction. (a) The Leased Premises are demised and let subject to (i) the Mortgage and Assignment presently in effect, (ii) the rights of any Persons in possession of the Leased Premises, (iii) the existing state of title of any of the Leased Premises, including any Permitted Encumbrances, (iv) any state of facts which an accurate survey or physical inspection of the Leased Premises might show, (v) all Legal Requirements, including any existing violation of any thereof, and (vi) the condition of the Leased Premises as of the commencement of the Term, without representation or warranty by Landlord. (b) Tenant acknowledges that the Leased Premises are in good condition and repair at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS WHERE IS AND WITH ALL FAULTS. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY (xiv) OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, OR (xvi) COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE, WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b) HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE. (c) Tenant represents to Landlord that Tenant has examined the title to the Leased Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for the purposes contemplated hereby. Tenant acknowledges that (i) Tenant has only a leasehold estate in the Leased Premises, as provided herein, and (ii) to the best of Tenant's 10 knowledge, (A) except as set forth in the property condition reports, environmental reports, zoning reports or any other reports delivered to Landlord, the Improvements conform to all material Legal Requirements and all Insurance Requirements, (B) all easements necessary or appropriate for the use or operation of the Leased Premises have been obtained, (C) all contractors and subcontractors who have performed work on or supplied materials to the Leased Premises have been fully paid, and all materials and supplies have been fully paid for, (D) the Improvements have been completed in all material respects in a workmanlike manner of quality consistent with industry standards, and (E) all Fixtures necessary or appropriate for the use or operation of the Leased Premises have been installed and are presently operative in all material respects. (d) Landlord hereby assigns to Tenant, without recourse or warranty whatsoever, all assignable warranties, guaranties, indemnities and similar rights (collectively "Warranties") which Landlord may have against any manufacturer, seller (other than Tenant), engineer, contractor or builder in respect of any of the Leased Premises. Such assignment shall remain in effect until the expiration or earlier termination of this Lease, whereupon such assignment shall cease and all of the Warranties shall automatically revert to Landlord. In confirmation of such reversion Tenant shall execute and deliver promptly any certificate or other document reasonably required by Landlord. Landlord shall also retain the right to enforce any guaranties upon the occurrence of an Event of Default. Tenant shall enforce all Warranties in accordance with their respective terms. (e) TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS THE EXPRESS INTENT OF LANDLORD AND TENANT TO CREATE, AND THAT THIS LEASE CONSTITUTES A SINGLE LEASE WITH RESPECT TO EACH AND EVERY PARCEL OF LAND, IMPROVEMENTS AND FIXTURES INCLUDED IN EACH AND ALL OF THE RELATED PREMISES (WHEREVER LOCATED) AND, EXCEPT AS EXPRESSLY SET FORTH HEREIN, THIS LEASE SHALL NOT BE (OR BE DEEMED TO BE) DIVISIBLE OR SEVERABLE INTO SEPARATE LEASES FOR ANY PURPOSE WHATSOEVER, AND TENANT, ON BEHALF OF ITSELF AND ANY TRUSTEE OR LEGAL REPRESENTATIVE UNDER THE FEDERAL BANKRUPTCY CODE OR ANY SIMILAR STATE INSOLVENCY PROCEEDING HEREBY, WAIVES ANY RIGHT TO CLAIM OR ASSERT A CONTRARY POSITION IN ANY ACTION OR PROCEEDING; IT BEING FURTHER UNDERSTOOD AND AGREED BY TENANT THAT THE PERCENTAGE ALLOCATION OF BASIC RENT AS SET FORTH ON EXHIBIT "F" HEREOF IS INCLUDED TO PROVIDE A FORMULA FOR RENT ADJUSTMENT, AND TO FACILITATE THE RIGHTS OF TENANT, EACH PREAPPROVED ASSIGNEE AND EACH PROTECTED SUBTENANT IN THE CASES OF ASSIGNMENT AND SUBLETTING, PARTIAL RENEWAL, CASUALTY, CONDEMNATION OR OTHER PROVISIONS WITH RESPECT TO AFFECTED PREMISES, BIFURCATED PREMISES, PROTECTED SUBLEASES AND LEASE TERMINATION UNDER CERTAIN CIRCUMSTANCES. ANY EVENT OF DEFAULT SHALL BE DEEMED TO BE AN EVENT OF DEFAULT WITH RESPECT TO THE ENTIRE LEASED PREMISES (WHEREVER LOCATED). THE FOREGOING AGREEMENTS AND WAIVERS BY TENANT IN THIS PARAGRAPH 3(E) ARE MADE AS A MATERIAL INDUCEMENT TO LANDLORD TO ENTER INTO THE TRANSACTION CONTEMPLATED BY THIS LEASE AND THAT, BUT FOR THE 11 FOREGOING AGREEMENTS AND WAIVERS BY TENANT, LANDLORD WOULD NOT CONSUMMATE THIS LEASE TRANSACTION. 4. Use of Leased Premises; Quiet Enjoyment. (a) The Leased Premises may be used and occupied for any lawful purpose subject to the terms and conditions of this Paragraph 4. No Related Premises shall be used or occupied, nor shall Tenant or any assignee or subtenant do or permit anything to be done in or on either Related Premises leased by such Person in a manner which would (i) violate any Law, Legal Requirement or Permitted Encumbrance, the violation of which could reasonably be anticipated to adversely affect the ability to use, maintain or occupy the applicable Related Premises, (ii) take any action that would invalidate any insurance policy required under Paragraph 16, (iii) constitute waste of either Related Premises or in any way materially increases the risk of fire or other hazard arising out of the operation of either Related Premises relative to the risks arising from the use of the applicable Related Premises as the date hereof or impair the value of either Related Premises in any material respect, (iv) materially increase the risk of environmental damage, an Environmental Violation or danger to human health or the environment relative to the risk arising from the use of the applicable Related Premises as of the date hereof, or (v) materially increase the wear and tear to the applicable Related Premises relative to the wear and tear arising from the use of the applicable Related Premises as of the date hereof. (b) Subject to the provisions hereof, so long as no Event of Default has occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the Leased Premises throughout the Term, without any hindrance, ejection or molestation by Landlord with respect to matters that arise after the date hereof, provided that Landlord or its agents may after reasonable notice to Tenant, and, except as provided in Paragraph 10, at Landlord's sole expense unless an Event of Default exists, but in any event not less than (2) Business Days notice (except in the case of any emergency, in which event only advance telephonic notice shall be required) enter upon and examine any of the Leased Premises at such reasonable times during normal business hours as Landlord may request (but not more often than twice each Lease Year or at any time during the existence of an Event of Default) for the purpose of inspecting the Leased Premises, verifying compliance or non-compliance by Tenant with its obligations hereunder and the existence or non-existence of an Event of Default or event which with the passage of time and/or notice would constitute an Event of Default, subject to such reasonable restrictions as Tenant may impose, showing the Leased Premises (or the applicable Related Premises) to prospective Lenders and purchasers and taking such other action with respect to the Leased Premises as is permitted by any provision hereof. (c) In no event shall any portion of the Leased Premises be used or occupied or permitted to be used or occupied for any of the following purposes: (i) any dumping, disposing, incineration or reduction of garbage (exclusive of appropriately screened dumpsters and/or recycling bins located in the rear of any building and garbage disposal in the ordinary course of business); (ii) any retail gas station; (iii) any central laundry or dry cleaning plant or laundromat; or (iv) any vehicle repair, other than truck or trailer repair in conjunction with the use of either Related Premises as a distribution facility. 12 5. Term. (a) Subject to the provisions hereof, Tenant shall have and hold the Leased Premises for an initial term (such term, as extended or renewed in accordance with the provisions hereof, being called the "Term") commencing on the date hereof (the "Commencement Date") and ending on December 31, 2022 (the "Expiration Date"). (b) Tenant shall have the option to extend the initial twenty (20) year Term as to the entire Leased Premises or either Related Premises for up to two periods of, a first renewal term of nine years and eleven months and a second renewal term of ten (10) years (each, a "Renewal Term") beginning, respectively, on the day after the Expiration Date and the day after the date that is nine years and eleven months after the Expiration Date (each, a "Renewal Date"). Tenant shall notify Landlord in writing of its election to exercise the applicable option as to either Related Premises no later than twelve (12) months prior to the applicable Renewal Date, provided that the time within which Tenant is obligated to give notice of the exercise of its option with respect to the second Renewal Term for any applicable Related Premises shall be extended to the date which is 10 days after Fair Market Rent is determined for such Related Premises unless the delay in the determination thereof was caused by Tenant. The annual Basic Rent for the first Renewal Term shall be the amount set forth on Exhibit "D" (adjusted to reflect either Related Premises no longer included in the Leased Premises during the first Renewal Term). The annual Basic Rent for the second Renewal Term shall be the sum of the annual Fair Market Rent for each applicable Related Premises during the second Renewal Term. All of the provisions of this Lease, as the same may be amended, supplemented or modified shall apply during each Renewal Term (except that Tenant shall not have the right to any additional Renewal Terms). "Fair Market Rent" as used herein shall mean an amount of annual rent for the Related Premises for the second Renewal Term equivalent to the then-current fair market rate of annual effective net rentals received in the general market area in which the applicable Related Premises is located pursuant to an absolute net lease, for a similar lease term with respect to real property having comparable characteristics, including, but not limited to, age, location, condition and classification of the Improvements, existing parking facilities and for tenants with a financial condition similar to the then current financial condition of Tenant. The rental rate or other terms of any then existing sublease or subleases of the applicable Related Premises shall not be considered in establishing Fair Market Rent. In order to exercise its option to extend the Term for the second Renewal Term, Tenant shall first give Landlord written notice of Tenant's interest in doing so and requesting the determination of the Fair Market Rent for each applicable Related Premises for the second Renewal Term ("Tenant's Interest Notice"). Tenant's Interest Notice shall be given not earlier than eighteen (18) months prior to the Renewal Date for the second Renewal Term, and not later than fifteen (15) months prior to the Renewal Date for the second Renewal Term. The latest date upon which Tenant may give the Tenant's Interest Notice is referred to as the "Interest Deadline Date." The Fair Market Rent for the second Renewal Term shall be separately determined in accordance with the following procedure. The parties shall first attempt to agree on the Fair Market Rent for the second Renewal Term. If the parties do not agree on the Fair Market Rent within fifteen (15) days following the receipt by Landlord of Tenant's Interest Notice then, within ten (10) days after the expiration of such fifteen (15)-day period, the parties shall attempt to agree upon an appraiser. If the parties agree upon an appraiser, the appraiser so selected shall determine the Fair Market Rent within thirty (30) days after selection. If the parties fail to so agree upon the selection of one such appraiser within such 13 ten (10)-day period, then Tenant and Landlord shall each designate in a written notice to the other, within fifteen (15) Business Days from the end of such ten (10)-day period, one appraiser to determine the Fair Market Rent. In the event either party fails to so select its own appraiser, the appraiser selected by the other party shall determine Fair Market Rent. If two appraisers are so selected, each appraiser shall independently determine the Fair Market Rent for such Related Premises and complete and forward to Landlord and Tenant its separate appraisal report within thirty (30) days after the expiration of such fifteen (15)-business day period. Any appraisal report not so forwarded within such time period shall be excluded. If only one such report is timely forwarded, then the appraisal set forth therein shall be the Fair Market Rent. In the event the two reports are both timely forwarded and the lower appraisal is at least ninety percent (90%) of the higher appraisal, then the arithmetic mean of the two appraisals shall be the Fair Market Rent. In the event the lower appraisal is less than ninety percent (90%) of the higher appraisal then, within fifteen (15) business days after the end of such thirty (30)-day period, the two appraisers shall meet and select a third appraiser. In the event the two appraisers fail to so select a third appraiser, either party may obtain court appointment of such third appraiser. The third appraiser shall select one of the appraisals for each applicable Related Premises as most accurately determining Fair Market Rent for such Related Premises and promptly complete and forward its report to Landlord and Tenant. The Fair Market Rent determined in such selected appraisal shall be the Fair Market Rent for such Related Premises. All appraisers shall be members in good standing of the American Institute of Real Estate Appraisers or any organization succeeding thereto and shall have had not less than ten (10) years experience with commercial real estate of the type of such Related Premises in the location where such Related Premises is located. Tenant shall pay the fees of all appraisers. (c) If Tenant does not exercise its option pursuant to Paragraph 5(b) to have the Term extended with respect to a Related Premises, or if an Event of Default occurs, then Landlord shall have the right during the remainder of the Term then in effect and, in any event, Landlord shall have the right during the last year of the Term, to (i) advertise the availability of any of the Leased Premises, or in the event that the Term is not extended with respect to such Related Premises, for sale or reletting and to erect upon any of the Leased Premises signs (in size and content and in locations reasonably acceptable to Tenant) indicating such availability and (ii) show any of the Leased Premises, or the applicable Related Premises in the event that the Term is not extended with respect to such Related Premises, to prospective purchasers or tenants or their agents at such reasonable times as Landlord may select. 6. Basic Rent. Tenant shall pay to Landlord, as annual rent for the Leased Premises during the Term, the amounts determined in accordance with Exhibit "D" hereto ("Basic Rent"), commencing on the twentieth (20th) day of January, 2003, and continuing on the twentieth (20th) day of each April, July, October, and January thereafter during the Term, provided that if the twentieth (20th) day of such month is not a Business Day, the applicable Basic Rent payment shall be due on the first Business Day following the twentieth (20th) day of such month (each such day being a "Basic Rent Payment Date"). Tenant shall pay Basic Rent for the period from the Commencement Date through January 19, 2003 on the Commencement Date. Each such rental payment shall be made in Federal Funds to Landlord, pursuant to wire transfer instructions delivered to Tenant from time to time or to such other Person, pursuant to wire transfer instructions delivered to Tenant from time to time as Landlord may direct by not 14 less than fifteen (15) days' prior written notice to Tenant (in which event Tenant shall give Landlord notice of each such payment promptly upon the making thereof). 7. Additional Rent. (a) Tenant shall pay and discharge, as additional rent (collectively, "Additional Rent"): (i) except as otherwise specifically provided herein, all reasonable costs and expenses of Tenant and Landlord which are incurred in connection or associated with (A) the ownership, use, non-use, occupancy, monitoring, possession, operation, condition, design, construction, maintenance, alteration, repair or restoration of any of the Leased Premises, except for Landlord's general overhead, (B) the performance of any of Tenant's obligations under this Lease, (C) any Condemnation proceedings, (D) the adjustment, settlement or compromise of any insurance claims involving or arising from any of the Leased Premises, (E) the prosecution, defense or settlement of any litigation involving or arising from any of the Leased Premises (unless caused by the gross negligence or willful misconduct of Landlord or its agents), this Lease, or the sale of the Leased Premises to Landlord provided, however, that in the event of any litigation involving only Landlord and Tenant, Tenant shall be responsible for such costs and expenses only if and to the extent that Tenant is not the prevailing party in such litigation, (F) the exercise or successful enforcement by Landlord, its successors and assigns, of any of its rights under this Lease, (G) any amendment to or modification or termination of this Lease made at the request of Tenant, (H) Costs of Landlord's counsel and reasonable out-of-pocket Costs of Landlord incurred in connection with the preparation, negotiation and execution of this Lease, or incurred in connection with any act undertaken by Landlord (or its counsel) at the request of Tenant, or incurred in connection with any act of Landlord performed on behalf of Tenant to the extent authorized by this Lease (I) the reasonable out-of-pocket Costs of Landlord incurred in connection with any act undertaken by Landlord at the request of Tenant or Tenant's failure to act promptly in an emergency situation, (J) all costs and fees associated with the wire transfers of Rent payments, and (K) any other items specifically required to be paid by Tenant under this Lease; (ii) after the date all or any portion of any installment of Basic Rent is due and not paid by the applicable Basic Rent Payment Date, an amount (the "Late Charge") equal to five percent (5%) of the amount of such unpaid installment or portion thereof provided, however, that with respect to the first late payment of all or any portion of any installment of Basic Rent in any Lease Year, the Late Charge shall not be due and payable unless the Basic Rent has not been paid within five (5) days' following the due date thereof; (iii) interest at the rate (the "Default Rate") of four percent (4%) over the Prime Rate per annum on the following sums until paid in full: (A) all overdue installments of Basic Rent from five (5) days' following its due date unless such overdue installments are paid in full within such five (5) day period, (B) all overdue amounts of Additional Rent relating to obligations which Landlord shall have paid on behalf of Tenant, from the date of payment thereof by Landlord, and (C) all other overdue amounts of Additional Rent, from the date when any such amount becomes overdue; 15 (b) If Landlord does not provide written notice to Tenant of the sums owing pursuant to Paragraphs 7(a)(ii) and (iii) within ninety (90) days after the date that the applicable Late Charge or default interest becomes due and owing, Tenant shall not be liable for such amounts. (c) Tenant shall pay and discharge (i) any Additional Rent referred to in Paragraph 7(a)(i) when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within ten (10) Business Days after Landlord's demand for payment thereof, and (ii) any other Additional Rent, within ten (10) Business Days after Landlord's demand for payment thereof. (d) In no event shall amounts payable under Paragraph 7(a)(ii) and (iii) exceed the maximum amount permitted by applicable Law. 8. Net Lease: Non-Terminability. (a) This is a net lease and all Monetary Obligations shall be paid without notice or demand (except as herein required) and without set-off, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction, reduction or defense (collectively, a "Set-Off"). (b) Except as specifically provided herein, this Lease and the rights of Landlord and the obligations of Tenant hereunder shall not be affected by any event or for any reason or cause whatsoever foreseen or unforeseen. (c) The obligations of Tenant hereunder shall be separate and independent covenants and agreements, all Monetary Obligations shall continue to be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. The obligation to pay Rent or amounts equal thereto shall not be affected by any collection of rents by any governmental body pursuant to a tax lien arising out of the act or omission of Tenant, even though such obligation results in a double payment of Rent. All Rent payable by Tenant hereunder shall constitute "rent" for all purposes (including Section 502(b)(6) of the Federal Bankruptcy Code). (d) Except as otherwise expressly provided herein, Tenant shall have no right and hereby waives all rights which it may have under any Law (i) to quit, terminate or surrender this Lease or any of the Leased Premises, or (ii) to any Set-Off of any Monetary Obligations. 9. Payment of Impositions. (a) Tenant shall, before interest or penalties are due thereon, pay and discharge all taxes (including real and personal property, franchise, sales, use, gross receipts and rent taxes, transaction privilege, education or other excise taxes), all charges for any easement or agreement maintained for the benefit of any of the Leased Premises, all assessments and levies, all permit, inspection and license fees, all rents and charges for water, sewer, utility and 16 communication services relating to any of the Leased Premises, all ground rents and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii) Tenant's possessory interest in the Leased Premises, (iii) any of the Leased Premises, (iv) Landlord as a result of or arising in respect of the acquisition, ownership, occupancy, leasing, use, possession or sale to Landlord of any of the Leased Premises, any activity conducted on any of the Leased Premises, or the Rent, or (v) any Lender by reason of any Note, Mortgage, Assignment or other document evidencing or securing a Loan and which (as to this clause (v)) Landlord has agreed to pay (collectively, the "Impositions"); provided, that nothing herein shall obligate Tenant to pay (A) income, excess profits or other taxes of Landlord (or Lender) which are determined on the basis of Landlord's (or Lender's) net income or net worth (unless such taxes are in lieu of or a substitute for any other tax, assessment or other charge upon or with respect to the Leased Premises which, if it were in effect, would be payable by Tenant under the provisions hereof or by the terms of such tax, assessment or other charge), (B) any estate, inheritance, succession, gift or similar tax imposed on Landlord or (C) any capital gains tax or real property transfer or intangibles tax imposed on Landlord in connection with the sale of the Leased Premises to any Person. If any Imposition may be paid in installments without interest or penalty, Tenant shall have the option to pay such Imposition in installments; in such event, Tenant shall be liable only for those installments which accrue or become due and payable during the Term. Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions. Tenant shall deliver to Landlord (1) copies of all settlements and notices pertaining to the Impositions which may be issued by any governmental authority within ten (10) days after Tenant's receipt thereof, (2) receipts for payment of all taxes required to be paid by Tenant hereunder within thirty (30) days after the due date thereof and (3) receipts for payment of all other Impositions within ten (10) days after Landlord's request therefor. (b) Following the occurrence of an Event of Default, Tenant shall pay to Landlord such amounts (each an "Escrow Payment") monthly or quarterly, at the option of Landlord (but not more often than monthly), so that there shall be in an escrow account an amount sufficient to pay the Escrow Charges (as hereinafter defined) as they become due provided, however, that each Escrow Payment shall not be greater than one twelfth (in the case of monthly payments) or one quarter (in the case of quarterly payments) of the annual amount of the annual Escrow Charges as estimated by Landlord. As used herein, "Escrow Charges" shall mean real estate taxes and assessments on or with respect to the Leased Premises or payments in lieu thereof and premiums on any insurance required by this Lease. Landlord shall reasonably determine the amount of the Escrow Charges (it being agreed that if required by a Lender, such amount shall equal any corresponding escrow installments required to be paid by Landlord) and the amount of each Escrow Payment, taking into account any balance remaining in escrow at the beginning of each Lease Year. The Escrow Payments may not be commingled with other funds of Landlord or other Persons. Landlord shall apply the Escrow Payments to the payment of the Escrow Charges in such order or priority as they become due or as required by law. If at any time the Escrow Payments theretofore paid to Landlord shall be insufficient for the payment of the Escrow Charges, Tenant, within ten (10) Business Days after Landlord's demand therefor, shall pay the amount of the deficiency to Landlord. At the end of the Term any Escrow Payments held by Landlord or Lender which are applicable to any period after the expiration of the Term or the termination of this Lease shall be promptly refunded to Tenant. Notwithstanding anything to the contrary in this Paragraph 9(b), payment of Escrow Charges shall be required 17 only for six (6) months following the date on which the Event of Default which gave rise to the requirement to make Escrow Payments is cured, provided, however, that if a third Event of Default occurs, Landlord shall have the right to require Tenant to pay and Tenant shall pay such Escrow Charges for the balance of the Term. 10. Compliance with Laws and Easement Agreements; Environmental Matters. (a) Tenant shall, at its expense, cause the Leased Premises and any other Person occupying any part of the Leased Premises to comply with and conform to, all Insurance Requirements and Legal Requirements (including all applicable Environmental Laws). Tenant shall not at any time (i) cause, permit or suffer to occur any Environmental Violation, (ii) permit any sublessee, assignee or other Person occupying the Leased Premises under or through Tenant to cause, permit or suffer to occur any Environmental Violation and, at the request of Landlord or Lender, Tenant shall promptly remediate or undertake any other appropriate response action to correct any existing Environmental Violation, and (iii) without the prior written consent of Landlord and Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof except that Tenant's failure to prevent any Person (other than Tenant or any person claiming by, through or under Tenant) from exercising a legal right to engage in subsurface drilling or mining under the Texas Premises from an adjoining property shall not constitute an Event of Default hereunder provided that Tenant gives Landlord notice of any such drilling or mining promptly upon Tenant obtaining actual knowledge thereof. Any and all reports prepared for or by Landlord with respect to the Leased Premises shall be for the sole benefit of Landlord and Lender and no other Person shall have the right to rely on any such reports. (b) Tenant, at its sole cost and expense, will at all times promptly and faithfully abide by, discharge and perform all of the covenants, conditions and agreements contained in any Easement Agreement on the part of Landlord or the occupier to be kept and performed thereunder. Tenant will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement unless (i) Landlord gives its written consent, (ii) such alteration, modification, amendment or termination does not reduce the value of the applicable Related Premises or impair its use, and (iii) Tenant delivers to Landlord and Lender, at Tenant's sole expense, a title endorsements satisfactory to Landlord and Lender with respect thereto. Notwithstanding the foregoing, Landlord's consent shall be deemed given if Landlord fails to object in writing (stating its reasons for objecting) to such amendment or termination within thirty (30) days after Landlord's receipt of written request for consent so long as Tenant's request for consent is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR CONSENT SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". (c) Upon prior written notice from Landlord, Tenant shall permit such persons as Landlord may designate ("Site Reviewers") to visit the Leased Premises and perform, as agents of Tenant, environmental site investigations and assessments ("Site Assessments") on the Leased Premises (i) in connection with any sale, financing or refinancing of the Leased 18 Premises, (ii) within the six month period prior to the expiration of the Term with respect to a Related Premises, (iii) if required by Lender or the terms of any credit facility to which Landlord is bound, (iv) if an Event of Default exists, or (v) at any other time that, in the opinion of Landlord or Lender, a reasonable basis exists to believe that an Environmental Violation or any condition that could reasonably be expected to result in any Environmental Violation exists. Such Site Assessments shall not include any invasive testing (i.e. testing requiring boring, digging, demolition or similar activities) unless Landlord has a reasonable belief that an Environmental Violation exists. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Leased Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting Site Assessments shall be paid by Tenant if an Environmental Violation is disclosed by such Site Assessment. In all other events, the cost of performing and reporting such Site Assessments shall be paid for by Landlord. (d) If Tenant fails to promptly commence to comply with, and thereafter diligently pursue compliance with, any requirement of any Environmental Law in connection with any Environmental Violation which occurs or is found to exist, Landlord shall have the right (but no obligation) to take any and all actions as Landlord shall deem necessary or advisable in order to cure such Environmental Violation provided that, except in the case of an emergency, Landlord shall provide Tenant at least ten (10) days written notice prior to the commencement of any such remediation by Landlord. (e) Tenant shall notify Landlord promptly after becoming aware of any Environmental Violation (or alleged Environmental Violation) or noncompliance with any of the covenants contained in this Paragraph 10 and shall forward to Landlord promptly upon receipt thereof copies of all orders, reports, notices, permits, applications or other communications relating to any such violation or noncompliance. (f) All future leases, subleases or concession agreements relating to the Leased Premises entered into by Tenant shall contain covenants of the other party thereto which are identical to the covenants contained in Paragraph 10(a). 11. Liens; Recording. (a) Subject to Paragraph 14 hereof, Tenant shall not, directly or indirectly, create or permit to be created or to remain and shall promptly discharge or remove any lien, levy or encumbrance on any of the Leased Premises or on any Rent or any other sums payable by Tenant under this Lease, other than any Mortgage or Assignment, the Permitted Encumbrances and any mortgage, lien, encumbrance or other charge created by or resulting solely from any act or omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES. TO THE EXTENT REQUIRED BY LAW, 19 LANDLORD MAY AT ANY TIME POST ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD. (b) Tenant shall execute, deliver and record, file or register (collectively, "record") all such instruments as may be required by any present or future Law in order to evidence the respective interests of Landlord and Tenant in any of the Leased Premises, and shall cause a memorandum of this Lease (or, if such a memorandum cannot be recorded, this Lease), and any supplement hereto or thereto, to be recorded in such manner and in such places as may be required by any present or future Law in order to protect the validity and priority of this Lease. 12. Maintenance and Repair. (a) Tenant shall at all times maintain each Related Premises and the Adjoining Property in as good repair and appearance as each is in on the date hereof and fit to be used for their intended use in accordance with the better of the practices generally recognized as then acceptable by other companies in its industry or observed by Tenant with respect to the other real properties owned or operated by it, and, in the case of the Fixtures, in as good mechanical condition as it was on the later of the date hereof or the date of its installation, except for ordinary wear and tear and, subject to Paragraph 17, damage by Casualty or Condemnation. Tenant shall take every other action necessary or appropriate for the preservation and safety of each Related Premises. Tenant shall promptly make all Alterations of every kind and nature, whether foreseen or unforeseen, which may be required to comply with the foregoing requirements of this Paragraph 12(a). Landlord shall not be required to make any Alteration, whether foreseen or unforeseen, or to maintain either Related Premises or Adjoining Property in any way, and Tenant hereby expressly waives any right which may be provided for in any Law now or hereafter in effect to make Alterations at the expense of Landlord or to require Landlord to make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12 shall be made in conformity with the provisions of Paragraph 13. (b) If any Improvement hereafter constructed shall (i) encroach upon any setback or any property, street or right-of-way adjoining any of the Leased Premises, (ii) violate the provisions of any restrictive covenant affecting any of the Leased Premises, (iii) hinder or obstruct any easement or right-of-way to which any of the Leased Premises is subject or (iv) impair the rights of others in, to or under any of the foregoing, Tenant shall, promptly after receiving notice or otherwise acquiring knowledge thereof, either (A) obtain from all necessary parties waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord, Tenant or both, or (B) take such action as shall be necessary to remove all such encroachments, hindrances or obstructions and to end all such violations or impairments, including, if necessary, making Alterations. 13. Alterations and Improvements. (a) Subject in each case to the requirements of Paragraph 13(b), Tenant shall have the right, without having obtained the prior written consent of Landlord or Lender and provided that no Event of Default then exists, (i) to make Pre-Approved Alterations 20 and (ii) to install or replace Fixtures or accessions to the Fixtures. If Tenant desires to make any Major Alteration to either Related Premises the prior written approval of Landlord and Lender shall be required. Withholding of such approval shall be deemed reasonable only if the proposed Major Alteration will, in the judgment of Landlord or Lender, as applicable, in each case exercised reasonably and in good faith, fail to meet the requirements of Paragraph 13(b). Any such withholding of approval shall be evidenced by notice to Tenant, given within thirty (30) days after Tenant has submitted to Landlord design drawings prepared by a licensed architect or engineer if a building permit is required, or, if no building permit is required, such other reasonably detailed description of the proposed Major Alteration, which shall be sufficient to permit Landlord and Lender to make the determination required hereby, setting forth the reason(s) for such withholding of approval. Tenant shall promptly furnish Landlord with such other information as Landlord may reasonably request during such thirty (30) day period regarding such proposed Major Alteration. In the absence of such notice by Landlord or Lender, Landlord and Lender's approval of the proposed Major Alteration shall be deemed given so long as Tenant's request for approval is conspicuously marked in all capitals on both the outside of the package and within such correspondence with the notation "THIS REQUEST FOR APPROVAL SHALL BE DEEMED GRANTED UNLESS RESPONDED TO WITHIN THIRTY (30) DAYS OF RECEIPT". Upon not less than thirty (30) days prior notice (which notice shall include design drawings or other description sufficient to permit Landlord and Lender to make the determination required hereby), Tenant shall have the right to make Major Replacements unless, within said thirty (30) day period, Landlord furnishes Tenant with a notice objecting to the Major Replacement, which Landlord notice shall be accompanied by the certification of an independent architect or, if applicable, engineer that the proposed Major Replacement constitutes a material modification of the structure it is replacing (and, therefore, constitutes a Major Alteration) or such Major Replacement, if completed in the manner proposed, will be of such lesser quality or utility as to be below any reasonable standards for comparable buildings in the applicable locale. Tenant shall not construct upon the Land any additional buildings (other than storage sheds or garages not requiring foundations) or install any underground storage tanks without having first obtained the prior written consent of Landlord and Lender which as to underground storage tanks may be withheld by Landlord or Lender in their sole and absolute discretion. Upon the expiration or termination of the Term with respect to a Related Premises, Landlord shall have the right to require Tenant to remove any Alterations except for Pre-Approved Alterations which complied with Paragraph 13(b), Major Replacements, Alterations required by Law and Alterations which Landlord approved in writing, unless such approval was specifically conditioned upon removal of such Alteration. (b) If Tenant makes any Alterations pursuant to this Paragraph 13 or as required by Paragraph 12 or 17 (such Alterations and actions being hereinafter collectively referred to as "Work"), then (i) the market value and utility of the applicable Related of Premises shall not be lessened by any such Work, (ii) all such Work shall be performed by Tenant in a good and workmanlike manner, (iii) all such Work shall be expeditiously completed in compliance with all Legal Requirements, (iv) all such Work shall comply with the requirements of all insurance policies required to be maintained by Tenant hereunder, (v) if any such Work involves the replacement of Fixtures or parts thereto, all replacement Fixtures or parts shall have a value and useful life equal to (A) if the Fixtures are being replaced because they are obsolete or worn out, the value and useful life on the date hereof of the Fixtures being replaced or (B) if the Fixtures are being replaced because of damage or the occurrence of a Casualty, the value and 21 useful life of the Fixtures being replaced immediately prior to the occurrence of the event which required its replacement (assuming such replaced Fixtures were then in the condition required by this Lease), (vi) subject to Paragraph 14, Tenant shall promptly discharge or remove all liens filed against any of the Leased Premises arising out of such Work, (vii) Tenant shall procure and pay for all permits and licenses required in connection with any such Work, (viii) all such Work shall be the property of Landlord and shall be subject to this Lease, and Tenant shall execute and deliver to Landlord any document requested by Landlord evidencing the assignment to Landlord of all estate, right, title and interest (other than the leasehold estate created hereby) of Tenant or any other Person thereto or therein, (ix) if any such Alterations are Major Alterations or Major Replacements, Tenant shall provide to Landlord reasonable financial assurances of the availability of funds necessary to complete such Alterations and (x) Tenant shall comply, to the extent requested by Landlord or required by this Lease, with the provisions of Paragraphs 12(a) and 19(a), whether or not such Work involves restoration of the Leased Premises. 14. Permitted Contests. Notwithstanding any other provision of this Lease, Tenant shall not be required to (a) pay any Imposition, (b) discharge or remove any lien referred to in Paragraph 11 or 13 or (c) take any action with respect to any encroachment, violation, hindrance, obstruction or impairment referred to in Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter referred to collectively as "Permitted Violations") and may dispute or contest the same, so long as at the time of such non-compliance no Event of Default with respect to the Related Premises to which the Permitted Violation pertains, exists and so long as Tenant shall contest, in good faith, the existence, amount or validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord's liability therefor by appropriate proceedings which shall operate during the pendency thereof to prevent or stay (i) the collection of, or other realization upon, the Permitted Violation so contested, (ii) the sale, forfeiture or loss of any of the applicable Related Premises or any Rent to satisfy or to pay any damages caused by any Permitted Violation, (iii) any interference with the use or occupancy of any of the applicable Related Premises, (iv) any interference with the payment of any Rent, or (v) the cancellation or increase in the rate of any insurance policy or a statement by the carrier that coverage will be denied. Tenant shall provide Landlord security which is satisfactory, in Landlord's reasonable judgment, to assure that such Permitted Violation is corrected, including all Costs, interest and penalties that may be incurred or become due in connection therewith. While any proceedings which comply with the requirements of this Paragraph 14 are pending and the required security is held by Landlord, Landlord shall not have the right to correct any Permitted Violation thereby being contested unless Landlord is required by Law to correct such Permitted Violation and Tenant's contest does not prevent or stay such requirement as to Landlord. Each such contest shall be promptly and diligently prosecuted by Tenant to a final conclusion, except that Tenant, so long as the conditions of this Paragraph 14 are at all times complied with, has the right to attempt to settle or compromise such contest through negotiations. Tenant shall pay any and all losses, judgments, decrees and Costs in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, together with all penalties, fines, interest and Costs thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord to the risk of any civil or criminal liability. 22 15. Indemnification. (a) Tenant shall pay, protect, indemnify, defend, save and hold harmless Landlord from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including reasonable attorneys' fees and costs), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, without regard to the form of action and whether based on strict liability, negligence or any other theory of recovery at law or in equity (except for gross negligence or willful misconduct in connection with any act or omission by the Landlord seeking indemnification), arising from (i) any matter pertaining to the acquisition (except for any acquisition fees or similar payments to W.P. Carey & Co. LLC or any of its affiliates), ownership, leasing, use, non-use, occupancy, operation, management, condition, design, construction, maintenance, repair or restoration of any of the Leased Premises or the condition, use, repair or restoration of the Adjoining Property, (ii) any casualty in any manner arising from any of the Leased Premises or of the Adjoining Property, whether or not Landlord has or should have knowledge or notice of any defect or condition causing or contributing to said casualty, (iii) any violation by Tenant of any provision of this Lease, any contract or agreement to which Tenant is a party, any Legal Requirement or any Permitted Encumbrance or any encumbrance Tenant consented to or the Mortgage or Assignment or (iv) any alleged, threatened or actual Environmental Violation first occurring prior to the later of the termination of this Lease with respect to, or Tenant's vacation of, the applicable Related Premises, including (A) liability for response costs and for costs of removal and remedial action incurred by the United States Government, any state or local governmental unit or any other Person, or damages from injury to or destruction or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss, incurred pursuant to Section 107 of CERCLA, or any successor section or act or provision of any similar state or local Law, (B) liability for costs and expenses of abatement, correction or clean-up, fines, damages, response costs or penalties which arise from the provisions of any of the other Environmental Laws and (C) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance or for carrying on of a dangerous activity. (b) Landlord shall pay, protect, indemnify, defend, save and hold harmless Tenant from and against any and all liabilities, losses, damages (including punitive damages), penalties, Costs (including attorneys' fees and costs reasonably and actually incurred), causes of action, suits, claims, demands or judgments arising from the gross negligence or intentional misconduct of Landlord. (c) In case any action or proceeding is brought against Tenant or Landlord by reason of any such claim, (i) Landlord or Tenant, as the case may be, may, except in the event of a conflict of interest or a dispute between Tenant and any Landlord or during the continuance of an Event of Default, retain its own counsel and defend such action (it being understood that Landlord or Tenant, as the case may be, may employ counsel of its choice to monitor the defense of any such action, the cost of which shall be paid by the indemnifying party) and (ii) such Landlord or Tenant shall notify Landlord or Tenant, as the case may be, to resist or defend such action or proceeding by retaining counsel reasonably satisfactory to such Landlord or Tenant, as the case may be, and such Landlord or Tenant, as the case may be, will cooperate and assist in the defense of such action or proceeding if reasonably requested to do so 23 by Tenant or Landlord, as the case may be. In the event of a conflict of interest or dispute or during the continuance of an Event of Default, Landlord shall have the right to select counsel, and the reasonable and actual cost of such counsel shall be paid by Tenant. (d) The obligations of Tenant and Landlord under this Paragraph 15 shall survive any termination, expiration or rejection in bankruptcy of this Lease. THE INDEMNITY SET FORTH IN THIS SECTION 15 SHALL NOT BE IMPAIRED OR AFFECTED BY NEGLIGENCE ON THE PART OF LANDLORD OR ANYONE ACTING BEHALF OF LANDLORD. 16. Insurance. (a) Tenant shall maintain the following insurance on or in connection with the Leased Premises: (i) Insurance against risk of physical loss or damage to the Improvements and Fixtures as provided under "All Risk" coverage, and including customarily excluded perils of hail, windstorm, flood coverage (if the Leased Premises is in a flood zone), earthquake and, to the extent required by Lender, terrorism insurance in amounts not less than the actual replacement cost of the Improvements and Fixtures; provided that, if Tenant's insurance company is unable or unwilling to include any of all of such excluded perils, Tenant shall have the option of purchasing coverage against such perils from another insurer on a "Difference in Conditions" form or through a stand-alone policy. Such policies shall contain Replacement Cost and Agreed Amount Endorsements and shall contain deductibles not more than $250,000 per occurrence (except earthquake insurance with respect to the California Premises, which shall have a deductible of not more than $500,000 and terrorism insurance at either Related Premises, which shall have a deductible of not more than two (2%) of the actual replacement value of the Improvements and Fixtures at the applicable Related Premises). If any of the Improvements constitute a legal non-conforming structure under applicable building, zoning or land use laws, such policies shall also include an ordinance or law coverage endorsement which will contain Coverage A: "Loss Due to Operation of Law" (with a minimum liability limit equal to Replacement Cost with a waiver of any co-insurance provisions or an Agreed Value Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of Construction" coverages. Notwithstanding the foregoing, terrorism insurance coverage shall not be required if it is not available at commercially reasonable rates (as determined by Landlord and Lender in their sole discretion); provided however, if a rating agency in connection with a securitization of a Loan or in connection with its rating surveillance of the certificates issued pursuant to a securitization of a Loan would not provide or maintain a rating for any portion of such Loan or such certificates which would otherwise be available but for the failure to maintain such terrorism insurance, Tenant will so maintain such terrorism insurance if obtainable from any insurer or any governmental authority with the deductibles set forth above. (ii) Commercial General Liability Insurance and Business Automobile Liability Insurance (including Non-Owned and Hired Automobile Liability) against claims for personal and bodily injury, death or property damage occurring on, in or as a result of the use of the Leased Premises, in an amount not less than $15,000,000 per occurrence/annual aggregate and all other coverage extensions that are usual and customary for properties of this 24 size and type provided, however, that the Landlord shall have the right to require such higher limits as may be reasonable and customary for properties of this size and type. (iii) Worker's compensation insurance covering all persons employed by Tenant in connection with any work done on or about any of the Leased Premises for which claims for death, disease or bodily injury may be asserted against Landlord, Tenant or any of the Leased Premises or, in lieu of such Workers' Compensation Insurance, a program of self-insurance complying with the rules, regulations and requirements of the appropriate agency of the State or States in which the Leased Premises are located. (iv) Comprehensive Boiler and Machinery Insurance on any of the Fixtures or any other equipment on or in the Leased Premises in an amount not less than $5,000,000 per accident for damage to property. Either such Boiler and Machinery policy or the All-Risk policy required in (i) above shall include Off-Premises Service Interruption with limits of $1,500,000 per occurrence for property damage, $1,500,000 per occurrence for time element; $750,000 per occurrence for expediting expense; $275,000 per occurrence for ammonia contamination; and $375,000 per occurrence for hazardous materials clean-up and with a deductible not to exceed $250,000. (v) Business Interruption Insurance at limits to cover 100% of losses and/or expenses incurred over the period of indemnity not less than twelve (12) months from time of loss. Such insurance shall name Landlord as loss payee solely with respect to Rent payable to or for the benefit of the Landlord under this Lease. (vi) During any period in which substantial Alterations at either Related Premises are being undertaken, Tenant shall cause each contractor to obtain builder's risk insurance covering in the aggregate the total completed value including any "soft costs" with respect to the Improvements being altered or repaired (on a completed value, non-reporting basis), replacement cost of work performed and equipment, supplies and materials furnished in connection with such construction or repair of Improvements or Fixtures, together with such "soft cost" endorsements and such other endorsements as Landlord may reasonably require and general liability, workers' compensation and automobile liability insurance with respect to the Improvements being constructed, altered or repaired. (vii) Such other insurance (or other terms with respect to any insurance required pursuant to this Paragraph 16, including without limitation amounts of coverage, deductibles, form of mortgagee clause) on or in connection with any of the Leased Premises as Landlord or Lender may reasonably require for properties of similar location, size, type, value and use (b) The insurance required by Paragraph 16(a) shall be written by companies which (i) have a Best's rating of A:X or above and a claims paying ability rating of AA or better by S&P or equivalent rating agency approved by Landlord and Lender in their sole discretion and (ii) are approved to write insurance policies by, the State Insurance Department for the states in which the Leased Premises are located. Notwithstanding clause "(i)" of the preceding sentence, provided that each of the following insurance carriers meet the requirements of clause "(ii)" of the preceding sentence, then, (A) the insurance required pursuant to Paragraph 25 16(a)(i) may be on policies written by (1) Continental Casualty Co. so long as it maintains an S&P claims paying ability rating of A- or better, (2) American Guaranty Ins. Co. so long is it maintains an S&P claims paying ability rating of A+ or better, and (3) Liberty Mutual Insurance Co. so long as it maintains an S&P claims paying ability rating of A+ or better, and (B) the insurance required pursuant to Paragraph 16(a)(iv) may be on policies written by Commonwealth Insurance Co. so long as it maintains an S&P claims paying ability rating of BBB or better, provided, however, that in the event that any of the preceding insurance carriers fails to maintain its corresponding rating set forth above, then such insurance carrier shall be replaced with an insurance carrier meeting the requirements set forth in the first sentence of this Paragraph 16(b). The insurance policies shall be in amounts sufficient at all times to satisfy any coinsurance requirements thereof. The insurance referred to in Paragraphs 16(a)(i), 16(a)(iv), 16(a)(v) and 16(a)(vi) shall name Landlord and Lender as loss payees and Tenant as its interest may appear. The insurance referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as additional insureds. If said insurance or any part thereof shall expire, be withdrawn, become void, voidable, unreliable or unsafe for any reason, including a breach of any condition thereof by Tenant or the failure or impairment of the capital of any insurer, Tenant shall immediately obtain new or additional insurance satisfying the requirements of this Paragraph 16. If the availability of the types and amounts of insurance coverages required under Paragraph 16(a) shall change in the commercial insurance marketplace for properties that are of a similar size, scope, location and usage as any applicable Related Premises, at Tenant's request Landlord shall review such coverages available at the time and, if Landlord deems appropriate (in its sole and absolute discretion), adjust the types and amounts of insurance required. (c) Each insurance policy referred to in clauses (i), (iv), (v) and (vi) of Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in favor of and acceptable to Lender. Each policy required by any provision of Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be cancelled substantially modified or allowed to lapse on any renewal date except after thirty (30) days' prior notice to Landlord and Lender. Each such policy shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Leased Premises for purposes more hazardous than those permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Mortgage, Note, Assignment or other document evidencing or securing the Loan upon the happening of an event of default therein or (iv) any change in title to or ownership of any of the Leased Premises. (d) Tenant shall pay as they become due all premiums for the insurance required by Paragraph 16(a), shall renew or replace each policy and deliver to Landlord evidence of the payment of the full premium therefor or installment then due prior to the expiration date of such policy, and shall promptly deliver to Landlord all original certificates of insurance at least fifteen (15) days prior to the expiration date thereof, which certificates shall bear notations evidencing payment of applicable premiums and, if required by Lender, certified policies as soon as available. (e) Anything in this Paragraph 16 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may be carried under a 26 "blanket" or umbrella policy or policies covering other properties or liabilities of Tenant, provided that such "blanket" or umbrella policy or policies otherwise comply with the provisions of this Paragraph 16 and provided further that Tenant shall provide to Landlord a Statement of Values which shall be reviewed annually and amended as necessary based on Replacement Cost Valuations. The original or a certified copy of each such "blanket" or umbrella policy shall promptly be delivered to Landlord. (f) Tenant shall promptly comply with and conform to (i) all provisions of each insurance policy required by this Paragraph 16 and (ii) all requirements of the insurers thereunder applicable to Landlord, Tenant or any of the Leased Premises or to the use, manner of use, occupancy, possession, operation, maintenance, alteration or repair of any of the Leased Premises, even if such compliance necessitates Alterations or results in interference with the use or enjoyment of any of the Leased Premises. (g) Tenant shall not carry separate insurance concurrent in form or contributing in the event of a Casualty with that required in this Paragraph 16 unless (i) Landlord and Lender are included therein as named insureds, with loss payable as provided herein, and (ii) such separate insurance complies with the other provisions of this Paragraph 16. Tenant shall immediately notify Landlord of such separate insurance and shall deliver to Landlord the original policies or certified copies thereof. (h) All policies shall contain effective waivers by the carrier against all claims for insurance premiums against Landlord and shall contain full waivers of subrogation against the Landlord. (i) All proceeds of any insurance required under Paragraph 16(a) shall be payable as follows: (i) Proceeds payable under clauses (ii), (iii) and (iv) of Paragraph 16(a) and proceeds attributable to the general liability coverage of Builder's Risk insurance under clause (vi) of Paragraph 16(a) shall be payable to the Person entitled to receive such proceeds. (ii) Proceeds of insurance required under clause (i) of Paragraph 16(a) and proceeds attributable to Builder's Risk insurance (other than its general liability coverage provisions) under clause (vi) of Paragraph 16(a) shall be payable to Landlord or Lender and applied as set forth in Paragraph 17 or, if applicable, Paragraph 18. Tenant shall apply the Net Award to restoration of the Leased Premises in accordance with the applicable provisions of this Lease unless a Termination Event shall have occurred and Tenant has given a Termination Notice in which event the Net Award shall be retained by Landlord. 17. Casualty and Condemnation. (a) If any Casualty to either of the Related Premises occurs the insurance proceeds for which are reasonably estimated by Tenant to be equal to or in excess of the Threshold Amount, Tenant shall give Landlord and Lender immediate notice thereof. So long as (i) no Event of Default, exists, and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is hereby authorized to adjust, collect and compromise all claims under any of 27 the insurance policies required by Paragraph 16(a) (except public liability insurance claims payable to a Person other than Tenant, Landlord or Lender) and to execute and deliver on behalf of Landlord all necessary proofs of loss, receipts, vouchers and releases required by the insurers and Landlord shall have the right to join with Tenant therein. Any final adjustment, settlement or compromise of any such claim shall be subject to the prior written approval of Landlord and Lender, and Landlord and Lender shall have the right to prosecute or contest, or to require Tenant to prosecute or contest, any such claim, adjustment, settlement or compromise. If an Event of Default exists, Tenant shall not be entitled to adjust, collect or compromise any such claim or to participate with Landlord in any adjustment, collection and compromise of the Net Award payable in connection with a Casualty and, in such event, agrees to sign, upon the request of Landlord, all such accurate proofs of loss, receipts, vouchers and releases. Each insurer is hereby authorized and directed to make payment under said policies, if required by the Mortgage, to Lender instead of to Landlord and Tenant jointly. The rights of Landlord under this Paragraph 17(a) shall be extended to Lender if and to the extent that any Mortgage so provides. (b) Tenant, promptly upon receiving a Condemnation Notice, shall notify Landlord and Lender thereof. So long as (i) no Event of Default, exists and (ii) Tenant does not give a Termination Notice to Landlord, Tenant is authorized to collect, settle and compromise the amount of any Net Award and Landlord shall have the right to join with Tenant herein. If an Event of Default exists, Landlord shall be authorized to collect, settle and compromise the amount of any Net Award and Tenant shall not be entitled to participate with Landlord in any Condemnation proceeding or negotiations under threat thereof or to contest the Condemnation or the amount of the Net Award therefor. No agreement with any condemnor in settlement or under threat of any Condemnation shall be made by Tenant without the written consent of Landlord. Subject to the provisions of this Paragraph 17(b), Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant is or may be entitled by reason of any Condemnation, whether the same shall be paid or payable for Tenant's leasehold interest hereunder or otherwise; but nothing in this Lease shall impair Tenant's right to any award or payment on account of Tenant's trade fixtures, equipment or other tangible property which is not part of the Fixtures, moving expenses or loss of business, if available, to the extent that and so long as (i) Tenant shall have the right to make, and does make, a separate claim therefor against the condemnor and (ii) such claim does not in any way reduce either the amount of the award otherwise payable to Landlord for the Condemnation of Landlord's fee interest in the applicable Related Premises or the amount of the award (if any) otherwise payable for the Condemnation of Tenant's leasehold interest hereunder. The rights of Landlord under this Paragraph 17(b) shall also be extended to Lender if and to the extent that any Mortgage so provides. (c) If any Partial Casualty (whether or not insured against) or Partial Condemnation shall occur to either Related Premises, this Lease shall continue, notwithstanding such event, and there shall be no abatement or reduction of any Monetary Obligations. Promptly after such Partial Casualty or Partial Condemnation, Tenant, as required in Paragraph 12(a), shall commence and diligently continue to restore the applicable Related Premises as nearly as possible to its value, condition and character immediately prior to such event (assuming such Related Premises to have been in the condition required by this Lease). So long as no Event of Default exists, any Net Award up to and including the Threshold Amount shall, unless such Casualty or Condemnation resulting in the Net Award is a Termination Event, be paid by 28 Landlord to Tenant and Tenant shall restore the applicable Related Premises in accordance with the requirements of Paragraph 13(b) of this Lease. Any Net Award in excess of the Threshold Amount shall (unless such Casualty or Condemnation resulting in the Net Award is a Termination Event) be made available by Landlord (or Lender if the terms of the Mortgage so require) to Tenant for the restoration of any of the applicable Related Premises pursuant to and in accordance with and subject to the provisions of Paragraph 19 hereof. If any Casualty or Condemnation which is not a Partial Casualty or Partial Condemnation shall occur, Tenant shall comply with the terms and conditions of Paragraph 18. With respect to the California Premises, Landlord and Tenant waive the provisions of California Civil Code Sections 1932(2) and 1933(4) and California Code of Civil Procedure Section 1265.130. 18. Termination Events. (a) If either (i) all of either Related Premises shall be taken by a Taking, or (ii) any substantial portion of either Related Premises shall be taken by a Taking or (iii) all or any substantial portion of either Related Premises shall be damaged or destroyed by a Casualty during the last twelve (12) months of the Term and at the time of such Casualty no Event of Default exists (any one or all of the Related Premises described in the above clauses (i) and (ii) above being hereinafter referred to as the "Affected Premises" and each of the events described in the above clauses (i), (ii) and (iii) shall hereinafter be referred to as a "Termination Event"), then (x) in the case of (i) above, Tenant shall be obligated, within thirty (30) days after Tenant receives a Condemnation Notice and (y) in the case of (ii)or (iii) above, Tenant shall have the option, within thirty (30) days after Tenant receives a Condemnation Notice or thirty (30) days after the Casualty, as the case may be, to give to Landlord written notice (a "Termination Notice") in the form described in Paragraph 18(b) of the Tenant's election to terminate this Lease as to the Affected Premises. If Tenant elects under clause (y) above not to give Landlord a Termination Notice, then Tenant shall rebuild or repair the Leased Premises in accordance with Paragraphs 17 and 19. (b) A Termination Notice shall contain notice of Tenant's intention to terminate this Lease as to the Affected Premises thirty (30) days after delivery of the Termination Notice (the "Termination Date") and any amounts prepaid by Tenant and attributable to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (c) This Lease shall terminate as to the Affected Premises on the Termination Date or, in the case of a Casualty at such later date on which, (A) Tenant has paid all insurance deductibles associated with the Net Award and (B) Landlord has received confirmation that the insurance proceeds payable pursuant to Paragraph 16(a)(i) shall be paid to Landlord in full without offset and deduction. If Tenant has not satisfied all Monetary Obligations and all other non-contingent obligations and liabilities under this Lease which have arisen as to the Affected Premises (collectively, "Remaining Obligations") on or prior to the Termination Date, then Landlord may, at its option, extend the Termination Date as to the Affected Premises to a date which is no later than thirty (30) days after the date on which Tenant has satisfied all Remaining Obligations. Upon such termination (i) all obligations of Tenant hereunder as to the Affected Premises shall terminate except for any Surviving Obligations, (ii) Tenant shall immediately vacate and shall have no further right, title or interest in or to the 29 Affected Premises and (iii) the Net Award shall be retained by Landlord and (iv) any amounts prepaid by Tenant and attributed to the Affected Premises for any period after the Termination Date shall be refunded to Tenant. (d) In the event of the termination of this Lease as to the Affected Premises as hereinabove provided, this Lease shall remain in full force and effect as to the Remaining Premises; provided, that the Basic Rent for the Remaining Premises to be paid after such termination shall be the Basic Rent otherwise payable hereunder with respect to the Leased Premises multiplied by a percentage equal to the percentage set forth on Exhibit "F" for the Remaining Premises. 19. Restoration. (a) If any Net Award is in excess of the Threshold Amount, Landlord (or Lender if required by any Mortgage) shall hold the Net Award in a fund (the "Restoration Fund") and disburse amounts from the Restoration Fund only in accordance with the following conditions: (i) prior to commencement of restoration, (A) the architects, contracts, contractors, plans and specifications and a budget, which budget may include a redevelopment fee payable to Tenant or its designee, for the restoration shall have been approved by Landlord, (B) Landlord and Lender shall be provided with mechanics' lien insurance (if available) and performance and payment bonds in customary form and amounts issued by a surety reasonably acceptable to Landlord, and name Landlord and Lender as additional dual obligees, and (C) if the Related Premises being restored is the Pennsylvania Premises, appropriate waivers of mechanics' and materialmen's liens shall have been filed; (ii) at the time of any disbursement, no Event of Default, shall exist and no mechanics' or materialmen's liens (other than those being contested in compliance with Paragraph 14) shall have been filed against the applicable Related Premises and remain undischarged; (iii) disbursements shall be made from time to time in an amount not exceeding the cost of the work completed since the last disbursement, upon receipt of (A) satisfactory evidence, including architects' certificates, of the stage of completion, the estimated total cost of completion and performance of the work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (B) waivers of liens, (C) contractors' and subcontractors' sworn statements as to completed work and the cost thereof for which payment is requested, (D) a satisfactory bringdown of title insurance and (E) other reasonable evidence of cost and payment so that Landlord and Lender can verify that the amounts disbursed from time to time are represented by work that is completed, in place and free and clear of mechanics' and materialmen's lien claims; (iv) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such work and, upon completion of the work, 30 also stating that, to the best knowledge of such person, the work has been fully completed and complies with the applicable requirements of this Lease; (v) Landlord may retain ten percent (10%) of the Restoration Fund until the restoration is fully completed; (vi) the Restoration Fund shall not be commingled with Landlord's other funds and shall bear interest at a rate agreed to by Landlord and Tenant; and (vii) such other reasonable and customary conditions as Landlord or Lender may impose. (b) Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the restoration work free and clear of all liens, as reasonably determined by Landlord, exceeds the amount of the Net Award available for such restoration, the amount of such excess shall, upon demand by Landlord, be paid by Tenant to Landlord to be added to the Restoration Fund. Any sum so added by Tenant which remains in the Restoration Fund upon completion of restoration shall be refunded to Tenant. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of restoration, the Net Award shall be deemed to be disbursed prior to any amount added by Tenant. (c) If any sum remains in the Restoration Fund after completion of the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum shall be retained by Landlord or, if required by a Note or Mortgage, paid by Landlord to a Lender. 20. Intentionally Omitted. 21. Assignment and Subletting: Prohibition against Leasehold Financing. (a) (i) Except as specifically provided in this Paragraph 21 and subject to the terms hereof, Tenant shall not assign this Lease, voluntarily or involuntarily, whether by operation of law or otherwise. Tenant shall have the right, upon thirty (30) days prior written notice to Landlord and Lender, with no consent of Landlord or Lender being required or necessary ("Preapproved Assignment") (A) to assign this Lease either in its entirety ("Complete Assignment") or (B) from time to time to cause Landlord to bifurcate this Lease into two leases ("Lease Bifurcation"), one lease for one Related Premises (the "Bifurcated Premises") to be leased to a Preapproved Assignee (as hereinafter defined) upon the terms and conditions set forth in this Lease (but shall specifically provide that it is not cross-defaulted this Lease), and one lease for the remaining Related Premises which will continue to be subject to this Lease, as amended (each, a "Bifurcated Lease"), provided that (1) the Basic Rent under each such Bifurcated Lease shall be allocated among each of the Related Premises as provided in Exhibit "F", (2) Tenant assigns its interest in this Lease with respect to the Bifurcated Premises (each such Lease Bifurcation, a "Partial Assignment") in accordance with the terms and conditions of this Paragraph 21, and (3) any such Complete Assignment or each Partial Assignment is to a Person (a "Preapproved Assignee") which meets the following applicable criteria: (x) in the case of a Complete Assignment which, as a matter of Law, results from a merger, the successor Tenant shall have, after giving effect to such merger, a net worth at least equal to Tenant's net 31 worth immediately prior to such merger, (y) in the case of the sale of all or substantially all of the assets of Tenant, (i) the sale shall result in a Complete Assignment, and (ii) immediately after giving effect to such purchase, the assignee shall have a net worth at least equal to Tenant's net worth immediately prior to such purchase, and (z) in all other cases, immediately following such assignment the assignee will have an Investment Grade Rating. All determinations of net worth in this Paragraph 21(a)(i) shall be made in accordance with GAAP. (ii) If Tenant desires to assign this Lease, whether by operation of law, through a Complete Assignment or a Partial Assignment, or otherwise, to a Person (a "Non-Preapproved Assignee") who would not be a Preapproved Assignee (a "Non-Preapproved Assignment") then Tenant shall, not less than ninety (90) days prior to the date on which it desires to make a Non-Preapproved Assignment submit to Landlord and Lender information regarding the following with respect to the Non-Preapproved Assignee (collectively, the "Review Criteria"): (A) credit, (B) capital structure, (C) management, (D) operating history, (E) proposed use of the Leased Premises and (F) risk factors associated with the proposed use of the Leased Premises by the Non-Preapproved Assignee, taking into account factors such as environmental concerns, product liability and the like. Landlord and Lender shall review such information and shall approve or disapprove the Non-Preapproved Assignee no later than the thirtieth (30th) day following receipt of all such information, and Landlord and Lender shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on their review of the Review Criteria applying prudent business judgment. If a response is not received by Tenant from Landlord and Lender by the expiration of such thirty (30) day period such Non-Preapproved Assignee shall be deemed disapproved. (iii) If Tenant assigns its rights and interest under this Lease except as expressly set forth below, the assignee under such assignment shall expressly assume all the obligations of Tenant hereunder, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such assignment, by a written instrument delivered to Landlord at the time of such assignment. With respect to each assignment, the assignee shall not be required to assume the obligations of Tenant which may have arisen on or prior to the date of such assignment with respect to the Leased Premises or the Bifurcated Premises, as applicable, if Tenant provides Landlord evidence satisfactory to Landlord in its reasonable discretion that (1) the Leased Premises or the Bifurcated Premises, as applicable, is in the physical condition required by this Lease as evidenced by report issued by an independent thirty party engineering firm reasonably acceptable to Landlord, (2) no Environmental Violation exists as evidenced by a report issued by an environmental consulting firm reasonably acceptable to Landlord, and (3) all applicable Impositions have been properly adjusted between Tenant and the assignee as of the assignment date. Upon a Complete Assignment to a Preapproved Assignee which has an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease arising after such Complete Assignment. Upon a Complete Assignment where the assignee is a Preapproved Assignee solely on the basis of clause "(y)" of Paragraph 21(a)(i), Tenant shall be relieved of all of its obligations under this Lease, whether arising before or after such Complete Assignment, provided that such Preapproved Assignee assumes all of Tenant's obligations under the Lease, actual or contingent, including the obligations of Tenant which may have arisen on or prior to the date of such Complete Assignment, by a written instrument delivered to Landlord at the time of such assignment. Upon a Partial Assignment of this Lease to a Preapproved Assignee which has 32 an Investment Grade Rating in accordance with the terms and conditions of this Paragraph 21, Tenant shall be relieved of all of its obligations under this Lease with respect to the Bifurcated Premises arising after such assignment. No assignment shall impose any additional obligations on Landlord under this Lease, and, except as expressly set forth above, no assignment shall affect or reduce any of the obligations of Tenant (including but not limited to Tenant's liability with respect to Surviving Obligations), which shall remain in full force and effect as obligations of a principal and not as obligations of a guarantor, as if no assignment had been made. (b) (i) Tenant shall not have the right to sublet all or any portion of either Related Premises without having obtained the approval of Landlord which consent shall not be unreasonably withheld or delayed. Landlord agrees that it shall not have the right to withhold or delay its consent to any proposed subletting so long as Tenant agrees in writing at the time consent to such subletting is requested to assign to Landlord the subrents collected thereunder in accordance with the terms and provisions of Paragraph 21(e) (a "Preapproved Sublet"). (ii) With respect to any sublease of an entire Related Premises for a term of at least five (5) years or, if less, the balance of the Term minus one day which sublease requires the subtenant to pay Rent at least equal to Basic Rent and Additional Rent allocable to such Related Premises and comply with all other terms and conditions of this Lease to the extent applicable to the Related Premises (such sublease being referred to as a "Protected Sublease") and such subtenant either (A) meets the criteria of a Preapproved Assignee pursuant to Paragraph 21(a)(i) or (B) has been approved by Landlord and Lender in accordance with the procedure set forth in clause (ii) of Paragraph 21(a), (each such subtenant, a "Protected Subtenant"), so that if this Lease is terminated by reason of the occurrence of an Event of Default, Landlord will recognize such Protected Sublease as a direct lease of the Related Premises. Such recognition and agreement by Landlord to treat such sublease as a Protected Sublease, shall not be effective unless such Protected Subtenant executes and delivers to Landlord a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit "E" (modified as appropriate to govern the Landlord and such subtenant as the parties and the sublease as the protected leasehold). With respect to a proposed Protected Subtenant pursuant to clause "(B)" above, Landlord shall provide its approval or disapproval in writing within thirty (30) days of Tenant's written request and submission of all required information and any disapproval by Landlord shall state the reasons for such disapproval. (iii) Each sublease of either of the Related Premises shall (A) subject to the provisions of Paragraphs 21(b) and 32, be expressly subject and subordinate to this Lease and any Mortgage encumbering the Leased Premises; (B) not extend beyond the then current Term minus one day; (C) subject to the provisions of Paragraphs 21(b) and 32, terminate upon any termination of this Lease, unless Landlord elects in writing, to cause the sublessee to attorn to and recognize Landlord as the lessor under such sublease, whereupon such sublease shall continue as a direct lease between the sublessee and Landlord upon all the terms and conditions of such sublease; and (D) bind the sublessee to all covenants contained in Paragraphs 4(a), 10 and 12 with respect to subleased premises to the same extent as if the sublessee were the Tenant. No sublease shall affect or reduce any of the obligations of Tenant hereunder or, except as provided in Paragraph 21(b)(ii), impose any additional obligations on Landlord under this Lease. 33 (c) Concurrently with Tenant's execution of any assignment or sublease, Tenant shall provide to Landlord a completed certification substantially in the form attached hereto as Exhibit "G", executed by the proposed assignee/sublessee and, in connection with a Preapproved Assignment or Protected Sublease, such other information reasonably required by Landlord to establish that any proposed Preapproved Assignment or Protected Sublease satisfies the criteria set forth above. (d) Tenant shall, within ten (10) Business Days after the execution and delivery of any assignment or sublease, deliver a duplicate original copy thereof to Landlord which, in the event of an assignment, shall be in recordable form. (e) The provisions of this Paragraph 21(e) shall be applicable in the event of a request by Tenant for consent to a Preapproved Sublet pursuant to Paragraph 21(b) or with respect to any Protected Sublease. Tenant shall grant, convey and assign to Landlord all right, title and interest of Tenant in and to such sublease any and all extensions, modifications and renewals thereof and all rents, issues and profits therefrom which assignment shall not be subject to any assignment from Tenant to any other Person. Landlord shall grant to Tenant a license to collect and enjoy all rents and other sums of money payable under such sublease, provided, however, that during the continuance of an Event of Default, Landlord shall have the absolute right at any time upon notice to Tenant and any subtenants to revoke said license and to collect such rents and sums of money and to apply the same to Rent next due and owing. Tenant shall not consent to, cause or allow any modification or alteration of any of the terms, conditions or covenants of any Protected Subleases or the termination thereof, without the prior written approval of Landlord which consent shall not be unreasonably withheld nor shall Tenant accept any rents more than thirty (30) days in advance of the accrual thereof. (f) Tenant shall not have the power to mortgage, pledge or otherwise encumber its interest under this Lease or any sublease of either of the Related Premises, and any such mortgage, pledge or encumbrance made in violation of this Paragraph 21 shall be void and of no force and effect. (g) Landlord may sell or transfer its interest in the Leased Premises at any time without Tenant's consent to any third party (each a "Third Party Purchaser"), provided, however, Landlord shall not, without Tenant's prior written consent which consent shall not be unreasonably withheld, delayed or conditioned, sell the Leased Premises or assign its interest in this Lease to (i) to a Competitor of Tenant or (ii) a Person with which Tenant would be required to consolidate its financial statements under GAAP. In the event of any such transfer not in violation of this Paragraph 21(g), Tenant shall attorn to any Third Party Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify Tenant in writing of such transfer. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such agreements do not increase the liabilities and obligations of Tenant hereunder. 22. Events of Default. 34 (a) The occurrence of any one or more of the following (after expiration of any applicable cure period as provided in Paragraph 22(b)) shall, at the sole option of Landlord, constitute an "Event of Default" under this Lease. (i) a failure by Tenant to make any payment of any Monetary Obligation on or prior to its due date, regardless of the reason for such failure; (ii) a failure by Tenant duly to perform and observe, or a violation or breach of, any other provision hereof not otherwise specifically mentioned in this Paragraph 22(a); (iii) any representation or warranty made by Tenant herein or in any certificate, demand or request made pursuant hereto proves to be incorrect in any material adverse respect and the circumstances giving rise to such misrepresentation or breach of warranty are continuing and would reasonably be anticipated to have a material adverse effect upon Tenant's ability to perform its obligations under this Lease or upon either Related Premises, in each case with Landlord applying commercially reasonable standards; (iv) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or trustee for itself or for either of the Related Premises, (C) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (D) make a general assignment for the benefit of creditors; (v) a court shall enter an order, judgment or decree appointing, without the consent of Tenant, a receiver or trustee for it or for either of the Related Premises or approving a petition filed against Tenant which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain undischarged or unstayed ninety (90) days after it is entered; (vi) either Related Premises (A) shall have been vacated other than (1) due to a Casualty to or Condemnation of such Related Premises so long as Tenant is diligently negotiating an insurance settlement or endeavoring to restore the Related Premises or (2) as a result of Tenant having decided to cease its business operations at such location so long as Tenant is diligently seeking an assignment or sublet (which diligence shall be deemed evidenced by a listing of such Related Premises with a real estate broker or agent at market terms), or (B) shall have been abandoned; (vii) Tenant shall voluntarily liquidate or dissolve or shall begin proceedings towards its liquidation or dissolution except by filing bankruptcy proceedings; (viii) the estate or interest of Tenant in either of the Related Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated or discharged within sixty (60) days after it is made; (ix) a failure by Tenant to perform or observe, or a violation or breach of, or a misrepresentation by Tenant under any document between Tenant and Lender or 35 from Tenant to Lender, if such failure, violation, breach or misrepresentation gives rise to a default beyond any applicable cure period with respect to any Loan; (x) a failure by Tenant to maintain in effect any material license or permit necessary for the use, occupancy or operation of either Related Premises, in each case with Landlord applying commercially reasonable standards; (xi) Tenant shall in a single transaction or series of related transactions sell, convey, transfer or lease all or substantially all of its assets unless concurrently with such sale the interest of Tenant in this Lease is assigned to the purchaser, lessee or transferee of such assets who complies with the requirements of Paragraph 21 of this Lease and who shall assume in writing all of the obligations of Tenant hereunder; (xii) Tenant shall fail to deliver the Estoppel Certificate described in Paragraph 25 within the time period specified therein provided that such request for an Estoppel Certificate clearly states that the failure to provide said Estoppel Certificate will be an Event of Default under this Lease if not delivered within said time period; (xiii) Tenant shall fail to execute and deliver the subordination, non-disturbance and attornment agreement in accordance with the requirements of Paragraph 32 within fifteen (15) Business Days of written request by Landlord provided that such request clearly states that the failure to execute and deliver such agreement will be an Event of Default under this Lease if not delivered within said time period; or (xiv) An Event of Default (as that term is defined in each of the Affiliate Leases) under either of the Affiliate Leases shall occur. (b) No notice or cure period shall be required in any one or more of the following events: (A) the occurrence of an Event of Default under clause (i) (except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii) or (xiv) of Paragraph 22(a); (B) a failure to provide any insurance required by Paragraph 16 or an assignment or sublease entered into in violation of Paragraph 21; or (C) the default is such that any delay in the exercise of a remedy by Landlord could reasonably be expected to cause irreparable harm to Landlord. If the default consists of the failure to pay any Monetary Obligation under clause (i) of Paragraph 22(a), the applicable cure period shall be five (5) Business Days from the date on which notice is given, but if the default consists of the failure to pay Basic Rent, Landlord shall not be obligated to give notice of such default in more than one (1) time within any Lease Year. If the default consists of a default under clause (ii) of Paragraph 22(a), other than the events specified in clauses (B) and (C) of the first sentence of this Paragraph 22(b), the applicable cure period shall be thirty (30) days from the date on which notice is given provided Tenant has commenced to cure such default with such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same or, if the default cannot be cured within such thirty (30) day period and Tenant, in the reasonable opinion of Landlord and Lender, thereafter diligently and expeditiously proceeds to cure same (and delay in the exercise of a remedy would not, in Landlord's reasonable judgment, cause any material adverse harm to Landlord or any of the Leased Premises) the cure period shall be extended for so long as it shall require Tenant in the exercise of due diligence to cure such default, it being agreed that no such 36 extension shall be for a period in excess of one hundred and five (105) days unless (x) Landlord determines in its reasonable discretion that Tenant is diligently and expeditiously curing the applicable default and (y) the applicable default does not relate to an Environmental Violation (except for an Environmental Violation that cannot be cured within such one hundred and five (105) day period due solely to the failure of a governmental agency to approve a remediation plan or provide any permit required for Tenant to remediate in which case the one hundred and five (105) day period shall be extended, so long as Tenant is diligently and expeditiously curing the applicable default, by the number of days elapsed between the date Tenant submits a remediation plan or applies for a permit to the appropriate governmental authority and the date such plan is approved or permit is issued by the appropriate governmental authority, but in addition in no event shall such extension exceed one year from the date notice was originally given by Landlord to Tenant of such default). The notices described in this Paragraph 22(b) are in lieu and not in addition to the notice under California Code of Civil Procedure 1161. 23. Remedies and Damages Upon Default. (a) If an Event of Default shall have occurred and is continuing, Landlord shall have the right, at its sole option, then or at any time thereafter, to exercise its remedies and to collect damages from Tenant in accordance with this Paragraph 23, subject in all events to applicable Law, without further demand upon or notice to Tenant except as otherwise provided in Paragraph 22(b) and this Paragraph 23. (i) Landlord may give Tenant notice of Landlord's intention to terminate this Lease on a date specified in such notice. Upon such date, this Lease, the estate hereby granted and all rights of Tenant hereunder shall expire and terminate. Upon such termination, Tenant shall immediately surrender and deliver possession of the Leased Premises to Landlord in accordance with Paragraph 26. If Tenant does not so surrender and deliver possession of all of the Leased Premises, Landlord may re-enter and repossess any of the Leased Premises not surrendered, with or without legal process, by peaceably entering any of the Leased Premises and changing locks or by summary proceedings, ejectment or any other lawful means or procedure. (ii) Landlord may repossess the Leased Premises without terminating the Lease after obtaining an appropriate order from a court of competent jurisdiction, and thereafter peacefully enter the Leased Premises and changing locks or by other summary judicial proceedings. (iii) Upon or at any time after taking possession of any of the Leased Premises pursuant to Paragraph 23(a)(i) or 23(a)(ii), Landlord may, by peaceable means or legal process, remove any Persons or property therefrom. Landlord shall be under no liability for or by reason of any such entry, repossession or removal. Notwithstanding such entry or repossession, Landlord may collect the damages set forth in Paragraph 23(b)(i) and 23(b)(ii). (iv) After repossession of any of the Leased Premises pursuant to clause (i) or (ii) above, Landlord shall have the right to relet any of the Leased Premises to such tenant or tenants, for such term or terms, for such rent, on such conditions and for such uses as Landlord in its sole discretion may determine, and collect and receive any rents payable by 37 reason of such reletting. Landlord may make such Alterations in connection with such reletting as it may deem advisable in its sole discretion. Notwithstanding any such reletting, Landlord may collect the damages set forth in Paragraph 23(b)(ii). Landlord shall consider any tenants or subtenants reasonably proposed by Tenant and prepared to lease or sublet the Leased Premises or either Related Premises on reasonable terms so as to mitigate Tenant's damages, but Landlord shall be under no obligation to accept such proposed tenants or subtenants. (v) Landlord may declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for the remainder of the then current Term to be immediately due and payable. Tenant shall immediately pay to Landlord all such Basic Rent discounted to its Present Value, all accrued Rent then due and unpaid, all other Monetary Obligations which are then due and unpaid and all Monetary Obligations which arise or become due by reason of such Event of Default (including any Costs of Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and Monetary Obligations, this Lease shall remain in full force and effect and Tenant shall have the right to possession of the Leased Premises from the date of such receipt by Landlord to the end of the Term, and subject to all the provisions of this Lease, including the obligation to pay all increases in Basic Rent and all Monetary Obligations that subsequently become due, except that (A) no Basic Rent which has been prepaid hereunder shall be due thereafter during the said Term, and (B) Tenant shall have no option to extend or renew the Term. (b) The following constitute damages to which Landlord shall be entitled if Landlord exercises its remedies under Paragraph 23(a)(i), (ii) and (iii): (i) If Landlord exercises its remedy under Paragraphs 23(a)(i) or (ii) but not its remedy under Paragraph 23(a)(iv) (or attempts to exercise such remedy and is unsuccessful in reletting the Leased Premises) then, upon written demand from Landlord, Tenant shall pay to Landlord, as liquidated and agreed final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the Present Value of the excess, if any, of (A) all Basic Rent allocated for each Related Premises (except for the California Premises) based on Exhibit "F" from the date of such demand to the date on which the Term is scheduled to expire hereunder in the absence of any earlier termination, re-entry or repossession over (B) the then fair market rental value of each Related Premises (except for the California Premises) for the same period. Tenant shall also pay to Landlord all of Landlord's Costs in connection with the repossession of the Leased Premises and any attempted reletting thereof, including all brokerage commissions, legal expenses, reasonable attorneys' fees, employees' expenses, costs of Alterations and expenses and preparation for reletting. (ii) If Landlord exercises its remedy or remedies under Paragraphs 23(a)(i), (ii), (iii) or (iv), then Tenant shall, until the end of what would have been the Term in the absence of the termination of the Lease, and whether or not any of the Leased Premises shall have been relet, be liable to Landlord for, and shall pay to Landlord, as liquidated and agreed current damages all Monetary Obligations which would be payable under this Lease by Tenant in the absence of such termination less the net proceeds, if any, of any reletting pursuant to Paragraph 23(a)(iv), after deducting from such proceeds all of Landlord's Costs (including the items listed in the last sentence of Paragraph 23(b)(i) hereof) incurred in 38 connection with such repossessing and reletting; provided, that if Landlord has not relet the Leased Premises, such Costs of Landlord shall be considered to be Monetary Obligations payable by Tenant. Tenant shall be and remain liable for all sums aforesaid, and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages. Nothing herein contained shall be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired by its own terms had there been no such Event of Default. (c) With respect to the California Premises, if Landlord elects to terminate this Lease upon the occurrence of an Event of Default, Landlord may collect from Tenant damages computed in accordance with the following provisions in addition to Landlord's other remedies under this Lease: (i) the worth at the time of award of any unpaid Rent allocated to the California Premises pursuant to Exhibit "F" which has been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which any unpaid Rent allocated to the California Premises pursuant to Exhibit "F" which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid Rent allocated to the California Premises pursuant to Exhibit "F" for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (iv) any other reasonable Cost necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom including, without limitation, brokerage commissions, the cost of repairing and reletting the Leased Premises and reasonable attorneys' fees; plus (v) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination. (d) For purposes of clauses (i) and (ii) of this Paragraph 23(c), the "worth at the time of award" shall be computed by adding interest at the Default Rate to the past due Rent. For the purposes of clause (iii) of this Paragraph 23 (c), the "worth" at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). (e) Notwithstanding anything to the contrary herein contained, in lieu of or in addition to any of the foregoing remedies and damages, Landlord may exercise any remedies and collect any damages available to it at law or in equity; provided, however, with respect to a Limited Remedy Default, the aggregate amount Tenant shall be required to pay to Landlord (pursuant to paragraph 23(a)(v) or otherwise) from and after the date of the occurrence 39 of such Limited Remedy Default (the "Occurrence Date") with respect to Basic Rent, Additional Rent and indemnification obligations under Paragraph 15(a) shall be limited to the sum of (i) the present value as of the Occurrence Date, discounted at the annual rate of eleven and 15/100 percent (11.15%), of all Basic Rent reserved hereunder for the unexpired portion after the Occurrence Date) of the Term devised herein as if this Lease had not expired or been terminated, (ii) any amounts of Additional Rent which are due and payable or have accrued under this Lease through the Occurrence Date, and (iii) any amounts of Additional Rent which are due and payable or have accrued under this Lease after the Occurrence Date while the Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, after any Limited Remedy Default that relates to Impositions, insurance, utilities, repairs, maintenance, environmental maintenance, remediation and compliance and other routine and customary costs and expenses of operating and maintaining the Leased Premises or the applicable Related Premises, as applicable. Notwithstanding the foregoing, if Tenant remains in possession of the Leased Premises or the applicable Related Premises, as applicable, and assumes, ratifies or affirms this Lease during any pending bankruptcy or other event described in 22(a)(iv) or (v), then Tenant shall be obligated to pay all Basic Rent and Additional Rent which become due and payable under this Lease without limitation by this paragraph 23(d). Nothing contained in this paragraph 23(d) shall limit any amounts payable by Tenant with respect to Basic Rent or Additional Rent if any Event of Default that is not a Limited Remedy Default has occurred. (f) Except as specifically provided in Paragraphs 23(a)(iv), Landlord shall not be required to mitigate any of its damages hereunder unless required to by applicable Law. If any Law shall validly limit the amount of any damages provided for herein to an amount which is less than the amount agreed to herein, Landlord shall be entitled to the maximum amount available under such Law. (g) No termination of this Lease, repossession or reletting of any of the Leased Premises, exercise of any remedy or collection of any damages pursuant to this Paragraph 23 shall relieve Tenant of any Surviving Obligations. (h) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD OR TENANT HEREUNDER, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. Landlord and Tenant agree that this Lease constitutes a written consent to waiver of trial by jury pursuant to the provisions of California Code of Civil Procedure Section 631, and each of Landlord and Tenant does appoint the other Person as its true and lawful attorney-in-fact, which appointment is coupled with an interest, and does hereby authorize and empower the other Person, in its name, place and stead, to file this Lease with the clerk of any court of competent jurisdiction as statutory written consent to waiver of trial by jury. (i) In addition to its other rights under this Lease, with respect to the California Premises, Landlord has the remedy described in California Civil Code Section 1951.4 which provides substantially as follows: Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover the Rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations. In accordance with California Civil Code Section 1951.4 (or any successor statute), Tenant acknowledges that in the event Tenant breaches this Lease and abandons the Leased Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may enforce all 40 of its rights and remedies under this Lease, including the right to recover the Rent as it becomes due under this Lease. Tenant acknowledges that the limitations on subletting and assignment set forth in Paragraph 21 are reasonable. Acts of maintenance or preservation or efforts to relet the Leased Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. (j) Intentionally Omitted. (k) Upon the occurrence of any Event of Default, Landlord shall have the right (but no obligation) to perform any act required of Tenant hereunder and, if performance of such act requires that Landlord enter the Leased Premises, Landlord may enter the Leased Premises for such purpose. (l) No failure of Landlord (i) to insist at any time upon the strict performance of any provision of this Lease or (ii) to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof. A receipt by Landlord of any sum in satisfaction of any Monetary Obligation with knowledge of the breach of any provision hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in a writing signed by Landlord. (m) Tenant hereby waives and surrenders, for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which it or any of them may have under any present or future Law to redeem any of the Leased Premises or to have a continuance of this Lease after termination of this Lease or of Tenant's right of occupancy or possession pursuant to any court order or any provision hereof, and (ii) the benefits of any present or future Law which exempts property from liability for debt or for distress for rent. (n) Except as otherwise provided herein, all remedies are cumulative and concurrent and no remedy is exclusive of any other remedy. Each remedy may be exercised at any time an Event of Default has occurred and is continuing and may be exercised from time to time. No remedy shall be exhausted by any exercise thereof. 24. Notices. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease shall be in writing and shall be deemed to have been given and received for all purposes when delivered in person or by Federal Express or other reliable 24-hour delivery service or five (5) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at its address stated on page one of this Lease or when delivery is refused. Notices sent to Landlord shall be to the attention of Director, Asset Management, and notices sent to Tenant shall be to the attention of Chief Financial Officer. A copy of any notice given by Tenant to Landlord shall simultaneously be given by Tenant to Reed Smith LLP, One Liberty Place, Philadelphia, PA 19103, Attention: Chairman, Real Estate Department. A copy of any notice by Landlord to Tenant shall simultaneously be given by Landlord to Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd., 55 East Monroe Street, Suite 3700, Chicago, Illinois 60603. For the 41 purposes of this Paragraph, any party may substitute another address stated above (or substituted by a previous notice) for its address by giving fifteen (15) days' notice of the new address to the other party, in the manner provided above. 25. Estoppel Certificate. At any time upon not less than fifteen (15) Business Days' prior written request by either Landlord or Tenant (the "Requesting Party") to the other party (the "Responding Party"), on not more than three (3) occasions during any Lease Year, the Responding Party shall deliver to the Requesting Party a statement in writing (the "Estoppel Certificate"), executed by an authorized officer of the Responding Party, certifying (a) that, except as otherwise specified, this Lease is unmodified and in full force and effect, (b) the dates to which Basic Rent, Additional Rent and all other Monetary Obligations have been paid, (c) that, to the knowledge of the signer of such certificate and except as otherwise specified, no default by either Landlord or Tenant exists hereunder, and (d) such other matters as the Requesting Party may reasonably request. Any such statements by the Responding Party may be relied upon for estoppel purposes only by the Requesting Party, any Person whom the Requesting Party notifies the Responding Party in its request for the Estoppel Certificate is an intended recipient or beneficiary of the Estoppel Certificate, any Lender or their assignees and by any prospective purchaser or mortgagee of any of the Leased Premises. Any Estoppel Certificate required under this Paragraph 25 and delivered by Tenant shall state that, in the opinion of each person signing the same, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to the subject matter of such Estoppel Certificate, and shall briefly state the nature of such examination or investigation. 26. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premises or Affected Premises, is applicable, to Landlord in the same condition in which the Leased Premises or Affected Premises, if applicable, was at the commencement of this Lease, except as repaired, rebuilt, restored, altered, replaced or added to as permitted or required by any provision of this Lease, and except for ordinary wear and tear. Upon such surrender, Tenant shall (a) remove from the Leased Premises or Affected Premises, if applicable, all property which is owned by Tenant or third parties other than Landlord and (b) repair any damage caused by such removal. Property not so removed shall become the property of Landlord, and Landlord may, after five (5) Business Days' prior notice to Tenant, thereafter cause such property to be removed from the Leased Premises or Affected Premises, if applicable. The cost of removing and disposing of such property and repairing any damage to any of the Leased Premises or Affected Premises, if applicable, caused by such removal shall be paid by Tenant to Landlord upon demand. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any such property which becomes the property of Landlord pursuant to this Paragraph 26. 27. No Merger of Title. There shall be no merger of the leasehold estate created by this Lease with the fee estate in any of the Leased Premises by reason of the fact that the same Person may acquire or hold or own, directly or indirectly, (a) the leasehold estate created hereby or any part thereof or interest therein and (b) the fee estate in any of the Leased Premises or any part thereof or interest therein, unless and until all Persons having any interest in the interests described in (a) and (b) above which are sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 42 28. Books and Records. (a) Tenant shall keep adequate records and books of account with respect to the finances and business of Tenant generally, and with respect to the Leased Premises, which records and books with respect to the finances and business of Tenant shall be kept in accordance with generally accepted accounting principles ("GAAP") consistently applied, and shall permit Landlord and Lender by their respective agents, accountants and attorneys, upon reasonable notice to Tenant, to visit and inspect the Leased Premises and examine (and make copies of at the inspecting party's expense) the records and books of account and to discuss the finances and business with the officers of Tenant, at such reasonable times during normal business hours as may be requested by Landlord and at Landlord's expense, provided, however, that Landlord and Lender shall be limited to one personal visit per Lease Year to discuss the finances and business of Tenant with the officers of Tenant. Upon the request of Lender or Landlord (either telephonically or in writing), Tenant shall provide the requesting party with copies of any information to which such party would be entitled in the course of a personal visit. (b) Tenant shall deliver to Landlord and to Lender within one hundred twenty (120) days of the close of each fiscal year, annual audited financial statements of Tenant prepared by nationally recognized independent certified public accountants. Tenant shall also furnish to Landlord within sixty (60) days after the end of each of the three remaining quarters unaudited financial statements and all other quarterly reports of Tenant, certified by Tenant's chief financial officer, and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law. All financial statements of Tenant shall be prepared in accordance with GAAP consistently applied. All annual financial statements shall be accompanied (i) by an opinion of said accountants (A) stating that such financial statements present fairly the financial position for the periods indicated, in conformity with GAAP applied on a consistent basis with prior years and (B) which shall not be qualified or limited because of a restricted or limited examination by the accountants of any material portion of Tenant's records and (ii) by a certificate of the president or a vice president of Tenant, dated within five (5) days of the delivery of such statement, stating that such officer knows of no Event of Default, or event which, upon notice or the passage of time or both, would become an Event of Default which has occurred and is continuing hereunder or, if any such event has occurred and is continuing, specifying the nature and period of existence thereof and what action Tenant has taken or proposes to take with respect thereto. 29. Intentionally Omitted. 30. Non-Recourse as to Landlord. Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease shall be limited to actual damages and shall be enforced only against Landlord's interest in the Leased Premises and not against any other assets, properties or funds of (a) Landlord, (b) any director, member, officer, general partner, limited partner, employee or agent of Landlord, or any general partner of Landlord, any of its general partners or shareholders (or any legal representative, heir, estate, successor or assign of any thereof), (c) any predecessor or successor partnership or corporation (or other entity) of Landlord, or any of its general partners, either directly or through Landlord or its general partners or any predecessor or successor partnership 43 or corporation or their shareholders, officers, directors, employees or agents (or other entity), or (d) any other Person (including Carey Property Advisors, Carey Fiduciary Advisors, Inc., W. P. Carey & Co., LLC, Carey Management LLC, and any Person affiliated with any of the foregoing, or any director, officer, employee or agent of any thereof). 31. Financing. (a) Tenant agrees to pay all costs and expenses incurred by Landlord in connection with Landlord's purchase, leasing and initial financing of the Leased Premises including, without limitation, the cost of appraisals, environmental reports, structural reports, title insurance, surveys, legal fees and expenses, and Lender's points and commitment fee. Tenant shall not be responsible for any acquisition or similar fee payable to W.P. Carey & Co. LLC or its affiliates or any costs or expenses incurred by Landlord in connection with any financing of the Leased Premises subsequent to the initial financing. (b) If Landlord desires to obtain or refinance any Loan, Tenant shall negotiate in good faith with Landlord concerning any request made by any Lender or proposed Lender for changes or modifications in this Lease. In particular, Tenant shall agree, upon request of Landlord, to supply any such Lender with such notices and information as Tenant is required to give to Landlord hereunder and to extend the rights of Landlord hereunder to any such Lender and to consent to such financing if such consent is requested by such Lender. 32. Subordination, Non-Disturbance and Attornment. This Lease and Tenant's interest hereunder shall be superior to any Mortgage, other security instrument or lien hereafter placed upon the Leased Premises by Landlord, and to any and all advances made or to be made thereunder, to the interest thereon, or any ground lease entered into by Landlord and all renewals, replacements and extensions thereof, provided that Tenant hereby agrees to subordinate this Lease to any Mortgage, ground lease or other security instrument so long as such mortgagee, holder of a security interest or ground lessor enters into an agreement with Tenant in substantially in the form of Exhibit "E", subject to any modifications reasonably required by any Lender or ground lessor, with respect to each Related Premises which do not materially affect Tenant's rights hereunder. 33. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that each shall treat this transaction as a true lease for state law purposes and shall report this transaction as a Lease for Federal income tax purposes. For Federal income tax purposes each shall report this Lease as a true lease with Landlord as the owner of the Leased Premises and Fixtures and Tenant as the lessee of such Leased Premises and Fixtures including: (i) treating Landlord as the owner of the property eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Leased Premises and Fixtures, (ii) Tenant reporting its Rent payments as rent expense under Section 162 of the Code, and (iii) Landlord reporting the Rent payments as rental income. 44 34. Miscellaneous. (a) The paragraph headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease. (b) As used in this Lease, the singular shall include the plural and any gender shall include all genders as the context requires and the following words and phrases shall have the following meanings: (i) "including" shall mean "including without limitation"; (ii) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty, agreement, liability, covenant and/or condition"; (v) "any of the Leased Premises" shall mean "the Leased Premises or any part thereof or interest therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or interest therein"; (vii) "any of the Improvements" shall mean "the Improvements or any part thereof or interest therein"; (viii) "any of the Fixtures" shall mean "the Fixtures or any part thereof or interest therein"; (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or any part thereof"; and (x) "best of knowledge of Tenant" (or words of similar effect) shall mean to the actual knowledge of Tenant's then-current Chief Financial Officer, Treasurer, General Counsel, Associate General Counsel for Real Estate or, as to matters pertaining to either Related Premises, the Distribution Center Manager for such Related Premises. (c) Any act which Landlord is permitted to perform under this Lease may be performed at any time and from time to time by Landlord, Lender or any person or entity designated by Landlord. Except as otherwise specifically permitted herein to the contrary, Landlord and Lender shall not unreasonably withhold, condition or delay their respective consent or approval whenever such consent or approval is required under this Lease, except as otherwise provided herein. Time is of the essence with respect to the performance by Tenant and Landlord of their respective obligations under this Lease. (d) Landlord shall in no event be construed for any purpose to be a partner, joint venturer or associate of Tenant or of any subtenant, operator, concessionaire or licensee of Tenant with respect to any of the Leased Premises or otherwise in the conduct of their respective businesses. (e) This Lease and any documents which may be executed by Tenant on or about the effective date hereof at Landlord's request constitute the entire agreement between the parties and supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the Leased Premises and the transactions provided for herein. Landlord and Tenant are business entities having substantial experience with the subject matter of this Lease and have each fully participated in the negotiation and drafting of this Lease. Accordingly, this Lease shall be construed without regard to the rule that ambiguities in a document are to be construed against the drafter. 45 (f) This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. (g) If the date for performance of any obligation of Landlord or Tenant under this Lease is not a Business Day, the date for performance of such obligation shall be the first Business Day following the date for performance of such obligation. (h) The covenants of this Lease shall run with the land and bind Tenant, Landlord, and their respective its successors and permitted assigns and all present and subsequent encumbrancers and subtenants of any of the Leased Premises, and shall inure to the benefit of Landlord, Tenant, and their respective successors and permitted assigns. (i) Notwithstanding any provision in this Lease to the contrary, all Surviving Obligations of Tenant shall survive the expiration or termination of this Lease with respect to each Related Premises for a period of ten (10) years. (j) If any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (k) All exhibits attached hereto are incorporated herein as if fully set forth. (l) Each of Landlord and Tenant hereby agree that the State of New York has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limiting the generality of the foregoing, matters of construction, validity and performance) this Lease and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed therein and all applicable law of the United States of America; except that, at all times, the provisions for the creation of the leasehold estate, enforcement of Landlord's rights and remedies with respect to right of re-entry and repossession, surrender, delivery, ejectment, dispossession, eviction or other in-rem proceeding or action regarding either Related Premises pursuant to Paragraph 23 hereof shall be governed by and construed according to the Laws of the State in which the applicable Related Premises is located, it being understood that, to the fullest extent permitted by law of such State, the law of the State of New York shall govern the validity and the enforceability of the Lease, and the obligations arising hereunder. To the fullest extent permitted by law, Tenant hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Lease. Any legal suit, action or proceeding against Tenant arising out of or relating to this Lease may be instituted in any federal or state court sitting in the County of New York, State of New York, and Tenant waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in such County and State, and Tenant hereby expressly and irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. Notwithstanding the foregoing, nothing herein shall prevent or prohibit Landlord from instituting any suit, action or 46 proceeding in any other proper venue or jurisdiction in which Tenant is located or where service of process can be effectuated. (m) Landlord covenants and agrees to comply with all requirements of GAAP in effect as of the Commencement Date to the extent necessary to prevent Tenant from being required to be consolidated with Landlord for GAAP financial reporting purposes and to consider any proposed modification to this Lease (which Landlord may approve or disapprove in its sole and absolute discretion) and which is necessary to preserve such status and the treatment of the Lease as an operating lease under GAAP. From time to time, Landlord will furnish Tenant with such information regarding Landlord as Tenant may reasonably request to permit Tenant and Tenant's accountants to determine the treatment of the Lease for financial reporting purposes. (n) This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Lease. 47 IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed under seal as of the day and year first above written. LANDLORD: WRENCH (DE) LIMITED PARTNERSHIP, a Delaware limited partnership, By: WRENCH (DE) QRS 15-32, INC., its general partner By: /s/ BENJAMIN P. HARRIS ------------------------------- Name: Benjamin P. Harris Title: First Vice President ATTEST: TENANT: TRUSERV CORPORATION, a Delaware corporation By: /s/ PATRICIA C. LYDON By: /s/ BARBARA L. WAGNER --------------------- --------------------------------------- Name: Patricia C. Lydon Name: Barbara L. Wagner Title: Title: Vice President and Treasurer [Corporate Seal] 48 EXHIBIT A LAND 1. California Premises ALL THOSE CERTAIN pieces of parcels of land situate, lying and being in the North half of Section 28, Township 10 North Range 2 East, Mount Diablo Base and Meridian, County of Yolo, State of California, being all of Parcels 1 and 3 as described in Deed, dated January 21, 1974 from Southern Pacific Transportation Company to Southern Pacific Company, recorded October 3, 1974, in Volume 1121, Pages 509 to 512, Official Records of Yolo County, described as follows: BEGINNING at the point of intersection of the Northwesterly line of that tract of land described as Parcel No. 2 in Deed recorded October 15, 1937, in Book 107, at Page 237, Official Records of said County, with the Southwesterly line of that certain parcel of land described in Deed from State of California to Southern Pacific Transportation Company, recorded October 8, 1971, in Volume 993 of Official Records at Page 125, Records of said County; thence North 40 degrees 52' 51" West along said Southwesterly line, 368.70 feet; thence leaving last said line North 49 degrees 07' 09" East 55.00 feet to a point in the Northeasterly line of last said land from State of California; thence along said Northeasterly line as follows: South 40 degrees 52' 51" East 17.98 feet to a point of tangent curve, easterly along said tangent curve to the left with a radius of 362 feet, through an angle of 75 degrees 05'09", an arc length of 474.40 feet, North 64 degrees 02'00" East 23.71 feet (shown as 31.32 feet in said Deed, dated January 21, 1974) to a point in the Easterly line of land described as Parcel No. 1 in Deed recorded July 30, 1957, in Book 519 at Page 480, of Official Records, Records of Yolo County, also being a point in the Westerly line of land described as Parcel No. 2 in Deed dated October 14, 1937, from Louie Ulrich et ux. to Southern Pacific Railroad Company recorded October 15, 1937, in Volume 107 of Official Records, Page 240, Records of said County; thence leaving said Northeasterly line and along said Westerly line North 7 degrees 55' 47" East (shown as North 8 degrees 09' 30" East in said Deed dated January 21, 1974) 165.89 feet to a point the Northerly line of last said land; thence South 89 degrees 28' 58" East (shown as South 89 degrees 32' 00" East in said Deed dated January 21, 1974) along last said Northerly line and the Easterly prolongation thereof, 1,530.63 feet (shown as 1,520.05 feet in said Deed dated January 21, 1974) to a point in the Easterly line of Section 28; thence South 0 degrees 24' 49" West along last said line, 787.70 feet (shown as 815.29 feet in said Deed dated January 21, 1974) to a point in said Easterly line of the Northeast one-quarter of said Section 28 from which an encased brass disc set in concrete marking the Southeast corner of said Northeast one-quarter bears South 00 degrees 24' 49" West 1160.84 feet; thence North 89 degrees 36' 18" West, 1,463.58 feet to a point in the Easterly line of that certain 19.37 acre tract of land described in Deed dated May 28, 1971, from Southern Pacific Transportation Company to State of California, recorded in Book 982 of Official Records at Page 304, Records of said County; thence Northerly along last said Easterly line on a curve to the left having a radius of 1,800 feet and a central angle of 0 degrees 08' 23" (tangent to said curve at last-mention point bears North 40 degrees 44' 28" West) an arc distance of 4.39 feet to a point; thence North 40 degrees 52' 51" West continuing along said Easterly line and the Northerly prolongation thereof 530.06 feet to the point of beginning. EXHIBIT A - 1 EXCEPTING THEREFROM that portion of the above-described parcels of land included within the parcel of land described in Deed dated February 5, 1973, from Southern Pacific Transportation Company to K & M Enterprises, Inc., recorded May 21, 1973, in Book 1063 of Official Records, Page 6, Recorder of said County. ASSESSOR'S PARCEL NUMBER: 063-030-4 AND 05. 2. Texas Premises All that tract or parcel of land, situated in the City of Corsciana, Navarro County, Texas, being Lot 1, Block 1713, according to the plat recorded in Volume 6, Page 75, Plat Records of Navarro County, Texas. Said tract or parcel of land being more fully described by metes and bounds as follows: BEGINNING on a found 1/2" iron rod for the northwest corner of this tract and the northwest corner of the above mentioned Lot 1 located on the south ROW of State Highway No. 31; THENCE with said ROW N 81(degree) 18' 18" E 1606.93 feet to a found 1/2" iron rod for the northeast corner of this tract; THENCE S 29(degree) 58' 25" E 1053.38 feet to a found1/2" iron rod for the southeast corner of this tract located on the north ROW of the St. Louis Southwestern Railroad; THENCE with said north ROW S 77(degree) 40' 50" W 1923.69 feet to a found 1/2" iron rod for the southwest corner of this tract; THENCE N 12(degree) 17" 33" W 1105.36 feet to the place of beginning and containing 42.51 acres of land. 2 EXHIBIT B FIXTURES All fixtures, machinery, apparatus, fittings and appliances of every kind and nature whatsoever now or hereafter affixed or attached to or installed in any of the Leased Premises (except as hereafter provided), including all electrical, anti-pollution, heating, lighting (including hanging fluorescent lighting), incinerating, power, air cooling, air conditioning, humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and ventilating systems, devices and machinery and all engines, pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil burners, boilers, doors, windows, loading platforms, lavatory facilities, stairwells, fencing (including cyclone fencing), passenger and freight elevators, overhead cranes and garage units, together with all additions thereto, substitutions therefor and replacements thereof required or permitted by this Lease, but excluding all personal property and all trade fixtures, racking, rolling stock, machinery, office, manufacturing and warehouse equipment which are not necessary to the operation of the Improvements which constitute part of the Leased Premises. EXHIBIT B - 1 EXHIBIT C PERMITTED ENCUMBRANCES CALIFORNIA PREMISES 1. Real property taxes: General and special taxes for the fiscal year 2002-2003 1st installment: $384.33 PAID 2nd installment: $384.33 due 2/1/03, delinquent 4/10/03 Parcel No.: 063-030-041 Assessment No.: 37287 Code Area: 003001 Assessed Valuation: Land: $21,084 Improvements: $0.00 Exemption: $0.00 Includes $13.91 for WDLND JU BD, $543.92 for Beamer-Kentucky AD General and special taxes for the fiscal year 2002-2003 1st installment: $86,324.14 PAID 2nd installment: $86,324.14 due 2/1/03, delinquent 4/10/03 Parcel No.: 063-030-051 Assessment No.: 37288 Code Area: 003001 Assessed Valuation: Land: $948,024 Improvements: $11,811,977 Exemption: $0.00 Includes $9,378.58 for WDLND JU BD, $21,169.98 for Beamer-Kentucky AD 2. The Lien of Supplemental Taxes, if any, assessed pursuant to the provisions of Chapter 3.5 (commencing with Section 75) of the Revenue and Taxation Code of the State of California. 3. An assessment under the Improvement Bond Act of 1915, installments of which are collected with property taxes District: WDLND JU BD Bond No.: 152 Assessment No.: 063-030-041 AND 051 EXHIBIT C - 1 4. Any unpaid amounts now owning for utilities, of record or not, due the CITY OF WOODLAND or County of Yolo, none now due or payable. 5. Easements and incidental rights in any portion of the land lying within Pioneer Avenue. 6. Easement for the purposes stated therein, terms and conditions thereof and incidental purposes as created in that certain instrument recorded March 22, 1957, in Book 509, Page 166, Official Records. 7. Easement for the purposes stated therein and incidental purposes as created in that certain instrument recorded May 8, 1957, in Book 512, Page 567, Official Records. 8. Easement for the purposes stated therein and incidental purposes as created in that certain instrument recorded March 29, 1965, in Book 793, Page 237, Official Records. 9. Easement for the purposes stated therein, terms and conditions thereof and incidental purposes as created in that certain instrument recorded February 23, 1967, in Book 848, Page 659, Official Records. 10. Lack of abutter's rights in and to the freeway adjacent to the Westerly line of said property, such rights having been released and relinquished by deed to the State of California, recorded June 30, 1971, in Book 982 Page 304, Official Records. 11. Lack of abutter's rights in and to the freeway adjacent to the Westerly line of said property, such rights having been released and relinquished by deed to the State of California, recorded October 8, 1971, in Book 993, Page 125, Official Records. 12. Lack of abutter's rights in and to the freeway adjacent to the Westerly line of said property, such rights having been released and relinquished by deed to the State of California, recorded November 30, 1973, in Book 1085, Page 27, Official Records. 13. Easement for the purposes stated therein, terms and conditions thereof and incidental purposes as created in that certain instrument recorded October 3, 1974, in Book 1121, Page 509, Official Records and reserved by Southern Pacific Company. 14. Terms, conditions and/or provisions contained in Development Agreement dated October 22, 1984, executed by Cotter & Company and the City of Woodland and recorded November 2, 1984, in Book 1674, Page 69, Official Records. 15. Terms, conditions and/or provisions contained in Lessee Owner's Agreement and Waiver, dated May 8, 1985, executed by Cotter and Company and Security Pacific Equipment Leasing, Inc. and recorded June 3, 1985, in Book 1706, Page 299, Official Records. 16. Easement for the purposes stated therein and incidental purposes as created in that certain instrument recorded December 9, 1985, in Book 1741, Page 105, Official Records. 17. Easement for the purposes stated therein and incidental purposes as created in that certain instrument recorded December 9, 1985, in Book 1741, Page 107, Official Records. 2 18. Easement for the purposes stated therein and incidental purposes as created in that certain instrument recorded December 9, 1985, in Book 1741, Page 109, Official Records. 19. The following matters as disclosed by ALTA/ACSM Survey, prepared by Morton & Pitalo, Inc., dated September 11, 1998, Job No. 980169 and updated November 22, 2002: a. the fact that a "Danger High Voltage Cable Buried Here" marker is located in detention basin. b. the fact that a fence meanders along property line. c. the fact that utility boxes/vaults, transformer, telephone vault, water vaults, propane tank, fire hydrants, concrete pad with above ground diesel tank are located on said land. d. the fact that poles with cameras lie inside easement areas. e. the fact that railroad tract lies outside of recorded railroad easement. TEXAS PREMISES 1. Standby fees, taxes and assessments by any taxing authority for the year 2002 and subsequent years; and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership, but not those taxes or assessments for prior years because of an exemption granted to a previous owner of the property under Section 11.13, Texas Tax Code, or because of improvements not assessed for a previous tax year. 2. Any titles or rights asserted by anyone, including but not limited to, persons, the public, corporations, governments or other entities, a. to tidelands, or lands comprising the shores or beds of navigable or perennial rivers and streams, lakes, bays, gulfs or oceans, or b. to lands beyond the line of the harbor or bulkhead lines as established or changed by any government, or c. to filled-in lands, or artificial islands, or d. to statutory water rights, including riparian rights, or e. to the area extending from the line of mean low tide to the line of vegetation, or the right of access to that area or easement along and across that area. 3. The following matters and all terms of the documents creating or offering evidence of the matters (We must insert matters or delete this exception): a. Easements Affecting the Property as shown on Survey prepared by Hearn Surveying Associates, dated 11/25/02; i. Easement from St. Louis Southwestern Railway Company of Texas of City of Corsicana, as shown by instrument dated November 21, 1977, recorded in Volume 888, Page 547, Deed Records Navarro County, Texas. 3 ii. Agreement dated February 8, 1983 executed by Industrial Planners Group, Inc. to Texas Power & Light Company, recorded in Volume 1001, Page 303, Deed Records of Navarro County, Texas. iii. Easement shown in plat of Lot 1, Block 1713, City of Corsicana, recorded in Volume 6, Page 75, Plat Records of Navarro County, Texas. iv. Various electric, telephone and sewer lines over and across the subject property without any apparent easements therefor. b. Mineral Reservations Affecting the Subject Property: All oil, gas and other minerals in and under the herein described property, together with the right of ingress and egress, mining and oil drilling privileges appurtenant thereto, previously reserved or conveyed to third parties by predecessors in title. 4 EXHIBIT D BASIC RENT PAYMENTS 1. Basic Rent. (a) Basic Rent payable in respect of the Term shall be payable quarterly in advance on each Basic Rent Payment Date, in equal installments as set forth below. For purposes of clarification, the first Lease Year shall include payments due on January 20, 2003, April 20, 2003, July 20, 2003 and October 20, 2003. Pro rata Basic Rent for the period from the date hereof through the nineteenth day of January 2003 shall be paid on the date hereof, and the final quarterly installment of Basic Rent shall be reduced pro rata to reflect the actual number of days remaining in the Term.
Quarterly Lease Year Annual Basic Rent Installments ---------- ----------------- ------------- 1 $3,984,190.98 $ 996,047.74 2 $4,042,565.43 $1,010,641.36 3 $4,102,517.17 $1,025,629.29 4 $4,184,567.52 $1,046,141.88 5 $4,268,258.87 $1,067,064.72 6 $4,353,624.05 $1,088,406.01 7 $4,440,696.53 $1,110,174.13 8 $4,529,510.46 $1,132,377.61 9 $4,620,100.67 $1,155,025.17 10 $4,712,502.68 $1,178,125.67 11 $4,806,752.73 $1,201,688.18 12 $4,902,887.79 $1,225,721.95 13 $5,000,945.54 $1,250,236.39 14 $5,100,964.45 $1,275,241.11 15 $5,202,983.74 $1,300,745.94 16 $5,307,043.42 $1,326,760.85 17 $5,413,184.29 $1,353,296.07 18 $5,521,447.97 $1,380,361.99 19 $5,631,876.93 $1,407,969.23 20 $5,744,514.47 $1,436,128.62 21 $5,859,404.76 $1,464,851.19 22 $5,976,592.85 $1,494,148.21 23 $6,096,124.71 $1,524,031.18 24 $6,218,047.21 $1,554,511.80 25 $6,342,408.15 $1,585,602.04 26 $6,469,256.31 $1,617,314.08 27 $6,598,641.44 $1,649,660.36 28 $6,730,614.27 $1,682,653.57 29 $6,865,226.55 $1,716,306.64 30* $6,418,986.83 1ST, 2ND, 3RD PAYMENT $1,750,632.77 4TH PAYMENT $1,167,088.51
EXHIBIT D - 1 31-40 FMV
EXHIBIT D - 2 EXHIBIT E FORM OF SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT FORM OF SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT ----------------------------------------------- (Lender) (collectively, Lender) - and - ----------------- (Tenant) - and - ------------------------------- (Landlord) Dated: ___________ Location: ___________ County: ___________ PREPARED BY AND UPON RECORDATION RETURN TO: SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the "Agreement") is made as of __________ by and among ________________________________________________, a ____________________, each having an address at ___________________________________________________, Attention: _____________ (collectively, "Lender"), TruServ Corporation, a Delaware corporation, having an address at 8600 W. Bryn Mawr Avenue, Chicago, Illinois 60631, Attention: _____________ ("Tenant"), and ____________________, a _________________, having an address at __________________ ("Landlord"). RECITALS: A. Lender is the present owner and holder of a certain Deed of Trust and, Security Agreement (the "Security Instrument") dated as of _______________, given by Landlord to Lender which encumbers the fee simple absolute estate of Landlord in certain premises described in Exhibit A attached hereto (the "Property") and which, among other security instruments, secures the payment of certain indebtedness owed by Landlord to Lender evidenced by a certain promissory note dated December __ 2002, given by Landlord to Lender (the "Note"). B. Tenant is the holder of a leasehold estate in the Property under and pursuant to the provisions of a certain lease dated _________________ between Landlord, as landlord, and Tenant, as tenant (as amended from time to time the "Lease"). All capitalized terms used in this Agreement and not otherwise defined herein, shall have the meanings ascribed to such terms in the Lease. C. The Lease governs the use and occupancy of the Property and the other Related Premises. Under the terms of the Lease, Tenant has the right to assign the Lease as to one or more of the Related Premises to a Preapproved Assignee, and upon such assignment Landlord is obligated to enter into a separate Lease with such Preapproved Assignee. In addition, the Lease provides that with respect to Protected Subleases, Landlord is obligated to recognize each Protected Sublease as a direct lease with Landlord in the event an Event of Default results in the termination of the Lease and no default exists under the Protected Sublease. D. On the terms and conditions hereinafter set forth, Tenant has agreed to subordinate the Lease to the Security Instrument and to the lien thereof and Lender has agreed to grant non-disturbance to Tenant under the Lease, any Preapproved Assignee under a Bifurcated Lease and any subtenant under a Protected Sublease. Accordingly, references herein to Tenant are intended to refer to Tenant, any Preapproved Assignee, any Non-Preapproved which is approved by Landlord for a Complete Assignment or a Partial Assignment or any Protected Subtenant, as applicable, and references herein to the Lease are intended to refer to the Lease, any Bifurcated Lease or any Protected Sublease, as applicable. AGREEMENT: For good and valuable consideration, Tenant, Lender and Landlord agree as follows: 1. Subordination. Subject to Sections 2 and 3, the Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the terms, covenants and provisions of the Security Instrument, as of the date hereof, and to the lien thereof, including without limitation, all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof and to all sums secured thereby and advances made thereunder with the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease. 2. Non-Disturbance. If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant's possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights (a) the Lease shall be in full force and effect and (b) Tenant shall not be in default under any terms, covenants or conditions of the Lease or of this Agreement on Tenant's part to be observed or performed. 3. Attornment. If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred as "Purchaser"), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, provided, however, that Purchaser shall not be (a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a "Prior Landlord") to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser's obligations under the Lease to correct any conditions of a continuing nature that existed as of the date Purchaser shall become the owner of the Property; provided further, however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had a reasonable opportunity to cure the same, all pursuant to the terms and conditions of the Lease; (b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date upon which Purchaser shall become the owner of the Property, -2- (c) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than three (3) months in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser, (d) bound by any agreement terminating or amending or modifying the rent, term, commencement date or other material term of the Lease, or any voluntary surrender of the premises demised under the Lease, made without Lender's prior written consent or (e) bound by any assignment of the Lease or sublease of the Property, or any portion thereof, made prior to the time Purchaser succeeded to Landlord's interest other than if pursuant to the provisions of the Lease. Alternatively, upon the written request of Lender or its successors or assigns, Tenant shall enter into a new lease of the Premises with Lender or such successor or assign, at Lender's or such successor or assign's cost and expense, for the then remaining term of the Lease, upon the same terms and conditions as contained in the Lease, except as otherwise specifically provided in this Agreement. 4. Notice to Tenant. After notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the assignment of leases and rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall (but subject at all times to compliance with applicable law) thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments. 5. Lender's Consent; Proceeds and Awards. Tenant shall not, without obtaining the prior written consent of Lender, (a) enter into any agreement materially amending, modifying or terminating the Lease, (b) prepay any of the rents, additional rents or other sums due under the Lease for more than three (3) months in advance of the due dates thereof, (c) voluntarily surrender the premises demised under the Lease or terminate the Lease without cause or shorten the term thereof other than pursuant to the provisions of the Lease, or (d) assign the Lease or sublet the premises demised under the Lease or any part thereof other than pursuant to the provisions of the Lease; and any such amendment, modification, termination, prepayment, voluntarily surrender, assignment or subletting, without Lender's prior consent, shall not be binding upon Lender. Lender acknowledges that in the event that Lender's consent or approval is required under the terms of the Lease, Lender shall be bound by the standards and time periods set forth in the Lease for granting or withholding such consent or approval. Lender agrees that it will consider for approval, which may be withheld by Lender in its sole and absolute discretion, any amendments to the Lease proposed by Landlord and Tenant which are intended to preserve the treatment of the Lease as an operating lease under generally accepted accounting principles. Lender acknowledges that it is bound by the provisions of the Lease concerning the payment and application of insurance proceeds and condemnation awards, subject to Lender's rights under the Lease to hold and disburse such proceeds. 6. Notice to Lender and Right to Cure. Tenant shall notify Lender of any default by Landlord under the Lease as to which Tenant gives notice to Landlord and agrees that, notwithstanding any provisions of the Lease to the contrary, no notice of cancellation thereof or -3- of an abatement shall be effective unless Lender shall have received notice of default giving rise to such cancellation or abatement and (i) in the case of any such default that can be cured by the payment of money, until forty-five (45) days shall have elapsed following the giving of such notice or (ii) in the case of any other such default, until a reasonable period for remedying such default shall have elapsed following the giving of such notice and following the time when Lender shall have become entitled under the Security Instrument to remedy the same, including such time as may be necessary to acquire possession of the Property if possession is necessary to effect such cure, provided Lender, with reasonable diligence, shall (a) pursue such remedies as are available to it under the Security Instrument so as to be able to remedy the default, and (b) thereafter shall have commenced and continued to remedy such default or cause the same to be remedied. Notwithstanding the foregoing, Lender shall have no obligation to cure any such default. 7. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Tenant: TruServ Corporation 8600 W. Bryn Mawr Avenue Chicago, Illinois 60631 Attention: Chief Financial Officer Facsimile No. _________________________ With a copy to: Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd. 55 East Monroe Street, Suite 3700 Chicago, Illinois 60603 Attention: ___________________________ Facsimile No. (312) 332-2196 If to Lender: _______________________________________ _______________________________________ _______________________________________ _______________________________________ Attention: ___________________________ With a copy to: _______________________________________ _______________________________________ _______________________________________ _______________________________________ Attention: ___________________________ -4- or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 7, the term "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in the state or commonwealth where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender, Tenant, Purchaser and their respective successors and assigns. 9. Governing Law. This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State or Commonwealth where the Property is located and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State or Commonwealth where the Property is located. 10. Miscellaneous. This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 11. Joint and Several Liability. If Tenant consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. 12. Definitions. The term "Lender" as used herein shall include the successors and assigns of Lender and any person, party or entity which shall become the owner of the Property by reason of a foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or otherwise. The term "Landlord" as used herein shall mean and include the present landlord under the Lease and such landlord's predecessors and successors in interest under the Lease, but shall not mean or include Lender unless and until Lender has succeeded to the interest of Landlord under the Lease. The term "Property" as used herein shall mean the Property, the improvements now or hereafter located thereon and the estates therein encumbered by the Security Instrument. The terms "Tenant" and "Lease" shall have the alternative meanings set forth in Recital D above. 13. Further Acts. Tenant will, at the cost of Tenant, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts and assurances as Lender shall, from time to time, require, for the better assuring and confirming unto Lender the property and rights hereby intended now or hereafter so to be, or for carrying out the intention or facilitating -5- the performance of the terms of this Agreement or for filing, registering or recording this Agreement, or for complying with all applicable laws. 14. Limitations on Purchaser's Liability. In no event shall the Purchaser, nor any heir, legal representative, successor, or assignee of the Purchaser have any personal liability for the obligations of Landlord under the Lease and should the Purchaser succeed to the interests of the Landlord under the Lease, Tenant shall look only to the estate and property of any such Purchaser in the Property for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by any Purchaser as landlord under the Lease, and no other property or assets of any Purchaser shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to the Lease; provided, however, that the Tenant may exercise any other right or remedy provided thereby or by law in the event of any failure by Landlord to perform any such obligation. 15. Estoppel Certificate. Not more than once during any 12 month period, Tenant, shall, from time to time, within fifteen (15) days after request by Lender, execute, acknowledge and deliver to Lender a statement by Tenant as required pursuant to Paragraph 25 of the Lease. 16. Recording. Either Landlord or Tenant may record this Agreement. [NO FURTHER TEXT ON THIS PAGE] -6- IN WITNESS WHEREOF, Lender, Tenant and Landlord have duly executed this Agreement as of the date first above written. LENDER: [LENDER], a _________________ By:________________________________________ Name:______________________________________ Its:_______________________________________ TENANT: TRUSERV CORPORATION, a Delaware corporation By:________________________________________ Name:______________________________________ Its:_______________________________________ LANDLORD: [LANDLORD], a _________________ By:________________________________________ Name:______________________________________ Its:_______________________________________ -7- STATE OF___________ ) ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Notary Public in and for said County and State Name:_________________________ (SEAL) STATE OF___________ ) ) ss. COUNTY OF _________ ) On _____________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Notary Public in and for said County and State Name:_________________________ (SEAL) -8- STATE OF___________ ) ) ss. COUNTY OF _________ ) On __________, before me, the undersigned, personally appeared __________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ______________________________ Notary Public in and for said County and State Name:_________________________ (SEAL) -9- EXHIBIT A TO SNDA LEGAL DESCRIPTION OF PROPERTY EXHIBIT F PREMISES PERCENTAGE ALLOCATION OF BASIC RENT Texas Premises 64.61% California Premises 35.39% Total: 100%
If one Related Premises ceases to be subject to this Lease, the percentage shown on this Exhibit F for the Related Premises which remains subject to this Lease shall be adjusted to equal 100%. EXHIBIT G CERTIFICATION RELATED TO THE USA PATRIOT ACT On behalf of [Insert name of subtenant/assignee] ("[Subtenant/Assignee]"), I hereby certify to the following: 1. [Subtenant/Assignee] maintains a place of business that is located at a fixed address (other than an electronic address or post office box) know as __________________________. 2. [Subtenant/Assignee] is subject to the laws of the United State and has no knowledge that it is not in full compliance with laws relating to bribery, corruption, fraud, money laundering and the Foreign Corrupt Practices Act. 3. None of said Assignee/Subtenant or its, officers or directors appears on any of the following lists maintained by the United States government ("Government Lists"): a. The two lists maintained by the United States Department of Commerce (Denied Persons and Entities; the Denied Persons list can be found at www.bxa.doc.gov/DPL/Default.shtm; the Entity List can be found at www.bxa.doc.gov/Entities/Default.htm; b. The list maintained by the United States Department of Treasury (Specially Designated Nationals and Blocked Persons, which can be found at www.ustreas.gov/ofac/t11sdn.pdf); c. Two lists maintained by the United States Department of State (Terrorist Organizations and Debarred Parties; the State Department List of Terrorists can be found at www.state.gov/s/ct/rls/fs/2001/6531.htm; the List of Debarred Parties can be found at www.pmdtc.org/debar059.htm); and d. Any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the rules and regulations of Office of Foreign Assets Control, U.S. Department of the Treasury, or by any other government. 4. To the best of [Subtenant/Assignee's] knowledge, [Subtenant/Assignee] does not transact business on behalf of, or for the direct or indirect benefit of, any individual or entity named on any Government List. I, _____________________, certify that I have read and understand this Certification and that the statements made in this certification and the attached Annexes are true and correct. This Certification is made on behalf of [[Subtenant/Assignee]]. __________________________________ (Signature) __________________________________ (Title) Executed on this _____ day of ___________, 200_. EXHIBIT "H" TENANT'S POST-CLOSING OBLIGATIONS 1. Environmental Obligations (a) Tenant shall conduct the following actions at Tenant's sole cost and expense and shall provide Landlord with a written status report, on or before the 10th day of each April, July, October and January until satisfactory completion of the activities listed below. Each of the activities listed below in Paragraph 1(c) of this Exhibit "H" shall be completed no later than the first anniversary of the Commencement Date unless a shorter time period is noted below. Landlord shall, within thirty (30) days of written request of Tenant (which request shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF ENVIRONMENTAL OBLIGATIONS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), confirm that any action or actions listed in Paragraph 1(c) of this Exhibit "H" which are described in Tenant's request for confirmation have been satisfactorily completed or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the action or actions described in such request for confirmation from Tenant have been satisfactorily completed. (b) Tenant shall reimburse Landlord for all of Landlord's reasonable costs, including reasonable attorneys fees, incurred by Landlord in reviewing Tenant's progress in completing the activities listed below. Tenant's failure to timely comply with any of the obligations hereunder shall constitute an Event of Default. (c) Tenant shall comply with the following: (i) Texas Premises A. Underground Storage Tank Closure Documentation -Tenant shall obtain and provide Landlord with copies of the closure documentation for the removal of USTs in May 1998 which was submitted to the Texas Natural Resource Conservation Commission ("TNRCC"). Tenant shall authorize a representative from ATC to conduct a file review at the Texas Commission of Environmental Quality (formerly TNRCC) office to obtain such documentation. (d) The quarterly status reports and all other written reports or submissions required to be made by Tenant in accordance with the provisions of Paragraph 1 of this Exhibit "H" shall be addressed to: Donna Neiley Asset Management Department W. P. Carey & Co., Inc. 50 Rockefeller Plaza 2nd Floor New York, NY 10020 (212) 492-1100 telephone (212) 429-3022 fax dneiley@wpcarey.com with a second copy to: Louis A. Naugle, Esquire Reed Smith LLP 435 Sixth Avenue Pittsburgh, PA 15219 (412) 288-8587 telephone (412) 288-3063 fax lnaugle@reedsmith.com 2. Repair and Replacement Obligations. Except as set forth below, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord of the completion of the following repairs or replacements no later than the first anniversary of the Commencement Date, provided, however any items listed below relating to the Americans with Disability Act compliance may be satisfied by Tenant providing evidence reasonably satisfactory to Landlord that the noted repair is not required in order to comply with the Americans with Disabilities Act or any other applicable Laws provided that Tenant delivers to Landlord such evidence no later than the first anniversary of the Commencement Date. Landlord shall, within thirty (30) days of request from Tenant, confirm whether the completion evidence provided by Tenant is satisfactory with respect to each item which is described in Tenant's request for confirmation (which request from Tenant shall prominently state in all capitals on the outside of the envelope and in the contained correspondence "THIS REQUEST FOR CONFIRMATION OF COMPLETION OF REPAIRS SHALL BE DEEMED CONFIRMED BY LANDLORD IF NOT RESPONDED TO WITHIN THIRTY (30) DAYS"), or provide an explanation as to why Landlord cannot provide such confirmation. If Landlord does not so respond within thirty (30) days of receipt of Tenant's request, such inaction shall be deemed confirmation that the actions listed in Tenant's request for confirmation have been satisfactorily completed. (a) California Premises: (i) Stripe and install signage for five (5) additional handicapped accessible parking spaces, for a total of eight (8) handicapped spaces. (b) Texas Premises: (i) Replace the inoperable ten ton rooftop package unit or, if such unit in the reasonable opinion of Landlord is not required for the operation of the building, then at Tenant's option remove the unit and repair any damage to roof associated with such removal or seal the unit in manner that will prevent deterioration to either the unit or the roof. (ii) Stripe and install signage for seven (7) additional handicapped accessible parking spaces. EX-10.M 22 c75265exv10wm.txt TERMINATION AGREEMENT AND GENERAL RELEASE EXHIBIT 10-M TERMINATION AGREEMENT AND GENERAL RELEASE THIS TERMINATION AGREEMENT AND GENERAL RELEASE (the "RELEASE") is made and entered into as of this 20th day of March, 2003 (the "EFFECTIVE DATE"), by and between TruServ Corporation, a Delaware corporation (the "COMPANY"), and Robert Ostrov ("OSTROV"). R E C I T A L S A. Ostrov has been employed by the Company as its Senior Vice President, Chief Administrative Officer and General Counsel. B. Ostrov has resigned his employment with the Company and has resigned from all other positions he held with the Company. NOW, THEREFORE, in consideration of the above premises and the following mutual covenants and conditions, the parties agree as follows: 1. Termination of Employment. Effective the close of business on February 14, 2003, Ostrov and the Company agree that Ostrov resigned his employment with the Company and has resigned from all other positions he held with the Company, including Corporate Secretary and any board seats he may hold on the Company's behalf, and the Company has accepted each and all such resignations. Ostrov's letter of resignation is attached to this Release. Ostrov further agrees that he will not hereafter seek reinstatement, recall or re-employment with the Company. All Company property, including electronic and paper documents, in Ostrov's possession shall be returned to the Company on or before February 14, 2003. 2. Payments. As a termination payment, Ostrov shall receive the following amounts and entitlements in connection with this Release: (a) Salary Continuation. The Company shall continue to pay Ostrov his base salary, as in effect on February 14, 2003, for a period of twenty-four (24) months (the "SEVERANCE PERIOD") in accordance with the Company's payroll policy from time to time in effect, with the first such installment to be paid to Ostrov on the first payroll date on or after March 1, 2003 (or, if later, on the date this Release becomes effective as described in Paragraph 10(c)). One Thousand dollars ($1,000) of the termination payment hereunder shall be in consideration of the release of any claim under the Age Discrimination in Employment Act of 1967, as amended, and as described in Paragraph 3 hereof, and Ostrov agrees that such consideration is in addition to anything of value to which he is already entitled. The remainder of the amounts and entitlements to be made under this Paragraph 2 shall be in consideration of the release of all other claims described below in Paragraph 3, the Protective Agreement described in Paragraph 7, and the obligations described in Paragraph 13. (b) Bonus. Ostrov shall receive incentive pay of $129,256 under the Key Associates Incentive Plan For 2002 (the "2002 PLAN"); provided, however, that if the Company attains certain previously agreed upon performance targets on or before April 3, 2003, then the amount of the incentive pay shall be $146,722. The incentive pay shall be payable in a single lump sum at the same time such incentives are paid by the Company to all other employees of the Company receiving incentives under such program. The foregoing notwithstanding, Ostrov agrees that he is not eligible for any other special performance bonuses. (c) Vacation/Expenses. Ostrov agrees that on the date he resigned, he was entitled to a payment of $19,410.96 for seventeen (17) days of accrued but unused vacation. Such payment shall be made to Ostrov no later than the first payroll date in March, 2003. Ostrov acknowledges and agrees that, in reconciling expense reimbursements, he owes the Company $1,680, which amount shall be repaid to the Company through a reduction in the first salary continuation payment hereunder. (d) Medical and Dental Benefits. Ostrov may elect to continue his medical and dental insurance coverage, as mandated by COBRA, which may continue to the extent required by applicable law. If Ostrov elects such insurance coverage under COBRA, the Company agrees that it shall, during the COBRA continuation period, pay for such coverage at the same rate the Company pays for medical and dental insurance coverage for its active employees under its group medical and dental plan (with Ostrov required to pay for any employee paid portion of such coverage). Nothing herein shall be construed to extend the period of time over which any COBRA continuation coverage may be provided to Ostrov and/or his dependents beyond that mandated by law. (e) SERP. Ostrov acknowledges and agrees that the total benefit to which he is entitled under the Company's non-qualified Supplemental Retirement Plan (the "SERP") is equal to $421,450.21 (the "SERP BENEFIT"). The SERP Benefit shall be payable to Ostrov in a single sum within forty-five (45) days of the Effective Date. (f) Outplacement. The Company shall pay for up to $10,000 of outplacement services for Ostrov, to be provided by an outplacement service provider selected by the Company. It is agreed that the Company's sole obligation in this respect is to pay, directly to the outplacement firm, for such outplacement services, as contracted with the provider. Any dispute between Ostrov and the outplacement agency shall be deemed a dispute solely between Ostrov and the outplacement agency and shall not in any way be construed as a breach of this Release. (g) Withholding. The Company and Ostrov acknowledge and agree that all payments made pursuant to this Paragraph 2 are "wages" for purposes of FICA, FUTA and income tax withholding and the Company shall therefore withhold from any payments hereunder the amounts it determines to be necessary to satisfy all tax withholding obligations. (h) Other. Except as otherwise set forth in this Paragraph 2, no other sums (contingent or otherwise) shall be paid to Ostrov in respect of his employment by the Company, or as additional termination amounts, and any such sums or amounts (whether or not owed) are hereby expressly waived by Ostrov. The foregoing notwithstanding, (i) Ostrov shall be entitled to receive a payment of $2,500 for 2002 tax preparation services; (ii) Ostrov shall be entitled to receive his account balance, if any, under the Company's Section 401(k) Plan (including any matching contributions required to be made thereunder for the 2002 Plan Year) and the Company's Defined Lump Sum Pension Plan in accordance with the terms of such Plans; and (iii) in the event of Ostrov's death prior to his receipt of all the benefits to which he is entitled hereunder, Ostrov's estate shall continue to 2 receive any amounts due him under this Paragraph 2 so long as, on the date of such death, Ostrov is not engaged in substantially full-time employment or substantially full-time work. 3. General Release. As a material inducement to the Company to enter into this Release and in consideration of the payments to be made by the Company to Ostrov in Paragraph 2 above, Ostrov, with full understanding of the contents and legal effect of this Release and having the right and opportunity to consult with his counsel, releases and discharges the Company, its shareholders, officers, directors, supervisors, members, managers, employees, agents, representatives, attorneys, parent companies, divisions, subsidiaries and affiliates, and all related entities of any kind or nature, and its and their predecessors, successors, heirs, executors, administrators, and assigns (collectively, the "RELEASED PARTIES") from any and all claims, actions, causes of action, grievances, suits, charges, or complaints of any kind or nature whatsoever, that he ever had or now has, whether fixed or contingent, liquidated or unliquidated, known or unknown, suspected or unsuspected, and whether arising in tort, contract, statute, or equity, before any federal, state, local, or private court, agency, arbitrator, mediator, or other entity, regardless of the relief or remedy. Without limiting the generality of the foregoing, it being the intention of the parties to make this Release as broad and as general as the law permits, this Release specifically includes any and all subject matter and claims arising from any alleged violation by the Released Parties under the Age Discrimination in Employment Act of 1967, as amended; Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1866, as amended by the Civil Rights Act of 1991 (42 U.S.C. Section 1981); the Rehabilitation Act of 1973, as amended; the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); the Illinois Wage Payment and Collection Act; the Illinois Human Rights Act, the Cook County Human Rights Ordinance, the Chicago Human Rights Ordinance, and other similar state or local laws; the Americans with Disabilities Act; the Family and Medical Leave Act; the Worker Adjustment and Retraining Notification Act; the Equal Pay Act; Executive Order 11246; Executive Order 11141; and any other statutory claim, employment or other contract or implied contract claim (including, but not limited to, any claims arising under that certain Employment Letter dated January 20, 1997, under any company severance policy or plan, and under any Long Term Incentive Plan or similar program), claim for equity or phantom equity, or common law claim for wrongful discharge, breach of an implied covenant of good faith and fair dealing, defamation, or invasion of privacy arising out of or involving his employment with the Company, the termination of his employment with the Company, or involving any continuing effects of his employment with the Company or termination of employment with the Company. Ostrov further acknowledges that he is aware that statutes exist that render null and void releases and discharges of any claims, rights, demands, liabilities, action and causes of action which are unknown to the releasing or discharging party at the time of execution of the release and discharge. Ostrov hereby expressly waives, surrenders and agrees to forego any protection to which he would otherwise be entitled by virtue of the existence of any such statute in any jurisdiction including, but not limited to, the State of Illinois. 4. Covenant Not to Sue. Ostrov, for himself, his heirs, executors, administrators, successors and assigns agrees not to bring, file, charge, claim, sue or cause, assist, or permit to be brought, filed, charged or claimed any action, cause of action, or proceeding regarding or in any way related to any of the claims described in Paragraph 3 hereof, and further agrees that this Release is, will constitute and may be pleaded as, a bar to any such claim, action, cause of action or proceeding. If any government agency or court assumes jurisdiction of any charge, complaint, or cause of action covered by this Release, Ostrov will not seek and will not accept any personal equitable or monetary relief in connection with such investigation, civil action, suit or legal proceeding. The foregoing 3 notwithstanding, this Paragraph 4 shall not preclude Ostrov from (i) filing a claim with respect to the enforcement of the terms of this Release, (ii) receiving vested benefits under any employee pension plan, as defined in Section 3(2) of ERISA; and (iii) enforcing rights, if any, to indemnification as may be provided for under the Company's by-laws or under any directors' and officers' liability insurance. 5. Indemnification. Ostrov will fully indemnify the Company and its shareholders, members, managers, officers, directors, employees and independent contractors against and will hold its shareholders, members, managers, officers, directors, employees and independent contractors harmless from any and all claims, costs, damages, demands, expenses (including without limitation attorneys' fees), judgments, losses or other liabilities of any kind or nature whatsoever arising from or directly or indirectly related to any material breach or failure by Ostrov to comply with any or all of the provisions of this Release. 6. Representations. From and after February 3, 2003, Ostrov represents that he has not made, and agrees that he will not make, to any third party any disparaging, untrue, or misleading written or oral statements about or relating to the Company or its products or services (or about or relating to any officer, director, agent, employee, or other person acting on the Company's behalf). Ostrov further represents that he has not destroyed, deleted or otherwise removed from the Company any property belonging to the Company and agrees that he will not destroy, delete or otherwise remove from the Company any property belonging to the Company. From and after February 3, 2003, Pamela Forbes Lieberman and Amy Mysel represent that they have not made, and agree that they will not make, to any third party any disparaging, untrue or misleading written or oral statements about or relating to Ostrov. Ostrov acknowledges that his continuing entitlement to payments and benefits under Paragraph 2 of the Release shall be conditioned upon his continuing compliance with Paragraphs 6, 7, 10(a) and 13 of the Release and any violation of Paragraphs 6, 7, 10(a) or 13 by Ostrov shall terminate the Company's obligation to continue to make payments and provide benefits under Paragraph 2. 7. Protective Agreement. (a) Confidentiality. Ostrov agrees that he will not, for any reason whatsoever, whether voluntarily or involuntarily, use for himself or disclose to any person any "CONFIDENTIAL INFORMATION" of the Company acquired by Ostrov during his relationship with the Company and its predecessors. Confidential Information includes but is not limited to: (a) any financial, business, planning, operations, services, potential services, products, potential products, technical information and/or know-how, formulas, production, purchasing, marketing, sales, personnel, customer, broker, supplier or other information of the Company; (b) any papers, data, records, processes, methods, techniques, systems, models, samples, devices, equipment, compilations, invoices, customer lists or documents of the Company; (c) any matters relating to the legal affairs of the Company or matters relating to the activities of the Company's Board of Directors; (d) any confidential information or trade secrets of any third party provided to the Company in confidence or subject to other use or disclosure restrictions or limitations; and (e) any other information, written, oral or electronic, which pertains to the Company's affairs or interests or with whom or how the Company does business. The Company acknowledges and agrees that Confidential Information does not include (i) information properly in the public domain, or (ii) information in Ostrov's possession prior to the date of his original employment with the Company or its predecessors, except to the extent that such information is or has become a trade secret of the Company or is or otherwise has become the property of the 4 Company. Ostrov further acknowledges and agrees that he is estopped from and will not dispute in any proceeding the enforceability of this Paragraph 7(a). (b) Restrictions. Except on behalf of the Company, Ostrov agrees that he will not, at any time prior to February 14, 2005, directly or indirectly: (1) solicit or accept if offered to him, with or without solicitation, on his own behalf or on behalf of any other person or entity, the services of any person who is a current employee of the Company (or was an employee of the Company during the year preceding such solicitation), nor solicit any of the Company's current employees (or any individual who was an employee of the Company during the year preceding such solicitation) to terminate employment or an engagement with the Company, nor agree to hire any current employee (or any individual who was an employee of the Company during the year preceding such hire) of the Company into employment with him or any other person or entity; or (2) become associated, whether as an investor (excluding investments representing less than one percent (1%) of the common stock of a public company), lender, owner, stockholder, officer, director, employee, agent, consultant or in any other capacity, in any business activities of any franchise, cooperative, retail or wholesale company with a core business in the hardware industry or maintenance, repair and operations commercial/industrial industries with annual sales in excess of $1,000,000,000 and in which forty percent (40%) or more of annual sales are in the hardware industry or maintenance, repair and operations. (c) Enforcement. It is agreed that breach of this Paragraph 7 will result in irreparable harm and continuing damages to the Company and its business and that the Company's remedy at law for any such breach or threatened breach, will be inadequate and, accordingly, in addition to such other remedies as may be available to the Company at law or in equity in such event, any court of competent jurisdiction may issue a temporary and permanent injunction, without the necessity of the Company posting bond and without proving special damages or irreparable injury, enjoining and restricting the breach, or threatened breach, of this Paragraph 7, including, but not limited to, any injunction restraining the breaching party from disclosing, in whole or part, any Confidential Information. In addition to, but not in lieu of, the remedies contained herein, the Company and Ostrov agree that for purposes of this Release, damages will be difficult to assess and, in recognition thereof, Ostrov shall pay and the Company shall accept as liquidated damages, and not as a penalty, the sum of $50,000. Ostrov will pay all of the Company's costs and expenses, including reasonable attorneys' and accountants' fees, incurred in enforcing this Paragraph 7. 8. Severability. If any provision of this Release shall be found by a court to be invalid or unenforceable, in whole or in part, then such provision shall be construed and/or modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Release, as the case may require, and this Release shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful; provided, that, if the parties are unable to agree upon a lawful substitute, the parties desire and request that a court or other authority called upon to decide the 5 enforceability of this Release modify the Release so that, once modified, the Release will be enforceable to the maximum extent permitted by the law in existence at the time of the requested enforcement. 9. Waiver. A waiver by the Company of a breach of any provision of this Release by Ostrov shall not operate or be construed as a waiver or estoppel of any subsequent breach by Ostrov. No waiver shall be valid unless in writing and signed by an authorized officer of the Company. 10. Miscellaneous Provisions. (a) Announcements. Ostrov and the Company agree that he and it will keep the terms and amounts set forth in this Release completely confidential and, except as may be required by law, will not disclose any information concerning this Release's terms and amounts to any person other than his or its attorney, accountant, tax advisor, or in the case of Ostrov, his immediate family. Ostrov agrees and acknowledges that he will make no announcement about his resignation or about the affairs of the Company, which is in any manner inconsistent with the terms of this Release, and further agrees and acknowledges that any press or other written, oral or electronic public releases, or statements concerning his resignation, the terms of this Release or about the affairs of the Company shall be issued by the Company only. The foregoing notwithstanding, Ostrov shall not be prohibited from recounting his professional accomplishments while employed by the Company for the sole purpose of obtaining future employment. (b) Timing. Ostrov represents and certifies that he has carefully read and fully understands all of the provisions and effects of this Release, has knowingly and voluntarily entered into this Release freely and without coercion, and acknowledges that on February 5, 2003, the Company advised him to consult with an attorney prior to executing this Release and further advised him that he had twenty-one (21) days (until February 26, 2003) within which to consider this Release. Ostrov is voluntarily entering into this Release and neither the Company nor its agents, representatives, or attorneys made any representations concerning the terms or effects of this Release other than those contained in the Release itself. (c) Revocation. Ostrov acknowledges that he has seven (7) days from the date this Release is executed in which to revoke his acceptance of the ADEA portion of this Release, and such portion of this Release will not be effective or enforceable until such seven (7)-day period has expired. If Ostrov revokes his acceptance of the ADEA portion of the Release, the remainder of the Release shall remain in full force and effect as to all of its terms except for the release of claims under the ADEA, and the Company will have three (3) business days to rescind the entire Release by so notifying Ostrov. (d) Compliance. Ostrov agrees that he shall sign: (i) the annual management representation letter to PricewaterhouseCoopers in conjunction with its fiscal year 2002 audit of the Company, and (ii) the Sarbanes-Oxley internal management team representation form provided to the Company's Chief Executive Officer and Chief Financial Officer. 11. Complete Agreement. This Release sets forth the entire agreement between the parties, and fully supersedes any and all prior agreements or understandings between the parties pertaining to actual or potential claims arising from Ostrov's employment with the Company or the termination of Ostrov's employment with the Company. 6 12. Reimbursement. If Ostrov or his heirs, executors, administrators, successors or assigns (a) in the sole discretion of the Board, breaches Paragraphs 6, 7, 10(a) or 13 of this Release, or (b) attempts to challenge the enforceability of this Release, or (c) files a charge of discrimination, a lawsuit, or a claim of any kind for any matter released herein, all further payments and benefits owed under Paragraph 2 of the Release shall terminate and Ostrov or his heirs, executors, administrators, successors or assigns shall be obligated to tender back to the Company all payments made to him or them under Paragraph 2 of this Release (except for $1,000, which represents the consideration received by Ostrov in exchange for the release and waiver of rights or claims under the Age Discrimination in Employment Act of 1967, as amended), and to indemnify and hold harmless the Company from and against all liability, costs and expenses, including attorneys' fees, arising out of said breach, challenge or action by Ostrov, his heirs, executors, administrators, successors or assigns. 13. Future Cooperation. In connection with any and all claims, disputes, negotiations, governmental or internal investigations, lawsuits or administrative proceedings (the "LEGAL MATTERS") involving the Company, or any of its current or former officers, employees or Board members (collectively, the "DISPUTING PARTIES" or, individually, a "DISPUTING PARTY"), Ostrov agrees to make himself available, upon reasonable notice from the Company and without the necessity of subpoena, to provide information or documents, provide declarations or statements regarding a Disputing Party, meet with attorneys or other representatives of a Disputing Party, prepare for and give depositions or testimony, and/or otherwise cooperate in the investigation, defense or prosecution of any or all such Legal Matters, as may, in the sole judgment of the Company, be reasonably requested. Ostrov may engage his own legal counsel in such legal matters, and, to the extent permitted under the Company's Directors' and Officers' insurance policy, such legal counsel will be reimbursed accordingly. In addition, Ostrov agrees that, through February 14, 2004, he shall be available from time to time to provide consulting services to the Company for up to one hundred (100) hours, as are reasonably assigned to him by the Company in regard to its business (the "SERVICES"). The Services will include Ostrov's advice, counsel and assistance to be furnished at the reasonable request of the Company from time to time in connection with its business. The Company agrees to give Ostrov reasonable notice of what Services it desires and when it desires them to be performed. In that connection, the Company and Ostrov agree to cooperate in resolving any scheduling problems that may arise with respect to Ostrov being available at the times requested. Ostrov shall diligently, competently and faithfully perform all duties, and shall use his best efforts to promote the Company. The Company agrees to make reasonable efforts to accommodate Ostrov's schedule in requesting the Services under this Paragraph 13. The Company further agrees to reimburse Ostrov's reasonable out of pocket expenses incurred in complying with the terms of this Paragraph 13. If the total number of hours of service required to be performed by Ostrov at the request of a Disputing Party or the Company under this Paragraph 13 exceeds one hundred (100), Ostrov shall be compensated at the rate of $175 per hour for each hour in excess of one hundred (100) upon submission of an itemized statement of services rendered. 14. Arbitration. Any controversy, claim or dispute between the parties relating to Ostrov's employment or termination of employment, whether or not the controversy, claim or dispute arises under this Release (other than any controversy or claim arising under Paragraph 7), shall be resolved by arbitration in Chicago, Illinois in accordance with the National Rules for the Resolution of Employment Disputes ("RULES") of the American Arbitration Association through a single arbitrator selected in accordance with the Rules. The decision of the arbitrator shall be 7 rendered within thirty (30) days of the close of the arbitration hearing and shall include written findings of fact and conclusions of law reflecting the appropriate substantive law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof in the County of Cook, State of Illinois. In reaching his or her decision, the arbitrator shall have no authority (a) to authorize or require the parties to engage in discovery (provided, however, that the arbitrator may schedule the time by which the parties must exchange copies of the exhibits that, and the names of the witnesses whom, the parties intend to present at the hearing), (b) to interpret or enforce Paragraph 7 of the Release (for which Paragraph 18 shall provide the exclusive venue), (c) to change or modify any provision of this Release, or (d) to award punitive damages or any other damages not measured by the prevailing party's actual damages and may not make any ruling, finding or award that does not conform to this Release. Each party shall initially bear one-half ( 1/2) of the costs of the arbitrator; provided, however, that the arbitrator may, in his or her sole discretion, award the prevailing party all or any part of his or its legal fees, costs and expenses of arbitration. 15. Amendment. This Release may not be altered, amended, or modified except in writing signed by both Ostrov and the Company. 16. Joint Participation. The parties hereto participated jointly in the negotiation and preparation of this Release, and each party has had the opportunity to obtain the advice of legal counsel and to review and comment upon the Release. Accordingly, it is agreed that no rule of construction shall apply against any party or in favor of any party. This Release shall be construed as if the parties jointly prepared this Release, and any uncertainty or ambiguity shall not be interpreted against one party and in favor of the other. 17. Notice. All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (i) three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, (ii) when receipt is electronically confirmed, if sent by fax (provided that a hard copy shall be promptly sent by first class mail), or (iii) one (1) business day following deposit with a recognized national overnight courier service for next day delivery, charges prepaid, and, in each case, addressed to the intended recipient, as set forth below: To the Company: TruServ Corporation 8600 West Bryn Mawr Avenue Chicago, Illinois 60631-3505 Attn: Pamela Forbes Lieberman President and Chief Executive Officer To the Employee: Robert Ostrov 281 Park Avenue Highland Park, Illinois 60035 18. Applicable Law. This Release shall be governed by, and construed in accordance with, the laws of the State of Illinois, without reference to its conflict of law provisions. Furthermore, as to Paragraph 7, Ostrov agrees and consents to submit to personal jurisdiction in the state of Illinois in any state or federal court of competent subject matter jurisdiction situated in Cook 8 County, Illinois. Ostrov further agrees that the sole and exclusive venue for any suit arising out of, or seeking to enforce, the terms of Paragraph 7 of this Release shall be in a state or federal court of competent subject matter jurisdiction situated in Cook County, Illinois. In addition, Ostrov waives any right to challenge in another court any judgment entered by such Cook County court or to assert that any action instituted by the Company in any such court is in the improper venue or should be transferred to a more convenient forum. 19. Headings. The headings in this Release are inserted for convenience only and are not to be considered a constriction of the provisions hereof. 20. Execution of Release. This Release may be executed in several counterparts, each of which shall be considered an original, but which when taken together, shall constitute one Release. PLEASE READ THIS AGREEMENT AND CAREFULLY CONSIDER ALL OF ITS PROVISIONS BEFORE SIGNING IT. THIS AGREEMENT CONTAINS A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING THOSE UNDER THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT, AND OTHER FEDERAL, STATE AND LOCAL LAWS PROHIBITING DISCRIMINATION IN EMPLOYMENT. IN WITNESS WHEREOF, Ostrov and the Company have voluntarily signed this Termination Agreement and General Release consisting of nine (9) pages on the date set forth above. TruServ Corporation By: /s/ AMY MYSEL --------------------------------------- Its: Vice President of Human Resources /s/ ROBERT OSTROV ------------------------------------ --------------------------------- Robert Ostrov 9 LETTER OF RESIGNATION Effective February 14, 2003, I resign as Senior Vice President, Chief Administrative Officer and Secretary of TruServ Corporation. I also resign, effective February 14, 2002, as Corporate Secretary and from any and all Board seats I may hold on TruServ's behalf, including but not limited to, Board seats with Builder Marts of America, Inc. and Members Insurance. /s/ ROBERT OSTROV --------------------------------- Robert Ostrov 10 EX-21 23 c75265exv21.txt SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT The registrant owns 100% of the issued and outstanding capital stock of TruServ Acceptance Company, TruServ Logistics Company, and General Paint and Manufacturing Co., all Illinois corporations, ServiStar Paint Company and Advocate Services Incorporated, both Pennsylvania Corporations, TrueValue.com, a Delaware Corporation, and is the sole member of MaryGreen, LLC, and TruServ Specialty Company, LLC, both Delaware limited liability companies. The accounts of these subsidiaries have been consolidated with the registrant's in December 31, 2002 and 2001. EX-99.1 24 c75265exv99w1.txt CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Pamela Forbes Lieberman, the chief executive officer of TruServ Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) This Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TruServ Corporation. Dated: March 14, 2003 /s/ PAMELA FORBES LIEBERMAN - --------------------------- Pamela Forbes Lieberman Chief Executive Officer EX-99.2 25 c75265exv99w2.txt CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, David Shadduck, the chief financial officer of TruServ Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) This Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TruServ Corporation. Dated: March 14, 2003 /s/ DAVID A. SHADDUCK - --------------------- David A. Shadduck Chief Financial Officer EX-99.3 26 c75265exv99w3.txt CODE OF ETHICS EXHIBIT 99.3 TRUSERV CORPORATION CEO AND SENIOR FINANCIAL OFFICERS CODE OF ETHICS GENERAL PHILOSOPHY The honesty, integrity and sound judgement of the CEO and senior financial officers is fundamental to the reputation and success of TruServ Corporation (the "Company"). The professional and ethical conduct of the CEO and senior financial officers is essential to the proper function and success of the Company as a leading hardware wholesale cooperative. SENIOR FINANCIAL OFFICERS CODE OF ETHICS Pursuant to the mandate of the Sarbanes-Oxley Act of 2002 (the "Act") and regulations of the United States Securities and Exchange Commission ("SEC") promulgated pursuant to the authority and mandate of the Act, this Code of Ethics has been adopted for our CEO, CFO, Controllers, Treasurer, and Director of Internal Audit of the Company (the "Senior Financial Officers"). To the best of their knowledge and ability, the CEO and Senior Financial Officers of the Company performing accounting, auditing, financial management or similar functions must: - Act with honesty and integrity, avoid actual or apparent conflicts of interest in personal and professional relationships. - Provide colleagues, the SEC and the public with information that is accurate, complete, objective, relevant, timely and understandable. - Comply with applicable laws, rules and regulations of federal, state, and local governments (both United States and foreign) and other appropriate private and public regulatory agencies. - Act in good faith, with due care, competence and diligence, without misrepresenting material facts or allowing independent judgement to be subordinated. - Respect the confidentiality of information acquired in the course of employment. - Share knowledge and maintain skills necessary and relevant to the Company's needs. - Proactively promote ethical and honest behavior within the Company's environment. - Assure responsible use of and control of all assets, resources and information of the Company. - Report violations of this Code of Ethics to the General Counsel, Director of Internal Audit, or directly to the Audit Committee of the Board of Directors of the Company, promptly after learning of any such violation. All senior financial officers are expected to adhere to the Company's Code of Ethics for the CEO and Senior Financial Officers at all times. The board of directors shall have the sole and absolute discretionary authority to approve any deviation or waiver from the Code of Ethics for the CEO and Senior Financial Officers. Any waiver and the grounds for such waiver for a senior financial officer shall be promptly disclosed through a filing with the SEC on Form 8-K. Additionally, any change of this Code of Ethics for the CEO and senior financial officers shall be promptly disclosed to shareholders. -----END PRIVACY-ENHANCED MESSAGE-----