$97

Business Description

To simplify the language in this disclosure document, “we” or “United” means United Hardware Distributing Co. “You” or “Member” means the person or entity that signs a Membership Agreement with United. United is a Minnesota corporation that was incorporated on May 15, 1945. United conducts business using the name United Hardware Distributing Co. and does not conduct business using any other name. United has no parents or predecessors. United has no affiliates that offer franchises or provide products or services directly to United’s Members. The principal offices of United are located at 5005 Nathan Lane N, Plymouth, Minnesota 55442. Its mailing address is Box 410, Minneapolis, Minnesota 55440. Its telephone number is (763) 559-1800.

Prior Experience

United is engaged in the wholesale hardware distribution business. United has been engaged in its present business since its incorporation in 1945. It has granted memberships of the type provided under the Membership Agreement since 1954. United has not previously granted memberships or franchises in other lines of business.

Business Offered

United sells hardware and related products to customers, the majority of whom/which are retail hardware, home center or lumber dealers who own stock in United (“Members”). By entering into the Membership Agreement (attached as Exhibit “C”) with United, you will become a “Member” and will be granted the right to operate your business under the Hardware Hank®, Trustworthy® Hardware or Golden Rule® Lumber Center trade names. Memberships are granted to and may be held by individuals, partnerships, corporations, limited liability companies and limited liability partnerships. As of November 30, 2017, there were 522 active Members of United who/which operated 633 retail hardware stores, home centers or lumber yards. There were also 20 inactive Members who/which no longer operated a retail store and 126 associate members, the majority of whom/which are expected to become Members of United. Of the 522 active Members of United at November 30, 2017, 385 utilized the Hardware Hank® trade name in the operation of their businesses, 74 utilized the Trustworthy® Hardware trade name and 7 utilized the Golden Rule® Lumber Center trade name. The remaining 56 Members did not utilize a trade name offered by United.

Initial Fees

Initial Fees are fees or payments, or commitments to pay, for services or goods received from United before your business opens under the Membership Agreement, whether the fees are payable in a lump sum or in installments. You are required to sign the Membership Agreement in which you agree to purchase 69 Common Voting Shares of United for a total purchase price of $3,450.00. If the subscription price for these shares is not paid in full at the time you enter into the Membership Agreement, you must initially purchase a minimum of 10 shares at a purchase price of $50.00 per share; thereafter, an amount equal to 5% of the purchase price of merchandise you buy from United’s warehouse during each semi-monthly period is added to your semi-monthly statement until the remaining subscription price ($2,950.00) has been paid in full. No interest is chargeable by United on the unpaid balance of the subscription price, nor is any interest payable by United on amounts credited to your stock deposit account. You may pay the entire unpaid balance of the subscription price for Common Voting Shares at any time without penalty. The amount paid for the Common Voting Shares is refundable in the event of the termination of your Membership Agreement under United’s Bylaws. Upon expiration or termination of the Membership Agreement for any reason, you must offer to United all of the Common Voting Shares of United owned by you in accordance with the terms of the Membership Agreement and the Bylaws of United. United is given an irrevocable option from the date of expiration or termination of the Membership Agreement, upon demand, to purchase all of the Common Voting Shares of United owned by you, at the per share price paid by you. Payment for such shares is governed by United’s Bylaws. If you are opening a new business in conjunction with becoming a Member of United, you may choose to purchase some or all of your opening stock merchandise, equipment, fixtures, signage, computer and point-of-sale systems from or through United. If you choose to do so, you may be billed for such purchases prior to the opening date of your business. If merchandise is included in these purchases from United, you must also purchase Class A Shares of United in an amount equal to 2% of the value of the merchandise purchased (not including ship direct merchandise). See Items 6 and 7 for more information regarding this required purchase of Class A Shares of United. The amount paid for the Class A Shares is refundable in the event of termination under United’s Bylaws. A summary of the rights and provisions relating to United’s Common Voting Shares, Class A Shares, Redeemable Rebate Preference Shares and United’s rebate program is attached as Exhibit “E”. For a complete statement of such rights and provisions reference is made to the Articles of Incorporation and the Bylaws of United. Copies of these documents are on file at the offices of United and are provided to each Member. The estimated costs of these components of opening a new business, based on two typical store sizes, is included in the table in Item 7.

Financing

Initial Membership Fee. As described in Items 5 and 7 above, United will, at your option, defer payment of a portion of the Initial Membership Fee of $3,450.00. You must purchase a minimum of 10 shares at a purchase price of $50.00 per share at the time that you enter into the Membership Agreement. Thereafter, an amount equal to 5% of the purchase price of merchandise you buy from United’s warehouse during each semi-monthly period is added to your semi-monthly statement until the remainder of the subscription price ($2,950.00) has been paid in full. No interest is chargeable by United on the unpaid balance of the subscription price. You may pay the entire unpaid balance of the subscription price at any time without penalty. Open Account Financing. United sells certain merchandise, usually seasonal in nature, on terms where payment is due more than 90 days from the date of invoicing. No interest is charged on such extended dating if payment is made within the stated extended credit terms. There are no waivers of defenses or similar provisions in the Membership Agreement with respect to open account financing. United does not sell, assign or discount any evidences of open account financing indebtedness which it holds from its Members. You may be required to provide a letter of credit from your bank naming United as beneficiary in support of your open account financing. Capital Financing. United does not generally offer capital financing to its Members. However, United may offer limited financing for the purchase of point-of-sale computer systems and/or store signage and décor to a Member who is converting to United from another wholesaler. United may also provide financial assistance to a Member who is opening an additional store (ground up or acquisition of an existing store). In addition, United may provide financial assistance to a Member if, in the opinion of United’s Board of Directors, the availability of such financing is necessary to retain such Member as a member of United or to address competitive effects upon the Member or United. The terms and conditions of any such financing provided by United to a Member would be negotiated by United with the Member on a case-by-case basis. United would not normally seek terms that would include waivers of legal rights by the Member or which would bar the Member from asserting a defense against United. While terms vary, the usual interest rate charged on financing provided to a Member is comparable to that currently being paid by United on its bank borrowings. United has no intent to sell, assign or discount to any third party all or part of any financing arrangement which it may enter into with a Member. United does not receive payments of any kind for referring Members to financial institutions or in connection with the placement of financing with lenders. See, however, the membership relationship that United has with the National Cooperative Bank described below. United is a member of the National Cooperative Bank (“NCB”), a special-purpose bank headquartered in Washington, D.C. that makes loans to cooperative organizations and their members. As a result of United’s membership in NCB, Members of United are eligible to apply for direct loans from NCB in amounts typically ranging from $50,000.00 to $750,000.00. These loans are normally not made to new members of United for the purpose of financing the establishment of a new hardware store, home center or lumber yard or the purchase of an existing store. Instead, the loans are typically made to existing Members of United to finance business expansions; renovations and upgrades; additional locations; store equipment, fixtures and signage at existing facilities; and additional inventory related to expansions. Loans from NCB do not necessarily contain more favorable terms than loans from other banks or financial institutions and United does not endorse NCB over alternative sources of financing. NCB is not related to, or an affiliate of, United. As a member of NCB, United is eligible to receive patronage rebates from NCB based on NCB’s annual earnings. In prior years, United was required to guarantee a portion of each loan made by NCB to United’s Members but is no longer required to do so. United has listed the Hardware Hank® brand on the U.S. Small Business Administration (SBA) Franchise Directory (SBA Franchise Identifier Code: 50792). This listing enables Members to receive a streamlined review process on applications for SBA loans, which may result in reduced costs and processing time. Further information concerning the SBA Franchise Registry and SBA loans can be found at www.sba.gov/document/support--sba-franchisedirectory.

Franchisee Revenue and Profit

The financial performance representation presented in this Item 19 should not be considered as the actual, potential or probable results that you will realize from the operation of your store. United’s Members are not required to furnish their stores’ financial results to United. However, 94 Members with a common fiscal year ending on December 31st of each year utilize the optional retail accounting service offered by United for the preparation of their financial statements. See Item 11. The average and median results of those stores (“Reporting Stores”) for the fiscal year ended December 31, 2016 are the basis of this financial performance representation. United believes this financial performance representation has a reasonable basis, although United has not audited nor independently verified the information furnished by the Reporting Stores. The Reporting Stores represent 14.7% of the total number of Member stores operating as of December 31, 2016, which was 640 stores. The Reporting Stores range in size from small to large, and are located in urban, suburban and rural locations. The Reporting Stores were all open and operating during the entire fiscal year reported. The average number of years each Reporting Store had been operated by a Member of United, as of the end of its respective fiscal year, was approximately 20 years, ranging from 4 to 115 years. All of the Reporting Stores were still operating as of December 31, 2017 and all were Hardware Hank® stores. When reviewing the financial performance representation, please understand that your store will be of a single size and in a specific location and, as such, will not be directly comparable to the combined average and median results from a group of other stores. In addition, if your store is a new store, its financial results may differ significantly from the results of stores that have been open and operating for a number of years. Some outlets have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much. Written substantiation for the financial performance representation will be made available to you at United’s office in Plymouth, Minnesota upon reasonable request. United has not suggested, and it certainly cannot guarantee, that you will succeed in the operation of your hardware store, home center or lumber yard since the most important factors in the success of any store, home center or lumber yard, including the one you will operate, are your personal business, marketing, management, judgment and other skills and your willingness to work hard. Actual results vary from location to location, area to area and market to market, and United cannot estimate or project the results for any particular store, home center or lumber yard. You are responsible for developing your own business plan for your store, including budgets for investments in inventory, leasehold improvements and fixtures and equipment, forecasts of sales and operating expenses and other elements appropriate to your particular circumstances. We encourage you to consult with your own financial, business and legal advisors, who can assist you in forecasting sales, estimating expenses and preparing budgets for your store. In developing your business plan, you should allow for changes in your income, expenses or both that may result from the operation of your store during periods of, or in geographic areas suffering from, economic downturn, inflation, higher than normal levels of unemployment or other negative economic factors. Other than the preceding financial performance representation, United does not make any financial performance representations. United also does not authorize its employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, United may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to United’s management by contacting Steven Draeger, President and CEO, United Hardware Distributing Co., 5005 Nathan Lane N, Plymouth, MN 55442, Telephone (763) 559-1800, the Federal Trade Commission, and the appropriate state regulatory agencies.