$285

Business Description

We are a Delaware corporation that was incorporated on June 16, 1964. In 1972, through a corporate merger,we succeeded to the business of an illinois corporation organized in 1928 that was also known as Ace Hardware Corporation. We became are tailer owned cooperative in 1976. Our principal business address is 2200 Kensington Court, Oak Brook, illinois 60523-2103. We conduct business under our corporate name. Ace Hardware Corporation, and also under the assumed names "Ace Trading Co" AHC Trucking Co. and AHC Logistics". Our agent for service of process is identified in Exhibit CC.

Prior Experience

We are a wholesaler of hardware and related products. We have been engaged in the wholesale hardware business and have offered dealerships to retailers of hardware and related items since the organization in Illinois of the former Ace Hardware Corporation in 1928. From 2002 though Septemher of 2005 we offered franchises under the name "National Supply Network or "NSN."Lhis franchise program was offered to general line, independently owned commercial industrial distributors who served the needs ofend user commercial industrial customers. However, as of the date of this disclosure document, there are no franchisees under "National Supply Network."

Business Offered

Our other business activities include contract carriage trucking services under the assumed name "AHC Trucking Co." and freight handling services under the assumed name "AHC Logistics." We buy imported merchandise under the assumed name "Ace Trading Co." Ace Retail Holdings LLC is a holding company for our subsidiary,WHl Holding Corp. , which owns Westlake Hardware, Inc. ("Westlake"). Westlakehas been engaged in the business of owning and operating Ace stores in the United States since December 2012. (See Item 20 for information regarding the Westlake stores.) in addition. Ace Retail Holdings LLC is a minority shareholder of ACO, lnc., an Ace cooperative member operating 48 stores in Michigan.

Initial Fees

With the submission of your membership application for a new Ace location, you must pay a processing fee of $5,000. If we approve your membership application, this processing fee is non-refundable. If we do not approve your membership. This processing fee is used primarily to cover the cost of a store information kit and our costs of processing membership applications If we approve your membership, you must aiso immediately pay a $5000 stock subscription fee.The proceeds from these sales of shares of our stock are used for general working capital purposes If you are a veteran or on active duty and qualify for the Veterans Incentive Program, as described below, we will provide you with a discount of $5,000, which we will apply to the application fee for any new Ace Hardware store. TheVeterans' Incentive Program is available to ail individuals who either have received an honorable discharge from one ofthe U.S. Armed Porces(i.e.,Army,Navy,AirForce, Coast Guard or Marine Corps.) or are currently serving in one of the US. Armed Forces and are eligible to receive an honorable discharge. Any veteran choosing to take advantage of TheVeteran's Incentive Program will be required to submit their honorable discharge papers (DD214) at the time they suhmit their application. If you are a legal entity and not an individual, an individual meeting these eligibility requirements must own at least of tbe entity. lf your application is not approved, you are not entitled to the incentive and you are not entitled to receive cash in lieu ofthe incentive, for any reason. We reserve tbe right to extend, change or discontinue the Veterans Incentive Program at any time. The decision rests with you to purchase some or all ofyourstore equipment, merchandise and services from us. See Item 7 for tbe ranges for initial investment The cost of opening inventory that may be purchased from us is estimated to be between $150,000 and $600,000 for startup business. The cost of opening/replacement inventory foraconversion is estimated to be between $0 and S600,000. Ifyou participate in one ofour new store incentive programs, these costs are payable in installments(see ltem 10),otherwise they are payable in a lump sum The cost ofinterior decor is estimated to cost between $7,000 and $14,000 for both a startup business and conversion. The cost of exterior signage is estimated to cost between $2,500 and S25,000 for both a start up business and conversion. These expenditures are nonrefrmdahle and paid in a lump sum If you decide to purchase insurance from our subsidiary,Ace Insurance Agency,lnc.,we estimate the cost to be between $2,500 and $30,000. You will pay these costs in installments withadeposit equal to two months and then 10 additional payments. These expenditures are nonrefundable. If you areanew member opening your first Ace store, you will also purchase New Retailer Training for $35,000. This amount is nonrefundable and paid to us in a lump sum. If you are not alreadyamember of our cooperative(orastoreinagroup owned or controlled by you is not alreadyamember), you must submit three different types of signed agreements.Gne of these is an Ace Hardware Membership Agreement (Nonbranded). Another is tbe Ace Brand Agreement The third one is tbe Subscription for Capital Stock Agreement, under which you subscribe for shares ofour capital stock having a total par value of $5,000. Copies of these agreements are attached to this disclosure document as Exhibits A,BandC,respectively. A separate application. Membership Agreement (Nonbranded)(ExhibitA), Ace Brand Agreement (Exhibit B) and Subscription for Capital Stock Agreement (ExbibitC), must be submitted for each location where you desire to operate an Ace store. The processing fee described above and the $5,000 stock subscription fee are uniform for all members in the United States unless you qualify under the Veterans' Incentive Program. All shares of our capital stock are restricted and may not be promised, mortgaged, sold, assigned, or transferred without the prior consent of our Board of Directors. The payment of dividends on our stock is prohibited by our Certificate of Incorporation. If your store's membership in the cooperative is voluntarily or involuntarily terminated, all of your shares of our stock with respect to that store must be sold back to us unless those shares are transferred to someone else whom we agree to accept as a member. The price that we pay to you if we repurchase your shares of our stock is $1,000 per share par value in the case of shares of Class "A" voting stock and the greater of $ 100 per share par value or the price last established by our Board of Directors in the case of shares of Class "C" non-voting stock. If you decide to establish an Ace Rental Place equipment rental center in your Ace store and you wish to purchase signage for it, Ace will sell you the signage. If you decide to conduct business to business sales in your Ace store under the name "The Supply Place" and you wish to purchase signage for it, Ace will sell you the signage.

Franchisee Revenue and Profit

Attached as Exhibit is the 2015 Retail Financial Report ("RFR") which was prepared by Profit Planning Group, Inc,located at 4800 Baseline Rd,E104-251,Boulder, Colorado 80303("PPG") services firm, which is unaffiliated with Ace, that helps small to mid size businesses by performing profitability and otherstudies. PPG used data supplied by 1,100 of our stores, which is approximately 25% of total domestic stores. The RFR describes the types of stores and the general geographic areas where they are located. All of these stores had been open at least one full year. As noted in the RFR, the "typical Ace store is the median store in the specified category The "high profit" stores are those in the top 25% of all reportingAce stores based on Return on Assets(as defined in the RFR and unless otherwise specified), but, again, the dollar amount listed is for the median high profit the specified category. Industry data is available for comparative information based upon annual surveys sent to retail hardware, home center andlumber operators and included in summary reports produced by the National Retail Hardware Association (NRHA). Complete reports for hardware stores,home centers and lumber yards are available from the National Retail Hardware Association/Home Center Institute. Industry survey participants include Ace members, members of other cooperatives and wholesalers and other independent retailers. The NRHA survey is a national survey and both Ace and industry averages are based upon reporting stores on a national basis. TheNRHAsurvey,based on 2015 financials,shows a total of 1077 reporting stores (678 Hardware;258 Home Center; 141Lumber). The NRHA survey, based on 2014 financials,shows a total of 1016 reporting stores(674-Hardware;216 Home Center; 126 Lumber). The NRHA data is published annually,widely reviewed and considered to be general guidelines within the industry. Caution shouldnonetheless be exercised in the comparison of these figures and wide ranges of performance can result, as described in the narrative below and shown in the RFR tables illustrating the ranges of sales volumes achieved in Ace stores. Individual store data is confidential, but summary data used in preparing the RFR will be made available to prospective members upon reasonable request Prospective members generally use RFR data, industry data and knowledge about the actual proposed location and market to prepare a detailed business plan, sales forecast, and proforma financial statement tailored for specific operation.The prospective member's sales forecast is often done at various ranges of performance whereas his or her proforma financial statement is based on his or her single best estimate. while our field personal may assist prospective member with their business plans, sales forecasts and/or proforma financial statements, the prospective member is responsible for the soundness of all assumptions contained in all such plans, forecasts and proformas. We Internally use a prospective member's proforma financial statement, personal credit history and financial condition, credit history of any related business prior Ace ownership experience (if any) and other factors to review and determine the creditworthiness of the prospective member in order to develop initial credit extension limits. These proforma financial statements constitute supplemental financial performance representations. Data presented in the RFR or in any pro forma financial statement should not be relied upon solely or considered as the probable results that will be realized by any member. Risk Factors Individual retailer operating and financial performance is dependent on the following factors, among > Type ofstore/outlet: Financial performance for these varying types of businesses is significantly different,with different cost structures. Performance can also vary significantly within type >Location: ln the current retail environment, the location ofthe store in relation to the target market is a critical decision and factor in retail success. Although we often assist the member or prospective member in market and demographic studies for both new businesses and expansion plans, the final decision rests with the member. A good location will not guarantee success In the changing retail marketplace, location, like the economy and competition, can be affected by changing local conditions. > Management abilites of the owner: Since all stores are independently owned, this is one of the most important factors.Ownership and management of a retail store is difficult and demanding. Store hours, depending on location, can cover up to 80 hours per week. You select both management and hourly employees for your store. Although training programs currently are offered byus, we are not required to provide any training; all store training is controlled by you. We believe that owner operators are more successful than absentee owners. > Captilization: Initial capitalization is ofthe utmost importance in openinganew store. Retailers must expect to operate unprofitably for a period of time and have adequate capital to fund the project until acceptable results are obtained. Adequate inventory levels must be maintained to support sales. Adequate capital in the business continues to be important to be competitive within local economic and competitive conditions and to fund growth of the business or store expansions and remodeling. > Local/regional economy and competitton: Every market place is different and changing. Although we assist retailers with market analysis, conditions may change within a very short period of time. Competition from mass merchandisers, online retailers and discount chainshas also increased and intensified, with a few competitors having very aggressive, and unpredictable, expansion plans Members in all markets, large and small, must be prepared for changing economic conditions and increased competition, both through aggressive retail programs, quality management and adequate capitalization. How these factors interrelate for any particular store can have a significant effect on operating and financial performance. No overall conclusions canbedrawnonperformanceofaprospective store because ofthe variability ofthese factors. Also, as mentioned above, factors affecting performance can change from what was expected when the store originally opened.