-----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, BVY9wB+FQ8mw5UWJBN4+gPbBlDZdDCCeHAJ+itNxSrs4Rh1UnhOa48M6wIcyQ/cg VsVGXFgxsbiQ2ZQkf/qZgA== 0000950137-99-003346.txt : 19990910 0000950137-99-003346.hdr.sgml : 19990910 ACCESSION NUMBER: 0000950137-99-003346 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19990909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSERV CORP CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-18397 FILM NUMBER: 99708446 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 773-695-5000 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 POS AM 1 POST-EFFECTIVE AMENDMENT #8 TO FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1999 REGISTRATION NO. 333-18397 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- POST-EFFECTIVE AMENDMENT NO. 8 ON FORM S-2 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- TRUSERV CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 36-2099896 (I.R.S. EMPLOYER IDENTIFICATION NO.) 8600 WEST BRYN MAWR AVENUE CHICAGO, IL 60631-3505 (773) 695-5000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) DANIEL A. COTTER CHAIRMAN OF THE BOARD TRUSERV CORPORATION 8600 WEST BRYN MAWR AVENUE CHICAGO, IL 60631-3505 (773) 695-5000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: DANIEL T. BURNS, ESQ. TRUSERV CORPORATION 8600 WEST BRYN MAWR AVENUE CHICAGO, IL 60631-3505 (773) 695-6601 (773) 695-5465 (FAX) GEOFFREY R. MORGAN, ESQ. MICHAEL, BEST & FRIEDRICH 100 E. WISCONSIN AVENUE MILWAUKEE, WI 53202 (414) 271-6560 (414) 277-0656 (FAX) If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / X / If the Registrant elects to delivery its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to item II(a)(1) of this Form, check the following box. / X / - -------------------------------------------------------------------------------- 2 TRUSERV CORPORATION 85,748 SHARES CLASS A COMMON STOCK, $100 PAR VALUE (IN UNITS OF SIXTY SHARES) THE COMMON STOCK IS OFFERED EXCLUSIVELY TO RETAILERS AND RENTERS OF HARDWARE, LUMBER AND RELATED PRODUCTS, WHEN THEY BECOME MEMBERS OF TRUSERV CORPORATION. THE COMMON STOCK CANNOT BE TRANSFERRED. WE RETAIN AN AUTOMATIC LIEN AGAINST THE COMMON STOCK AND ANY ACCRUED DIVIDENDS FOR ANY DEBTS THAT MEMBERS OWE US. THERE IS NO EXISTING MARKET FOR THIS COMMON STOCK AND WE DO NOT EXPECT THAT ONE WILL DEVELOP. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5 IN THIS PROSPECTUS ------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PER UNIT TOTAL - ------------------------------------------------------------------------------------------------------ Public Price................................................ $6,000 $8,574,800 (1) Underwriting discounts...................................... none none) (2 Proceeds to TruServ......................................... $6,000 $8,574,800 (3)
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The shares are offered in units of 60 shares each. The minimum purchase is 60 shares or one unit. You may not purchase more than 300 shares (5 units). (2) There are no underwriters. (3) There are no firm commitments for the sale of these securities. ------------------ THE DATE OF THIS PROSPECTUS IS , 1999. 3 WHERE YOU CAN FIND MORE INFORMATION We file annual. quarterly and special reports, proxy statements, and other information with the SEC. Our SEC filings are available over the Internet on the SEC's web site at http://www.sec.gov.. You may also read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. REPORTS TO SECURITY HOLDERS Each year, we distribute an annual report containing consolidated financial statements reported upon by our independent auditors to our stockholder-members. We may, from time to time, also furnish to our stockholder-members interim reports, as determined by our management. DOCUMENTS INCLUDED AND INCORPORATED BY REFERENCE The SEC allows us to "incorporate by reference" information we file with them which means that we can disclose important information to you by referring you to those documents and delivering them to you with this prospectus. We are incorporating by reference our Annual Report on Form 10-K for the year ended December 31, 1998 and our Quarterly Reports on Form 10-Q for the thirteen weeks ended April 3, 1999 and July 3, 1999, which we filed with the SEC under Section 15(d) of the Securities Exchange Act of 1934. We also are including the Form 10-K and the Form 10-Qs with this prospectus for your information. 2 4 SUMMARY TruServ Corporation began as a Delaware corporation in 1953, and was the successor to the business activities of Cotter & Company, an Illinois corporation incorporated in 1948. Until July 1, 1997, when we merged with ServiStar Coast to Coast Corporation, our corporate name was Cotter & Company. Our corporate headquarters are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631-3505. Our telephone number is (773) 695-5000. We are a member-owned wholesaler of hardware, lumber/building materials and related merchandise, Our company is the largest member-owned wholesaler of these items in the United States. For financial reporting purposes, we operate in a single industry as a member-owned wholesaler cooperative. COMMON STOCK Our Class A common stock has a $100.00 par value. It is offered exclusively to you and other retailers of hardware, lumber/building and related merchandise, when you become a Member of our cooperative. The Class A common stock is the sole voting stock and is offered only in sixty-share units. You may not acquire more than five units at a rate of one unit per store. You must pay cash for all your stock purchases. Our Class B nonvoting common stock has a par value of $100 per share. It can be issued only as part of our patronage dividend. You cannot transfer the Class A common stock to someone else without first offering us the opportunity to repurchase the stock. We have ninety days to repurchase the stock, at par value, before you can otherwise dispose of the stock. We will retain an automatic lien on the Class A common stock and any dividends that might have accrued, if you have any debt payable to us. Either of us may terminate our membership agreement with sixty-days' written notice. If the agreement is terminated, we are obligated to repurchase your Class A stock, and you are obligated to sell the stock back to us. We cannot terminate any membership agreement unless two-thirds of our Board of Directors approves the termination. The only exceptions to this requirement are if you should do any of the following: 1) You become insolvent. 2) You commit any act of bankruptcy. 3) You file a voluntary petition in bankruptcy. 4) You are adjudicated as bankrupt 5) You commit a breach of any obligation under our agreement that is not corrected within ten days after we give you written notice. There is no existing market for our Class A common stock and we do not anticipate that any market will develop. FRANCHISES AND LICENSES We are continuing to review our franchised retail activities. These include Taylor Rental Centers, Party Central and Grand Rental Stations. We anticipate that additional licenses will be entered into with respect to these activities. We do not anticipate that we will have other retail programs that will be operated as franchises. RETAIL CONVERSION FUNDS AGREEMENT For those members who were members at the time of our merger with Servistar Coast to Coast, we have made available $40,000,000 to assist them in defraying various conversion costs associated with the merger. As of July 3, 1999, we have paid out $21,709,481 from these funds. 3 5 COMPARATIVE PER SHARE PRICES AND DIVIDEND POLICIES Our stock is not listed or traded on any national securities exchange or on the NASDAQ. It is offered exclusively to retailers or renters of hardware, lumber and related products, in connection with joining our cooperative as members. The purchase price of the stock is equal to its par value. Our stock is restricted as to transferability and there is no public market for it. We do not pay dividends with respect to the Class A common stock. COMPARATIVE PER SHARE DATA Because there is no public market for our stock and the sale or issuance of the stock is at par value, earnings per share is not applicable. The following table shows the book value of our stock on an historical basis. Book value per share as of: July 3, 1999........................................... $ 91.52 December 31, 1998...................................... $ 94.29 July 4, 1998........................................... $100.35 December 31, 1997...................................... $100.40
4 6 RISK FACTORS GENERAL Our business is subject to a number of risks. Foremost amongst these risks is the uncertain growth of the hardware, lumber/building materials, home center, do-it-yourself, rental and industrial/commercial supply industries. Widespread economic trends as well as seasonal and regional factors can affect our industry. Our markets are also subject to increasingly intense competition and changes. We expect continued competition from the so-called "Big Box" stores such as Home Depot, Menards, Builders Square and Lowes, as well as from additional emphasis on directly competitive lines of business by Home Depot and diversified retailers such as Sears. These competitors may have greater resources, larger market shares and more widespread presences than we do. We believe our cooperative structure best situates our Members to compete with the Big Boxes and other market competitors, but no assurances can be made that any Member or Members will be successful. VOLATILE PRICING OF MERCHANDISE/INVENTORY The price of merchandise and inventory in the lumber and building materials industry can change rapidly and such changes may affect our profit margins and competitive abilities adversely. We believe our cooperative structure creates the best opportunity for our Members to obtain lower prices and maximize their purchasing power, but such efficiencies cannot be assured. REGIONAL MARKET VARIATIONS We transact business nationwide. From time to time, significant variations in marketing opportunities may confront our Members due to economic conditions in the Member's specific geographic region. We are unable to predict any adverse regional economic conditions that may materially affect a Member or Members. ENVIRONMENTAL We engage in activities, such as the manufacture of paint and related products, which could have an environmental impact. These areas are subject to constant review and scrutiny by governmental authorities at the federal, state and local levels. We are unable to predict whether, or to what extent, such business activities and governmental scrutiny may result in future costs or liabilities. 5 7 YEAR 2000 GENERAL We started our Year 2000 Project in late 1996. Portions of our information systems are not yet "Year 2000 compliant". We have established a corporate-wide program to address any problems arising from the transition to the Year 2000 in both our information systems and other "embedded" systems in all facilities. STATE OF READINESS We have evaluated all mission-critical information systems. The repair and initial testing of these systems has been completed. Integrated end-to-end testing for mission critical processes has been started on these systems. Our Desktop assessment and remediation is on schedule for most facilities. The Data Center capabilities have been assessed and remedied including voice and data communications. Testing of critical Data Center infrastructure is currently underway. Our real properties and physical plants are being evaluated for "embedded" systems concerns and potential problems are being addressed on a local level. Key electronic trading partners have been tested to ensure proper communications into the Year 2000. We are on schedule to complete our Year 2000 initiative during the fourth quarter of 1999. COSTS The budget for our Year 2000 project is $16,900,000. Actual costs to date are $14,379,000. The approximate percentage of the Year 2000 costs to the total Information Services budget is 14%. Funding has been provided through our normal operating and financing activities. The expense for our Year 2000 program is as follows: 1996............................................... $ 1.0 million 1997............................................... $ 3.2 million 1998............................................... $ 7.9 million 1999 projected..................................... $ 4.6 million 2000 projected..................................... $ 0.2 million Total projected.................................... $16.9 million
RISKS A worst case scenario for us would involve a breakdown in the distribution chain to our Members. Such a scenario could be realized either through the inability of our vendors to provide merchandise or our inability to receive or properly process orders from Members. CONTINGENCY PLANS We are establishing an alternate supplier plan in the event that our vendors suffer from Year 2000 related problems. Contingency planning for information systems and possible "embedded" systems is also in progress. 6 8 USE OF PROCEEDS We plan to use the proceeds from the offering of this stock for general working capital, including the purchase of merchandise for resale to our members. PLAN OF DISTRIBUTION We are offering the stock exclusively to retailers of hardware, lumber and related merchandise, in connection to becoming one of our members. To become a stockholder-member you must subscribe for sixty shares of our Class A common stock for each retail store you operate up to a maximum of 300 shares or $30,000 for five or more stores. All sales of our stock will be made for cash. Each share has a par value of $100. Sales of the stock are primarily made through our registered securities agent after your membership has been approved by our executive officers. 7 9 DISTRIBUTION OF PATRONAGE DIVIDENDS Information relating to the distribution of patronage dividends is included in our Annual Report on Form 10-K for the year ended December 31, 1998 in Part I, Item 1, and is incorporated by reference. DESCRIPTION OF COMMON STOCK DIVIDEND RIGHTS. We have not paid nor do we plan to pay in the future any dividends on our Class A common stock. Dividends, other that patronage dividends, on Class A common stock and Class B nonvoting common stock may be declared out of our gross margins, other that gross margins from operations with or for members and other patronage source income, after deducting expenses, reserves and provisions authorized by our Board of Directors. The dividends may be paid in cash, in property, or in shares of common stock. All dividends are subject to the provisions of our Certificate of Incorporation. VOTING RIGHTS. Our Class A common stock is the sole voting stock. It is offered only in sixty-share units, and no member may acquire more than five units. LIQUIDATION RIGHTS. If we should dissolve or liquidate the company, the assets will be divided ratably among all shareholders of Class A common stock and Class B nonvoting common stock in accordance with their holdings and without preference to class of stock. MEMBERSHIP. To become a member you must purchase sixty shares of Class A common stock for each store that you own up to maximum of 300 shares for five or more stores. You must own Class A common stock before any Class B nonvoting common stock can be issued or sold to you. REDEMPTION PROVISIONS. The membership agreement may be terminated by you or by the company on sixty-days' written notice. We cannot terminate your membership unless we receive approval by a two-thirds vote of the Board of Directors, except under the following conditions: 1) You become insolvent. 2) You commit any act of bankruptcy. 3) You file a voluntary petition in bankruptcy 4) You are adjudicated as bankrupt. 5) You commit a breach of any obligation under our agreement and have not corrected the breach within sixty days after written notice is received. If termination should occur, we will purchase and you are required to sell to us all of your Class A common stock and Class B nonvoting common stock at par value. Payment for the Class A common stock will be in cash. Payment for the Class B nonvoting common stock will be a note payable in five equal annual installments bearing an interest rate determined by our Board of Directors. STOCKHOLDERS. On July 3, 1999 there were approximately 8,182 stockholders of Class A common stock and approximately 8,180 stockholders of Class B nonvoting common stock. OTHER RESTRICTIONS AND RIGHTS. (a) We have no conversion rights, sinking fund provisions or liability to further assessment in regard to the Class A common stock. 8 10 (b) We have an automatic lien to secure the payment of any indebtedness due us from any stockholder of record upon the Class A common stock, the Class B nonvoting common stock and any declared and unpaid dividends. (c) There is no existing market for the Class A common stock . We have the option, exercisable within ninety days following the date we receive written notice, to repurchase all shares at par value. Any disposition or attempted disposition or transfer, voluntary or involuntary, of our common stock is invalid. No rights are transferred unless and until we have been given the required notice and we have failed to exercise our option to purchase the stock within the specified time. LEGAL MATTERS The legality of the issuance of the Class A common stock offered has been passed upon for us by Messrs. Arnstein & Lehr, Chicago, Illinois. 9 11 --------------------------------------------------------- --------------------------------------------------------- THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT, AND THE EXHIBITS AND SCHEDULES RELATING THERETO, WHICH THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. UNDER THE SECURITIES ACT OF 1933 AND TO WHICH REFERENCE IS HEREBY MADE FOR FURTHER INFORMATION WITH RESPECT TO THE COMPANY AND THE SECURITIES OFFERED HEREBY. TABLE OF CONTENTS
ITEM PAGE ---- ---- Where You Can Find More Information...... 2 Reports to Security Holders.............. 2 Documents Included and Incorporated by Reference........................... 2 Summary.................................. 3 Risk Factors............................. 5 Use of Proceeds.......................... 7 Plan of Distribution..................... 7 Distribution of Patronage Dividends...... 8 Description of Common Stock.............. 8 Legal Matters............................ 9
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- TRUSERV CORPORATION 85,748 SHARES CLASS A COMMON STOCK $100 PAR VALUE (IN UNITS OF 60 SHARES) ------------------ PROSPECTUS ------------------ DATED , 1999 - --------------------------------------------------------- - --------------------------------------------------------- 12 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following are the actual or estimated expenses in connection with the issuance and distribution of the Class A common stock being registered: Registration Fee............................................ $ 0 Printing of Registration Statement and Prospectus........... 4,000 Accounting Fees and Expenses................................ 10,000 Legal Fees.................................................. 10,000 Fees and Expenses for Qualifying Securities under "Blue Sky" Laws of Various States.................................... 15,000 ------- Total....................................................... $39,000 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS TruServ's Certificate of Incorporation, as amended, provides that TruServ shall indemnify, in accordance with and to the full extent permitted by the Delaware General Corporation Law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of TruServ), by reason of the fact that such person is or was a director, officer, employee or agent of TruServ, or is or was serving at the request of TruServ as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, against any liability or expense actually and reasonably incurred by such person in respect thereof. Such indemnification is not exclusive of any other right of such director, officer, or employee to indemnification provided by law or otherwise. Additionally, pursuant to Section 145(a)-(g) of the Delaware General Corporation Law which empowers a corporation to indemnify its directors, officers, employees and agents, on July 23, 1973 the Board of Directors adopted a By-Law (Article XIII, Indemnification of Directors, Officers and Employees--Exhibit 2-A to Registration Statement on Form S-4 (No. 333-18397) and incorporated herein by reference) providing for such indemnification. The following is a summary of the most significant provisions of said By-Law: As against third parties, TruServ shall indemnify any director, officer, employee or agent for any expenses (including attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred in defending any threatened, pending or completed suit or proceeding, whether civil, criminal, administrative or investigative brought against such person by reason of the fact that he was or is a director, officer, employee or agent, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of TruServ, and with respect to any criminal action or proceeding if he had no reasonable cause to believe his conduct unlawful. In any action or suit by or in the right of TruServ, TruServ shall indemnify any director, officer, employee or agent who is or was a party or threatened to be made a party to such threatened, pending or completed action or suit, for expenses (including attorney's fees and amounts paid in settlement) reasonably and actually incurred in connection with the defense or settlement of such suit or action, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of TruServ, except that no indemnification shall be made if such person has been adjudged to be liable for negligence or misconduct in the performance of his duty to TruServ unless and only to the extent that the Court of Chancery of Delaware or the court where the suit was brought finds that in view of all the circumstances of the case, such person is entitled to indemnification. Any indemnification, unless ordered by a court, shall be made by TruServ only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the party to be II-1 13 indemnified has met the applicable standard of conduct. Such determination shall be made by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties of such action, suit or proceeding, or if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders. Additionally, the stockholders of TruServ have approved an amendment to the Certificate of Incorporation to eliminate personal liability of directors for monetary damages for breach of fiduciary duty of care. The amendment provides that a director of TruServ shall not be liable to TruServ or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or may hereafter be amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933 is concerned, see Item 17 "Undertakings" below. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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 on Exhibit 2-A to Registration Statement on Form S-4 (No. 333-18397). 4-A By-laws of the Company, effective April 7, 1998.* 4-B Specimen certificate of Class A common stock.* 4-C Specimen certificate of Class B common stock.* 4-D Promissory (subordinated) note form effective for the year-ending December 31, 1986 and thereafter. Incorporated by reference--Exhibit 4-H to Registration Statement on Form S-2 (No. 33-20960). 4-E Instalment note form. Incorporated by reference--Exhibit 4-F to Registration Statement on Form S-2 (No. 2-82836). 4-F 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-G Cotter & Company $50,000,000 Private Shelf Agreement with Prudential Insurance Company of America dated December 29, 1995 incorporating amendment on existing Note Agreement with Prudential Insurance Company of America dated April 13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-H to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 (No. 33-39477). 4-H Trust Indenture between Cotter & Company and First Trust of Illinois (formerly Bank of America). Incorporated by reference--Exhibit T3C to Cotter & Company Form T-3 (No. 22-26210). 4-I Credit Agreement dated July 1, 1997 for $300,000,000 Revolving credit between TruServ Corporation, various financial institutions, and Bank of America. Incorporated by reference--Exhibit 4-J to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 to Form S-4 (No. 333-18397). 4-J 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-K to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 to Form S-4 (No. 333-18397). 4-K Credit Agreement dated September 10, 1998 for $105,000,000 Note Purchase Agreement between TruServ Corporation and various Purchasers. Incorporated by reference--Exhibit 4L to Post-Effective Amendment No. 6 to Registration Statement on Form S-4 (No. 333-18397).
II-2 14
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4-L 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-M Credit Agreement dated September 30, 1998 for $100,000,000 Revolving Credit between TruServ Corporation, various Financial institutions, and Bank of America. Incorporated by reference--Exhibit 4-N to Post-Effective Amendment No. 6 to Registration Statement on Form S-4 (No. 333-18397). 5 Opinion of Messrs. Arnstein & Lehr (previously filed). 10-A Current Form of Retail Member Agreement with TruServ Corporation between the Company and its Members that offer primarily hardware and related items. Incorporated by reference--Exhibit 2-A to the Company's Registration Statement on Form S-4 (No. 333-18397). 10-B Form of Subscription to Shares of TruServ Corporation. Incorporated by reference--Exhibit 10-B to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 to Form S-4 (No. 333-18397). 10-C Cotter & Company Defined Lump Sum Pension Plan (As Amended and Restated Effective As Of January 1, 1996). Incorporated by reference--Exhibit 10-C to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 (No. 33-39477). 10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended and Restated Effective April 1, 1994). Incorporated by reference--Exhibit 10-D to Post- Effective Amendment No. 4 to Registration Statement on Form S-2 (No. 33-39477). 10-E Cotter & Company Supplemental Retirement Plan between Cotter & Company and selected executives of the Company (As Amended and Restated January 2, 1996 Effective As Of January 1, 1996). Incorporated by reference--Exhibit 10-E to Post-Effective Amendment No. 5 to Registration Statement on Form S-2 (No. 33-39477). 10-F Annual Incentive Compensation Program and Long-Term Incentive Compensation Program between Cotter & Company and selected executives of the Company. Incorporated by reference--filed as Exhibits A and B to Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477). 10-G Cotter & Company Long-Term Incentive Compensation Program for Executive Management (Amended) dated November 7, 1994. Incorporated by reference--Exhibit 10-I to Post-Effective Amendment No. 4 to Registration Statement on Form S-2 (No. 33-39477). 10-H Employment Agreement between Cotter & Company and Daniel A. Cotter dated October 15, 1984. Incorporated by reference--Exhibit 10-N to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No. 2-82836). 10-I Amendment No. 1 to Employment Agreement between Cotter & Company and Daniel A. Cotter dated October 15, 1984 effective January 1, 1991. Incorporated by reference-- Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477). 10-J Contract between Daniel T. Burns and the Company. Incorporated by reference--Exhibit 10-J to Post-Effective No. 5 to Registration Statement in Form S-2 (No. 33-39477). 10-K 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). 23-A Consent of Arnstein & Lehr--Incorporated by reference to Exhibit 23-A to Registration Statement on Form S-2 to Form S-4 (No. 333-18397). 23-B Consent of Ernst & Young LLP (included on page II-7).*
* Filed herewith. II-3 15 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions described in Item 15, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 16 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 8 ON FORM S-2 TO REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON THE 9TH DAY OF SEPTEMBER, 1999. TRUSERV CORPORATION By: /s/ DANIEL A. COTTER ------------------------------------ Daniel A. Cotter Chairman of the Board and Director 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/ DANIEL A. COTTER Chairman of the Board and September 9, 1999 - ----------------------------------------------------- Director Daniel A. Cotter /s/ DONALD J. HOYE* President, Chief Executive September 9, 1999 - ----------------------------------------------------- Officer and Director Donald J. Hoye /s/ DANIEL T. BURNS* Executive Vice President of September 9, 1999 - ----------------------------------------------------- Operations and Daniel T. Burns Administration /s/ JOE W. BLAGG* Director September 9, 1999 - ----------------------------------------------------- Joe W. Blagg /s/ JAMES D. BURNETT* Director September 9, 1999 - ----------------------------------------------------- James D. Burnett /s/ WILLIAM M. CLAYPOOL, III* Director September 9, 1999 - ----------------------------------------------------- William M. Claypool, III /s/ JAY B. FEINSOD* Director September 9, 1999 - ----------------------------------------------------- Jay B. Feinsod /s/ WILLIAM M. HALTERMAN* Director September 9, 1999 - ----------------------------------------------------- William M. Halterman /s/ WILLIAM H. HOOD* Director September 9, 1999 - ----------------------------------------------------- William H. Hood /s/ JAMES D. HOWENSTINE* Director September 9, 1999 - ----------------------------------------------------- James Howenstine /s/ JERRALD T. KABELIN* Director September 9, 1999 - ----------------------------------------------------- Jerrald T. Kabelin
II-5 17
SIGNATURE TITLE DATE --------- ----- ---- /s/ PETER G. KELLY* Director September 9, 1999 - ----------------------------------------------------- Peter G. Kelly /s/ ROBERT J. LADNER* Director September 9, 1999 - ----------------------------------------------------- Robert J. Ladner /s/ GEORGE V. SHEFFER* Director September 9, 1999 - ----------------------------------------------------- George V. Sheffer /s/ DENNIS A. SWANSON* Director September 9, 1999 - ----------------------------------------------------- Dennis A. Swanson /s/ JOHN B. WAKE, JR.* Director September 9, 1999 - ----------------------------------------------------- John B. Wake, Jr. /s/ JOHN M. WEST, JR.* Director September 9, 1999 - ----------------------------------------------------- John M. West, Jr. /s/ BARBARA B. WILKERSON* Director September 9, 1999 - ----------------------------------------------------- Barbara B. Wilkerson
*By: /s/ DANIEL A. COTTER ------------------------------- Daniel A. Cotter, Pursuant to power of attorney previously granted II-6 18 EXHIBIT 23-B CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Post-Effective Amendment No. 8 on Form S-2 to the Registration Statement on Form S-4 (File No. 333-18397) and related Prospectus of TruServ Corporation for the registration of 85,748 shares of Class A common stock of our report dated March 25, 1999 with respect to the consolidated financial statements of TruServ Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Chicago, Illinois September 9, 1999 II-7 19 INDEX TO EXHIBITS FILED TO POST EFFECTIVE AMENDMENT NO. 8 TO REGISTRATION STATEMENT ON FORM S-4 OF TRUSERV CORPORATION
EXHIBIT NUMBER EXHIBIT - ------- ------- 4-A By-laws of the Company. 4-B Specimen certificate of Class A common stock. 4-C Specimen certificate of Class B common stock. 23-B Consent of Ernst & Young LLP (included on page II-7).
Exhibits incorporated by reference are listed on Pages II-2 and II-3 of Post-Effective Amendment No. 8 to this Registration Statement on Form S-4 of TruServ Corporation. 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. II-8 EX-4.A 2 BY-LAWS OF THE COMPANY 1 EXHIBIT 4-A BY-LAWS OF TRUSERV CORPORATION 2 BY-LAWS OF TRUSERV CORPORATION EFFECTIVE APRIL 7, 1998 ARTICLE I OFFICES SECTION 1. OFFICE IN DELAWARE. The registered office of the Corporation in the State of Delaware shall be located at No. 1209 Orange Street in the City of Wilmington, County of New Castle. SECTION 2. ADDITIONAL OFFICES. The principal office of the Corporation in the State of Illinois shall be located at 8600 West Bryn Mawr Avenue in the City of Chicago, County of Cook. The Corporation may have such other office or offices within or without the State of Illinois as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II PURPOSE SECTION 1. PRINCIPAL PURPOSE. The principal purposes of the Corporation are to benefit its members ("Members") through the manufacture, buying and selling of merchandise and supplies as are or may be handled by retail hardware, retail commercial and industrial supply, lumber and building supply, general rental and home and garden center Members; the rendering of services and furnishing of benefits as will be useful or beneficial to Members; the maintenance of offices, facilities and warehouses to offer services and benefits and to stock and deliver merchandise and supplies to Members; and to do any lawful act concerning any or all lawful business for which corporations may be incorporated under the Delaware General Corporation Law. ARTICLE III MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the election of directors or for any other purposes shall be held at such location, within or without the State of Delaware, as the Board of Directors may from time to time designate and shall be held at such time as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. SECTION 2. DATE OF ANNUAL MEETING. An annual meeting of stockholders shall be held on the second Tuesday of May in each year, if not a legal holiday, and if a legal holiday, then on the next business day following, at which the stockholders shall elect by ballot a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. NOTICE OF ANNUAL MEETING. Written notice of the annual meeting shall be served upon or mailed to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation, at least ten (10) days prior to the meeting, or such longer period of time as may be required by law. SECTION 4. LIST OF STOCKHOLDERS. At least ten (10) days before every election of directors, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, with the address of each and the number of voting shares held by each, shall be prepared by the secretary. Such list shall be open at the place where the election is to be held for said ten (10) days to the examination of any stockholder, and shall be produced and kept at the time and place of the election during the whole time thereof, and subject to the inspection of any stockholder who may be present. 3 SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by Certificate of Incorporation, may be called by the chairman of the board with the approval of a majority of the Board of Directors, or may be called by the chief executive officer or president, and shall be called by the chief executive officer, president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning at least ten percent (10%) of the shares of voting stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. SECTION 6. NOTICE OF SPECIAL MEETINGS. Notice of a special meeting of stockholders, stating the time and place and object thereof, shall be served upon or mailed, at least twenty (20) days before such meeting, to each stockholder entitled to vote thereat at such address as appears on the books of the Corporation. SECTION 7. BUSINESS AT SPECIAL MEETINGS. Business transacted at all special meetings shall be confined to the objects stated in the call. SECTION 8. QUORUM; ADJOURNMENTS. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statue, by the Certificate of Incorporation or by these By-Laws. If however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these By-Laws a different vote is required, in which case such express provision shall govern and control the decision of such question. SECTION 9. VOTING; NO PRE-EMPTIVE RIGHTS. At any meeting of the stockholders every stockholder of record having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three (3) years prior to said meeting, unless said instrument provides for a longer period. Each share of Class A Common Stock shall be entitled to one (1) vote for all purposes. No holder of any class of stock of the Corporation shall have any pre-emptive 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. ARTICLE IV DIRECTORS SECTION 1. NUMBER; TERM. The number of directors which shall constitute the whole board shall be not less than nine (9) nor more than seventeen (17). Two (2) of such directors shall be the Chief Executive Officer and the President of the Corporation until the Chief Executive Officer and President's positions are combined, whereupon the maximum number of directors shall be sixteen (16), including one management representative who shall be the person holding the position of President and Chief Executive Officer of the Corporation. The directors shall be divided into three (3) classes, each class to consist, as nearly as may be, of one-third of the number of directors then constituting the whole board. To be eligible to serve as a director, except for executive officers of the Corporation, a director must be a current Member of the Corporation or possess an ownership interest and actively participate in the business of a Member. 2 4 Within the limits above specified, the number of directors shall be determined by resolution of the Board of Directors. The directors shall be elected at the annual meeting of the stockholders to serve for a term of three (3) years, except as provided in section 4 of this Article, so that the term of office of one class of directors shall expire in each year, and each director shall hold office for the term elected and until a successor shall be elected and shall qualify, except in the event of death, resignation, disqualification or removal of a director where termination shall be immediate. Except in the case of executive officers of the Corporation, no person shall serve more than three (3) full three-year terms as a director of the Corporation. A director who serves as chairman for a period of three (3) years shall be eligible for one (1) additional three (3) year term. During this additional term, the director shall not be eligible to serve as the chairman. Except in the case of executive officers of the Corporation, persons over the age of seventy (70) shall not be eligible for election or re-election to the Board of Directors after the calendar year 1997. An executive officer of the Corporation shall be eligible for election or re-election or appointment as a director at any time without regard to the period of time during which such executive officer has previously served as a director. SECTION 2. CHAIRMAN OF THE BOARD. The chairman shall serve a maximum of six (6) terms as chairman. The chairman of the board shall preside at all meetings of the stockholders and directors and shall be ex-officio a member of all standing committees. The chairman shall perform all duties incident to the position of chairman of the board and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 3. PLACE OF MEETINGS. The directors may hold meetings and to the extent permitted by law keep the books of the Corporation outside of Delaware, at such places as they may from time to time determine. SECTION 4. VACANCIES. If any vacancies occur in the Board of Directors, caused by death, resignation, retirement, disqualification or removal from office of any directors or otherwise, or any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, may choose a successor, or fill the newly created directorship and the directors so chosen shall hold office for the remainder of the unexpired term. SECTION 5. GENERAL POWERS. The property and business of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by applicable law, the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. SECTION 6. FIRST MEETING. The first meeting of each newly elected board shall be held immediately following the annual meeting of stockholders, within or without the State of Delaware and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or they may meet at such place and time as shall be fixed by the consent in writing of all the directors. SECTION 7. REGULAR MEETING. Regular meetings of the board may be held without notice at such time and place either within or without the State of Delaware as shall from time to time be determined by the board. SECTION 8. SPECIAL MEETINGS. Special meetings of the board may be called by the chairman, chief executive officer or the president or any four (4) directors on five (5) days' notice to each director, either personally, by telephone, by any electronic communication, or by mail. Special meetings shall be called by the chairman, chief executive officer, president or secretary in like manner and with like notice on the written request of five (5) directors. Special board meetings may take place by any means through which all participating directors can hear each other, when properly called. SECTION 9. QUORUM. At all meetings of the board a majority of the directors then in office and entitled to vote shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 3 5 SECTION 10. AGENDAS AND MINUTES. Agendas for all regular meetings shall be mailed at least ten (10) days before the date of each such meeting. An item proposed by a Director for the agenda shall be delivered to the chairman's and secretary's offices fifteen (15) days before the meeting. Minutes of each meeting of the Board of Directors shall be mailed to all directors and officers no later than twenty-one (21) days following such meeting. They shall be attested to by the chairman and the secretary. SECTION 11. COMPENSATION. Directors shall not receive a salary for their services as directors, but, by resolution of the board a fixed fee and expenses of attendance will be paid; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 12. COMMITTEES. The Board of Directors may by resolution or resolutions passed by a majority of the entire board designate one (1) or more committees, each committee to consist of three (3) or more of the directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any committee. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. ARTICLE V NOTICES SECTION 1. FORM; DELIVERY. Whenever applicable law or the Certificate of Incorporation or these By-Laws requires notice to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by telephone, by any electronic communication, or by mail addressed to such director or stockholder at such address as appears on the books of the Corporation, and such notice shall be deemed to be given at the time when the same shall be thus delivered, conveyed by telephone call, entered into the electronic process or mailed. SECTION 2. WAIVER. Whenever any notice is required, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI OFFICERS SECTION 1. OFFICERS. The officers of the Corporation shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders and shall be a chief executive officer, a president, a vice president, a secretary and a treasurer. The Board of Directors may also choose additional vice presidents and one (1) or more assistant secretaries and assistant treasurers. Two (2) or more offices may be held by the same person. SECTION 2. OTHER OFFICERS AND AGENTS. The board may appoint such other officers as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Officers shall have power to sign certificates for shares of the Corporation, deeds, mortgages, bonds, contracts, loans, and any other instruments which the Board of Directors has authorized to be executed. SECTION 3. SALARIES. The salaries of the Chief Executive Officer and President of the Corporation shall be fixed by the Board of Directors. SECTION 4. TENURE AND REMOVAL. Any officer elected or appointed by the Board of Directors may be removed any time by the affirmative vote of a two-thirds (2/3) majority of the entire Board of Directors, with or 4 6 without cause, and without prejudice to any of such officer's contract rights. If the office of any officer becomes vacant, the vacancy may be filled by the Board of Directors. SECTION 5. CHIEF EXECUTIVE OFFICER. The chief executive officer shall perform all duties incident to the office of chief executive officer and such other duties as shall from time to time be assigned by the Board of Directors, and shall report to the Board of Directors on the affairs, performance and direction of the Company. SECTION 6. PRESIDENT. The President shall perform the duties and exercise the powers of president, and shall perform such other duties as the Board of Directors shall require. SECTION 7. VICE PRESIDENTS. The vice presidents in the order of their seniority shall perform the duties and exercise the powers of their offices, and shall perform such other duties as the Board of Directors shall require. SECTION 8. SECRETARY. The secretary shall attend all sessions of the board and all meetings of the stockholders and record and preserve all votes and the minutes of all proceedings for the corporation's records. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, chief executive officer, or president, under whose supervision the secretary shall act. SECTION 9. ASSISTANT SECRETARIES. The assistant secretaries in order of their seniority shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties as the Board of Directors shall require. SECTION 10. TREASURER. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The treasurer shall manage the funds of the Corporation, and shall report at the regular meetings of the Board of Directors, or whenever the board may require it, an account of all transactions as treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the treasurer shall give the Corporation a bond (which shall be renewed every six (6) years) in such sum and with such surety as shall be required for the full and faithful performance of the duties of office, and for restoration to the Corporation of all books, papers, checks, money and other property of whatever kind in the treasurer's possession or control belonging to the Corporation. SECTION 11. ASSISTANT TREASURERS. The assistant treasurers in the order of their seniority shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties as the Board of Directors shall prescribe. ARTICLE VII CERTIFICATES OF STOCK AND CERTAIN QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF CAPITAL STOCK SECTION 1. STOCK CERTIFICATES. The certificates of stock of the Corporation shall be consecutively numbered and shall be entered on the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by an officer. The designations, preferences and relative, participating, optional or other special rights of each class of stock and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the Corporation shall issue to represent such class of stock. If any stock certificate is signed (1) by a transfer agent or an assistant transfer agent or (2) by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such officer may be by facsimile. 5 7 SECTION 2. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or the owner's legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. TRANSFER OF SHARES. Subject to the qualifications, limitations and restrictions set forth in the Certificate of Incorporation and these By-Laws, upon surrender to the Corporation, or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 4. CLOSING OF TRANSFER BOOKS. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding fifty (50) days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding fifty (50) days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty (50) days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment or rights, or to exercise the rights in respect of any such change, conversion or exchange or capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, to receive payment of such dividend, to receive such allotment of rights, to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. SECTION 6. REDEMPTION OF STOCK. (a)MANDATORY 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 6 8 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. 7 9 (c) LEGAL AVAILABILITY OF FUNDS. Should the funds of the Corporation legally available for such purpose be insufficient for immediate payment of all or any part of the redemption price, an agreement for purchase and sale of the stock shall be executed by the Corporation and the Terminated Stockholder pursuant to which the Corporation shall unqualifiedly undertake to pay all or the balance, as the case may be, of the redemption price as soon as funds are legally available for that purpose and further that no dividends or Patronage Dividends shall be declared and paid or set apart for payment to Members until after payment to the Terminated Stockholder of the full purchase price for such stock. (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. ARTICLE VII MEMBER AGREEMENTS SECTION 1. CORPORATE PURPOSE. The Corporation shall be organized and operated on a cooperative basis for the benefit of the holders of shares of its Class A Common Stock (who are its Members). SECTION 2. GENERAL TERMS. As a condition of Membership every prospective Member shall enter into a contract (the "Member Agreement") with this Corporation, must be actively engaged in buying, selling and/or renting merchandise, supplies and/or services as are handled by retail hardware dealers and/or dealers in lumber and building supplies or dealers engaged in business as stated in Article II, Section 1 hereof, must complete and receive approval of a Member Agreement in form and manner adopted by the Board of Directors and must become and remain the owner of such number of shares of stock of the Company as shall be established from time to time by the Board of Directors or have subscribed to purchase such shares by whatever plan of payment may be authorized by the Board of Directors. The Member Agreement shall contain such terms, conditions and agreements as the officers of this Corporation shall deem necessary or desirable or as shall be required hereunder, pursuant to the Certificate of Incorporation or these By-Laws, or pursuant to direction of the Board of Directors. The Member Agreement shall specify the servicemark under which such member may conduct his or her business. The Member Agreement shall not be assignable, or transferable, in any manner whatsoever, without the express written consent of the Corporation and shall contain, at a minimum, the following terms and provisions: (a) An express consent by the Member to the tax treatment and effects specified in section 2(b) of Article IX hereof; (b) An express condition to operate the business at the specific location stated in the Member Agreement. Member must apply for and obtain Membership for each location at which such Member sells or rents hardware, lumber and building supplies, and/or other merchandise or services received from or through the Company; (c) A requirement that the Member notify the Corporation in writing immediately upon any change in business name, form of organization (proprietorship, partnership, corporation or whatever), ownership or control; 8 10 (d) A requirement that the Member purchase qualifying shares of the Corporation (as referred to in Article XII of these By-Laws) pursuant to a subscription agreement; (e) Automatic modification of the Member Agreement upon notice by the Corporation to the Member of any relevant changes in the Certificate of Incorporation, By-Laws, or by approval of the Board of Directors; and (f) Necessary conditions regarding use of the True Value, Servistar, Coast to Coast and any other Company owned trademarks which must be complied with. SECTION 3. TERMINATION. Each Member Agreement may be terminated as provided therein. SECTION 4. CHANGE IN FORM OF BUSINESS. In the event a Member changes a sole proprietorship, partnership or joint venture to a corporate form, where the Corporation has agreed to accept the corporate successor-in-interest as a Member, then the Member shall sell, transfer or otherwise assign to such successor-in-interest all shares of stock of this Corporation owned by such Member. Such shares shall remain subject to the Corporation's liens and right of setoff and all other rights provided for in the Certificate of Incorporation, By-Laws or Member Agreement. SECTION 5. MECHANICS OF SETOFF. Notes issued by the Corporation, whether issued incidental to the distribution of Patronage Dividend or to the redemption of Class B Common Stock, shall provide that if the Corporation exercises it right of setoff, the value of the note to be setoff against the holder's indebtedness to the Corporation or one of its subsidiaries shall be determined at the time of setoff as follows: The Corporation shall have the right to discount the note to its then current cash value, which shall be in 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 at the time of setoff at the Harris Trust and Savings Bank, Chicago, Illinois, plus two (2) percentage points. ARTICLE IX PATRONAGE DIVIDENDS SECTION 1. PAYMENT OF PATRONAGE DIVIDENDS. The Corporation shall distribute Patronage Dividends to Members annually on the basis of the volume of and margins applicable to merchandise and/or services purchased by each Member, which equal the excess (if any) of gross margins and other income from business done with or for Members, after deducting therefrom the following: (a) Expenses directly or indirectly related to such business; (b) Such reasonable reserves for necessary corporate purposes as may from time to time be provided by the Board of Directors for depreciation and obsolescence, state and federal taxes, bad debts, casualty losses, insurance and other corporate and operating charges and expenses, all established and computed in accordance with generally accepted accounting principles; (c) Such reasonable reserves for working capital necessary for the operation of the Corporation and for deficits arising from such operation, (including deficits from business other than business done with or for Members). Any amount set aside for reserves shall first be set aside from net earnings, if any, of the Corporation from business other than business done with or for Members, and only the excess shall be deducted from gross margins from business done with or for Members in the computation described above. The amounts set aside for reserves in any year from gross margins of the Corporation from business done with or for Members shall be allocated to the extent possible, to Members on the books of the Corporation on a patronage basis for that year, or, in lieu thereof, the books or records of the Corporation shall afford a means of doing so at any time, so that in the event of a distribution of amounts formerly carried in reserves each Member may receive, to the extent possible, Member's pro rata share thereof. 9 11 SECTION 2. (a) METHOD AND TIMING OF PAYMENT. The Patronage Dividend to which stockholder-Members become entitled for each fiscal year shall be distributed no later than the fifteenth day of the ninth month following such fiscal year. The Board of Directors may, in its discretion, determine to pay Patronage Dividends either all in a form that will be treated as a deductible qualified written notice of allocation within the meaning of section 1388(c) of the Internal Revenue Code of 1986, as amended (hereinafter referred to as the "IRC"), all in a form that will be treated as a nonqualified written notice of allocation within the meaning of section 1388(d) of the IRC, or part in qualified form and part in nonqualified form. At least twenty percent (20%) of any qualified payment of Patronage Dividends shall be paid in cash. Subject to this limitation with respect to qualified distributions, the Board of Directors may decide that the balance of any Patronage Dividend be paid, in whole or in part, in cash, property, Class B Common Stock, promissory notes or other evidences of indebtedness, or in any other form of written notice of allocation (within the meaning of section 1388(b) of the IRC). (b) TAX TREATMENT OF PATRONAGE DIVIDEND BY MEMBERS. Each person who is a Member of the Corporation on the effective date of this section 2(b) of this Article IX of the By-Laws and continues as a Member after such date and each person who becomes a Member of the Corporation after such effective date shall, by such act alone, consent and be deemed to have consented that the amount of any distributions with respect to the Member's patronage which are made in written notices of allocation (as defined in section 1388 of the IRC) and which are received by the Member from the Corporation, will be taken into account by the Member at their stated dollar amounts in the manner provided in section 1385(a) of the IRC in the taxable year in which such written notices of allocation are received by the Member. This consent, however, shall not extend to written notices of allocation received by the Member as part of a nonqualified payment of patronage which clearly indicate on their face that they are nonqualified. By way of illustration, the term "written notice of allocation" shall include such items as the Promissory Notes, the shares of Class B Common Stock, a notice or statement that such securities have been deposited with a bank or other qualified agent on behalf of the Member, a notice of credit to the account of the Member on the books of the Corporation (against stock subscription or any other indebtedness as the Corporation may elect) and such other forms of notice as the Board of Directors may determine, distributed by the Corporation in payment, or part payment of the Patronage Dividends. The stated dollar amount of the Promissory Notes is the principal amount thereof and the stated dollar amount of the shares of Class B Common Stock is the par value thereof. SECTION 3. ISSUANCE OF CLASS B COMMON STOCK. In order to ensure the Corporation's opportunity for healthy growth and expansion and in order to meet the corresponding needs for additional working capital the following plan for the investment by Members of part of the Patronage Dividend shall, subject to modification or termination by the Board of Directors, be in effect: (a) ANNUAL ISSUANCE. With respect to the Patronage Dividend payable for each fiscal year, the Corporation may pay each Member a portion of such Patronage Dividend, not to exceed two percent (2%) of Member's net purchases (computed to the nearest multiple of $100) from the Corporation during such fiscal year, in shares of Class B Common Stock of the Corporation at the par value thereof; provided, however, that at least twenty percent (20%) of such Member's Patronage Dividend shall be paid in money or by qualified check. SECTION 4. PROMISSORY NOTES. Subject only to the payment of at least twenty percent (20%) of each Member's annual Patronage Dividend in cash and distribution of Class B Common Stock as provided in section 3 of this Article IX, the Corporation may pay each Member all or any portion of the annual Patronage Dividend in Promissory Notes which shall bear interest at the rate from time to time fixed by the Board of Directors and shall mature at the time fixed by the Board of Directors not later than five (5) years from the date of issuance, and may be subordinated to any liabilities or obligations of the Corporation, existing, contingent or created after date of issuance. The Corporation shall have a lien upon and a right of setoff against any said Promissory Notes issued to a Member to secure payment of any indebtedness due the Corporation or any of its subsidiaries by the Member. 10 12 SECTION 5. HARDSHIP. If, upon application by a Member, the Board of Directors shall determine that payment of such Members' Patronage Dividend for any year by the method herein provided or prescribed by the Board of Directors imposed an undue hardship upon such Member, the Board of Directors, in its discretion and with due regard for the financial condition and requirements of the Corporation, may authorize and cause the payment of all or any additional part of such Patronage Dividends in cash. The Board of Directors may implement this provision by adopting hardship guidelines and delegating authority to an officer or officers. ARTICLE X GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, may be declared out of gross margins of the Corporation, other than gross margins from business done with or for members, after deducting therefrom all expenses directly or indirectly allocable thereto, by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, property, Promissory Notes, or shares of the capital stock, subject to the provisions of the Certificate of Incorporation. SECTION 2. ANNUAL STATEMENT. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and conditions of the Corporation. SECTION 3. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or as the Board of Directors may from time to time designate. SECTION 4. FISCAL YEAR. The fiscal year shall end on December 31 of each year. ARTICLE XI BY-LAW AMENDMENTS SECTION 1. BY-LAW AMENDMENTS. These By-Laws may be altered or repealed at any annual meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, provided notice of the proposed alteration or repeal be contained in the notice of such special meeting, or by the affirmative vote of two-thirds of the Board of Directors then in office at any regular meeting of the board or at any special meeting of the board if notice of the proposed alteration or repeal be contained in the notice of such special meeting; provided, however, that no change of time or place of the meeting for the election of directors shall be made within sixty (60) days next before the day on which such meeting is to be held, and that in case of any change of such time or place, notice thereof shall be given to each stockholder in person or by letter mailed to the stockholder's last known post office address at least twenty (20) days before the meeting is held. ARTICLE XII QUALIFYING SHARES OF CAPITAL STOCK SECTION 1. QUALIFYING SHARES. The unit ownership of Class A Common Stock shall consist of sixty (60) shares and no person shall be deemed to be a Stockholder of the Corporation or shall exercise any of the rights of a Stockholder until such person has become the holder of record of sixty (60) fully paid and nonassessable shares of said Class A Common Stock, $100 par value, for each store owned up to a maximum of 300 such shares, representing 5 or more stores. 11 13 ARTICLE XIII INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES SECTION 1. INDEMNIFICATION. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses for which such person has not otherwise been reimbursed (including attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner which was reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that the conduct in question was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which was reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding had reasonable cause to believe that the conduct in question was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses for which such person has not otherwise been reimbursed (including attorneys' fees and amounts paid in settlement) actually and reasonably incurred by such person in connection with the defense or settlement of such suit or action if such person acted in good faith and in a manner which was reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the Court of Chancery of Delaware or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Paragraphs 1(a) or (b) of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees), actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under Paragraphs 1(a) or (b) of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in such Paragraphs 1(a) or (b) of this Article. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, and a quorum of disinterested directors so directs, by independent legal counsel in written opinion, or (iii) by the stockholders. (e) Expenses incurred by defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation. 12 14 (f) The indemnification provided in this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, or of any other indemnification which may be granted to any person apart from this Article, both as to action in its official capacity and as to action in another capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against and incurred by such person in any such capacity, or arising out of its status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article. 13 EX-4.B 3 SPECIMEN CERTIFICATE OF CLASS A COMMON STOCK 1 EXHIBIT 4-B [NUMBER] [SHARES] [TRU*SERV CORPORATION LOGO] INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CLASS A COMMON STOCK THIS CERTIFIES THAT IS THE OWNER OF ------------------------------------------- - ------------------------------------------------------------------------------- full paid and non-assessable shares of the par value of $100 each of the Class A Common Stock of TRUSERV CORPORATION transferable on the books of the Company in persons 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. 19 . - ---------------------------------- ---------------------------------- Secretary Vice President 2 [Reverse of Class A Common Stock] 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 stockholders' 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 fall or decline to exercise its option and a 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; provided, however, that the stockholders shall approve any such provision in the By-Laws. 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) MANDATORY 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 BY BOARD. 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 shares of capital stock of the Corporation at a price equal to the par value of the capital stock. (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 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 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; and (ii) A note in face amount equal to the par value of Terminated Stockholder's 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 interest payable with the installments of principal from the date of the note at the rate per annum borne by the issue of this Corporation's Promissory (Subordinated) Notes ("Promissory Notes") distributed as Patronage Dividends most recently distributed prior to the date of the note. 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) LEGAL AVAILABILITY OF FUNDS. Should the funds of the Corporation legally available for such purpose be insufficient for immediate payment of all or any part of the redemption price, an agreement for purchase and sale of the stock shall be executed by the Corporation and the Terminated Stockholder pursuant to which the Corporation shall unqualifiedly undertake to pay all or the balance, as the case may be, of the redemption price as soon as funds are legally available for that purpose and further that no dividends or Patronage Dividends shall be declared and paid or set apart for payment to Members until after payment to the Terminated Stockholder of the full purchase price for such stock. (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. (e) 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 Terminated 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 Terminated 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. EX-4.C 4 SPECIMEN CERTIFICATE OF CLASS B COMMON STOCK 1 EXHIBIT 4-C [NUMBER] [SHARES] [TRU*SERV CORPORATION LOGO] INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE QUALIFIED CLASS B COMMON STOCK NON-VOTING THIS CERTIFIES THAT 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. 19 . - ------------------------ ------------------------------ SECRETARY VICE PRESIDENT 2 [Reverse of Class B Common Stock] 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 stockholders' 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 fall or decline to exercise its option and a 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) MANDATORY 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 stock- holder'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 of 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 of 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) LEGAL AVAILABILITY OF FUNDS. Should the funds of the Corporation legally available for such purpose be insufficient for immediate payment of all or any part of the redemption price, an agreement for purchase and sale of the stock shall be executed by the Corporation and the Terminated Stockholder pursuant to which the Corporation shall unqualifiedly undertake to pay all or the balance, as the case may be, of the redemption price as soon as funds are legally available for that purpose and further that no dividends or Patronage Dividends shall be declared and paid or set apart for payment to Members until after payment to the Terminated Stockholder of the full purchase price for such stock. (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 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 fact of the Certificate, in every particular, without alteration or enlargement, or any change whatever. -----END PRIVACY-ENHANCED MESSAGE-----