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Distributor Franchise Agreement

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ACE HARDWARE CORPORATION

NATIONAL SUPPLY NETWORK

DISTRIBUTOR FRANCHISE AGREEMENT


TABLE OF CONTENTS

PARAGRAPH

1. DEFINITIONS AND BACKGROUND
2. GRANT OF FRANCHISE
3. DURATION AND RENEWAL
4. LOCATION AND DEVELOPMENT OF FRANCHISED BUSINESS
5. TRAINING AND SUPPORT SERVICES
6. MARKS
7. PROPRIETARY INFORMATION
8. RELATIONSHIP OF THE PARTIES
9. FRANCHISE AND OTHER FEES
10. PURCHASES OF PRODUCT
11. OPERATING STANDARDS
12. ADVERTISING 13. TRANSFER
14. TERMINATION OF THIS AGREEMENT
15. RIGHTS OF THE COMPANY AND OBLIGATIONS OF DISTRIBUTOR UPON TERMINATION OR EXPIRATION OF THE FRANCHISE
16. ENFORCEMENT
17. NOTICES AND PAYMENTS
18. PERSONAL GUARANTY


RIDERS:
A. TRADE NAME AND ADDRESS OF DISTRIBUTOR'S BUSINESS

B. GUARANTY AND ASSUMPTION OF OBLIGATIONS ACE HARDWARE CORPORATION NATIONAL SUPPLY NETWORK
DISTRIBUTOR FRANCHISE AGREEMENT


This Franchise Agreement, made this day of , , by and between ACE HARDWARE CORPORATION, a Delaware corporation having its principal place of business at 2200 Kensington Court, Oak Brook, Illinois 60523 (the "Company"), and , having its principal place of business at ____ ("Distributor").


1. DEFINITIONS AND BACKGROUND:

a. The Company, as the result of the expenditure of time, skill, effort and money has developed and owns a proprietary System ("System") identified by certain Marks (as hereinafter defined) relating to a commercial/industrial distribution system for the Company's non-private labeled commercial/industrial products (the "Product" or "Products"). The System includes, but is not limited to, inventory and end user consumer supply and marketing support.

b. The Company, as a wholesaler of the Products, wishes to develop a distributorship relationship with existing businesses ("Distributors") pursuant to which the Distributors will purchase from the Company an ongoing volume of Products, for resale to the Distributors' commercial/industrial customers, including, but not limited to, industrial plants, government, and private institutions, building owners, contractors, equipment manufacturers, and a wide variety of users of "MRO" (maintenance, repair and operations) materials.

c. The Company has a separate line of business, which is the establishment of "Ace Hardware" retail stores, supplying consumer (as distinguished from commercial or industrial) hardware products. Those retail stores are owned by Member/Owners of the Company, which is a cooperative. The Members do business as "Ace Hardware" and they sell certain Ace brand merchandise and products bearing the Ace trademarks.

d. The distinguishing characteristics of the System include, but are not limited to, the National Supply Network confidential and proprietary information ("Proprietary Information"); techniques for merchandising and marketing of products and services and end customer support tools, all of which Company may, but is not required to, periodically change, improve and further develop.

e. On March 1, 2002 and March 29, 2002, the Company filed applications to register the marks "National Supply Network" and "NSN," respectively, on the Principal Register or Supplemental Register of the United States Patent and Trademark Office as part of the System ("Marks").

f. The Company continues to develop, use and control the Marks for use by itself, its affiliates, subsidiaries, dealers, licensees and franchisees in order to represent the System's high standards of operations, quality, products, appearance and service.

g. The Company grants to certain qualified persons franchises to be an authorized National Supply Network Distributor, providing non-private labeled commercial/industrial products and services furnished by the Company to sell in their business ("Franchised Business") using the System and the Marks.

h. Distributor has an existing supply business under the trade name described on Rider "A" of this Agreement, and located at the address described on Rider "A."

i. Distributor desires to be an authorized National Supply Network Distributor under the Company's System and to obtain a franchise from the Company for that purpose, as well as to receive the support services provided by the Company.

j. Distributor understands and acknowledges the importance of the Company's high standards of quality and service and the necessity of being an authorized National Supply Network Distributor in conformity with the Company's standards and specifications.

k. The Company expressly disclaims the making of and Distributor acknowledges that Distributor has not received or relied upon, any warranty or guaranty, express or implied, as to the revenues, profits or success of the business venture contemplated by this Agreement.

l. Distributor acknowledges that it has no knowledge of any representations made by Company, its subsidiaries and their respective officers, directors, shareholders, employees or agents that are contrary to the statements made in Company's Uniform Franchise Offering Circular or to the terms and provisions contained in this Agreement.

m. Distributor acknowledges that it has read this Agreement and the Company's Uniform Franchise Offering Circular; and that it understands and accepts the terms, conditions and covenants contained in this Agreement as being reasonably necessary to maintain the Company's high standards of quality and service and thereby to protect and preserve the goodwill of the Marks and the System. Distributor acknowledges that it has conducted an independent investigation of the business venture contemplated by this Agreement and recognizes that the nature of the business or its market area are subject to change over time, that the Distributor's investment involves business risks, and that the success of the venture is dependent upon numerous factors including, but not limited to, the business abilities of Distributor, demographics and/or economic factors, such as competition from other similar businesses.

n. Distributor further represents to the Company, as an inducement to its entry into this Agreement, that Distributor has made no misrepresentations in obtaining the franchise.
2. GRANT OF FRANCHISE .

a. Grant . Upon and subject to the provisions of this Agreement, the Company hereby grants to Distributor a franchise ("Franchise") to be an authorized National Supply Network Distributor of Products and MRO sold to Distributor by the Company, at the location identified on Rider "A," and to use the Marks and the System in the operation thereof. Termination or expiration of this Agreement shall constitute a termination or expiration of the Franchise. Distributor agrees that it will at all times faithfully, honestly and diligently perform its obligations hereunder, and that it will continuously exert its best efforts to promote and enhance the business of the Franchise and the goodwill of the Marks.

b. Distributor's Existing Business . Distributor represents and warrants to the Company that Distributor operates an existing business primarily engaged in the resale of merchandise to commercial/industrial accounts at the location identified on Rider "A," and further represents, as an inducement to the Company to enter into this Agreement, that Distributor's purchases of Product from the Company are either for its own consumption in the operation of such business or for rental or resale by Distributor to its commercial/industrial customers in connection with Distributor's operation of such business.

c. Nonexclusivity . Distributor acknowledges that nothing contained in this Agreement shall be deemed to grant Distributor any exclusive territory or exclusive rights to sell or distribute Products purchased from the Company. The Company expressly reserves the right to enter into agreements for the licensing of its Marks or for the granting of other franchises to others to own or operate outlets which offer products or services similar to those of Distributor at any locations and within any proximity to the Distributor's location set forth on Rider "A" as the Company, in the exercise of its sole and exclusive discretion, shall determine. Nothing in this Agreement shall limit, deny or otherwise restrict the right of either party to accept or establish additional accounts, or to engage in any business activities whatsoever, even if those accounts or business activities involve direct competition between them or their respective other suppliers or customers.

d. Rights Reserved By the Company . Except as otherwise provided herein, the Company (on behalf of itself and its subsidiaries) retains the right, in its sole discretion and without granting any rights to Distributor:

i. to grant other persons the right to operate, NSN Distributorships at such locations and on such conditions as the Company deems appropriate; and

ii. to sell the Products and services offered to Distributor under the Marks or other trademarks, service marks and commercial symbols through similar or dissimilar channels of distribution and pursuant to such conditions as the Company deems appropriate.

3. DURATION AND RENEWAL .

a. Duration . The duration of this Agreement (the "Duration") shall commence on the date of this Agreement and expire five (5) years from such date, unless sooner terminated as provided in Paragraph 14.

b. Renewal .

i. Distributor may, at its option, renew the Franchise for an unlimited number of additional Durations, each of one (1) year, provided that:

(1) Distributor has given the Company written notice of its election to renew not less than six (6) months nor more than twelve (12) months prior to the end of the then-current Duration;

(2) Distributor has substantially complied with all the provisions of this Agreement and has met the operating and quality standards and procedures prescribed by the Company for National Supply Network Distributors during the Duration; and

(3) Distributor has reimbursed the Company its out-of-pocket costs incurred in connection with the renewal.

ii. Renewal of this Agreement shall be effectuated by the execution by the Company and Distributor of the then current form of standard franchise agreement and all other agreements and legal instruments and documents then customarily used by the Company in the granting of Franchises for National Supply Network Distributors, which may contain substantially different provisions from this Agreement, including higher or lower fees.

iii. Notwithstanding anything to the contrary contained in this Agreement, in the event that Distributor fails to give the Company notice at least six (6) months prior to the expiration date of this Agreement, or of any additional Duration, of its intent to not renew the Franchise, the Duration of this Agreement shall automatically renew on its expiration date ("Renewal Date"), for a renewal Duration of one (1) year.

iv. The Distributor's right to renew this Agreement shall not be interpreted to supersede or otherwise limit the Company's right to terminate under Paragraphs 14.b, 14.c., 14.d., and/or 14.e.

4. LOCATION AND DEVELOPMENT OF FRANCHISED BUSINESS .

Distributor may operate the Franchised Business only at the location specified in Rider "A" to this Agreement and may not relocate the Franchised Business except with the Company's prior written consent.

5. TRAINING AND SUPPORT SERVICES .

a. Training . The Company may, but is not required to, furnish annually, a three- day training program entitled "NSN University," to be held in Oak Brook, Illinois, Pittsburgh, Pennsylvania, or such other location designated by the Company. Attendance by at least one person representing Distributor is highly recommended but not mandatory.

b. Training Fee . The fee for the training program shall be at the Company's then- current fee schedule. Distributor is responsible for the attendees' own travel, lodging, meals, salary, and other expenses incurred during the training program.

c. Optional Supplemental Training . The Company may make available professional sales training from an outside consultant. The supplemental training is optional, and the Company will charge its then-current fee for such training.

d. Support Services . The Company may make available to Distributor the following: (1) a database of end user product catalogs, line cards and other marketing material; (2) marketing analysis to enhance the Distributors' position in the marketplace; (3) E-commerce tool to assist in advancing the Distributors' market position; (4) web site development; (5) On Line Custom Catalogs to connect the Distributors' products and services to end user accounts; and (6) business planning support tools.

6. MARKS .

a. Ownership and Goodwill of Marks . Distributor acknowledges that the Company owns the Marks. Distributor's right to use the Marks is derived solely from this Agreement and is limited to the conduct of business pursuant to and in compliance with this Agreement and all applicable specifications, standards and operating procedures prescribed by the Company from time to time during the Duration. Any unauthorized use of the Marks by Distributor shall constitute an infringement of the rights of the Company in and to the Marks. Distributor agrees that all usage of the Marks by Distributor and any goodwill established thereby shall inure to the exclusive benefit of the Company, and Distributor acknowledges that this Agreement does not confer any goodwill or other interests in the Marks upon Distributor. Distributor shall not, at any time during the Duration of this Agreement or after its termination or expiration, contest the validity or ownership of any of the Marks or assist others in contesting the validity or ownership of any of the Marks. All provisions of this Agreement applicable to the Marks shall apply to any additional trademarks, service marks, logo forms and commercial symbols hereafter authorized for use by and licensed to Distributor pursuant to this Agreement.

b. Limitations on Use of Marks . Distributor agrees to use the Marks to identify itself as an authorized Distributor of the Company in the manner prescribed by the Company. However, Distributor shall continue to operate its overall business under the trade name described on Rider "A." Distributor shall not use the Marks as part of any corporate or trade name or with any prefix, suffix or other modifying words, nicknames, terms, designs or symbols, or in any modified form (including, without limitation, any local or special adaptations or artistic variations of any of the Marks). Distributor may not use any Mark in connection with the sale of any product or service that the Company deems offensive, or in any other manner not expressly authorized in writing by the Company. However, Distributor will have the right to use the Company's Marks in conjunction with and adjacent to Distributor's business name and/or mark, consistent with the examples set forth in the Orientation Guide. Distributor shall not register the Marks for its own account on the Internet or any other computer on-line service, create or maintain its own web site on the Internet using the Marks, or use the Marks on the Internet in any other manner, other than as expressly permitted in writing by the Company, and except for website materials furnished Distributor by the Company. Distributor agrees to display the Marks in the manner prescribed by the Company on signs, forms, and other materials and articles. Distributor may not use "National Supply Network" "NSN," or a derivative thereof in its corporate, assumed, or other formal name. Distributor must obtain the Company's prior written approval of any items bearing the Marks or logos that are from suppliers other than the Company.

c. Notification of Infringements and Claims . Distributor shall notify the Company immediately in writing of any apparent infringement of or challenge to Distributor's use of any Mark, or claim by any person other than the Company or its affiliates of any rights in any Mark or any similar trade name, trademark, or service mark of which Distributor becomes aware. Distributor shall not communicate with any person other than the Company and its counsel in connection with any such infringement, challenge or claim. The Company has sole discretion to take such action as it deems appropriate and to control exclusively any litigation, U. S. Patent and Trademark Office proceeding or any other administrative proceeding arising out of any infringement, challenge or claim or otherwise relating to any Mark. Distributor agrees to execute any and all instruments and documents, render such assistance and do such acts and things as may, in the opinion of counsel for the Company, be necessary or advisable to protect and maintain the interests of the Company in any such litigation, U.S. Patent and Trademark Office proceeding or other administrative proceedings or otherwise to protect and maintain the interests of the Company in the Marks.

d. Discontinuance of Use of Marks . If it becomes advisable at any time, in the Company's sole discretion, for the Company to modify or discontinue use of any Mark, and/or use one or more substitute trademarks or service marks, Distributor agrees to comply therewith, by changing all items bearing the Marks, including but not limited to signs, letterhead, and other tangible items bearing the Marks, within a reasonable time after notice thereof by the Company, at Distributor's own expense.

7. PROPRIETARY INFORMATION .

a. The Proprietary Information . The Company possesses certain proprietary information (the "Proprietary Information"), consisting of the Orientation Guide, price lists, pricing information, catalogs, order forms, product databases, quoting tools and procedures, methods, techniques, formats, specifications, procedures, information, systems, and knowledge of and experience in the operation and marketing of National Supply Network Distributors. Any and all other information, processes or techniques which the Company designates as confidential or proprietary shall be deemed Proprietary Information.

b. Limitations on Distributor's Use . Distributor acknowledges and agrees that it will not acquire any interest in the Proprietary Information, other than the right to utilize the same in the operation of the Franchised Business pursuant to this Agreement and in accordance with the terms of this Agreement or other agreements between Distributor and the Company, and that the use or duplication of the Proprietary Information in any other business would constitute an unfair method of competition. Distributor hereby agrees that Distributor and its affiliates, officers, directors, partners and all owners of any interest in Distributor and/or the Franchised Business will at no time display, disclose, or use any Proprietary Information for any purpose other than its transactions with the Company, or as otherwise specifically required by law or authorized in writing by the Company.

8. RELATIONSHIP OF THE PARTIES .

a. Independent Contractors . It is understood and agreed by the parties that this Agreement does not create a fiduciary relationship between them, that the Company and Distributor shall be independent contractors and that nothing in this Agreement is intended to make either party a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of the other for any purpose.

b. Negation of Liability . Except for any express purchasing arrangements made between the Company, Distributor, and certain suppliers, neither the Company nor Distributor shall make any express or implied agreements or representations or incur any debt in the name of or on behalf of the other or represent that their relationship is other than that of franchisor/franchisee or seller/purchaser. Neither the Company nor Distributor shall be obligated by or have any liability under any agreements or representations made by the other. The Company shall have no liability or obligation for any damages to any person or property directly or indirectly arising out of the development or operation of the Distributor's Franchised Business. The Company shall have no liability for any sales, use, excise, gross receipts, property or other taxes of Distributor or its Franchised Business.

c. Indemnification . Distributor agrees to assume full responsibility for and to indemnify and hold the Company harmless from and against any and all claims or liabilities asserted by or ag
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