September 25, 2000
Ace Hardware Corporation
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Ladies and Gentlemen:
Reference is made to (a) the Note Purchase and Private
Shelf Agreement dated as of September 27, 1991 (the "1991
Note Agreement") between Ace Hardware Corporation (the
"Company") and The Prudential Insurance Company of America
("Prudential") pursuant to which the Company issued and sold
and Prudential purchased the Company's 8.47% Senior Notes in
the original principal amount of $20,000,000 due July 1,
2003 and (b) the Amended and Restated Note Purchase and
Private Shelf Agreement dated as of September 22, 1993, as
amended and restated on August 23, 1996 (the "1996 Note
Agreement", together with the 1991 Note Agreement, the "Note
Agreements") between the Company and Prudential pursuant to
which the Company issued and sold and Prudential purchased
the Company's (i) 6.47% Senior Series A Notes in the
original principal amount of $30,000,000 due June 22, 2008;
(ii) 7.49% Senior Series B Notes in the original principal
amount of $20,000,000 due June 15, 2011; (iii) 7.55% Senior
Series C Notes in the original principal amount of
$20,000,00, due March 25, 2009 and; (iv) 6.61% Senior Series
D Notes in the original principal amount of $20,000,000 due
February 9, 2010. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to such
terms in the 1996 Note Agreement.
Pursuant to the request of the Company and in
accordance with the provisions of paragraph 11C of each Note
Agreement, the parties hereto agree as follows:
SECTION 1. Amendments to 1996 Note Agreement. From
and after the date this letter becomes effective in
accordance with its terms, the 1996 Note Agreement is
amended as follows:
1.1 Paragraph 6A of the 1996 Note Agreement is
reinstated and shall read as follows:
"6A. Fixed Charge Ratio. The Company will not permit,
on the last day of each fiscal quarter of the Company,
the Fixed Charge Coverage Ratio for the four fiscal
quarter period ending on such date to be less than 1.75
to 1.0."
1.2 Paragraph 6B(2) of the 1996 Note Agreement is
amended by deleting subclauses (iv) and (v) in their
respective entireties and substituting therefor the
following:
"(iv) additional Debt of the Company provided that the
ratio on a consolidated basis of (i) Debt to (ii)
EBITDA as of the last day of each fiscal quarter for
the four fiscal quarter period ending on such date
shall not exceed 3.0 to 1.0 on or before the last day
of the fiscal year of the Company for fiscal year 2002
and 2.5 to 1.0 at any time thereafter (the "Maximum
Debt Ratio"). For purposes of this paragraph 6B(2),
Debt shall not include the indebtedness of any
partnership or joint venture of which the Company or
any Subsidiary is a partner or member and which
indebtedness is consolidated with the indebtedness of
the Company under generally accepted accounting
principles if and only if such indebtedness is non-
recourse to the Company or such Subsidiary.
Notwithstanding the foregoing, upon the Company's
written notice to Prudential that the Revolving Credit
Facility has been amended to increase the permissible
Maximum Debt Ratio applicable thereunder after December
31, 2002 from 2.5 to 1.0 to a level equal to or less
than 3.0 to 1.0, then the Maximum Debt Ratio set forth
in this Paragraph 6B(2) shall be automatically amended
accordingly, provided that no Default or Event of
Default shall have occurred or be continuing at such
time or after giving effect to such amended Maximum
Debt Ratio."
1.3 Paragraph 6B(4) of the 1996 Note Agreement is
amended (a) to insert the following language in the
introductory paragraph immediately after the phrase "36-
month rolling period": "(excluding items described in
clauses (ii), (iii) and (v) below and Excluded Asset
Dispositions)"; and (b) to delete the word "and" at the end
of clause (iii), insert "; and" at the end of clause (iv)
and insert the following clause (v) immediately thereafter:
"(v) the Company or any Subsidiary may transfer an
interest in accounts or notes receivable on a non-
recourse or a limited recourse basis, provided, that
the transfer qualifies as a sale under generally
accepted accounting principles and that the amount of
the financing does not exceed $200,000,000 at any one
time outstanding."
1.4 Paragraph 6B(5) of the 1996 Note Agreement is
amended to delete the figure "5%" therein and replace it
with "10%".
1.5 Paragraph 6E of the 1996 Note Agreement is amended
to delete the figure "$5,000,000" therein and replace it
with "$10,000,000."
1.6 Paragraph 6 of the 1996 Note Agreement is amended
to add a new paragraph 6G as follows:
"6G. Most Favored Lender. Unless otherwise specified
in writing by the Required Holder(s), the Company will
not, and will not permit any Subsidiary to, agree to,
with or for the benefit of the holder(s) of any other
Debt of the Company or any Subsidiary or with or for
the benefit of Persons with commitments to provide
loans or other financial accommodations to the Company
or any Subsidiary, any financial or restrictive
covenants or events of default which are more
restrictive than, or in addition to, the financial or
negative covenants or Events of Default contained in
this Agreement, unless the Company has entered into, or
has caused such Subsidiary to enter into, an agreement
with the holders of the Notes, in form and substance
reasonably satisfactory to the holders of the Notes,
whereby such financial or negative covenants or events
of default are added to this Agreement for the benefit
of the Notes, and any conditions precedent to the
effectiveness of such agreement have been satisfied."
1.7 Paragraph 7A of the 1996 Note Agreement is amended
to (a) delete the figure "$3,000,000" appearing in subclause
(iii) and replace it with the figure "$25,000,000" and (b)
delete the figure "$10,000,000" appearing in subclause
(xiii) and replace it with the figure "$25,000,000".
1.8 Paragraph 8E of the 1996 Note Agreement is amended
and restated in its entirety as follows:
"8E. Environmental Compliance. The Company and its
Subsidiaries and all of their respective properties and
facilities have complied at all times and in all respects
with all federal, state, local and regional statutes, laws,
ordinances and judicial and administrative orders,
judgments, rulings and regulations relating to protection of
the environment except, in any such case, where failure to
comply could not reasonably be expected to have a material
adverse effect on the business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries
taken as a whole."
1.9 Paragraph 10B of the 1996 Note Agreement is
amended to add the following definitions in appropriate
alphabetical order therein:
"'Excluded Asset Dispositions' means the Company's (a)
fee simple sale or sale and leaseback pursuant to an
operating lease of (i) the Company's headquarters,
consisting of two buildings with a common address of ▇▇▇▇
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▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ and (ii) retail support centers located
in Hanover, Maryland, Huntersville, North Carolina and
Rocklin, California only; (b) sale or other disposition of
its stock ownership in OurHouse, Inc.; (c) sales of retail
locations owned by the Company if and only if the cash
proceeds of such sale received by the Company equal or
exceed the Company's net investment in each such sold retail
location; and (d) sales or transfers of its entire ownership
position in any joint venture in which the Company is an
investor if and only if the cash proceeds of such sale
received by the Company equal or exceed the Company's net
investment in such joint venture.
'Fixed Charge Coverage Ratio' shall mean, for the
period of determination, the ratio of (a) its Adjusted Net
Earnings for such period to (b) the sum of interest expense,
lease expense and scheduled principal payments made by the
Company and its Subsidiaries on a consolidated basis on all
Debt and Patronage Indebtedness for such period, all
determined in accordance with generally accepted accounting
principles.
'Maximum Debt Ratio' shall have the meaning set forth
in paragraph 6B(2).
'Revolving Credit Facility' shall mean the Revolving
Credit Facility Agreement dated as of May 2, 2000 between
the Company, The Northern Trust Company, as Administrative
Agent and the lenders therein."
SECTION 2. Amendments to 1991 Note Agreement. The
covenants set forth in paragraphs 5 and 6 and the Events of
Default set forth in paragraph 7 of the 1991 Note Agreement
are hereby amended in their entireties so as to read as set
forth, respectively, in paragraphs 5, 6 and 7 of the 1996
Note Agreement, as amended hereby, shall be deemed to have
the respective meanings ascribed thereto in, and to refer to
paragraphs in the 1996 Note Agreement; provided, however,
that any references to a "Note" or "Notes" in the 1991 Note
Agreement, as amended hereby, shall mean the Notes issued
under and pursuant to the 1991 Note Agreement. No
termination of the 1996 Note Agreement in whole or in part
or any modification thereof, shall affect the continued
applicability of this paragraph and the covenants referred
to herein to the 1991 Note Agreement.
SECTION 3. Condition Precedent. This letter shall
become effective as of the date hereof upon the return by
the Company to Prudential of a counterpart hereof duly
executed by the Company. This letter should be returned to:
Prudential Capital Group, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
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SECTION 4. Reference to and Effect on Note
Agreements. Upon the effectiveness of this letter, each
reference to either Note Agreement in any other document,
instrument or agreement shall mean and be a reference to
such Note Agreement as modified by this letter. Except as
specifically set forth in Section 1 and 2 hereof, each Note
Agreement shall remain in full force and effect and is
hereby ratified and confirmed in all respects.
SECTION 5. Governing Law. THIS LETTER SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF LILLINOIS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS OF SUCH STATE.
SECTION 6. Counterparts; Section Titles. This
letter may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall
constitute but one and the same instrument. The section
titles contained in this letter are and shall be without
substance, meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:_______________________________
Vice President
Agreed and accepted:
ACE HARDWARE CORPORATION
By:__SANDRA K. BRANDT_____________
Title: Treasurer