AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 2001

REGISTRATION NO. 333-18397
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT

NO. 13 ON FORM S-1

TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

TRUSERV CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>

DELAWARE 5072 36-2099896
(State of Incorporation) (Primary Industrial Classification Code Number) (I.R.S. Employer Identification
No.)
</Table>

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)

PAMELA FORBES LIEBERMAN
Chief Operating Officer and Chief Financial Officer
TruServ Corporation
8600 West Bryn Mawr Avenue
Chicago, IL 60631-3505
(773) 695-5000
Fax: (773) 695-6563
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
------------------------

Copy to:

NATALIA DELGADO
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 E. Monroe Street Suite 3700
Chicago, Illinois 60603
(312) 201-3989
Fax: (312) 332-2196
------------------------

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Post-Effective Amendment
to the Registration Statement.

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 this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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TRUSERV CORPORATION
239,940 SHARES OF CLASS A COMMON STOCK, $100 PAR VALUE
(IN UNITS OF 60 SHARES)

THE CLASS A COMMON STOCK (THE "CLASS A COMMON STOCK" OR THE "COMMON STOCK")
IS OFFERED EXCLUSIVELY TO RETAILERS AND RENTERS OF HARDWARE AND RELATED
PRODUCTS, WHEN THEY BECOME MEMBERS OF TRUSERV CORPORATION.

THE COMMON STOCK CANNOT BE TRANSFERRED WITHOUT OUR CONSENT. 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 THE COMMON STOCK AND WE DO NOT EXPECT THAT
ONE WILL DEVELOP.

CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5 IN THIS PROSPECTUS.

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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.

IN FLORIDA THE SECURITIES COVERED BY THIS PROSPECTUS HAVE NOT BEEN REGISTERED
WITH THE STATE OF FLORIDA BUT ARE BEING OFFERED UNDER A LIMITED OFFERING
EXEMPTION WHICH ALLOWS FLORIDA PURCHASERS TO CANCEL THEIR PURCHASES OF THIS
STOCK WITHIN 3 DAYS AFTER MAKING ANY PAYMENT ON ACCOUNT OF THE PURCHASE PRICE.

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<Table>
<Caption>
PER UNIT TOTAL

-------------------------------------------------------------------------------------------------
Public Price............................................. $6,000 $23,994,000(1)(2)
Underwriting discounts................................... none none (3)
Proceeds to TruServ...................................... $6,000 $23,994,000(4)
</Table>

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(1) The offering price for the common stock is $100 per share, which is the par
value per share. The offering price is determined pursuant to the retail
member agreement between TruServ and its members. The par value of the
common stock was arbitrarily determined.

(2) The shares are offered in units of 60 shares each. The minimum purchase is
60 shares for each store owned up to the maximum of 300 shares (5 units).

(3) There are no underwriters in this offering. We are offering the common stock
directly to you.

(4) There are no firm commitments for the sale of these securities. If the whole
offering is sold, we will receive $23,994,000 before estimated expenses of
$73,000.

------------------

THESE SECURITIES ARE OFFERED THROUGH

TRUSERV CORPORATION
8600 WEST BRYN MAWR
CHICAGO, ILLINOIS 60631-3505
(773) 695-5000
THE DATE OF THIS PROSPECTUS IS
, 2001

SUMMARY

The summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all the information that you
should consider before buying shares in this offering. You should read the
entire prospectus carefully, including our consolidated financial statements and
the related notes beginning at page F-1.

TRUSERV

TruServ is principally engaged as a wholesaler of hardware and related
products and is a manufacturer of paint products. TruServ is one of the largest
member-owned wholesalers of these items in the United States.

RECENT FINANCIAL RESULTS

As of December 31, 2000, TruServ Corporation had net earnings of
$34,117,000 compared to a loss of $130,803,000 at December 31, 1999. In 2000,
TruServ experienced one-time gains in the aggregate amount of approximately
$34,000,000, resulting from the settlement of certain pension claims and the
sale of its lumber and building materials division. As of June 30, 2001, TruServ
had a loss of $11,363,000 compared to income of $2,999,000 as of July 1, 2000.

DEBT COVENANT VIOLATION

Under certain senior notes and a revolving credit facility TruServ is
required to meet certain restrictive financial ratios and covenants relating to
minimum EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization),
minimum fixed charge coverage, minimum borrowing base to debt ratio, maximum
capital expenditures and maximum asset sales, as well as other customary
covenants, representations and warranties, funding conditions and events of
default. As of December 31, 2000, TruServ was in compliance with the covenant
requirements.

However, as of February 24, 2001, TruServ failed to comply with a covenant
under the revolving credit facility and the senior note agreements which
requires TruServ to achieve a minimum monthly borrowing base ratio. As a result,
either the senior note holders or the participants in the revolving credit
facility could declare this failure to comply with the covenant as an "event of
default," in which case the senior notes and the amounts outstanding under the
credit facility would become callable as immediately payable. See "Risk
Factors--Debt Covenant Default".

On March 30, 2001 the participants in the revolving credit facility issued
to the company a "reservation of rights" letter under which the participants
effectively stated their intention to not call as immediately payable TruServ's
outstanding debt obligations until May 1, 2001, although they were not precluded
from doing so. All other rights of the participants were preserved. Additional
letters were issued on April 30, 2001, July 3, 2001 and August 30, 2001, which
extended the reservation of rights until July 30, 2001, September 30, 2001 and
February 28, 2002, respectively. The senior note holders also issued letters
reserving their right to accelerate the maturity of the notes although agreeing
not to do so at this time.

The reservation of rights letters provided by the participants in the
revolving credit facility permanently reduced the credit limit under this
facility on May 11, 2001 from $275,000,000 to $250,000,000 and on September 4,
2001 from $250,000,000 to $200,000,000. Additionally, the interest rate on the
amounts outstanding under the revolving credit facility was increased by
approximately 2%; this increased interest rate also applies to the outstanding
senior notes. As a result of this increased interest rate, TruServ will incur
additional interest expense in fiscal year 2001. If this increased interest rate
continues through December 31, 2001, the additional interest expense would
aggregate approximately $6.0 million.

its current borrowing arrangements could cause the current lending group to call
as immediately payable TruServ's currently outstanding debt obligations.
TruServ's resulting inability to satisfy its debt obligations would force
TruServ to pursue other alternatives to improve liquidity, possibly including
among other things, restructuring actions, sales of assets and seeking
additional sources of funds or liquidity. In particular, TruServ has engaged an
investment banking firm to assist us in exploring the sale of the paint
manufacturing business. No assurances can be given that TruServ would be
successful in pursuing such possible alternatives or, even if successful, that
such undertakings would not have a material adverse impact on TruServ.

Accordingly, the balances outstanding under the senior note agreements and
the revolving credit facility have been classified as current liabilities as of
December 31, 2000 and June 30, 2001. However, the financial statements do not
include any other adjustments that might result from the outcome of this
uncertainty.

COMMON STOCK

TruServ has authorized Class A common stock and Class B common stock.
TruServ sells the Class A common stock to its members pursuant to this
prospectus. The Class B common stock, which is non-voting, is issued to holders
(or former holders) of the Class A common stock as part of their patronage
dividends. See "Description of Common Stock."

Our Class A common stock has a $100 par value. TruServ offers it to you
when you become a member of our cooperative. The Class A common stock is the
sole voting stock of TruServ Corporation. We offer the Class A common stock in
units of 60 shares each. The minimum purchase amount is 60 shares for each store
you own up to the maximum of 300 shares (5 units).

You must pay cash for all of your Class A common stock purchases. However,
pursuant to our retail membership agreement with you, you may pay for the Class
A common stock with a down payment and satisfy the balance in monthly
installment payments.

Either of us may terminate our retail membership agreement with sixty-days'
written notice. Pursuant to TruServ's By-laws, if your retail membership
agreement is terminated, we will repurchase your Class A common stock, and you
are required to sell the stock back to us. Also, pursuant to TruServ's By-laws,
the board of directors may delay the repurchase of the common stock if it
believes the action is in the best interest of TruServ. We cannot terminate any
retail 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:

- you become insolvent;

- you commit any act of bankruptcy;

- you file a voluntary petition in bankruptcy;

- you are adjudicated as bankrupt; or

- you commit a breach of any obligation under our agreement or any other
agreement with the company or one of its subsidiaries that is not corrected
within thirty days (ten days in case of nonpayment of accounts receivable
statements or other financial obligations to the company, or within the
applicable cure periods in an agreement with the company subsidiary) after we
give you written notice.

TruServ has initiated a moratorium on the redemption of its stock, which
the board of directors will review from time to time in light of the current
financial circumstances of TruServ. Therefore, you should be prepared to hold
shares of Class A common stock for an indefinite period of time, even if you
terminate your retail membership agreement. See "Risk Factors--Moratorium on
Stock Redemption" and "Description of Common Stock--Moratorium on Redemptions of
Capital Stock."

RESTRICTIONS ON TRANSFERABILITY AND DIVIDEND POLICIES

Our stock is not listed or traded on any national securities exchange or on
the national market system. It is offered exclusively to you, in connection with
your joining our cooperative as a member. The purchase price and redemption
price of the Class A common stock is equal to its par value. The par value of
the capital stock,
3

including the Class A common stock was arbitrarily determined. The Class A
common stock is restricted as to transferability and there is no public market
for it. You cannot transfer the Class A common stock to someone else without
first offering us the opportunity to repurchase the stock. We have 90 days to
repurchase the stock, at par value, before you can otherwise dispose of the
stock. We retain an automatic lien on the Class A common stock and any patronage
dividends that might have accrued to you from us to secure your debt, if any,
payable to us.

We do not pay dividends with respect to the Class A common stock.

COMPARATIVE PER SHARE PRICES

Because there is no public market for our Class A common stock and the sale
or repurchase of the stock is effected at its par value, providing earnings per
share would not be meaningful.

The following table shows the book value of our Class A common stock on a
historical basis.

Book value per share as of:

<Table>

December 31, 2000........................................... $86.13
December 31, 1999........................................... $35.40
December 31, 1998........................................... $94.29
</Table>

TruServ calculates book value per share as follows: We take the aggregate
par value of the outstanding Class A common stock and Class B common stock, and
we add that total to the sum of the deferred patronage dividends, retained
earnings (accumulated deficit) and accumulated other comprehensive loss, and
divide that sum by the total number of outstanding shares of Class A and Class B
common stock.

Book value excludes the loss allocation account, since shareholders do not
share equally in the account. The loss allocation account is satisfied by Class
B common stock that will be issued with future patronage dividends. However, in
the event a member should cease to be a shareholder of TruServ, any unsatisfied
portion of that member's loss allocation account would be satisfied by reducing
the amount paid in redemption of the member's stock investment in TruServ.

ALLOCATION OF LOSSES TO CAPITAL STOCK

The increase in book value in fiscal year 2000 as compared to fiscal year
1999 is due to the allocation in 1999 of the 1999 loss to members, as described
below. During the third quarter of fiscal year 2000, management developed, and
the board of directors approved, a plan to equitably allocate among members the
losses incurred by TruServ in 1999. These losses had previously been recorded as
a decrease to retained earnings as of December 31, 1999, resulting in an
accumulated deficit. TruServ has allocated the 1999 loss by establishing a loss
allocation account for each member. The loss allocation account is satisfied by
offsetting Class B common stock, issued as part of the patronage dividend,
against the loss allocation account balance until it is reduced to zero. As a
result, the consolidated balance sheet shows the aggregate amount of these loss
allocation accounts as an increase to retained earnings (accumulated deficit).
See "Description of Common Stock--Allocation of Patronage Dividends Against Loss
Account."

RISK FACTORS

You should consider the following risks before investing in our Class A
common stock:

TRUSERV IS IN DEFAULT UNDER A DEBT COVENANT IN ITS SENIOR DEBT AGREEMENTS.

As of February 24, 2001, TruServ failed to comply with a covenant under its
revolving credit facility and its senior note agreements, which requires TruServ
to achieve a minimum monthly borrowing base ratio. As a result, TruServ's senior
note holders or the participants in the revolving credit facility could declare
this failure to comply with the covenant as an "event of default." In case they
were to do so, all of the senior notes and the amounts outstanding under the
credit facility would become callable as immediately payable.

TruServ's failure to successfully refinance or amend its current borrowing
arrangements could cause the current lending group to call as immediately
payable TruServ's currently outstanding debt obligations. TruServ's resulting
inability to satisfy its debt obligations could require TruServ to face
restructuring or even bankruptcy. In such case, you may not be able to achieve a
return on your investment in TruServ. See "Summary--Debt Covenant Violation."

OUR AUDITORS HAVE EXPRESSED DOUBTS ABOUT TRUSERV'S ABILITY TO CONTINUE AS A
GOING CONCERN.

The financial statements of TruServ have been prepared assuming that
TruServ will continue as a going concern. However, TruServ's auditors have
expressed substantial doubt about TruServ's ability to continue as a going
concern as a result of the violation by TruServ of restrictive debt covenants in
its lending agreements. While TruServ is in the process of negotiating with its
lending group, the lending group could call as immediately payable TruServ's
currently outstanding debt obligations. See "Summary--Debt Covenant Violation"
and "Risk Factors--Debt Covenant Default."

TRUSERV HAS DECLARED A MORATORIUM ON STOCK REDEMPTION.

In March, 2000, the board of directors of TruServ declared a moratorium on
redemption of all of its capital stock. The board of directors declared the
moratorium, as the capital stock was then worth substantially less than its par
value, and redemption at par value would likely violate legal prohibitions
against an impairment of capital. In addition, the board of directors concluded
that it would be a violation of its fiduciary duties to proceed with redemptions
of capital stock. As a result, you will not be able to have TruServ repurchase
your Class A common stock or your Class B common stock, if any, should you wish
to terminate your membership, until the moratorium is lifted. See "Description
of Common Stock--Moratorium on Redemption of Capital Stock."

THERE IS NO MARKET FOR THE COMMON STOCK AND THE COMMON STOCK IS SUBJECT TO
TRANSFER RESTRICTIONS AND LIEN RIGHTS

There is currently no trading market for any of our capital stock and we do
not foresee a market developing at any time in the future.

Therefore, you will not be able to liquidate your investment in the capital
stock for an indefinite period of time. You may not transfer the capital stock
without first offering it to TruServ for repurchase at its par value.

Investors should be aware that TruServ retains automatic liens on the Class
A common stock and any patronage dividends, including all shares of Class B
common stock, that might have accrued to the members. The Retail Member
Agreement that each member signed with TruServ provides that TruServ shall have
a lien on, and a right of setoff against, any stock or notes issued to the
member, including those issued as patronage dividends. With regard to patronage
dividends, this lien and right of setoff encompasses any cash portion of the
patronage dividend which is issued and exceeds twenty percent (20%) of the
overall patronage dividend payable in any year. TruServ takes this lien/right of
setoff in order to secure any member indebtedness that may, for whatever cause,
exist in favor of TruServ or its subsidiaries.

TRUSERV HAS SUBSTANTIAL OUTSTANDING DEBT.

TruServ is financed by debt capital obtained from various external sources.
TruServ Corporation has a revolving credit facility with various banks currently
aggregating $200,000,000 and expiring on June 30, 2002. As of June 30, 2001, the
company had drawn down $115,000,000 under the revolving credit facility. The
revolving credit facility is secured by the assets of TruServ. Draws on the
revolving credit facility are subject to compliance with financial covenants.
The financial covenants under the revolving credit facility include a fixed
charge coverage ratio, minimum EBITDA requirement, and a debt to total
capitalization ratio. Also, TruServ has senior secured notes in the aggregate
principal amount of $285,000,000 as of June 30, 2001 that are held by several
financial institutions. The senior secured notes are also secured by the assets
of TruServ and subject to substantially the same financial covenant compliance
as the revolving credit agreement. The interest rates on the senior secured
notes ranges from 9.98% to 11.85% with various maturity dates between 2002 and
2012. On June 30, 2001, TruServ also had outstanding $3,563,000 under capital
leases and TruServ's Canadian subsidiary had $10,274,000 of short term
borrowings. See "Risk Factors--Debt Covenant Default."

In addition to the senior debt owed to the banks and other financial
institutions, TruServ had outstanding on June 30, 2001, $124,381,000 of debt
subordinate to the senior debt, all of which subordinate debt is held by members
and former members of TruServ. The amount of subordinated debt will increase
from time to time by the amount of the notes sold by TruServ pursuant to its
note programs.

TRUSERV HAS EXPERIENCED A DECREASE IN GROSS MARGIN PERCENTAGES.

In order for TruServ to maintain the current gross margin percentage,
TruServ needs to maintain its current fill rates in order to meet consistently
the members' demands on shipments from its distribution centers. If TruServ
cannot meet the members' fill rate demands, the members will likely shift their
purchases to direct shipments, which generate lower gross margins and will
further erode TruServ's gross margin percentage. TruServ's gross margin
percentage has declined seven out of the last eight years, predominately due to
a change in the sales mix. The sale mix has shifted to increase direct shipments
to members for hardware merchandise categories, which generated lower gross
margin percentages for TruServ. Also, TruServ has continued to provide members
with lower pricing to deal with the intense competitive pressure that the
members are experiencing in the retail marketplace. Lower gross margins will
negatively impact the ability of TruServ to issue patronage dividends and
maintain financial covenants in our revolving credit facility and senior note
agreements (See-- "Debt Covenant Default" above). If gross margin continues to
erode, it could also negatively impact our ability to make interest and
principal payments on our debt instruments as operations may not generate
positive cash flow. TruServ has not generated positive cash flow from operations
in three of the last eight years.

TRUSERV HAS EXPERIENCED A DECLINE IN ITS MEMBER BASE AND FACES STIFF RETAIL
COMPETITION.

The success of TruServ Corporation is dependent upon continued support from
its members and their purchases to generate positive net margin and cashflow for
TruServ. The trend in the number of members participating in TruServ's programs
has recently declined. TruServ has lost approximately 1,000 members per year
since January 1, 1999. Approximately 50% of this reduction in membership is due
to retailer competition and TruServ discontinuing relationships with members
that did not meet the minimum purchase requirements. Approximately another 25%
of these former members switched to another buying group. The hardware industry
is subject to intense competitive conditions. Independent hardware retailers
such as TruServ members must remain competitive with the so-called "Big Box"
stores such as Home Depot, Menards and Lowes, as well as the diversified
retailers such as Sears and Walmart. These retail competitors may have greater
resources, larger market shares and more widespread presence than TruServ
members. The success of TruServ Corporation is highly dependent upon the success
of its members in the retail marketplace.

TRUSERV

TruServ Corporation was organized as Cotter & Company, a Delaware
corporation, in 1953. Upon its organization, it succeeded to the business of
Cotter & Company, an Illinois corporation organized in 1948. On

July 1, 1997 Cotter & Company merged with ServiStar Coast to Coast Corporation
("SCC"). SCC was a hardware wholesaler organized in 1935 with a strong presence
in retail lumber and building materials. Following the merger, Cotter & Company
was renamed TruServ Corporation. TruServ's main executive offices are located at
8600 West Bryn Mawr Avenue, Chicago, Illinois, 60631-3505. Its main telephone
number is (773) 695-5000.

The merger united two similar organizations under the name of TruServ
Corporation, creating one of the largest hardware/home center cooperatives in
the United States. The goals were to: (i) lower pricing for the members by
increasing buying power, (ii) increase potential for rebates by combining vendor
purchases and (iii) better leverage operating expenses by consolidating
distribution centers and reducing duplicate corporate overhead costs.

In fiscal year 2000, TruServ sold its lumber and building materials
business, consisting primarily of inventory, to Builder Marts of America, Inc
("BMA"). TruServ concluded that BMA would be able to provide lumber and building
materials to TruServ members at lower cost. The lumber and building materials
division had been a low-margin business for TruServ.

In connection with the sale of the lumber and building materials business
to BMA, TruServ entered into non-compete, cooperation, trademark and license,
and lease agreements with BMA. These agreement terms range from two to ten
years.

GENERAL DESCRIPTION OF THE BUSINESS

TruServ, organized as a cooperative, is one of the largest member-owned
wholesalers of hardware and related merchandise in the United States, serving
approximately 7,600 members. TruServ also manufactures paint and paint
applicators, but TruServ has engaged an investment banking firm to assist it in
exploring the sale of the paint and paint applicator manufacturing business.

TruServ sells its products to hardware retailers who have entered into
Retail Member Agreements with it. TruServ serves its members by functioning as a
low cost distributor of goods and maximizing its volume purchasing abilities,
primarily through vendor rebates and discount programs, for the benefit of its
members. These benefits are passed along to its members in the form of lower
prices and/or patronage dividends.

Generally, members are entitled to use one of certain TruServ trademarks
and trade names, including the federally registered True Value(R), Grand Rental
Station(R), Taylor Rental Center(R), Home & Garden Showplace(R) and Induserve
Supply(R) trademarks, service marks and collective membership marks. See
"Trademarks, Service Marks and Collective Membership Marks" below. Members have
access to certain TruServ private label products and are entitled to receive
annual patronage dividends based upon their purchases from TruServ. In
accordance with TruServ's By-Laws and the Retail Member Agreements, the annual
patronage dividend is paid to members out of the gross margins from operations
and other patronage source income, after deduction for expenses, reserves and
other provisions as may be authorized by the Board of Directors. See
"Distribution of Patronage Dividend" below.

TruServ serves approximately 7,600 True Value(R) hardware store members
throughout the United States. Primary concentrations of members exist in New
York (approximately 8%), Pennsylvania (approximately 7%), California and Texas
(approximately 5% each) and Illinois and Michigan (approximately 4% each).

SALES AND SUPPLIERS

TruServ provides each of its members with an illustrated price catalog
showing the products available from TruServ. The members can access this catalog
through the newly developed internet site for members. At their request, a
member will receive a printed version of the catalog. These products, comprised
of more than 61,000 stockkeeping units ("SKUs"), are divided into seven classes
of merchandise which represent the

products sold within TruServ's operating segments. Those seven categories are
set forth in the table below, along with the corresponding percentage of total
revenues for each category during the last three fiscal years:

<Table>
<Caption>
FOR THE FISCAL YEARS ENDED
DECEMBER 31
--------------------------
2000 1999 1998
---- ---- ----

Lumber and Building Materials............................... 30.4% 33.2% 30.2%
Hardware Goods.............................................. 16.8% 16.2% 17.8%
Farm and Garden............................................. 15.5% 14.8% 14.5%
Electrical and Plumbing..................................... 13.3% 12.7% 13.4%
Painting and Cleaning....................................... 10.6% 10.0% 10.8%
Appliances and Housewares................................... 8.6% 8.6% 8.4%
Sporting Goods and Toys..................................... 4.8% 4.5% 4.9%
</Table>

TruServ's sales to its members are divided into three categories, as
follows:

- warehouse shipment sales (approximately 41% of total sales);

- direct shipment sales (approximately 56% of total sales); and

- relay sales (approximately 3% of total sales).

Warehouse shipment sales are sales of products that are purchased,
warehoused and resold by TruServ in response to orders from the members. Direct
shipment sales are sales of products that are purchased through TruServ by the
members but delivered directly to members from manufacturers. Relay sales are
sales of products that are purchased through TruServ in response to the requests
of several members for a product which is

- included in future promotions,

- not normally held in inventory and

- not conducive to direct shipment.

Generally, TruServ will give notice to all members of its intention to
purchase products for relay shipment and will then purchase only as many items
as the members order. When the product shipment arrives at TruServ, it is not
warehoused; rather, TruServ breaks up the shipment and "relays" the appropriate
quantities to the members who placed orders.

TruServ has numerous individual agreements with or commitments from its
suppliers, most of which are terminable by such suppliers or TruServ without
cause. These termination provisions, either individually or in the aggregate,
have not had any material adverse effect on TruServ's ability to conduct its
business. The goods and services purchased by TruServ from these suppliers are
generally available from a wide variety of sources. TruServ is not dependent
upon any one supplier or group of suppliers and in the past has not experienced
a problem in obtaining necessary goods.

TruServ also manufactures paint and paint applicators. The principal raw
materials used by TruServ in its manufacturing activities are chemicals. All raw
materials are purchased from outside sources. In the past, TruServ has been able
to obtain adequate sources of raw materials and other items used in production
and no shortages of such materials are currently anticipated that will
materially impact its manufacturing operations.

OTHER SERVICES

TruServ annually sponsors two "markets" (one in the spring and one in the
fall) for its members in order to keep them better informed as to industry
trends and the availability of new merchandise. In the year 2001, these markets
will be held in Atlanta, Georgia, and Las Vegas, Nevada. Members are invited to
the markets and generally place substantial orders for delivery during the
period between markets. During such markets, new merchandise and seasonal
merchandise are displayed to attending members.

BACKLOG

As of June 30, 2001 and July 1, 2000, respectively, TruServ had a backlog
of firm orders (including relay orders) of approximately $36,136,000 and
$35,626,000. TruServ's backlog at any given time is made up of two principal
components:

- normal resupply orders; and

- market orders for future delivery.

Resupply orders are orders from members for merchandise to keep inventories at
normal levels. Generally, such orders are filled the day following receipt,
except that relay orders for future delivery (which are in the nature of
resupply orders) are not intended to be filled for several months. Market orders
for future delivery are member orders made at one of TruServ's two markets for
new or seasonal merchandise, to be delivered during the subsequent period
between markets. Thus, TruServ generally has a relatively high backlog at the
end of each market, which decreases in subsequent months until the next market
occurs.

COMPETITION

The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses, including those served by TruServ, face
intense competition from chain stores, discount stores, home centers and
warehouse operations such as Walmart, Home Depot, Menards, Sears and Lowe's.
Increased operating expenses for the retail stores, including increased costs
due to longer open-store hours and higher rental costs of retail space, have cut
into operating margins for members and brought pressure on TruServ to achieve
lower merchandise costs for its members. In response, TruServ has developed a
retail-oriented competitive pricing strategy on high-turnover, price-sensitive
items. The trueAdvantage(R) program was introduced in 1995 and upgraded in 1997
to promote higher retail standards in order to build consumer goodwill and
create a positive image for all member stores.

Competitive conditions in the wholesale hardware industry are similarly
intense and increasing, particularly as a result of the intense pressure on
hardware retailers to obtain low-cost wholesale supply sources for merchandise
acquisition. TruServ competes with other member-owned and non-member-owned
wholesalers as a source of supply and merchandising support for independent
retailers. Competitive factors considered by independent retailers in choosing a
source of supply include pricing, servicing capabilities, promotional support
and merchandise selection and quality. Increased operating expenses and
decreased margins have resulted in the failure of several non-member-owned
wholesalers. In several markets in the United States, TruServ competes directly
with other member-owned wholesalers such as Ace Hardware Corp, Do It Best
Corporation and United Hardware Distributing Co.

TRADEMARKS, SERVICE MARKS, AND COLLECTIVE MEMBERSHIP MARKS

TruServ's trademarks, service marks and collective membership marks are of
prime importance to TruServ. Many of the marks are highly recognized and
utilized in extensive advertising and marketing campaigns, and TruServ
vigorously defends its marks. There are approximately 7,600 members that operate
as retail hardware stores throughout the United States, most of which sell
merchandise and services under the marks.

The marks include the True Value(R) collective membership mark, the
ServiStar(R) mark, the Coast to Coast(R) mark, the Induserve Supply(R) mark, the
Grand Rental Station(R) mark, the Taylor Rental(R) mark, the Home & Garden
Showplace(R) mark and the Commercial Sales(R) mark. All of the marks are
currently used in commerce and TruServ intends to use the marks in commerce in
the future. Each of the marks is renewable at TruServ's option; TruServ intends
to renew them upon expiration. Members have continued to conduct their
businesses under the same retail banners as before the merger of Cotter and SCC;
however, beginning in year 2000, many members with the retail banners of Coast
to Coast(R) and ServiStar(R) started to conduct their business under the single
retail banner of True Value(R).

SUBSIDIARIES

TruServ, through a Canadian subsidiary, owns a majority equity interest in
TruServ Canada Cooperative, Inc., a Canadian wholesaler of hardware, variety and
related merchandise. The Canadian cooperative serves approximately 630 True
Value(R) and V&S(R) stores, all located in Canada. The cooperative has
approximately 325 employees. The cooperative generated less than 3% of TruServ's
consolidated revenue in fiscal year 2000.

TruServ operates several other subsidiaries, most of which are engaged in
businesses providing additional services to TruServ's members. In the aggregate,
these subsidiaries are not significant to TruServ's results of operations.

EMPLOYEES

TruServ employs approximately 4,300 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of TruServ's
operations, employee relations are governed by the practices prevailing in the
particular area where the employees are located and are generally implemented
locally. Approximately 23% of TruServ's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, TruServ considers its relationship with its
employees to be good.

RETAIL MEMBER AGREEMENT; FRANCHISE AND LICENSE AGREEMENTS

The TruServ Retail Member Agreement provides, among other things, that each
member:

(1) will be required to purchase 60 shares of Class A common stock at
a purchase price of $100 per share for each store owned by the member, up
to a maximum of three hundred shares for five stores or more that are owned
by a member;

(2) will conduct its businesses subject to the terms of the Retail
Member Agreement;

(3) will conduct a retail hardware, home or garden center, rental or
industrial/commercial operation at a designated location;

(4) will comply with TruServ's By-Laws, as may be amended from time to
time;

(5) will accept patronage dividends in a form complying with the
requirement of the Internal Revenue Code for deduction from gross income by
TruServ;

(6) may receive different services or charges based upon the amount of
merchandise purchased by the member;

(7) agrees to have its Retail Member Agreement terminated in certain
circumstances by unilateral action by TruServ's Board of Directors;

(8) agrees to have its Retail Member Agreement automatically modified
upon notice from TruServ to the member of any relevant change in the
Certificate of Incorporation and/or By-Laws of TruServ, or by resolution of
the Board of Directors;

(9) agrees to have its Retail Member Agreement governed by Illinois
law, enforced or interpreted only in courts located in Cook County or any
Illinois county contiguous to Cook County, Illinois, and only interpreted
in accordance with the substantive laws of Illinois without giving effect
to its conflict of laws principles; and

(10) may terminate the Retail Member Agreement upon 60 days written
notice mailed to any executive officer of TruServ at TruServ's principal
office.

PROPERTIES

TruServ's national headquarters are located in Chicago, Illinois.
Information with respect to TruServ's owned and leased warehousing and office
facilities is set forth below:

<Table>
<Caption>
SQUARE FEET OF LEASE
WAREHOUSE AND EXPIRATION
LOCATION OFFICE AREA INTEREST DATE
-------- -------------- -------- ----------

Brookings, South Dakota............................ 518,000 Owned
Chicago, Illinois.................................. 228,100 Leased December 31, 2010
Corsicana, Texas................................... 775,000 Owned
Denver, Colorado................................... 360,000 Leased June 30, 2004
East Butler, Pennsylvania.......................... 476,200 Owned
Fogelsville (Allentown), Pennsylvania.............. 600,000 Owned
Ft. Smith, Arkansas................................ 206,500 Leased November 30, 2002
Hagerstown, Maryland............................... 840,000 Leased April 28, 2003
Harvard, Illinois.................................. 1,310,000 Leased August 23, 2013
Harvard, Illinois.................................. 160,000 Leased August 23, 2005
Henderson, North Carolina.......................... 300,000 Leased November 11, 2001
Indianapolis, Indiana.............................. 420,000 Owned
Jonesboro (Atlanta), Georgia....................... 670,000 Owned
Kansas City, Missouri.............................. 415,000 Owned
Kingman, Arizona................................... 375,000 Owned
Manchester, New Hampshire.......................... 730,000 Owned
Mankato, Minnesota................................. 320,000 Owned
Peachtree City, Georgia............................ 60,500 Leased November 24, 2005
Springfield, Oregon................................ 504,000 Owned
Westlake (Cleveland), Ohio......................... 405,000 Owned
Winnipeg, Manitoba................................. 432,000 Owned
Woodland, California............................... 350,000 Owned
</Table>

No location owned by TruServ is subject to a mortgage.

The Ft. Smith, Arkansas, and Peachtree City, Georgia, properties, which
were closed in 1997, are under lease and are currently under a sublease. The
Westfield, Massachusetts, distribution center was closed and sold in 2000. Also
in 2000, TruServ announced the closing of its Indianapolis, Indiana distribution
center.

In January 2001, TruServ announced the closure of its Henderson, North
Carolina, distribution center and in August 2001, TruServ announced the closure
of its Brookings, South Dakota, distribution center.

Information with respect to TruServ's manufacturing facilities is set forth
below:

<Table>
<Caption>
SQUARE FEET OF
MANUFACTURING PRINCIPAL
LOCATION AREA PRODUCT INTEREST
-------- -------------- --------- --------

Chicago, Illinois...................... 105,000 Paint Owned
Cary, Illinois......................... 580,000 Paint and Owned
Paint Applicators
</Table>

TruServ's facilities are suitable for their respective uses and are, in
general, adequate for TruServ's present needs.

TruServ owns and leases transportation equipment for use at its regional
distribution centers for the primary purpose of delivering merchandise from
TruServ's regional distribution centers to its members. Additional information
concerning these leases can be found in note 6 to the consolidated financial
statements included elsewhere herein.

LEGAL PROCEEDINGS

Between June, 2000 and March, 2001, actions were filed against TruServ by
former members of TruServ in the Circuit Court of the 19th Judicial Circuit
(McHenry County, Illinois). The plaintiffs in the actions each allege that,
based upon representations made to them by TruServ and its predecessors that the
Coast to Coast brand name would be maintained, they voted for the merger of
Servistar Coast to Coast and Cotter & Company. The plaintiffs allege, however,
that after the merger the Coast to Coast brand name was eliminated and that each
plaintiff thereafter terminated or had its membership in TruServ terminated. The
plaintiffs further claim that TruServ breached its obligations by failing to
redeem their stock and by creating loss allocation accounts for the plaintiffs.
Based upon this alleged conduct, the plaintiffs have each asserted claims for
fraud/misrepresentation, negligent misrepresentation, claims under the state
securities laws applicable to each plaintiff, claims under the state
franchise/dealership laws applicable to each plaintiff, breach of fiduciary
duty, unjust enrichment, estoppel and recoupment. The complaint states that each
plaintiff is entitled to in excess of $50,000 in damages; however, the damages
being sought are not further specified. Discovery has recently commenced in this
action and it is too early to determine the extent of the damages being claimed.
In March of 2001, a similar action was brought on behalf of former SCC members
in the same court, by the same law firm. The complaint alleges substantially
similar cases as those made by the former TruServ members. The lawsuit is in an
early stage and the extent of damages being claimed has not yet been determined.

In August, 2000, an action was brought in Delaware Chancery Court (New
Castle County) by a former TruServ member against certain present and former
directors of TruServ and against TruServ. The plaintiff in the lawsuit seeks to
proceed on a class-action basis on behalf of all those affected by the
moratorium and the creation of the loss allocation accounts. The complaint
alleges that the named directors breached their fiduciary duties in connection
with the accounting adjustments made by TruServ in the fourth quarter of 1999
and that TruServ breached, and the named directors caused TruServ to breach,
agreements with members by suspending payment of the members' 1999 annual
patronage dividend, by declaring a moratorium on the redemption of members'
TruServ stock and by imposing minimum annual purchase requirements upon members.
The plaintiff seeks monetary and non-monetary relief in connection with the
various claims asserted in the complaint. The lawsuit is in an early stage and
the extent of the damages being claimed has not yet been determined.

In October, 1999, Paul Pentz, the former president of TruServ, filed a
claim in the Circuit Court of the 20th Judicial Circuit (Collier County,
Florida) against TruServ alleging he is due bonus and retirement compensation
payments in addition to amounts already paid to him. TruServ has filed a
counterclaim against Mr. Pentz alleging that he breached his fiduciary duties as
president of TruServ. Mr. Pentz's motion to dismiss the counterclaim was denied.

TruServ intends to vigorously defend all of these cases and, accordingly,
has recorded no related reserves at December 31, 2000.

DESCRIPTION OF COMMON STOCK

CAPITAL STOCK

In general, members of TruServ own shares of Class A and Class B common
stock. Each of the two classes of stock has a par value of $100 per share. The
Class A common stock is sold in units of 60 shares. Each TruServ member is
required to purchase one unit of Class A common stock. No TruServ member is
permitted to acquire more than five units of Class A common stock. The Class B
common stock is issued only to holders (or former holders) of the Class A common
stock in connection with the patronage dividend distributed to the members, as
discussed below.

Neither class of TruServ stock accrues dividends and each has limited
transferability, by virtue of TruServ's right of first refusal to repurchase at
par value a member's stock before it can be transferred. Historically, TruServ
has always exercised this right. TruServ also retains an automatic lien on both
classes of stock for any indebtedness due to TruServ by a member. Both Class A
and Class B common stock are held in book-entry form. Neither class of stock is
listed on a securities exchange and there is no existing market for either class
of TruServ stock.

Participation in the earnings of a cooperative is based on member patronage
purchasing and reflected by the payment of patronage dividends. In general,
these patronage dividends are based on a member's purchasing volume and margins
applicable to merchandise or services purchased by the member, less any expenses
related to such business and less certain cooperative reserves. Patronage
dividends are determined on a yearly basis for activity conducted the prior
year, and are allocated no later than the 15th day of the ninth month following
the end of the calendar year. TruServ has been paying patronage dividends in a
combination of cash, notes and Class B common stock. For the 2000 taxable year,
TruServ paid approximately $35,000,000 in patronage dividends to its members.
See "Distribution of Patronage Dividends" below.

MORATORIUM ON REDEMPTIONS OF CAPITAL STOCK

In March, 2000, the board of directors of TruServ declared a moratorium on
redemptions of the capital stock. In reaching its decision to declare the
moratorium, the board of directors of TruServ reviewed the financial condition
of TruServ. The board also considered its fiduciary obligations and corporate
law principles under Delaware law. The board of directors concluded that it
should not redeem any of the capital stock while its net asset value was
substantially less than par value, as that would likely violate legal
prohibitions against "impairment of capital." In addition, the board of
directors concluded that it would be a violation of its fiduciary duties to all
members and that it would constitute a fundamental unfairness to members if some
members were allowed to have their shares redeemed before the impact of the 1999
loss were allocated to them. Members who did not request redemption would be
saddled with the losses of those members who requested redemption. Moreover, the
board considered TruServ's debt agreements, and, in particular, the financial
covenants thereunder, which prohibit redemptions when TruServ, among other
things, does not attain certain profit margins. Except with the prior consent of
the senior lenders, the debt agreements prohibit payments to shareholders in the
form of dividends or stock redemptions when those payments in any one fiscal
year exceed 40% of consolidated net earnings, as defined in the agreements.

At the time that the board declared the moratorium on redemptions,
TruServ's by-laws did not impose limitations on the board's discretion to
initiate or to continue a moratorium on redemption. The by-laws merely provided
that upon termination of a member's agreement, TruServ was to redeem the
member's shares. Nevertheless, the board of directors concluded that their
fiduciary obligations to TruServ and its members would not permit them to effect
redemptions under the circumstances described above. After the board declared
the moratorium, the board of directors amended the by-laws to provide that if
TruServ's funds available for redemption are insufficient to pay all or part of
the redemption price of shares of capital stock presented for redemption, the
board may, in its sole discretion, delay the payment of all or part of the
redemption price.

In determining whether the moratorium should be lifted, the board of
directors will consider the financial condition of TruServ, and will not lift
the moratorium unless it can conclude that effecting redemptions of

TruServ's capital stock will not "impair the capital" of TruServ, unfairly
advantage some members to the disadvantage of others, or violate the financial
covenants under its debt agreements. The board of directors is monitoring the
financial performance of TruServ monthly.

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 than patronage dividends, on Class A
common stock and Class B nonvoting common stock may be declared out of our gross
margins, other than 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.

DISTRIBUTION OF PATRONAGE DIVIDENDS

TruServ operates on a cooperative basis with respect to business transacted
with or for members. All members are entitled to receive patronage dividend
distributions from TruServ, calculated on the basis of gross margins of
merchandise and/or services purchased by each member. In accordance with
TruServ's By-Laws and Retail Member Agreement, the annual patronage dividend, as
authorized by the board of directors, is paid to members out of the patronage
source income, less certain deductions, calculated as provided in the following
sentence. The total patronage dividend paid to members is based on pre-tax net
earnings calculated in accordance with accounting principles generally accepted
in the United States of America after reducing or increasing net earnings for
non-member income/(losses) and deferred patronage amortization. The total
dividend is allocated to each purchase category, with the main purchase
categories being warehouse, relay, direct shipment and paint. Once the patronage
dividend is allocated to the purchase categories, it is distributed to members
based on relative gross margin participation of the member for each type of
purchase category.

Patronage dividends are usually paid to members within 90 days after the
close of TruServ's fiscal year; however, the Internal Revenue Code (the "Code")
permits distribution of patronage dividends as late as the 15th day of the ninth
month after the close of TruServ's fiscal year, and TruServ may elect to
distribute the annual patronage dividend at a later time than usual in
accordance with the provisions of the Code.

TruServ's By-Laws provide for the payment of annual patronage dividends,
after payment of at least 20% of such patronage dividends in cash, in "qualified
written notices of allocation" including

- Class B common stock based on par value thereof, to a maximum of 2% of
the member's net purchases of merchandise from TruServ for the year
(except in unusual circumstances of individual hardship, in which case
the board of directors reserves the right to make payments in cash),

- promissory (subordinated) notes or

- other property.

Such promissory (subordinated) notes are for a five year term and bear
interest at a rate fixed from time to time by the board of directors. The notes
are subordinated to all other debt of TruServ. TruServ may also issue
"nonqualified written notices of allocation" to its members as part of its
annual patronage dividend. See "Payment of Patronage Dividends in Accordance
with the Internal Revenue Code" below.

In determining the form of the annual patronage dividend, a member's
required investment in Class B common stock of TruServ was historically been
limited by the board of directors to an amount, the cumulative value of which
will not exceed two percent (2%) of the member's net purchases of merchandise
and services from TruServ. Commencing in 1996, the board established a minimum
Class B common stock ownership requirement (currently $25,000 for hardware
stores), which may be varied from time to time. This minimum is calculated as
the aggregate of a member's various types of annual purchases multiplied by a
specific percentage, that varies from 1% to 14%, decreasing as total dollar
purchases by category increase. The amount of such required investment is
determined by majority vote of the board of directors, and may be increased or

decreased from time to time. The basis for determining the necessity of an
increase or decrease is through an evaluation of the financial needs of TruServ
and the needs of its membership.

ALLOCATION OF PATRONAGE DIVIDENDS AGAINST LOSS ACCOUNT

On August 28, 2000, the board of directors of TruServ decided to allocate a
substantial portion of its 1999 operating losses among the TruServ members, on a
pro rata basis, in proportion to each member's ownership of Class B common stock
as of December 31, 1999. A loss allocation account was established for each
member during the third quarter of 2000, reflecting that member's allocated loss
for the year ended December 31, 1999. The loss allocation accounts reflect each
member's proportionate share of the 1999 loss, reduced by certain non-patronage
amounts that are not allocable to members. The loss allocation accounts are not
accounts receivable from members and do not represent amounts currently due from
members. Rather, the loss allocation accounts are satisfied, on a member by
member basis, by withholding the portion of each patronage dividend that would
have been paid in Class B common stock, at par value, and applying that amount
to reduce the loss allocation account until it is reduced to zero. The current
levels of members' stock investments in TruServ are not affected. However, in
the event a member should cease to be a shareholder of TruServ, any unsatisfied
portion of that member's loss allocation account would be satisfied by reducing
the amount paid in redemption of the member's stock investment in TruServ.
Currently, TruServ has in effect a moratorium of stock redemptions. See
"Description of Common Stock--Moratorium on Redemptions of Capital Stock."

PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE

The Code specifically provides for the taxation of cooperatives (such as
TruServ) and their patrons (such as TruServ's members) so as to ensure that the
business earnings of a cooperative are currently taxable either to the
cooperative or to its patrons, but not both.

The shares of Class B common stock and other written notices distributed by
TruServ to its members, which disclose to the recipient the stated amount
allocated to him by TruServ and the portion thereof which is a patronage
dividend, are "written notices of allocation" as that phrase is used in the
Code. For such written notices to be "qualified written notices of allocation"
within the meaning of the Code, it is necessary that TruServ pay 20% or more of
the annual patronage dividend in cash and that the members consent to having the
allocations (at their stated dollar amounts) treated as being constructively
received by them and includable in their gross income. Any written notices that
do not meet these requirements are "nonqualified written notices of allocation"
within the meaning of the Code.

TruServ deducts the sum of cash, the face value of qualified written
notices and the fair market value of any other property distributed to the
members (except nonqualified written notices of allocation) from its earnings in
determining its taxable income. Accordingly, all of these items, including such
qualified written notices of allocation, are includable in the gross income of
the members. Section 1385(a) of the Code provides, in substance, that the amount
of any patronage dividend which is paid in cash, qualified written notices of
allocation or other property (except nonqualified written notices of allocation)
shall be included in the gross income of the patron (member) for the taxable
year in which he or it receives such distribution. In general, for nonqualified
written notices of allocation, no amounts are either deductible by TruServ or
includable in a member's gross income until the notices are redeemed by TruServ.
TruServ itself therefore includes any earnings reflected in nonqualified written
notices of allocation in its own gross income and pays tax on them.

Thus, every year each member may receive, as part of the member's patronage
dividend, non-cash "qualified written notices of allocation," which may include
Class B common stock, the stated dollar amount of which must be recognized as
gross income by the member for the taxable year in which received. The portion
of the patronage dividend paid in cash (at least 20%) may be insufficient,
depending on a member's individual tax bracket, to pay income taxes due from the
member on its receipt of the full amount of the patronage dividend, including
cash and Class B common stock.

TruServ's By-Laws reflecting the Code provision applicable to cooperatives,
treat shares of Class B common stock and such other notices as the board of
directors may determine, if distributed in payment of patronage dividends, as
"qualified written notices of allocation." The By-Laws provide:

(i) for payment of patronage dividends in a combination of cash,
qualified written notices of allocation (including Class B common stock or
promissory notes), other property and nonqualified written notices of
allocation, and

(ii) that membership in the organization (i.e. the status of being a
member of TruServ) constitutes the member's consent to recognize the stated
amount of any qualified written notices of allocation or other property
distributed to it as includable in the member's gross income as provided in
Section 1385(a) of the Code.

Under the Code, any person who becomes or became a member of TruServ, or
who remains a member after adoption of the By-Laws providing that membership in
TruServ constitutes consent to be taxed on receipt of qualified written notices
of allocation, is deemed to have consented to be taxed on receipt of patronage
dividends in cash and in qualified written notices of allocation, in accordance
with Section 1385(a) of the Code. Written notification of the adoption of the
By-Laws, and a copy of the By-Laws, were sent to each then existing member and
have been, and will continue to be, delivered to each person that became, or
becomes a member thereafter. Such consent is then effective as to patronage
dividends, except as to patronage dividends paid after the person ceases to be a
member of the organization or after the By-Laws of the organization cease to
contain the automatic consent provision. Such consent may be revoked by the
member only by terminating its membership in TruServ in the manner provided in
his or its Retail Member Agreement.

TruServ has historically paid its members 30% of the patronage dividend in
cash (excluding nonqualified written notices of allocation). However, TruServ is
only obligated to distribute 20% of the annual patronage dividend (excluding
nonqualified written notices of allocation) in cash, and it may distribute this
lesser percentage in future years.

In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B common stock to each
member, TruServ deposits a certificate, representing all the shares of Class B
common stock then being issued with Harris Trust and Savings Bank, Chicago,
Illinois, for safekeeping for and on behalf of its members. TruServ keeps the
allocations of Class B common stock in book entry form. TruServ then sends a
written notice to each member of these deposits and the allocation thereof to
such member.

VOTING RIGHTS

Our Class A common stock is the sole voting stock of TruServ. A quorum of
50% of the issued and outstanding Class A common stock is required for taking
action by stockholders. Once a quorum is present, a vote of 50% of the
outstanding Class A common stock is necessary to take action. Our Class B common
stock has no voting rights. Class A common stock is offered only in 60-share
units, and no member may acquire more than five units or a total of 300 shares
of Class A common stock.

LIQUIDATION RIGHTS

If TruServ should dissolve or liquidate TruServ, the assets remaining after
paying our outstanding debts will be divided ratably among all shareholders of
Class A common stock and Class B common stock, in accordance with their holdings
and without preference to class of stock.

MEMBERSHIP

To become a member you must purchase 60 shares of Class A common stock for
each store that you own, up to a maximum of 300 shares for five or more stores
that are under the same I.R.S. Employer Identification Number. You must own
Class A common stock before any Class B common stock may be issued to you.
16

REDEMPTION PROVISIONS

The retail membership agreement may be terminated by you or by TruServ
Corporation 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:

- you become insolvent;

- you commit any act of bankruptcy;

- you file a voluntary petition in bankruptcy;

- you are adjudicated as bankrupt; or

- you commit a breach of any obligation under our agreement or any other
agreement with TruServ or one of its subsidiaries that is not corrected
within thirty days (ten days in case of nonpayment of accounts receivable
statements or other financial obligations to TruServ, or within the
applicable cure periods in an agreement with TruServ subsidiary) after we
give you written notice.

Pursuant to TruServ's By-laws, upon termination of the retail membership
agreement, we will purchase and you are required to sell to us all of your Class
A common stock and Class B common stock at par value. Payment for the Class A
common stock will be in cash. Payment for the Class B common stock will be a
note payable in five equal annual installments bearing an interest rate
determined by our board of directors. Also, pursuant to TruServ's By-laws, the
board of directors may delay the repurchase/redemption of stock if it believes
the action is in the best interest of TruServ Corporation.

OTHER RESTRICTIONS AND RIGHTS

We have no conversion rights, sinking fund provisions or liability for
further assessment in regard to the Class A common stock or the Class B common
stock.

Pursuant to the terms and conditions of membership in TruServ, 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 common stock
and any declared and unpaid dividends.

There is no existing market for the Class A common stock. We have the right
of first refusal, exercisable within 90 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.

MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

There is no existing market for the common stock of TruServ and there is no
expectation that any market will develop. TruServ's Class A common stock is
owned exclusively by retailers of hardware and related products each of whom is
a member or former member of TruServ and purchase at least 60 shares of
TruServ's Class A common stock (the only class of voting stock) upon becoming a
member. TruServ is organized as a Delaware stock corporation and operates as a
member-owned wholesaler cooperative corporation. The shares of TruServ's Class B
common stock now outstanding were issued to members in partial payment of the
annual patronage dividend they accrued as a result of patronage business
transacted by such members with TruServ. In accordance with TruServ's By-Laws,
the annual patronage dividend is paid to members out of the gross margins from
operations and other patronage source income, after deduction for expenses,
reserves and provisions authorized by the board of directors.

The number of holders of record (as of June 30, 2001) of each class of
stock of TruServ is as follows:

<Table>
<Caption>
NUMBER OF
HOLDERS OF
TITLE OF CLASS RECORD
-------------- ----------

Class A voting common stock, $100 Par Value................. 7,619
Class B common stock, $100 Par Value........................ 7,489
</Table>

Dividends (other than patronage dividends) on the Class A common stock and
Class B common stock, subject to the provisions of TruServ's Certificate of
Incorporation, may be declared out of gross margins of TruServ, other than gross
margins from operations with or for members and other patronage source income,
after deduction for expenses, reserves and provisions as may be authorized by
the board of directors. Dividends may be paid in cash, in property, or in shares
of the Class B common stock, subject to the provisions of the Certificate of
Incorporation and the By-Laws. Other than the payment of patronage dividends,
including the redemption of all nonqualified written notices of allocation,
TruServ has not paid dividends on its Class A common stock or Class B common
stock. The board of directors does not plan to pay dividends on either class of
stock. See Item 1--"Business--Distribution of Patronage Dividend."

SELECTED FINANCIAL DATA

<Table>
<Caption>
FOR THE FISCAL YEARS
TWENTY-SIX -----------------------------------------------------------------------
WEEKS ENDED 1999 1998 1997(B)
JUNE 30, 2001 2000 (RESTATED)(E) (RESTATED)(E) (RESTATED)(E) 1996(C)
------------- ---- ------------- ------------- ------------- -------
(IN THOUSANDS)

Revenues.......................... $1,402,115 $3,993,642 $4,502,326 $4,328,238 $3,331,686 $2,441,707
Gross margins..................... 128,050 277,397 181,465 298,135 241,020 196,636
Net margins /(loss)............... (11,363) 34,117 (130,803) 12,020 38,086 52,410
Patronage dividends(a)............ -- 34,705 -- 35,024 43,782 53,320
Total assets...................... 1,187,379 1,236,014 1,335,397 1,587,674 1,425,483 853,985
Long-term debt(d)................. 8,153 9,091 309,796 316,959 169,209 80,145
Promissory (subordinated) and
installment notes payable....... 62,025 65,846 83,804 124,422 172,579 185,366
Redeemable Class A common stock... 49,427 49,084 47,270 49,880 47,423 4,876
Redeemable Class B common stock... 174,448 174,448 177,779 195,643 187,259 114,053
</Table>

-------------------------
(a) No patronage dividend was issued in 1999 due to the reported net loss of
$130,803,000.

(b) 1997 financial results are for Cotter & Company from January 1, 1997 through
June 30, 1997 and the merged company of TruServ for July 1, 1997 through
December 31, 1997.

(d) As discussed in Note 2 to the consolidated financial statements, all amounts
outstanding under the senior note agreements have been classified as current
as of December 31, 2000 and June 30, 2001.

(e) As discussed in Note 1 to the consolidated financial statements, the fiscal
year 1997, 1998 and 1999 results have been restated to reflect the recording
as expenses in fiscal 1997 and 1998 of $13.6 million of costs that were
previously accrued for as of July 1, 1997 in connection with the SCC merger.

QUARTERLY FINANCIAL SUMMARY
<Table>
<Caption>
2001 2000 1999
------------------- --------------------------------------------- ------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ----------

Revenues............. $747,765 $654,350 $884,506 $944,269 $1,137,262 $1,027,605 $1,049,830 $1,117,496 $1,264,108
Gross margins........ 77,400 50,650 65,942 71,881 76,908 62,666 (24,705) 70,247 81,691
Net margins
/(loss)............ 2,573 (13,936) 21,671 9,447 11,923 (8,924) (130,642) 5,864 18,270

<Caption>
1999
----------
FIRST
QUARTER
----------

Revenues............. $1,070,892
Gross margins........ 54,232
Net margins
/(loss)............ (24,295)
</Table>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Note: In consultation with TruServ's prior and current auditors, and as
more fully explained in footnote 1 of the annual financial statements, TruServ
has restated the consolidated financial statements as of and for the years ended
December 31, 1999, 1998 and 1997. Additionally, TruServ has made certain
reclassifications to the prior year consolidated financial statements to conform
with the current year's presentation.

THIRTEEN WEEKS ENDED JUNE 30, 2001 COMPARED TO THIRTEEN WEEKS ENDED JULY 1, 2000

RESULTS OF OPERATIONS:

Revenues for the thirteen weeks ended June 30, 2001 totaled $747,765,000.
This represented a decrease of $389,497,000, or 34.2%, compared to the same
period last year. The key contributor to the decreased revenue is the sale of
the lumber and building materials business to Builder Marts of America, Inc. in
December 2000, which accounts for $301,997,000 of the negative variance in
comparison to the prior year. In addition, a reduction in direct shipment sales
contributed approximately $48,400,000 to the decrease in revenue. 62% of this
reduction in direct shipment sales occurred in same store sales, predominately
due to TruServ's "Connect 4 Profit" initiative to shift shipments from direct
sales to handled sales (stock and relay shipments). The remaining reduction in
direct shipment sales was caused by a decrease in the number of members
participating in the cooperative.

Although revenue declined, gross margins for the thirteen weeks ended June
30, 2001 increased by $492,000, or 0.6%, over the prior year. Gross margin as a
percent of revenue increased to 10.4% from 6.8% for the comparable period last
year. The increase in the gross margin percentage resulted from a change in
sales mix, as the higher margin handled sales are 56% of revenue in 2001
compared to 39% in 2000. The change in sales mix is due to a shift away from
direct shipment sales and the sale of the lumber and building materials
business, which have lower margin percentages.

Logistics and manufacturing expenses increased $2,370,000, or 10.4%, as
compared to the same period last year. The variance is primarily due to $824,000
of inventory capitalization expense due to declining inventory levels and
approximately $700,000 of product launch costs.

Selling, general and administrative (S,G&A) expenses increased $9,461,000,
or 38.9%, as compared to the same period last year. TruServ's restructuring
initiative accounts for approximately $4,400,000 of the negative variance from
the prior year. The restructuring expense recorded in the second quarter of 2001
relates to staff reductions at corporate headquarters, distribution centers and
field sales positions. The additional negative variance in S,G&A expenses was
due to higher benefit and severance costs.

Interest paid to members decreased by $837,000, or 29.7%, as compared to
the same period last year, primarily due to a lower average principal balance of
debt outstanding. Other interest expense decreased $1,402,000, or 8.6%, as
compared to the same period last year. The interest expense savings from the
lower average principle balance of senior debt outstanding as compared to the
same period last year was partially offset by the interest rate increase of
approximately 2% resulting from the debt covenant violation under the revolving
credit facility and the senior note agreements. The incremental increase in
interest expense for the thirteen weeks ended June 30, 2001 aggregated
approximately $2,400,000 for this rate increase.

Although TruServ has maintained gross margins on lower sales, net margin
was impacted by the expenses related to the restructuring initiative and the
incremental increase in interest expense due to the debt covenant violation,
(see note 2 to TruServ's condensed consolidated financial statements) resulting
in a net margin of $2,573,000 for the second quarter of 2001 as compared to a
net margin of $11,923,000 for the second quarter of 2000.

TWENTY-SIX WEEKS ENDED JUNE 30, 2001 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 1,
2000

RESULTS OF OPERATIONS:

Revenues for the twenty-six weeks ended June 30, 2001 totaled
$1,402,115,000. This represented a decrease of $762,752,000, or 35.2%, compared
to the same period last year. The key contributor to the decrease in revenue is
the sale of the lumber and building materials business to Builder Marts of
America, Inc. in December 2000, which accounts for $608,187,000 of the negative
variance in comparison to the prior year. Revenues were negatively impacted due
to the decrease in the number of members participating in the cooperative, which
accounts for approximately $87,019,000 of the variance to prior year. The
remaining revenue reduction occurred in same store sales, with 82% of this
reduction in direct sales, which generate a lower gross margin for TruServ.

Gross margins decreased by $11,524,000, or 8.3%, as compared to the same
period last year, but the gross margin as a percent of revenue, increased to
9.1% from 6.4% for the comparable period last year. The increase in the gross
margin percentage resulted from a change in sales mix, as the higher margin
handled sales are 54% of revenue in 2001 compared to 38% in 2000. The change in
sales mix on a year-to-date basis is predominately driven by the sale of the
lumber and building materials business. The sale of the lumber and building
materials business contributed $9,790,000 to the reduction in gross margin.

Logistics and manufacturing expenses decreased $736,000, or 1.6%, as
compared to the same period last year. The reduction in warehouse labor
resulting from reduced sales and inventory levels had a downward impact on
expenses.

Selling, general and administrative (S,G&A) expenses increased $4,394,000,
or 7.5%, as compared to the same period last year. TruServ reduced headcount in
corporate staff and operational expenses as a result of the sale of the lumber
and building materials business in December 2000; however, the expenses that
were eliminated did not fully offset the restructuring expenses recorded in the
second quarter of 2001.

Interest paid to members decreased by $1,699,000, or 30.2%, as compared to
the same period last year, primarily due to a lower average principal balance of
debt outstanding. Other interest expense increased $402,000, or 1.4%, as
compared to same period last year. The interest expense savings from the lower
average principle balance of senior debt outstanding did not fully offset the
increase in the interest rate of approximately 2% due to the debt covenant
violation under the revolving credit facility and the senior note agreements.

Although TruServ has reduced logistics, manufacturing and S,G&A expenses by
consolidating the distribution network and reducing corporate overhead staff,
the expenses that were eliminated did not fully offset the gross margin impact
from the decreased revenue, the restructuring costs and the incremental increase
in interest expense from the debt covenant violation, resulting in a net loss of
$11,363,000 for the twenty-six weeks ended June 30, 2001 as compared to a net
margin of $2,999,000 for the comparable period last year.

LIQUIDITY AND CAPITAL RESOURCES:

Cash provided by operating activities for the twenty-six weeks ended June
30, 2001, was $101,086,000, compared to cash used of $54,313,000 for the
twenty-six weeks ended July 1, 2000. Inventories decreased by $26,009,000 from
December 31, 2000 as a result of TruServ's initiative to improve inventory turns
by reducing inventory. Accounts payable increased by $59,246,000 since December
31, 2000 as a result of the seasonal terms obtained from vendors. TruServ used
the cash generated from operating activities in the first half of fiscal 2001 to
reduce its outstanding debt balance.

Investing activities used cash of $6,163,000 for the twenty-six weeks ended
June 30, 2001, compared to cash generated of $1,095,000 for the same period last
year. TruServ sold its distribution center located in Westfield, Massachusetts
in the second quarter of fiscal 2000, which generated proceeds of $6,250,000.
TruServ used $6,989,000 in cash for additions to properties owned, which is
comparable to the same period last year of $6,639,000. These capital
expenditures are comprised of various building improvements and

purchases of additional equipment and technology at TruServ's regional
distribution centers and at its corporate headquarters.

At June 30, 2001, TruServ's working capital deficit was ($181,406,000), as
compared to ($188,739,000) at December 31, 2000. The current ratio was 0.824 at
June 30, 2001, as compared to 0.822 at December 31, 2000.

At July 1, 1997, TruServ established a $300,000,000 five-year revolving
credit facility with a group of banks. These agreements were amended and
restated in April 2000 after a default was triggered as a result of the loss in
1999. The amendments include increased interest rates, new financial ratios and
covenants, and the collateralization of TruServ's assets. TruServ had borrowed
under the agreement $115,000,000 and $127,000,000 at June 30, 2001 and December
31, 2000, respectively. TruServ also pays a commitment fees of .05% per annum on
the unused portion of the commitments.

Under the senior notes and the revolving credit facility TruServ is
required to meet certain restrictive financial ratios and covenants relating to
minimum EBITDA, minimum fixed charge coverage, minimum borrowing base to debt
ratio, maximum capital expenditures and maximum asset sales, as well as other
customary covenants, representations and warranties, funding conditions and
events of default. As of December 31, 2000, TruServ was in compliance with the
covenant requirements.

However, as of February 24, 2001, TruServ failed to comply with a covenant
under the revolving credit facility and the senior note agreements which
requires TruServ to achieve a minimum monthly borrowing base ratio. As a result,
either the senior note holders or the participants in the revolving credit
facility could declare this failure to comply with the covenant as an 'event of
default,' in which case the senior notes and the amounts outstanding under the
revolving credit facility would become callable as immediately payable.

On March 30, 2001, the participants in the revolving credit facility issued
to TruServ "reservation of rights" letters under which the participants
effectively stated their intention to not call as immediately payable TruServ's
outstanding debt obligations until May 1, 2001, although they were not precluded
from doing so. All other rights of the participants were preserved. Additional
letters were issued on April 30, 2001 and July 3, 2001, which extended the
reservation of rights until July 30, 2001 and September 30, 2001, respectively.
The senior note holders also issued letters reserving their right to accelerate
the maturity of the notes although agreeing not to do so at this time.

The reservation of rights letters provided by the participants in the
revolving credit facility required that the upper limit of the total amount that
may be borrowed under the Credit Agreement at any time prior to September 30,
2001 be lowered from $275,000,000 to $225,000,000. The credit limit under this
facility was reduced on May 11, 2001 from $275,000,000 to $250,000,000.
Additionally, the interest rate on the amounts outstanding under the revolving
credit facility was increased by approximately 2%; this increased interest rate
also applies to the outstanding senior notes. As a result of this increased
interest rate, TruServ will incur additional interest expense in fiscal year
2001. If this increased interest rate continues through December 31, 2001, the
additional interest expense would aggregate approximately $6.0 million.

TruServ is in discussions with the current lenders and with potential
lenders regarding refinancing the senior note agreements and the revolving
credit facility and, if successful, will replace the current senior note
agreements and the revolving credit facility with an asset-based lending
agreement with a new lending group in the fourth quarter of 2001. An alternative
may be to amend the existing agreements with the existing lenders. However, no
assurances can be given as to the outcome. TruServ's failure to successfully
refinance or amend its current borrowing arrangements could cause the current
lending group to call as immediately payable TruServ's currently outstanding
debt obligations. TruServ's resulting inability to satisfy its debt obligations
would force TruServ to pursue other alternatives to improve liquidity, possibly
including, among other things, restructuring actions, sales of assets and
seeking additional sources of funds or liquidity. In particular, TruServ has
engaged an investment banking firm to assist it in exploring the sale of the
paint manufacturing business. No assurances can be given that TruServ will be
successful in pursuing such possible alternatives or, even if successful, that
such undertakings would not have a material adverse impact on TruServ.

FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999

RESULTS OF OPERATIONS

Revenues for 2000 totaled $3,993,642,000. This represented a decrease in
revenues of $508,684,000 or 11.3% over 1999. This decrease was the result of
various factors. The primary contributing factor was lower revenues from
TruServ's sales of lumber and building material products, which declined
$272,331,000 or 20.1% over the prior year. Lower commodity pricing in the lumber
and building materials industry and a decrease in unit volume contributed to the
decrease in hardware sales. A second contributing factor was a decrease in
hardware sales, which declined $240,273,000 or 8.7% over the prior year. A
reduction in TruServ's member base contributed to this decline. The member base
erosion was partially due to management's decision to eliminate stores that were
not profitable to the co-op. Average hardware handled sales per store in 2000
were equivalent to 1999 at approximately $16,000 per month excluding
non-profitable members who did not meet minimum purchasing levels.

In 2000, TruServ experienced an increase in gross margins of $95,932,000 or
52.9% over the prior year. Gross margins as a percentage of revenue also
increased to 6.9% from 4.0% for 1999. TruServ's improvement of inventory
controls in 2000 and a significant reduction in member claims contributed to the
increase in gross margins. In addition, TruServ conducted a physical inventory
count in the fourth quarter of 2000, which resulted in a $22.2 million
adjustment that positively impacted gross margins. TruServ recorded an inventory
adjustment in 1999 resulting in a charge of $74.0 million related to the
consolidation of the distribution network which was caused by larger than usual
employee turnover, less than adequate training procedures and increased member
claims. TruServ's implementation of one common ordering system for all of its
members and a reduction in employee turnover resulted in reduced member claims.
The reductions in member claims are also the result of TruServ increasing
training procedures for employees in the last year, particularly in the handling
of inventory.

Logistics and manufacturing expenses decreased $9,338,000 or 9.4%, as
compared to the prior year. TruServ's initiatives in consolidating its
distribution network, developed with the merger plan from 1997, led to the
reduction in these expenses as the merger integration costs incurred in fiscal
1999 of $18,683,000 were no longer incurred by TruServ in fiscal 2000. The
merger integration costs TruServ had previously incurred related to:

- additional costs TruServ incurred implementing the merger plan from 1997
that related to former Cotter distribution center closings, severance pay
and the temporary incremental increase in warehousing costs to convert
the go forward product assortment, and

- the integration of the three distribution networks by consolidating
operating systems, revising truck runs for overlapping distribution
centers and resizing and reconfiguring warehouse racking.

The decrease was partially offset by increased handling and packaging
expenses and lower capitalization of warehouse costs due to lower inventory
levels.

As a result of the decreases in sales that TruServ experienced in early
2000, TruServ implemented significant cost cutting measures in 2000 that
resulted in a decrease in selling, general and administrative ("SG&A") expenses.
SG&A expenses decreased $19,274,000 or 13.6% over the prior year. SG&A expenses
as a percentage of sales were 3.1%, which is consistent with the prior year
including merger integration costs which amounted to $7,513,000 in fiscal 1999.

As a result of a reduction in the aggregate principal balance of debt to
members of TruServ, the amount of interest that TruServ paid to members
decreased $3,367,000 or 23.2% in comparison to the prior year. However, other
interest expense increased by $10,371,000, representing a 22.4% increase. This
increase was

the result of higher interest rates under the various financing agreements,
which was partially offset by decreased borrowing amounts.

Gain on sale of assets increased $18,613,000. The gain was due primarily to
TruServ's sale of its lower gross margin lumber and building materials division.

Other income increased by $6,179,000, primarily due to a one-time gain
resulting from the settlement of certain pension obligations to fully vested
employees through the purchase of annuity contracts.

In 2000, income tax expense decreased by $16,104,000, primarily due to
TruServ recording in 1999 a full valuation allowance on deferred taxes of
$16,490,000 existing as of December 31, 1998. The valuation allowance was
required under FAS 109, since TruServ had cumulative losses for the three most
recent fiscal years and consequently did not have sufficient evidence to support
the realization of this asset. In 2000, there was no change in the valuation
allowance.

TruServ's net margin in 2000 was $34,117,000 compared to a net loss of
$130,803,000 in 1999. TruServ attributes this result to the following:
improvement in its gross margins, a reduction in logistics and manufacturing
expenses, a decrease in SG&A expenses, the gain from the sale of the lumber and
building materials division and the settlement of the pension claims through the
purchase of annuity contracts.

FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

RESULTS OF OPERATIONS

Revenues for 1999 totaled $4,502,326,000. This represented an increase in
revenues of $174,088,000 or 4.0% over 1998. The increase was primarily due to an
increase of 7.8% in direct shipment sales and 15.1% in lumber and building
materials sales.

Gross margins decreased by $116,670,000 or 39.1% and, as a percentage of
revenues, decreased to 4.0% from 6.9% for the comparable 1998 period. This
decrease was primarily attributable to: inventory adjustments related to
consolidation of the distribution network leading to increased member claims, a
change in sales mix, and the impact of retail competitive pressures.

The inventory adjustment of $74,000,000 related to the resolution of
certain unreconciled differences arising from the consolidation of the
distribution network, integration of one inventory platform, larger than usual
employee turnover, less than adequate training procedures and increased member
claims. The increased member claims incurred by TruServ were due to the
consolidation of three ordering systems of the various merged entities,
containing 130,000 items, into one ordering system containing 60,000 items.
Member claims resulted in $20,000,000 of the $74,000,000 inventory adjustment.
These claims predominantly arose from a difference between the merchandise the
member ordered and the merchandise received by the member (although additional
claims arose from damages, overages and allowances). This trend of member claims
is not expected to continue because TruServ has taken measures to improve
inventory controls by taking more physical inventory counts, using more
extensive cycle count procedures and increasing employee training to improve
shipping/receiving accuracy and thereby reducing member returns.

The sales mix has continued to shift from the handled and paint sales that
generate a higher gross margin to the lower gross margin direct shipments and
lumber and building material sales to members. The decrease in handled and paint
sales, consolidation of the distribution center network, refinement of estimates
for allowances and additional costs associated with inventory capitalization
negatively impacted the gross margin by $40.3 million.

TruServ has continued to provide members with lower pricing to deal with
the intense competitive pressure that the members are experiencing in the retail
marketplace from "Big Box" stores such as Home Depot, Menards and Lowes, as well
as the diversified retailers such as Sears and Walmart.

The negative gross margin impact from the aforementioned inventory
adjustments, decrease in handled and paint sales and lower pricing to combat
competition was partially offset by the gross margin increase attributable to
increased direct shipment sales and lumber and building materials sales. The
gross margin

increased $3,883,000 or 1.6% as a percentage of revenue due to the increase in
direct shipment sales and lumber and building materials sales of $248.0 million.

Logistics and manufacturing expenses increased $2,953,000 or 3.1% as
compared to the prior year. This increase was due to the start-up of a new
distribution center in Hagerstown, Maryland, and the shut down of three other
distribution centers which caused merger integration costs to increase from
$17,589,000 in fiscal 1998 to $18,683,000 in fiscal 1999. The merger integration
costs relate to

- additional costs TruServ incurred implementing the merger plan from 1997 that
related to former Cotter distribution center closings, severance pay and the
temporary incremental increase in warehousing costs to convert to the go
forward product assortment and

- the integration of the three distribution networks by consolidating operating
systems, revising truck runs for overlapping distribution centers and resizing
and reconfiguring warehouse racking.

In fiscal 1999, SG&A expenses increased $5,449,000 or 4.0% over the prior
year. The increase was primarily attributable to depreciation and amortization
and bad debt expense. Depreciation and amortization increased $9,019,000 or
28.1% as a result of the amortization of conversion funds provided to members
and increased capital expenditures in 1998 being depreciated in 1999. An
additional increase occurred with merger integration costs which were $7,513,000
in fiscal 1999 compared to $2,445,000 in fiscal 1998. These increases were
partially offset by decreased travel expenses of approximately $6,000,000.

Total interest expense increased in 1999 by $5,602,000 or 10.2% over fiscal
1998. Other interest expense increased by $7,494,000 due to an increase in
TruServ's borrowing rate. This increase was partially offset by a decrease in
interest paid to members by $1,892,000 or 11.5% due to a lower average interest
rate and lower principal balance.

The gain on sale of properties totaled $11,724,000 for fiscal year 1999 and
is attributable to the sale of redundant distribution centers and associated
property.

Income tax expense increased by $16,423,000 because of the uncertainty of
the future realization of the tax benefit. The previously recorded tax asset
related to the merger was written off due to the extent of the net operating
loss that had occurred in 1999.

The cumulative effect on prior years of a change in accounting principle of
$6,484,000 reflects the start-up costs of converting the information
technology/inventory management systems used by SCC distribution centers prior
to the merger to those systems currently used by TruServ. This reduction in net
margins is in compliance with SOP 98-5, "Reporting the Costs of Start-up
Activities."

The combination of decreased gross margins, increased borrowing costs,
increased income tax expense and the cumulative effect of a change in accounting
principle resulted in a net loss of $130,803,000 compared to a net margin of
$12,020,000 for the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the fiscal year ended December
31, 2000 was $83,573,000, compared to cash provided by operating activities of
$181,607,000 for the fiscal year ended December 31, 1999 and cash used by
operating activities of $118,905,000 for the fiscal year ended December 31,
1998. Inventory decreased by $38,752,000 in fiscal year 2000, which continued
the decrease in inventory levels started in fiscal 1999 of $112,703,000. These
decreases are the result of TruServ consolidating its distribution network to
respond to the decline in sales it had experienced, along with its efforts to
commonize inventory assortment and implement TruServ's distribution network
strategic plan from the merger. TruServ also realized benefits from implementing
a new inventory forecasting system that improved service levels to the members.
In fiscal 1998, inventory increased $52,572,000 due to the effect of starting
the commonization of the inventory assortment and to implementing TruServ's
distribution network strategic plan from the merger. Both efforts required
TruServ to bring in additional inventory before the old inventory could be
removed from the network, which occurred in 1999.

In fiscal 2000 and 1999, TruServ experienced a decrease of $52,187,000 and
$63,059,000, respectively, in accounts and notes receivable due to both a
decline in sales and the implementation of improved collection efforts. In
fiscal 1998, accounts and notes receivable increased by $69,585,000 due to a
change in terms that extended the dating on seasonal payment terms to TruServ's
members. Other significant impacts in operating activities in fiscal 2000 and
1999 were in accounts payable. In fiscal 2000, accounts payable decreased by
$81,944,000 resulting from reduced inventory purchases in 2000 and the decrease
in lumber and direct shipment sales described above. In fiscal 1999, accounts
payable increased by $56,087,000 due to improved terms with vendors and better
inventory turns.

Cash flows provided by investing activities were $871,000 in fiscal 2000
compared to a use of funds of $10,532,000 in 1999 and $44,011,000 in 1998. Total
capital expenditures, including expenditures under capital leases, were
$12,526,000 for the fiscal year ended December 31, 2000, as compared to
$45,235,000 and $71,343,000 for the fiscal years ended December 31, 1999 and
December 31, 1998, respectively. These capital expenditures are comprised of
various building improvements and purchases of additional equipment and
technology at TruServ's regional distribution centers and at its corporate
headquarters. In addition, TruServ benefited from the receipt of proceeds from
the sale of properties in fiscal 2000 of $23,113,000. The principal amount of
cash was generated from the sale of the lumber and building materials division
on December 29, 2000 in the amount of $13,948,000; additionally, this same
transaction generated cash in the amount of $5,164,000 received for
non-competition, cooperation, lease and other agreements. In fiscal 1999 and
1998, the proceeds from the sale of properties were $39,714,000 and $32,645,000,
respectively. These proceeds were predominately generated from the sale of
closed distribution centers.

TruServ generated cash flows from operating and investing activities and
primarily used them to reduce TruServ's debt by $67,943,000 and $170,910,000 for
fiscal years 2000 and 1999, respectively. This amount predominately represented
a decrease in both long-term and short-term debt. TruServ anticipates that this
trend of lower debt will continue due to the sale of the lumber and building
materials division. This sale eliminates the float TruServ carried on the direct
shipment sales of this division, since the vendor's invoices were paid before
the members pay TruServ. In fiscal 1998, TruServ provided cash from financing
activities of $162,342,000 to fund the cash used in operations.

At July 1, 1997, TruServ established a $300,000,000 five-year revolving
credit facility with a group of banks. The agreements were amended and restated
in April 2000 after a default was triggered as a result of the loss in 1999. The
amendments include increased interest rates, new financial ratios and covenants,
and the collateralization of TruServ's assets. TruServ had borrowed under the
agreement $127,000,000 and $135,000,000 at December 31, 2000 and 1999,
respectively. TruServ also pays a commitment fee of .05% per annum on the unused
portion of the commitments. Also, at December 31, 1999, TruServ had amounts due
under a commercial paper program of $19,000,000, which it paid in 2000. The
weighted average interest rate on these borrowings was 8.9% and 6.4% for the
years ended December 31, 2000 and 1999, respectively.

On March 30, 2001 the participants in the revolving credit facility issued
to TruServ a "reservation of rights" letter under which the participants
effectively stated their intention to not call as immediately payable TruServ's
outstanding debt obligations until May 1, 2001, although they were not precluded
from doing so. All other rights of the participants were preserved. Additional
letters were issued on April 30, 2001 and on July 3, 2001, which extended the
reservation of rights until July 30, 2001 and September 30, 2001, respectively.
The

senior note holders also issued letters reserving their right to accelerate the
maturity of the notes although agreeing not to do so at this time.

TruServ is in discussions with the current lenders and with potential
lenders regarding refinancing the senior note agreements and the revolving
credit facility and, if successful, will replace the current senior note
agreements and the revolving credit facility with an asset-based lending
agreement with a new lending group in the fourth quarter of 2001. An alternative
may be to amend the existing agreements with the existing lenders. However, no
assurances can be given as to the outcome. TruServ's failure to successfully
finance or amend its current borrowing arrangements could cause the current
lending group to call as immediately payable TruServ's currently outstanding
debt obligations. TruServ's resulting inability to satisfy its debt obligations
would force TruServ to pursue other alternatives to improve liquidity, possibly
including, among other things, restructuring actions, sales of assets and
seeking additional sources of funds or liquidity. In particular, TruServ has
engaged an investment banking firm to assist in exploring the sale of the paint
business. No assurances can be given that TruServ would be successful in
pursuing such possible alternatives or, even if successful, that such
undertakings would not have a material adverse impact on TruServ.

Accordingly, the balances outstanding under the senior note agreements and
the revolving credit facility have been classified as current liabilities as of
December 31, 2000. However, the financial statements do not include any other
adjustments that might result from the outcome of this uncertainty.

At December 31, 2000, TruServ's working capital was ($188,739,000), as
compared to $85,789,000 at December 31, 1999. The current ratio was 0.82 at
December 31, 2000, as compared to 1.10 at December 31, 1999.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

TruServ's operations are subject to certain market risks, primarily
interest rate risk and credit risk. Interest rate risk pertains to TruServ's
variable rate debt which totals approximately $115,000,000 at June 30, 2001. A
50 basis point movement in interest rates would result in an approximate
$575,000 annualized increase or decrease in interest expense and cash flows. For
the most part, TruServ manages interest rate risk through a combination of
variable and fixed-rate debt instruments with varying maturities. Credit risk
pertains mostly to TruServ's trade receivables. TruServ extends credit to its
members as part of its day-to-day operations. TruServ believes that as no
specific receivable or group of receivables comprises a significant percentage
of total trade accounts, its risk in respect to trade receivables is limited.
Additionally, TruServ believes that its allowance for doubtful accounts is
adequate with respect to member credit risks.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TruServ's consolidated financial statements and report of independent
accountants are listed in the index on page F-1.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

TruServ dismissed Ernst & Young LLP as its independent accountants, as
recommended by its Audit and Finance Committee and approved by its Board of
Directors. The reports of Ernst & Young LLP of the financial statements for 1998
and 1999 contained no adverse opinion or disclaimer of opinion. Additionally,
their opinion was not qualified or modified as to uncertainty, audit scope or
accounting principles, except the opinion on the 1999 financial statements was
modified to reflect TruServ's change in accounting principle for start-up costs.
In connection with its audits for 1998 and 1999, there were no disagreements
with Ernst & Young LLP on any matters of accounting principles or practices,
financial statement disclosure, or audit scope or procedure which, if not
resolved to the satisfaction of Ernst & Young LLP, would have caused Ernst &
Young LLP to make reference to the matter in their report. Ernst & Young LLP
notified TruServ and its Audit and Finance Committee in a letter dated April 14,
2000 that internal controls necessary for TruServ to develop reliable financials
statements did not exist during the year ended December 31, 1999.

TruServ's Audit and Finance Committee recommended, and the Board of
Directors approved, the appointment of PricewaterhouseCoopers LLP as its new
independent accountants on June 29, 2000.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and senior executive officers of TruServ are:

<Table>
<Caption>
NAME AGE POSITION(S) HELD AND BUSINESS EXPERIENCE
---- --- ----------------------------------------

Bryan R. Ableidinger................. 53 Director since August, 2000. Term expires at the 2002
annual stockholders' meeting.
Benjamin J. Andre.................... 65 Director since August, 2000. Term expires at the 2002
annual stockholders' meeting.
Joe W. Blagg......................... 52 Chairman since January, 2000. Acting Chief Executive
Officer since July 3, 2001. Director since April, 1996.
Term expires at the 2002 annual stockholders' meeting.
James D. Burnett..................... 66 Director since April, 1998. Term expires at the 2002
annual stockholders' meeting.
Harold A. Douthitt................... 54 Director since August, 2000. Term expires at the 2002
annual stockholders' meeting.
Jay B. Feinsod....................... 58 Director since July, 1997. Term expires at the 2002
annual stockholders' meeting. Formerly Director of SCC
since October, 1986.
William F. Godwin.................... 46 Senior Vice President, Supply Chain since March, 2001.
Prior positions were Vice President of Advertising,
Merchandising and Inventory Management with the company.
Neil A. Hastie....................... 52 Senior Vice President, Chief Information Officer since
December, 1999. Prior position was Director of
E-Business since 1998.
James D. Howenstine.................. 58 Vice-Chairman since January, 2000. Director since July,
1997. Term expires at the 2002 annual stockholders'
meeting. Formerly Director of SCC since October, 1995.
Peter G. Kelly....................... 58 Director since July, 1997. Term expires at the 2002
annual stockholders' meeting. Formerly Director and
Chairman of SCC since January, 1981. Formerly
Vice-Chairman of the company.
Robert J. Ladner..................... 55 Director since April, 1994. Term expires at the 2002
annual stockholders' meeting. Formerly Chairman of
Cotter & Company. Formerly Vice-Chairman of the company.
Pamela Forbes Lieberman.............. 47 Chief Operating Officer since July 3, 2001, Chief
Financial Officer since April 18, 2001 and Senior Vice
President, Finance since March 12, 2001. Prior positions
were Senior Vice President, Finance and Chief Financial
Officer of Shoptalk, Inc., Martin-Brower Company and
Fel-Pro Incorporated.
Robert M. Liebgott................... 51 Senior Vice President, Sales, Marketing & Merchandising
since March, 2001. Prior position was Vice President of
Merchandising with the company.
Robert Ostrov........................ 52 Chief Administrative Officer and General Counsel since
April, 2000, and Senior Vice President since February,
1997. Prior position was Vice President of Human
Resources for a retail company.
</Table>

<Table>
<Caption>
NAME AGE POSITION(S) HELD AND BUSINESS EXPERIENCE
---- --- ----------------------------------------

Michael D. Rosen..................... 49 Senior Vice President of Logistics since March, 2001.
Prior positions were Vice President of Logistics and
Retail Systems, Assistant Vice President of Retailing,
Assistant Vice President of Merger Administration, and
General Manager of Lumber and Building Materials.
George V. Sheffer.................... 49 Director since July, 1994. Term expires at the 2002
annual stockholders' meeting.
John M. West, Jr. ................... 48 Director since October, 1991. Term expires at the 2002
annual stockholders' meeting.
Barbara B. Wilkerson................. 53 Director since July, 1997. Term expires at the 2002
annual stockholders' meeting. Formerly Director of SCC
since October, 1986.
</Table>

-------------------------

During the past five years, the principal occupation of each director of
TruServ was the operation of retail hardware stores or lumber/building materials
stores.

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE

The Compensation Committee of the board of directors consists of four
non-employee directors and assists the board of directors in fulfilling its
responsibilities for setting and administering the policies which govern annual
compensation and monitoring TruServ's pension and other benefit plans. The
committee, which meets regularly, calls upon outside consultants for assistance
in carrying outs its obligations.

The philosophy of the committee is to maintain an executive compensation
program to help TruServ attract, retain and motivate the executive resources
needed to maintain industry leadership, provide high levels of service to
members, and achieve the financial objectives determined by the board of
directors. The committee sets performance goals, assesses achievement relative
to the performance goals, and recommends to the board salary, bonus and
long-term incentives for the senior executives of TruServ.

To achieve its goals, the committee has developed three executive
compensation policies for TruServ:

- Salaried compensation should be competitive with the median for
executives of companies of a comparable size within TruServ's industry;

- Annual incentive compensation should vary and reflect TruServ's
performance; and

- A long-term (multiple year) incentive program should be available to help
TruServ retain selected executives.

The combination of these three compensation policies is intended to provide
competitive earning opportunities when performance reaches desired levels. Both
the annual and long-term incentive plans may be terminated by the board of
directors at any time. The bonus and long-term components of the total
compensation package are computed in the year following the year in which they
are earned and are paid out to the individual with respect to the prior year.

TruServ provides salary levels that fall within the median (between the
50th to 60th percentile) of the executive marketplace of comparable size in
TruServ's industry. The following types of organizations are considered within
TruServ's industry: member-owned organizations, wholesale distribution firms,
mass merchandising firms and general manufacturing organizations.
Competitiveness is measured using data from a number of sources, including
published information, proxy statements and surveys by consulting firms.

The 2000 compensation of Donald Hoye, TruServ's former chief executive
officer, was determined as follows: The salary component of his total
compensation was maintained at $500,000, the same level he had in 1999. Mr. Hoye
earned a bonus for year 2000 of $417,500 as a result of TruServ's improved
services to the members in 2000 over 1999. Mr. Hoye did not receive a bonus in
1999. In 2000, Mr. Hoye did not receive a long-term incentive award.

Harold A. Douthitt
Peter G. Kelly
Robert J. Ladner
John M. West
Joe W. Blagg (ex officio)
COMPENSATION COMMITTEE

EXECUTIVE COMPENSATION 2000

The following table sets forth the total annual compensation paid to
TruServ's five most highly compensated executive officers during fiscal year
2000 and the total compensation paid to each such individual for TruServ's two
previous fiscal years:

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
NAME AND OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)
------------------ ---- ------ -------- ---------------

Donald J. Hoye...................................... 2000 $500,000 $417,500 $ 44,855
Former President and 1999 500,000 -- 38,418
Chief Executive Officer 1998 408,750 -- 58,395
Brian T. Schnabel................................... 2000 384,375 303,400 39,165
Former Executive Vice President and 1999 304,400 195,000 37,372
Chief Operating Officer 1998 75,800 72,000 230,729
Robert Ostrov....................................... 2000 264,080 172,550 30,592
Senior Vice President, Chief Administrative 1999 244,000 36,000 19,302
Officer and General Counsel 1998 234,000 -- 15,020
Leonard G. Kuhr..................................... 2000 268,750 137,550 16,697
Former Senior Vice President and 1999 -- -- --
Chief Financial Officer 1998 -- -- --
Robert M. Liebgott.................................. 2000 255,000 129,000 27,843
Vice President, 1999 246,000 15,000 10,940
Merchandising 1998 237,000 50,000 11,460
</Table>

-------------------------

(1) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of each fiscal year. In 2000, a
special recognition bonus was earned and paid as a result of TruServ's
increased service to members.

(2) Other compensation consists of TruServ's contributions to the TruServ
Corporation Employee's Savings and Compensation Deferral Plan (the "Savings
Plan"), life insurance plan, financial planning services and automobile
allowances. Under the Savings Plan, each participant may elect to make a
contribution in an amount of up to fifteen percent (15%) of his annual
compensation, not to exceed $30,000 (including TruServ's contributions) per
year, of which $10,000 of the executive officer's salary in fiscal year 1999
may be deferred. TruServ's contribution to the Savings Plan, from January 1
through June 30 of 2000, was equal to seventy-five percent (75%) of the
participant's contribution, but not to exceed four and one-half percent
(4 1/2%) of the participant's annual compensation. Effective July 1, 2000,
the Savings Plan was amended to apply only a profit sharing match tied to
TruServ's net earnings. The officers did not received a company match for
the second half of fiscal 2000.

In 1999, other compensation for Mr. Hoye consisted primarily of a
transition bonus of $20,000. For Mr. Schnabel the 1999 other compensation
consisted primarily of relocation payments of $23,380.

In 1998, other compensation for Mr. Hoye consisted primarily of a
transition bonus of $40,000. For Mr. Schnabel the 1998 other compensation
consisted primarily of relocation payments of $228,116.

TruServ has a severance policy providing termination benefits based upon
annual compensation and years of service. Officers of TruServ are also
offered agreements providing for severance in the event of termination with
the imposition of certain restrictions regarding competition and
confidentiality.

No loans were made by TruServ to its executive officers or to its directors
during the last three fiscal years.

BOARD COMPENSATION

In 2000, directors of TruServ (except the chairman and vice chairman) were
each paid $2,000 per month. The Chairman of the Board was paid $100,000 and the
Vice Chairman of the Board was paid $54,000 for 2000.

DEFINED BENEFIT RETIREMENT PLANS

TruServ has a defined benefit pension plan, the TruServ Corporation Defined
Lump Sum Pension Plan, which is qualified under the Internal Revenue Code. The
plan was amended and restated effective January 1, 1998. The amount of TruServ's
annual contribution to the plan is determined for the total of all participants
covered by the plan, and the amount of payment with respect to a specified
person is not and cannot readily be separated or individually calculated by the
actuaries for the plan. The plan provides fully vested lump sum benefits to
eligible employees who have served a minimum of five years of service. Annuities
are also available and are the actuarial equivalent of the lump sum payment.
Each of the executive officers listed in the foregoing Summary Compensation
Table is a participant in the plan.

For each year of service, a participant receives a percentage of his or her
"average compensation" in the form of a lump sum. The percentages range from two
percent of average compensation for years of service performed prior to age 26
to twelve percent of average compensation for years of service performed at or
after age 61. Participants with average compensation in excess of two-thirds of
the Social Security Taxable Wage Base in the year of termination of employment
or retirement receive an additional benefit on this excess compensation equal to
half of the percentage applied to their full average compensation. Participants
who were age 50 with at least fifteen years of service as of January 1, 1996
receive an additional 25% of their average compensation. The benefits under the
plan cannot be less than benefits already earned by the participant under the
plan as it existed prior to its amendment.

The plan was amended effective January 2, 1998 to include former employees
of SCC. These employees received credit under the plan for all years for which
they received credit under the SERVISTAR/Coast to Coast Retirement Income Plan
("the SERVISTAR Plan"). In addition, any of these employees who had attained age
50 and completed 15 years of service as of January 1, 1998 received an
additional 25% of their average compensation. Also, the benefits under this plan
cannot be less than benefits already earned by the participant under the
SERVISTAR Plan as of December 31, 1997.

"Average compensation" means the average of the compensation paid to an
eligible employee during the three highest calendar years within the ten
consecutive calendar years immediately preceding the date of termination of
employment. Compensation considered in determining benefits includes salary,
overtime pay, commissions, bonuses, deferral contributions under the Savings
Plan and pre-tax medical premiums.

TruServ amended and restated, effective July 24, 1998, a Supplemental
Retirement Plan for certain employees as designated by TruServ's President and
Chief Executive Officer. The supplemental plan was amended on July 1, 1997 to
include certain former SCC employees. For each year of service, participants
receive a percentage of their "average compensation" in the form of a lump sum.
The percentages are 33 percent of average compensation for years of service
performed prior to age 55 and 42 percent of average compensation for years of
service performed at or after age 55. Service is limited to 20 years and the
maximum aggregate percentage is 66%. This amount is reduced by any benefits
payable under the supplemental plan and eight times the participant's primary
Social Security benefit. "Average Compensation" for the supplemental plan is
defined the same as for the plan, as discussed above. The benefits under the
supplemental plan cannot be less than benefits already earned by the participant
under the supplemental plan as it existed prior to its amendment.

The supplemental plan is not a qualified plan under the Internal Revenue
Code. Benefits payable under the supplemental plan are financed through
operations. The estimated annual retirement benefits which may be payable
pursuant to the supplemental plan to the officers named in the Summary
Compensation Table are currently limited under Section 401(a)(17) of the
Internal Revenue Code, which outlines the maximum earnings amounts which may be
considered under the supplemental plan in determining retirement benefits.

This limit was $170,000 for 2000. Section 415 of the Internal Revenue Code
outlines the maximum annual benefit which may be payable from the supplemental
plan during the year; the dollar limit is $140,000 for 2001 for a participant
retiring at age 65, with reduced amounts at younger ages. The actuarial
equivalent of the annual amount may be payable as a lump sum.

The following table reflects the combined estimated annual retirement
benefits which may be payable pursuant to the plan and the supplemental plan to
the officers named in the Summary Compensation Table at retirement under various
assumed conditions, assuming retirement at age 65.

<Table>
<Caption>
YEARS OF SERVICE
AVERAGE --------------------------------------------------------
COMPENSATION 10 15 20 25 30
------------ -- -- -- -- --

$1,000,000................................ $392,152 $545,467 $613,260 $613,260 $613,260
900,000................................ 352,242 489,878 550,544 550,544 550,544
800,000................................ 312,331 434,288 487,827 487,827 487,827
700,000................................ 272,421 378,699 425,111 425,111 425,111
600,000................................ 232,511 323,110 362,395 362,395 362,395
500,000................................ 192,600 267,520 299,679 299,679 299,679
400,000................................ 152,690 211,931 236,962 236,962 236,962
300,000................................ 112,780 156,341 174,246 174,246 174,246
200,000................................ 72,869 100,752 111,530 111,530 111,530
100,000................................ 32,959 45,163 48,814 48,814 48,814
</Table>

The present credited years of service for the officers listed in the above
table are as follows: Robert Ostrov, 4 years; Robert M. Liebgott, 4 years.

PERFORMANCE GRAPH

There is no existing market for TruServ's common stock and there is no
expectation that any market will develop. There are no broad market or peer
group indices TruServ believes would render meaningful comparisons. Accordingly,
a performance graph of TruServ's cumulative total stockholder return for the
previous five years, with a performance indicator of the overall stock market
for TruServ's peer group, has not been prepared.

EMPLOYMENT AGREEMENT

On July 3, 2001, Donald J. Hoye resigned from the position of Chief
Executive Officer of TruServ. Pursuant to the terms of his separation agreement
with TruServ, Mr. Hoye is entitled to receive $1.3 million as severance pay to
be paid over two years.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of June 30, 2001, each of the directors of TruServ was the beneficial
owner of at least 60 shares of Class A common stock of TruServ, consisting of
0.2% of the issued and outstanding shares of Class A Common Stock. No senior
officer owns any shares of Class A common stock.

The directors own, in the aggregate, approximately 1% of Class B common
stock as of June 30, 2001. No senior officer owns any shares of Class B common
stock.

USE OF PROCEEDS

We plan to use the proceeds from the offering of the Class A common stock
for general working capital, including the purchase of merchandise for resale to
our members.

PLAN OF DISTRIBUTION

We are offering the common stock to you at $100 per share, in connection
with your becoming a member of our cooperative. To become a member you must
subscribe for 60 shares of common stock for each retail store you operate. You
may purchase a maximum of 300 shares for $30,000 if you own five or more stores.
All sales of Class A common stock are being made for cash. Each share has a par
value of $100.

The Class A common stock is being sold directly by us after your membership
has been approved by our executive officers. No one will receive a commission on
the sale of any common stock.

LEGAL MATTERS

The legality of the issuance of the Class A common stock offered has been
passed upon for us by Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.,
Chicago, Illinois.

INDEMNIFICATION

TruServ's Certificate of Incorporation and Bylaws provide for
indemnification of directors and officers to the full extent permitted by
Delaware law.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling TruServ as described above, TruServ has been informed 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.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, 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. 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. Our
web site address is http://www.truserv.com.

Requests for additional information from TruServ should be made to the
Chief Financial Officer, TruServ Corporation, 8600 West Bryn Mawr Avenue,
Chicago, Illinois 60631-3505, Telephone: 773-695-5000, Facsimile: 773-695-6563.

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.

<Table>
<Caption>
PAGE(S)
-------

Annual Financial Statements:
Report of Independent Accountants........................... F-2
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheet at December 31, 2000 and December
31, 1999.................................................. F-4
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 2000............... F-5
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 2000............... F-6
Consolidated Statement of Members' Equity for each of the
three years in the period ended December 31, 2000......... F-7
Notes to Consolidated Financial Statements.................. F-8 to F-27
Schedule II--Valuation and Qualifying Accounts.............. F-28
Interim Financial Statements:
Condensed Consolidated Balance Sheet at June 30, 2001 and
December 31, 2000......................................... F-29
Condensed Consolidated Statement of Operations for the
thirteen weeks ended June 30, 2001 and July 1, 2000 and
for the twenty-six weeks ended June 30, 2001 and July 1,
2000...................................................... F-30
Condensed Consolidated Statement of Cash Flows for the
twenty-six weeks ended June 30, 2001 and July 1, 2000..... F-31
Notes to Condensed Consolidated Financial Statements........ F-32 to F-36
</Table>

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Members of TruServ Corporation

In our opinion, the consolidated financial statements of TruServ
Corporation as of and for the year ended December 31, 2000 listed in the
accompanying index appearing on page F-1 present fairly, in all material
respects, the financial position of TruServ Corporation and its subsidiaries at
December 31, 2000, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule as of December 31, 2000 and for the year then ended listed in
the accompanying index appearing on page F-1 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements and
financial statement schedule as of December 31, 1998 and 1999 and for both of
the years then ended were audited by other independent accountants whose report
dated April 14, 2000 (except as to Note 1 which is as of July 3, 2001) expressed
an unqualified opinion on those financial statements and financial statement
schedule.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, as of February 24, 2001 the Company was in
violation of certain restrictive covenants contained in its lending agreements
and, as also discussed in Note 2, is currently in the process of renegotiating
such agreements with its lending group. These factors raise substantial doubt
about the Company's ability to continue as a going concern. As a result, all of
the Company's debt obligations to its lending group have been classified as
current liabilities. However, the financial statements do not include any other
adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 22, 2001, except as to note 2 which is as of July 3, 2001
and note 7 which is as of April 19, 2001

F-2

REPORT OF INDEPENDENT AUDITORS

To the Members and the Board of Directors
TruServ Corporation

We have audited the accompanying consolidated balance sheet of TruServ
Corporation as of December 31, 1999 (as restated), and the related consolidated
statements of operations, cash flows, and members' equity for each of the two
years in the period ended December 31, 1999 (as restated). Our audit also
included the financial statement schedule listed in the accompanying index
appearing on page F-1. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TruServ
Corporation at December 31, 1999 (as restated), and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999 (as restated), in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respect the
information set forth therein.

As discussed in Note 1 to the financial statements, the Company has
restated the financial statements for the years ended December 31, 1999, 1998
and 1997 to charge to expense as incurred certain costs that had been previously
accrued in connection with a 1997 merger.

As discussed in Note 1 to the financial statements, in 1999 the Company
changed its method of accounting for start-up costs.

/s/ Ernst & Young LLP
Chicago, Illinois
April 14, 2000, except for Note 1,
as to which the date is July 3, 2001

F-3

TRUSERV CORPORATION
CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
(RESTATED)
(000'S OMITTED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 18,316 $ 1,815
Restricted cash (Note 13)................................. 1,000 --
Accounts and notes receivable, net of allowance for
doubtful accounts of $7,170,000 and $5,613,000......... 396,587 460,419
Inventories (Note 3)...................................... 443,663 482,415
Other current assets...................................... 12,274 9,937
---------- ----------
Total current assets................................. 871,840 954,586
Properties, net (Note 4).................................... 216,146 244,845
Goodwill, net............................................... 94,051 101,787
Other assets................................................ 53,977 34,179
---------- ----------
Total assets......................................... $1,236,014 $1,335,397
========== ==========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable.......................................... $ 356,196 $ 442,140
Outstanding checks........................................ 129,490 102,764
Accrued expenses.......................................... 85,161 68,798
Short-term borrowings (Note 5)............................ 138,085 167,007
Current maturities of long-term debt, notes and capital
lease obligations (Notes 5, 6 and 8)................... 341,188 88,088
Patronage dividend payable in cash........................ 10,459 --
---------- ----------
Total current liabilities............................ 1,060,579 868,797
Long-term debt, including capital lease obligations, less
current maturities (Notes 5 and 6)........................ 9,091 309,796
Deferred credits (Note 13).................................. 9,821 1,872
---------- ----------
Total liabilities and deferred credits............... 1,079,491 1,180,465
---------- ----------
Minority interest........................................... 4,999 4,677
Commitments and contingencies (Note 7)...................... -- --
Members' capitalization:
Promissory (subordinated) and installment notes (Note
8)..................................................... 65,846 83,804
Members' equity:
Redeemable Class A voting common stock, $100 par value;
750,000 shares authorized; 411,180 and 405,060 shares
issued and fully paid; 98,880 and 106,380 shares
issued (net of subscriptions receivable of $1,922,000
and $3,874,000)....................................... 49,084 47,270
Redeemable Class B non-voting common stock and paid-in
capital, $100 par value; 4,000,000 shares authorized;
1,731,482 and 1,764,797 shares issued and fully
paid.................................................. 174,448 177,779
Loss allocation (Note 1)............................... (92,460) --
Deferred patronage (Note 1)............................ (27,288) (27,663)
Accumulated deficit.................................... (17,134) (130,089)
Accumulated other comprehensive loss................... (972) (846)
---------- ----------
Total Members' equity................................ 85,678 66,451
---------- ----------
Total Members' capitalization........................ 151,524 150,255
---------- ----------
Total liabilities and Members' capitalization........ $1,236,014 $1,335,397
========== ==========
</Table>

The accompanying notes are an integral part of the Consolidated Financial
Statements

F-4

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
(RESTATED) (RESTATED)
(000'S OMITTED)

Revenues................................................ $3,993,642 $4,502,326 $4,328,238
---------- ---------- ----------
Cost and expenses:
Cost of revenues...................................... 3,716,245 4,320,861 4,030,103
Logistics and manufacturing expenses.................. 89,944 99,282 96,329
Selling, general and administrative expenses.......... 122,860 142,134 136,685
Interest paid to Members.............................. 11,131 14,498 16,390
Other interest expense................................ 56,575 46,204 38,710
Gain on sale of assets (Note 13)...................... (30,337) (11,724) (954)
Other income, net..................................... (7,809) (1,630) (1,642)
---------- ---------- ----------
3,958,609 4,609,625 4,315,621
---------- ---------- ----------
Net margin/(loss) before income taxes and cumulative
effect of a change in accounting principle............ 35,033 (107,299) 12,617
Income tax expense (Note 9)............................. 916 17,020 597
---------- ---------- ----------
Net margin/(loss) before cumulative effect of a change
in accounting principle............................... 34,117 (124,319) 12,020
Cumulative effect on prior years of a change in
accounting principle, net of tax...................... -- 6,484 --
---------- ---------- ----------
Net margin/(loss)....................................... $ 34,117 $ (130,803) $ 12,020
========== ========== ==========
</Table>

See Note 1 for restatement of 1999 and 1998 operations.

The accompanying notes are an integral part of the Consolidated Financial
Statements

F-5

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

Operating activities:
Net margin/(loss)..................................... $ 34,117 $(130,803) $ 12,020
Adjustments to reconcile net margin/(loss) to net cash
and cash equivalents provided by/(used for)
operating activities:
Depreciation and amortization...................... 43,033 41,131 32,112
Provision for losses on accounts and notes
receivable....................................... 9,147 5,148 2,808
Gain on sale of assets............................. (30,337) (11,724) (954)
Changes in operating assets and liabilities:
Accounts and notes receivable.................... 52,187 63,059 (69,585)
Inventories...................................... 38,752 112,703 (52,572)
Other current assets............................. (2,337) 26,110 (19,795)
Accounts payable................................. (81,944) 56,087 20,010
Accrued expenses................................. 16,839 2,229 (41,698)
Other adjustments, net............................. 4,116 17,667 (1,251)
-------- --------- ---------
Net cash and cash equivalents provided by/(used
for) operating activities..................... 83,573 181,607 (118,905)
-------- --------- ---------
Investing activities:
Additions to properties............................... (12,526) (44,930) (70,733)
Proceeds from sale of properties (Note 13)............ 23,113 39,714 32,645
Changes in restricted cash (Note 13).................. (1,000) -- --
Changes in other assets............................... (8,716) (5,316) (5,923)
-------- --------- ---------
Net cash and cash equivalents provided by/(used
for) investing activities........................ 871 (10,532) (44,011)
-------- --------- ---------
Financing activities:
Payment of patronage dividend......................... -- (14,507) (12,142)
Payment of notes, long-term debt and lease
obligations........................................ (67,355) (57,340) (41,966)
Proceeds from long-term borrowings.................... 1,098 731 158,821
Increase/(decrease) in outstanding checks............. 26,726 (3,912) 16,813
Increase/(decrease) in short-term borrowings.......... (28,922) (91,140) 42,680
Purchase of common stock.............................. (599) (5,359) (3,618)
Proceeds from sale of Redeemable Class A common
stock.............................................. 1,109 617 1,754
-------- --------- ---------
Net cash and cash equivalents provided by/(used
for) financing activities........................ (67,943) (170,910) 162,342
-------- --------- ---------
Net increase/(decrease) in cash and cash equivalents.... 16,501 165 (574)
Cash and cash equivalents at beginning of year.......... 1,815 1,650 2,224
-------- --------- ---------
Cash and cash equivalents at end of year................ $ 18,316 $ 1,815 $ 1,650
======== ========= =========
</Table>

See Note 10 for supplemental cash flow information.
The accompanying notes are an integral part of the Consolidated Financial
Statements

F-6

TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
<Table>
<Caption>
REDEEMABLE COMMON STOCK PAR VALUE
----------------------------------------------
CLASS A CLASS B RETAINED
--------------------- ---------------------- LOSS DEFERRED EARNINGS/
# OF SHARES $ # OF SHARES $ ALLOCATION PATRONAGE (DEFICIT)
----------- - ----------- - ---------- --------- ---------
(000'S OMITTED, EXCLUDING SHARE DATA)

Balances at December 31, 1997 as originally
reported................................... 537,115 $47,423 1,859,589 $187,259 $ -- $ -- $ 685
Effect of restatement--Note 1................ (4,800) 170
------- ------- --------- -------- --------- -------- ---------
Balances at December 31, 1997 (Restated)..... 537,115 47,423 1,859,589 187,259 -- (4,800) 855
Net margin................................... 12,020
Foreign currency translation adjustment......
Patronage dividend........................... 195,135 19,512 (23,238) (11,786)
Stock issued for increase in Class A
requirements............................... 7,810 781 (7,810) (781)
Stock issued for paid-up subscriptions....... 62,385 6,637
Stock purchased and retired.................. (49,610) (4,961) (103,470) (10,347)
------- ------- --------- -------- --------- -------- ---------
Balances at and for the year ended December
31, 1998 (Restated)........................ 557,700 49,880 1,943,444 195,643 -- (28,038) 1,089
Net loss..................................... (130,803)
Foreign currency translation adjustment......
Amortization of deferred patronage........... 375 (375)
Stock issued for paid-up subscriptions....... 8,650 2,881
Stock purchased and retired.................. (54,910) (5,491) (178,647) (17,864)
------- ------- --------- -------- --------- -------- ---------
Balances at and for the year ended December
31, 1999 (Restated)........................ 511,440 47,270 1,764,797 177,779 -- (27,663) (130,089)
Net margin................................... 34,117
Foreign currency translation adjustment......
Amortization of deferred patronage........... 375 (375)
Loss allocation.............................. (113,918) 113,918
Patronage dividend........................... 30 3 225,510 22,551 (34,705)
Class B stock applied against loss
allocation................................. (214,580) (21,458) 21,458
Stock issued for paid-up subscriptions....... 14,550 3,407
Stock purchased and retired.................. (15,960) (1,596) (44,245) (4,424)
------- ------- --------- -------- --------- -------- ---------
Balances at and for the year ended December
31, 2000................................... 510,060 $49,084 1,731,482 $174,448 $ (92,460) $(27,288) $ (17,134)
======= ======= ========= ======== ========= ======== =========

ACCUMULATED
OTHER TOTAL TOTAL
COMPREHENSIVE MEMBERS' COMPREHENSIVE
INCOME/(LOSS) EQUITY INCOME/(LOSS)
------------- -------- -------------
(000'S OMITTED, EXCLUDING SHARE DATA)

Balances at December 31, 1997 as originally
reported................................... $(1,056) $ 234,311
Effect of restatement--Note 1................ (4,630)
------- ---------
Balances at December 31, 1997 (Restated)..... (1,056) 229,681
Net margin................................... 12,020 12,020
Foreign currency translation adjustment...... (318) (318) (318)
Patronage dividend........................... (15,512)
Stock issued for increase in Class A
requirements............................... --
Stock issued for paid-up subscriptions....... 6,637
Stock purchased and retired.................. (15,308)
------- --------- ---------
Balances at and for the year ended December
31, 1998 (Restated)........................ (1,374) 217,200 $ 11,702
=========
Net loss..................................... (130,803) $(130,803)
Foreign currency translation adjustment...... 528 528 528
Amortization of deferred patronage........... --
Stock issued for paid-up subscriptions....... 2,881
Stock purchased and retired.................. (23,355)
------- --------- ---------
Balances at and for the year ended December
31, 1999 (Restated)........................ (846) 66,451 $(130,275)
=========
Net margin................................... 34,117 $ 34,117
Foreign currency translation adjustment...... (126) (126) (126)
Amortization of deferred patronage........... --
Loss allocation.............................. --
Patronage dividend........................... (12,151)
Class B stock applied against loss
allocation.................................
Stock issued for paid-up subscriptions....... 3,407
Stock purchased and retired.................. (6,020)
------- --------- ---------
Balances at and for the year ended December
31, 2000................................... $ (972) $ 85,678 $ 33,991
======= ========= =========
</Table>

Redeemable Class A common stock amounts are net of unpaid subscription amounts
of $1,925,000 relating to 98,880 issued shares at December 31, 2000; $3,874,000
relating to 106,380 issued shares at December 31, 1999; $5,890,000 relating to
178,020 issued shares at December 31, 1998; and $6,289,000 relating to 149,875
issued shares at December 31, 1997.
The accompanying notes are an integral part of the Consolidated Financial
Statements

F-7

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

Principal business activity

TruServ Corporation ("TruServ" or the "company") is a member-owned
wholesaler of hardware and related merchandise. The company also manufactures
paint and paint applicators. The company's goods and services are sold
predominantly within the United States, primarily to retailers of hardware,
lumber/building materials and related lines, each of whom has purchased 60
shares per store (up to a maximum of 5 stores (300 shares)) of the company's
Class A common stock upon becoming a member. The Class A stock is redeemable by
the company and has voting rights (the "Redeemable Class A voting common
stock"). The company operates in a single industry as a member-owned wholesaler
cooperative. All members are entitled to receive patronage dividend
distributions from the company on the basis of gross margins of merchandise
and/or services purchased by each member. In accordance with the company's
By-laws, the annual patronage dividend is paid to members out of gross margins
from operations and other patronage source income, after deduction for expenses
and provisions authorized by the Board of Directors.

Business Combination

On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December
9, 1996 between Cotter & Company ("Cotter"), a Delaware corporation, and
ServiStar Coast to Coast Corporation ("SCC"), SCC merged with and into Cotter
(the "Merger"), with Cotter being the surviving corporation. Cotter was renamed
TruServ Corporation effective with the Merger. Each outstanding share of SCC
common stock and SCC Series A stock (excluding those shares canceled pursuant to
Article III of the Merger Agreement) were converted into the right to receive
one fully paid and non-assessable share of TruServ Redeemable Class A voting
common stock and each two outstanding shares of SCC preferred stock were
converted into the right to receive one fully paid and non-assessable share of
TruServ's Class B common stock, which is redeemable by the company and has no
voting rights (the "Redeemable Class B common stock"). A total of 270,500 and
1,170,670 shares of TruServ Redeemable Class A voting common stock and
Redeemable Class B common stock, respectively, were issued in connection with
the Merger. Also, 231,000 additional shares of TruServ Redeemable Class A voting
common stock were issued in exchange for Redeemable Class B common stock to
pre-Merger stockholders of Cotter to satisfy the Redeemable Class A voting
common stock ownership requirement of 60 shares per store (up to a maximum of 5
stores) applicable to such members as a result of the Merger.

In connection with the Merger, the company originally reported an estimated
liability of $38,249,000 for costs associated with the Merger plan that was
recorded in Accrued expenses. The company's Merger plan, the timing of which did
not change significantly subsequent to the adoption of the plan, intended to
take the following actions: 1) Optimize the distribution network, including
closing five distribution centers, resizing 18 distribution centers to commonize
the inventory assortment, reducing inventory levels and reducing freight costs.
2) Consolidate corporate staff, including reducing costs in the areas of
advertising, merchandising and general administration, finance, human resources
and printing and office services. In combining these various corporate
functions, relocation and severance costs were incurred. 3) Consolidate all
paint manufacturing. All paint that was manufactured or distributed to SCC would
be manufactured out of the company's Cary manufacturing facility.

During the remainder of fiscal 1997 and all of fiscal 1998, the company
completed the following actions in its Merger plan: 1) In 1997, the company
announced the closing of four distribution centers (Ocala, FL; Charleston, IL;
Peachtree City, GA and Ft. Smith, AK). The Charleston, IL, and Ocala, FL,
distribution centers were sold in 1998. 2) In 1998, the company announced the
closing of three distribution centers (Parkesburg, PA; Piedmont, SC; and
Portland, OR). 3) The company closed its Butler, PA office building. 4) The
company converted to one inventory assortment and began replenishing the RDC
inventory. 5) The

F-8

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

merger plan specified staff reductions of approximately 1,500 former SCC
employees. As of December 31, 1998, 88% of these positions had been terminated.

During fiscal year 1999, the Company completed the following actions in its
plan: 1) The company sold its Parkesburg, Piedmont and Portland properties. The
company announced the closing of its Westfield, MA distribution center. 2) The
company consolidated all paint manufacturing at the Cary manufacturing facility.
3) The merger plan specified the elimination of 1,500 SCC employees. As of
December 31, 1999 approximately 99% of these employees had been terminated. 4)
The company also opened a new distribution center in May 1999.

Three of the above mentioned distribution centers (Ocala, Peachtree and
Portland) were closed during this timeframe but the related costs were not
accrued for as EITF 95-3 charges because they were Cotter & Company (acquiror)
locations. Additionally, the Westfield distribution center related costs were
not accrued for as EITF 95-3 charges because the closure announcement was beyond
the allowed twelve-month time frame.

Accordingly, the merger has taken a long time because the Company had to
close seven distribution centers, commonize the inventory assortment,
consolidate all paint manufacturing, build a new distribution center and,
lastly, reduce corporate overhead.

The company has restated the estimated liability described above from
$38,249,000 to $24,649,000. A description of this restatement of $13,600,000 in
goodwill is discussed later in this footnote under the caption "Restatement of
financial information." The schedule below shows the restated composition of the
estimated liability for costs associated with the plan and the utilization of
those reserves during subsequent periods:

<Table>
<Caption>
RDC MOVING &
SHUTDOWN SEVERANCE RELOCATION TOTAL
-------- --------- ---------- -----

July 1, 1997 Charge to Goodwill........................ $ 5,645 $14,804 $ 4,200 $24,649
Utilization of Reserves................................ (600) (5,700) (2,000) (8,300)
------- ------- ------- -------
Balance as of December 31, 1997........................ 5,045 9,104 2,200 16,349
Utilization of Reserves................................ (1,500) (6,100) (2,200) (9,800)
Adjustments to Goodwill................................ (1,393) (1,156) -- (2,549)
------- ------- ------- -------
Balance as of December 31, 1998........................ 2,152 1,848 -- 4,000
Utilization of Reserves................................ (1,469) (1,848) -- (3,317)
------- ------- ------- -------
Balance as of December 31, 1999........................ 683 -- -- 683
Utilization of Reserves................................ (683) -- -- (683)
------- ------- ------- -------
Balance as of December 31, 2000........................ $ -- $ -- $ -- $ --
======= ======= ======= =======
</Table>

Consolidation

The consolidated financial statements include the accounts of the company
and all wholly owned subsidiaries. The consolidated financial statements also
include the accounts of TruServ Canada Cooperative, Inc., a Canadian
member-owned wholesaler of hardware, variety and related merchandise, in which
the company has a majority equity interest.

Restatement of financial information

The company has restated the accompanying consolidated financial statements
as of and for the years ended December 31, 1999, 1998 and 1997 to expense as
incurred certain costs previously accrued in connection with the SCC merger. The
net loss in 1999 was reduced by $340,000 and the net margin in 1998 and 1997 was
reduced by $8,460,000 and $4,630,000, respectively. Such costs relate to data
center costs and

F-9

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

related amortization that represented incremental costs to exit an activity that
would not have been incurred by the company had it decided not to close the SCC
corporate office at the time of the merger. As a result of the restatement,
goodwill was reduced by $13,600,000 at December 31, 1997, net of amortization of
$170,000 in 1997 and $340,000 in 1998 and 1999. The impact of these adjustments
on the company's financial results as previously reported is summarized as
follows:

<Table>
<Caption>
1999 1998 1997
-------------------------- -------------------------- --------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED AS REPORTED AS RESTATED
----------- ----------- ----------- ----------- ----------- -----------
(000'S OMITTED)

Revenues............... $4,502,326 $4,502,326 $4,328,238 $4,328,238 $3,331,686 $3,331,686
Net margin/(loss)
before income taxes
and cumulative effect
of a change in
accounting
principle............ (107,639) (107,299) 21,077 12,617 44,316 39,686
Net margin/(loss)
before cumulative
effect of a change in
accounting
principle............ (124,659) (124,319) 20,480 12,020 42,716 38,086
Net margin/(loss)...... (131,143) (130,803) 20,480 12,020 42,716 38,086
Members' equity........ 79,201 66,451 230,290 217,200 234,311 229,681
</Table>

Reclassifications

Certain reclassifications have been made to the prior year's consolidated
financial statements to conform with the current year's presentation, including
the reclassification of merger integration costs into logistic and manufacturing
expenses and selling, general and administrative expenses. These
reclassifications had no effect on Net margin/(loss) for any period or on Total
Members' equity at the balance sheet dates.

Capitalization

The company's capital (Capitalization) is derived from Members' equity and
Promissory (subordinated) and installment notes. Members' equity is comprised of
Redeemable Class A voting common stock, Redeemable Class B common stock,
Accumulated deficit, Loss allocation, Deferred patronage and Accumulated other
comprehensive loss. Promissory (subordinated) notes and Redeemable Class B
common stock are issued in connection with the company's annual patronage
dividend. The By-laws provide for partially meeting the company's capital
requirements by payment of the year-end patronage dividend.

Patronage dividend

Patronage dividends in the amount of $34,705,000 were paid on March 31,
2001, approximately thirty percent of which were paid in cash (TruServ by-laws
and the IRS require that the payment of at least twenty percent of patronage
dividends be in cash). The remainder was paid through the issuance of the
company's Redeemable Class B common stock and, in certain cases, a small portion
of the dividend was paid by means of Promissory (Subordinated) Notes of the
company. The Redeemable Class B common stock issued for the December 31, 2000
patronage dividend has been designated as qualified notices of allocation. No
patronage dividends were declared for the fiscal year ended December 31, 1999.
Patronage dividends earned for fiscal year 1998 were declared and were paid to
TruServ members in the first quarter of 1999 with at least thirty percent of the
patronage dividend paid in cash and the remainder paid through the issuance of
the company's Redeemable Class B common stock. The Redeemable Class B common
stock issued for the December 31, 1998 patronage dividend has been designated as
non-qualified notices of allocation and is not taxable to the

F-10

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

member until redeemed at a future date. The non-qualified notices, in addition
to not being taxable, will be included as part of a member's required investment
in Redeemable Class B common stock. Any further distributions after meeting the
Redeemable Class B common stock requirements agreed upon in the Merger Agreement
will be paid in cash, up to the limits set by financial covenants of the bank
debt or in promissory notes. TruServ follows the practice of accounting for
deferred patronage charges and credits as a separate component of
capitalization. Deferred patronage consists of net charges and expenses
primarily related to the merger integration process which are included in the
computation of net margin in different periods for financial statement purposes
than for patronage purposes. Deferred patronage has been adjusted to include the
amounts identified in the note "Restatement of financial information" above.

Membership may be terminated without cause by either the company or the
member upon sixty days' written notice. In the event membership is terminated,
the company undertakes to purchase, and the member is required to sell to the
company, all of the member's Redeemable Class A voting common stock and
Redeemable Class B common stock at par value. Payment for the Redeemable Class A
voting common stock will be in cash. Payment for the qualified Redeemable Class
B common stock will be in the form of a note payable in five equal annual
installments and with interest set at comparable treasury rates plus 2.0%.

However, the company has initiated a moratorium, effective March 17, 2000,
on the redemption of its stock. The Board of Directors will review this matter
from time to time in light of the then current financial condition of the
company.

Loss allocation to members

During the third quarter of fiscal year 2000, company management developed
and the Board of Directors approved a plan to equitably allocate to members the
loss incurred in 1999. This loss was previously recorded as a reduction of
Retained Earnings. The company has allocated the 1999 loss by establishing a
Loss allocation account as a contra-equity account in the consolidated balance
sheet with the offsetting credit recorded to Retained earnings/(deficit). The
Loss allocation account reflects the sum of each member's proportionate share of
the 1999 loss, after being reduced by certain amounts that are not allocable to
members. The Loss allocation account is not a receivable from members and does
not represent an amount currently due from members. Rather, the Loss allocation
account will be satisfied, on a member by member basis, by withholding the
portion of future patronage dividends that would have been paid in qualified
Redeemable Class B common stock, at par value, and applying such amount as a
reduction in the Loss allocation account until fully satisfied. The current
levels of members' stock investments in the company will not be affected.
However, in the event a member should terminate as a stockholder of the company,
any unsatisfied portion of that member's Loss allocation account will be
satisfied by reducing the redemption amount paid for the member's stock
investment in the company.

Cash equivalents

The company classifies all highly liquid investments with an original
maturity of three months or less as cash equivalents.

Inventories

Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market. The cost of inventory also includes indirect costs
(such as logistics, manufacturing and support costs) incurred to bring inventory
to its existing location for resale. These costs are initially included in
logistics, manufacturing, general and administrative expenses, and are then
reclassified to inventory and subsequently recorded as cost of revenues as the
inventory is sold (see Note 3).

F-11

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Properties

Properties are recorded at cost. Depreciation and amortization are computed
by using the straight-line method over the following estimated useful lives:
buildings and improvements--10 to 40 years; machinery and warehouse, office and
computer equipment and software--5 to 10 years; transportation equipment--3 to 7
years; and leasehold improvements--the lesser of the life of the lease, without
regard to options for renewal, or the useful life of the underlying property.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight-line method over 40 years.
Amortization of goodwill was approximately $3,054,000, $2,591,000 and $2,398,000
for fiscal year 2000, 1999 and 1998, respectively.

Conversion funds

In connection with the Merger, the company made available to the members
funds to assist their stores in defraying various conversion costs associated
with the Merger and costs associated with certain upgrades and expansions of
their store. The total amount of conversion funds distributed was $27,175,000
with an amortization period of 5 years. The annual amortization expense for
fiscal year 2000, 1999 and 1998 was $4,385,000, $3,466,000 and $0, respectively.

Asset impairment

For purposes of determining impairment, management groups long-lived assets
based on a geographic region or revenue producing activity as appropriate. Such
impairment review includes, among other criteria, management's estimate of
future cash flows for the region or activity. If the estimated future cash flows
(undiscounted and without interest charges) are not sufficient to recover the
carrying value of the long-lived assets, including associated goodwill, of the
region or activity, such assets would be determined to be impaired and would be
written down to fair value. There were no impairments of long-lived assets as of
December 31, 2000 or 1999.

Start-up costs

In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting the Costs of Start-up Activities." The SOP was effective beginning on
January 1, 1999, and requires that start-up costs capitalized prior to January
1, 1999 be written-off and any future start-up costs be expensed as incurred.
The unamortized balance of start-up costs was written off as of January 1, 1999
as a cumulative effect of an accounting change and resulted in an increase in
the 1999 net loss of approximately $6,500,000, net of tax.

Revenue recognition

The company recognizes revenue when the customer takes possession of the
merchandise or when services are rendered (the revenue of which was not
material), net of reserves for returns.

Advertising expenses

Advertising costs are expensed in the period the advertising takes place.
Such costs amounted to $82,675,000, $81,337,000 and $86,220,000 in fiscal year
2000, 1999 and 1998, respectively, and are included in Cost of revenues.

F-12

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Amortization of bank financing fees

Amounts paid for bank fees incurred in connection with the company's
financing arrangements are capitalized and amortized to interest expense over
the lives of the underlying financing agreements.

Repairs and maintenance expense

Repairs and maintenance expenditures which extend the useful lives of the
company's property and equipment are capitalized and depreciated over the
remaining useful lives of the underlying assets. Otherwise such expenditures are
expensed as incurred.

Research and development costs

Research and development costs related to the company's manufacturing
operations are expensed as incurred. Such costs amounted to $993,000, $965,000
and $1,171,000 in fiscal year 2000, 1999 and 1998, respectively, and are
included in Logistic and manufacturing expenses.

Shipping and handling costs

Amounts billed to customers for shipping and handling costs are included in
Revenues. Amounts incurred for shipping and handling are included in Cost of
revenues.

Income taxes

Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.

Per share information

There is no existing market for the common stock of the company and there
is no expectation that any market will develop. The company's Redeemable Class A
voting common stock is owned by members and former members whose stock has not
yet been redeemed as a result of the moratorium. The company's Redeemable Class
B non-voting common stock now outstanding was issued to members in partial
payment of the annual patronage dividend. Accordingly, no earnings per share
information is presented in the consolidated financial statements.

Retirement plans

The company sponsors two noncontributory defined benefit retirement plans
covering substantially all of its employees. Company contributions to
union-sponsored defined contribution plans are based on collectively bargained
rates multiplied by hours worked. The company's policy is to fund annually all
tax-qualified plans to the extent deductible for income tax purposes.

Fair value of financial instruments

The carrying amounts of the company's financial instruments at December 31,
2000 and 1999 approximate fair value. Fair value was estimated using discounted
cash flow analyses, based on the company's incremental borrowing rate for
similar borrowings. The carrying amount of debt and credit facilities
approximate fair value due to their stated interest rates approximating market
rates and as a result of such facilities being renegotiated in fiscal 2000.
These estimated fair value amounts have been determined using available market
information or other appropriate valuation methodologies.

F-13

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of credit risk

Credit risk pertains mostly to the company's trade receivables. The company
extends credit to its members as part of its day-to-day operations. The company
believes that as no specific receivable or group of receivables comprises a
significant percentage of total trade accounts, its risk with respect to trade
receivables is limited. Additionally, the company believes that its allowance
for doubtful accounts is adequate with respect to member credit risks.

Use of estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

New accounting pronouncements

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which was amended by SAB No. 101A in March 2000 and SAB No. 101B in
June 2000. These SABs, which provide guidance on the recognition, presentation
and disclosure of revenue in financial statements, were effective in the fourth
quarter of fiscal 2000 and were adopted by the company at that time. As the
company's existing revenue recognition, presentation and disclosures are in
compliance with these SABs, their adoption did not affect the company's results
of operations for fiscal 2000 or its financial position as of December 31, 2000.

In October 2000, the FASB's Emerging Issues Task Force ("EITF") issued EITF
Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent." This standard provides guidance on whether a company should recognize
revenue based on the gross amount billed to a customer because it has earned
revenue from the sale of the goods or services or the net amount retained (that
is, the amount billed to the customer less the amount paid to a supplier)
because it has earned a commission or fee. The standard provides a number of
factors or indicators that should be used to determine the appropriate
treatment. This standard was effective in the fourth quarter of fiscal 2000 and
was adopted by the company as of January 1, 2000. Since the underlying selling
terms and conditions, shipping terms, risk of loss, payment terms and credit
risk related to its warehouse shipment sales, direct shipment sales and relay
sales support the company's presentation of such sales as gross, the adoption of
this standard did not affect the company's presentation of its results of
operations for fiscal 2000 or its financial position as of December 31, 2000.

In November 2000, the EITF issued EITF Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." This standard states that all amounts
billed to customers in sale transactions related to shipping and handling
represent revenues earned for goods provided and, accordingly, should be
classified as revenues. The standard also addresses disclosure of the
classification of shipping and handling costs; if shipping and handling costs
are significant and are not included as part of cost of sales, disclosure should
be made for both the amount of such costs and the line items on the income
statement that include them. This standard was effective in the fourth quarter
of fiscal 2000 and was adopted by the company at that time. As the company's
existing treatment of shipping and handling revenues and costs are in compliance
with Issue No. 00-10, the adoption of this standard did not affect the company's
results of operations for fiscal 2000 or its financial position as of December
31, 2000.

2. DEBT COVENANT VIOLATION

Under the senior notes and the revolving credit facility (further discussed
at Note 5) the company is required to meet certain restrictive financial ratios
and covenants relating to minimum EBITDA, minimum fixed charge coverage, minimum
borrowing base to debt ratio, maximum capital expenditures and maximum

F-14

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

asset sales, as well as other customary covenants, representations and
warranties, funding conditions and events of default. As of December 31, 2000,
the company was in compliance with the covenant requirements.

However, as of February 24, 2001, the company failed to comply with a
covenant under the revolving credit facility and the senior note agreements
which requires the company to achieve a minimum monthly borrowing base ratio. As
a result, either the senior note holders or the participants in the revolving
credit facility could declare this failure to comply with the covenant as an
"event of default," in which case the senior notes and the amounts outstanding
under the credit facility would become callable as immediately payable.

On March 30, 2001 the participants in the revolving credit facility issued
to the company a "reservation of rights" letter under which the participants
effectively stated their intention to not call as immediately payable the
company's outstanding debt obligations until May 1, 2001, although they were not
precluded from doing so. All other rights of the participants were preserved.
Additional letters were issued on April 30, 2001 and on July 3, 2001, which
extended the reservation of rights until July 30, 2001 and September 30, 2001,
respectively. The senior note holders also issued letters reserving their right
to accelerate the maturity of the notes although agreeing not to do so at this
time.

The reservation of rights letters provided by the participants in the
revolving credit facility required that the upper limit of the total amount that
may be borrowed under the Credit Agreement at any time prior to September 30,
2001 be lowered from $275,000,000 to $225,000,000. The credit limit under this
facility was reduced on May 11, 2001 from $275,000,000 to $250,000,000.
Additionally, the interest rate on the amounts outstanding under the revolving
credit facility was increased by approximately 2%; this increased interest rate
also applies to the outstanding senior notes. As a result of this increased
interest rate, the company will incur additional interest expense in fiscal year
2001. If this increased interest rate continues through December 31, 2001, the
additional interest expense would aggregate approximately $6.0 million.

The company is in discussions with the current lenders and with potential
lenders regarding refinancing the senior note agreements and the revolving
credit facility and, if successful, will replace the current senior note
agreements and the revolving credit facility with an asset-based lending
agreement with a new lending group in the fourth quarter of 2001. An alternative
may be to amend the existing agreements with the existing lenders. However, no
assurances can be given as to the outcome. The company's failure to successfully
refinance or amend its current borrowing arrangements could cause the current
lending group to call as immediately payable the company's currently outstanding
debt obligations. The company's resulting inability to satisfy its debt
obligations would force the company to pursue other alternatives to improve
liquidity, possibly including among other things, restructuring actions, sales
of assets and seeking additional sources of funds or liquidity. In particular,
the company has engaged an investment banking firm to assist us in exploring the
sale of the paint business. No assurances can be given that the company would be
successful in pursuing such possible alternatives or, even if successful, that
such undertakings would not have a material adverse impact on the company.

F-15

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. INVENTORIES

Inventories consisted of the following at December 31:

<Table>
<Caption>
2000 1999
---- ----
(000'S OMITTED)

Manufacturing inventories:
Raw materials.......................................... $ 2,242 $ 2,473
Work-in-process and finished goods..................... 30,705 39,456
-------- --------
32,947 41,929
Merchandise inventories.................................. 410,716 440,486
-------- --------
$443,663 $482,415
======== ========
</Table>

The company performed physical inventory counts at certain of its
distribution centers in October 2000; adjustments to recorded inventory
quantities and amounts resulting from such counts were recorded after the amount
and composition of such adjustments were analyzed. The adjustment recorded in
the fourth quarter of fiscal year 2000 was an increase to inventory and a
decrease to Cost of revenues of approximately $22,200,000. In the fourth quarter
of fiscal year 1999, the company wrote off approximately $74,000,000 of
inventory following the resolution of certain unreconciled differences.

Indirect costs included in the cost of inventory for fiscal year 2000, 1999
and 1998 were $133,907,000, $140,934,000 and $156,560,000, respectively, of
which $134,763,000, $150,191,000 and $148,970,000 was included in Cost of
revenues for the respective years. The amount of indirect costs included in
ending inventory at December 31, 2000, 1999 and 1998 was $29,144,000,
$30,000,000 and $39,257,000, respectively.

4. PROPERTIES

Properties consisted of the following at December 31:

<Table>
<Caption>
2000 1999
---- ----
(000'S OMITTED)

Buildings and improvements............................. $ 189,732 $ 193,676
Machinery and warehouse equipment...................... 96,696 100,705
Office and computer equipment.......................... 157,417 152,439
Transportation equipment............................... 38,204 38,913
--------- ---------
482,049 485,733
Less accumulated depreciation.......................... (276,170) (252,834)
--------- ---------
205,879 232,899
Land................................................... 10,267 11,946
--------- ---------
$ 216,146 $ 244,845
========= =========
</Table>

Depreciation expense for fiscal year 2000, 1999 and 1998 was $35,594,000,
$35,074,000 and $29,714,000, respectively.

F-16

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

Long-term debt consisted of the following at December 31:

<Table>
<Caption>
2000 1999
---- ----
(000'S OMITTED)

Senior Notes (rates at December 31, 2000/1999):
11.85%/9.10%.......................................... $ 32,000 $ 36,000
10.63%/7.88%.......................................... 50,000 50,000
10.16%/7.41%.......................................... 25,000 25,000
10.10%/7.35%.......................................... 105,000 105,000
10.04%/7.29%.......................................... 50,000 50,000
9.98%/7.23%........................................... 25,000 25,000
Redeemable (subordinated) term notes:
Fixed interest rates ranging from 5.24% to 7.79%...... 18,624 28,712
Industrial Revenue Bonds 4.50%.......................... -- 4,000
Capital lease obligations (Note 6)...................... 2,645 5,000
--------- --------
308,269 328,712
Less amounts due within one year........................ (299,178) (18,916)
--------- --------
$ 9,091 $309,796
========= ========
</Table>

Principal payments for the 11.85%/9.10% senior note are due quarterly in
incrementally increasing amounts through maturity in 2007. Principal payments
for the 10.63%/7.88% senior note are due annually in the amount of $4,545,000
starting in November 2002 through maturity 2012. Principal payments for the
10.16%/7.41% senior note are due annually in the amount of $3,571,000 starting
November 2001 through maturity in 2007. Principal payments for the 10.10%/7.35%
senior note are due annually in increasing amounts starting January 2002 through
maturity in July 2008. Principal payments for the 10.04%/7.29% senior note are
due annually in the amount of $10,000,000 starting June 2006 through maturity in
June 2010. The 9.98%/7.23% senior note is due in full in November 2002.

Total maturities of long-term debt for fiscal years 2001, 2002, 2003, 2004,
2005 and thereafter are $19,340,000, $52,718,000, $31,371,000, $28,417,000,
$30,153,000 and $146,270,000 respectively.

At July 1, 1997, the company had established a $300,000,000 five-year
revolving credit facility with a group of banks. The facility was amended and
restated in April 2000 to include increased interest rates, new financial ratios
and covenants, and the collateralization of the company's assets. The borrowings
under the facility were $127,000,000 and $135,000,000 at December 31, 2000 and
1999, respectively. A commitment fee of .05% per annum is paid on the unused
portion of the commitments. Also, the company had amounts due under a commercial
paper program of $19,000,000 at December 31, 1999 that were paid in fiscal 2000.
The weighted average interest rate on these borrowings was 8.9% and 6.4% for the
years ended December 31, 2000 and 1999, respectively.

The redeemable (subordinated) term notes have two to four year terms and
are issued in exchange for promissory (subordinated) notes that were held by
promissory note holders who do not own the company's Redeemable Class A voting
common stock. They are also available for purchase by investors that are
affiliated with the company.

The industrial revenue bonds were paid in fiscal 2000.

The company's Canadian subsidiaries have short-term borrowings of
$7,736,000 and $8,629,000 at December 31, 2000 and 1999, respectively. The
subsidiaries have a combined line of credit of C$27,400,000.

F-17

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The weighted average interest rate on these borrowing was 7.10% and 6.40% for
the years ended December 31, 2000 and 1999, respectively.

The company provides guarantees for certain member loans, but is not
required to provide a compensating balance for the guarantees. The amount of
member loans guaranteed by the company was approximately $6,709,511 and
$6,443,000 as of December 31, 2000 and 1999, respectively.

6. LEASE COMMITMENTS

The company rents buildings and warehouses, and office, computer and
transportation equipment under operating and capital leases. The following is a
schedule of future minimum lease payments under capital and long-term
non-cancelable operating leases, together with the present value of the net
minimum lease payments, as of December 31, 2000:

<Table>
<Caption>
CAPITAL OPERATING
------- ---------
(000'S OMITTED)

2001................................................. $ 1,020 $ 21,582
2002................................................. 621 19,583
2003................................................. 439 14,737
2004................................................. 439 13,573
2005................................................. 332 12,966
Thereafter........................................... 73 57,454
------- --------
Net minimum lease payments................................ $ 2,924 $139,895
========
Less amount representing interest......................... (279)
-------
Present value of net minimum lease payments............... 2,645
Less amount due within one year........................... (1,332)
-------
$ 1,313
=======
</Table>

Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value, which is related to the lessor's
book value at the expiration of the lease term. During 1999, the company entered
into an agreement for the sale and leaseback of its Henderson facility, which
resulted in a recognized loss of $1,295,000. The 30-month Henderson lease
commenced in May 1999 and has annual payments of approximately $612,000. During
1998, the company entered into an agreement for the sale and leaseback of its
Harvard facility. The $2,139,000 gain realized on the sale has been deferred and
will be amortized over the 15-year lease term. The lease commenced in November
1998 and has annual payments of approximately $2,700,000.

The Hagerstown, Maryland distribution center is subject to a synthetic
lease with monthly payments that are recorded in Other interest expense. The
lease payment commitments are for three years with two one-year renewal options
and a principal payment due at the expiration of the lease agreement. All
obligations under this lease arrangement are guaranteed by the company.

Rent expense under operating leases was $29,942,000, $31,702,000 and
$28,291,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

F-18

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

The company is involved in various claims and lawsuits incidental to its
business. The following significant matters existed at December 31, 2000:

In June, 2000, nineteen former members filed a claim against the company
alleging that they voted for the Merger (see Note 1) based upon representations
made to them by the company and its predecessors that the Coast to Coast name
brand would be maintained. (Certain other former TruServ members have filed
similar claims.) The plaintiffs allege, however, that, following the Merger, the
Coast to Coast name brand was eliminated and that each plaintiff thereafter
terminated or had its membership in TruServ terminated. Additionally, the
plaintiffs allege that the company breached its obligations by failing to redeem
those members' stock and by creating the Loss Allocation Account (see Note 1).
Based upon the above, the plaintiffs have asserted claims for fraud,
misrepresentation, breach of fiduciary duty and unjust enrichment. The claim
seeks unidentified damages. The company intends to vigorously contest this claim
and believes that, in the event of an unfavorable outcome, it carries adequate
insurance coverage; accordingly, no related reserve has been recorded at
December 31, 2000.

In March, 2001, a similar action was brought on behalf of former SCC
members in the same court by the same firm representing the plaintiffs discussed
above. The complaint alleges substantially similar claims as those made by the
other former TruServ members. The lawsuit is at an early stage and the extent of
the damages being claimed has not yet determined; accordingly, no related
reserve has been recorded at December 31, 2000.

In August, 2000, a former member in New York filed a claim against the
company's Board of Directors alleging that the Board failed in its fiduciary
duty to oversee and manage the company's affairs in fiscal 1999. The claim seeks
unidentified damages and the plaintiffs in the lawsuit seek to proceed on a
class action basis. The company intends to vigorously contest this claim and
believes that, in the event of an unfavorable outcome, it carries adequate
insurance coverage; accordingly, no related reserve has been recorded at
December 31, 2000.

In October, 1999, the former president of the company, Paul Pentz, filed a
claim against the company alleging that Mr. Pentz is due additional bonus and
SERP payments (see Note 11) in addition to amounts already received. The company
has filed a countersuit claiming Mr. Pentz breached his fiduciary duties as
president of the company. Mr. Pentz's motion for summary judgement was denied on
April 19, 2001. The company intends to vigorously contest Mr. Pentz's claim and,
accordingly, has recorded no related reserve at December 31, 2000.

F-19

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. PROMISSORY (SUBORDINATED) AND INSTALLMENT NOTES

Promissory (subordinated) and installment notes consisted of the following
at December 31:

<Table>
<Caption>
2000 1999
---- ----
(000'S OMITTED)

Promissory (subordinated) notes:
Due on December 31, 2000--6.50%........................ $ -- $ 21,823
Due on December 31, 2000--7.42%........................ -- 14,019
Due on December 31, 2000--7.58%........................ -- 27,271
Due on December 31, 2001--5.74%........................ 14,376 14,514
Due on December 31, 2001--8.06%........................ 22,237 22,448
Due on December 31, 2002--7.86%........................ 23,259 24,559
Due on December 31, 2003--7.90%........................ 22,525 --
Due on December 31, 2005--7.90%........................ 1,692 --
Term (subordinated) notes
Due on June 30, 2002--8.06%............................ 12,408 12,513
Installment notes at interest rates of 4.75% to 8.20%
with maturities through 2004........................... 11,359 15,829
-------- --------
107,856 152,976
Less amounts due within one year......................... (42,010) (69,172)
-------- --------
$ 65,846 $ 83,804
======== ========
</Table>

Prior to 1997, promissory notes were issued for partial payment of the
annual patronage dividend. Promissory notes are subordinated to indebtedness to
banking institutions, trade creditors and other indebtedness of the company as
specified by its Board of Directors. Prior experience indicates that the
maturities of a significant portion of the notes due within one year are
extended, for a three-year period, at interest rates substantially equivalent to
competitive market rates of comparable instruments. The company anticipates that
this practice of extending notes will continue and, accordingly, these notes are
classified as a component of capitalization.

Total maturities of promissory and installment notes for fiscal years 2001,
2002, 2003, 2004 and 2005 are $42,010,000, $39,655,000, $24,451,000, $48,000 and
$1,692,000, respectively.

Term notes were issued in connection with the redemption of excess
Redeemable Class B common stock. Term notes are subordinated to indebtedness to
banking institutions, trade creditors and other indebtedness of the company as
specified by its Board of Directors.

F-20

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. INCOME TAXES

Income tax expense/(benefit) consisted of the following for the years ended
December 31:

<Table>
<Caption>
2000 1999 1998
---- ---- ----
(000'S OMITTED)

Current:
Federal............................................. $231 $ -- $ --
State............................................... 315 460 710
Foreign............................................. 306 281 290
---- ------- ------
Total current....................................... 852 741 1,000
---- ------- ------
Deferred:
Federal............................................. -- 14,010 --
State............................................... -- 2,472 --
Foreign............................................. 64 (203) (403)
---- ------- ------
Total deferred...................................... 64 16,279 (403)
---- ------- ------
$916 $17,020 $ 597
==== ======= ======
</Table>

The company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as qualified patronage
dividends based on margins from business done with or on behalf of members and
for the redemption of nonqualified notices of allocation. The reconciliation of
income tax expense to income tax computed at the U.S. federal statutory tax rate
of 35% was as follows for the years ended December 31:

<Table>
<Caption>
2000 1999 1998
---- ---- ----
(000'S OMITTED)

Tax at U.S. statutory rate....................... $ 12,262 $ -- $ 4,416
Effects of:
Patronage dividend............................. (12,233) -- (12,258)
State income taxes, net of federal tax
benefit..................................... 205 1,906 462
Increase/(decrease) in valuation allowance..... (2,503) 14,010 6,675
Non-deductible goodwill........................ 2,819 -- --
Other, net..................................... 366 1,104 1,302
-------- ------- --------
$ 916 $17,020 $ 597
======== ======= ========
</Table>

Deferred income taxes reflect the net tax effects of net operating loss
carryforwards, which expire in years through 2020; alternative minimum tax
credit carryforwards and nonqualified notices of allocations, which do not
expire; and temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. To the extent tax benefits are subsequently recognized in excess of
the net deferred tax assets, approximately $28,800,000 of the reduction in the
valuation allowance for deferred tax assets will result in a reduction of
goodwill.

F-21

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The significant components of the company's deferred tax assets and
liabilities were as follows for the years ended December 31:

<Table>
<Caption>
2000 1999 1998
---- ---- ----
(000'S OMITTED)

Deferred tax assets:
Net operating loss carryforwards.......................... $ 58,462 $ 65,569 $ 15,868
AMT credit carryforward................................... 784 553 911
Nonqualified notices of allocation........................ 13,548 13,830 16,697
Bad debt provision........................................ 2,744 2,129 2,049
Vacation pay.............................................. 2,996 3,460 3,122
Contributions to fund retirement plans.................... -- 792 3,871
Book depreciation in excess of tax depreciation........... 532 -- --
Inventory reserves........................................ 1,272 -- --
Rent expense.............................................. 2,458 2,289 2,072
Merger-related valuations and accruals.................... 2,936 2,141 5,865
Inventory capitalization.................................. 2,657 2,808 --
Other..................................................... 5,739 4,156 3,752
-------- -------- --------
Total deferred tax assets................................... 94,128 97,727 54,207
Valuation allowance for deferred tax assets................. (89,700) (93,213) (33,067)
-------- -------- --------
Net deferred tax assets..................................... 4,428 4,514 21,140
Deferred tax liabilities:
Tax depreciation in excess of book depreciation........... -- 3,383 1,450
Inventory capitalization.................................. -- -- 1,725
Contributions to fund retirement plans.................... 3,296 -- --
Other..................................................... 1,132 1,131 1,475
-------- -------- --------
Total deferred tax liabilities.............................. 4,428 4,514 4,650
-------- -------- --------
Net deferred taxes.......................................... $ -- $ -- $ 16,490
======== ======== ========
</Table>

10. SUPPLEMENTAL CASH FLOW INFORMATION

The patronage dividend and promissory (subordinated) and redeemable
(subordinated) term note renewals relating to non-cash operating and financing
activities were as follows for the years ended December 31:

<Table>
<Caption>
2000 1999 1998
---- ---- ----
(000'S OMITTED)

Patronage dividend payable in cash................ $10,459 $ -- $14,507
Promissory (subordinated) notes................... (1,820) (5,436) (3,252)
Redeemable Class A voting common stock............ 3 -- --
Redeemable Class B common stock................... (2,733) (15,974) 9,950
Installment notes................................. 2,515 9,722 5,532
Loss allocation................................... 21,458 -- --
Member indebtedness............................... 4,823 11,688 8,287
------- -------- -------
Patronage dividend................................ $34,705 $ -- $35,024
======= ======== =======
Note renewals and interest rollover............... $22,525 $ 36,385 $24,058
======= ======== =======
</Table>

F-22

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Additionally, in fiscal year 2000, the company's non-cash financing and
investing activities are due to an asset sale and related agreements with
Builder Marts of America, Inc. that included a note receivable of $19,500,000
and debit memos of $4,000,000. The company's non-cash financing and investing
activities in fiscal year 1999 and 1998 include $305,000 and $610,000,
respectively, related to the acquisition of transportation equipment by entering
into capital leases.

Cash paid for interest during fiscal years 2000, 1999 and 1998 totaled
$60,059,000, $58,730,000 and $52,722,000, respectively. Cash paid for income
taxes during fiscal years 2000, 1999 and 1998 totaled $777,000, $848,000 and
$903,000, respectively.

11. BENEFIT PLANS

The change in the projected benefit obligation and in the plan assets for
the company administered pension plans was as follows for the years ended
December 31:

<Table>
<Caption>
2000 1999
---- ----
(000'S OMITTED)

Change in projected benefit obligation:
Projected benefit obligation at beginning of year..... $ 160,727 $200,951
Service cost.......................................... 6,414 8,377
Interest cost......................................... 9,474 12,312
Benefit payments...................................... (4,980) (7,382)
Actuarial losses/(gains).............................. 18,946 (23,601)
Curtailments.......................................... -- 2,495
Settlements........................................... (114,083) (34,022)
Special retirement benefits........................... -- 1,597
--------- --------
Projected benefit obligation at end of year........... $ 76,498 $160,727
--------- --------
Change in plan assets:
Fair value of plan assets at beginning of year........ $ 178,426 $196,953
Actual return on assets............................... 3,068 16,891
Employer contributions................................ 14,070 5,986
Benefit payments...................................... (4,980) (7,382)
Settlements........................................... (114,083) (34,022)
--------- --------
Fair value of plan assets at end of year.............. $ 76,501 $178,426
--------- --------
Reconciliation of funded status:
Funded status......................................... $ 3 $ 17,699
Unrecognized transition asset......................... (788) (2,642)
Unrecognized prior service cost....................... 5,792 6,743
Unrecognized actuarial gain/(loss).................... 5,815 (23,781)
--------- --------
Prepaid benefit/(accrued cost)........................ $ 10,822 $ (1,981)
========= ========
</Table>

The company has classified $4,280,000 of prepaid pension expense as of
December 31, 2000 in Other current assets.

F-23

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The components of net periodic pension cost for the company administered
pension plans were as follows for the years ended December 31:

<Table>
<Caption>
2000 1999 1998
---- ---- ----
(000'S OMITTED)

Components of net periodic pension cost:
Service cost.................................. $ 6,414 $ 8,377 $ 7,418
Interest cost................................. 9,474 12,312 13,259
Expected return on assets..................... (12,987) (15,951) (16,083)
Amortization of transition assets............. (529) (720) (835)
Amortization of prior service cost............ 951 984 984
Amortization of actuarial gain/(loss)......... (91) 53 --
Special termination benefit................... -- 1,597 --
Curtailment loss.............................. -- 112 --
Settlement gain............................... (1,965) (5,075) (1,745)
-------- -------- --------
Net pension cost........................... $ 1,267 $ 1,689 $ 2,998
======== ======== ========
</Table>

One of the company's pension plans is the supplemental executive retirement
plan ("SERP"), which is an unfunded unqualified defined benefit plan. The funded
status in the table above is net of an accrued pension liability of $1,279,000
and $10,165,000 related to the SERP at December 31, 2000 and 1999, respectively.

The company also participates in union-sponsored defined contribution
plans. Costs related to these plans were $169,000, $315,000 and $861,000 for
fiscal year 2000, 1999 and 1998, respectively.

In the third quarter of fiscal year 2000, the company purchased from an
insurance company non-participating annuity contracts to satisfy pension
obligations related to certain former employees who were fully vested in their
pension benefits. As a result of this transaction, the company recognized a
pre-tax gain of approximately $5 million in fiscal year 2000 related to the
settlement of these pension obligations. Such gain has been recorded as Other
income, net. This gain was offset in the fourth quarter by approximately $3
million due to market value decreases on assets and settlement losses on
employees leaving the plan.

Plan assets consist primarily of publicly traded common stocks and
corporate debt instruments.

The assumptions used to determine the company's pension obligations were as
follows for the years ended December 31:

<Table>
<Caption>
2000 1999
---- ----

Weighted average assumptions:
Discount rate............................................. 7.50% 8.00%
Expected return on assets................................. 9.50% 9.50%
Rate of compensation increase............................. 4.50% 4.50%
</Table>

The company also maintains a defined benefit retirement medical plan for
former SCC employees who met certain age and service criteria that was frozen at
the time of the Merger. The company contributes $105 per month per person for
such employees who elect coverage for themselves and their dependants. The
company also maintains similar benefits for some former SCC executives who were
also contractually eligible for such coverage.

The components of the retiree medical plan costs for the company
administered plan consist of interest cost of $354,000 and $335,000 in fiscal
year 2000 and 1999, respectively.

The accumulated post retirement benefit obligation ("APBO") of $5,189,000
on December 31, 1998 was increased by interest cost in 1999 of $335,000, and
offset by claims paid of $460,000 and an actuarial gain of

F-24

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

$510,000, resulting in an APBO of $4,554,000 at December 31, 1999. Reductions to
the APBO in 2000 were claims paid of $427,000, offset by interest cost of
$354,000 and an actuarial loss of $266,000, resulting in an APBO of $4,747,000
at December 31, 2000.

The funded status at December 31, 1999 was a liability of $4,797,000, which
includes the APBO of $4,554,000 plus an unrecognized gain of $243,000. The
funded status at December 31, 2000 was a liability of $4,724,000, which includes
the APBO of $4,747,000, offset by an actuarial loss of $23,000.

The plan has no assets. During 2000 and 1999, the company contributed to
the plan $427,000 and $460,000, respectively, and there were benefit payments of
$427,000 and $460,000, respectively.

The effect of a one percentage point increase in the medical trend rate
would increase the service and interest cost components by $13,000 and the
post-retirement benefit obligation by $158,000. The effect of a one percentage
point decrease in the medical trend rate would decrease the service and interest
cost components by $10,000 and the post-retirement benefit obligation by
$131,000.

The assumptions used to determine the company's health benefit obligations
were as follows for the years ended December 31:

<Table>
<Caption>
2000 1999
---- ----

Weighted average assumptions:
Discount rate............................................. 7.50% 8.00%
Medical trend rate........................................ 5.00% 5.00%
</Table>

F-25

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. SEGMENT INFORMATION

The company is principally engaged as a wholesaler of hardware and related
products and is a manufacturer of paint products. The company identifies
segments based on management responsibility and the nature of the business
activities of each component of the company. The company measures segment
earnings as operating earnings including an allocation for interest expense and
income taxes. Information regarding the identified segments and the related
reconciliation to consolidated information are as follows:

<Table>
<Caption>
DECEMBER 31, 2000
---------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers..... $3,745,524 $139,109 $109,009 $ -- $3,993,642
Intersegment sales.................. -- 1,856 -- (1,856) --
Interest expense.................... 62,184 4,661 861 -- 67,706
Depreciation & amortization......... 40,482 1,752 799 -- 43,033
Segment net margin/(loss)........... 24,984 9,000 133 -- 34,117
Identifiable segment assets......... 1,162,319 52,020 21,675 -- 1,236,014
Expenditures for long-lived
assets............................ 11,365 627 534 -- 12,526
</Table>

<Table>
<Caption>
DECEMBER 31, 1999
---------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers..... $4,242,572 $148,001 $111,753 $ -- $4,502,326
Intersegment sales.................. -- 1,810 -- (1,810) --
Interest expense.................... 53,993 6,014 695 -- 60,702
Depreciation & amortization......... 38,576 1,704 851 -- 41,131
Segment net margin/(loss)........... (146,200) 14,707 690 -- (130,803)
Identifiable segment assets......... 1,247,320 63,975 24,102 -- 1,335,397
Expenditures for long-lived
assets............................ 41,906 2,207 817 -- 44,930
</Table>

<Table>
<Caption>
DECEMBER 31, 1998
---------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers..... $4,062,390 $157,627 $108,221 $ -- $4,328,238
Intersegment sales.................. -- 2,340 -- (2,340) --
Interest expense.................... 46,809 7,512 779 -- 55,100
Depreciation & amortization......... 29,691 1,652 769 -- 32,112
Segment net margin/(loss)........... 342 11,502 176 -- 12,020
Identifiable segment assets......... 1,488,108 80,121 19,445 -- 1,587,674
Expenditures for long-lived
assets............................ 67,199 2,710 824 -- 70,733
</Table>

The company does not have a significant concentration of members in any
geographic region of the United States or in any foreign countries.

F-26

TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. ASSET SALE

Effective December 29, 2000, the company sold the assets, primarily
inventory, of the Lumber and Building Materials ("LBM") division, comprising
fiscal year 2000 sales of approximately $1.1 billion, to Builder Marts of
America, Inc. ("BMA"). In connection with this sale, the company received
consideration of $20.2 million in cash (of which $1.0 million will be held in
escrow until December 31, 2001 to satisfy any contingencies or disputes between
the parties and which, accordingly, is classified as Restricted cash), a $19.5
million note receivable (payable in annual installments through December 31,
2007 and carrying an interest rate of 7.75% per annum) and $4.0 million in debit
memos to be used as an offset against amounts payable to BMA existing at the
date of the sale. Additionally, the company recorded deferred credits totaling
$9.5 million related to certain non-compete, cooperation, trademark and license,
and lease agreements entered into with BMA; such amount will be amortized to
income over the lives of the underlying agreements, generally 5-10 years. The
company also relieved $4.6 million of goodwill (net) and $0.7 million of
inventory related to the LBM division at the time of the sale. As a result of
the above, the company recognized a gain of $28.9 million in the fourth quarter,
which is classified as Gain on sale of assets.

14. QUARTERLY FINANCIAL SUMMARY

Selected quarterly financial information for each of the four quarter in
fiscal 2000 and 1999 is as follows (000's omitted):

<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER(1) QUARTER QUARTER QUARTER
---------- ------- ------- -------

2000
Revenues.................................... $1,027,605 $1,137,262 $ 944,269 $ 884,506
Net margin/(loss) before income taxes....... (8,869) 11,940 9,663 22,299(2)
Net margin/(loss)........................... (8,924) 11,923 9,447 21,671
1999 (restated)
Revenues.................................... $1,070,892 $1,264,108 $1,117,496 $1,049,830
Net margin/(loss) before income taxes and
cumulative effect of a change in
accounting principle..................... (17,724) 19,862 4,483 (113,920)(3)
Net margin/(loss) before cumulative effect
of a change in accounting principle...... (17,811) 18,270 5,864 (130,642)
Net margin/(loss)........................... (24,295) 18,270 5,864 (130,642)
</Table>

-------------------------
(1) On January 1, 1999, the company wrote off the unamortized balance of
start-up costs upon the adoption of SOP 98-5.

(2) In the fourth quarter of fiscal 2000, the company recorded an inventory
adjustment of approximately $22.2 million (as an increase to inventory and a
reduction to cost of sales) resulting from physical inventory counts taken
at certain of its distribution centers.

(3) In the fourth quarter of fiscal 1999, the company wrote off approximately
$74.0 million of inventory following the resolution of certain unreconciled
differences.

F-27

TRUSERV CORPORATION

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
---- ---- ----

Reserve for Doubtful Accounts
Balance at beginning of year.............................. $ 5,613 $ 5,111 $ 8,691
Provision for doubtful accounts........................... 9,147 5,148 2,808
Write-offs of doubtful accounts(1)........................ (7,590) (4,646) (6,388)
------- ------- -------
Balance at end of year.................................... $ 7,170 $ 5,613 $ 5,111
======= ======= =======
</Table>

-------------------------
(1) Notes and accounts written off as uncollectible, net of recoveries of
accounts previously written off as collectible

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31
------------------------------
2000 1999 1998
---- ---- ----

Business Combination Reserves
Balance at beginning of year.............................. $ 683 $ 4,000 $16,349
Utilization of reserves................................... (683) (3,317) (9,800)
Adjustment to Goodwill.................................... -- -- (2,549)
----- ------- -------
Balance at end of year.................................... $ -- $ 683 $ 4,000
===== ======= =======
</Table>

F-28

TRUSERV CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
(000'S OMITTED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 16,513 $ 18,316
Restricted cash........................................... 1,000 1,000
Accounts and notes receivable, net of allowance for doubtful
accounts of $9,964,000 and $7,170,000..................... 391,659 396,587
Inventories (Note 6)........................................ 417,654 443,663
Other current assets........................................ 20,031 12,274
---------- ----------
Total current assets................................. 846,857 871,840
Properties, net............................................. 205,852 216,146
Goodwill, net............................................... 92,763 94,051
Other assets................................................ 41,907 53,977
---------- ----------
Total assets......................................... $1,187,379 $1,236,014
========== ==========
LIABILITIES AND MEMBERS' CAPITALIZATION
Current liabilities:
Accounts payable.......................................... $ 415,442 $ 356,196
Outstanding checks........................................ 56,716 129,490
Accrued expenses............................................ 87,648 85,161
Short-term borrowings....................................... 128,700 138,085
Current maturities of notes, long-term debt and capital
lease obligations (Note 2)................................ 339,345 341,188
Patronage dividend payable in cash.......................... 412 10,459
---------- ----------
Total current liabilities............................ 1,028,263 1,060,579
Long-term debt, including capital lease obligations, less
current maturities (Note 2)............................... 8,153 9,091
Deferred credits............................................ 9,290 9,821
---------- ----------
Total liabilities and deferred credits...................... 1,045,706 1,079,491
---------- ----------
Minority interest........................................... 4,650 4,999
Commitments and contingencies............................... -- --
Members' capitalization:
Promissory (subordinated) and installment notes........... 62,025 65,846
Members' equity:
Redeemable Class A voting common stock, $100 par value;
750,000 shares authorized; 448,320 and 411,180 shares
issued and fully paid; 61,740 and 98,880 shares issued
(net of subscriptions receivable of $1,748,000 and
$1,922,000)........................................... 49,427 49,084
Redeemable Class B non-voting common stock and paid-in
capital, $100 par value; 4,000,000 shares authorized;
1,731,482 and 1,731,482 shares issued and fully
paid.................................................. 174,448 174,448
Loss allocation (Note 5)............................... (92,074) (92,460)
Deferred patronage..................................... (26,914) (27,288)
Retained deficit....................................... (28,971) (17,134)
Accumulated other comprehensive loss................... (918) (972)
---------- ----------
Total Members' equity................................ 74,998 85,678
---------- ----------
Total Members' capitalization..................... 137,023 151,524
---------- ----------
Total liabilities and Members' capitalization... $1,187,379 $1,236,014
========== ==========
</Table>

See Notes to Condensed Consolidated Financial Statements

F-29

TRUSERV CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

<Table>
<Caption>
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
---------------------------- ------------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
2001 2000 2001 2000
---------- ------------ ------------ ------------
(000'S OMITTED)

Revenues................................... $747,765 $1,137,262 $1,402,115 $2,164,867
Costs and expenses:
Cost of revenues......................... 670,365 1,060,354 1,274,065 2,025,293
Logistics and manufacturing expenses..... 25,150 22,780 45,798 46,534
Selling, general and administrative
expenses.............................. 33,774 24,313 62,941 58,547
Interest paid to Members................. 1,979 2,816 3,932 5,631
Other interest expense................... 14,923 16,325 28,327 27,925
Gain on sale of properties............... (53) (963) (115) (1,067)
Other income, net........................ (1,220) (303) (1,780) (1,067)
-------- ---------- ---------- ----------
744,918 1,125,322 1,413,168 2,161,796
-------- ---------- ---------- ----------
Net margin /(loss) before income taxes..... 2,847 11,940 (11,053) 3,071
Income tax expense......................... 274 17 310 72
-------- ---------- ---------- ----------
Net margin /(loss)......................... $ 2,573 $ 11,923 $ (11,363) $ 2,999
======== ========== ========== ==========
</Table>

See Notes to Condensed Consolidated Financial Statements.

F-30

TRUSERV CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

<Table>
<Caption>
FOR THE TWENTY-SIX
WEEKS ENDED
--------------------
JUNE 30, JULY 1,
2001 2000
-------- --------
(000'S OMITTED)

Operating activities:
Net loss.................................................. $(11,363) $ 2,999
Adjustments to reconcile net loss to cash and cash
equivalents used for operating activities:
Depreciation and amortization.......................... 21,346 22,655
Provision for allowance for doubtful accounts.......... 3,643 4,167
Net change in working capital components............... 87,460 (84,134)
-------- --------
Net cash and cash equivalents provided by/(used for)
operating activities................................... 101,086 (54,313)
-------- --------
Investing activities:
Additions to properties owned............................. (6,989) (6,639)
Proceeds from sale of properties owned.................... 80 7,532
Changes in other assets................................... 746 202
-------- --------
Net cash and cash equivalents provided by/(used for)
investing activities................................... (6,163) 1,095
-------- --------
Financing activities:
Payment of patronage dividend............................. (9,213) --
Proceeds from long-term borrowings........................ -- 954
Payment of notes, long-term debt and lease obligations.... (5,697) (7,617)
Decrease in outstanding checks............................ (72,774) (23,543)
Proceeds from/(repayments of) short-term borrowings, net
of repayments.......................................... (9,385) 85,139
Purchase of common stock.................................. -- (1,505)
Proceeds from Class A common stock subscription
receivable............................................. 343 266
-------- --------
Net cash and cash equivalents provided by/(used for)
financing activities................................... (96,726) 53,694
-------- --------
Net increase/(decrease) in cash and cash equivalents........ (1,803) 476
Cash and cash equivalents at beginning of period............ 18,316 1,815
-------- --------
Cash and cash equivalents at end of period.................. $ 16,513 $ 2,291
======== ========
</Table>

See Notes to Condensed Consolidated Financial Statements.

F-31

TRUSERV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1--GENERAL

The condensed consolidated balance sheet at June 30, 2001, the condensed
consolidated statement of operations for the thirteen and twenty-six weeks ended
June 30, 2001 and July 1, 2000, and the condensed consolidated statement of cash
flows for the twenty-six weeks ended June 30, 2001 and July 1, 2000 are
unaudited and, in the opinion of the management of the company, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of financial position at the balance sheet dates and results
of operations and cash flows for the respective interim periods. The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. These financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2000
included in the company's 2000 Annual Report on Form 10-K.

NOTE 2--DEBT COVENANT VIOLATION

Under the senior notes and the revolving credit facility the company is
required to meet certain restrictive financial ratios and covenants relating to
minimum EBITDA, minimum fixed charge coverage, minimum borrowing base to debt
ratio, maximum capital expenditures and maximum asset sales, as well as other
customary covenants, representations and warranties, funding conditions and
events of default. As of December 31, 2000, the company was in compliance with
the covenant requirements.

However, as of February 24, 2001, the company failed to comply with a
covenant under the revolving credit facility and the senior note agreements
which requires the company to achieve a minimum monthly borrowing base ratio. As
a result, either the senior note holders or the participants in the revolving
credit facility could declare this failure to comply with the covenant as an
"event of default," in which case the senior notes and the amounts outstanding
under the revolving credit facility would become callable as immediately
payable.

On March 30, 2001, the participants in the revolving credit facility issued
to the company "reservation of rights" letters under which the participants
effectively stated their intention to not call as immediately payable the
company's outstanding debt obligations until May 1, 2001, although they were not
precluded from doing so. All other rights of the participants were preserved.
Additional letters were issued on April 30, 2001 and July 3, 2001, which
extended the reservation of rights until July 30, 2001 and September 30, 2001,
respectively. The senior note holders also issued letters reserving their right
to accelerate the maturity of the notes although agreeing not to do so at this
time.

The reservation of rights letters provided by the participants in the
revolving credit facility required that the upper limit of the total amount that
may be borrowed under the Credit Agreement at any time prior to September 30,
2001 be lowered from $275,000,000 to $225,000,000. The credit limit under this
facility was reduced on May 11, 2001 from $275,000,000 to $250,000,000.
Additionally, the interest rate on the amounts outstanding under the revolving
credit facility was increased by approximately 2%; this increased interest rate
also applies to the outstanding senior notes. As a result of this increased
interest rate, the company will incur additional interest expense in fiscal year
2001. If this increased interest rate continues through December 31, 2001, the
additional interest expense would aggregate approximately $6.0 million.

F-32

TRUSERV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

group in the fourth quarter of 2001. An alternative may be to amend the existing
agreements with the existing lenders. However, no assurances can be given as to
the outcome. The company's failure to successfully refinance or amend its
current borrowing arrangements could cause the current lending group to call as
immediately payable the company's currently outstanding debt obligations. The
company's resulting inability to satisfy its debt obligations would force the
company to pursue other alternatives to improve liquidity, possibly including,
among other things, restructuring actions, sales of assets and seeking
additional sources of funds or liquidity. In particular, the company has engaged
an investment banking firm to assist it in exploring the sale of the paint
manufacturing business. No assurances can be given that the company will be
successful in pursuing such possible alternatives or, even if successful, that
such undertakings would not have a material adverse impact on the company.

NOTE 3--RECLASSIFICATIONS

Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform with the current year's
presentation. These reclassifications had no effect on net margin/(loss) for any
period or on Total Members' equity at the balance sheet dates.

NOTE 4--ESTIMATED PATRONAGE DIVIDENDS

If financial and operating conditions permit, patronage dividends are
declared and paid by the company after the close of each fiscal year. Patronage
dividends in the amount of $34,705,000 were paid on March 31, 2001 relating to
the fiscal year ended December 31, 2000, approximately thirty percent of which
were paid in cash (TruServ by-laws and the IRS require the payment of at least
twenty percent of patronage dividends be in cash). The remainder was paid
through the issuance of the company's Class B common stock, which is redeemable
by the company and has no voting rights (the "Redeemable Class B common stock")
and, in certain cases, a small portion of the dividend was paid by means of
Promissory (Subordinated) Notes of the company. The Redeemable Class B common
stock issued as part of the December 31, 2000 patronage dividend has been
designated as qualified notices of allocation. Over ninety-five percent of the
Redeemable Class B common stock issued with the fiscal year 2000 patronage
dividend was applied to the loss allocation account. There is no estimated
patronage dividend for the period ended June 30, 2001 and the estimated
patronage dividend for the corresponding period in 2000 was $2,949,000.

NOTE 5--LOSS ALLOCATION TO MEMBERS

During the third quarter of fiscal year 2000, company management developed
and the Board of Directors approved a plan to equitably allocate to members the
loss incurred in 1999. This loss was previously recorded as a reduction of
retained earnings. The company has allocated the 1999 loss by establishing a
loss allocation account as a contra-equity account in the consolidated balance
sheet with the offsetting credit recorded to retained deficit. The loss
allocation account reflects the sum of each member's proportionate share of the
1999 loss, after being reduced by certain amounts that are not allocable to
members. The loss allocation account is not a receivable from members and does
not represent an amount currently due from members. Rather, the loss allocation
account will be satisfied, on a member by member basis, by withholding the
portion of future patronage dividends that would have been paid in qualified
Redeemable Class B common stock, at par value, and applying such amount as a
reduction in the loss allocation account until fully satisfied. The current
levels of members' stock investments in the company will not be affected.
However, in the event a member should

F-33

TRUSERV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

terminate as a stockholder of the company, any unsatisfied portion of that
member's loss allocation account will be satisfied by reducing the redemption
amount paid for the member's stock investment in the company.

NOTE 6--INVENTORIES

Inventories consisted of:

<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
(000'S OMITTED)

Manufacturing inventories:
Raw materials............................................. $ 3,040 $ 2,242
Work-in-process and finished goods........................ 29,718 30,705
-------- --------
32,758 32,947
Merchandise inventories..................................... 384,896 410,716
-------- --------
Total................................................ $417,654 $443,663
======== ========
</Table>

Inventories are stated at the lower of cost, determined on the first-in,
first-out basis, or market. The cost of inventory also includes indirect costs
incurred to bring inventory to its existing location for resale. The amount of
indirect costs included in ending inventory at June 30, 2001 and December 31,
2000 was $26,205,000 and $29,144,000, respectively.

NOTE 7--RESTRUCTURING CHARGE

In the second quarter of fiscal 2001, the company continued the workforce
reductions initiated in fiscal year 2000 (related to distribution center
closures and workforce reductions at the company's corporate headquarters). The
second quarter corporate headquarters workforce reduction resulted in the
severance of 150 additional employees, all of whom were notified as to the terms
and conditions of their severance and the benefits they would receive.
Additional shutdown costs necessary to exit the distribution centers were also
identified. As a result of the above-described actions, the company recorded a
charge in second quarter of $4.4 million to selling, general and administrative
expenses in the condensed consolidated statement of operations. As a result of
the above described actions, the company expects annual savings of approximately
$11.9 million.

NOTE 8--SEGMENT INFORMATION

F-34

TRUSERV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

as operating earnings including an allocation for interest expense and income
taxes. Information regarding the identified segments and the related
reconciliation to consolidated information are as follows:

<Table>
<Caption>
THIRTEEN WEEKS ENDED JUNE 30, 2001
-----------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers........ $681,838 $40,611 $25,316 $ -- $ 747,765
Intersegment sales..................... -- 638 -- (638) --
Interest expense....................... 15,663 1,064 175 -- 16,902
Depreciation and amortization.......... 10,021 441 182 -- 10,644
Segment net margin/(loss).............. (133) 2,585 121 -- 2,573
Expenditures for long-lived assets..... 3,639 7 131 -- 3,777
</Table>

<Table>
<Caption>
THIRTEEN WEEKS ENDED JULY 1, 2000
-------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers....... $1,067,429 $41,922 $27,911 $ -- $1,137,262
Intersegment sales.................... -- 855 -- (855) --
Interest expense...................... 17,284 1,609 248 -- 19,141
Depreciation and amortization......... 10,700 443 198 -- 11,341
Segment net margin/(loss)............. 7,856 3,865 202 -- 11,923
Expenditures for long-lived assets.... 3,012 112 126 -- 3,250
</Table>

<Table>
<Caption>
TWENTY-SIX WEEKS ENDED JUNE 30, 2001
-------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers....... $1,281,976 $69,060 $51,079 $ -- $1,402,115
Intersegment sales.................... -- 1,185 -- (1,185) --
Interest expense...................... 29,605 2,343 311 -- 32,259
Depreciation and amortization......... 20,113 878 355 -- 21,346
Segment net margin/(loss)............. (16,796) 5,192 241 -- (11,363)
Identifiable segment assets........... 1,105,937 56,376 25,066 -- 1,187,379
Expenditures for long-lived assets.... 6,553 272 164 -- 6,989
</Table>

<Table>
<Caption>
TWENTY-SIX WEEKS ENDED JULY 1, 2000
-------------------------------------------------------------------
ELIMINATION
OF INTERSEGMENT CONSOLIDATED
HARDWARE PAINT OTHER ITEMS TOTALS
-------- ----- ----- --------------- ------------
(000'S OMITTED)

Net sales to external customers....... $2,036,912 $73,661 $54,294 $ -- $2,164,867
Intersegment sales.................... -- 1,347 -- (1,347) --
Interest expense...................... 29,929 3,213 414 -- 33,556
Depreciation and amortization......... 21,379 885 391 -- 22,655
Segment net margin/(loss)............. (3,290) 6,070 219 -- 2,999
Identifiable segment assets........... 1,359,761 73,235 27,818 -- 1,460,814
Expenditures for long-lived assets.... 5,994 446 199 -- 6,639
</Table>

F-35

TRUSERV CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

NOTE 9--ASSET SALE

Effective December 29, 2000, the company sold the assets, primarily
inventory, of the Lumber and Building Material business to Builder Marts of
America, Inc. The Lumber and Building Materials business generated approximately
$1.1 billion of the company's revenue in fiscal year 2000; however, the sale of
the business will not materially impact net margin.

F-36

---------------------------------------------------------
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NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, THE INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TRUSERV CORPORATION. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH THIS OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHICH IT IS UNLAWFUL TO MAKE THIS OFFER OR SOLICITATION.

TABLE OF CONTENTS

<Table>
<Caption>
ITEM PAGE
---- ----

SUMMARY..................................................... 2
TruServ.................................................... 2
Recent Financial Results................................... 2
Debt Covenant Violation.................................... 2
Common Stock............................................... 3
Restriction on Transferability and Dividend Policies....... 3
Comparative per Share Prices............................... 4
Allocation of Losses to Capital Stock...................... 4
RISK FACTORS................................................ 5
TruServ is in Default under a Debt Covenant in its Senior
Debt Agreements.......................................... 5
Our Auditors have Expressed Doubts about TruServ's Ability
to Continue as a Going Concern........................... 5
TruServ has declared a Moratorium on Stock Redemption...... 5
There is no Market for the Common Stock and the Common
Stock is Subject to Transfer Restrictions and Lien
Rights................................................... 5
TruServ has Substantial Outstanding Debt................... 6
TruServ has experienced a Decrease in Gross Margin
Percentages.............................................. 6
TruServ has experienced a Decline in its Member Base and
Faces Stiff Retail Competition........................... 6
TRUSERV..................................................... 6
General Description of the Business........................ 7
Sales and Suppliers........................................ 7
Other Services............................................. 8
Backlog.................................................... 9
Competition................................................ 9
Trademarks, Service Marks, and Collective Membership
Marks.................................................... 9
Subsidiaries............................................... 10
Employees.................................................. 10
Retail Member Agreement; Franchise and License
Agreements............................................... 10
Properties................................................. 11
Legal Proceedings.......................................... 12
DESCRIPTION OF COMMON STOCK................................. 13
Capital Stock.............................................. 13
Moratorium on Redemptions of Capital Stock................. 13
Dividend Rights............................................ 14
Distribution of Patronage Dividends........................ 14
Allocation of Patronage Dividends Against Loss Account..... 15
Payment of Patronage Dividends in Accordance with the
Internal Revenue Code.................................... 15
Voting Rights.............................................. 16
Liquidation Rights......................................... 16
Membership................................................. 16
Redemption Provisions...................................... 17
Other Restrictions and Rights.............................. 17
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 17
SELECTED FINANCIAL DATA..................................... 19
QUARTERLY FINANCIAL SUMMARY................................. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 20
Thirteen Weeks Ended June 30, 2001 Compared to Thirteen
Weeks Ended July 1, 2000................................. 20
Twenty-Six Weeks Ended June 30, 2001 Compared to Twenty-Six
Weeks Ended July 1, 2000................................. 21
Liquidity and Capital Resources............................ 21
Fiscal Year 2000 Compared to Fiscal Year 1999.............. 23
Fiscal Year 1999 Compared to Fiscal Year 1998.............. 24
Liquidity and Capital Resources............................ 25
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK....................................................... 27
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 27
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 28
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 29
EXECUTIVE COMPENSATION...................................... 31
Compensation Committee..................................... 31
Executive Compensation 2000................................ 32
Board Compensation......................................... 33
Defined Benefit Retirement Plans........................... 33
Performance Graph.......................................... 34
Employment Agreement....................................... 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 34
USE OF PROCEEDS............................................. 34
PLAN OF DISTRIBUTION........................................ 35
LEGAL MATTERS............................................... 35
INDEMNIFICATION............................................. 35
WHERE YOU CAN FIND MORE INFORMATION......................... 35
FINANCIAL STATEMENTS........................................ F-1
Index to Consolidated Financial Statements................. F-1
</Table>

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TRUSERV CORPORATION
239,940 SHARES
CLASS A COMMON STOCK

$100 PAR VALUE
(IN UNITS OF 60 SHARES)
------------------
PROSPECTUS
------------------
DATED
, 2001
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. 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:

<Table>

Registration Fee............................................ $ 0
Printing of Registration Statement and Prospectus........... 10,000
Accounting Fees and Expenses................................ 18,000
Legal Fees.................................................. 30,000
Fees and Expenses for Qualifying Securities under "Blue Sky"
Laws of Various States.................................... 15,000
-------
Total....................................................... $73,000
=======
</Table>

ITEM 14. 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 the 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 the person in respect thereof. The indemnification is not exclusive
of any other right of the director, officer, or employee to indemnification
provided by law or otherwise.

Under TruServ's by-laws, 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 the
person by reason of the fact that he was or is a director, officer, employee or
agent, if the 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 the 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
the suit or action, if the 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 the 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, the 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
indemnified has met the applicable standard of conduct. The determination shall
be made by the board of directors by a majority vote of a quorum, consisting of
directors who were not parties to the action, suit or proceeding, or if a quorum
is not obtainable, and 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

II-1

Certificate of Incorporation 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 that the 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.

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

4-A Amended and Restated Certificate of Incorporation of
TruServ, effective July 1, 1997 Incorporated by
reference--Exhibit 2-A to Registration Statement on Form S-4
(No. 333-18397)
4-B By-laws of TruServ, effective February 23, 2001.
Incorporated by reference--Exhibit 4-B to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2000
4-C Specimen certificate of Class A common stock. Incorporated
by reference--Exhibit 4-B to Post-Effective Amendment No. 8
to Registration Statement on Form S-2 to Form S-4 (No.
333-18397).
4-D Specimen certificate of Class B common stock. Incorporated
by reference--Exhibit 4-C to Post-Effective Amendment No. 8
to Registration Statement on Form S-2 to Form S-4 (No.
333-18397).
4-E 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-F Installment note form. Incorporated by reference--Exhibit
4-F to Registration Statement on Form S-2 (No. 2-82836).
4-G 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-H 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-I Trust Indenture between Cotter & Company and US Bancorp
(formerly First Trust of Illinois). Incorporated by
reference--Exhibit T3C to Cotter & Company Form T-3 (No.
22-26210).
4-J Amended and Restated Credit Agreement dated as of April 14,
2000 for $300,000,000 Revolving credit between TruServ
Corporation, various financial institutions, and Bank of
America. Incorporated by reference--Exhibit 4-K to
Post-Effective Amendment No. 10 to Registration Statement on
Form S-2 to Form S-4 (No. 333-18397).
4-K 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-M to Post-Effective Amendment No. 5 to
Registration Statement on Form S-4 (No. 333-18397)
</Table>

II-2

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------

4-L Amendment dated April 14, 2000 to the Amended and Restated
Private Shelf Agreement between TruServ Corporation and
Prudential Insurance Company of America dated November 13,
1997 for $150,000,000 and to Note Agreement of $50,000,000,
dated as of April 13, 1992, between Cotter & Company and
Prudential. Incorporated by reference on Exhibit 4-N to
Post-Effective Amendment No. 10 to Registration Statement on
Form S-2 to Form S-4 (No. 333-18397)
4-M Credit Agreement dated September 10, 1998 for $105,000,000
Note Purchase Agreement between TruServ Corporation and
various purchasers. Incorporated by reference--Exhibit 4-L
to Post-effective Amendment No. 6 to Registration Statement
on Form S-4 (No. 333-183997)
4-N Amended and Restatement dated April 14, 2000 to Credit
Agreement dated September 10, 1998 for $105,000,000 Note
Purchase Agreement between TruServ Corporation and various
purchasers. Incorporated by reference on Exhibit 4-Q to Post
Effective Amendment No. 10 to Registration Statement on Form
S-2 to Form S-4 (No. 333-18397).
4-O 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)
*5 Opinion of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz,
Ltd.
10-B Current Form of "Subscription to Shares of TruServ."
Incorporated by reference--Exhibit 10-B to Registration
Statement on Form S-2 (No. 333-18397).
10-C TruServ Corporation Defined Lump Sum Pension Plan as Amended
and Restated Effective as of January 1, 1998. Incorporated
by reference--Exhibit 10-C to the Registrants's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999.
10-E TruServ Supplemental Retirement Plan between TruServ and
selected executives of the company (As Amended Effective
July 24, 1998). Incorporated by reference--Exhibit 10-E to
Post-Effective Amendment No. 10 to Registration Statement on
Form S-2 to Form S-4 (No. 333-18397).
10-F Retail Conversion Funds Agreement dated as of December 9,
1996 between Cotter and Company and SCC. Incorporated by
reference--Exhibit 10-L to Registration Statement on Form
S-4 (No. 333-18397).
10-G Employment Agreement between SCC and Donald J. Hoye dated
September 1, 1996. Incorporated by reference--Exhibit 10-P
to Post-Effective Amendment No. 2 to Registration Statement
on Form S-4 (No. 333-18397).
13-A Annual Report on Form 10-K for the year ended December 31,
2000. Incorporated by reference--(No. 2-20910).
*23-A Consent of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz,
Ltd. (contained in opinion).
*23-B Consent of Ernst & Young LLP.
*23-C Consent of PricewaterhouseCoopers LLP.
*24 Powers of Attorney (contained on signature page of this
registration statement).
</Table>

-------------------------
* Filed herewith.

** To be filed by amendment.

II-3

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; and

(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 the information in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each of the post-effective amendments shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of the 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
TruServ Corporation pursuant to the foregoing provisions described in Item 15,
or otherwise, TruServ has been advised that in the opinion of the Securities and
Exchange Commission the indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against the liabilities (other than the payment by TruServ 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 the director, officer or controlling person in connection with the securities
being registered, TruServ Corporation 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 the indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the issue.

II-4

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 THIS AMENDMENT TO THE FORM S-1 AND HAS DULY CAUSED THIS
AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON OCTOBER 31, 2001.

TRUSERV CORPORATION
By: /s/ PAMELA FORBES LIEBERMAN
------------------------------------
Pamela Forbes Lieberman
Chief Operating Officer, Chief
Financial Officer and
Senior Vice President

KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW, CONSTITUTES AND APPOINTS PAMELA FORBES LIEBERMAN, DAVID A. SHADDUCK AND
BARBARA L. WAGNER, JOINTLY AND SEVERALLY, ATTORNEYS-IN-FACT AND AGENTS, EACH
WITH FULL POWER OF SUBSTITUTION, FOR HIM OR HER IN ANY AND ALL CAPACITIES TO
SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS
REGISTRATION STATEMENT, AND TO FILE THE SAME, AND ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY SATISFYING AND CONFIRMING ALL THAT EACH OF SAID
ATTORNEYS-IN-FACT AND AGENTS, OR HIS, HER OR THEIR SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----

/s/ JOE W. BLAGG Chairman and Acting Chief October 31, 2001
------------------------------------------------ Executive Officer
Joe W. Blagg

/s/ PAMELA FORBES LIEBERMAN Chief Operating Officer, Chief October 31, 2001
------------------------------------------------ Financial Officer and Senior
Pamela Forbes Lieberman Vice President

/s/ DAVID A. SHADDUCK Vice President, Corporate October 31, 2001
------------------------------------------------ Controller
David A. Shadduck

/s/ BRYAN R. ABLEIDINGER Director October 31, 2001
------------------------------------------------
Bryan R. Ableidinger

/s/ BENJAMIN J. ANDRE Director October 31, 2001
------------------------------------------------
Benjamin J. Andre

/s/ JAMES D. BURNETT Director October 31, 2001
------------------------------------------------
James D. Burnett

/s/ HAROLD A. DOUTHITT Director October 31, 2001
------------------------------------------------
Harold A. Douthitt

/s/ JAY B. FEINSOD Director October 31, 2001
------------------------------------------------
Jay B. Feinsod

/s/ JAMES D. HOWENSTINE Director October 31, 2001
------------------------------------------------
James D. Howenstine

/s/ PETER G. KELLY Director October 31, 2001
------------------------------------------------
Peter G. Kelly

/s/ ROBERT J. LADNER Director October 31, 2001
------------------------------------------------
Robert J. Ladner
</Table>

II-5

<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----

/s/ GEORGE V. SHEFFER Director October 31, 2001
------------------------------------------------
George V. Sheffer

/s/ JOHN M. WEST, JR. Director October 31, 2001
------------------------------------------------
John M. West, Jr.

/s/ BARBARA B. WILKERSON Director October 31, 2001
------------------------------------------------
Barbara B. Wilkerson
</Table>

II-6