WABAN INC, S-3, 1994-03-15

WABAN INC
S-3, 1994-03-15
VARIETY STORES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1994

REGISTRATION NO. 33-

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

WABAN INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 33-0109661
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

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

ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760
(508) 651-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

DALE N. GARTH
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WABAN INC.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760
(508) 651-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:
MARK G. BORDEN, ESQ. DENNIS J. BLOCK, ESQ.
HALE AND DORR WEIL, GOTSHAL & MANGES
60 STATE STREET 767 FIFTH AVENUE
BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10153
(617) 526-6000 (212) 300-8000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
% Senior Subordinated
Notes................. $100,000,000 100% $100,000,000 $34,483
</TABLE>
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----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 15, 1994

PROSPECTUS

$100,000,000

WABAN INC.

% SENIOR SUBORDINATED NOTES DUE 2004

-----------

The % Senior Subordinated Notes due , 2004 (the "Notes") of Waban
Inc. (the "Company") offered hereby will bear interest at the rate of % per
annum, payable semi-annually in arrears on and of each year,
commencing , 1994.

The Notes will be redeemable at the option of the Company, in whole or in
part, at any time and from time to time, on and after , 1999, at the
redemption prices set forth herein, together with accrued and unpaid interest.
See "Description of Notes--Optional Redemption." Upon a Change of Control (as
defined), holders of Notes will have the right, subject to certain restrictions
and conditions, to require the Company to purchase all or any part of their
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase. See "Description of Notes--Change of Control."

The Notes will be unsecured obligations and will be subordinate in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company. As of January 29, 1994, Senior Indebtedness was approximately
$78,300,000, and the Company had available borrowings of $80,000,000 under its
bank credit agreement, which would constitute Senior Indebtedness. Subject to
certain restrictions, the Indenture pursuant to which the Notes will be issued
permits the Company to incur additional indebtedness, but prohibits the
incurrence of any indebtedness that is senior to the Notes but subordinate to
Senior Indebtedness.

The Notes are a new issue of securities with no established trading market
and will not be listed on any securities exchange.

FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NOTES, SEE "CERTAIN INVESTMENT CONSIDERATIONS."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note................................... % % %
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Total...................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1994.
(2) The Company has agreed to indemnify the Underwriter against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .

The Notes are offered by Bear, Stearns & Co. Inc., subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made against payment therefor on or about , 1994 at the offices of
Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.

-----------

BEAR, STEARNS & CO. INC.

, 1994
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Suite 1300, 7 World Trade Center,
New York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
materials can also be inspected at the New York Stock Exchange (the "NYSE"),
20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as part thereof and otherwise incorporated
therein. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. Copies
of the Registration Statement and the exhibits may be inspected, without
charge, at the offices of the Commission, or obtained at prescribed rates from
the Public Reference Section of the Commission at the address set forth above.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1993 and the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended May 1, 1993, July 31, 1993 and October 30,
1993.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated
or deemed to be incorporated by reference herein modifies, supersedes or
replaces such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any or all of the documents which have been incorporated by reference in
this Prospectus, other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Investor Relations, Waban Inc.,
One Mercer Road, Natick, Massachusetts 01760 (telephone number: (508) 651-
6500).
----------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Fiscal year references refer to the Company's
fiscal year, which ends on the last Saturday of January of each year.

THE COMPANY

Waban Inc. ("Waban" or the "Company") operates two warehouse merchandising
businesses: BJ's Wholesale Club ("BJ's") and HomeBase. BJ's operates 52 food
and general merchandise membership warehouse clubs located mainly in the
northeastern United States. HomeBase sells a broad selection of home
improvement and building supply products through 82 warehouse stores located in
the western United States. Both BJ's and HomeBase utilize the efficiencies
provided by the warehouse merchandising format to offer their customers first-
quality, brand-name merchandise at prices substantially below those available
through traditional channels of distribution. The Company's sales have grown
from $2.1 billion in fiscal 1990 to $3.6 billion in fiscal 1994, and its total
number of stores has increased from 81 at the end of fiscal 1990 to 134 at the
end of fiscal 1994.

BJ's introduced the warehouse club concept to New England in 1984 and is the
third largest membership warehouse chain in the country. BJ's now operates 52
warehouse clubs in 11 northeastern states and Florida with over 2.6 million
members. BJ's is a high volume, low-price, low-margin membership warehouse club
which sells a narrow assortment of brand-name food and general merchandise
within a wide range of product categories. By limiting its product assortment
and taking advantage of the productivity and efficiency of the warehouse
format, BJ's is able to offer its members substantial savings over many other
channels of wholesale and retail distribution. Maintaining a low operating cost
structure is a critical element of the BJ's strategy. BJ's has grown from 23
warehouse clubs and sales of $1.0 billion in fiscal 1990 to 52 warehouse clubs
and sales of $2.0 billion in fiscal 1994. The membership warehouse club
industry has grown from sales of approximately $14 billion in calendar 1988 to
sales of approximately $39 billion in calendar 1993.

BJ's strategy is to continue to strengthen its market position in the
northeastern United States by opening additional warehouse clubs, attracting
new members to existing warehouse clubs and increasing BJ's share of members'
overall retail spending. The Company believes that its regional strategy of
concentrating its resources in the Northeast enables it to compete more
effectively with large, national warehouse club chains. BJ's opened 13 new
warehouse clubs in fiscal 1994 and expects to open approximately 15 warehouse
clubs during fiscal 1995 (including the relocation of one warehouse club). All
of the BJ's warehouse clubs opened in fiscal 1994 and those planned to be
opened in fiscal 1995 are in the Northeast.

HomeBase is the second largest operator of home improvement warehouse stores
in the western United States and is one of the nation's four largest home
improvement merchandisers using a warehouse format. HomeBase offers a very
broad assortment of home improvement and building supply products at attractive
prices to a customer base that includes both serious and casual "Do-It-
Yourself" customers, as well as professional contractors. This merchandising
presentation is supported by a strong commitment to customer service aimed at
developing ongoing relationships with its customers. HomeBase has grown from 58
warehouse stores and sales of $1.1 billion in fiscal 1990 to 82 warehouse
stores and sales of $1.6 billion in fiscal 1994. The Company believes that the
total market for home improvement products was approximately $115 billion in
calendar 1993. The home improvement market is highly fragmented and the
warehouse format continues to gain an increasing share of the market.

3
<PAGE>

increase in the level of customer service offered at HomeBase stores, through
an increase in the number of salespeople, including hiring experienced
tradespeople and others with specialized product knowledge in home improvement
fields, and enhanced sales and service training for both new and existing store
employees, (ii) improvement in gross margin through buying efficiencies created
by centralization of the merchandise replenishment function, improved
distribution of merchandise to reduce freight costs, and selective price
increases, and (iii) an aggressive marketing program to communicate to
customers the benefits of shopping at HomeBase and its improved levels of
customer service. In the third quarter of fiscal 1994, a new management team,
led by a senior executive from BJ's, was installed at HomeBase to implement
these strategic initiatives.

In the fourth quarter of fiscal 1994, the Company recorded a pre-tax
restructuring charge of $101.1 million, primarily to cover expenses related to
the repositioning of HomeBase. The restructuring is designed to enable HomeBase
to focus its management efforts and financial resources on strengthening its
competitive position in the western United States. This charge reflects (i) the
closing of all eight of the Company's stores in midwestern markets (Chicago and
Toledo), which were outside HomeBase's primary market area, (ii) the planned
closing of 16 additional stores where the potential to achieve the Company's
objectives is limited, and (iii) liquidating certain discontinued merchandise.
The Company closed the eight stores in the Midwest in January 1994 and has
disposed of five of these locations. The Company is actively seeking to sell or
sublease the remaining three midwestern stores, as well as the other 16 stores
identified for closing. HomeBase plans to open approximately four new warehouse
stores in the western United States during fiscal 1995. See "Preliminary
Results for Fiscal 1994."

The Company was formed in 1989, when Zayre Corp. (now The TJX Companies, Inc.
("TJX")), as part of its restructuring, combined its BJ's Wholesale Club and
HomeBase divisions to form "Waban Inc." In June 1989, TJX distributed all of
the Company's outstanding common stock to its shareholders on a pro rata basis.

The address of the Company is One Mercer Road, Natick, Massachusetts 01760,
telephone number (508) 651-6500. Unless the context otherwise requires, the
term "Company" refers to Waban Inc. and its subsidiaries.

4
<PAGE>

THE OFFERING

Securities Offered.......... $100,000,000 principal amount of % Senior Subor-
dinated Notes due , 2004 (the "Notes").

Interest Payment Dates...... and , commencing , 1994.

Maturity Date............... , 2004.

Optional Redemption......... Redeemable at the Company's option, in whole or
in part, at any time and from time to time, on
and after , 1999, initially at % of princi-
pal amount and thereafter at prices declining to
100% from and after , 2002.

Upon a Change of Control (as defined), holders of
Change of Control........... Notes will have the right, subject to certain re-
strictions and conditions, to require the Company
to purchase all or any part of their Notes at
101% of the principal amount thereof, plus ac-
crued and unpaid interest thereon to the date of
purchase. A Change of Control would constitute an
event of default under the Company's Credit
Agreement, the 9.58% Notes due 1998 and the Con-
vertible Subordinated Debentures due 2002 and
could result in the acceleration of the Company's
debt repayment obligations thereunder. In such
event, the Company may not have sufficient re-
sources to satisfy all its repayment and repur-
chase obligations. See "Description of Notes--
Change of Control."

Ranking..................... Subordinate to all existing and future Senior In-
debtedness (as defined) of the Company and effec-
tively subordinate to all indebtedness and other
liabilities of subsidiaries of the Company. As of
January 29, 1994, Senior Indebtedness was approx-
imately $78,300,000, and the Company had avail-
able borrowings of $80,000,000 under its bank
credit agreement, which would constitute Senior
Indebtedness. Subject to certain restrictions,
the indenture pursuant to which the Notes will be
issued (the "Indenture") permits the Company to
incur additional indebtedness, including Senior
Indebtedness. However, the Indenture prohibits
the Company from incurring any indebtedness that
is senior to the Notes but subordinate to Senior
Indebtedness. See "Description of Notes--Subordi-
nation."

Certain Covenants........... The Indenture restricts, among other things, the
payment of dividends, the repurchase of capital
stock and the making of certain other Restricted
Payments (as defined), the incurrence of addi-
tional indebtedness, the making of certain In-
vestments (as defined), and certain mergers, con-
solidations or sales of assets. Upon certain
sales of assets, the Company will be required to
offer to purchase, at 100% of their principal
amount plus accrued and unpaid interest, if any,
Notes in principal amount equal to any net cash
proceeds which are not invested in properties and
assets in the warehouse merchandising business or
applied to permanently reduce Senior Indebted-
ness. See "Description of Notes--Certain
Covenants."

Use of Proceeds............. The net proceeds of this offering, estimated at
$ , will be used (i) to fund the opening of new
stores, including the acquisition of real estate
and the construction of stores, (ii) to make
scheduled principal repayments on Senior Indebt-
edness, including a $12 million principal payment
due in May 1994 on the Company's Senior Notes,
(iii) to repay short-term borrowings (subject to
reborrowing) under the Company's bank credit
agreement (under which $20 million was outstand-
ing at February 26, 1994), and (iv) for general
corporate purposes.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
---------------------------------------------------- ------------------
JAN. 28, JAN. 27, JAN. 26, JAN. 25, JAN. 30, OCT. 24, OCT. 30,
1989 1990 1991 1992 1993 1992 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $1,652.5 $2,056.5 $2,409.7 $2,783.6 $3,357.8 $2,420.2 $2,699.1
Operating income........ 42.0 51.6 36.2(1) 52.2(2) 74.6 51.7 51.4
Interest expense, net... 13.2 3.1 5.5 3.3 6.3 3.1 9.1
Net income.............. 17.2 28.8 18.4(1) 30.0(2) 44.2 30.2 27.1(4)
Net income per common
share(3)
Primary................ -- 1.01 .64(1) 1.01(2) 1.33 .91 .82(4)
Fully diluted.......... -- 1.01 .64(1) 1.01(2) 1.31 .90 .81(4)
OTHER DATA:
EBITDA(5)............... $ 52.5 $ 66.6 $ 54.3 $ 74.3 $ 104.4 $ 73.1 $ 78.5
Depreciation & amortiza-
tion................... 10.5 15.0 18.1 22.1 29.8 21.4 27.1
Growth in EBITDA........ 114.4% 26.8% (18.6)% 37.1% 40.4% 43.0% 7.4%
EBITDA/Total interest
expense................ 4.0x 17.0x 9.7x 10.4x 9.5x 9.7x 7.8x
Total long-term
debt/EBITDA............ 0.6x 0.5x 0.5x 1.2x 1.8x 2.6x 2.3x
Total long-term debt as
a percentage of
total capitalization... 11.9% 10.6% 9.3% 18.3% 30.6% 31.4% 27.7%
Capital expenditures
Existing stores........ $ 8.5 $ 23.0 $ 12.8 $ 26.2 $ 24.9 $ 21.8 $ 15.8
New stores, other than
real estate........... 13.8 13.7 14.2 18.8 41.1 29.6 24.0
Purchase of real es-
tate.................. 0.6 6.1 7.9 29.3 99.8 71.8 52.5
-------- -------- -------- -------- -------- -------- --------
Total.................. $ 22.9 $ 42.8 $ 34.9 $ 74.3 $ 165.8 $ 123.2 $ 92.3
======== ======== ======== ======== ======== ======== ========
Number of stores (at end
of period)............. 68 81 93 102 125 120 137
BALANCE SHEET DATA:
Working capital......... $ 136.1 $ 137.7 $ 154.3 $ 268.6 $ 285.8 $ 301.9 $ 236.6
Total assets............ 456.7 537.3 579.8 786.4 1,007.0 1,036.9 1,124.3
Long-term debt (includ-
ing capital leases).... 32.8 31.4 29.2 86.8 192.6 192.4 177.9
Loans and advances from
TJX.................... 195.6 -- -- -- -- -- --
Stockholders' equity.... 46.7 265.3 284.2 388.6 436.6 420.9 464.6
</TABLE>
- --------
(1) After a charge of $8.8 million before taxes ($5.3 million after taxes, $.18
per share) for the discontinuation of HomeBase's membership program.
(2) After charges of $3.4 million before taxes ($2.1 million after taxes, $.07
per share) for changing the name of HomeClub to HomeBase and $5.5 million
before taxes ($3.3 million after taxes, $.11 per share) for closing four
BJ's warehouse clubs in the Chicago market.
(3) In accordance with Securities and Exchange Commission (the "Commission")
rules, historical earnings per share for periods prior to the public
issuance of the Company's Common Stock are not presented.
(4) Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS
No. 106 "Employers' Accounting for Postretirement Benefits Other than
Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," resulting in net after-tax income of approximately $.9 million,
or $.03 per share, in the first quarter of fiscal 1994.
(5) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its cash
requirements. EBITDA should not be considered in isolation from, or as a
substitute for, net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.

6
<PAGE>

PRELIMINARY RESULTS FOR FISCAL 1994

The following table sets forth summary unaudited financial results of the
Company for the fourth quarter and fiscal year ended January 29, 1994. The
fiscal quarter and year ended January 29, 1994 contained 13 and 52 weeks,
respectively, while the fiscal quarter and year ended January 30, 1993
contained 14 and 53 weeks, respectively.

<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDED
--------------------------- ---------------------------
JAN. 30, 1993 JAN. 29, 1994 JAN. 30, 1993 JAN. 29, 1994
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $937.6 $890.3 $3,357.8 $3,589.3
Cost of sales, including
buying and occupancy
costs.................. 801.7 762.6 2,881.3 3,086.7
Selling, general and ad-
ministrative expenses.. 113.1 99.5 401.9 423.0
Restructuring charge(1). -- 101.1 -- 101.1
------ ------ -------- --------
Operating income........ 22.8 (72.9) 74.6 (21.5)
Interest on debt and
capital leases, net.... 3.2 3.4 6.3 12.5
------ ------ -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes................ 19.6 (76.3) 68.3 (34.0)
Provision (benefit) for
income taxes........... 5.5 (31.4) 24.1 (15.3)
------ ------ -------- --------
Income (loss) before
cumulative effect of
accounting principle
changes................ 14.1 (44.9) 44.2 (18.7)
Cumulative effect of ac-
counting principle
changes(2)............. -- -- -- 0.9
------ ------ -------- --------
Net income (loss)....... $ 14.1 $(44.9) $ 44.2 $ (17.8)
====== ====== ======== ========
Primary earnings (loss)
per share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 0.42 $(1.36) $ 1.33 $ (0.56)
Cumulative effect of
accounting principle
changes............... -- -- -- 0.02
------ ------ -------- --------
Net income (loss)...... $ 0.42 $(1.36) $ 1.33 $ (0.54)
====== ====== ======== ========
Fully diluted earnings
(loss) per share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 0.41 $(1.36) $ 1.31 $ (0.56)
Cumulative effect of
accounting principle
changes............... -- -- -- 0.02
------ ------ -------- --------
Net income (loss)...... $ 0.41 $(1.36) $ 1.31 $ (0.54)
====== ====== ======== ========
OTHER DATA:
EBITDA(1)(3)............ $ 31.3 $(62.9) $ 104.4 $ 15.6
SELECTED SEGMENT DATA:
Net sales:
BJ's Wholesale Club.... $563.7 $600.0 $1,786.9 $2,003.4
HomeBase............... 373.9 290.3 1,570.9 1,585.9
------ ------ -------- --------
Total................. $937.6 $890.3 $3,357.8 $3,589.3
====== ====== ======== ========
Operating income (loss):
BJ's Wholesale Club.... $ 17.3 $ 22.5 $ 35.4 $ 45.2
HomeBase (net of $98.5
restructuring charge
in fiscal 1994)....... 8.0 (90.9) 47.2 (55.8)
General corporate
expense (including
$2.6 restructuring
charge in fiscal
1994)................. (2.5) (4.5) (8.0) (10.9)
------ ------ -------- --------
Total................. 22.8 (72.9) 74.6 (21.5)
Interest on debt and
capital leases, net.... 3.2 3.4 6.3 12.5
------ ------ -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes................ $ 19.6 $(76.3) $ 68.3 $ (34.0)
====== ====== ======== ========
Number of stores at end
of period:
BJ's Wholesale Club.... 39 52 39 52
HomeBase............... 86 82 86 82
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
JANUARY 30, 1993 JANUARY 29, 1994
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 285.8 $ 203.8
Total assets.................................. 1,007.0 1,073.0
Long-term debt (including capital leases)..... 192.6 174.1
Stockholders' equity.......................... 436.6 420.5
</TABLE>
- --------
(1) In the fourth quarter of fiscal 1994, the Company recorded a pre-tax
restructuring charge of $101.1 million ($60.2 million post-tax) for non-
recurring expenses primarily related to the repositioning of its HomeBase
division. See discussion below.
(2) The cumulative effect of accounting principle changes included the
following post-tax items (in millions):

<TABLE>
<S> <C>
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes"..................................... $1.6
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits".......................................... (0.7)
----
$0.9
====
</TABLE>
(3) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its cash
requirements. EBITDA should not be considered in isolation from, or as a
substitute for, net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.

Results for the fourth quarter of fiscal 1994 include a pre-tax
restructuring charge of $101.1 million, primarily to cover expenses related to
the repositioning of HomeBase. The restructuring is designed to enable
HomeBase to focus its management efforts and financial resources on
strengthening its competitive position in the western United States. This
charge reflects (i) closing all of the Company's eight stores in midwestern
markets (Chicago and Toledo), which are outside HomeBase's primary market,
(ii) closing or relocating approximately 16 additional stores where the
potential to achieve the Company's objectives is limited, and (iii)
liquidating certain discontinued merchandise. The Company closed the eight
stores in the Midwest in January 1994 and has disposed of five of these
locations. The Company is actively seeking to sell or sublease the remaining
three midwestern stores, as well as the other 16 stores identified for
closing. The restructuring charge also includes certain non-recurring
administrative expenses. The results at HomeBase for the fourth quarter and
fiscal year ended January 29, 1994 exclude sales and operating income or
losses since October 31, 1993 for the eight midwestern HomeBase stores that
have been closed and since November 28, 1993 for the 16 HomeBase stores that
are planned to be closed.

With the effects of the restructuring, total sales of the Company decreased
by 5.1% from the fourth quarter of fiscal 1993 to the fourth quarter of fiscal
1994 and increased by 6.9% from fiscal 1993 to fiscal 1994. Comparable store
sales on a same-week basis decreased by 5.4% from the fourth quarter of fiscal
1993 to the fourth quarter of fiscal 1994 and by 6.4% from fiscal 1993 to
fiscal 1994.

In addition to the $60.2 million post-tax ($101.1 million pre-tax)
restructuring charge described above, the results for the fourth quarter of
fiscal 1994 reflect a $1.3 million post-tax charge to cover the cost of
relocating the BJ's warehouse club in Syracuse, New York. The results of the
Company for full year fiscal 1994 also included a post-tax expense of $.6
million related to the resignation of the Company's previous president and
post-tax income of $.9 million resulting from the adoption of certain
accounting principle changes. Results for the fourth quarter of fiscal 1993
included a $2.3 million post-tax gain from the disposal of real estate
properties at BJ's. Excluding these transactions from the respective periods,
the Company's fourth quarter net income would have been $16.6 million, or $.47
per share, fully diluted, versus $11.8 million, or $.34 per share, for the
fourth quarter of fiscal 1993; and for full year fiscal 1994, net income would
have been $43.4 million, or $1.27 per share, fully diluted, compared to $41.9
million, or $1.25 per share, in fiscal 1993.

Sales at BJ's increased by 6.4% from the fourth quarter of fiscal 1993 to
the fourth quarter of fiscal 1994 and by 12.1% from fiscal 1993 to fiscal 1994
as the result of the addition of new warehouse clubs. Comparable store sales
on a same-week basis decreased by 6.2% from the fourth quarter of fiscal 1993
to the fourth quarter of fiscal 1994 and by 9.9% from fiscal 1993 to fiscal
1994. This decrease was attributable largely to increased competition from
other warehouse club operators; the effects of opening new BJ's warehouse
clubs in the trading areas of existing BJ's warehouse clubs; the effects of
price deflation, particularly in food products; and the weak economic
conditions in the Northeast. The fourth quarter results of BJ's included in
1994 a

8
<PAGE>

$2.2 million pre-tax charge to cover expenses related to the relocation of the
BJ's warehouse club in Syracuse, New York and included in 1993 a $1.1 million
pre-tax gain from real estate dispositions. Excluding these non-recurring
items, operating income at BJ's increased by 52.1% from the fourth quarter of
fiscal 1993 to the fourth quarter of fiscal 1994 and by 38.1% from fiscal 1993
to fiscal 1994. This improvement in operating income is due to productivity
gains in the movement of merchandise, a shift in the mix of sales to higher
margin categories, operating efficiencies in the warehouse clubs and tight
expense control.

Sales at HomeBase decreased by 22.4% from the fourth quarter of fiscal 1993
to the fourth quarter of fiscal 1994 and increased by 1.0% from fiscal 1993 to
fiscal 1994. The increase from fiscal 1993 to fiscal 1994 was due to new store
openings, offset by exclusion in the fourth quarter of fiscal 1994 of the sales
at the 24 stores closed or identified for closing. Comparable store sales on a
same-week basis decreased by 4.1% from the fourth quarter of fiscal 1993 to the
fourth quarter of fiscal 1994 and by 1.5% from fiscal 1993 to fiscal 1994, due
largely to increased competition and the depressed economic conditions in
HomeBase's major markets, particularly California. Operating income at HomeBase
before the restructuring charge decreased by 4.5% from the fourth quarter of
fiscal 1993 to the fourth quarter of fiscal 1994 and by 9.4% from fiscal 1993
to fiscal 1994.

9
<PAGE>

CERTAIN INVESTMENT CONSIDERATIONS

Prospective purchasers of the Notes should consider, among other things, the
factors set forth below, as well as the other information set forth in this
Prospectus, before making an investment in the Notes.

REGIONAL ECONOMIC CONDITIONS

BJ's warehouse clubs are located primarily in the northeastern United States
and a substantial number of HomeBase's warehouse stores are located in
California. Both BJ's and HomeBase have been adversely affected by the economic
downturn experienced in recent years in their respective geographic markets. In
particular, the performance of HomeBase warehouse stores has been affected by
the downturn in the California housing market. If these conditions intensify or
continue for a significant period of time, the ability of the Company to
improve or maintain its financial performance could be adversely affected.

EXPANSION

The Company plans to open a significant number of new stores. In addition to
the 13 stores opened in fiscal 1994, BJ's expects to open approximately 15
stores during fiscal 1995 (including the relocation of one warehouse club).
HomeBase opened five stores in fiscal 1994 and expects to open approximately
four stores during fiscal 1995. A significant portion of the proceeds of this
offering will be used for such expansion. The Company's business could be
adversely affected if it encounters difficulties in implementing its expansion
strategy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Business--BJ's
Wholesale Club--Expansion" and "Business--HomeBase--Expansion."

COMPETITION

The Company's businesses compete with a large number and variety of
wholesalers and retailers, including several large national chains in the
warehouse merchandising business, some of which have significantly greater
financial and marketing resources than the Company. Major warehouse club
competitors of BJ's include Price/Costco, Inc. and Sam's Clubs (a division of
Wal-Mart Stores, Inc.). Major competitors of HomeBase that use the warehouse
format include The Home Depot, Inc. and Builder's Square Inc. (a subsidiary of
Kmart Corporation). Competition exists primarily in the areas of price, product
selection and service. Competitive factors could require price reductions or
increased operational costs, including increases in expenditures for marketing
and customer service, that would adversely affect the Company's operating
results. The Company also experiences competition for qualified personnel and
suitable new warehouse locations. See "Business--BJ's Wholesale Club" and
"Business--HomeBase."

COMPARABLE STORE SALES

The Company's comparable store sales, on a same-week basis, have decreased at
both BJ's and HomeBase from fiscal 1993 to fiscal 1994. The decline in BJ's
comparable store sales is due largely to increased competition from other
warehouse club operators; the effects of opening new BJ's warehouse clubs in
the trading areas of existing BJ's warehouse clubs; the effects of price
deflation, particularly in food products; and the weak economic conditions in
the Northeast. The decline in HomeBase's comparable store sales is due largely
to increased competition and the depressed economic conditions in its major
markets, particularly California. Further declines in comparable store sales
could adversely affect the profitability of the Company's businesses.

HOMEBASE STRATEGIC INITIATIVES

HomeBase is currently implementing a series of strategic initiatives designed
to strengthen its market position in the western United States and improve its
profitability. There can be no assurance that HomeBase will be successful in
implementing these strategic initiatives or improving the performance of its
warehouse stores. Several of these initiatives, such as the hiring of
additional customer service personnel, will result in

10
<PAGE>

increased operating costs and there can be no assurance that these increased
costs will be offset by increased sales and gross margins; such costs could
therefore adversely affect the Company's results of operations. As part of the
strategic repositioning of HomeBase, the Company is currently seeking to
dispose of 19 HomeBase store locations, including three remaining stores in the
Midwest that it has already closed and 16 stores in the western United States
that it plans to close. Failure to dispose of these locations on a timely basis
or on favorable terms could have a material adverse effect on the Company's
operating results and cash flow. See "Business--HomeBase--Strategy."

SUBORDINATION

The Notes will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company, which includes indebtedness
under the Company's Credit Agreement, 9.58% Notes due 1998 (the "Senior
Notes"), certain capital lease obligations and real estate mortgages. Further,
subject to certain restrictions, the Indenture permits the Company to incur
additional Senior Indebtedness. As of January 29, 1994, the aggregate amount of
outstanding Senior Indebtedness was approximately $78,300,000, and the Company
had available borrowings of $80,000,000 under its bank credit agreement, which
would constitute Senior Indebtedness. By reason of the subordination applicable
to the Notes, in the event of an insolvency, liquidation, dissolution or other
reorganization of the Company, the Senior Indebtedness must be paid in full
before the Company may pay any obligations on the Notes. In addition, under
certain circumstances, no payments may be made with respect to the principal
of, premium, if any, or interest on the Notes upon the occurrence of a default
under the terms of certain Senior Indebtedness.

The Notes will also be structurally subordinated to creditors of subsidiaries
of the Company. As of January 29, 1994, the Company's subsidiaries had
outstanding indebtedness of approximately $11.4 million, and had property and
assets with a book value of approximately $261.8 million. In addition, although
the Notes will be senior to the Company's 6.5% Convertible Subordinated
Debentures due 2002, such Debentures mature prior to the Notes.

In certain circumstances, including upon a Change of Control (as defined) and
an Asset Sale (as defined), the Company may be obligated to repurchase or to
make an offer to repurchase the Notes. The subordination of the Notes to all
existing and future Senior Indebtedness of the Company and the amount of funds
available to the Company may limit the ability of the Company to repurchase the
Notes. Furthermore, certain restrictions in the Senior Notes limit the
Company's ability to prepay the Notes, including upon a Change of Control and
an Asset Sale. See "Description of Notes."

ABSENCE OF PUBLIC MARKET

Prior to this offering, there has been no market for the Notes. The Company
does not intend to apply for the listing of the Notes on any national
securities exchange or for their quotation through the Nasdaq Stock Market. The
Company has been advised that the Underwriter currently intends to make a
market in the Notes, but it is not obligated to do so and may discontinue any
such market making at any time without notice. Therefore, there can be no
assurance that an active trading market will develop for, or as to the
liquidity of, the Notes.

11
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Notes
offered hereby are estimated to be $ million. The Company expects to use
the net proceeds (i) to fund the opening of new stores, including the
acquisition of real estate and construction of stores, (ii) to make scheduled
principal repayments on Senior Indebtedness, including a $12 million principal
payment due in May 1994 on the Company's 9.58% Notes, (iii) to repay
outstanding borrowings under its bank credit agreement and (iv) for general
corporate purposes. As of February 26, 1994, the Company had outstanding $20
million of borrowings under its $80 million bank credit agreement (which bore
interest at an average rate of 4.3% per annum in fiscal 1994), and such amount
may increase prior to the closing of this offering. The Company may from time
to time after the closing of this offering reborrow amounts under its bank
credit agreement, which expires on January 28, 1995. See "Description of
Certain Indebtedness."

Until used, substantially all of the net proceeds of the sale of the Notes
will be invested in high-grade commercial paper, United States Government
securities, other investment-grade securities or short-term deposits with
major banks. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

CAPITALIZATION

The following table sets forth the consolidated short-term debt and
capitalization of the Company as of October 30, 1993, and as adjusted to give
effect to the issuance of the Notes offered hereby.

<TABLE>
<CAPTION>
OCTOBER 30, 1993
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
<S> <C> <C>
Cash and marketable securities on hand...................... $ 32.1 $107.1
Short-term debt:
Current installments of long-term debt and capital leases. 15.3 15.3
Bank credit agreement(1).................................. 25.0 --
------ ------
Total short-term debt................................... 40.3 15.3
====== ======
Long-term debt and capital leases (excluding current
installments):
9.58% Notes due 1998...................................... $ 48.0 $ 48.0
Real Estate Mortgages..................................... 4.1 4.1
Capital Leases............................................ 17.2 17.2
% Senior Subordinated Notes due 2004..................... -- 100.0
6.5% Convertible Subordinated Debentures due 2002......... 108.6 108.6
------ ------
Total long-term debt.................................... 177.9 277.9
------ ------
Stockholders' equity:
Common Stock, $.01 par value, authorized 190,000,000
shares; issued and outstanding 33,091,099 shares(2)...... 0.3 0.3
Additional paid-in capital................................ 322.1 322.1
Retained earnings......................................... 142.2 142.2
------ ------
Total stockholders' equity(3)........................... 464.6 464.6
------ ------
Total capitalization.................................. $642.5 $742.5
====== ======
</TABLE>
- --------
(1) The Company has a bank credit agreement with a group of banks that
provides for borrowings up to $80.0 million through January 28, 1995. See
"Description of Certain Indebtedness--The Credit Agreement."
(2) Does not include 4,387,879 shares reserved for issuance upon conversion of
the 6.5% Convertible Subordinated Debentures due 2002 and 1,579,231 shares
of Common Stock reserved for issuance upon exercise of outstanding options
as of October 30, 1993.
(3) Does not include the effects of the $60.2 million post-tax restructuring
charge recorded in the fourth quarter of fiscal 1994. See "Preliminary
Results for Fiscal 1994."

12
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial data of the Company for each
of the five fiscal years ended January 30, 1993 is derived from the Company's
consolidated financial statements, including the notes thereto, which have
been audited by Coopers & Lybrand, the Company's independent accountants. The
financial statements of the Company include the financial statements of those
subsidiaries of TJX which operated TJX's warehouse club segment prior to June
14, 1989. The data for the thirty-nine weeks ended October 24, 1992 and
October 30, 1993, are unaudited but, in the opinion of management, reflect all
adjustments (consisting only of normal recurring items) necessary for a fair
presentation of the results for such interim periods. The Company operates on
a 52- or 53-week fiscal year, ending the last Saturday in January of each
year. Fiscal 1993 was a 53-week year. This selected financial information
should be read in conjunction with the consolidated financial statements,
related notes and other financial information appearing elsewhere herein.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
---------------------------------------------------- ------------------
JAN. 28, JAN. 27, JAN. 26, JAN. 25, JAN. 30, OCT. 24, OCT. 30,
1989 1990 1991 1992 1993 1992 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $1,652.5 $2,056.5 $2,409.7 $2,783.6 $3,357.8 $2,420.2 $2,699.1
Cost of sales, including
buying and occupancy
costs.................. 1,429.1 1,770.8 2,076.3 2,399.8 2,881.3 2,079.7 2,324.1
Selling, general and
administrative
expenses............... 181.4 234.1 288.4 322.7 401.9 288.8 323.6
Cost of closing BJ's
warehouse clubs in
Chicago................ -- -- -- 5.5 -- -- --
Discontinuation of the
HomeBase membership
program and name
change................. -- -- 8.8 3.4 -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income........ 42.0 51.6 36.2 52.2 74.6 51.7 51.4
Interest on debt and
capital leases, net.... 13.2 3.1 5.5 3.3 6.3 3.1 9.1
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 28.8 48.5 30.7 48.9 68.3 48.6 42.3
Provision for income
taxes.................. 11.6 19.7 12.3 18.9 24.1 18.4 16.1
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of accounting
principle changes...... 17.2 28.8 18.4 30.0 44.2 30.2 26.2
Cumulative effect of
accounting principle
changes(1)............. -- -- -- -- -- -- 0.9
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 17.2 $ 28.8 $ 18.4(2) $ 30.0(3) $ 44.2 $ 30.2 $ 27.1
======== ======== ======== ======== ======== ======== ========
Net income per common
share(4)
Primary................ -- $ 1.01 $ .64(2) $ 1.01(3) $ 1.33 $ .91 $ .82(1)
Fully diluted.......... -- 1.01 .64(2) 1.01(3) 1.31 .90 .81(1)
Number of common shares
for computation of
fully diluted earnings
per share.............. -- 28,457 28,689 29,810 35,707 35,043 37,554
OTHER DATA:
EBITDA(5)............... $ 52.5 $ 66.6 $ 54.3 $ 74.3 $ 104.4 $ 73.1 $ 78.5
Depreciation &
amortization........... 10.5 15.0 18.1 22.1 29.8 21.4 27.1
Growth in EBITDA........ 114.4% 26.8% (18.6)% 37.1% 40.4% 43.0% 7.4%
EBITDA/Total interest
expense................ 4.0x 17.0x 9.7x 10.4x 9.5x 9.7x 7.8x
Total long-term
debt/EBITDA............ 0.6x 0.5x 0.5x 1.2x 1.8x 2.6x 2.3x
Total long-term debt as
a percentage of total
capitalization......... 11.9% 10.6% 9.3% 18.3% 30.6% 31.4% 27.7%
Ratio of earnings to
fixed charges(6)....... 2.22x 3.67x 2.26x 2.61x 2.63x 2.60x 2.13x
Capital expenditures
Existing stores........ $ 8.5 $ 23.0 $ 12.8 $ 26.2 $ 24.9 $ 21.8 $ 15.8
New stores, other than
real estate........... 13.8 13.7 14.2 18.8 41.1 29.6 24.0
Purchase of real
estate................ 0.6 6.1 7.9 29.3 99.8 71.8 52.5
-------- -------- -------- -------- -------- -------- --------
Total................. $ 22.9 $ 42.8 $ 34.9 $ 74.3 $ 165.8 $ 123.2 $ 92.3
======== ======== ======== ======== ======== ======== ========
Number of stores (at end
of period)............. 68 81 93 102 125 120 137
</TABLE>

<TABLE>
<CAPTION>
JAN. 30, 1993 OCT. 30, 1993
------------- -------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 285.8 $ 236.6
Total assets........................................ 1,007.0 1,124.3
Long-term debt (including capital leases)........... 192.6 177.9
Stockholders' equity................................ 436.6 464.6
</TABLE>
- -------
(1) Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS
No. 106 "Employers' Accounting for Postretirement Benefits Other than
Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," resulting in net after-tax income of approximately $.9 million,
or $.03 per share in the first quarter of fiscal 1994.
(2) After a charge of $8.8 million before taxes ($5.3 million after taxes,
$.18 per share) for the discontinuation of HomeBase's membership program.
(3) After charges of $3.4 million before taxes ($2.1 million after taxes, $.07
per share) for changing the name of HomeClub to HomeBase and $5.5 million
before taxes ($3.3 million after taxes, $.11 per share) for closing four
BJ's warehouse clubs in the Chicago market.
(4) In accordance with Commission rules, historical earnings per share for
periods prior to the public issuance of the Company's Common Stock are not
presented.
(5) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is presented as a measure of the Company's ability to service its cash
requirements. EBITDA should not be considered in isolation from, or as a
substitute for, net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(6) Computed by dividing income before taxes plus fixed charges, excluding
capitalized interest, by fixed charges. Fixed charges consist of interest
expense, including capitalized interest, and the estimated interest
component of lease expense.

13
<PAGE>

SELECTED INFORMATION BY MAJOR BUSINESS SEGMENT

The following selected information by major business segment of the Company
for the five fiscal years ended January 30, 1993 is derived from the Company's
consolidated financial statements, which have been audited by Coopers &
Lybrand, the Company's independent accountants. The Company operates on a 52-
or 53-week fiscal year, ending the last Saturday in January of each year.
Fiscal 1993 was a 53-week year. The data for the thirty-nine weeks ended
October 24, 1992 and October 30, 1993 are unaudited but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring items)
necessary for a fair presentation of the results for such interim periods.

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
---------------------------------------------------- ------------------
JAN. 28, JAN. 27, JAN. 26, JAN. 25, JAN. 30, OCT. 24, OCT. 30,
1989 1990 1991 1992 1993 1992 1993
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales:
BJ's Wholesale Club.... $ 817.2 $ 984.6 $1,149.6 $1,432.2 $1,786.9 $1,223.3 $1,403.4
HomeBase............... 835.3 1,071.9 1,260.1 1,351.4 1,570.9 1,196.9 1,295.7
-------- -------- -------- -------- -------- -------- --------
Total.................. $1,652.5 $2,056.5 $2,409.7 $2,783.6 $3,357.8 $2,420.2 $2,699.1
======== ======== ======== ======== ======== ======== ========
Operating income (loss):
BJ's Wholesale Club.... $ 9.8 $ 18.9 $ 11.6 $ 17.4(2) $ 35.4 $ 18.1 $ 22.7
HomeBase............... 37.6 39.9 31.7(1) 42.1(3) 47.2 39.2 35.1
General corporate
expense............... (5.4) (7.2) (7.1) (7.3) (8.0) (5.6) (6.4)
-------- -------- -------- -------- -------- -------- --------
Total.................. 42.0 51.6 36.2 52.2 74.6 51.7 51.4
Interest on debt and
capital leases, net.... 13.2 3.1 5.5 3.3 6.3 3.1 9.1
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and cumulative
effect of accounting
principle changes...... $ 28.8 $ 48.5 $ 30.7 $ 48.9 $ 68.3 $ 48.6 $ 42.3
======== ======== ======== ======== ======== ======== ========
Identifiable assets:
BJ's Wholesale Club.... $ 143.5 $ 172.3 $ 185.7 $ 230.5 $ 364.2 $ 351.8 $ 496.1
HomeBase............... 283.3 349.6 381.3 439.5 590.3 587.7 596.1
Corporate (cash, cash
equivalents and
marketable
securities)........... 29.9 15.4 12.8 116.4 52.5 97.4 32.1
-------- -------- -------- -------- -------- -------- --------
Total.................. $ 456.7 $ 537.3 $ 579.8 $ 786.4 $1,007.0 $1,036.9 $1,124.3
======== ======== ======== ======== ======== ======== ========
Depreciation and
amortization:
BJ's Wholesale Club.... $ 4.4 $ 5.4 $ 6.7 $ 8.5 $ 11.4 $ 8.0 $ 12.0
HomeBase............... 6.1 9.6 11.4 13.6 18.4 13.4 15.1
-------- -------- -------- -------- -------- -------- --------
Total.................. $ 10.5 $ 15.0 $ 18.1 $ 22.1 $ 29.8 $ 21.4 $ 27.1
======== ======== ======== ======== ======== ======== ========
Capital expenditures:
BJ's Wholesale Club.... $ 6.6 $ 13.8 $ 21.0 $ 40.9 $ 89.7 $ 60.4 $ 63.4
HomeBase............... 16.3 29.0 13.9 33.4 76.1 62.8 28.9
-------- -------- -------- -------- -------- -------- --------
Total.................. $ 22.9 $ 42.8 $ 34.9 $ 74.3 $ 165.8 $ 123.2 $ 92.3
======== ======== ======== ======== ======== ======== ========
Warehouses at end of
period(4)(5):
BJ's Wholesale Club.... 22 23 27 29 39 34 47
HomeBase............... 46 58 66 73 86 86 90
-------- -------- -------- -------- -------- -------- --------
Total.................. 68 81 93 102 125 120 137
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) After a charge of $8.8 million for the discontinuation of HomeBase's
membership program.
(2) After a charge of $5.5 million for closing four BJ's warehouse clubs in the
Chicago market.
(3) After a charge of $3.4 million for changing the name of HomeClub to
HomeBase.
(4) Reflects the closing of one BJ's warehouse club in fiscal 1991 and its
conversion to a HomeBase warehouse store during fiscal 1992; the closing of
four BJ's warehouse clubs in fiscal 1992 and the conversion of three of
them to HomeBase warehouse stores in the first quarter of fiscal 1993; and
the closing of one HomeBase warehouse store in the second quarter of fiscal
1994.
(5) Subsequent to October 30, 1993, the Company announced plans to close 24
HomeBase warehouse stores. At January 29, 1994 the Company had closed eight
of these stores, leaving the Company with 82 HomeBase warehouse stores in
operation at year end. The Company is seeking to dispose of the other 16
stores.

14
<PAGE>

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

RESULTS OF OPERATIONS

GENERAL

The Company believes that stores using a warehouse merchandising format are
continuing to gain an increasing share of both the food and general merchandise
market, in which BJ's operates, and the home improvement market, in which
HomeBase operates. To compete effectively in these markets, warehouse operators
need to maintain a low cost structure and be able to offer customers a
diversified selection of merchandise at attractive prices. The Company believes
that it has established efficient operations at both BJ's and HomeBase that
enable the Company to minimize its costs and to provide increased value to
customers.

In fiscal 1993, the Company achieved sales growth at both BJ's and HomeBase,
primarily through the opening of new stores, as well as comparable store sales
growth. In fiscal 1994, the Company's sales growth was attributable to new
store openings. Comparable store sales, on a same-week basis, decreased at both
BJ's and HomeBase from fiscal 1993 to fiscal 1994. The decline at BJ's was due
largely to increased competition from other warehouse club operators; the
effects of opening new BJ's warehouse clubs in the trading areas of existing
BJ's warehouse clubs; the effects of price deflation, particularly in food
products; and the weak economic conditions in the Northeast. The decline at
HomeBase was due largely to increased competition and the depressed economic
conditions in its major markets, particularly California.

HomeBase is currently implementing a series of strategic initiatives designed
to strengthen its market position in the western United States and improve its
profitability. These initiatives include (i) a significant increase in the
level of customer service offered at HomeBase stores, through an increase in
the number of salespeople, including hiring experienced tradespeople and others
with specialized product knowledge in home improvement fields, and enhanced
sales and service training for both new and existing store employees, (ii)
improvement in gross margin through buying efficiencies created by
centralization of the merchandise replenishment function, improved distribution
of merchandise to reduce freight costs and selective price increases, and (iii)
an aggressive marketing program to communicate to customers the benefits of
shopping at HomeBase and its improved levels of customer service. In the third
quarter of fiscal 1994, a new management team, led by a senior executive from
BJ's, was installed at HomeBase to implement these strategic initiatives.

In the fourth quarter of fiscal 1994, the Company recorded a pre-tax
restructuring charge of $101.1 million primarily to cover expenses related to
the repositioning of HomeBase. The restructuring is designed to enable HomeBase
to focus its management efforts and financial resources on strengthening its
competitive position in the western United States. This charge reflects the
closing of all eight of the Company's stores in midwestern markets (Chicago and
Toledo), which were outside of HomeBase's primary market area, the planned
closing of 16 additional stores where the potential to achieve the Company's
objectives is limited, and liquidating certain discontinued merchandise. The
Company has disposed of five of the eight midwestern locations, and is actively
seeking to dispose of the remaining three midwestern locations. The Company is
also seeking to sell or sublease the 16 additional locations identified for
closing. See "Preliminary Results for Fiscal 1994."

The Company is finding it increasingly necessary to acquire and develop,
rather than lease from third parties, new store sites. As a result, the
Company's requirements for capital have increased, and store openings more
frequently result in increased capital expenditures and related interest and
depreciation expense rather than rental expense.

15
<PAGE>

The following table shows certain income statement and segment data as a
percentage of net sales:

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
----------------------------- -------------------
JAN. 26, JAN. 25, JAN. 30, OCT. 24, OCT. 30,
1991 1992 1993 1992 1993
--------- --------- --------- --------- ---------
% OF % OF % OF % OF % OF
NET SALES NET SALES NET SALES NET SALES NET SALES
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including
buying and occupancy costs.. 86.2 86.2 85.8 85.9 86.1
Selling, general and
administrative expenses..... 12.0 11.6 12.0 11.9 12.0
Cost of closing BJ's clubs in
Chicago..................... -- .2 -- -- --
Discontinuation of the
HomeClub membership program
and name.................... .3 .1 -- -- --
Interest on debt and capital
leases, net................. .2 .1 .2 .1 .3
----- ----- ----- ----- -----
Income before income taxes
and the cumulative effect of
accounting principle
changes..................... 1.3 1.8 2.0 2.0 1.6
Provision for income taxes... .5 .7 .7 .8 .6
----- ----- ----- ----- -----
Income before the cumulative
effect of accounting
principle changes........... .8 1.1 1.3 1.2 1.0
Cumulative effect of
accounting principle
changes..................... -- -- -- -- .0
----- ----- ----- ----- -----
Net income................... .8% 1.1% 1.3% 1.2% 1.0%
===== ===== ===== ===== =====
SELECTED SEGMENT DATA:
BJ's Wholesale Club:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating income............ 1.0% 1.2% 2.0% 1.5% 1.6%
HomeBase:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating income............ 2.5% 3.1% 3.0% 3.3% 2.7%
</TABLE>

THIRTY-NINE WEEKS (NINE MONTHS) ENDED OCTOBER 30, 1993 AND OCTOBER 24, 1992.

Consolidated net sales were $2.7 billion in the first nine months of fiscal
1994, which represented an increase of 11.5% over the prior year's comparable
period sales. This increase was attributable to the addition of new warehouses,
as comparable warehouse sales (on a same-week basis) decreased at both of the
Company's divisions. BJ's Wholesale Club's comparable warehouse sales decreased
10.4% in the first nine months of fiscal 1994. Comparable warehouse sales at
HomeBase decreased 2.4% in the first nine months of fiscal 1994.

Cost of sales (including buying and occupancy costs) was 86.1% of sales in
the first nine months of fiscal 1994 versus 85.9% in the comparable period of
fiscal 1993. BJ's, a lower margin business than HomeBase, accounted for a
larger percentage of total sales in fiscal 1994, and this contributed to the
increase in the cost of sales ratio. Higher merchandise margins at BJ's in the
first nine months were offset by higher occupancy expense ratios at both
divisions.

Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, were 12.0% in the first nine months of fiscal 1994 compared with 11.9%
in the comparable period of fiscal 1993. This increase was due primarily to
higher payroll expenses at HomeBase. BJ's SG&A expenses, as a percentage of
sales, approximated fiscal 1993's percentage. SG&A expenses in the first nine
months of fiscal 1994 included a charge of $1.0 million related to the
resignation of Waban's previous president. The Company expects that its SG&A
expenses will increase in subsequent periods as a result of hiring a
significant number of additional customer service personnel at its HomeBase
warehouse stores.

Operating income at BJ's in the first nine months of fiscal 1994 was $22.7
million versus $18.1 million in the comparable period of fiscal 1993. This
increase was due mainly to higher merchandise margins, resulting

16
<PAGE>

from an improved mix of sales and freight efficiencies, and strict control of
operating expenses and was achieved in spite of comparable warehouse sales
decreases. BJ's comparable sales performance continued to be affected by
increased competition in its markets, both from competitors' units and new BJ's
clubs, by price deflation, and by the weak economic environment in the
Northeast.

HomeBase's operating income for the first nine months of fiscal 1994
decreased to $35.1 million from $39.2 million in the comparable period of the
prior year. Fiscal 1994's lower level of operating income was due to decreases
in comparable warehouse sales, which reflected the weak California economy and
increased competition, a shift in the mix of sales toward lower margin
merchandise, and higher occupancy and warehouse operating expense ratios.

The components of interest expense were as follows (in millions):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------
OCT. 1992 OCT. 1993
--------- ---------
<S> <C> <C>
Interest expense on debt................................. $ 5.5 $ 8.1
Interest income.......................................... (4.4) (1.0)
----- -----
Interest on debt, net.................................... 1.1 7.1
Interest on capital leases............................... 2.0 2.0
----- -----
Interest on debt and capital leases (net).............. $ 3.1 $ 9.1
===== =====
</TABLE>

Interest on debt, net of interest income, rose in fiscal 1994 primarily due
to the borrowing of $108.6 million through a public offering of 6.5%
subordinated convertible debentures in July 1992 and the investment of funds in
the expansion of the Company's businesses since that time. Interest expense on
debt is net of capitalized interest of $2.2 million in the first nine months of
fiscal 1994 and $1.7 million in the comparable period of fiscal 1993.

The Company's provision for income taxes was 38.1% of pre-tax income in the
first nine months of fiscal 1994 versus 38.0% in the comparable prior year
period. During fiscal 1994's third quarter, the statutory federal income tax
rate for corporations was raised from 34% to 35%, retroactive to January 1,
1993, and the targeted jobs tax credit was restored retroactive to July 1,
1992. The net effect of these changes to the Company's provision for income
taxes, which was recorded in the third quarter, was not material.

Net income for the first nine months of fiscal 1994 was $27.1 million, or
$.81 per share, fully diluted, versus $30.2 million, or $.90 per share, in the
comparable prior year period. Results in fiscal 1994 included income of $0.9
million, or $.03 per share, recorded in the first quarter in connection with
the adoption of changes in methods of accounting for income taxes,
postretirement benefits and postemployment benefits.

As of October 30, 1993, the Company operated 90 HomeBase warehouse stores
compared with 86 at October 24, 1992, and 47 BJ's warehouse clubs, compared
with 34 one year earlier.

FISCAL YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

Net sales in fiscal 1993, which contained 53 weeks, were 20.6% higher than
the previous year; fiscal 1992 sales increased by 15.5% over fiscal 1991 sales.
The increases in both years were due mainly to new warehouses open less than
one year. Comparable warehouse sales increases also contributed to the higher
sales levels, as follows (fiscal 1993 adjusted to a same-week basis as fiscal
1992):

<TABLE>
<CAPTION>
FY 1992 VS. FY 1993 VS.
FY 1991 FY 1992
----------- -----------
<S> <C> <C>
BJ's Wholesale Club................................ 12.5% 3.9%
HomeBase........................................... (5.1%) 2.0%
Total Company...................................... 3.0% 2.9%
</TABLE>

17
<PAGE>

Comparable warehouse sales growth at BJ's diminished over the course of
fiscal 1993, from double-digit increases in the first quarter to decreases in
the fourth quarter. An increase in the number of warehouse clubs, both those of
competitors and new BJ's clubs, price deflation, and the weak Northeast economy
contributed to the change in trend in BJ's comparable sales performance in
fiscal 1993.

HomeBase registered a 2.0% comparable warehouse sales increase in fiscal 1993
after posting a 5.1% decrease the previous year. In addition to operating in a
highly competitive environment, the weak California economy has dampened
HomeBase's ability to show strong sales gains. The decline in comparable
warehouse sales from fiscal 1991 to fiscal 1992 also reflected the loss of
membership fee income and non-member surcharges, which had been included in
sales before HomeBase discontinued its membership format.

BJ's operating income of $35.4 million in fiscal 1993 included a pre-tax gain
from the disposal of real estate properties of $1.1 million. Fiscal 1992's
operating income of $17.4 million included a $5.5 million pre-tax loss from the
closing of BJ's four clubs in Chicago. Excluding these transactions, operating
income at BJ's in fiscal 1993 increased 49.9% to $34.3 million, or 1.9% of
sales, from $22.9 million, or 1.6% of sales, in fiscal 1992. This primarily
reflects a shift in the mix of sales to higher margin categories such as meat
and bakery, and savings related to more efficient merchandise distribution.
These gains were accomplished despite higher preopening expenses associated
with opening ten new clubs in fiscal 1993 versus six the previous year.
Operating income at BJ's in fiscal 1992 was also significantly higher than in
fiscal 1991, which was adversely impacted by large first quarter markdowns on
seasonal merchandise and a $1.1 million pre-tax charge for closing BJ's Toledo,
Ohio club.

HomeBase had operating income of $47.2 million in fiscal 1993, $42.1 million
in fiscal 1992 and $31.7 million in fiscal 1991. Excluding the charges related
to discontinuing its membership format and changing its name in the last three
years, HomeBase's operating income was $47.2 million in fiscal 1993, $45.5
million in fiscal 1992 and $40.5 million in fiscal 1991. Improved gross
merchandise margins in fiscal 1993 were offset by higher selling, general and
administrative expenses, particularly the division's investment in higher
payroll levels to improve customer service, and $4.4 million of additional
preopening expenses over the previous year. HomeBase opened 13 new warehouse
stores in fiscal 1993 compared to seven in fiscal 1992. The increase in fiscal
1992's operating income over fiscal 1991 was due mainly to higher gross
merchandise margins and tight control of expenses, partially offset by the loss
of membership fee income and non-member surcharges.

Cost of sales (including buying and occupancy costs) as a percentage of sales
was 85.8% in fiscal 1993, down from 86.2% in fiscal 1992 and fiscal 1991. Gross
selling margins increased at both of the Company's divisions in each of the
last two years, particularly at HomeBase where an increased proportion in sales
from do-it-yourself customers resulted in higher merchandise margins.

SG&A expenses as a percentage of sales increased to 12.0% in fiscal 1993 from
11.6% in fiscal 1992. This increase was due mainly to higher SG&A expenses at
HomeBase, which continued to devote more resources to customer service, and to
higher preopening expenses because of the larger number of units opened by each
division. The ratio of SG&A expenses to sales was lower in fiscal 1992 than in
fiscal 1991 mainly because of the leverage provided by higher sales volumes at
BJ's and BJ's increased proportion of consolidated sales.

The components of net interest expense in the last three fiscal years were as
follows (in millions):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
JAN. 1991 JAN. 1992 JAN. 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest expense on debt....................... $3.0 $ 4.5 $ 8.4
Interest and investment income................. (.1) (3.9) (4.7)
---- ----- -----
Interest on debt, net.......................... 2.9 .6 3.7
Interest on capital leases..................... 2.6 2.7 2.6
---- ----- -----
Interest on debt and capital leases (net).... $5.5 $ 3.3 $ 6.3
==== ===== =====
</TABLE>

18
<PAGE>

Interest expense increased in fiscal 1992 and fiscal 1993 because of the
borrowings of $60 million through a private placement of 9.58% senior notes in
June 1991 and $108.6 million through a public offering of 6.5% subordinated
convertible debentures in July 1992. Interest and investment income also
increased in both years because of the investment of proceeds from this debt
and the Company's November 1991 common stock offering. For additional
information, see "Liquidity and Capital Resources" below.

The Company's provision for income taxes was 35.2% of pre-tax income in
fiscal 1993, 38.7% in fiscal 1992 and 40.0% in fiscal 1991. The decrease in the
income tax rate in fiscal 1993 was due primarily to a benefit resulting from
the difference in the book and tax bases of real estate which was sold and to
higher Targeted Jobs Tax Credits.

Net income for fiscal 1993 was $44.2 million, or $1.31 per share fully
diluted, compared to $30.0 million, or $1.01 per share in fiscal 1992, and
$18.4 million, or $.64 per share in fiscal 1991.

Results for the last three fiscal years included the following transactions
(in millions):

<TABLE>
<CAPTION>
INCOME (EXPENSE)
----------------
PRE-TAX POST-TAX
------- --------
<S> <C> <C>
Fiscal 1993:
Disposal of real estate properties at BJ's................... $ 1.1 $ 2.3
Fiscal 1992:
Change of HomeClub name to HomeBase.......................... (3.4) (2.1)
Closing BJ's clubs in Chicago................................ (5.5) (3.3)
Fiscal 1991:
Discontinuation of HomeClub membership program............... (8.8) (5.3)
</TABLE>

Excluding the items in the preceding table, net income for fiscal 1993 was
$41.9 million, or $1.25 per share fully diluted, compared with $35.4 million,
or $1.19 per share, in fiscal 1992 and $23.7 million, or $.82 per share, in
fiscal 1991.

LIQUIDITY AND CAPITAL RESOURCES

In the first nine months of fiscal 1994, the Company expended $99.2 million
for property additions, compared with $127.3 million in the first nine months
of fiscal 1993. Through October 30, 1993, five new HomeBase warehouse stores
and eight new BJ's warehouse clubs were opened and one HomeBase location was
closed. In the first nine months of fiscal 1993, the Company opened 13 HomeBase
and five BJ's units.

During fiscal 1994 the Company has made a concerted effort to reduce the
balances of its merchandise inventories. As a result, average inventories per
warehouse of $4.2 million at October 30, 1993 were well below the $4.5 million
level that existed at the end of the third quarter of fiscal 1993. In the first
nine months of fiscal 1994, cash provided by the reduction of merchandise
inventories, net of related accounts payable, was $20.3 million, compared to a
net cash outflow for these items of $53.7 million in the same period of fiscal
1993.

Cash provided by net income plus depreciation and amortization of property
for the first nine months of fiscal 1994 was $54.2 million versus $51.6 million
in the comparable period of the prior year.

Under a revolving credit agreement dated July 8, 1993 and amended November
15, 1993, the Company may borrow up to $80 million from a group of banks
through January 28, 1995. The Company does not have any compensating balance
requirements under this agreement, but is required to pay a fee of one-half
percent per annum of the total commitment. Interest on borrowings is payable,
at the Company's option, either at (a) the Eurodollar rate plus one percent, or
(b) the lending banks' average prime rate. The agreement also contains
covenants which, among other things, include minimum fixed charge coverage and
net worth

19
<PAGE>

requirements and limit the payment of cash dividends on common stock in any
fiscal year to not more than 25 percent of the Company's consolidated net
income for the immediately preceding fiscal year. After the closing of this
offering, the Company expects to renegotiate the terms and expiration date of
its bank credit facility. See "Description of Certain Indebtedness--The Credit
Agreement."

As of October 30, 1993, the Company had $32.1 million of cash and cash
equivalents and, in addition to its $80 million revolving credit agreement,
maintained unsecured lines of credit that provide up to $15 million of short-
term borrowings with interest payable at a rate no greater than prime. The
Company had outstanding borrowings of $25 million as of October 30, 1993 under
the revolving credit agreement.

The Company is increasingly required to acquire and develop, rather than
lease from third parties, sites for new stores. This need to acquire and
develop store sites has increased the Company's need for capital. The Company
expects to expend approximately $100 million in fiscal 1995 for new store real
estate.

In connection with the strategic initiatives recently undertaken at HomeBase,
the Company has disposed of five warehouse stores in the Midwest and is
actively seeking to dispose of the remaining three stores in the Midwest, as
well as 16 additional store locations identified for closing. While the Company
expects to realize significant cash flow from the disposition of these stores
and the sale of discontinued inventory, there can be no assurance that the
Company will be able to complete these dispositions on a timely basis or on
favorable terms.

The Company expects that the proceeds of this offering, together with
anticipated cash flow from operations, proceeds from the disposition of stores,
borrowings available under its current bank credit facility and borrowings
expected to be available under a successor bank credit facility that the
Company plans to negotiate after the completion of this offering, will be
sufficient to finance its operations through fiscal 1996. However, the Company
may from time to time seek to obtain additional financing. The Company's cash
requirements may vary based on its success in disposing of the HomeBase stores
planned for closing.

SEASONALITY

BJ's sales and profits have typically been strongest in the Christmas holiday
season, while HomeBase's sales and profits have been strongest in the spring
building season.

20
<PAGE>

BUSINESS

The Company operates two warehouse merchandising businesses: BJ's Wholesale
Club ("BJ's") and HomeBase. BJ's introduced the warehouse club concept to New
England in 1984 and is the third largest membership warehouse chain nationwide.
BJ's sells a narrow assortment of brand-name food and general merchandise
within a wide range of product categories. HomeBase is the second largest
operator of home improvement warehouse stores in the western United States and
one of the nation's four largest home improvement merchandisers using a
warehouse format. HomeBase offers a very broad assortment of home improvement
and building supply products. As of January 29, 1994, the Company operated 52
BJ's warehouse clubs and 82 HomeBase warehouse stores.

Both BJ's and HomeBase utilize the efficiencies provided by the warehouse
merchandising format to offer their customers first-quality, brand name
merchandise at prices substantially below those available through traditional
channels of distribution. BJ's and HomeBase both emphasize productivity,
efficiency, and disciplined inventory management in order to minimize the cost
of carrying and handling merchandise. Each employs sophisticated management
information systems to facilitate efficient purchasing, distribution and
pricing of inventory. Both chains purchase most of their merchandise directly
from manufacturers for shipment to individual warehouses or to
consolidation/deconsolidation facilities where truckload shipments are
separated and reassembled for immediate delivery to individual warehouse
stores.

BJ'S WHOLESALE CLUB

GENERAL

BJ's Wholesale Club introduced the warehouse club concept to New England in
1984 and has since expanded in the New England and Mid-Atlantic states, as well
as in southern Florida. BJ's operates 52 warehouse clubs in twelve states and
has over 2.6 million members. The table below shows BJ's locations by state.

<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
Massachusetts................................................... 11
New York........................................................ 11
Maryland........................................................ 5
New Jersey...................................................... 5
Florida......................................................... 4
Pennsylvania.................................................... 4
Virginia........................................................ 4
New Hampshire................................................... 3
Connecticut..................................................... 2
Delaware........................................................ 1
Maine........................................................... 1
Rhode Island.................................................... 1
---
Total......................................................... 52
===
</TABLE>

INDUSTRY OVERVIEW

Warehouse clubs typically sell a narrow assortment of food and general
merchandise within a wide range of product categories. In order to achieve high
sales volumes and rapid inventory turnover, merchandise selections are
generally limited to items that are brand name leaders in their categories.
Since warehouse clubs sell a diversified selection of product categories, they
attract customers from a wide range of other traditional wholesale and retail
distribution channels, such as supermarkets, discount stores, office supply
stores,

21
<PAGE>

consumer electronics stores, automotive stores and wholesale distributors and
jobbers. The Company believes that it is difficult for these higher cost
channels of distribution to effectively compete with the low prices offered by
warehouse clubs.

Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multi-step distribution channels by purchasing directly from
manufacturers and by storing merchandise on the sales floor rather than in
central warehouses. By operating no-frills, self-service warehouse facilities,
warehouse clubs have fixturing and operating costs substantially below those of
traditional retailers. Warehouse clubs also carry bulk sizes and packaging
generally not available from traditional retailers. Two broad groups of
customers, individual households and small businesses, have been attracted to
the savings on brand name merchandise made possible by the high sales volumes
and low operating costs achieved by warehouse clubs. The customers at warehouse
clubs are generally limited to members who pay an annual fee.

The warehouse club industry has grown from sales of approximately $14 billion
in 1988 to $39 billion in 1993, rapidly gaining market share of both food and
general merchandise sales. The Company believes that there is opportunity for
continued growth in market share. In 1993, the warehouse club industry
accounted for less than 3% of U.S. retail sales and less than 6% of U.S. retail
grocery sales. The Company expects that market share growth will come from the
addition of new clubs as well as from sales growth of existing clubs, primarily
at the expense of more traditional channels of distribution. The Company's
management believes the northeastern United States is underserved by the
warehouse club industry, as compared to other areas of the United States where
warehouse clubs account for a greater percentage of total retail sales.

STRATEGY

BJ's strategy is to build on its existing base of 52 warehouse clubs by (i)
opening additional warehouse clubs in markets in the Northeast, (ii) attracting
new members to existing warehouse clubs, and (iii) increasing BJ's share of
members' overall retail spending. BJ's has developed a number of programs to
execute this strategy:

Expand in Existing Markets. BJ's currently plans to open approximately 15 new
warehouse clubs each year over the next several years. The Company expects that
virtually all of these new warehouse clubs will be located in the Northeast,
with particular emphasis during fiscal 1995 on the metropolitan New
York/northern New Jersey market. BJ's new-store strategy is focused on filling
in existing markets, with expansion in future years planned for contiguous
market areas.

Continue to Implement Cost Reductions. Since BJ's appeal is based on its low
prices, BJ's constantly seeks to reduce its operating costs and pass these
savings along to its members. For example, BJ's has made extensive use of
consolidation/deconsolidation facilities to reduce the costs of transporting
and receiving merchandise by breaking down truckload quantity shipments from
manufacturers and re-allocating these goods for shipment, generally on a same-
day basis, to individual BJ's warehouse clubs. BJ's has also achieved
significant cost reductions over the past two years by implementing supermarket
style conveyers and sophisticated scanning technology at its checkouts.

Increase Customer Base Through Marketing. BJ's strives to increase customer
awareness of the value provided by the membership warehouse format, as well as
the specific benefits of joining BJ's, through public relations efforts,
marketing programs for new stores, direct mail solicitations and by word-of-
mouth. BJ's also intends to continue to make limited use of television and
radio advertising to increase consumer awareness of its warehouse clubs.

Introduce New Products and Services. To increase its share of each member's
total purchases and the frequency of members' visits and to attract new
customers, BJ's continually introduces new products, services and membership
benefits. For example, in recent years BJ's has introduced fresh meat and
bakery departments, optical centers, lottery ticket counters, an auto buying
service and a travel service.

22
<PAGE>

EXPANSION

Over the last six fiscal years BJ's increased the number of its warehouse
clubs from 19 to 52.

<TABLE>
<CAPTION>
WAREHOUSE CLUBS WAREHOUSE
IN OPERATION WAREHOUSE CLUBS CLOSED CLUBS IN
FISCAL YEAR AT BEGINNING CLUBS OPENED DURING THE OPERATION AT
ENDED JANUARY OF YEAR DURING THE YEAR YEAR END OF YEAR
- ------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
1989................. 19 3 -- 22
1990................. 22 1 -- 23
1991................. 23 5 1 27
1992................. 27 6 4 29
1993................. 29 10 -- 39
1994................. 39 13 -- 52
</TABLE>

BJ's store opening strategy for fiscal 1995 is focused on filling in existing
markets, with expansion in future years planned for both existing and
contiguous market areas. Although expansion within existing markets may
initially affect sales at existing warehouse clubs adversely, the Company
believes that this strategy increases market penetration by increasing
awareness of BJ's, by attracting new customers to more convenient locations and
by increasing the frequency of shopping by current members. In addition, BJ's
anticipates improving operational efficiencies in distribution costs and
management supervision by concentrating its warehouse clubs geographically.

BJ's employs a team of experienced real estate professionals who are devoted
to identifying sites for future development, as well as a group of project
managers who coordinate the development of BJ's new warehouse club locations.
Many of the markets in which BJ's operates are already heavily developed, and
quality retail sites large enough to accommodate a BJ's warehouse club are
difficult to locate and develop. Zoning, environmental and other regulatory
approvals may also delay or prevent the development of a warehouse club
location. Although the Company believes that it will be able to obtain
sufficient locations to achieve its expansion objectives, there can be no
assurance of its ability to do so.

STORE PROFILE

The average size of the 52 BJ's warehouse clubs in operation at January 29,
1994 is approximately 110,000 square feet. Including space for parking, a
typical BJ's warehouse club requires eight to ten acres of land. BJ's warehouse
clubs are located in both free-standing locations and "strip malls." In some
locations, BJ's warehouse clubs are combined with other large store retailers
in shopping centers known as power centers.

Construction and site development costs for a new BJ's warehouse club average
$4.9 million. Land acquisition costs for a warehouse club generally range from
$2.5 million to $5.5 million, but can be significantly higher in some
locations. A new BJ's warehouse club entails an initial capital investment of
approximately $2.0 million for fixtures and equipment. In addition to capital
expenditures, each new warehouse club requires approximately $2.0 million for
inventory (net of accounts payable) and pre-opening expenses.

MERCHANDISING

BJ's merchandising strategy is to provide its members with a broad range of
high quality, brand name merchandise offered at every day prices consistently
lower than the prices available through traditional wholesalers, discount
retailers or supermarkets. An important element of this strategy is to carry
only those products for which the Company can provide its customers significant
cost savings. BJ's limits specific items in each product line to fast selling
styles, sizes and colors and, therefore, carries an average of approximately
3,500 stock-keeping units ("SKUs"). By contrast, supermarkets normally stock
18,000 to 35,000 SKUs.

In recent years, food has become an increasing percentage of BJ's sales mix
and currently represents approximately 60% of sales. The remaining 40% consists
of a wide variety of non-food items. Food categories

23
<PAGE>

at BJ's include frozen foods, meat and dairy products, dry grocery items, fresh
produce and canned goods. BJ's offers fresh meat and bakery departments in
nearly all its clubs. General merchandise includes office supplies, office
equipment, televisions, stereos, small appliances, auto accessories, tires,
jewelry, cleaning supplies, paper goods, housewares and apparel.

BJ's continually strives to add new departments, services and membership
benefits to attract new members and to generate incremental sales from existing
members. In recent years, for example, BJ's has introduced fresh meat and
bakery departments, optical centers, lottery ticket counters, an auto buying
service and a travel service. BJ's works closely with manufacturers to develop
packaging and sizes which are best suited to selling through the warehouse club
format in order to minimize handling costs and to provide increased value to
its members.

To ensure that its merchandise selection is closely attuned to the tastes of
its members, BJ's employs regional buyers, each of whom is responsible for
tailoring the product selection in individual warehouse clubs to the regional
and ethnic tastes of the local market.

MEMBERSHIP

Paid membership is an integral part of the warehouse club concept. In
addition to providing a source of revenue which permits the Company to offer
low prices, membership also reinforces customer loyalty and acts as a screening
device, allowing BJ's to concentrate on serving high volume repeat customers.
BJ's internal demographic studies indicate that its customers are more likely
to be home owners and tend to have incomes, ages and family sizes which are
above the average for its trading areas. BJ's has two primary types of members:
business members and Inner Circle (household) members. At January 29, 1994, the
Company had over 2.6 million members (including supplemental cardholders).

BJ's has generally charged an annual membership fee for individuals and
qualified businesses of $25 for the primary membership card, plus an additional
$10 for each supplemental card. The Company has recently changed this policy
and, in March 1994, began charging $30 for the primary membership card and will
provide one free supplemental card to each primary member. The Company believes
that its new fee structure will be competitive within the industry, will
increase the Company's aggregate number of members, and is designed to increase
the level of spending by each family or small business member. Additional
supplemental cards now cost $15 each. BJ's membership policy is less
restrictive than certain of its competitors, who require individual members to
belong to certain qualifying groups. The Company believes that its more liberal
membership policy is beneficial in helping it to expand awareness of the
warehouse club concept and has attracted incremental sales without adversely
affecting its costs.

BJ's permits members to pay for their purchases by cash, check or Discover
card. In addition, the Company recently introduced a BJ's credit card, which is
provided by a major financial institution on a non-recourse basis. BJ's does
not accept other national credit cards because of their high fee structure.

ADVERTISING

BJ's increases customer awareness of its warehouse clubs primarily through
public relations efforts, new store marketing programs and direct mail
solicitations. BJ's employs a team of dedicated marketing personnel who solicit
potential business members and who contact selected community groups to
increase the number of members. BJ's also uses one-day passes to introduce non-
members to its warehouse clubs.

BJ's policy is generally to limit advertising and promotional expenses to new
warehouse club openings and to utilize print and electronic media advertising
sparingly. In 1993, the Company used limited vendor-funded television and radio
advertising during the holiday season. These policies result in very low
marketing expenses as compared to typical discount retailers and supermarkets.

24
<PAGE>

WAREHOUSE CLUB OPERATIONS

The Company's ability to achieve profitable operations while offering high
quality merchandise at low prices depends upon the efficient operation of its
warehouse clubs and high sales volumes. The Company's principal methods of
achieving operating efficiencies include the following:

Efficient Merchandise Handling. BJ's buys virtually all of its merchandise at
volume discounts from manufacturers for shipment either directly to BJ's
warehouse clubs or to a consolidation/deconsolidation facility. As a result,
BJ's eliminates many of the costs associated with traditional multiple-step
distribution channels, including distributors' commissions and the costs of
storing merchandise in central distribution facilities.

BJ's routes a significant percentage of its non-food merchandise as well as
an increasing percentage of food purchases through
consolidation/deconsolidation facilities which break down truckload quantity
shipments from manufacturers and re-allocate these goods for shipment,
generally on a same-day basis, to individual warehouse clubs. Having vendors
ship to these consolidation/deconsolidation facilities permits BJ's to
negotiate better volume discounts and reduces freight expense by combining full
truckload merchandise shipments from different vendors to individual warehouse
clubs. In addition, by receiving and processing merchandise at a central point,
BJ's reduces the number of trucks received at each warehouse club and related
receiving costs. BJ's believes that its strategy of opening additional
warehouse clubs within existing markets will permit it to achieve further
efficiencies at its existing consolidation/deconsolidation facilities.

BJ's works closely with manufacturers to minimize the amount of handling
required once merchandise is received at a warehouse club. Most merchandise is
pre-marked by the manufacturer with the universal product code (UPC) so that it
does not require ticketing at the warehouse club. In addition, BJ's minimizes
labor costs because its warehouse clubs are self-serve. Merchandise for sale is
displayed on pallets containing large quantities of each item, thereby reducing
labor required for handling, stocking and restocking. Back-up merchandise is
generally stored on racks above the sales floor. BJ's goal is to keep at least
one day's supply of each item on the selling floor.

Minimal Shrinkage. BJ's has been able to limit inventory losses to levels
well below those typical of discount retailers by strictly controlling the
exits of its warehouse clubs, by generally limiting customers to members and by
using state-of-the-art electronic article surveillance. Problems associated
with payments by check have also been insignificant, since the memberships of
customers who issue dishonored checks are terminated. Also, bank information
from business members is verified prior to the establishment of check purchase
limits.

Reduced Working Capital Requirements. In order to generate rapid inventory
turnover, BJ's limits total inventories per warehouse club to an average of
approximately 3,500 active SKUs. As a result of its high sales volume and rapid
inventory turnover, BJ's has the opportunity to sell a substantial portion of
its inventory before it is required to pay vendors for such merchandise. As
sales in a given warehouse club increase and inventory turnover becomes more
rapid, a greater percentage of the inventory is financed through payment terms
provided by vendors rather than with working capital.

MANAGEMENT INFORMATION SYSTEMS

Over the past three years, BJ's has made a significant investment in
enhancing the efficiency with which it handles purchases and captures sales
information. While BJ's originally followed the traditional warehouse club
model of a two-person team at the checkout counter--a cashier plus a "caller"
who read out SKU numbers and physically transferred merchandise--BJ's was the
first warehouse club to eliminate the caller position by introducing scanning
devices which work in conjunction with its electronic point of sale (EPOS)
terminals. Sales data from the EPOS terminals is continually transmitted to a
minicomputer in the warehouse

25
<PAGE>

club and transmitted daily to a mainframe computer which provides detailed
sales information to the Company's management and merchants. BJ's utilizes a
sophisticated merchandise replenishment algorithm to suggest quantities to be
re-ordered, which are then monitored daily by BJ's buying staff. BJ's fully
integrated MIS system also maintains detailed purchasing data on individual
members, permitting BJ's merchants and store managers to track changes in
members' buying behavior.

COMPETITION

BJ's competes with a wide range of national, regional and local retailers and
wholesalers selling food or general merchandise in its markets, including
supermarkets, general merchandise chains, specialty chains and other warehouse
clubs, several of which have significantly greater financial and marketing
resources than the Company. Major competitors that operate warehouse clubs
include Price/Costco Inc. and Sam's Clubs (a division of Wal-Mart Stores,
Inc.). Price/Costco was formed in October 1993 by the merger of Costco
Wholesale Corporation and The Price Company, Inc., two large operators of
membership warehouse clubs. A majority of the units of another major operator
of warehouse clubs, Pace Membership Warehouse, Inc., were recently acquired by
Wal-Mart and combined with its Sam's division.

A large number of competitive membership warehouse clubs have opened in the
Northeast within the last two years. Forty-eight of BJ's 52 warehouse clubs
have at least one competitive membership warehouse club in their trading areas
at an average distance of approximately 6 miles. The influx of competitors'
units (as well as the addition of new BJ's warehouse clubs) over the past two
years has had an adverse effect on BJ's comparable stores' sales. While the
Company expects additional competition to continue for at least the next fiscal
year, it expects the pace of competitive openings will be lower than it has
been in the past two years, in part due to the recent industry consolidation.
Also, as a result of this consolidation, a number of former Pace warehouse
clubs and Price/Costco warehouse clubs have ceased operation in BJ's trading
areas.

The Company believes price is the major competitive factor in the markets in
which BJ's competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes that its
efficient, low cost form of distribution gives it a significant competitive
advantage compared to more traditional channels of wholesale and retail
distribution. As a regional chain, BJ's strives to differentiate itself from
other membership warehouse club operators by its attention to local buying
preferences and seasonality.

26
<PAGE>

HOMEBASE

GENERAL

HomeBase opened its first warehouse store in California in October 1983 and
as of January 29, 1994, operated 82 warehouse stores in 11 states (including 16
stores identified for closing). HomeBase's warehouse stores are located in the
western United States. The table below shows HomeBase's locations by state as
of January 29, 1994.

<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
California....................................................... 51
Washington....................................................... 8
Colorado......................................................... 5
Arizona.......................................................... 4
Oregon........................................................... 4
Nevada........................................................... 2
New Mexico....................................................... 2
Texas............................................................ 2
Utah............................................................. 2
Idaho............................................................ 1
Oklahoma......................................................... 1
---
Total.......................................................... 82*
===
</TABLE>
--------
* Includes 16 stores in operation at January 29, 1994, which the
Company plans to close as part of the repositioning of HomeBase. See
"HomeBase--Strategy."

INDUSTRY OVERVIEW

Warehouse-format home centers typically provide lower prices compared to
traditional channels of home improvement and building supply product
distribution. The warehouse format also generally offers a very broad
assortment of home improvement products, combined with a high level of service
from knowledgeable, well trained warehouse staff. These factors are
communicated to customers through ongoing, aggressive advertising.

The warehouse format generally serves two broad customer groups within the
home improvement industry. The first group consists of Do-It-Yourself (DIY)
customers who are individuals and families that are making purchases and
completing projects generally for their own homes on a Do-It-Yourself basis.
These customers range from casual to serious, and require varying levels of
support in planning and selecting their purchases. The second customer group
consists of professional contractors and facility managers who use home
improvement and building supply products on a daily basis in their businesses.

The Company believes that demographic and lifestyle factors such as the aging
baby boomers, the increase in home-centered activities and the aging housing
stock will create growing demand for home improvement products and services.
The Company believes that the overall market for home improvement products was
approximately $115 billion in calendar 1993. The market for home improvement
products is fragmented, with the five largest home improvement retailers
representing approximately 20% of sales in 1992, and the top 100 operators
representing less than 40% of sales.

Over the last ten years, warehouse-format home center retailers have gained
significant market share in the United States by offering lower prices, greater
product selection and more in-stock merchandise than traditional home center,
hardware and lumber yard operators. In addition, warehouse stores have been
able

27
<PAGE>

to take advantage of economies created by large sales volumes. Despite the
significant growth of warehouse-format home centers in recent years, the
Company believes that this format represented less than 15% of the overall
market in 1993.

STRATEGY

Over the past three years, HomeBase has redirected its marketing focus to
attract a wider range of customers. Originally developed as a "membership
warehouse club" for the home improvement industry, HomeBase (then known as
"HomeClub") appealed primarily to those customers requiring little assistance
and a limited assortment of products at low prices. Recognizing that this
strategy was not addressing a large portion of the market for Do-It-Yourself
merchandise, HomeBase discontinued its membership requirement, changed its name
and broadened its merchandise assortment while retaining the operating
efficiencies inherent in the warehouse format.

HomeBase is currently implementing a series of strategic initiatives designed
to strengthen its market position in the western United States and improve its
profitability. These initiatives include (i) a significant increase in the
level of customer service offered at HomeBase stores, through an increase in
the number of salespeople, including hiring experienced tradespeople and others
with specialized product knowledge in home improvement fields, and enhanced
sales and service training for both new and existing store employees, (ii)
improvement in gross margin through buying efficiencies created by
centralization of the merchandise replenishment function, improved distribution
of merchandise to reduce freight costs, and selective price increases, and
(iii) an aggressive marketing program to communicate to customers the benefits
of shopping at HomeBase and its improved levels of customer service. In the
third quarter of fiscal 1994, a new management team, led by a senior executive
from BJ's, was installed at HomeBase to implement these strategic initiatives.

In the fourth quarter of fiscal 1994, the Company recorded a pre-tax
restructuring charge of $101.1 million primarily to cover expenses related to
the repositioning of HomeBase. The restructuring is designed to enable HomeBase
to focus its management efforts and financial resources on strengthening its
competitive position in the western United States. This charge reflects the
closing of all eight of the Company's stores in midwestern markets (Chicago and
Toledo), which were outside HomeBase's primary market area, the planned closing
of 16 additional stores where the potential to achieve the Company's objectives
is limited, and liquidating certain discontinued merchandise. The Company has
disposed of five of the eight midwestern locations, and is actively seeking to
dispose of the remaining three midwestern locations. The Company is also
seeking to sell or sublease the 16 additional locations identified for closing.
See "Preliminary Results for Fiscal 1994."

The following are critical elements of HomeBase's strategy for growth:

Provide Superior Customer Service. HomeBase believes that a high level of
customer service is required to build both customer loyalty and sales. To
improve its level of customer service, HomeBase added a significant number of
sales and service personnel in the fourth quarter of fiscal 1994. Many of the
recently hired personnel are tradespeople or specialists trained in particular
merchandise categories who will be able to provide knowledgeable assistance to
customers. HomeBase has also reoriented its training programs to emphasize the
importance of customer service and to focus sales personnel on becoming
knowledgeable specialists in particular areas of home improvement. By
increasing customer contact with knowledgeable tradespeople and trained
specialists, HomeBase believes that it will be able to raise its level of
customer service, thereby broadening its appeal both to DIY and professional
customers.

Increase Customer Awareness. The Company is undertaking an aggressive
marketing program to attract new customers by emphasizing HomeBase's enhanced
commitment to customer service, its broad product selection, high quality
merchandise and everyday low prices. This program will supplement HomeBase's
regular print advertising with the extensive use of television advertising.

28
<PAGE>

Build Customer Know-How. HomeBase believes that it is important not only to
address the needs of the existing DIY marketplace, but that it is also
important to expand the DIY marketplace by encouraging new DIY customers and
upgrading the skills and confidence levels of existing DIY customers. HomeBase
provides assistance and training to DIY customers, including regularly
scheduled customer clinics on a wide range of home improvement projects.

Serve the Professional. HomeBase has designed a series of programs designed
to specifically address the needs of contractors. A majority of HomeBase
warehouse stores have Contractor Desks, with staff dedicated to handling
contractors' special needs, including the ability to receive faxed orders and
pre-assemble them for pick-up, and quickly obtaining special items and sizes.
HomeBase will also deliver bulk purchases to job sites for a nominal fee.
HomeBase warehouse stores offer extended hours, opening early in the morning to
serve professional contractors.

EXPANSION

HomeBase is currently the largest or second largest home improvement operator
in most of the metropolitan markets which it serves. HomeBase's current
expansion strategy is oriented towards reinforcing its position in these
existing markets and expanding selectively to contiguous markets.

The following table shows the number of HomeBase stores opened and closed in
the last six years:

<TABLE>
<CAPTION>
WAREHOUSE STORES WAREHOUSE
IN OPERATION AT WAREHOUSE WAREHOUSE STORES IN
FISCAL YEAR BEGINNING STORES OPENED STORES CLOSED OPERATION AT
ENDED JANUARY OF YEAR DURING THE YEAR DURING THE YEAR END OF YEAR
- ------------- ---------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
1989............. 36 10 -- 46
1990............. 46 12 -- 58
1991............. 58 8 -- 66
1992............. 66 7 -- 73
1993............. 73 13 -- 86
1994............. 86 5 9 82
</TABLE>

As of October 30, 1993, HomeBase operated 90 warehouse stores. As part of the
repositioning of HomeBase, the Company closed eight stores in the Midwest in
January 1994, resulting in 82 stores in operation at the end of fiscal 1994.
The Company has also announced its plans to close an additional 16 warehouse
stores. In fiscal 1995, HomeBase plans to open approximately four warehouse
stores, which will be located in existing market areas.

STORE PROFILE

The average size of the 82 HomeBase warehouse stores in operation at January
29, 1994 was 101,000 square feet. Most HomeBase warehouse stores also utilize
additional outside selling space for nursery and garden centers. HomeBase's
warehouse stores are located in both free-standing locations and "strip malls."
In some locations, HomeBase warehouse stores are combined with membership
warehouse clubs or other large store retailers in shopping centers known as
power centers.

Including space for parking, a typical HomeBase warehouse store requires six
to ten acres of land. Construction and site development costs for a new
HomeBase warehouse store average $5.1 million. Land acquisition costs for a new
warehouse store generally range from $2.0 million to $6.0 million. A new
HomeBase warehouse store entails an initial capital investment of approximately
$1.5 million for fixtures and equipment. In addition to capital expenditures,
each new warehouse store requires an investment of approximately $2.5 million
for inventory (net of accounts payable) and pre-opening expenses.

29
<PAGE>

MERCHANDISING

HomeBase's large product offering provides a broad selection of brand name
merchandise to both DIY customers and professional contractors. HomeBase's
merchandise selection is broad enough to allow a customer to purchase virtually
every item needed to build an entire home. The Company believes that its 25,000
SKU selection is broader than the selection offered by traditional home center
competitors.

By making use of the operating efficiencies of the warehouse format to
maximize productivity, HomeBase believes it is able to provide substantial
savings over other channels of home improvement and building supply product
distribution. In order to achieve greater operational efficiencies, HomeBase
has recently centralized its merchandise replenishment operations and improved
its logistics of distribution to reduce freight costs. By centralizing its
replenishment activities, the Company believes it will be able to improve the
manner in which it acquires products. In addition, this program will permit the
Company to redeploy store personnel, which will increase customer service.

Merchandise sold by HomeBase includes lumber, building materials, plumbing
supplies and fixtures, electrical materials and fixtures, hand and power tools,
hardware, paints, garden supplies, nursery items, home decorative items and
related seasonal and household merchandise. HomeBase's name brand orientation
allows customers to compare HomeBase's prices to the same items offered by
competitors. In selected categories, HomeBase supplements these name brand
offerings with high quality private label products at lower prices. As part of
its restructuring, in the fourth quarter of fiscal 1994, HomeBase discontinued
certain merchandise unrelated to its core home improvement offerings. In
addition, HomeBase raised prices on selected merchandise items to the lower end
of the range of prices offered by competitors in the relevant trading area.

MARKETING AND ADVERTISING

HomeBase addresses its primary target customers through a mix of newspaper,
direct mail, radio and television advertising. The primary advertising medium
is newspaper advertisements, including both freestanding inserts and run-of-
press ads. Television and radio advertising are used to reinforce HomeBase's
image of providing superior customer service and offering a broad assortment of
merchandise at every day low prices. Additionally, the Company participates in
or hosts a variety of home shows, customer hospitality events and contractor
product shows. HomeBase solicits vendor participation in many of its
advertising programs. The Company has recently commenced an aggressive
marketing program to attract new customers by emphasizing HomeBase's enhanced
commitment to customer service, its broad product selection, high quality
merchandise and everyday low prices.

WAREHOUSE OPERATIONS

Customer Service. HomeBase is committed to providing superior service to
every customer. Carefully selected home improvement specialists, many of whom
have extensive experience in their respective fields, are available throughout
the store to assist DIY customers and professional contractors.

The HomeBase warehouse is designed to serve both the contractor and DIY
markets. HomeBase's project design centers and kitchen design centers feature
computer assisted design tools where customers can work with design
coordinators to conceptualize and plan virtually any home improvement project.
HomeBase's contractor desk, with its dedicated staff, permits the contractor to
take advantage of the breadth of HomeBase's offerings in a timely manner.
Complemented by HomeBase's delivery capability, the HomeBase contractor desk
strives to be the "supplier of first choice" to the professional contractor
market.

Training. HomeBase strives to develop the skills of its store personnel to
ensure that customers consistently receive knowledgeable and courteous
assistance. HomeBase's training programs have been recently reoriented to
emphasize the importance of customer service and to improve store employees'
selling

30
<PAGE>

skills. HomeBase provides extensive training for its entry level warehouse
store personnel through a comprehensive in-house training program that combines
on-the-job training with formal seminars and meetings. On an ongoing basis,
warehouse store personnel attend frequent in-house training sessions conducted
by HomeBase's training staff or by manufacturers' representatives, and they
receive sales, product and other information in frequent meetings with their
managers. HomeBase's satellite television system (HBTV) permits it to
simultaneously broadcast training sessions from its Irvine, California
headquarters to every individual warehouse store location.

Low Cost Operation. HomeBase purchases most of its merchandise directly from
manufacturers for shipment either directly to the selling warehouse store or to
consolidation/deconsolidation facilities where large shipments are broken down
and separated for transfer to individual warehouse stores, generally on a same-
day basis. By operating no-frills warehouse facilities, HomeBase's fixturing
and operating costs are kept substantially below those of traditional home
improvement retailers.

Credit. HomeBase offers its own private label credit card to customers under
a non-recourse program operated by a major financial institution. The Company
plans to introduce a similar third party program directed toward professional
contractors. HomeBase also accepts MasterCard, Visa, Discover and American
Express.

MANAGEMENT INFORMATION SYSTEMS

HomeBase uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on performance of its
business. These systems are designed to enhance HomeBase's "quick response"
capability. Each HomeBase warehouse store operates point-of-sale terminals
which capture information on each item sold via UPC scanning. Minicomputers at
each warehouse store process and consolidate this information during the
selling day and transmit it each night to HomeBase's information center via
satellite. From this information, the data center produces daily reports that
are used to support merchandising, inventory replenishment and promotional
decisions.

HomeBase's satellite television network broadcasts several times each week to
all of HomeBase's warehouse stores. Broadcasts include training sessions,
vendor product demonstrations and interactive discussions with HomeBase's
management.

HomeBase introduced scanning to the home improvement industry and is a leader
in implementing EDI. EDI permits both HomeBase and its vendors to save money
and reduce errors by electronically transmitting purchase order information.
HomeBase now uses EDI with over 700 vendors and plans to expand its use of this
technology.

COMPETITION

HomeBase competes with a wide range of businesses engaged in the wholesale or
retail sale of home improvement and building supply merchandise, including home
centers, hardware stores, lumber yards and discount stores. The Company
believes the major competitive factors in the markets in which HomeBase
competes are customer service, price, product selection, location and name
recognition. The Company believes that its improving level of customer service,
the value offered by HomeBase's low prices and the one-stop shopping available
through its full range of home improvement products give it an advantage over
many of its traditional home center competitors. Major competitors in
HomeBase's market areas that also use the warehouse merchandising format
include The Home Depot, Inc. and Builder's Square Inc. (a subsidiary of Kmart
Corporation). Approximately 70% of HomeBase's warehouse stores currently have
at least one warehouse home improvement retailer in their trading areas at an
average distance of approximately 3 miles. Approximately 60% of HomeBase's
warehouse stores currently compete with Home Depot units. HomeBase also
competes with a number of smaller regional operators such as Orchard Lumber
Supply, Contractor's Warehouse (a division of Grossman's Inc.) and Eagle
Hardware & Garden, Inc. Some of the Company's competitors have significantly
greater financial and marketing resources than the Company.

31
<PAGE>

EMPLOYEES

As of January 29, 1994, the Company had approximately 16,000 employees, of
whom approximately 7,900 were employed at BJ's, approximately 8,000 were
employed at HomeBase and the remainder were engaged in general corporate
activities. Approximately 13,600 of the Company's employees are eligible for
Company subsidized medical benefits after a minimum period of service.

None of the Company's employees is represented by unions. The Company
considers its relations with its employees to be excellent.

PROPERTIES

The Company operated 134 warehouse locations as of January 29, 1994, of which
108 are leased under long-term leases and 22 are owned. The Company owns the
buildings at the remaining four locations, which are subject to long-term
ground leases.

The unexpired terms of these leases range from one year to 39.9 years, and
average approximately 14.2 years. The Company has options to renew all but one
of its leases for periods that range from approximately 5 to 50 years and
average approximately 18.4 years. These leases require fixed monthly rental
payments which are subject to various adjustments. In addition, certain leases
require payment of a percentage of the warehouse's gross sales in excess of
certain amounts. Most leases require that the Company pay all property taxes,
insurance, utilities and other operating costs.

32
<PAGE>

MANAGEMENT

The following sets forth certain information regarding directors and
executive officers of the Company.

<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AGE WITH THE COMPANY
---- --- ---------------------
<S> <C> <C>
Sumner L. Feldberg............... 69 Chairman of the Board
S. James Coppersmith............. 61 Director
Stanley H. Feldberg.............. 69 Director
Allyn L. Levy.................... 66 Director
Arthur F. Loewy.................. 65 Director
Thomas J. Shields................ 46 Director
Lorne R. Waxlax.................. 60 Director
Herbert J Zarkin................. 55 President, Chief Executive Officer and
Director
John J. Nugent................... 47 Executive Vice President, President--BJ's
Wholesale Club
Allan P. Sherman................. 49 Executive Vice President, President--
HomeBase
Dale N. Garth.................... 43 Senior Vice President, Treasurer and Chief
Financial Officer
Sarah M. Gallivan................ 51 Vice President--General Counsel and
Secretary
Edward J. Weisberger............. 51 Vice President--Finance
</TABLE>

SUMNER L. FELDBERG has been Chairman of the Board since February 1989. Mr.
Feldberg is also Chairman of the Board of The TJX Companies, Inc. ("TJX"), and
was Chairman of TJX from 1973 to 1987 and Chairman of that company's Executive
Committee from 1987 to 1989. Mr. Feldberg is a trustee of Mass. Mutual
Corporate Investors, Inc. and Mass. Mutual Participation Investors. Mr.
Feldberg is also a past chairman of the National Retail Merchants Association.
Mr. Feldberg is Chairman of the Executive Committee and a member of the Finance
Committee.

S. JAMES COPPERSMITH has been a director since December 1993. He has been
President and General Manager of WCVB-TV, a Boston television station, since
1990. From 1982 to 1990 he was Vice President and General Manager of WCVB-TV.
Mr. Coppersmith is a director of Sun America Management Asset Corporation and
Uno Restaurant Corp. and Chairman of the Board of Directors of Emerson College.
Mr. Coppersmith is a member of the Executive Compensation Committee.

STANLEY H. FELDBERG has been a director since February 1989. He is a director
of TJX and was President of TJX from 1956 to 1978. He is also an independent
general partner of ML-Lee Acquisition Funds I and II. Mr. Feldberg is a member
of the Audit Committee and the Executive Compensation Committee.

ALLYN L. LEVY has been a director since October 1993. He has been a private
investor since 1988. From 1974 until 1986, he was founder, Chairman of the
Board and Chief Executive Officer of Patriot Bank Corporation, a commercial
bank holding company. He is a director of CV Reit, Inc. Mr. Levy is a member of
the Audit Committee.

ARTHUR F. LOEWY has been a director since February 1989. He is a director of
TJX and was Chief Financial Officer and Executive Vice President--Finance of
TJX from 1982 to 1989. Mr. Loewy is Chairman of the Finance Committee.

THOMAS J. SHIELDS has been a director since June 1992. He is President of
Thomas J. Shields & Company, Inc., an investment banking and financial advisory
firm. From 1989 to 1991 he was a Managing Director of Bear, Stearns & Co. Inc.
and from 1982 to 1991 Mr. Shields was Manager of the Boston Corporate Finance
office of Bear, Stearns & Co. Inc. Mr. Shields is also a director of Seaboard
Corporation. Mr. Shields is Chairman of the Audit Committee.

33
<PAGE>

LORNE R. WAXLAX has been a director since January 1990. He was an Executive
Vice President of The Gillette Company from 1985 to 1993. Mr. Waxlax is also a
director of Iams Company, Hon Industries, Inc. and Clean Harbors, Inc. Mr.
Waxlax is Chairman of the Executive Compensation Committee and a member of the
Executive Committee.

HERBERT J ZARKIN has been a director, President and Chief Executive Officer
of the Company since May 1993 and was President of the Company's BJ's Wholesale
Club Division from May 1990 to May 1993. From April 1989 to May 1993 he was
Executive Vice President of the Company. He was previously with TJX as Senior
Vice President--Warehouse Club Divisions from December 1988 to June 1989. He
was Chairman of the Zayre Stores Division of TJX from May 1988 and continued in
that capacity through December 1988 following TJX's sale of that division in
October 1988; he was President of TJX's HomeBase Division during 1986-1988. Mr.
Zarkin is a member of the Executive Committee and Finance Committee.

JOHN J. NUGENT has been Executive Vice President of the Company and President
of BJ's Wholesale Club since September 1993. From 1991 to 1993 he was Senior
Vice President of BJ's Wholesale Club and from 1989 to September 1993 he was
Director of Sales Operations of BJ's Wholesale Club. Prior thereto, he was Vice
President of Operations at Child World from 1980 to 1989.

ALLAN P. SHERMAN has been Executive Vice President of the Company since May
1993 and President of HomeBase since September 1993. From May 1993 to September
1993 he was President of BJ's Wholesale Club. From August 1991 to May 1993 he
was Senior Vice President and General Merchandise Manager--Non Food of BJ's
Wholesale Club and was Vice President and General Merchandise Manager--Non Food
of BJ's Wholesale Club from February 1991 to August 1991. Prior thereto, Mr.
Sherman was President of My House, a division of Jamesway (1989-1991) and
Divisional Merchandise Manager of the Zayre Stores Division of TJX from 1986
and continued in that capacity through May 1989 following TJX's sale of that
division in October 1988.

DALE N. GARTH has been Senior Vice President and Chief Financial Officer
since September, 1992 and Treasurer since December 1992. Prior thereto, Mr.
Garth was Senior Vice President, Finance and Chief Financial Officer of
Talbots, Inc. (1989-1991).

SARAH M. GALLIVAN has been employed by the Company since October 1989 and was
elected Vice President, General Counsel and Secretary in December 1989. Prior
thereto, Ms. Gallivan was with Damon Corporation as legal counsel.

EDWARD J. WEISBERGER has been Vice President-Finance since April 1989. Prior
thereto, Mr. Weisberger was Vice President--Corporate Controller of TJX (1987-
1989).

Stanley H. Feldberg and Sumner L. Feldberg are first cousins. There are no
other family relationships among any of the Company's directors and executive
officers.

34
<PAGE>

RELATIONSHIP WITH TJX

In connection with the Company's 1989 spin-off from TJX (the "Spin-Off"), the
Company and TJX entered into a Distribution Agreement and a Services Agreement.

The Distribution Agreement provides for, among other things, (i) the division
between the Company and TJX of certain liabilities and (ii) certain other
agreements governing the relationship between the Company and TJX following the
Spin-off. Under the Distribution Agreement, TJX assumed certain liabilities
relating to the Company's business for the period prior to the Spin-off. In
general, the Company assumed responsibility for all post-Spin-off liabilities
relating to its business. TJX retained liability for insured claims arising
before the Spin-off and in 1999 will receive from (or pay to) the Company the
amount by which TJX's costs at the end of this 10-year period exceed (or are
less than) the reserve amount agreed to.

Pursuant to the Services Agreement, TJX provided certain services, primarily
data processing, to the Company during fiscal 1994, for which the Company paid
TJX approximately $6.5 million. The Company has elected to continue to purchase
data processing and certain other services through fiscal 1995.

35
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of January 29, 1994 by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company and (iv) all the Company's directors and executive
officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME SHARES(1) COMMON STOCK(1)
- ---- --------- ---------------
<S> <C> <C>
David J. Greene and Company....................... 2,089,027(2) 6.3%
599 Lexington Avenue
New York, New York 10022
The Prudential Insurance Company of America....... 1,921,290(3) 5.8%
Prudential Plaza
Newark, New Jersey 01702
Mellon Bank Corporation and subsidiaries.......... 1,751,000(4) 5.3%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Sumner L. Feldberg................................ 179,958(5) *
S. James Coppersmith.............................. 2,000 *
Stanley H. Feldberg............................... 153,017(5) *
Allyn L. Levy..................................... 5,000 *
Arthur F. Loewy................................... 6,632(5) *
Thomas J. Shields................................. 500 *
Lorne R. Waxlax................................... 5,000 *
Herbert J Zarkin.................................. 150,182 *
John J. Nugent.................................... 65,936 *
Allan P. Sherman.................................. 49,500 *
Dale N. Garth..................................... 15,625 *
Sarah M. Gallivan................................. 11,500 *
Edward J. Weisberger.............................. 31,976 *
All directors and executive officers as a group
(13 persons)..................................... 643,460 1.9%
</TABLE>
- --------
* Less than 1%.
(1) Includes the following shares of Common Stock issuable in respect of shares
of Common Stock that may be acquired upon exercise of outstanding stock
options which are exercisable on January 29, 1994 or within 60 days
thereafter: Mr. Zarkin, 52,672 shares; Mr. Nugent, 27,250 shares; Mr.
Sherman, 19,500 shares; Mr. Garth, 3,125 shares; Mr. Weisberger, 13,936
shares; Ms. Gallivan, 5,000 shares; all directors and executive officers as
a group, 121,483 shares.
(2) Information is as of December 31, 1993 and is based on a Schedule 13G filed
with the Commission by David J. Greene and Company, a registered broker-
dealer and investment adviser. David J. Greene and Company reported that it
has sole power to vote 115,000 shares and shared power to vote 1,314,100
shares and has sole dispositive power with respect to 115,000 shares and
shared dispositive power with respect to 1,974,027 shares.
(3) Information is as of December 31, 1993 and is based on a Schedule 13G filed
with the Commission by The Prudential Insurance Company of America
("Prudential"). Prudential reported that is has sole power to vote 6,400
shares and shared power to vote 1,914,890 shares and has sole dispositive
power with respect to 6,400 and shared dispositive power with respect to
1,914,890 shares.
(4) Information is as of December 31, 1993 and is based on a Schedule 13G filed
with the Commission by Mellon Bank Corporation ("Mellon") on its own behalf
and on behalf of several of its subsidiaries. Mellon reported that it and
its subsidiaries have sole power to vote 1,055,000 shares and shared power
to vote 70,000 shares and have sole dispositive power with respect to
1,446,000 shares and shared dispositive power with respect to 305,000
shares.
(5) Includes the following shares beneficially owned by the following persons
as trustees or custodians of which beneficial interest is disclaimed unless
otherwise indicated: Stanley H. Feldberg (33,366 shares); Sumner L.
Feldberg (73,029 shares, of which 33,366 are shares also beneficially owned
by Stanley H. Feldberg). Excludes the following shares beneficially owned
by the respective spouses and/or children of the following persons, of
which the following persons disclaim beneficial ownership: Stanley H.
Feldberg (90,663 shares); Sumner L. Feldberg (13,168 shares); and Arthur F.
Loewy (413 shares).

36
<PAGE>

DESCRIPTION OF NOTES

GENERAL

The Notes will be issued pursuant to an indenture (the "Indenture") to be
dated as of , 1994 between the Company and The First National Bank of
Boston, as trustee (the "Trustee"), the proposed form of which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Notes are subject to all such terms and holders of
the Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Indenture, including the definitions therein of certain terms used
below. The definitions of certain terms used in the following summary are set
forth below under "Certain Definitions." Section references in this Prospectus
refer to sections in the Indenture.

The Notes will be general obligations of the Company. The Notes will be
senior subordinated obligations of the Company, subordinate in the right of
payment to all Senior Indebtedness of the Company and will be senior in right
of payment to, or pari passu in right of payment with, other subordinated
indebtedness of the Company. The Notes are effectively subordinate to all
indebtedness and other liabilities of Subsidiaries of the Company.

PRINCIPAL, MATURITY AND INTEREST

The Notes are limited in aggregate principal amount to $100,000,000 and will
mature on , 2004. Interest on the Notes will accrue to the rate of % per
annum and will be payable semi-annually on each and , commencing on
, 1994, to the holder of record on the immediately preceding and ,
whether or not a business day. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of first issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. The Notes will be payable both
as to principal and interest at the office or agency of the Company maintained
for such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the holders of the
Notes at their respective addresses set forth in the register of holders of
Notes. Unless otherwise designated by the Company, the Company's office or
agency in New York City will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.

OPTIONAL REDEMPTION

The Notes are not redeemable at the option of the Company prior to ,
1999. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, at the redemption prices (expressed as a
percentage of the principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve month period beginning of the years indicated below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICES
---- ----------
<S> <C>
1999............................................................ %
2000............................................................ %
2001............................................................ %
2002 and thereafter............................................. 100.00%
</TABLE>

(Section 3.01).

37
<PAGE>

SELECTION AND NOTICE

If less than all of the Notes are to be redeemed at any time, selection of
the Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate, provided that notice shall be mailed by first class
mail at least 15 but not more than 60 days before the redemption date to each
holder of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption. (Sections 3.02 through 3.06).

CHANGE OF CONTROL

Upon the occurrence of a Change of Control (as defined below), each holder
shall have the right to require at such holder's election the repurchase of all
or a portion (in $1,000 increments) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the aggregate principal amount plus accrued and unpaid interest, if
any, to the date of purchase. Immediately following any Change of Control, the
Company shall mail a notice to the Trustee and to each holder stating: (i) that
the Change of Control Offer is being made pursuant to the "Repurchase Upon
Change of Control" covenant in the Indenture and that all Notes tendered will
be accepted for payment; (ii) the purchase price and the purchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Change of Control Payment Date"); (iii) that any Note
not tendered will continue to accrue interest; (iv) that, unless the Company
defaults in the payment thereof, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on and after the Change
of Control Payment Date; (v) that holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Notes
to be purchased to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the Change of
Control Payment Date; (vi) that holders will be entitled to withdraw their
election on the terms and conditions set forth in such notice; (vii) that
holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered;
provided that each Note purchased and each such new Note issued shall be in a
principal amount of $1,000 or integral multiples thereof; and (viii) the
circumstances and relevant facts regarding such Change of Control (including
pro forma historical financial information after giving effect to such Change
of Control) and information regarding the person or persons acquiring control.

On the Change of Control Payment Date, the Company shall (i) accept for
payment all Notes or portions thereof tendered, pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered, and (iii) deliver
or cause to be delivered to the Trustee, all Notes so tendered together with an
officer's certificate specifying the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
tendered, payment in an amount equal to the purchase price for such Notes, and
the Trustee shall promptly authenticate and mail to such holder a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered;
provided that such new Note shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. (Section 4.11).

The Company will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes
triggered by a Change of Control.

38
<PAGE>

"Change of Control" means (a) the acquisition, including through merger,
consolidation or otherwise, by any Person or any group for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof, of
direct or indirect beneficial ownership (as defined in Rule 13d-3 of the
Exchange Act) of 50% or more of either (i) the outstanding shares of common
stock of the Company or (ii) the total voting power of all classes of capital
stock of the Company entitled to vote generally in the election of directors,
or (b) the Company sells, conveys, transfers or leases all or substantially all
of its assets (including without limitation the stock of one or more Subsidiary
Guarantors (as defined below) which singly or in the aggregate own all or
substantially all of the assets of the Company determined on a consolidated
basis to any Person (other than one or more Wholly-owned Subsidiaries) in a
transaction or series of related transactions, other than in connection with
the reincorporation of the Company in another jurisdiction where each holder of
common stock immediately prior to such reincorporation owns the same percentage
of the Company immediately after its reincorporation.

Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. The Company's ability to purchase
the Notes will be limited by the Company's then available financial resources
and, if such financial resources are insufficient, its ability to arrange
financing to effect such purchases. There can be no assurance that the Company
will have sufficient funds to repurchase the Notes upon a Change of Control or
that the Company will be able to arrange financing for such purpose.

A Change of Control would constitute an event of default under the Company's
Credit Agreement, the Company's 9.58% Notes due 1998 and the Convertible
Subordinated Debentures and could result in the acceleration of the Company's
debt repayment obligations thereunder. In such event, the Company may not have
sufficient resources to satisfy all its repayment and repurchase obligations.

SUBORDINATION

The Notes are subordinated in right of payment to the prior payment in full
in cash or, at the sole option of the holders of Senior Indebtedness, cash
equivalents, of all Senior Indebtedness. (Section 10.01).

Upon any (i) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, (ii) assignment for the
benefit of creditors or any marshalling of the assets and liabilities of the
Company or (iii) distribution to creditors of the Company in a liquidation or
dissolution of the Company, the indebtedness and other monetary claims and
obligations evidenced by the Notes (including, without limitation, principal
of, premium, if any, and interest) will be subordinated in right of payment, to
the extent and in the manner set forth in the Indenture, to the prior payment
in full of all Senior Indebtedness, including any interest accruing on such
Senior Indebtedness before or after the commencement of such proceeding. Upon
any default by the Company in the payment of the principal of, premium, if any,
or interest on Senior Indebtedness, when the same becomes due, no payment may
be made on or in respect of the Notes until such default has been cured or
waived. No such subordination will limit the right of the holders of the Notes
or Trustee to take any action to accelerate the maturity of the Notes or pursue
other remedies upon the occurrence of any Event of Default (as defined in the
Indenture); provided, however, that all Senior Indebtedness then due and
payable should first be paid in full before the holders of the Notes or the
Trustee are entitled to receive any payment from the Company in respect of the
Notes. The Indenture also provides that no payment may be made by the Company
upon or in respect of the Notes for the period specified below (the "Payment
Blockage Period") during the continuance of any non-payment event of default
with respect to Specified Senior Indebtedness pursuant to which the maturity
thereof may be accelerated. The Payment Blockage Period shall commence on the
earlier of (i) the commencement of judicial proceedings relating to a non-
payment event of default, (ii) receipt by the Trustee of notice from the holder
or holders of at least 25% in aggregate principal amount of any Specified
Senior Indebtedness, the trustee or an authorized representative for the
holders of any Specified Senior Indebtedness or (iii) if such non-payment event
of default results from the acceleration of the Notes, the date of such
acceleration, and shall end 179 days thereafter unless (a) appropriate
enforcement proceedings shall have been commenced upon such non-

39
<PAGE>

payment default or (b) such Payment Blockage Period shall have been earlier
terminated. The holders of more than one class of Senior Indebtedness who
collectively meet the $20,000,000 threshold for Specified Senior Indebtedness
may act in concert to cause a Payment Blockage Period. Not more than one
Payment Blockage Period with respect to the Notes may be commenced during any
period of 360 consecutive days. No event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Specified Senior Indebtedness initiating such period shall be,
or be made, the basis for the commencement of a second Payment Blockage Period
by the representative for or the holders of such Specified Senior Indebtedness
whether or not within a period of 360 consecutive days. (Section 10.03).

As a result of the subordination provisions described above, in the event of
insolvency of the Company, creditors of the Company who are not holders of
Senior Indebtedness may recover less ratably than holders of Senior
Indebtedness and may recover more ratably than holders of the Notes and the
Company may be unable to make all payments due under the Notes.

As of January 29, 1994, after giving effect to the issuance of the Notes, the
aggregate amount of Senior Indebtedness outstanding was $78.3 million. Certain
of the Company's operations are conducted through its Subsidiaries. As of
January 29, 1994, the Subsidiaries of the Company had outstanding Indebtedness
of approximately $11.4 million, including trade payables, and had property and
assets with a book value of approximately $261.8 million. As of January 29,
1994, the Company's total shareholders' equity was $420.5 million. The Notes
will be structurally subordinated to Indebtedness of the Company's present and
future Subsidiaries, including trade payables. In the future, the Company may
issue additional Senior Indebtedness to refinance existing indebtedness or for
other corporate purposes. See "Limitation on Additional Indebtedness."

CERTAIN COVENANTS

Limitation on Restricted Payments. The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend or make any distribution or repurchase on account of the Company's or
any of its Subsidiaries' Capital Stock or other Equity Interests (other than
dividends or distributions payable to the Company or any of its Wholly-owned
Subsidiaries or payable in shares of Capital Stock of the Company other than
Redeemable Stock), (ii) purchase, redeem or otherwise retire for value any
Equity Interests of the Company or any of its Subsidiaries (other than any
purchase, redemption or retirement of such Equity Interests owned by the
Company or any of its Wholly-owned Subsidiaries); (iii) purchase, redeem,
prepay, defease or otherwise retire for value prior to scheduled maturity,
repayment or sinking fund payment, (A) any Indebtedness of the Company that is
contractually subordinated in right of payment to the Notes, or (B) any
Indebtedness of any Subsidiary that is contractually subordinated in right of
payment to the Notes other than Indebtedness to the Company or (iv) make
Investments (either through the Company or any of its Wholly-owned
Subsidiaries) other than Permitted Investments (the foregoing actions set forth
in clauses (i) through (iv) being referred to as "Restricted Payments"), if at
the time of such Restricted Payment:

(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or

(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made on or after the date of the Indenture, exceeds (x)
$75 million (in the event the Notes on the date of computation are rated
BBB- (or better) by Standard & Poor's Corporation and Baa3 (or better) by
Moody's Investors Service, Inc., such amount shall be increased by $50
million) plus 50% of the amount of the cumulative Consolidated Net Income
of the Company for the period (taken as one accounting period) from January
29, 1994 through the last fiscal quarter immediately preceding such
Restricted Payment (or, if Consolidated Net Income for such period is a
deficit, minus 100% of such deficit); plus (y) 100% of the aggregate net
cash proceeds received by the Company on or after January 29, 1994 from (i)
the issue or sale of Equity Interests of the Company (other than such
Equity Interests issued or sold to a Subsidiary of the Company and other
than Redeemable Stock), (ii) the conversion of Indebtedness of the Company
(other than (A) in respect of the Convertible Subordinated Debentures or
(B) such Indebtedness held by a Subsidiary of the Company) into Capital
Stock of the Company (other than Redeemable Stock), which for purposes of
this clause (b) shall be valued at the net cash proceeds

40
<PAGE>

received by the Company upon the initial issuance of such Indebtedness plus
such additional Cash consideration payable to the Company upon such
conversion, or (iii) the net cash proceeds received by the Company from its
investment in, and the sale, disposition or other liquidation of,
Investments that are not Permitted Investments; or

(c) immediately after such Restricted Payment, the Company would not be
permitted to incur $1.00 of additional Indebtedness pursuant to the
covenants set forth in "Limitation of Additional Indebtedness" below.

The foregoing provisions will not prohibit, so long as no Default or Event of
Default shall have occurred and be continuing, (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the retirement of any shares of the Company's Capital Stock in
exchange for, or out of the net proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of the Company's
Capital Stock, other than any Redeemable Stock; (iii) Investments by the
Company or a Subsidiary of the Company in the Company or a Wholly-owned
Subsidiary of the Company or the purchase, redemption, or other acquisition or
retirement for value of such Investments; (iv) acquisitions of Wholly-owned
Subsidiaries; (v) the purchase, redemption, prepayment, defeasance or other
acquisition or retirement for value prior to scheduled maturity, or any
repayment or sinking fund payment of any Indebtedness of any Wholly-owned
Subsidiary of the Company which is not contractually subordinated in right of
payment to the Notes; (vi) the redemption, repurchase or other acquisition or
retirement for value of Subordinated Indebtedness of the Company which is made
in exchange for, or out of proceeds of the substantially concurrent issue and
sale (other than to a Subsidiary) of (A) shares of Capital Stock (other than
Redeemable Stock) of the Company, provided, however, that any Net Cash Proceeds
from such issue are excluded from clause (b)(y)(i) of the preceding paragraph
or (B) new Indebtedness of the Company, so long as (1) such Indebtedness is
expressly subordinated to the Notes at least to the same extent as the
Subordinated Indebtedness being so refinanced; (2) such Indebtedness has an
Average Life to Stated Maturity equal to or greater than the remaining Average
Life to Stated Maturity of the Notes; and (3) such Indebtedness has a final
scheduled maturity which exceeds the final Stated Maturity of the Notes,
provided, however, that any Net Cash Proceeds from such issue are excluded from
clause (b)(y)(ii) of the preceding paragraph; and (vii) loans and advances to
officers and employees of the Company or any of its Subsidiaries up to $5
million in the aggregate outstanding at any one time. For purposes of
determining the aggregate permissible amount of Restricted Payments in
accordance with clause (b) of the first paragraph of this covenant, no amounts
expended pursuant to clauses (iii), (iv), (v), (vi) and (vii) of this paragraph
shall be included. (Section 4.06).

Limitation on Payment Restrictions Affecting Subsidiaries. The Indenture
provides that the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective or enter into any agreement, with any Person that
would cause or permit to exist or become effective, any encumbrance or
restriction on the ability of (i) any Wholly-owned Subsidiary to pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any of
its Subsidiaries or (ii) any Subsidiary to (A) pay any Indebtedness owed to the
Company or any Subsidiary, (B) make loans or advances to the Company, or (C)
transfer any of its properties or assets to the Company, except for purposes of
clauses (i) and (ii), for such encumbrances or restrictions existing under or
by reason of (1) applicable law, (2) the Indenture, (3) customary non-
assignment provisions of any lease governing a leasehold interest of the
Company or any of its Subsidiaries, (4) any instrument governing indebtedness
of a Person acquired by the Company or any of its Subsidiaries at the time of
such acquisition, which encumbrance or restriction is applicable to any Person
so acquired or its properties or assets and was not entered into in connection
with such acquisition, (5) encumbrances or restrictions under Existing
Indebtedness or (6) encumbrances or restrictions under any Real Estate
Financing by any of the Company's Subsidiaries. (Section 4.07).

Limitation on Other Senior Subordinated Debt. The Indenture provides that the
Company will not incur, create, assume, guarantee or otherwise become liable
for any Indebtedness that is contractually

41
<PAGE>

subordinated in right of payment to any Senior Indebtedness and contractually
senior in any respect in right of any payment to the Notes. (Section 4.08).

Limitation on Additional Indebtedness. The Company shall not, and shall not
permit any of its Subsidiaries, directly or indirectly, to create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness other than Permitted Indebtedness; provided,
however, that (a) the Company or any Subsidiary may incur Indebtedness if,
after giving pro forma effect to the incurrence of such Indebtedness and the
application of any of the proceeds therefrom to repay Indebtedness as if such
incurrence had occurred on the first day of such period, the Consolidated
Interest Coverage Ratio for its four full fiscal quarters ending immediately
prior to the date such additional Indebtedness is created, incurred, issued,
assumed or guaranteed will be at least 2.0 to 1.0, provided that such
calculation shall give effect to (A) the incurrence of any Indebtedness (after
giving effect to the application of the proceeds thereof) in connection with
the simultaneous acquisition of any Person, business, property or assets, and
(B) the Consolidated Net Income generated by such acquired Person, business,
property or assets, giving effect in each case to such incurrence of
Indebtedness, application of proceeds and Consolidated Net Income as if such
acquisition had occurred at the beginning of such four quarter period, and (b)
a Subsidiary of the Company may incur Indebtedness if (i) the assets of the
Subsidiary consist solely of (x) real estate securing Real Estate Financing and
(y) other Assets with a book value not in excess of 10% of the principal amount
of any Indebtedness incurred by such Subsidiary and such Indebtedness
constitutes Real Estate Financing at the time it is created, incurred, issued,
assumed or guaranteed by such Subsidiary of the Company (which shall not have
been guaranteed by the Company) or (ii) such Indebtedness, together with all
other Indebtedness of all Subsidiaries of the Company (other than Indebtedness
incurred pursuant to clause (b)(i) of this paragraph), is an aggregate amount
not exceeding $5 million at any time outstanding. (Section 4.09).

Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of their respective assets, now owned or hereafter
acquired, or any income or properties therefrom, securing any Indebtedness that
is pari passu with or contractually subordinated in right of payment to the
Notes, other than Permitted Liens. (Section 4.10).

Limitation on Use of Proceeds from Asset Sales. The Company and its
Subsidiaries will not, directly or indirectly, consummate any Asset Sales
unless (i) the Company or the Subsidiary, as the case may be, receives
consideration at the time of any such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of, (ii) at least 80% of
the Net Proceeds from the Asset Sales are received in Cash and Marketable
Securities at closing, and (iii) with respect to any Asset Sale involving the
Equity Interests of any Subsidiary, the Company shall sell all of the Equity
Interests it owns of such Subsidiary in such Asset Sale. Within twelve months
(or, in the event of a sale-and-leaseback transaction, twenty-four months)
after the receipt of Cash in respect of any Asset Sale, the Company or a
Subsidiary may use all such cash either to (x) invest in capital assets, (y)
purchase properties and assets that are of a type similar to the properties and
assets that were the subject of such Asset Sale, and in the case of clauses (x)
and (y) the acquired capital assets or properties and assets, as the case may
be, are to be used primarily in a retail warehousing business of the Company
which is operated by the Company or a Significant Subsidiary of the Company (or
is a business which meets the test necessary to be a Significant Subsidiary)
immediately prior to such acquisition or (z) permanently reduce Senior
Indebtedness. "Excess Proceeds" shall mean any Cash from an Asset Sale that is
not invested or used to permanently reduce Senior Indebtedness as provided in
the preceding sentence. When the aggregate amount of Excess Proceeds from any
Asset Sale or series of related Asset Sales exceeds 10% of the aggregate book
value of the tangible assets of the Company and its Subsidiaries (measured at
the end of the most recent fiscal quarter ended prior to such Asset Sale), the
Company shall offer to purchase from all holders of the Notes the maximum
principal amount of Notes that may be purchased out of such Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued interest, if any, to the date fixed for the closing of
such offer, in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate amount of the Notes tendered pursuant to the
Excess Proceeds offer is less than the Excess Proceeds, the Company may use
such deficiency, or a portion thereof, for general corporate purposes. If the
aggregate principal amount of the Notes surrendered by holders thereof exceeds
the amount of Net Proceeds, the Company shall select the Notes to be purchased
on a pro rata basis.

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Upon completion of such offer, the amount of Excess Proceeds shall be reset at
zero. Notwithstanding the foregoing, $5 million of Cash received from any Asset
Sale or Asset Sales in any fiscal year shall not be subject to the restrictions
contained in this covenant. (Section 4.12).

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes pursuant to an Excess Proceeds offer.

Limitation on Transactions with Affiliates. Except as otherwise permitted by
the Indenture, neither the Company, nor any of its Subsidiaries, will make any
Investment, loan, advance, guarantee or capital contribution to, or for the
benefit of, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, any Affiliate of the Company or any
of its Subsidiaries (other than the Company or any of its Wholly-owned
Subsidiaries) unless (i) the Board of Directors of the Company or such
Subsidiary, as the case may be, determines, in its reasonable good faith
judgment, that such transaction or series of transactions is in the best
interest of the Company or such Subsidiary based on full disclosure of all
relevant facts and circumstances, (ii) such transaction or series of
transactions is fair to the Company or such Subsidiary and on terms that are no
less favorable to the Company or the relevant Subsidiary, as the case may be,
than those that could have been obtained in a comparable transaction on an
arm's length basis from a person that is not an Affiliate and (iii) with
respect to a transaction or series of transactions involving aggregate payments
greater than $5 million, a majority of independent directors of the Company
shall approve such transaction or series of transactions by a resolution
certifying that such transaction or series of related transactions comply with
the clause (ii) above. (Section 4.13).

Merger, Consolidation or Sale of Assets. The Company shall not consolidate
with, merge with or into, or transfer all or substantially all of its assets
(as an entirety or substantially as an entirety in one transaction or a series
of related transactions), to any Person or permit any party to merge with or
into it unless: (i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company,
substantially as an entirety, are transferred shall be a corporation organized
and existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
of the obligations of the Company under the Notes and Indenture; (ii)
immediately before and immediately after giving effect to such transaction, no
Event of Default and no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Consolidated Net Worth of the surviving entity is at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction;
and (iv) the surviving entity, after giving pro forma effect to such
transaction, could incur $1.00 of additional Indebtedness pursuant to the
covenants set forth in "Limitation on Additional Indebtedness" above; provided
however that the transfer by the Company of all or substantially all of its
assets (as an entirety or substantially as an entirety in one transaction or a
series of related transactions) to one or more Wholly-owned Subsidiaries shall
not be subject to the provisions of this paragraph if each such Subsidiary (i)
is organized and existing under the laws of the United States or any State
thereof or the District of Columbia and (ii) complies with the covenants
described in "Subsidiary Guarantees" below.

Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing paragraph, the
successor corporation formed by such consolidation or into which the Company is
merged or to which such transfer is made, shall succeed to, and be substituted
for, and may exercise every right and power of the Company under the Indenture
with the same effect as if such successor corporation had been named as the
Company in the Indenture; and thereafter, the Company shall be discharged and
released from all obligations and covenants under the Indenture and the Notes.
(Section 5.01).

Subsidiary Guarantees. The Indenture provides that if (i) the Company or any
Subsidiary of the Company that is a Subsidiary Guarantor transfers or causes to
be transferred, in one transaction or a series

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of related transactions, property or assets (including, without limitation,
businesses, divisions, real property, assets or equipment) which in the
aggregate have a book value equal to or greater than 15% of the book value of
the Company's total assets determined on a consolidated basis as of the time of
termination to any Subsidiary or Subsidiaries of the Company that is not a
Subsidiary Guarantor, other than in connection with a Real Estate Financing, or
(ii) any Subsidiary of the Company Guarantees or otherwise becomes obligated
with respect to any Indebtedness, other than Real Estate Financing, the Company
shall cause such Subsidiary or Subsidiaries to (A) execute and deliver to the
Trustee a supplemental indenture in form and substance reasonably satisfactory
to the Trustee pursuant to which such Subsidiary or Subsidiaries shall
unconditionally guarantee all of the Company's Obligations under the Indenture
and the Notes on the terms set forth in such supplemental indenture, which
Guarantee shall be subordinate to any Guarantee granted by such Subsidiary
Guarantor in respect of Senior Indebtedness of the Company or Indebtedness of
the Subsidiary or Subsidiaries, and (B) deliver to the Trustee (x) an Opinion
of Counsel reasonably satisfactory to the Trustee that such supplemental
indenture has been duly executed and delivered by such Subsidiary Guarantor or
Subsidiary Guarantors and (y) an opinion from a nationally recognized appraisal
firm, in form and substance reasonably satisfactory to the Trustee, stating
that after giving effect to such Guarantee, the Subsidiary Guarantor or
Subsidiary Guarantors is or are solvent, as the case may be. The form of
Guarantee required to be disclosed is attached as an exhibit to the Indenture.
(Section 4.14).

Under the terms of the Senior Notes, the Company would, in certain
circumstances, be required to obtain the consent of the requisite percentage of
the holders of the Senior Notes in order to cause any Subsidiary to guaranty
indebtedness of the Company.

The Guarantee by a Subsidiary Guarantor may be subject to avoidance by a
bankruptcy trustee or debtor in possession as a fraudulent conveyance under
Title 11 of the United States Code (the "Bankruptcy Code") or applicable state
fraudulent conveyance statutes or by a creditor of a Subsidiary Guarantor under
applicable state fraudulent conveyance statutes. In the event that such
Subsidiary Guarantor becomes a debtor under the Bankruptcy Code within one year
of the delivery of the Guarantee and was insolvent, rendered insolvent or left
with unreasonably small working capital, a court may void the Guarantee as a
fraudulent conveyance if the court finds that the Subsidiary Guarantor received
less than reasonably equivalent value in exchange for the Guarantee. Even if
there is no proceeding commenced under the Bankruptcy Code or if the Subsidiary
Guarantor is insolvent, rendered insolvent or left with unreasonably small
working capital at the time the Guarantee is delivered or as a result thereof,
a court may, at the request of a creditor of the Subsidiary Guarantor, void the
Guarantee as a fraudulent conveyance if the court finds that the Subsidiary
Guarantor received less than reasonably equivalent value in exchange for the
Guarantee. In either event, a court may set aside the Guarantee and order the
recovery of any payments made by the Subsidiary Guarantor during the applicable
statutory period--one year under the Bankruptcy Code and varying periods under
state law depending upon which state's law applies. The statute of limitations
applicable to fraudulent conveyance statutes are as long as six years in some
states.

Generally, under the definition provided in the Bankruptcy Code, the
Subsidiary Guarantor would be considered insolvent if the sum of the Subsidiary
Guarantor's debts, including contingent liabilities, was greater than the value
of its assets at a fair valuation. State fraudulent conveyance statutes differ
but generally define insolvent to mean the fair saleable value of assets being
less than probable liabilities. The Bankruptcy Code and state fraudulent
conveyance statutes do not define what constitutes inadequate working capital.
Generally, courts have found companies to have inadequate working capital if
the company has insufficient current assets with which to satisfy current
liabilities as they mature in the ordinary course.

Payments for Consent. Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or agreed to be paid to all holders of the Notes who so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement. (Section 4.20).

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Provision of Reports and Other Information. The Indenture provides that at
all times while any Note is outstanding, the Company will file with the
Commission, whether or not then obligated to do so, all such reports and other
information as would be required by Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended. Within fifteen days after the same are filed
with the Commission in definitive form, the Company will file with the Trustee
and supply to each holder of the Notes, without cost, copies of such reports
(without exhibits) or other information.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will provide that each of the following constitutes an Event of
Default: (i) default for 30 days in payment of interest on the Notes; (ii)
default in payment when due of principal of or premium, if any, on the notes,
whether at maturity, or upon acceleration, redemption or otherwise; (iii)
failure by the Company to comply in any respect with any of its other covenants
or agreements in the Indenture or the Notes and such Default continues for 45
days after receipt of a written notice from the Trustee or holders of at least
25% of the aggregate principal amount of the Notes then outstanding, specifying
such Default and requiring that it be remedied; (iv) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness is now
existing or hereafter created, and either (A) such default is in the payment of
any principal of or interest on any such Indebtedness when due at maturity and
the principal amount of such Indebtedness exceeds $10 million in the aggregate
and such Indebtedness does not constitute Real Estate Financing that is
guaranteed by or with recourse to the Company or any of its other Subsidiaries
and, as a result of such default, Indebtedness of the Company or its
Subsidiaries (other than such Real Estate Financing) aggregating $10 million or
more is accelerated, or (B) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its express maturity and the
principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness (in each case other than Real Estate Financing that
is not guaranteed by or with recourse to the Company or any of the
Subsidiaries) the maturity of which has been accelerated, aggregates $10
million or more; (v) failure by the Company or any Subsidiary to pay certain
final judgments aggregating in excess of $10 million and either (A) enforcement
proceedings have been commenced upon such judgments or (B) such judgments are
not stayed within 60 days after their entry; (vi) certain events of bankruptcy,
insolvency or reorganization with respect to the Company or one or more of its
Subsidiaries that individually or when considered as one entity would
constitute a Significant Subsidiary. (Section 6.01).

If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each holder of the Notes notice of the Event
of Default within 90 days after it becomes known to the Trustee, unless such
Event of Default has been cured or waived. Except in the case of an Event of
Default in the payment of principal of, premium, if any, or interest on any
Note, the Trustee may withhold the notice if and so long as a committee of
officers of the Trustee in good faith determines that withholding the notice is
in the interest of the holders of the Notes.

If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee
or the holders of at least 25% of the principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such
notice is given by such holders) (the "Acceleration Notice"), may, and such
Trustee at the request of such holders shall, declare all unpaid principal of,
premium, if any, and accrued interest on such Notes to be due and payable, (i)
immediately if no amount is outstanding and no commitment is in effect under
the Specified Senior Indebtedness or (ii) if any amount is outstanding or there
exists any commitment under the Specified Senior Indebtedness, upon the earlier
of five business days after delivery of the Acceleration Notice to the Company
by the Trustee or the holders, as the case may be, or acceleration of the
Specified Senior Indebtedness, and thereupon the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of the
Notes by appropriate judicial proceedings. Upon a declaration of acceleration,
such principal, premium, if any, and accrued interest shall be due and payable.
If an Event of Default resulting from certain events of

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bankruptcy, insolvency or reorganization occurs, all unpaid principal of,
premium, if any, and accrued interest on the Notes only then outstanding shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder. The holders of at least a
majority in principal amount of the Notes by notice to the Trustee may rescind
an acceleration and its consequences, except an acceleration due to default in
payment of principal or interest on the Notes only upon conditions provided in
the Indenture. A holder of Notes may not pursue any remedy with respect to the
Indenture or the Notes unless: (i) the holder gives to the Trustee written
notice of a continuing Event of Default; (ii) the holders of at least 25% in
principal amount of such Notes outstanding make a written request to the
Trustee to pursue the remedy; (iii) such holder or holders offer to the Trustee
indemnity or security satisfactory to the Trustee against any loss, liability
or expense; (iv) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer of indemnity or security; and (v)
during such 30-day period the holders of a majority in principal amount of the
outstanding Notes do not give the Trustee a direction which is inconsistent
with the request. (Section 6.02).

The Company is required to deliver to the Trustee annually a certificate (a)
as to its compliance with the Indenture, (b) as to its knowledge of the
existence of any Default or Event of Default and (c) setting forth each
Restricted Payment made by the Company or any of its Subsidiaries during the
year (other than Restricted Payments made to purchase Marketable Securities
that do not constitute Permitted Investments but that are liquidated for cash
within 90 days of the date of such Investment in an amount at least equal to
the initial purchase price of such Investment), stating that each such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the Limitation on Restricted Payments covenants were
computed.

DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES

If the Company irrevocably deposits, or causes to be deposited with the
Trustee or the Paying Agent, at any time prior to the stated maturity of the
Notes or the date of redemption of all the outstanding Notes, as trust funds in
trust, money or direct noncallable obligations of or guaranteed by the United
States of America in amounts (including interest, but without consideration of
any reinvestment of such interest) and maturities sufficient to pay timely and
discharge the entire principal and premium, if any, of the then outstanding
Notes and all interest then due in cash, the Indenture shall cease to be of
further effect as to all outstanding Notes (except, among other things, as to
(i) remaining rights of registration of transfer and substitution and exchange
of the Notes, (ii) rights of holders to receive payment of principal, premium,
if any, and interest on the Notes, and (iii) the rights, obligations and
immunities of the Trustee). (Section 8.01).

TRANSFER AND EXCHANGE

A holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar is not required to transfer or
exchange any Note selected for redemption. Also, the Registrar is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.

The registered holder of a Note will be treated as the owner of it for all
purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived (other than a continuing
Default or Event of Default in the payment of principal, premium, if any, or
interest on any Note) with the consent of the holders of a majority in
principal amount of the then outstanding Notes.

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Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (i) reduce
the percentage of principal amount of the Notes whose holders must consent to
an amendment or waiver, (ii) change the fixed maturity of the principal,
premium, if any, or any interest on, any Note or alter the redemption
provisions with respect thereto, (iii) make any change in the subordination
provisions of the Indenture that adversely affects the rights of any holders of
the Notes or any change to any other section of the Indenture that adversely
affects the rights of any holder of the Notes under the subordination
provisions of the Indenture, (iv) waive a default in the payment of the
principal, premium, if any, or interest on, any Note, (v) make any change to
the "Repurchase Upon Change of Control" covenant in the Indenture or (vi) make
any change in the foregoing. (Section 9.02).

Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make any change that does not
adversely affect the rights of any holder of the Notes or to comply with any
requirement of the Commission in connection with the qualification of the
Trustee under the Trust Indenture Act. (Section 9.01).

CONCERNING THE TRUSTEE

The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect to any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, or apply to the Commission for
permission to continue or resign.

The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes, unless they shall have
offered to the Trustee security or indemnity satisfactory to it against any
loss, liability or expense.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

Under the Internal Revenue Code of 1986, as amended (the "Code"), a holder of
Notes may be subject, under certain circumstances, to "backup withholding" at a
31% rate with respect to cash payments in respect of payments of interest or
gross proceeds. This withholding generally applies only if the holder (i) fails
to furnish the social security or other taxpayer identification number ("TIN")
within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service (the
"Service") that it has failed to report properly interest or dividends, or (iv)
fails, under certain circumstances, to provide a certified statement signed
under penalty of perjury, that the TIN provided is the holder's correct number
and that the holder is not subject to backup withholding. Any amount withheld
from a payment to a holder under the backup withholding rules is allowable as a
credit against such holder's federal income tax liability, provided that the
required information is furnished to the Service. Corporations and certain
other entities described in the Code and treasury regulations promulgated
thereunder are exempt from such withholding if their exempt status is properly
established. Holders of Notes should consult their tax advisors as to their
qualification for exemption from withholding and the procedure for obtaining
such exemption.

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THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH RECIPIENT HEREOF SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.

CERTAIN DEFINITIONS

Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another Person if the controlling Person (a)
possesses, directly or indirectly, the power to direct or cause the direction
of the management or policies, of the controlled Person, whether through
ownership of voting securities, by agreement or otherwise, or (b) owns,
directly or indirectly, 10% or more of any class of Voting Stock of the
controlled Person.

"Asset Sale" means, with respect to any Person, (i) the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-and-leaseback transaction and including the sale or
other transfer of any of the Capital Stock of any Subsidiary of such Person) or
(ii) the issuance, sale, conveyance, disposition or other transfer by such
Person of any Capital Stock of such Person or any Subsidiary of such Person or
a Subsidiary of any such Subsidiary; provided, however, that notwithstanding
the foregoing, the term "Asset Sale" shall not include (A) the sale, lease,
conveyance, disposition or other transfer of any inventory in the ordinary
course of business, (B) the issuance by the Company of shares of its Capital
Stock, (C) the sale of a Permitted Investment (other than a Permitted
Investment under clause (vii) of such definition), (D) the assignment or
sublease of a lease (where the Person or its Subsidiary is the lessee) or the
execution of a new lease (where the Person or its Subsidiary is the lessor) in
connection with the closing down of any retail warehouse of such Person or
Subsidiary, (E) the sale, lease, conveyance, disposition or other transfer of
any asset in connection with the restructuring plan implemented by the Company
prior to the date of this Indenture, (F) the sale, lease, conveyance or other
transfer of assets by the Company to any Wholly-owned Subsidiary or by any
Wholly-owned Subsidiary of the Company to the Company or any other Wholly-owned
Subsidiary of the Company, or (G) the liquidation or sale for cash of
Marketable Securities.

"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such debt security of all unconditional (other than as to the giving of notice)
extension option of each such scheduled payment date) of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.

"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease which would
at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.

"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock (including common
and preferred stock) or partnership interests.

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States banks having total assets in excess of $10,000,000,000 United States
dollars and which are rated not less than (A) "A 1" if such deposits or
acceptances mature over a year from the date made or created, or (B) "A 2" if
such deposits or acceptances mature within one year of the date made or
created, in each case as rated by Standard and Poor's Corporation; (v)
securities commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of America or any
state thereof that at the time of purchase have been rated and the ratings for
which are not less than "P 2" as rated by Moody's Investors Services, Inc. and
not less than "A 2" as rated by Standard and Poor's Corporation; (vi)
investments in tax-free government securities rated "A" or better as rated by
Standard and Poor's Corporation and government securities mutual funds which
have a weighted average life of less than two (2) years; (vii) investments in
repurchase agreements relating to a security which is rated "A" or better as
rated by Standard and Poor's Corporation that mature within two (2) years from
the date the Investment is made by the Company or any of its Subsidiaries;
(viii) Investments in corporate securities rated "A" or better as rated by
Standard and Poor's Corporation that mature within two (2) years from the date
the Investment is made by the Company or any of its Subsidiaries; and (ix)
indebtedness for borrowed money assumed by the purchaser in connection with any
Asset Sale provided that neither the Company nor any of its Subsidiaries has
any further liability in respect of such Indebtedness; provided, that when any
non-Cash proceeds are liquefied, such proceeds will be deemed to be Cash at
that time.

"Consolidated Interest Coverage Ratio" means the ratio of (i) the sum of (a)
Consolidated Net Income, (b) Consolidated Interest Expense, (c) Consolidated
Tax Expense, (d) depreciation, (e) any expense recognized in respect of step
rentals (or minus any income recognized in respect of step rentals), and (f)
without duplication, all amortization, in each case, for such period, of the
Company and its Subsidiaries on a consolidated basis, all as determined in
accordance with GAAP, to (ii) the sum of (a) Consolidated Interest Expense plus
(b) all dividends for such period in respect of Redeemable Stock issued by a
Subsidiary of the Company, plus (c) the product of (x) the amount of all
dividends paid or accrued on any series of preferred stock issued by a
Subsidiary of the Company times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the effective combined consolidated
federal, state and local tax rate of such Subsidiary, expressed as a decimal;
provided, that in calculating Consolidated Interest Expense on a pro forma
basis, any Indebtedness bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period.

"Consolidated Interest Expense" means for any period the aggregate amount of
interest in respect of Indebtedness (including all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and the net cost (benefit) associated with Interest Rate
Agreements, and excluding amortization of deferred finance fees and interest
recorded as accretion in the carrying value of liabilities (other than
Indebtedness) recorded at a discounted value) and all but the principal
component of rentals in respect of Capital Lease Obligations, paid, accrued or
scheduled to be paid or accrued by the Company and its Subsidiaries during such
period (without duplication), other than fees, commissions and expenses
associated with the Notes, the Senior Notes, the Credit Agreement and the
Convertible Subordinated Debentures, and excluding amortization of original
issue discount and other non-cash charges incurred on or prior to the date of
the initial issuance of the Notes or incurred as a result of the application of
the net proceeds from the sale of the Notes offered hereby.

49
<PAGE>

distributed by such Subsidiary during such period to the Company or another
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Subsidiary, to the limitation
contained in this clause (v)) and (B) the Company's equity in a net loss of any
such Subsidiary for such period shall be included in determining such
Consolidated Net Income; (vi) the Net Income of any Subsidiary to the extent
such Net Income has any restrictions or encumbrances on making distributions to
the Company; (vii) the income or loss of any Person (not acquired in a pooling
of interest transaction) accrued prior to the date it becomes a Subsidiary of
the Company or any of its Subsidiaries or is merged into a consolidation with
the Company or any of its Subsidiaries or that Person's assets are acquired by
the Company or any of its Subsidiaries; (viii) non-cash charges in connection
with the issuance of Equity Interests of the Company to employees of the
Company as compensation; (ix) the effect of non-cash charges incurred prior to
the date of the Indenture in connection with the sale, discontinuance,
disposition or rationalization of the Company's operations; and (x) income
attributable to the reversal of non-cash charges previously excluded pursuant
to clause (ix) of this definition.

"Consolidated Net Worth" means, with respect to any Person, as of any date,
the amount which, in accordance with GAAP, would be set forth under the caption
"Stockholders' Equity" (or any like caption) on the consolidated balance sheet
of such Person and its Subsidiaries, less amounts attributable to Redeemable
Stock of such Person and preferred stock of any of its Subsidiaries.

"Consolidated Tax Expense" of the Company means, for any period, the
aggregate of the federal, state, local and foreign income tax expense (net of
benefits) of the Company and its consolidated Subsidiaries for such period,
determined in accordance with GAAP.

"Convertible Subordinated Debentures" means the 6.5% Convertible Subordinated
Debentures due 2002 issued by the Company under the Indenture dated as of July
1, 1992, between the Company and Continental Bank, N.A., as trustee.

"Credit Agreement" means the Company's Credit Agreement dated as of July 8,
1993, as amended on November 15, 1993, by and among the Company, Bank of
America, N.T.S.A., The First National Bank of Boston, Continental Bank, N.A.
and The First National Bank of Chicago.

"Credit Facility" means the Credit Agreement and the Letter of Credit
Agreement and any extension, renewal, replacement or substitute thereof or any
subsequent or additional credit facility.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Equity Interests" means Capital Stock, warrants, options or other rights to
acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).

"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture.

"Existing Investments" means Investments existing on the date of the
Indenture.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination; provided, however, that these definitions and all ratios and
calculations contained in the covenants in the Indenture shall be determined in
accordance with GAAP as in effect and applied by the Company on the date of the
Indenture, consistently applied.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.

"Indebtedness" means, without duplication, (a) any liability of any person,
if and to the extent it would appear as a liability upon a balance sheet of
such person prepared on a consolidated basis in accordance with

50
<PAGE>

GAAP, (1) for borrowed money, (2) evidenced by a bond, note, debenture or
similar instrument (including a purchase money obligation) given in connection
with the acquisition of any businesses, properties or assets of any kind) or
(3) in respect of Capital Lease Obligations (including by way of a sale-and-
leaseback transaction); (b) any liability of any person under any reimbursement
obligation relating to a letter of credit; (c) all Redeemable Stock valued at
the greater of its voluntary or involuntary liquidation preference plus accrued
and unpaid dividends; (d) preferred stock of any Subsidiary of the Company
(other than preferred stock held by the Company or any of its Wholly-owned
Subsidiaries); (e) obligations with respect to Interest Rate Agreements; (f)
any liability of others described in the preceding clauses (a), (b), (c), (d)
and (e) that the person has guaranteed or with respect to which it is otherwise
contingently liable; and (g) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred to in
clauses (a), (b), (c), (d), (e) and (f) above. Notwithstanding anything to the
contrary in the foregoing, Indebtedness shall not include (x) any obligations
in respect of Operating Lease Obligations and (y) trade payables, accrued
liabilities for deferred taxes, insurance and similar items and current
liabilities for goods, materials or services purchased or for compensation to
employees, in each case arising in the ordinary course of business.

"Interest Rate Agreement" means the obligation of any Person pursuant to any
interest rate swap agreement, interest rate collar agreement, currency swap or
other similar agreement or arrangement designed to protect such Person or any
of its subsidiaries against fluctuations in interest rates or the value of
currencies.

"Investment" means any direct or indirect advance, loan or other extension of
credit or capital contribution to (by means of a transfer of cash or other
property to others or a payment for property or services for the account or use
of others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities issued by any other Person. Notwithstanding
anything to the contrary in the foregoing, Investment shall not include (a)
advances to customers or vendors in the ordinary course of business, which are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries and other than advances or loans to officers and employees of the
Company or any of its Subsidiaries up to $5 million in the aggregate
outstanding at any one time, (b) loans and advances to developers of real
estate upon which the Company's or any of its Wholly-owned Subsidiary's
warehouse merchandising stores are located provided that the aggregate amount
of all such loans and advances does not exceed $25,000,000 at any one time
outstanding, (c) obligations (direct, contingent or otherwise) incurred by the
Company to purchase real estate upon which the Company's or any of its Wholly-
owned Subsidiary's warehouse merchandising stores are located, and (d) any
obligations in respect of Operating Lease Obligations.

"Letter of Credit Agreement" means the Company's letter of credit facility
between the Company and Bank of America, N.T.S.A.

"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give any security interest in any filing or other agreement to give any
financing statement (other than any filing or financing statement given in
connection with a Capital Lease Obligation in the ordinary course of business)
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction
and including a sale-and-leaseback transaction).

"Marketable Securities" means securities that are rated investment grade by a
nationally recognized rating agency such as Standard and Poor's Corporation or
Moody's Investor Services, Inc. or securities for which a trading market exists
on a nationally registered securities exchange or pursuant to the Nasdaq Stock
Market and such securities are registered under the Securities Act of 1933, as
amended, for sale by the Person who owns such securities or are exempt from
registration in connection with any proposed sale by such Person.

51
<PAGE>

limitation, legal, accounting and investment banking fees and sale commissions)
and any relocation expenses and severance and shutdown costs incurred as a
result thereof, taxes paid or payable as a result thereof, amounts required to
be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets which are the subject of such Asset Sale and any reasonable reserve in
accordance with GAAP for adjustment in respect of the sale price of such asset
or assets.

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"Operating Lease Obligation" means at the time any determination thereof is
to be made, the amount of the liability in respect of an operating lease which
would at such time be so required to be classified as such in accordance with
GAAP.

"Permitted Indebtedness" means (i) Indebtedness under the Credit Facility
(provided that Indebtedness under the Credit Facility, including unused
commitments, shall not at any time exceed $150 million in aggregate outstanding
principal amount (including the available undrawn amount of any letters of
credit issued under the Credit Facility)); (ii) Existing Indebtedness; (iii)
Indebtedness represented by the Notes; (iv) Indebtedness created, incurred,
issued, assumed or guaranteed in exchange for or the proceeds of which are used
to extend, refinance, renew, replace, substitute or refund Indebtedness
referred to in clauses (i), (ii) and (iii) above (the "Refinancing
Indebtedness"); provided, however, that (A) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount of Indebtedness
(including unused commitments) so extended, refinanced, renewed, replaced,
substituted or refunded, (B) such Indebtedness ranks in right of payment to the
Notes at least to the same extent as the Indebtedness so extended, refinanced,
renewed, replaced, substituted or refunded, (C) with respect to Refinancing
Indebtedness incurred pursuant to this clause, the Refinancing Indebtedness
shall have an Average Life and Stated Maturity equal to or greater than the
Average Life and Stated Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, substituted or refunded, and (D) a Subsidiary
shall not incur Refinancing Indebtedness to extend, refinance, renew, replace,
substitute or refund Indebtedness of the Company or another Subsidiary; (v)
intercompany Indebtedness permitted by the covenants set forth in "Limitation
on Restricted Payments" above; (vi) Interest Rate Agreements entered into in
the ordinary course of business; (vii) obligations in connection with the
construction or acquisition of retail warehouses in the ordinary course of
business in an aggregate amount not exceeding $30 million, and such additional
obligations as would not appear as a liability upon a balance sheet prepared in
accordance with GAAP; (viii) letters of credit and bankers' acceptances for the
purchase of merchandise and guarantees of obligations of suppliers, licensees,
and franchises, in either event in the ordinary course of business, and in the
aggregate in an amount not exceeding 10% of the aggregate book value of the
inventories held by the Company and its Subsidiaries (measured at the time of
such issuance); (ix) letters of credit securing workers' compensation and self-
insurance obligations of the Company in the ordinary course of business; and
(x) Indebtedness not otherwise permitted in an aggregate principal amount which
shall not exceed $50 million.

52
<PAGE>

repurchase agreements relating to a security which is rated "A" or better as
rated by Standard and Poor's Corporation that mature within two (2) years from
the date the Investment is made by the Company or any of its Subsidiaries; (vi)
Investments in corporate securities rated "A" or better as rated by Standard
and Poor's Corporation that mature within two (2) years from the date the
Investment is made by the Company or any of its Subsidiaries; (vii) Investments
in Persons which, after giving effect to the Investment, are Wholly-owned
Subsidiaries of the Company or any of its Subsidiaries and which are engaged in
businesses directly related to the business of the Company and its
Subsidiaries, and Investments consisting of assets which, after giving effect
to the Investment, are used by the Company or any of its Subsidiaries in such
businesses; and (viii) Existing Investments.

"Permitted Liens" means (a) Liens securing Senior Debt of the Company or
Indebtedness of any Subsidiary that is permitted by the Indenture to be
incurred; (b) Liens in favor of the Company; (c) Liens on property of a person
existing or created at the time such person is merged into or consolidated with
the Company or any Subsidiary of the Company; (d) Liens on property existing or
created at the time of acquisition thereof by the Company or any Subsidiary of
the Company; (e) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (f) Liens existing on the date of
the Indenture; (g) Liens for taxes, assessments or governmental charges or
claims or mechanics', suppliers', materialmen's, repairmen's, or other like
Liens arising in the ordinary course of business, in either case, that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (h) Liens incurred in the ordinary course
of business of the Company or any Subsidiary of the Company that are not
incurred in connection with the borrowing of money or the obtaining of advances
or credits (other than trade credit in the ordinary course of business); (i)
Liens securing Indebtedness created, incurred, issued, assumed or guaranteed in
exchange for or the proceeds of which are used to extend, refinance, renew,
replace, substitute or refund Indebtedness secured by a Permitted Lien; and (j)
Liens securing Indebtedness that is pari passu with the Notes so long as at the
time such Liens are granted the Notes are equally and ratably secured.

"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.

"Real Estate Financing" means Indebtedness incurred by a Subsidiary that is
secured by real estate owned by such Subsidiary which at the time the
Indebtedness is incurred has an appraised value (as determined by a nationally-
recognized independent real estate appraiser who is qualified to make
appraisals of such real estate) equal to or greater than the aggregate
principal amount of such Indebtedness.

"Redeemable Stock" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the Notes), or upon the happening of
any event, matures or is mandatorily redeemable, in whole or in part, prior to
the stated maturity of the Notes.

53
<PAGE>

charges payable on or in respect of such Indebtedness)), (ii) the Company's
9.58% Notes due 1998 (together with all interest (including, without
limitation, post-petition interest whether or not allowed as a claim in any
bankruptcy, reorganization, insolvency, receivership or similar proceeding),
premium, if any, fees, reasonable expenses, indemnities, and charges payable on
or in respect of such Indebtedness)), (iii) Existing Indebtedness, and (iv)
Refinancing Indebtedness. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (a) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (b) any Indebtedness
incurred after the date of the Indenture that is contractually subordinated in
right of payment to any Senior Indebtedness, (c) trade payables and current
liabilities for goods, materials or services purchased or for compensation to
employees, in each case arising in the ordinary course of business, (d) any
Indebtedness in respect of Capital Lease Obligations, unless such Indebtedness
expressly provides that it shall be senior or superior in right of payment to
the Notes, and (e) any obligations in respect of Operating Lease Obligations.
Notwithstanding anything to the contrary in the Indenture or the Notes, the
Indebtedness represented by the Notes shall be superior in right of payment to,
and Senior Indebtedness shall not include, any Indebtedness represented by the
Company's 6.5% convertible subordinated debentures due 2002.

"Senior Notes" means the Company's 9.58% Notes due May 31, 1998 issued
pursuant to separate Note Purchase Agreements dated as of June 15, 1991 between
the Company and, respectively, the purchasers named in Amex I thereto, as the
same may be amended, modified or restated from time to time.

"Significant Subsidiary" shall have the meaning set forth for such term in
Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended.

"Specified Senior Indebtedness" means Indebtedness under (i) the Credit
Facility, (ii) the Senior Notes and (iii) any other Senior Indebtedness of the
Company, the then outstanding principal amount of which exceeds $20 million.

"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision.

"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of other
Subsidiaries of that Person or a combination thereof.

"Subsidiary Guarantee" means each Guarantee by any Subsidiary Guarantor of
the Company's Obligations under the Indenture and the Notes required to be
given pursuant to the covenant entitled "Subsidiary Guarantees."

"Subsidiary Guarantor" means any Subsidiary that is required to execute a
Subsidiary Guarantee in accordance with the provisions of the covenant entitled
"Subsidiary Guarantees," and its successors and assigns.

"Voting Stock" means any class or classes of Equity Interests pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not at the time stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).

"Wholly-owned Subsidiary" of any Person means any Subsidiary of such Person
to the extent the entire voting share capital of such Subsidiary is owned by
such Person (either directly or indirectly through Wholly-owned Subsidiaries).

54
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summaries describe the principal terms of the Credit Agreement,
the Senior Notes, and the Convertible Debentures. These summaries, however, do
not purport to be complete and are subject to the detailed provisions of, and
qualified in their entirety by reference to, the Credit Agreement, the Note
Purchase Agreement dated as of June 15, 1991, as amended, governing the Senior
Notes (the "Senior Notes Agreement") and the Convertible Debentures Indenture,
copies of which will be made available to prospective purchasers of the Notes
upon request. Capitalized terms used in each of the following sections without
definitions shall have the meanings assigned thereto in the various agreements
to which they refer.

THE CREDIT AGREEMENT

In November 1993, the Company entered into an amended Credit Agreement with
several banks (the "Credit Agreement") providing for a credit facility expiring
on January 28, 1995 with a maximum availability of $80 million, which may be
increased to $125 million by the addition of banks. The Company's previous
credit agreement with the same banks provided for a $100 million facility
(which was also subject to increase to $125 million) and had an expiration date
of June 30, 1996. Interest under the Credit Agreement is payable on the
outstanding balance, at the Company's option, (a) at the banks' average Base
Rates or (b) at rates applicable to certain dollar deposits in the interbank
Eurodollar market plus 1%. A facility fee equal to 0.5% per annum is payable on
the amount of the facility. Borrowings under the Credit Agreement are unsecured
and will constitute Senior Indebtedness under the Indenture.

Covenants contained in the Credit Agreement limit the Company's ability to,
among other things: (i) incur debt, (ii) incur liens, (iii) incur real estate
expenditures, (iv) make investments, (v) pay dividends or make other
distributions on or redemption of its capital stock, (vi) make capital
expenditures, (vii) prepay or repay the Notes or other subordinated
indebtedness, and (viii) consolidate, merge, or dispose of assets. The Credit
Agreement also contains several financial covenants, including minimum required
tangible net worth, liabilities to tangible net worth ratios, working capital
requirements, fixed charge coverage ratios, permitted rental expenses, and
permitted real estate expenditures.

THE SENIOR NOTES

The Senior Notes are outstanding in $60 million principal amount, bear
interest at the rate of 9.58% per annum, and mature on May 31, 1998, with
annual scheduled principal prepayments at par of $12 million each on May 31 of
the years 1994 through 1998. The Senior Notes may be prepaid by the Company at
any time at par plus a Make-Whole Amount and accrued interest. Upon a Change in
Control (as defined in the indenture governing the Senior Notes), each holder
of Senior Notes may require the Company to prepay such holder's Senior Notes at
par plus a Make-Whole Amount or Adjusted Make-Whole Amount plus accrued
interest. The Senior Notes are unsecured and will constitute Senior
Indebtedness under the Indenture.

The Senior Notes Agreement contains covenants limiting the Company's ability
to, among other things, (i) incur debt, (ii) incur liens, (iii) change its
present business, (iv) make investments, (v) pay dividends or make other
distributions on or redemption of its capital stock or prepay subordinated debt
(which would include the Notes), (vi) incur lease obligations, and (vii)
consolidate, merge, or dispose of assets, including shares of subsidiaries. The
Senior Notes also contain several financial covenants, including minimum
required tangible net worth, working capital requirements, fixed charge
coverage ratios and a Current Debt cleanup requirement. The Company and holders
of the Senior Notes have agreed, in connection with this offering, to amend
certain covenants set forth in the Senior Notes Agreement so that they conform
to similar convenants set forth in the Indenture.

CONVERTIBLE DEBENTURES

As of January 29, 1994, the Company had $108,600,000 principal amount
outstanding of 6 1/2% Convertible Subordinated Debentures due 2002 (the
"Convertible Debentures"). The Convertible Debentures are convertible into
shares of Common Stock of the Company at $24.75 per share, which is subject to

55
<PAGE>

adjustment under certain conditions. Commencing July 15, 1995, the Convertible
Debentures are redeemable at the option of the Company as a whole or from time
to time in part, at 104.333% of par value (plus accrued interest), declining to
100% on July 1, 2001. The Convertible Debentures will be junior to the Notes,
but mature prior to the Notes.

Upon a Change of Control, each holder of the Convertible Debentures may
require the Company to repurchase such holder's Convertible Debentures at par
plus accrued interest. The Convertible Debentures Indenture contains no other
financial covenants.

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to the Underwriter, and the Underwriter has
agreed to purchase from the Company, all of the Notes.

The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to approval of certain legal matters by counsel and
various other conditions. The nature of the obligations of the Underwriter is
such that it is committed to purchase all of the Notes if any are purchased.

The Underwriter has advised the Company that it proposes to offer the Notes
directly to the public initially at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of % of the principal amount of the Notes, and that
the Underwriter may allow, and those dealers may reallow, to certain other
dealers a further concession not in excess of % of the principal amount of the
Notes. After the initial offering, the price to the public and selling
concessions may be changed by the Underwriter.

During the period of 90 days following the date of this Prospectus, the
Company will not, without the consent of the Underwriter, directly or
indirectly, issue, sell, offer or agree to sell, or otherwise dispose of any
debt or redeemable equity (other than for other nonredeemable equity
securities) securities (or any securities convertible into, exercisable for or
exchangeable for any such securities) other than the Notes.

The Notes are a new issue of securities with no established trading market.
The Notes will not be listed on any securities exchange nor will application be
made for their admission to trading in any automated quotation system. The
Company has been advised by the Underwriter that it intends to make a market in
the Notes but is not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.

The Company has agreed to indemnify the Underwriter against, and to provide
contribution with respect to, certain liabilities, including liabilities under
the Securities Act.

LEGAL MATTERS

The legality of the securities being offered hereby will be passed upon for
the Company by Hale and Dorr, Boston, Massachusetts. Certain legal matters in
connection with the offering will be passed upon for the Underwriter by Weil,
Gotshal & Manges (a partnership including professional corporations), New York,
New York.

EXPERTS

The consolidated balance sheets as of January 30, 1993 and January 25, 1992
and the consolidated statements of Income, Cash Flows and Stockholders' Equity,
included in this Prospectus have been audited by Coopers & Lybrand, independent
accountants, as indicated in their reports thereon appearing elsewhere herein
and in the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1993, and have been so included in reliance upon such reports and
the authority of said firm as experts in accounting and auditing.

56
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JANUARY 30,
1993, JANUARY 25, 1992 AND JANUARY 26, 1991
Report of Independent Accountants....................................... F-2
Consolidated Statements of Income for the fiscal years ended January 30,
1993, January 25, 1992, and January 26, 1991........................... F-3
Consolidated Balance Sheets as of January 30, 1993 and January 25, 1992. F-4
Consolidated Statements of Cash Flows for the fiscal years ended
January 30, 1993, January 25, 1992 and January 26, 1991................ F-5
Consolidated Statements of Stockholders' Equity for the fiscal years
ended
January 30, 1993, January 25, 1992 and January 26, 1991................ F-6
Notes to Consolidated Financial Statements.............................. F-7
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED
OCTOBER 30, 1993 AND OCTOBER 24, 1992 (UNAUDITED)
Consolidated Statements of Income for the thirty-nine weeks ended
October 30, 1993 and October 24, 1992.................................. F-16
Consolidated Balance Sheets as of October 30, 1993, January 30, 1993 and
October 24, 1992....................................................... F-17
Consolidated Statements of Cash Flows for the thirty-nine weeks ended
October 30, 1993 and October 24, 1992.................................. F-18
Notes to Consolidated Financial Statements.............................. F-19
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF WABAN INC.:

We have audited the accompanying consolidated balance sheets of Waban Inc.
and subsidiaries as of January 30, 1993 and January 25, 1992, and the related
consolidated statements of income, cash flows, and stockholders' equity for
each of the three fiscal years in the period ended January 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 Waban Inc. and
subsidiaries as of January 30, 1993 and January 25, 1992 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 30, 1993 in conformity with generally
accepted accounting principles.

Coopers & Lybrand

Boston, Massachusetts
March 2, 1993

F-2
<PAGE>

WABAN INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
------------- ------------- -------------
(53 WEEKS)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales......................... $ 3,357,794 $ 2,783,585 $ 2,409,726
------------- ------------- -------------
Cost of sales, including buying
and occupancy costs............... 2,881,334 2,399,765 2,076,372
Selling, general and 401,905 322,705 288,377
administrative expenses...........
Cost of closing BJ's clubs in -- 5,500 --
Chicago...........................
Discontinuation of HomeClub name -- 3,400 8,800
and membership program...........
Interest on debt and capital 6,280 3,292 5,491
leases (net)......................
------------- ------------- -------------
Total expenses.................... 3,289,519 2,734,662 2,379,040
------------- ------------- -------------
Income before income taxes........ 68,275 48,923 30,686
Provision for income taxes........ 24,033 18,914 12,274
------------- ------------- -------------
Net income........................ $ 44,242 $ 30,009 $ 18,412
============= ============= =============
Net income per common share:
Primary.......................... $ 1.33 $ 1.01 $ 0.64
============= ============= =============
Fully diluted.................... $ 1.31 $ 1.01 $ 0.64
============= ============= =============
Number of common shares for
earnings per share computations:
Primary.......................... 33,191 29,807 28,598
Fully diluted.................... 35,707 29,810 28,689
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE>

WABAN INC.

CONSOLIDATED BALANCE SHEETS

JANUARY 30, 1993 AND JANUARY 25, 1992

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 25,
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 35,644 $ 46,357
Marketable securities................................. 16,872 70,106
Accounts receivable (net)............................. 41,405 29,825
Merchandise inventories............................... 525,002 396,297
Deferred income taxes................................. 10,013 7,888
Prepaid expenses...................................... 9,211 5,653
---------- --------
Total current assets................................. 638,147 556,126
---------- --------
Property at cost:
Land and buildings.................................... 182,446 84,974
Leasehold costs and improvements...................... 70,132 52,950
Furniture, fixtures and equipment..................... 183,235 137,511
---------- --------
435,813 275,435
Less accumulated depreciation and amortization........ 91,565 66,941
---------- --------
344,248 208,494
---------- --------
Property under capital leases.......................... 22,094 21,308
Less accumulated amortization......................... 7,032 5,351
---------- --------
15,062 15,957
---------- --------
Other assets........................................... 9,557 5,828
---------- --------
Total assets......................................... $1,007,014 $786,405
========== ========
LIABILITIES
Current liabilities:
Current installments of long-term debt................ $ 2,222 $ 2,051
Accounts payable...................................... 239,017 193,737
Accrued expenses and other current liabilities........ 105,991 86,460
Accrued federal and state income taxes................ 3,923 4,410
Obligations under capital leases due within one year.. 1,197 909
---------- --------
Total current liabilities............................ 352,350 287,567
---------- --------
Real estate financings, exclusive of current 5,889
installments........................................... 8,111
General corporate debt................................. 60,000 60,000
Subordinated debt...................................... 108,600 --
Obligations under capital leases, less portion due 18,141
within one year........................................ 18,663
Other noncurrent liabilities........................... 15,856 14,151
Deferred income taxes.................................. 9,568 9,268
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 190,000,000
shares,
issued and outstanding 33,004,536 and 32,733,632
shares................................................. 330 327
Additional paid-in capital............................. 321,252 317,532
Retained earnings...................................... 115,028 70,786
---------- --------
Total stockholders' equity........................... 436,610 388,645
---------- --------
Total liabilities and stockholders' equity........... $1,007,014 $786,405
========== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE>

WABAN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- ----------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 44,242 $ 30,009 $ 18,412
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization of 29,823 22,128 18,055
property...............................
Utilization of net operating loss
and investment
tax credit carryforwards........... -- 2,599 9,800
(Gain) loss on property disposals... (706) 23 1,196
Amortization of premium on 2,280 1,019 --
marketable securities..................
Other non-cash items, net........... 1,536 1,185 715
Increase (decrease) in cash due to
changes in:
Accounts receivable................ (11,580) (9,049) (8,452)
Merchandise inventories............ (128,705) (40,604) (26,533)
Prepaid expenses................... (3,558) (1,127) 484
Other assets, net.................. (1,160) (1,253) (1,086)
Accounts payable................... 45,280 28,503 (531)
Accrued expenses................... 18,611 9,324 18,203
Accrued income taxes............... (487) 78 4,372
Deferred income taxes.............. (1,825) (2,041) (4,885)
Other noncurrent liabilities....... 1,705 1,926 2,928
--------- --------- --------
Net cash provided by (used in) (4,544) 42,720 32,678
operating activities...................
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities..... (135,274) (96,533) --
Sale of marketable securities......... 186,600 25,491 --
Property additions.................... (164,928) (68,565) (35,831)
Property disposals.................... 2,658 1,440 3,699
--------- --------- --------
Net cash used in investing activities. (110,944) (138,167) (32,132)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net of
issuance
costs of $2,569 in FY 1993 and $496
in FY 1992............................. 106,031 59,504 --
Repayment of long-term debt........... (2,051) (2,767) (2,622)
Repayment of capital lease (1,020) (746) (545)
obligations............................
Proceeds from sale and issuance of 1,815 73,018 --
common stock...........................
--------- --------- --------
Net cash provided by (used in) 104,775 129,009 (3,167)
financing activities...................
--------- --------- --------
Net increase (decrease) in cash and (10,713) 33,562 (2,621)
cash equivalents.......................
Cash and cash equivalents at 46,357 12,795 15,416
beginning of year......................
--------- --------- --------
Cash and cash equivalents at end of $ 35,644 $ 46,357 $ 12,795
year...................................
========= ========= ========
Supplemental cash flow information:
Interest paid......................... $ 10,226 $ 6,282 $ 5,662
Income taxes paid..................... 26,345 18,569 2,941
Noncash financing and investing
activities:
Capital lease obligations............. 786 572 1,311
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>

WABAN INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
STOCK PAID-IN RETAINED STOCKHOLDERS'
PAR VALUE $.01 CAPITAL EARNINGS EQUITY
--------------- ---------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, January 27, 1990... $286 $242,615 $ 22,365 $265,266
Net income................. -- -- 18,412 18,412
Sale and issuance of common -- 507 -- 507
stock.......................
---- -------- -------- --------
Balance, January 26, 1991... 286 243,122 40,777 284,185
Net income................. -- -- 30,009 30,009
Sale and issuance of common 41 74,410 -- 74,451
stock.......................
---- -------- -------- --------
Balance, January 25, 1992... 327 317,532 70,786 388,645
Net income................. -- -- 44,242 44,242
Sale and issuance of common 3 3,720 -- 3,723
stock.......................
---- -------- -------- --------
Balance, January 30, 1993... $330 $321,252 $115,028 $436,610
==== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements of Waban Inc. (the "Company") include
the financial statements of all of the Company's subsidiaries, all of which are
wholly-owned.

Fiscal Year

The Company's fiscal year ends on the last Saturday in January. The fiscal
year ended January 30, 1993 included 53 weeks. The fiscal years ended January
25, 1992 and January 26, 1991 each included 52 weeks.

Cash Equivalents and Marketable Securities

The Company considers highly liquid investments with a maturity of three
months or less at time of purchase to be cash equivalents. Investments with
maturities exceeding three months are classified as marketable securities. At
January 30, 1993, marketable securities consisted of $10,111,000 of
collateralized mortgage obligations, which are backed by U.S. government
agencies, and $6,761,000 of municipal securities. These investments are stated
at the lower of amortized cost or market value. See Note I for further
information.

Merchandise Inventories

Inventories are stated at the lower of cost, determined under the average
cost method, or market.

Property Equipment

Buildings, furniture, fixtures and equipment are depreciated by use of the
straight-line method over the estimated useful lives of the assets. Leasehold
costs and improvements are amortized by use of the straight-line method over
the lease term or their estimated useful life, whichever is shorter.

Preopening Costs

Preopening costs are charged to operations within the fiscal year that a new
warehouse opens.

Membership Fees

Membership fees are included in revenue when received, but not before a
warehouse opens.

Interest on Debt and Capital Leases

Interest on debt and capital leases in the Statement of Income is presented
net of interest income and investment income of $4,743,000 in fiscal 1993,
$3,886,000 in fiscal 1992 and $87,000 in fiscal 1991.

Capitalized Interest

The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $2,441,000, $521,000 and $217,000 was
capitalized in fiscal 1993, 1992 and 1991, respectively.

F-7
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991
Net Income Per Common Share

Primary and fully diluted net income per common share is based on the
weighted average number of common and common equivalent shares and other
dilutive securities outstanding in each year.

Other

Certain amounts in prior years' financial statements have been reclassified
for comparative purposes.

A.LONG-TERM DEBT

At January 30, 1993 and January 25, 1992, long-term debt, exclusive of
current installments, consisted of the following:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 25,
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Real estate financings, interest at 8.19% to 9.25%,
maturing through March 1, 2003......................... $ 5,889 $ 8,111
======== =======
General Corporate Debt:
Senior notes, interest at 9.58%, maturing May 31, 1994
through May 31, 1998................................... $ 60,000 $60,000
======== =======
Subordinated Debt:
Convertible debentures, interest at 6.5%, maturing
July 1, 2002........................................... $108,600 $ --
======== =======
</TABLE>

The aggregate maturities of long-term debt outstanding at January 30, 1993
were as follows:

<TABLE>
<CAPTION>
REAL GENERAL
ESTATE CORPORATE SUBORDINATED
FISCAL YEARS ENDING JANUARY FINANCINGS DEBT DEBT TOTAL
- ---------------------------- ----------- --------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995............................... $1,814 $12,000 $ -- $ 13,814
1996............................... 1,344 12,000 -- 13,344
1997............................... 1,458 12,000 -- 13,458
1998............................... 810 12,000 -- 12,810
Later years........................ 463 12,000 108,600 121,063
------ ------- -------- --------
Total............................. $5,889 $60,000 $108,600 $174,489
====== ======= ======== ========
</TABLE>

As of January 30, 1993, real estate financings were collateralized by land
and buildings with a net book value of $24,042,000.

In June 1991, the Company issued $60 million principal amount of 9.58% senior
notes through a private placement. The notes are payable in five annual
installments of $12 million beginning May 31, 1994. In July 1992, the Company
issued $108.6 million of 6.5% convertible subordinated debentures due 2002. The
debentures are convertible into the Company's common stock at a conversion
price of $24.75 per share.

F-8
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

The senior note agreement contains covenants which, among other things,
include minimum working capital, net worth and fixed charge coverage
requirements and limit the payment of cash dividends on common stock. Under the
most restrictive requirement, cumulative cash dividends are limited to not more
than $10,000,000 plus 50% of adjusted net income after January 26, 1991 and 50%
of the cash proceeds from common stock sales of the Company after July 1, 1991,
reduced by any investments deemed to be restricted.

The Company has unsecured lines of credit that provide up to $40,000,000 of
short-term borrowings with interest payable at a rate no greater than prime.
There were no borrowings by the Company under its short-term lines in the
fiscal year ended January 30, 1993. In addition, the Company has a letter of
credit facilities of $35,000,000 to support the purchase of inventories, of
which $14,535,000 were outstanding at January 30, 1993. The Company does not
have any compensating balance requirements nor does it pay fees under these
arrangements.

B. COMMITMENTS

The Company is obligated under long-term leases for the rental of real estate
and fixtures and equipment, some of which meet the Statement of Financial
Accounting Standards (SFAS) No. 13 definition of capital leases. In addition,
the Company is generally required to pay insurance, real estate taxes and other
operating expenses and, in some cases, rentals based on a percentage of sales
or increases in the Consumer Price Index. The real estate leases range up to 45
years and have varying renewal options. The fixture and equipment leases range
up to 6 years.

Future minimum lease payments as of January 30, 1993 were:

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING JANUARY LEASES LEASES
- ---------------------------- ------- ----------
(IN THOUSANDS)
<S> <C> <C>
1994......................................................... $ 3,763 $ 90,828
1995......................................................... 3,671 95,796
1996......................................................... 3,328 96,035
1997......................................................... 3,083 93,322
1998......................................................... 2,811 92,746
Later years.................................................. 26,374 1,079,728
------- ----------
Total minimum lease payments................................. $43,030 $1,548,455
==========
Less amount representing interest............................ 23,692
-------
Present value of net minimum capital lease payments.......... $19,338
=======
</TABLE>

The rental expense paid under operating leases (including contingent rentals
which were not material) amounted to $81,006,000, $67,345,000 and $55,207,000
for the fiscal years ended January 30, 1993, January 25, 1992 and January 26,
1991, respectively.

C. CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS

Under its Stock Incentive Plan, the Company has granted certain key employees
options for the purchase of common stock which expire five to ten years from
the grant date at option prices equal to 100% of market price on the grant
date. Options outstanding are exercisable over various periods generally
starting one year after the grant. At January 30, 1993, 388,692 shares were
exercisable under the Stock Incentive Plan.

F-9
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991
Option activity during the past three fiscal years was as follows:

<TABLE>
<CAPTION>
NUMBER OF
OPTION PRICES OPTIONS
---------------- ---------
<S> <C> <C>
Fiscal 1991:
Options granted.................................... $6.25-$9.125 417,085
Cancellations...................................... $8.125-$17.9625 (554,498)
---------
Outstanding at January 26, 1991.................... $6.25-$17.9625 526,660
Fiscal 1992:
Options granted.................................... $15.875-$22.375 790,150
Options exercised.................................. $6.25-$8.125 (46,650)
Cancellations...................................... $6.25-$15.875 (70,650)
---------
Outstanding at January 25, 1992.................... $6.25-$22.375 1,199,510
Fiscal 1993:
Options granted.................................... $18.75-$25.625 590,550
Options exercised.................................. $6.25-$15.875 (113,520)
Cancellations...................................... $6.25-$25.625 (61,259)
---------
Outstanding at January 30, 1993.................... $6.25-$25.625 1,615,281
=========
</TABLE>

The Company has also issued, at no cost, restricted stock awards to certain
key employees under its Stock Incentive Plan. The restrictions on the sale of
shares tied to Company performance lapse over periods that range up to eight
years; for other awards, restrictions on the sale of shares lapse over periods
that range up to four years. The market price of restricted stock issued is
charged to income ratably over the period during which the restrictions lapse.
In fiscal 1993, 1992 and 1991 the Company issued 160,250, 93,500 and 56,748
restricted shares, respectively; 2,125, 9,250 and 22,000 restricted shares were
returned to the Company and cancelled in fiscal 1993, 1992 and 1991,
respectively.

As of January 30, 1993 and January 25, 1992, respectively, 1,423,900 and
2,111,316 shares were reserved for future stock awards under the Company's
Stock Incentive Plan.

In November 1991, the Company realized proceeds of $72.7 million after
issuance costs of $3.3 million from a public offering of 4,000,000 shares of
common stock.

In 1989 the Company adopted a shareholder rights plan designed to discourage
attempts to acquire the Company on terms not approved by the Board of
Directors. Under the plan shareholders were issued one Right for each share of
common stock owned, which entitles them to purchase 1/100 share of Series A
Junior Participating Preferred Stock ("Series A Preferred Stock") at an
exercise price of $75. The Company has designated 1,900,000 shares of Series A
Preferred Stock for use under the rights plan; none has been issued. Generally
the terms of the Series A Preferred Stock are designed so that each 1/100 share
of Series A Preferred Stock is the economic equivalent of one share of the
Company's common stock. In the event any person acquires 15% or more of the
Company's outstanding stock, the Rights become exercisable for the number of
common shares which, at the time, would have a market value of two times the
exercise price of the Right.

The Company has authorized 10,000,000 shares of preferred stock, $.01 par
value, of which no shares have been issued.

F-10
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

D. INCOME TAXES

The provision for income taxes includes the following:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current.................................... $20,523 $15,978 $13,063
Deferred................................... (1,442) (1,581) (3,777)
State
Current.................................... 5,335 4,977 4,096
Deferred................................... (383) (460) (1,108)
------- ------- -------
Total income tax provision................ $24,033 $18,914 $12,274
======= ======= =======
</TABLE>

Deferred income taxes result from timing differences in the recognition of
expenses for income tax and financial reporting purposes. The following is a
summary of the major items comprising federal and state deferred income tax
expense:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accelerated depreciation................... $1,746 $ 688 $ 1,857
Insurance liabilities...................... (4,368) (2,975) (1,004)
Discontinuation of HomeClub name and 1,702 1,818 (3,520)
membership program.........................
Rental step adjustments.................... (564) (641) (900)
Other...................................... (341) (931) (1,318)
------- ------- -------
Total.................................... $(1,825) $(2,041) $(4,885)
======= ======= =======
</TABLE>

The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rates......... 34% 34% 34%
State income taxes, net of federal tax 5 6 7
benefit....................................
Benefit from sale of real estate........... (2) -- --
Other...................................... (2) (1) (1)
--- --- ---
Effective income tax rates................. 35% 39% 40%
=== === ===
</TABLE>

During the fiscal years ended January 25, 1992 and January 26, 1991, the
Company utilized $6.4 million and $28.8 million, respectively, of net operating
loss carryforwards related to a prior acquisition. In fiscal year 1992, the
Company also recognized $.4 million in investment tax credit carryforwards. The
Company recognized the utilization of these carryforwards by reducing the
recorded value of the acquired fixed assets by $.9 million and $9.8 million in
fiscal 1992 and 1991, respectively, and by recording deferred credits of $1.7
million in fiscal 1992, which are included in other noncurrent liabilities on
the balance sheet. Income tax

F-11
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

expense was not affected. The deferred credits are being amortized over the
estimated useful lives of the acquired assets. As of January 30, 1993 the
Company no longer had available any carryforwards.

Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which will be implemented in the first quarter of the Company's
fiscal year ending January 29, 1994, requires the adjustment of deferred taxes
to give effect to enacted changes in tax laws or rates. The Company expects the
cumulative effect on prior years of the change in accounting for income taxes
to be approximately $1.5 million of income.

E. PENSIONS

The Company has a non-contributory defined benefit retirement plan covering
full-time employees who have attained twenty-one years of age and have
completed one year of service. Benefits are based on compensation earned in
each year of service. During fiscal 1993, the Board of Directors voted that no
benefits would accrue under this plan after July 4, 1992. No gain or loss
resulted from the curtailment of this plan. The Company also has an unfunded
plan which provides additional retirement benefits for certain key employees
and a non-contributory retirement plan covering directors who are not employees
or officers of the Company.

Net periodic pension cost under the Company's plans, presented in accordance
with SFAS No. 87, includes the following components (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Service cost............................... $ 722 $ 793 $740
Interest cost on projected benefit 656 494 335
obligation.................................
Actual return on assets.................... (157) (279) (53)
Net amortization and deferrals............. (81) 110 (75)
------ ------ ----
Net pension cost........................... $1,140 $1,118 $947
====== ====== ====
</TABLE>

The following table sets forth the funded status of the Company's pension
plans and the amounts recognized in the Company's balance sheets in accordance
with SFAS No. 87 (in thousands):

<TABLE>
<CAPTION>
JANUARY 30, 1993 JANUARY 25, 1992
------------------ ------------------
<S> <C> <C> <C> <C>
FUNDED UNFUNDED FUNDED UNFUNDED
------- --------- ------- ---------
Actuarial present value of accumulated
benefit obligation:
Vested benefits....................... $3,035 $ 1,010 $2,087 $ 630
Nonvested benefits.................... 1,180 455 1,205 324
------- --------- ------- ---------
$4,215 $ 1,465 $3,292 $ 954
======= ========= ======= =========
Projected benefit obligation........... $4,215 $ 3,577 $3,849 $ 2,263
Plan assets at fair market value....... 4,384 -- 3,254 --
------- --------- ------- ---------
Projected benefit obligation in excess
of (less than) plan assets............ (169) 3,577 595 2,263
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions. -- (1,853) (550) (1,014)
Prior service cost reduction not yet 52 -- 68 --
recognized.............................
Unrecognized net obligation............ (249) (154) -- (165)
------- --------- ------- ---------
Accrued (prepaid) pension cost included $ (366) $ 1,570 $ 113 $ 1,084
in balance sheets......................
======= ========= ======= =========
</TABLE>

F-12
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.5% and 5.5%, respectively, in fiscal 1993
and 9.0% and 5.5%, respectively, in fiscal 1992. The expected long-term rate of
return on assets used was 9.5%. The Company's funding policy is to contribute
annually an amount allowable for federal income tax purposes. Pension plan
assets consist primarily of fixed income and equity securities.

Effective on July 4, 1992, the Company's 401(k) Savings Plan was amended so
that non-highly compensated employees may make pre-tax contributions up to 15%
of salary, as allowed under Section 401(k) of the Internal Revenue Code. The
Company matches employee contributions at 100% of the first one percent of
salary and 50% of the next four percent, payable at the end of the year. Before
the amendment became effective, eligible employees could make pre-tax
contributions up to 10% of salary, and the Company matched contributions of the
first five percent of salary at rates ranging from 25% to 50%. The Company's
expense under this plan was $2,216,000 in fiscal 1993, $838,000 in fiscal 1992
and $499,000 in fiscal 1991.

F. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS

The Financial Accounting Standards Board has issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." These standards require
employers to recognize such benefits over the periods during which employees
render services rather than at the time they are paid, which is the method used
by most employers, including the Company. The Company will implement SFAS No.
106 and SFAS No. 112 in the first quarter of the Company's fiscal year ending
January 29, 1994 and expects the cumulative effect on prior years of the change
in accounting for these benefits to be an after-tax charge of approximately $.5
million.

G. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The major components of accrued expenses and other current liabilities are
as follows:

<TABLE>
<CAPTION>
JANUARY 30, JANUARY 25,
1993 1992
----------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C>
Sales and use taxes payable............................. $18,634 $15,880
Employee compensation................................... 19,325 14,847
Insurance............................................... 21,090 9,479
Rent, utilities, advertising and other.................. 46,942 46,254
-------- -------
$105,991 $86,460
======== =======
</TABLE>

H. SELECTED INFORMATION BY MAJOR BUSINESS SEGMENT

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- -------------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
BJ's Wholesale Club..................... $1,786,916 $1,432,228 $1,149,590
HomeBase................................ 1,570,878 1,351,357 1,260,136
---------- ---------- ----------
$3,357,794 $2,783,585 $2,409,726
========== ========== ==========
</TABLE>

F-13
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JANUARY 30, JANUARY 25, JANUARY 26,
1993 1992 1991
----------- -------------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income:
BJ's Wholesale Club (net of $5,500
charge in FY 1992
for cost to close Chicago clubs)..... $ 35,366 $ 17,392 $ 11,613
HomeBase (net of $3,400 charge in FY
1992 and $8,800 charge in FY 1991 for
discontinuation of HomeClub name and
membership program).................. 47,170 42,077 31,646
---------- -------- --------
82,536 59,469 43,259
General corporate expense............... 7,981 7,254 7,082
Interest on debt and capital leases 6,280 3,292 5,491
(net)...................................
---------- -------- --------
Income before income taxes.............. $ 68,275 $ 48,923 $ 30,686
========== ======== ========
Identifiable assets:
BJ's Wholesale Club.................... $ 364,154 $230,473 $185,732
HomeBase............................... 590,344 439,469 381,257
Corporate (cash, cash equivalents and
marketable securities)............... 52,516 116,463 12,795
---------- -------- --------
$1,007,014 $786,405 $579,784
========== ======== ========
Depreciation and amortization:
BJ's Wholesale Club.................... $ 11,362 $ 8,480 $ 6,662
HomeBase............................... 18,461 13,648 11,393
---------- -------- --------
$ 29,823 $ 22,128 $ 18,055
========== ======== ========
Capital expenditures:
BJ's Wholesale Club.................... $ 89,765 $ 40,905 $ 20,936
HomeBase............................... 76,083 33,377 13,934
---------- -------- --------
$ 165,848 $ 74,282 $ 34,870
========== ======== ========
</TABLE>

Interest on capital leases is shown together with interest on debt. In prior
years, interest on capital leases was included in each division's operating
income. Previously reported amounts for fiscal 1992 and 1991 have been
reclassified to conform with fiscal 1993's presentation.

I. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short maturity of
these instruments.

Marketable Securities

The fair value of the Company's marketable securities is based on quoted
values provided by dealers of these securities.

F-14
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED JANUARY 30, 1993, JANUARY 25, 1992 AND JANUARY 26, 1991

Real Estate Financings and General Corporate Debt

The fair value of the Company's real estate financings and general corporate
debt is estimated based on the current rates for similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.

Subordinated Debt

The fair value of the Company's subordinated debt is based on quoted market
prices.

The estimated fair values of the Company's financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
JANUARY 30, 1993
----------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents............................... $ 35,644 $ 35,644
Marketable securities................................... 16,872 16,924
Real estate financings.................................. (8,111) (8,736)
General corporate debt.................................. (60,000) (63,902)
Subordinated debt....................................... (108,600) (106,700)
</TABLE>

J. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)

<TABLE>
<CAPTION>
EARNINGS
PER
NET SALES GROSS EARNINGS(A) NET INCOME SHARE(B)
--------------------- ----------------- ------------------ --------------
FISCAL QUARTER 1993 1992 1993 1992 1993 1992 1993 1992
- -------------- ---------- ---------- -------- -------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First................... $ 736,012 $ 616,850 $ 99,979 $ 83,479 $ 6,169 $ 4,396 $0.19 $0.15
Second.................. 863,501 736,404 124,764 102,011 12,787 9,490 0.38 0.33
Third................... 820,648 693,782 115,771 95,707 11,198 5,515(c) 0.33 0.19(c)
Fourth.................. 937,633 736,549 135,946 102,623 14,088(e) 10,608(d) 0.41(e) 0.33(d)
---------- ---------- -------- -------- ------- ------- ----- -----
Full Year............... $3,357,794 $2,783,585 $476,460 $383,820 $44,242 $30,009 $1.31 $1.01
========== ========== ======== ======== ======= ======= ===== =====
</TABLE>
- --------
(a) Gross earnings equals net sales less cost of sales, including buying and
occupancy costs.

(b) In accordance with Accounting Principles Board Opinion No. 15, the sum of
quarterly per share earnings does not necessarily equal annual per share
earnings. The per share earnings presented are fully diluted.

(c) Includes a post-tax charge of $3.3 million, or $.11 per share, for closing
BJ's Wholesale Club's four locations in Chicago.

(d) Includes a post-tax charge of $2.1 million, or $.06 per share, for changing
the name of the HomeClub division to HomeBase.

(e) Includes a post-tax gain of $2.3 million, or $.07 per share, from the
disposal of real estate properties at BJ's.

NOTE: The fiscal year ended January 30, 1993 contained 53 weeks and its fourth
quarter contained 14 weeks.

F-15
<PAGE>

WABAN INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 30, 1993 AND OCTOBER 24, 1992
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
OCTOBER 30, OCTOBER 24,
1993 1992
----------- -----------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................. $2,699,080 $2,420,161
---------- ----------
Cost of sales, including buying and occupancy costs.... 2,324,094 2,079,647
Selling, general and administrative expenses........... 323,583 288,824
Interest on debt and capital leases (net).............. 9,067 3,055
---------- ----------
Total expenses....................................... 2,656,744 2,371,526
---------- ----------
Income before income taxes and cumulative effect of
accounting principle changes.......................... 42,336 48,635
Provision for income taxes............................. 16,120 18,481
---------- ----------
Income before cumulative effect of accounting principle 26,216 30,154
changes................................................
Cumulative effect of accounting principle changes (See 905 --
Note 4)................................................
---------- ----------
Net income........................................... $ 27,121 $ 30,154
========== ==========
Income per common share:
Primary earnings per share:
Income before cumulative effect of accounting $ 0.79 $ 0.91
principle changes......................................
Cumulative effect of accounting principle changes.... 0.03 --
---------- ----------
Net income........................................... $ 0.82 $ 0.91
========== ==========
Fully diluted earnings per share:
Income before cumulative effect of accounting $ 0.78 $ 0.90
principle changes......................................
Cumulative effect of accounting principle changes.... 0.03 --
---------- ----------
Net income........................................... $ 0.81 $ 0.90
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-16
<PAGE>

WABAN INC.

CONSOLIDATED BALANCE SHEETS

OCTOBER 30, 1993, JANUARY 30, 1993 AND OCTOBER 24, 1992
(UNAUDITED)

<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 30, OCTOBER 24,
1993 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 32,129 $ 35,644 $ 23,386
Marketable securities.................... -- 16,872 74,043
Accounts receivable (net)................ 52,491 41,405 43,624
Merchandise inventories.................. 570,758 525,002 539,193
Deferred income taxes.................... 16,345 10,013 9,498
Prepaid expenses......................... 19,029 9,211 11,410
---------- ---------- ----------
Total current assets................... 690,752 638,147 701,154
---------- ---------- ----------
Property at cost:
Land and buildings....................... 233,798 182,446 157,204
Leasehold costs and improvements......... 73,907 70,132 65,675
Furniture, fixtures and equipment........ 217,553 183,235 174,366
---------- ---------- ----------
525,258 435,813 397,245
Less accumulated depreciation and 115,140 91,565 86,080
amortization...............................
---------- ---------- ----------
410,118 344,248 311,165
---------- ---------- ----------
Property under capital leases.............. 22,423 22,094 21,359
Less accumulated amortization............ 8,482 7,032 6,576
---------- ---------- ----------
13,941 15,062 14,783
---------- ---------- ----------
Other assets............................... 9,503 9,557 9,776
---------- ---------- ----------
Total assets........................... $1,124,314 $1,007,014 $1,036,878
========== ========== ==========
LIABILITIES
Current liabilities:
Short-term debt.......................... $ 25,000 $ -- $ --
Current installments of long-term debt... 13,809 2,222 2,221
Accounts payable......................... 305,034 239,017 282,939
Accrued expenses and other current 108,391 105,991 107,537
liabilities................................
Accrued federal and state income taxes... 486 3,923 5,518
Obligations under capital leases due 1,449 1,197 1,005
within one year............................
---------- ---------- ----------
Total current liabilities.............. 454,169 352,350 399,220
---------- ---------- ----------
Real estate financings, exclusive of 4,092 5,889 5,900
current installments.......................
General corporate debt..................... 48,000 60,000 60,000
Subordinated debt.......................... 108,600 108,600 108,600
Obligations under capital leases, less
portion due within one year............... 17,211 18,141 17,924
Other noncurrent liabilities............... 17,806 15,856 15,329
Deferred income taxes...................... 9,816 9,568 9,016
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
190,000,000 shares, issued and outstanding
33,091,099, 33,004,536 and 32,888,390
shares.................................... 331 330 329
Additional paid-in capital................. 322,140 321,252 319,620
Retained earnings.......................... 142,149 115,028 100,940
---------- ---------- ----------
Total stockholders' equity............. 464,620 436,610 420,889
---------- ---------- ----------
Total liabilities and stockholders' $1,124,314 $1,007,014 $1,036,878
equity.....................................
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.

F-17
<PAGE>

WABAN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 30, 1993 AND OCTOBER 24, 1992
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
OCTOBER 30, OCTOBER 24,
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 27,121 $ 30,154
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property......... 27,121 21,440
Amortization of premium on marketable securities.. 9 1,906
Loss on property disposals........................ 547 240
Other non-cash items, net......................... 319 695
Deferred income taxes............................. (6,084) (1,862)
Increase (decrease) in cash due to changes in:
Accounts receivable............................. (11,086) (13,799)
Merchandise inventories......................... (45,756) (142,896)
Prepaid expenses................................ (9,818) (5,757)
Other assets, net............................... 54 (1,379)
Accounts payable................................ 66,017 89,202
Accrued expenses................................ 9,428 25,099
Accrued income taxes............................ (3,437) 1,108
Other noncurrent liabilities.................... 1,950 1,178
-------- ---------
Net cash provided by operating activities........... 56,385 5,329
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities....................... 16,905 124,697
Purchase of marketable securities................... -- (130,093)
Property additions.................................. (99,239) (127,263)
Property disposals.................................. 123 115
-------- ---------
Net cash used in investing activities............. (82,211) (132,544)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt....................... 25,000 --
Borrowings of long-term debt, net of issuance costs -- 106,031
of $2,569.............................................
Repayment of long-term debt......................... (2,210) (2,041)
Repayment of capital lease obligations.............. (1,007) (694)
Proceeds from sale and issuance of common stock..... 528 948
-------- ---------
Net cash provided by financing activities......... 22,311 104,244
-------- ---------
Net decrease in cash and cash equivalents......... (3,515) (22,971)
Cash and cash equivalents at beginning of year.... 35,644 46,357
-------- ---------
Cash and cash equivalents at end of period........ $ 32,129 $ 23,386
======== =========
Supplemental cash flow information:
Interest paid....................................... $ 6,802 $ 3,927
Income taxes paid................................... 23,559 19,235
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-18
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 30, 1993 AND OCTOBER 24, 1992

1. The results for the first nine months are not necessarily indicative of
results for the full fiscal year because the Company's business, in common with
the business of retailers generally, is subject to seasonal influences.
HomeBase typically experiences higher sales levels during the spring, and BJ's
Wholesale Club's heaviest sales volume occurs during the Christmas season.

2. The financial statements are unaudited and reflect all normal recurring
adjustments considered necessary by the Company for a fair presentation of its
financial statements in accordance with generally accepted accounting
principles.

3. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Annual
Report on Form 10-K for the fiscal year ended January 30, 1993.

4. Effective January 31, 1993 (the first day of the current fiscal year), the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." The cumulative effect of these
accounting principle changes increased (decreased) after-tax income by the
following amounts (in thousands):

<TABLE>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes"......................... $1,616
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," net of tax benefit of $138................... (210)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
net of tax benefits of $328........................................ (501)
------
$ 905
======
</TABLE>

5. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.

6. Presented below is information relative to the operating results of the
Company's business segments (in thousands):

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------- -----------------------
OCTOBER 30, OCTOBER 24, OCTOBER 30, OCTOBER 24,
1993 1992 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
BJ's Wholesale Club........... $484,644 $422,566 $1,403,410 $1,223,246
HomeBase...................... 413,002 398,082 1,295,670 1,196,915
-------- -------- ---------- ----------
$897,646 $820,648 $2,699,080 $2,420,161
======== ======== ========== ==========
Operating income:
BJ's Wholesale Club........... $ 8,810 $ 6,335 $ 22,693 $ 18,077
HomeBase...................... 8,359 14,785 35,088 39,167
-------- -------- ---------- ----------
17,169 21,120 57,781 57,244
General corporate expense...... 1,495 1,798 6,378 5,554
Interest on debt and capital 3,057 1,610 9,067 3,055
leases (net)...................
-------- -------- ---------- ----------
Income before income taxes..... $ 12,617 $ 17,712 $ 42,336 $ 48,635
======== ======== ========== ==========
<CAPTION>
Warehouses in operation--end of
period:
<S> <C> <C> <C> <C>
BJ's Wholesale Club........... 47 34 47 34
HomeBase...................... 90 86 90 86
</TABLE>

F-19
<PAGE>

WABAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 30, 1993 AND OCTOBER 24, 1992

7. On November 16, 1993, the Company announced that it would take a pre-tax
charge of approximately $100 million in the fourth quarter ending January 29,
1994 to cover nonrecurring expenses primarily related to repositioning its
HomeBase division. The three major components of this charge consist of:

1) closing or relocating approximately 16 HomeBase warehouses which have
limited potential for long-term profitability. This group of warehouses
consists mostly of older units which do not represent desirable locations or
the current HomeBase prototype;

2) closing all eight HomeBase warehouses in the Midwest markets of Chicago
and Toledo; and

3) liquidating discontinued merchandise.

The fourth quarter charge will also include expenses related to the
relocation of BJ's warehouse in Syracuse, New York, and certain nonrecurring
administrative expenses incurred in connection with this restructuring.

F-20
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR SINCE THE DATE AS OF WHICH THE INFORMATION IS SET
FORTH HEREIN.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Preliminary Results for Fiscal 1994....................................... 7
Certain Investment Considerations......................................... 10
Use of Proceeds........................................................... 12
Capitalization............................................................ 12
Selected Consolidated Financial Information............................... 13
Selected Information by Major Business Segment............................ 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 21
Management................................................................ 33
Relationship with TJX..................................................... 35
Principal Stockholders.................................................... 36
Description of Notes...................................................... 37
Description of Certain Indebtedness....................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 56
Experts................................................................... 56
Index to Financial Statements............................................. F-1
</TABLE>

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

$100,000,000

WABAN INC.

% SENIOR
SUBORDINATED NOTES
DUE 2004

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

PROSPECTUS

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

BEAR, STEARNS & CO. INC.

, 1994

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The fees and expenses incurred by the Company in connection with the offering
are payable by the Company and, other than filing fees, are estimated as
follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $34,483
National Association of Securities Dealers, Inc. Filing Fee...... 10,500
Rating Agency Fees............................................... *
Printing and Engraving Expenses.................................. *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Trustee Fees and Expenses........................................ *
Blue Sky Fees and Expenses....................................... *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be completed by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify 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
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite an adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

The Registrant has entered into indemnification agreements with each of its
directors and officers indemnifying them against expenses, settlements,
judgments and fines incurred in connection with any threatened, pending or
completed action, suit, arbitration or proceeding, where the individual's
involvement is by reason of the fact that such person is or was a director or
officer or served at the Company's request as a director of another
organization (except that indemnification is not provided against judgments and
fines in a derivative suit unless permitted by Delaware law). An individual may
not be indemnified if such person is found not to have acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Registrant, except to the extent Delaware law permits broader
contractual

II-1
<PAGE>

indemnification. These indemnification agreements provide procedures,
presumptions and remedies which substantially strengthen the indemnification
rights beyond those provided by the Registrant's Restated Certificate of
Incorporation (the "Certificate") and by Delaware law.

The Registrant's Certificate provides that each person who was or is made a
party to, or is involved in, any action, suit, proceeding or claim by reason of
the fact that he or she is or was a director, officer or employee of the
Registrant (or is or was serving at the request of the Registrant as a
director, officer, trustee, employee or agent of any other enterprise including
service with respect to employee benefit plans) shall be indemnified and held
harmless by the Registrant, to the full extent permitted by Delaware law, as in
effect from time to time, against all expenses (including attorneys' fees and
expenses), judgments, fines, penalties and amounts to be paid in settlement
incurred by such person in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim.

The rights to indemnification and the payment of expenses provided by the
Registrant's Certificate do not apply to any action, suit, proceeding or claim
initiated by or on behalf of a person otherwise entitled to the benefit of such
provisions. Any person seeking indemnification under the Registrant's
Certificate shall be deemed to have met the standard of conduct required for
such indemnification unless the contrary shall be established. The Registrant's
Certificate provides that the rights to indemnification and the payment of
expenses provided thereby shall not be exclusive of any other right which any
person may have or acquire under any statute, provision of the Registrant's
Certificate or By-laws, or otherwise. Any repeal or modification of such
indemnification provisions shall not adversely affect any right or protection
of a director or officer with respect to any conduct of such director or
officer occurring prior to such repeal or modification.

Section 102(b) of the Delaware General Corporation Law, as amended, permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividend and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant has provided in its Certificate that its directors
shall be exculpated from liability as provided under Delaware Law.

ITEM 16. EXHIBITS.

The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
4.1 Restated Certificate of Incorporation(1)
4.2 Certificate of Designation(2)
4.3 By-laws, as amended(3)
4.4 Rights Agreement dated as of May 23, 1989 between the Company and
First Chicago Trust Company of New York, formerly Morgan Shareholder
Services Trust Company, as Rights Agent(1)
4.5 Form of Indenture between the Company and the Trustee (including
form of Note)
4.6 Instruments with respect to other long-term debt of the Company and
its consolidated subsidiaries are omitted pursuant to Item
601(b)(4)(iii) of Regulation S-K since the total amount authorized
under each such omitted instrument does not exceed 10 percent of the
total assets of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5.1* Opinion of Hale and Dorr
12.1 Calculation of Ratio of Earnings to Fixed Charges
23.1 Consent of Coopers & Lybrand
23.2* Consent of Hale and Dorr (included in the opinion filed as Exhibit
5.1).
24.1 Power of Attorney (included in Part II of this Registration
Statement under the caption "Power of Attorney and Signatures").
25.1 Statement of Eligibility of Trustee (Form T-1)
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated hereby by reference to the similarly-numbered Exhibit to the
Company's Form 10, as amended, (#1-10259)(the "Form 10").
(2) Incorporated herein by reference to Exhibit 28.1 to the Company's Form 10.
(3) Incorporated herein by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended January 27, 1990.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference to the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant 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
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.

(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

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 on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Natick, Commonwealth of Massachusetts on the 15th
day of March, 1994.

Waban Inc.

By: /s/ Herbert J Zarkin
---------------------------------
HERBERT J ZARKIN
President and Chief Executive
Officer

POWER OF ATTORNEY AND SIGNATURES

Each person whose signature appears below constitutes and appoints Herbert J
Zarkin, Dale N. Garth and Edward J. Weisberger, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them, for him and in his name, place and stead, and
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement on Form S-3 of Waban Inc.
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as full to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his 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 Registration
Statement has been signed by the following persons in the capacities indicated
on the 15th day of March, 1994.

SIGNATURES TITLE
---------- -----

/s/ Sumner L. Feldberg Chairman of the Board
- -------------------------------------
SUMNER L. FELDBERG

/s/ Herbert J Zarkin President, Chief
- ------------------------------------- Executive Officer and
HERBERT J ZARKIN Director (Principal
Executive Officer)

/s/ Dale N. Garth Senior Vice President,
- ------------------------------------- Treasurer and Chief
DALE N. GARTH Financial Officer
(Principal Financial
Officer)

/s/ Edward J. Weisberger Vice President--Finance
- ------------------------------------- (Principal Accounting
EDWARD J. WEISBERGER Officer)

/s/ S. James Coppersmith Director
- -------------------------------------
S. JAMES COPPERSMITH

II-4
<PAGE>

SIGNATURES TITLE

/s/ Stanley H. Feldberg Director
- -------------------------------------
STANLEY H. FELDBERG

/s/ Allyn L. Levy Director
- -------------------------------------
ALLYN L. LEVY

/s/ Arthur F. Loewy Director
- -------------------------------------
ARTHUR F. LOEWY

/s/ Thomas J. Shields Director
- -------------------------------------
THOMAS J. SHIELDS

/s/ Lorne R. Waxlax Director
- -------------------------------------
LORNE R. WAXLAX

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1* Form of Underwriting Agreement
4.1 Restated Certificate of Incorporation(1)
4.2 Certificate of Designation(2)
4.3 By-laws, as amended(3)
4.4 Rights Agreement dated as of May 23, 1989 between the
Company and First Chicago Trust Company of New York,
formerly Morgan Shareholder Services Trust Company, as
Rights Agent(1)
4.5 Form of Indenture between the Company and the Trustee
(including form
of Note)
4.6 Instruments with respect to other long-term debt of the
Company and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the total amount authorized under each such omitted
instrument does not exceed 10 percent of the total assets
of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of any
such instrument to the Securities and Exchange Commission
upon request.
5.1* Opinion of Hale and Dorr
12.1 Calculation of Ratio of Earnings to Fixed Charges
23.1 Consent of Coopers & Lybrand
23.2* Consent of Hale and Dorr (included in the opinion filed
as Exhibit 5.1).
24.1 Power of Attorney (included in Part II of this
Registration Statement under the caption "Power of
Attorney and Signatures").
25.1 Statement of Eligibility of Trustee (Form T-1)
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated hereby by reference to the similarly-numbered Exhibit to the
Company's Form 10, as amended, (#1-10259)(the "Form 10").
(2) Incorporated herein by reference to Exhibit 28.1 to the Company's Form 10.
(3) Incorporated herein by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended January 27, 1990.

<PAGE>

WABAN INC., as Issuer

and

THE FIRST NATIONAL BANK OF BOSTON, as Trustee

______________________________

INDENTURE

Dated as of [April __,] 1994

______________________________

$100,000,000

_____% Senior Subordinated Notes due _______, 2004
<PAGE>

CROSS REFERENCE TABLE(F1)
TIA Indenture
Section Section
<S> <C>

310(a)(1)............................................7.10
(a)(2)............................................7.10
(a)(3)............................................N.A.(F2)
(a)(4)............................................N.A.
(b)...............................................7.08; 7.10
(c)...............................................N.A.
311(a)...............................................7.11
(b)...............................................7.11
(c)...............................................N.A.
312(a)...............................................2.05
(b)............................................... 11.03
(c)............................................... 11.03
313(a)............................................... 7.06
(b)(1)............................................ N.A.
(b)(2)............................................ 7.06
(c)............................................... 7.06; 11.02
(d)............................................... 7.06
314(a)............................................... 4.02; 4.03; 11.02
(b)............................................... N.A.
(c)(1)............................................ 11.04
(c)(2)............................................ 11.04
(c)(3)............................................ N.A.
(d)............................................... N.A.
(e)............................................... 11.05
(f)............................................... 4.04
315(a)............................................... 7.01
(b)............................................... 7.05; 11.02
(c)............................................... 7.01
(d)............................................... 7.01
(e)............................................... 6.11
316(a)(last sentence)................................ 2.08
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
(b)............................................... 6.07
(c)............................................... 1.05
317(a)(1)............................................ 6.08
(a)(2)............................................ 6.09
(b)............................................... 2.04
318(a)............................................... 11.01
</TABLE>

(F1) Note: This Cross Reference Table shall not, for any
purpose, be deemed to be part of this Indenture.

(F2) N.A. means Not Applicable.
<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS(F3)

Page
<S> <C>

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE . . . 1

SECTION 1.01. Definitions . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . 15
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . 15
SECTION 1.04. Rules of Construction . . . . . . . . . . 16
SECTION 1.05. Acts of Holders . . . . . . . . . . . . . 16

ARTICLE 2
THE SECURITIES . . . . . . . . . . 17

SECTION 2.01. Form and Dating . . . . . . . . . . . . . 17
SECTION 2.02. Execution and Authentication . . . . . . 18
SECTION 2.03. Registrar and Paying Agent . . . . . . . 19
SECTION 2.04. Paying Agent to Hold Money in Trust . . . 19
SECTION 2.05. Securityholder Lists . . . . . . . . . . 20
SECTION 2.06. Transfer and Exchange . . . . . . . . . . 20
SECTION 2.07. Replacement Securities . . . . . . . . . 21
SECTION 2.08. Outstanding Securities; Determinations
of Holders' Action . . . . . . . . . . 22
SECTION 2.09. Temporary Securities . . . . . . . . . . 23
SECTION 2.10. Cancellation . . . . . . . . . . . . . . 23
SECTION 2.11. CUSIP Numbers . . . . . . . . . . . . . . 23
SECTION 2.12. Defaulted Interest . . . . . . . . . . . 24

ARTICLE 3
REDEMPTION . . . . . . . . . . . 24

SECTION 3.01. Right to Redeem; Notices to Trustee . . . 24
SECTION 3.02. Selection of Securities to Be Redeemed . 24
SECTION 3.03. Notice of Redemption . . . . . . . . . . 25
SECTION 3.04. Effect of Notice of Redemption . . . . . 26
SECTION 3.05. Deposit of Redemption Price . . . . . . . 26
SECTION 3.06. Securities Redeemed in Part . . . . . . . 26
</TABLE>

(F3) This Table of Contents shall not, for any purpose, be
deemed to be part of this Indenture.
<PAGE>

Page
<S> <C>

ARTICLE 4
COVENANTS . . . . . . . . . . . . 26

SECTION 4.01. Payment of Securities . . . . . . . . . . 26
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . 27
SECTION 4.03. Compliance Certificates . . . . . . . . . 28
SECTION 4.04. Further Instruments and Acts . . . . . . 29
SECTION 4.05. Maintenance of Office or Agency . . . . . 29
SECTION 4.06. Limitation on Restricted Payments . . . . 29
SECTION 4.07. Limitation on Payment Restrictions
Affecting Subsidiaries . . . . . . . . 32
SECTION 4.08. Limitation on Other Senior
Subordinated Indebtedness . . . . . . . 32
SECTION 4.09. Limitation on Additional Indebtedness . . 32
SECTION 4.10. Limitation on Liens . . . . . . . . . . . 33
SECTION 4.11. Repurchase Upon Change of Control . . . . 33
SECTION 4.12. Limitation on Use of Proceeds
from Asset Sales . . . . . . . . . . . 36
SECTION 4.13. Limitation on Transactions
with Affiliates . . . . . . . . . . . . 37
SECTION 4.14. Susidiary Guarantees . . . . . . . . . . 37
SECTION 4.15. Payment of Taxes and Other Claims . . . . 38
SECTION 4.16. Corporate Existence . . . . . . . . . . . 38
SECTION 4.17. Maintenance of Properties and
Insurance . . . . . . . . . . . . . . . 39
SECTION 4.18. Stay, Extension and Usury Laws . . . . . 39
SECTION 4.19. Investment Company Act . . . . . . . . . 40
SECTION 4.20. Payments for Consents . . . . . . . . . . 40
SECTION 4.21. Covenant to Comply with Securities
Laws upon Purchase of Securities . . . 40

ARTICLE 5
SUCCESSOR CORPORATION . . . . . . . . . 40

SECTION 5.01. When the Company May Merge or Transfer
Assets . . . . . . . . . . . . . . . . 40
SECTION 5.02. Successor Corporation Substituted . . . . 41

ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . 42

SECTION 6.01. Events of Default . . . . . . . . . . . . 42
SECTION 6.02. Acceleration . . . . . . . . . . . . . . 44
SECTION 6.03. Other Remedies . . . . . . . . . . . . . 45
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . 45
SECTION 6.05. Control by Majority . . . . . . . . . . . 46
SECTION 6.06. Limitation on Suits . . . . . . . . . . . 46
</TABLE>
<PAGE>

Page
<S> <C>

SECTION 6.07.Rights of Holders to Receive Payment 46
SECTION 6.08. Collection Suit by Trustee . . . . . . . 47
SECTION 6.09. Trustee May File Proofs of Claim . . . . 47
SECTION 6.10. Priorities . . . . . . . . . . . . . . . 48
SECTION 6.11. Undertaking for Costs . . . . . . . . . . 48
SECTION 6.12. Waiver of Stay, Extension or Usury Laws . 48

ARTICLE 7
TRUSTEE . . . . . . . . . . . . 49

SECTION 7.01. Duties of Trustee . . . . . . . . . . . . 49
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . 50
SECTION 7.03. Individual Rights of Trustee . . . . . . 51
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . 51
SECTION 7.05. Notice of Defaults . . . . . . . . . . . 51
SECTION 7.06. Reports by Trustee to Holders . . . . . . 52
SECTION 7.07. Compensation and Indemnity . . . . . . . 52
SECTION 7.08. Replacement of Trustee . . . . . . . . . 53
SECTION 7.09. Successor Trustee by Merger . . . . . . . 54
SECTION 7.10. Eligibility; Disqualification . . . . . . 54
SECTION 7.11. Preferential Collection of Claims
Against the Company . . . . . . . . . . 54

ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE . . . . 54

SECTION 8.01. Termination of the Company's
Obligations . . . . . . . . . . . . . . 54
SECTION 8.02. Application of Trust Money . . . . . . . 55
SECTION 8.03. Repayment to the Company . . . . . . . . 56
SECTION 8.04. Reinstatement . . . . . . . . . . . . . . 56

ARTICLE 9
AMENDMENTS . . . . . . . . . . . 56

SECTION 9.01. Without Consent of Holders . . . . . . . 56
SECTION 9.02. With Consent of Holders . . . . . . . . . 57
SECTION 9.03. Compliance with Trust Indenture Act . . . 58
SECTION 9.04. Revocation and Effect of Consents,
Waivers and Actions . . . . . . . . . . 58
SECTION 9.05. Notation on or Exchange of Securities . . 59
SECTION 9.06. Trustee to Sign Supplemental Indentures . 59
SECTION 9.07. Effect of Supplemental Indentures . . . . 59
</TABLE>
<PAGE>

Page
<S> <C>
ARTICLE 10
SUBORDINATION . . . . . . . . . . . 59
SECTION 10.01. Agreement to Subordinate . . . . . . . . 59
SECTION 10.02. Liquidation; Dissolution; Bankruptcy . . 60
SECTION 10.03. Default on Senior Indebtedness . . . . . 61
SECTION 10.04. No Suspension of Remedies . . . . . . . . 62
SECTION 10.05. When Distribution Must Be Paid Over . . . 63
SECTION 10.06. Notice by the Company . . . . . . . . . . 63
SECTION 10.07. Subrogation . . . . . . . . . . . . . . . 63
SECTION 10.08. Relative Rights . . . . . . . . . . . . . 64
SECTION 10.09. No Waiver of Subordination Provisions . . 65
SECTION 10.10. Distribution or Notice to
Representative . . . . . . . . . . . . 65
SECTION 10.11. Rights of Trustee and Paying Agent . . . 66
SECTION 10.12. Authorization to Effect Subordination;
No Fiduciary Duty to Holders of
Senior Indebtedness . . . . . . . . . . 66
SECTION 10.13. Miscellaneous . . . . . . . . . . . . . . 67

ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . 67

SECTION 11.01. Trust Indenture Act Controls . . . . . . 67
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . 68
SECTION 11.03. Communication by Holders with
Other Holders . . . . . . . . . . . . . 69
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . 69
SECTION 11.05. Statements Required in Certificate
or Opinion . . . . . . . . . . . . . . 69
SECTION 11.06. Separability Clause . . . . . . . . . . . 70
SECTION 11.07. Rules by Trustee, Paying Agent
and Registrar . . . . . . . . . . . . . 70
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . 70
SECTION 11.09. GOVERNING LAW . . . . . . . . . . . . . . 70
SECTION 11.10. No Recourse Against Others . . . . . . . 70
SECTION 11.11. Successors . . . . . . . . . . . . . . . 70
SECTION 11.12. Multiple Originals . . . . . . . . . . . 70
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 72
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
<PAGE>

INDENTURE, dated as of [April __,] 1994, between Waban
Inc., a Delaware corporation (the "Company"), and The First National
Bank of Boston, a national banking association (the "Trustee").

Each party agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders
of the Company's Senior Subordinated Notes due , 2004
----- ------
(the "Securities"):

ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------

SECTION 1.01. Definitions.
-----------
"Affiliate" of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person. A Person shall be deemed to "control" (including the
correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another Person if the
controlling Person (a) possesses, directly or indirectly, the
power to direct or cause the direction of the management or
policies, of the controlled Person, whether through ownership of
voting securities, by agreement or otherwise, or (b) owns,
directly or indirectly, 10% or more of any class of Voting Stock
of the controlled Person.

"Asset Sale" means, with respect to any Person, (i) the
sale, lease, conveyance, disposition or other transfer by such
Person of any of its assets (including by way of a sale-and-
leaseback transaction and including the sale or other transfer of
any of the Capital Stock of any Subsidiary of such Person) or
(ii) the issuance, sale, conveyance, disposition or other
transfer by such Person of any Capital Stock of such Person or
any Subsidiary of such Person or a Subsidiary of any such
Subsidiary; provided, however, that notwithstanding the
foregoing, the term "Asset Sale" shall not include (A) the sale,
lease, conveyance, disposition or other transfer of any inventory
in the ordinary course of business, (B) the issuance by the
Company of shares of its Capital Stock, (C) the sale of a
Permitted Investment (other than a Permitted Investment under
clause (vii) of such definition), (D) the assignment or sublease
of a lease (where the Person or its Subsidiary is the lessee) or
the execution of a new lease (where the Person or its Subsidiary
is the lessor) in connection with the closing down of any retail
warehouse of such Person or Subsidiary, (E) the sale, lease,
<PAGE>

conveyance, disposition or other transfer of any asset in
connection with the restructuring plan implemented by the Company
prior to the date of this Indenture, (F) the sale, lease,
conveyance or other transfer of assets by the Company to any
Wholly-owned Subsidiary or by any Wholly-owned Subsidiary of the
Company to the Company or any other Wholly-owned Subsidiary of
the Company, or (G) the liquidation or sale for cash of
Marketable Securities.

"Average Life" means, as of the date of determination,
with respect to any debt security, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from
the date of determination to the dates of each successive
scheduled principal payment (assuming the exercise by the obligor
of such debt security of all unconditional (other than as to the
giving of notice) extension options of each such scheduled
payment date) of such debt security multiplied by the amount of
such principal payment by (ii) the sum of all such principal
payments.

"Board of Directors" of any corporation means the Board
of Directors of such corporation, or any duly authorized
committee of such Board of Directors.

"Business Day" means any day that is not a Saturday, a
Sunday or a day on which banking institutions in New York are
required to close.

"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease which would at such time be so
required to be capitalized on the balance sheet in accordance
with GAAP.

"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated)
of corporate stock (including common and preferred stock) or
partnership interests.

"Cash" shall mean (i) cash, (ii) cash equivalents,
(iii) direct or guaranteed obligations of the United States of
America that mature within two (2) years from the date of
purchase by the Company or any of its Subsidiaries; (iv) demand
deposits, certificates of deposit, bankers' acceptances and time
deposits of United States banks having total assets in excess of
$10,000,000,000 United States dollars and which are rated not
less than (A) "A 1" if such deposits or acceptances mature over a
year from the date made or created or (B) "A 2" if such deposits
<PAGE>

or acceptances mature within one year of the date made or
created, in each case as rated by Standard and Poor's
Corporation; (v) securities commonly known as "commercial paper"
issued by a corporation organized and existing under the laws of
the United States of America or any state thereof that at the
time of purchase have been rated and the ratings for which are
not less than "P 2" as rated by Moody's Investors Services, Inc.
and not less than "A 2" as rated by Standard and Poor's
Corporation; (vi) investments in tax-free government securities
rated "A" or better, as rated by Standard and Poor's Corporation,
and government securities mutual funds which have a weighted
average life of less than two (2) years; (vii) investments in
repurchase agreements relating to a security which is rated "A"
or better, as rated by Standard and Poor's Corporation, that
mature within two (2) years from the date the Investment is made
by the Company or any of its Subsidiaries; (viii) investments in
corporate securities rated "A" or better, as rated by Standard
and Poor's Corporation, that mature within two (2) years from the
date the Investment is made by the Company or any of its
Subsidiaries; and (ix) indebtedness for borrowed money assumed by
the purchaser in connection with any Asset Sale provided that
neither the Company nor any of its Subsidiaries has any further
liability in respect of such indebtedness; provided, that when
any non-Cash proceeds are liquefied, such proceeds will be deemed
to be Cash at that time. The non-capitalized term "cash", as used
in this Indenture (including, without limitation, Article 10), means cash.

"Consolidated Interest Coverage Ratio" means the ratio
of (i) the sum of (a) Consolidated Net Income, (b) Consolidated
Interest Expense, (c) Consolidated Tax Expense, (d) depreciation,
(e) any expense recognized in respect of step rentals (or minus
any income recognized in respect of step rentals) and (f),
without duplication, all amortization, in each case, for such
period, of the Company and its Subsidiaries on a consolidated
basis, all as determined in accordance with GAAP, to (ii) the sum
of (a) Consolidated Interest Expense, (b) all dividends for such
period in respect of Redeemable Stock issued by a Subsidiary of
the Company and (c) the product of (x) the amount of all
dividends paid or accrued on any series of preferred stock issued
by a Subsidiary of the Company and (y) a fraction, the numerator
of which is one and the denominator of which is one minus the
effective combined consolidated federal, state and local tax rate
of such Subsidiary, expressed as a decimal; provided, that in
calculating Consolidated Interest Expense on a pro forma basis,
any Indebtedness bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period.
<PAGE>

"Consolidated Interest Expense" means for any period
the aggregate amount of interest in respect of Indebtedness
(including all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing and the net cost (benefit) associated with Interest
Rate Agreements and excluding amortization of deferred finance
fees and interest recorded as accretion in the carrying value of
liabilities (other than Indebtedness) recorded at a discounted
value) and all but the principal component of rentals in respect
of Capital Lease Obligations, paid, accrued or scheduled to be
paid or accrued by the Company and its Subsidiaries during such
period (without duplication), other than fees, commissions and
expenses associated with the Securities, the Senior Securities,
the Credit Agreement and the Convertible Subordinated Debentures,
and excluding amortization of original issue discount and other
non-cash charges incurred on or prior to the date of the initial
issuance of the Securities or incurred as a result of the
application of the net proceeds from the sale of the Securities
offered hereby.

"Consolidated Net Income" means for any period the net
income or loss of the Company and its Subsidiaries for such
period on a consolidated basis as determined in accordance with
GAAP adjusted by excluding, without duplication, (i) net gains or
losses in respect of dispositions of assets other than in the
ordinary course of business; (ii) any gains or losses from
currency exchange transactions not in the ordinary course of
business consistent with past practice; (iii) any gains (but not
losses) attributable to any extraordinary items; (iv) the net
income of any Person acquired in a pooling of interest
transaction for any period prior to the date of such transaction;
(v) the net income of any Person accounted for by the equity
method of accounting, except that (A) the Company's equity in the
net income of any such Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Subsidiary during
such period to the Company or another Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained
in this clause (v)) and (B) the Company's equity in a net loss of
any such Subsidiary for such period shall be included in
determining such Consolidated Net Income; (vi) the Net Income of
any Subsidiary to the extent such Net Income has any restrictions
or encumbrances on making distributions to the Company; (vii) the
income or loss of any Person (not acquired in a pooling of
interest transaction) accrued prior to the date it becomes a
Subsidiary of the Company or any of its Subsidiaries or is merged
into or consolidated with the Company or any of its Subsidiaries
<PAGE>

or that Person's assets are acquired by the Company or any of its
Subsidiaries; (viii) non-cash charges in connection with the
issuance of Equity Interests of the Company to employees of the
Company as compensation; and (ix) the effect of non-cash charges
incurred prior to the date of the Indenture in connection with
the sale, discontinuance, disposition or rationalization of the
Company's operations and including the effect of reversals of
non-cash charges excluded pursuant to clause (ix) of this
definition.

"Consolidated Net Worth" means, with respect to any
Person, as of any date, the amount which, in accordance with GAAP,
would be set forth under the caption "Stockholders' Equity"
(or any like caption) on the consolidated balance sheet of such
Person and its Subsidiaries, less amounts attributable to Redeemable
Stock of such Person and preferred stock of any of its Subsidiaries.

"Consolidated Tax Expense" of the Company means, for
any period, the aggregate of the federal, state, local and
foreign income tax expenses (net of benefits) of the Company and
its consolidated Subsidiaries for such period, determined in
accordance with GAAP.

"Convertible Subordinated Debentures" means the 6.5%
Convertible Subordinated Debentures due 2002 issued by the
Company under the Indenture, dated as of July 1, 1992, between
the Company and Continental Bank, National Association, as
trustee.

"Credit Agreement" means the Company's Credit
Agreement, dated as of July 8, 1993, as amended on November 15,
1993, by and among the Company, Bank of America National Trust
and Savings Association, The First National Bank of Boston,
Continental Bank, N.A. and The First National Bank of Chicago.

"Credit Facility" means the Credit Agreement and the
Letter of Credit Agreement and any extension, renewal,
replacement or substitute thereof or any subsequent or additional
credit facility.

"Default" means any event which is, or after notice or
passage of time or both would be, an Event of Default.

"Equity Interests" means Capital Stock, warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security which is convertible into, or exchangeable for,
Capital Stock).

"Existing Indebtedness" means Indebtedness of the
Company and its Subsidiaries in existence on the date of the
Indenture.

"Existing Investments" means Investments existing on
the date of the Indenture.
<PAGE>

"GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the
accounting profession of the United States, which are applicable
as of the date of determination; provided, however, that these
definitions and all ratios and calculations contained in the
covenants in the Indenture shall be determined in accordance with
GAAP as in effect and applied by the Company on the date of the
Indenture, consistently applied.

"Guarantee" means a guarantee (other than by
endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner
(including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part
of any Indebtedness.

"Holder" or "Securityholder" means a Person in whose
name a Security is registered on the Registrar's books.

"Indebtedness" means, without duplication, (a) any
liability of any Person, if and to the extent it would appear as
a liability upon a balance sheet of such Person prepared on a
consolidated basis in accordance with GAAP, (1) for borrowed
money, (2) evidenced by a bond, note, debenture or similar
instrument (including a purchase money obligation) given in
connection with the acquisition of any businesses, properties or
assets of any kind or (3) in respect of Capital Lease Obligations
(including by way of a sale-and-leaseback transaction); (b) any
liability of any Person under any reimbursement obligation
relating to a letter of credit; (c) all Redeemable Stock valued
at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends; (d) preferred stock
of any Subsidiary of the Company (other than preferred stock held
by the Company or any of its Wholly-owned Subsidiaries); (e)
obligations with respect to Interest Rate Agreements; (f) any
liability of others described in the preceding clauses (a), (b),
(c), (d) and (e) that the Person has guaranteed or with respect
to which it is otherwise contingently liable; and (g) any
amendment, supplement, modification, deferral, renewal, extension
or refunding of any liability of the types referred to in clauses
(a), (b), (c), (d), (e) and (f) above. Notwithstanding anything
to the contrary in the foregoing, Indebtedness shall not include
(x) any obligations in respect of Operating Lease Obligations and
(y) trade payables, accrued liabilities for deferred taxes,
<PAGE>

insurance and similar items and current liabilities for goods,
materials or services purchased or for compensation to employees,
in each case arising in the ordinary course of business.

"Indenture" means this Indenture, as amended or
supplemented from time to time in accordance with the terms
hereof, including the provisions of the TIA that are deemed to be
a part hereof.

"Interest Rate Agreement" means the obligation of any
Person pursuant to any interest rate swap agreement, interest
rate collar agreement, currency swap or other similar agreement
or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates or the value
of currencies.

"Investment" means any direct or indirect advance, loan
or other extension of credit or capital contribution to (by means
of a transfer of cash or other property to others or a payment
for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other securities issued by any other Person.
Notwithstanding anything to the contrary in the foregoing,
Investment shall not include (a) advances to customers or vendors
in the ordinary course of business, which are recorded as
accounts receivable on the balance sheet of any Person or its
Subsidiaries and other than advances or loans to officers and
employees of the Company or any of its Subsidiaries up to $5
million in aggregate principal amount outstanding at any one time,
(b) loans and advances to developers of real estate upon which the
Company's or any of its Wholly-owned Subsidiary's warehouse
merchandising stores are located provided that the aggregate
amount of all such loans and advances does not exceed $25,000,000
at any one time outstanding, (c) obligations (direct, contingent
or otherwise) incurred by the Company to purchase real estate
upon which the Company's or any of its Wholly-owned Subsidiary's
warehouse merchandising stores are located, and (d) any
obligations in respect of Operating Lease Obligations.

"Letter of Credit Agreement" means the Company's letter
of credit facility between the Company and Bank of America
National Trust Savings Association.

agreement to sell or give any security interest in any filing or
other agreement to give any financing statement (other than any
filing or financing statement given in connection with a Capital
Lease Obligation in the ordinary course of business) under the
Uniform Commercial Code (or equivalent statutes) of any
jurisdiction and including a sale-and-leaseback transaction).

"Marketable Securities" means securities that are rated
investment grade by a nationally recognized rating agency such as
Standard and Poor's Corporation or Moody's Investor Services,
Inc. or securities for which a trading market exists on a
nationally registered securities exchange or pursuant to the
NASDAQ Stock Market and such securities are registered under the
Securities Act of 1933, as amended, for sale by the Person who
owns such securities or are exempt from registration in
connection with any proposed sale by such Person.

"Moody's" means Moody's Investors Service, Inc. and its
successors.

"Net Proceeds" means the aggregate proceeds received by
the Company or any of its Subsidiaries in respect of any Asset
Sale, net of the out-of-pocket costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment
banking fees and sale commissions) and any relocation expenses
and severance and shutdown costs incurred as a result thereof,
taxes paid or payable as a result thereof, amounts required to be
applied to the repayment of Indebtedness secured by a Lien on the
asset or assets which are the subject of such Asset Sale and any
reasonable reserve in accordance with GAAP for adjustment in
respect of the sale price of such asset or assets.

"Obligations" means any principal, interest, penalties,
fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any
Indebtedness.

"Officer" means, with respect to any corporation, the
Chairman of the Board, any Vice Chairman, the President, any Vice
President, the Treasurer, the Secretary, any Assistant Treasurer
or any Assistant Secretary of such corporation.

"Officers' Certificate" means a written certificate
containing the information specified in Sections 11.04 and 11.05
hereof, signed in the name of the Company by any two of its
Officers, and delivered to the Trustee.
<PAGE>

"Operating Lease Obligation" means at the time any
determination thereof is to be made, the amount of the liability
in respect of an operating lease which would at such time be so
required to be classified as such in accordance with GAAP.

"Opinion of Counsel" means a written opinion containing
the information specified in Sections 11.04 and 11.05 hereof,
rendered by legal counsel who is acceptable to the Trustee.

"Permitted Indebtedness" means (i) Indebtedness under
the Credit Facility (provided that Indebtedness under the Credit
Facility, including unused commitments, shall not at any time
exceed $150 million in aggregate outstanding principal amount
(including the available undrawn amount of any letters of credit
issued under the Credit Facility)); (ii) Existing Indebtedness;
(iii) Indebtedness represented by the Securities; (iv)
Indebtedness created, incurred, issued, assumed or guaranteed in
exchange for or the proceeds of which are used to extend,
refinance, renew, replace, substitute or refund Indebtedness
referred to in clauses (i), (ii) and (iii) above (the
"Refinancing Indebtedness"); provided, however, that (A) the
principal amount of such Refinancing Indebtedness shall not
exceed the principal amount of Indebtedness (including unused
commitments) so extended, refinanced, renewed, replaced,
substituted or refunded, (B) such Indebtedness ranks in right of
payment to the Securities at least to the same extent as the
Indebtedness so extended, refinanced, renewed, replaced,
substituted or refunded, (C) with respect to Refinancing
Indebtedness incurred pursuant to this clause, the Refinancing
Indebtedness shall have an Average Life and Stated Maturity equal
to or greater than the Average Life and Stated Maturity of the
Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded, and (D) a Subsidiary shall not incur
Refinancing Indebtedness to extend, refinance, renew, replace,
substitute or refund Indebtedness of the Company or another
Subsidiary; (v) intercompany Indebtedness permitted by the
covenants set forth in Section 4.06, "Limitation on Restricted
------------------------
Payments" above; (vi) Interest Rate Agreements entered into in
--------
the ordinary course of business; (vii) obligations in connection
with the construction or acquisition of retail warehouses in the
ordinary course of business in an aggregate amount not exceeding
$30 million, and such additional obligations as would not appear
as a liability upon a balance sheet prepared in accordance with
GAAP; (viii) letters of credit and bankers' acceptances for the
purchase of merchandise and guarantees of obligations of
suppliers, licensees, and franchises, in either event in the
ordinary course of business, and in the aggregate in an amount
not exceeding 10% of the aggregate book value of the inventories
<PAGE>

held by the Company and its Subsidiaries (measured at the time of
such issuance); (ix) letters of credit securing workers'
compensation and self-insurance obligations of the Company in the
ordinary course of business; and (x) Indebtedness not otherwise
permitted in an aggregate principal amount which shall not exceed
$50 million.

"Permitted Investments" means, (i) direct or guaranteed
obligations of the United States of America that mature within
two (2) years from the date of purchase by the Company or any of
its Subsidiaries; (ii) demand deposits, certificates of deposit,
bankers' acceptances and time deposits of United States banks
having total assets in excess of $10,000,000,000 United States
dollars and which are rated not less than (A) "A 1" if such
deposits or acceptances mature over a year from the date made or
created or (B) "A 2" if such deposits or acceptances mature
within one year of the date made or created, in each case as
rated by Standard and Poor's Corporation; (iii) securities
commonly known as "commercial paper" issued by a corporation
organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have
been rated and the ratings for which are not less than "P 2", as
rated by Moody's Investors Services, Inc., and not less than "A
2", as rated by Standard and Poor's Corporation; (iv) investments
in tax-free government securities rated "A" or better, as rated
by Standard and Poor's Corporation, and government securities
mutual funds which have a weighted average life of less than two
(2) years; (v) investments in repurchase agreements relating to a
security which is rated "A" or better, as rated by Standard and
Poor's Corporation, that mature within two (2) years from the
date the Investment is made by the Company or any of its
Subsidiaries; (vi) Investments in corporate securities rated "A"
or better, as rated by Standard and Poor's Corporation, that
mature within two (2) years from the date the Investment is made
by the Company or any of its Subsidiaries; (vii) Investments in
Persons which, after giving effect to the Investment, are Wholly-
owned Subsidiaries of the Company or any of its Subsidiaries and
which are engaged in businesses directly related to the business
of the Company and its Subsidiaries, and Investments consisting
of assets which, after giving effect to the Investment, are used
by the Company or any of its Subsidiaries in such businesses and
(viii) Existing Investments.

with the Company or any Subsidiary of the Company; (d) Liens on
property existing or created at the time of acquisition thereof
by the Company or any Subsidiary of the Company; (e) Liens to
secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (f) Liens existing
on the date of the Indenture; (g) Liens for taxes, assessments or
governmental charges or claims or mechanics', suppliers',
materialmen's, repairmen's, or other like Liens arising in the
ordinary course of business, in either case, that are not yet
delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded; provided, that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have
been made therefor; (h) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the Company that are
not incurred in connection with the borrowing of money or the
obtaining of advances or credits (other than trade credit in the
ordinary course of business); (i) Liens securing Indebtedness
created, incurred, issued, assumed or guaranteed in exchange for
or the proceeds of which are used to extend, refinance, renew,
replace, substitute or refund Indebtedness secured by a Permitted
Lien; and (j) Liens securing Indebtedness that is pari passu with
the Securities so long as at the time such Liens are granted the
Securities are equally and ratably secured.

"Person" means any individual, corporation,
partnership, joint venture, incorporated or unincorporated
association, joint-stock company, trust, unincorporated
organization or government or other agency or political
subdivision thereof or other entity of any kind.

"Real Estate Financing" means Indebtedness incurred by
a Subsidiary that is secured by real estate owned by such
Subsidiary which at the time the Indebtedness is incurred has an
appraised value (as determined by a nationally-recognized
independent real estate appraiser who is qualified to make
appraisals of such real estate) equal to or greater than the
aggregate principal amount of such Indebtedness.

"Redeemable Stock" means any Equity Interest which, by
its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable before the stated
maturity of the Securities) or upon the happening of any event,
matures or is mandatorily redeemable, in whole or in part, prior
to the stated maturity of the Securities.
<PAGE>

"Redemption Date" or "redemption date" means the date
specified for redemption of the Securities in accordance with the
terms of the Securities and this Indenture.

"Redemption Price" or "redemption price" shall have the
meaning set forth in paragraph 5 of the Securities.

"Refinancing Indebtedness" shall have the meaning
prescribed in the definition of Permitted Indebtedness.

"S&P" means Standard and Poor's Corporation and its
successors.

"SEC" means the Securities and Exchange Commission.

"Securities" means any of the Company's ______% Senior
Subordinated Notes due ________, 2004 issued under this
Indenture.

"Securityholder" or "Holder" means a Person in whose
name a Security is registered on the Registrar's books.

"Senior Indebtedness" means the principal of, premium,
if any, and interest (including, without limitation, post-petition
interest whether or not allowed as a claim in bankruptcy, reorganization,
insolvency, receivership or a similar proceeding) on any Indebtedness of
the Company, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed, unless, in the case
of any particular Indebtedness, the instrument under which such
Indebtedness is created, incurred, assumed or guaranteed expressly
provides that such Indebtedness shall not be senior or superior in right
of payment to the Securities. Without limiting the generality of the
foregoing, "Senior Indebtedness" shall include (i) Indebtedness under the
Credit Facility including the available undrawn amount of any letters of
credit issued under the Credit Facility (together with all interest
(including post-petition interest whether or not allowed as a claim in
any bankruptcy, reorganization, insolvency, receivership or similar
proceeding), fees, reasonable expenses, indemnities and charges payable
on or in respect of such Indebtedness)), (ii) Indebtedness evidenced by
the Company's Senior Securities (together with all interest (including,
without limitation, post-petition interest whether or not allowed as a
claim in any bankruptcy, reorganization, insolvency, receivership or
similar proceeding), premium, if any, fees, expenses, indemnities and
charges payable on or in respect of such Indebtedness)), (iii) Existing
Indebtedness, and (iv) Refinancing Indebtedness. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness shall not include
a) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (b) any Indebtedness incurred after the date of the Indenture
that is

<PAGE>

contractually subordinated in right of payment to any Senior
Indebtedness, (c) trade payables and current liabilities for
goods, materials or services purchased or for compensation to
employees, in each case arising in the ordinary course of
business, (d) any Indebtedness in respect of Capital Lease
Obligations, unless such Indebtedness expressly provides that it
shall be senior or superior in right of payment to the
Securities, and (e) any obligations in respect of Operating Lease
Obligations. Notwithstanding anything to the contrary in the
Indenture or the Securities, the Indebtedness represented by the
Securities shall be superior in right of payment to, and Senior
Indebtedness shall not include, any Indebtedness represented by
the Company's 6.5% convertible subordinated debentures due 2002.

"Senior Securities" means the Company's 9.58% Notes
due May 31, 1998 issued pursuant to the separate Note Purchase
Agreements, dated as of June 15, 1991, between the Company and,
respectively, the purchasers named on Annex 1 thereto, as the
same may be amended, modified or restated from time to time.

"Significant Subsidiary" shall have the meaning set
forth for such term in Rule 1-02 of Regulation S-X under the
Securities Act of 1933, as amended.

"Specified Senior Indebtedness" means Indebtedness
under (i) the Credit Facility, (ii) the Senior Securities and
(iii) any other Senior Indebtedness of the Company, the then
outstanding principal amount of which exceeds $20 million.

"Stated Maturity" means, with respect to any security,
the date specified in such security as the fixed date on which
the principal of such security is due and payable, including
pursuant to any mandatory redemption provision.

"Subsidiary" means any corporation, association or
other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more
of other Subsidiaries of that Person or a combination thereof.

"Subsidiary Guarantee" means each Guarantee by any
Subsidiary Guarantor of the Company's Obligations under the
Indenture and the Securities required to be given pursuant to the
covenant entitled "Subsidiary Guarantees" in the form attached as
an Exhibit to the Indenture.

"Subsidiary Guarantor" means any Subsidiary that is
required to execute a Subsidiary Guarantee in accordance with the
<PAGE>

provisions of the covenant entitled "Subsidiary Guarantees," and
its successors and assigns.

"TIA" means the Trust Indenture Act of 1939 as amended
and as in effect on the date of this Indenture; provided,
however, that in the event the TIA is amended after such date,
TIA means, to the extent required by any such amendment, the TIA
as so amended.

"Trust Officer," when used with respect to the Trustee,
means the Chairman or Vice-Chairman of the Board of Directors,
the Chairman or Vice-Chairman of the executive committee of the
Board of Directors, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant
Treasurer, the Cashier, any Assistant Cashier, any Trust Officer
or Assistant Trust Officer, the Controller and any Assistant
Controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the
above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity
with the particular subject.

"Trustee" means the party named as the "Trustee" in the
first paragraph of this Indenture until a successor replaces it
pursuant to the applicable provisions of this Indenture and,
thereafter, shall mean such successor.

"Voting Stock" means any class or classes of Equity
Interests pursuant to which the Holders thereof have the general
voting power under ordinary circumstances to elect at least a
majority of the board of directors, managers or trustees of any
Person (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by
reason of the happening of any contingency).

"Wholly-owned Subsidiary" of any Person means any
Subsidiary of such Person to the extent the entire voting share
capital of such Subsidiary is owned by such Person (either
directly or indirectly through Wholly-owned Subsidiaries).
<PAGE>

<TABLE>
<CAPTION>
SECTION 1.02. Other Definitions.
-----------------
Defined in
Term Section
<S> <C>
"Act".................................... 1.05
"Bankruptcy Law"......................... 6.01
"Change of Control"...................... 4.11
"Change of Control Offer"................ 4.11
"Change of Control Payment Date"......... 4.11
"Custodian".............................. 6.01
"Event of Default"....................... 6.01
"Excess Proceeds"........................ 4.12
"Excess Proceeds Offer".................. 4.12
"Exchange Act"........................... 4.02
"Legal Holiday".......................... 11.08
"Non-Payment Default".................... 10.03
"Notice of Default"...................... 6.01
"Paying Agent"........................... 2.03
"Payment Default"........................ 10.03
"Register"............................... 2.03
"Registrar".............................. 2.03
"Securities Act"......................... 7.04
"surviving entity"....................... 5.01
"U.S. Government Obligations"............ 8.01
</TABLE>

SECTION 1.03. Incorporation by Reference of Trust
-----------------------------------
Indenture Act. Whenever this Indenture refers to a provision of
-------------
the TIA, such provision is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:

"Commission" means the SEC.

"Indenture securities" means the Securities.

"Indenture security holder" means a Securityholder.

"Indenture to be qualified" means this Indenture.

"Indenture trustee" or "institutional trustee" means
the Trustee.

"Obligor" on the indenture securities means the
Company.

All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute
<PAGE>

or defined by SEC rule have the meanings assigned to them by such
definitions.

SECTION 1.04. Rules of Construction. Unless the
---------------------
context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;

(3) "or" is not exclusive;

(4) "including" means including, without limitation;
and

(5) words in the singular include the plural, and
words in the plural include the singular.

SECTION 1.05. Acts of Holders.
---------------
(1) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this
Indenture to be given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar
tenor signed by such Holders in Person or by an agent duly
appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument
or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of Holders
signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and
conclusive in favor of the Trustee and the Company, if made in
the manner provided in this Section.

(2) The fact and date of the execution by any Person
of any such instrument or writing may be proved in any manner
which the Trustee deems sufficient.

(3) The ownership of Securities shall be proved by the
Register.

(4) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any
Security shall bind every future Holder of the same Security and
<PAGE>

the holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.

(5) If the Company shall solicit from the Holders any
request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or
pursuant to a resolution of its Board of Directors, fix in
advance a record date for the determination of Holders entitled
to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no
obligation to do so. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record
date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of
outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent,
waiver or other Act, and for that purpose the outstanding
Securities shall be computed as of such record date; provided
that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not
later than six (6) months after the record date.

ARTICLE 2
THE SECURITIES
--------------

SECTION 2.01. Form and Dating. The Securities and the
---------------
Trustee's certificate of authentication shall be substantially in
the form of Exhibit A attached hereto. The Securities may have
notations, legends or endorsements required by law, stock
exchange rule or usage. The form of the Securities and any
notation, legend or endorsement shall be in a form acceptable to
the Company and the Trustee. Each Security shall be dated the
date of its authentication.

The terms and provisions contained in the Securities,
annexed hereto as Exhibit A, shall constitute, and are hereby
expressly made, a part of this Indenture. To the extent
applicable, the Company, by its execution and delivery of this
Indenture, expressly agrees to such terms and provisions and to
be bound thereby.
<PAGE>

SECTION 2.02. Execution and Authentication. The
----------------------------
Securities shall be executed on behalf of the Company by
its Chairman of the Board, one of its Vice Chairmen, its
President or one of its Vice Presidents, under its corporate seal
reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any such Officer on the
Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures
of individuals who were at any time the proper Officers of the
Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication
substantially in the form provided for in Exhibit A annexed
hereto duly executed by the Trustee by manual signature of an
authorized officer, and such certificate upon any Security shall
be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and made available for delivery
hereunder.

The Trustee shall authenticate and make available for
delivery Securities for original issue in the aggregate principal
amount of $100,000,000 upon a Board of Directors' resolution and
a written order of the Company signed by two Officers of the
Company, but without any further action by the Company. Such
order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of
Securities is to be authenticated and delivered. The aggregate
principal amount of Securities outstanding at any time may not
exceed $100,000,000, except as provided in Section 2.07.

The Trustee shall act as the initial authenticating
agent. Thereafter, the Trustee may appoint an authenticating
agent reasonably acceptable to the Company to authenticate
Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as a Paying
Agent to deal with the Company or an Affiliate of the Company.

The Securities shall be issuable only in registered
form without coupons and only in denominations of $1,000 and any
integral multiple thereof.
<PAGE>

SECTION 2.03. Registrar and Paying Agent. The Company
--------------------------
shall maintain or cause to be maintained an office or agency
where the Securities may be presented for registration of
transfer or for exchange ("Registrar"), an office or agency where
Securities may be presented or surrendered for purchase or
payment ("Paying Agent") and an office or agency where notices
and demands to or upon the Company in respect of the Securities
and this Indenture may be served. The Registrar shall keep a
register of the Securities and of their transfer and exchange
(the "Register"). The Company may have one or more co-registrars
and one or more additional paying agents. The term Paying Agent
includes any additional paying agent.

The Company shall enter into an appropriate agency
agreement with any Registrar, Paying Agent or co-registrar (if
not the Trustee or the Company). The agreement shall implement
the provisions of this Indenture that relate to such agent. The
Company shall notify the Trustee of the name and address of any
such agent. If the Company fails to maintain a Registrar, Paying
Agent or agent for service of notices or demands, the Trustee
shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.07 hereof. The
Company or any Subsidiary or an Affiliate of either of them may
act as Paying Agent, Registrar or co-registrar or agent for
service of notices and demands.

The Company initially appoints the Trustee as Registrar
and Paying Agent and agent for service of notices and demands.

SECTION 2.04. Paying Agent to Hold Money in Trust.
-----------------------------------
Except as otherwise provided herein, prior to each due date of
the principal, premium, if any, and interest on any Security, the
Company shall deposit with the Paying Agent a sum of money
sufficient to pay such principal, premium, if any, and interest
so becoming due. The Company shall require each Paying Agent
(other than the Trustee or the Company) to agree in writing that
such Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent
for the payment of principal, premium, if any, and interest on
the Securities (whether such money has been paid to it by the
Company or any other obligor on the Securities) and shall notify
the Trustee of any default by the Company (or any other obligor
on the Securities) in making any such payment. At any time
during the continuance of any such default, the Paying Agent
shall, upon the request of the Trustee, forthwith pay to the
Trustee all money so held in trust and account for any money
disbursed by it. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and to account
<PAGE>

for any money disbursed by it. Upon doing so, the Paying Agent
shall have no further liability for the money so paid over to the
Trustee. If the Company, a Subsidiary or an Affiliate of either
of them acts as Paying Agent, it shall segregate the money held
by it as Paying Agent and hold it as a separate trust fund.

SECTION 2.05. Securityholder Lists. The Trustee shall
--------------------
preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the
Company shall cause to be furnished to the Trustee not more than
five (5) days after each record date and at such other times as
the Trustee may request in writing, within five (5) Business Days
of such request, a list in such form as the Trustee may
reasonably require of the names and addresses of Securityholders.

SECTION 2.06. Transfer and Exchange. Upon surrender
---------------------
for registration of transfer of any Security at the office or
agency of the Company designated as Registrar or co-registrar
pursuant to Section 2.03 or at the office or agency referred to
in Section 4.05, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the
designated transferee or transferees, one or more new Securities
of any authorized denomination or denominations, of a like
aggregate principal amount.

At the option of the Holder, Securities may be
exchanged for other Securities of any authorized denomination or
denominations, of a like aggregate principal amount, upon
surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder
making the exchange is entitled to receive.

Every Security presented or surrendered for
registration of transfer or for exchange shall (if so required by
the Company or the Trustee) be duly endorsed or be accompanied by
a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by the Holder or his
attorney duly authorized in writing.

The Company shall not charge a service charge for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to pay all taxes, assessments or
other governmental charges that may be imposed in connection with
the transfer or exchange of the Securities from the
Securityholder requesting such transfer or exchange (other than
<PAGE>

any exchange of a temporary Security for a definitive Security
not involving any change in ownership).

The Company shall not be required to make, and the
Registrar need not register, transfers or exchanges of Securities
selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or any
Securities for a period of fifteen (15) days before a selection
of Securities to be redeemed.

SECTION 2.07. Replacement Securities. If (a) any
----------------------
mutilated Security is surrendered to the Company or the Trustee
or (b) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Security,
and there is delivered to the Company and the Trustee such
security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Company or
the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute, and upon its written
request, the Trustee shall authenticate and make available for
delivery, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of
like tenor and principal amount, bearing a number not con-
temporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, or is
about to be purchased by the Company pursuant Article 4 hereof,
the Company in its discretion may, instead of issuing a new
Security, pay or purchase such Security, as the case may be.

Upon the issuance of any new Securities under this
Section 2.07, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) in connection therewith.

Every new Security issued pursuant to this Section 2.07
in lieu of any mutilated, destroyed, lost or stolen Security
shall constitute an original additional contractual obligation of
the Company, whether or not the mutilated, destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued
hereunder.

The provisions of this Section 2.07 are exclusive and
shall preclude (to the extent lawful) all other rights and
<PAGE>

remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.

SECTION 2.08. Outstanding Securities; Determinations
--------------------------------------
of Holders' Action. Securities outstanding at any time are all
------------------
the Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation, those
referred to in Section 2.07 hereof or purchased by the Company
pursuant to Article 4 hereof and those described in this
Section 2.08 as not outstanding. A Security does not cease to be
outstanding because the Company or an Affiliate thereof holds the
Security; provided, however, that in determining whether the
Holders of the requisite principal amount of Securities have
given or concurred in any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned
by the Company, any other obligor upon the Securities or any
Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be outstanding, except that, in
determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows based
upon an examination of the Register to be so owned shall be so
disregarded. Subject to the foregoing, only Securities
outstanding at the time of such determination shall be considered
in any such determination (including determinations pursuant to
Articles 7 and 10 hereof).

If a Security is replaced pursuant to Section 2.07, it
ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona
fide purchaser.

If the Paying Agent (other than the Company) holds, in
accordance with this Indenture, at maturity or on a Redemption
Date, money sufficient to pay the Securities payable on that
date, then immediately on the date of maturity or such Redemption
Date, as the case may be, such Securities shall cease to be
outstanding and interest, if any, on such Securities shall cease
to accrue.

SECTION 2.09. Temporary Securities. Pending the
--------------------
preparation of definitive Securities, the Company may execute,
and upon written request from the Company signed by two Officers
of the Company, the Trustee shall authenticate and make available
for delivery, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with
<PAGE>

such appropriate insertions, omissions, substitutions and other
variations as the Officers of the Company executing such
Securities may determine, as conclusively evidenced by their
execution of such Securities.

If temporary Securities are issued, the Company will
cause definitive Securities to be prepared without unreasonable
delay. After the preparation of definitive Securities, the
temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at the
office or agency of the Company designated for such purpose
pursuant to Section 2.03 hereof, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee, upon
written request of the Company signed by two Officers of the
Company, shall authenticate and make available for delivery in
exchange therefor a like principal amount of definitive
Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.

SECTION 2.10. Cancellation. All Securities
------------
surrendered for payment, purchase by the Company, redemption by
the Company pursuant to Article 4 hereof, or registration of
transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously
authenticated and made available for delivery hereunder which the
Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly cancelled by the
Trustee. The Company may not reissue, or issue new Securities to
replace Securities it has paid or delivered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or
in exchange for any Securities cancelled as provided in this
Section 2.10, except as expressly permitted by this Indenture.
All cancelled Securities held by the Trustee shall be destroyed
by the Trustee and a certificate of destruction delivered to the
Company.

SECTION 2.11. CUSIP Numbers. The Company in issuing
-------------
the Securities may use "CUSIP" numbers (if then generally in use)
and the Trustee shall use CUSIP numbers in notices of redemption
or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the
correctness of such numbers either as printed on the Securities
or as contained in any notice of redemption or exchange and that
reliance may be placed only on the other identification numbers
<PAGE>

printed on the Securities and any redemption shall not be
affected by any defect in or omission of such numbers.

SECTION 2.12. Defaulted Interest. If the Company
------------------
defaults in a payment of interest on the Securities, it shall pay
the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders
on a subsequent special record date, and such special record
date, as used in this Section 2.12 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding
the date fixed by the Company for the payment of defaulted
interest, whether or not such day is a Business Day. At least 20
days before the subsequent special record date, the Company shall
mail to the Trustee a notice that states the subsequent special
record date, the payment date and the amount of defaulted
interest to be paid. At least fifteen (15) days before the
subsequent special record date, the Company shall mail to each
Holder a notice that states the subsequent special record date,
the payment date and the amount of defaulted interest to be paid.
The Company may also pay defaulted interest in any other lawful
manner.

ARTICLE 3
REDEMPTION
----------

SECTION 3.01. Right to Redeem; Notices to Trustee. At
-----------------------------------
any time on and after ______, 1999, the Company, at its option,
may redeem the Securities for cash in accordance with this
Article 3 and the provisions of paragraph 5 of the Securities.
If the Company elects to redeem Securities pursuant to paragraph
5 of the Securities, it shall notify the Trustee in writing of
the Redemption Date, the principal amount of Securities to be
redeemed and the Redemption Price.

The Company shall give the notice to the Trustee
provided for in this Section 3.01 at least forty-five (45) days
before the Redemption Date (unless a shorter notice shall be
satisfactory to the Trustee).

SECTION 3.02. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all the outstanding Securities are to be redeemed at
any time, the Trustee shall select the Securities to be redeemed
in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed
or, if the Securities are not listed on a national securities
exchange, on a pro rata basis by lot or by such other method as
the Trustee considers appropriate and just. The Trustee shall
<PAGE>

make the selection at least thirty (30) but not more than sixty
(60) days before the Redemption Date from outstanding Securities
not previously called for redemption. Securities and portions of
them the Trustee selects shall be in principal amounts of $1,000
or an integral multiple of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall
notify the Company promptly of the Securities or portions of
Securities to be redeemed.

SECTION 3.03. Notice of Redemption. At least fifteen
--------------------
(15) days but not more than sixty (60) days before a Redemption
Date, the Company shall mail or cause to be mailed a notice of
redemption by first-class mail, postage prepaid, to each Holder
of Securities to be redeemed at the Holder's last address, as it
shall appear on the Register.

The notice shall identify the Securities to be redeemed
and shall state:

(1) the Redemption Date;

(2) the Redemption Price;

(3) the CUSIP number (subject to the provisions of
Section 2.11 hereof);

(4) the name and address of the Paying Agent;

(5) that Securities called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;

(6) if fewer than all the outstanding Securities are
to be redeemed, the identification and principal amounts of the
particular Securities to be redeemed; and

(7) that, unless the Company defaults in making such
redemption payment, interest will cease to accrue on Securities
called for redemption on and after the Redemption Date.

At the Company's written request, the Trustee shall
give the notice of redemption in the Company's name and at the
Company's expense; provided, however, that in all cases, the text
of such notice of redemption shall be prepared or approved by the
Company and the Trustee shall have no responsibility whatsoever
with regard to such notice being accurate or correct.
<PAGE>

SECTION 3.04. Effect of Notice of Redemption. Once
------------------------------
notice of redemption is given, Securities called for redemption
become due and payable on the Redemption Date and at the
Redemption Price. Upon the later of the Redemption Date and the
date such Securities are surrendered to the Paying Agent, such
Securities called for redemption shall be paid at the Redemption
Price plus accrued interest to the redemption date, if money
sufficient for that purpose has been deposited as provided in
Section 3.05 hereof.

Notice of redemption shall be deemed to be given when
mailed, whether or not the Holder receives the notice. In any
event, failure to give such notice, or any defect therein, shall
not affect the validity of the proceedings for the redemption of
the Securities.

SECTION 3.05. Deposit of Redemption Price. Prior to
---------------------------
the Redemption Date, the Company shall deposit with the Paying
Agent (or if the Company or a Subsidiary or an Affiliate of
either of them is the Paying Agent, shall segregate and hold in
trust) money sufficient to pay the Redemption Price of all
Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which prior thereto
have been delivered by the Company to the Trustee for
cancellation.

SECTION 3.06. Securities Redeemed in Part. Upon
---------------------------
surrender of a Security that is redeemed in part, the Company
shall execute, and the Trustee shall authenticate and make
available for delivery to the Holder, a new Security in an
authorized denomination equal in principal amount to the
unredeemed portion of the Security surrendered.

ARTICLE 4
COVENANTS
---------

SECTION 4.01. Payment of Securities. The Company
---------------------
shall pay the principal of, premium, if any, and interest
(including interest accruing on or after the filing of a petition
in bankruptcy or reorganization relating to the Company, whether
or not a claim for post-filing interest is allowed in such
proceeding) on the Securities on (or prior to) the dates and in
the manner provided in the Securities or pursuant to this
Indenture. An installment of principal, premium, if any, or
interest shall be considered paid on the applicable date due if
on such date the Trustee or the Paying Agent holds, in accordance
with this Indenture, money sufficient to pay all of such
<PAGE>

installment then due. The Company shall pay interest on overdue
principal and premium, if any, and interest on overdue
installments of interest (including interest accruing on or after
the filing of a petition in bankruptcy or reorganization relating
to the Company whether or not a claim for post-filing interest is
allowed in such proceeding), to the extent lawful, at the rate
per annum borne by the Securities, which interest on overdue
interest shall accrue from the date such amounts became overdue.

SECTION 4.02. SEC Reports.
-----------
(1) The Company shall file with the Trustee and supply
to each Holder, without cost, within fifteen (15) days after it
files the same with the SEC, copies of its annual and quarterly
reports, information, documents and other reports, (or copies of
such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which it is required to file with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In the event that the
Company is at any time not subject to the reporting requirements
of the Exchange Act, it shall provide to the Trustee and supply
to each Holder without cost, within fifteen (15) days after it
would have been required to file such information with the SEC,
financial statements, including any notes thereto and, with
respect to annual reports, an auditors' report by an accounting
firm of established national reputation and a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," both comparable to that which the Company would have
been required to include in such annual reports, information,
documents or other reports if the Company had been subject to the
requirements of such Sections 13 or 15(d) of the Exchange Act.
The Company also shall comply with the other provisions of TIA
Section 314(a).

(2) So long as any Securities remain outstanding, the
Company shall cause its annual report to stockholders and any
other financial reports furnished by it to stockholders
generally, to be mailed to the Holders at their addresses
appearing in the register of Securities maintained by the
Registrar in each case at the time of such mailing or furnishing
to stockholders. If the Company is not required to furnish
annual or quarterly reports to its stockholders pursuant to the
Exchange Act, the Company shall cause its financial statements,
including any notes thereto and with respect to annual reports,
an auditors' report by an accounting firm of established national
reputation and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," to be so filed
with the Trustee and mailed to the Holders within 120 days after
<PAGE>

the end of each of the Company's fiscal years and within sixty
(60) days after the end of each of the first three quarters of
each fiscal year.

(3) The Company shall provide the Trustee with a
sufficient number of copies of all reports and other documents
and information that the Company may be required to deliver to
the Securityholders under this Section 4.02.

SECTION 4.03. Compliance Certificates.
-----------------------
(1) The Company shall deliver to the Trustee within
ninety (90) days after the end of each of the Company's fiscal
years a certificate containing a certification from the principal
executive officer, principal financial officer or principal
accounting officer of the Company as to his or her knowledge of
the Company's compliance with all conditions and covenants under
this Indenture. For purposes of this Section 4.03(1), such
compliance shall be determined without regard to any period of
grace or requirement of notice provided under this Indenture. If
they do know of such a Default or Event of Default, the
certificate shall describe any such Default or Event of Default
and its status. Such certificate need not comply with Sections
11.04 and 11.05 hereof.

(2) So long as not contrary to the then current
recommendation of the American Institute of Certified Public
Accountants, the Company shall deliver to the Trustee within 120
days after the end of each fiscal year a written statement by the
Company's independent certified public accountants stating
(A) that their audit examination has included a review of the
terms of this Indenture and the Securities as they relate to
accounting matters and (B) whether, in connection with their
audit examination, any Default has come to their attention and,
if such a Default has come to their attention, specifying the
nature and period of the existence thereof; provided, however,
that the independent certified public accountants delivering such
statement shall not be liable in respect of such statement by
reason of any failure to obtain knowledge of any such Default or
Event of Default that would not be disclosed in the course of an
audit examination conducted in accordance with GAAP.

(3) The Company shall deliver to the Trustee as soon
as possible and in any event within fifteen (15) days after the
Company becomes aware of the occurrence of each Default or Event
of Default, which is continuing, an Officers' Certificate (which
need not comply with Sections 11.04 and 11.05 hereof) setting
<PAGE>

forth the details of such Default or Event of Default, and the
action which the Company proposes to take with respect thereto.

SECTION 4.04. Further Instruments and Acts. Upon
----------------------------
request of the Trustee, the Company shall execute and deliver
such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the
purposes of this Indenture.

SECTION 4.05. Maintenance of Office or Agency. The
-------------------------------
Company shall maintain or cause to be maintained, within the
Borough of Manhattan, the City of New York, an office or agency
of the Trustee, Registrar and Paying Agent where Securities may
be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer, exchange or redemption
and where notices and demands to or upon the Company in respect
of the Securities and this Indenture may be served. The
corporate trust office of the Trustee at the address specified in
Section 11.02 hereof shall initially be such office or agency for
all of the aforesaid purposes. The Company shall give prompt
written notice to the Trustee of any change of location of such
office or agency. If at any time the Company shall fail to
maintain or cause to be maintained any such required office or
agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may
be made or served at the address of the Trustee set forth in
Section 11.02 hereof.

The Company may also from time to time designate one or
more other offices or agencies where the Securities may be
presented or surrendered for any or all such purposes and may
from time to time rescind such designations. The Company shall
give prompt written notice to the Trustee of any such designation
or rescission and of any change in location of any such other
office or agency.

SECTION 4.06. Limitation on Restricted Payments. The
---------------------------------
Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, (i) declare or pay any dividend or make
any distribution or repurchase on account of the Company's or any
of its Subsidiaries' Capital Stock or other Equity Interests
(other than dividends or distributions payable to the Company or
any of its Wholly-owned Subsidiaries or payable in shares of
Capital Stock of the Company other than Redeemable Stock), (ii)
purchase, redeem or otherwise retire for value any Equity
Interests of the Company or any of its Subsidiaries (other than
any purchase, redemption or retirement of such Equity Interests
owned by the Company or any of its Wholly-owned Subsidiaries);
<PAGE>

(iii) purchase, redeem, prepay, defease or otherwise retire for
value prior to scheduled maturity, repayment or sinking fund
payment (A) any Indebtedness of the Company that is contractually
subordinated in right of payment to the Securities or (B) any
Indebtedness of any Subsidiary that is contractually subordinated
in right of payment to the Securities other than Indebtedness to
the Company; or (iv) make Investments (either through the Company
or any of its Wholly-owned Subsidiaries) other than Permitted
Investments (the foregoing actions set forth in clauses (i)
through (iv) being referred to as "Restricted Payments"), if at
the time of such Restricted Payment:

(a) a Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof; or

(b) such Restricted Payment, together with the
aggregate of all other Restricted Payments made on or after the
date of the Indenture, exceeds (x) $75 million (in the event the
Securities on the date of computation are rated BBB- (or better)
by Standard & Poor's Corporation and Baa3 (or better) by Moody's
---
Investors Service, Inc., such amount shall be increased by $50
million) plus 50% of the amount of the cumulative Consolidated
Net Income of the Company for the period (taken as one accounting
period) from January 29, 1994 through the last fiscal quarter
immediately preceding such Restricted Payment (or, if
Consolidated Net Income for such period is a deficit, minus 100%
of such deficit) plus (y) 100% of the aggregate net cash proceeds
received by the Company on or after January 29, 1994 from (i) the
issue or sale of Equity Interests of the Company (other than such
Equity Interests issued or sold to a Subsidiary of the Company
and other than Redeemable Stock), (ii) the conversion of
Indebtedness of the Company (other than (A) in respect of the
Convertible Subordinated Debentures or (B) such Indebtedness held
by a Subsidiary of the Company) into Capital Stock of the Company
(other than Redeemable Stock), which for purposes of this clause
(b) shall be valued at the net cash proceeds received by the
Company upon the initial issuance of such Indebtedness plus such
additional Cash consideration payable to the Company upon such
conversion, or (iii) the net cash proceeds received by the
Company from its investment in, and the sale, disposition or
other liquidation of, Investments that are not Permitted Invest-
ments; or

(c) immediately after such Restricted Payment, the
Company would not be permitted to incur $1.00 of additional
Indebtedness pursuant to the covenants set forth in "Limitation
----------
of Additional Indebtedness" below.
--------------------------
<PAGE>

The foregoing provisions will not prohibit, so long as
no Default or Event of Default shall have occurred and be
continuing: (i) the payment of any dividend within sixty (60)
days after the date of declaration thereof, if at the said date
of declaration such payment would have complied with the
provisions of the Indenture; (ii) the retirement of any shares of
the Company's Capital Stock in exchange for, or out of the net
proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of the Company's
Capital Stock, other than any Redeemable Stock; (iii) Investments
by the Company or a Subsidiary of the Company in the Company or a
Wholly-owned Subsidiary of the Company or the purchase,
redemption, or other acquisition or retirement for value of such
Investments; (iv) acquisitions of Wholly-owned Subsidiaries; (v)
the purchase, redemption, prepayment, defeasance or other
acquisition or retirement for value prior to scheduled maturity
or any repayment or sinking fund payment of any Indebtedness of
any Wholly-owned Subsidiary of the Company which is not
contractually subordinated in right of payment to the Securities;
(vi) the redemption, repurchase or other acquisition or
retirement for value of subordinated Indebtedness of the Company
which is made in exchange for, or out of proceeds of the
substantially concurrent issue and sale (other than to a
Subsidiary) of (A) shares of Capital Stock (other than Redeemable
Stock) of the Company, provided, however, that any net cash
proceeds from such issue are excluded from clause (b)(y)(i) of
the preceding paragraph or (B) new Indebtedness of the Company,
so long as (1) such Indebtedness is expressly subordinated to the
Securities at least to the same extent as the subordinated
Indebtedness being so refinanced; (2) such Indebtedness has an
Average Life to Stated Maturity equal to or greater than the
remaining Average Life to Stated Maturity of the Securities; and
(3) such Indebtedness has a final scheduled maturity which
exceeds the final Stated Maturity of the Securities, provided,
however, that any net cash proceeds from such issue are excluded
from clause (b)(y)(ii) of the preceding paragraph; and (vii)
loans and advances to officers and employees of the Company or
any of its Subsidiaries up to $5 million in the aggregate
outstanding at any one time. For purposes of determining the
aggregate permissible amount of Restricted Payments in accordance
with clause (b) of the first paragraph of this covenant, no
amounts expended pursuant to clauses (iii), (iv), (v), (vi) and
(vii) of this paragraph shall be included.

The Company shall deliver to the Trustee within sixty
(60) days after the end of the Company's fiscal year in which a
Restricted Payment is made under the first paragraph of this
Section 4.06, an Officers' Certificate setting forth each
<PAGE>

Restricted Payment made in such fiscal year (other than
Restricted Payments made to purchase Marketable Securities that
do not constitute Permitted Investments but that are liquidated
for cash within ninety (90) days of the date of such Investment
in an amount at least equal to the initial purchase price of such
Investment), stating that each such Restricted Payment is
permitted and setting forth the basis upon which the calculations
required by this Section 4.06 were computed.

SECTION 4.07. Limitation on Payment Restrictions
----------------------------------
Affecting Subsidiaries. The Company shall not, and shall not permit
----------------------
any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective or enter into
any agreement with any Person that would cause or permit to exist or
become effective, any encumbrance or restriction on the ability of
(i) any Wholly-owned Subsidiary to pay dividends or make any other
distributions on its Capital Stock or any other interest or participation
in, or measured by, its profits, owned by the Company or any of its
Subsidiaries or (ii) any Subsidiary to (A) pay any Indebtedness
owed to the Company or any Subsidiary, (B) make loans or advances
to the Company, or (C) transfer any of its properties or assets to
the Company, except for purposes of clauses (i) and (ii), for such
encumbrances or restrictions existing under or by reason of (1)
applicable law, (2) the Indenture, (3) customary non-assignment
provisions of any lease governing a leasehold interest of the Company
or any of its Subsidiaries, (4) any instrument governing Indebtedness
of a Person acquired by the Company or any of its Subsidiaries at the
time of such acquisition, which encumbrance or restriction is
applicable to any Person so acquired or its properties or assets
and was not entered into in connection with such acquisition, (5)
encumbrances or restrictions under Existing Indebtedness or (6)
encumbrances or restrictions under any Real Estate Financing by
any of the Company's Subsidiaries.

SECTION 4.08. Limitation on Other Senior Subordinated
---------------------------------------
Indebtedness. The Company will not incur, create, assume, guarantee
------------
or otherwise become liable for any Indebtedness that is contractually
subordinated in right of payment to any Senior Indebtedness and
contractually senior in any respect in right of any payment to the
Securities.

SECTION 4.09. Limitation on Additional Indebtedness.
-------------------------------------
The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to create, incur, issue,
<PAGE>

assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness other than Permitted
Indebtedness; provided, however, that (a) the Company or any
Subsidiary may incur Indebtedness if, after giving pro forma
effect to the incurrence of such Indebtedness and the application
of any of the proceeds therefrom to repay Indebtedness as if such
incurrence had occurred on the first day of such period, the
Consolidated Interest Coverage Ratio for its four full fiscal
quarters ending immediately prior to the date such additional
Indebtedness is created, incurred, issued, assumed or guaranteed
will be at least 2.0 to 1.0, provided that such calculation shall
give effect to (A) the incurrence of any Indebtedness (after
giving effect to the application of the proceeds thereof) in
connection with the simultaneous acquisition of any Person,
business, property or assets and (B) the Consolidated Net Income
generated by such acquired Person, business, property or assets,
giving effect in each case to such incurrence of Indebtedness,
application of proceeds and Consolidated Net Income as if such
acquisition had occurred at the beginning of such four quarter
period, and (b) a Subsidiary of the Company may incur
Indebtedness if (i) the assets of the Subsidiary consist solely
of (x) real estate securing Real Estate Financing and (y) other
assets with a book value not in excess of 10% of the principal
amount of any Indebtedness incurred by such Subsidiary and such
Indebtedness constitutes Real Estate Financing at the time it is
created, incurred, issued, assumed or guaranteed by such
Subsidiary of the Company (which shall not have been guaranteed
by the Company) or (ii) such Indebtedness, together with all
other Indebtedness of all Subsidiaries of the Company (other than
Indebtedness incurred pursuant to clause (b)(i) of this
paragraph), is an aggregate amount not exceeding $5 million at
any time outstanding.

SECTION 4.10. Limitation on Liens. The Company will
-------------------
not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien on
any of its respective assets, now owned or hereafter acquired, or
any income or properties therefrom, securing any Indebtedness
that is pari passu with or contractually subordinated in right of
payment to the Securities, other than Permitted Liens.

SECTION 4.11. Repurchase Upon Change of Control. Upon
---------------------------------
the occurrence of a Change of Control (as defined below), each
Holder shall have the right to require at such Holder's election
the repurchase of all or a portion (in $1,000 increments) of such
Holder's Securities pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of
the aggregate principal amount plus accrued and unpaid interest,
<PAGE>

if any, to the date of purchase. Immediately following any
Change of Control, the Company shall mail a notice to the Trustee
and to each Holder stating: (i) that the Change of Control Offer
is being made pursuant to the "Repurchase Upon Change of Control"
---------------------------------
covenant in the Indenture and that all Securities tendered will
be accepted for payment; (ii) the purchase price and the purchase
date (which shall be no earlier than thirty (30) days nor later
than sixty (60) days from the date such notice is mailed) (the
"Change of Control Payment Date"); (iii) that any Security not
tendered will continue to accrue interest; (iv) that, unless the
Company defaults in the payment thereof, all Securities accepted
for payment pursuant to the Change of Control Offer shall cease
to accrue interest on and after the Change of Control Payment
Date; (v) that Holders electing to have any Securities purchased
pursuant to a Change of Control Offer will be required to
surrender the Securities to be purchased to the Paying Agent at
the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control
Payment Date; (vi) that Holders will be entitled to withdraw
their election on the terms and conditions set forth in such
notice; (vii) that Holders whose Securities are being purchased
only in part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered
provided that each Security purchased and each such new Security
issued shall be in a principal amount of $1,000 or integral
multiples thereof; and (viii) the circumstances and relevant
facts regarding such Change of Control (including pro forma
historical financial information after giving effect to such
Change of Control) and information regarding the Person or
Persons acquiring control.

On the Change of Control Payment Date, the Company
shall (i) accept for payment all Securities or portions thereof
tendered, pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent money sufficient to pay the purchase price
of all Securities or portions thereof so tendered, and (iii)
deliver or cause to be delivered to the Trustee, all Securities
so tendered together with an officer's certificate specifying the
Securities or portions thereof tendered to the Company. The
Paying Agent shall promptly mail to each Holder of Securities so
tendered, payment in an amount equal to the purchase price for
such Securities, and the Trustee shall promptly authenticate and
mail to such Holder a new Security equal in principal amount to
any unpurchased portion of the Securities surrendered; provided
that such new Security shall be in a principal amount of $1,000
or integral multiples thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
<PAGE>

The Company will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Securities triggered by
a Change of Control.

"Change of Control" means (a) the acquisition,
including through merger, consolidation or otherwise, by any
Person or any group for purposes of Section 13(d) of the Exchange
Act, together with any Affiliates thereof, of direct or indirect
beneficial ownership (as defined in Rule 13d-3 of the Exchange
Act) of 50% or more of either (i) the outstanding shares of
common stock of the Company or (ii) the total voting power of all
classes of capital stock of the Company entitled to vote
generally in the election of directors or (b) the Company sells,
conveys, transfers or leases all or substantially all of its
assets (including without limitation the stock of one or more
Subsidiary Guarantors which singly or in the aggregate own all or
substantially all of the assets of the Company determined on a
consolidated basis to any Person (other than one or more Wholly-
owned Subsidiaries) in a transaction or series of related
transactions, other than in connection with the reincorporation
of the Company in another jurisdiction where each Holder of
common stock immediately prior to such reincorporation owns the
same percentage of the Company immediately after its
reincorporation.

Except as described above with respect to a Change of
Control, the Indenture does not contain provisions that permit
the Securityholders to require that the Company repurchase or
redeem the Securities in the event of a takeover,
recapitalization or similar restructuring. The Company's ability
to purchase the Securities will be limited by the Company's then
available financial resources and, if such financial resources
are insufficient, its ability to arrange financing to effect such
purchases. There can be no assurance that the Company will have
sufficient funds to repurchase the Securities upon a Change of
Control or that the Company will be able to arrange financing for
such purpose.

A Change of Control would constitute an Event of
Default under the Credit Agreement, the Company's Senior
Securities and the Convertible Subordinated Debentures and could
result in the acceleration of the Company's debt repayment
obligations thereunder. In such event, the Company may not have
sufficient resources to satisfy all its repayment and repurchase
obligations.
<PAGE>

SECTION 4.12. Limitation on Use of Proceeds from Asset
----------------------------------------
Sales. The Company and its Subsidiaries will not, directly or
-----
indirectly, consummate any Asset Sales unless (i) the Company or
the Subsidiary, as the case may be, receives consideration at the
time of any such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of, (ii) at least
80% of the Net Proceeds from the Asset Sales are received in Cash
and Marketable Securities at closing and (iii) with respect to
any Asset Sale involving the Equity Interests of any Subsidiary,
the Company shall sell all of the Equity Interests it owns of
such Subsidiary in such Asset Sale. Within twelve (12) months
(or, in the event of a sale-and-leaseback transaction, twenty-
four (24) months) after the receipt of Cash in respect of any
Asset Sale, the Company or a Subsidiary may use all such Cash
either to (x) invest in capital assets, (y) purchase properties
and assets that are of a type similar to the properties and
assets that were the subject of such Asset Sale, and in the case
of clauses (x) and (y) the acquired capital assets or properties
and assets, as the case may be, are to be used primarily in a
retail warehousing business of the Company which is operated by
the Company or a Significant Subsidiary of the Company (or is a
business which meets the test necessary to be a Significant Sub-
sidiary) immediately prior to such acquisition or (z) permanently
reduce Senior Indebtedness. "Excess Proceeds" shall mean any
Cash from an Asset Sale that is not invested or used to
permanently reduce Senior Indebtedness as provided in the
preceding sentence. When the aggregate amount of Excess Proceeds
from any Asset Sale or series of related Asset Sales exceeds 10%
of the aggregate book value of the tangible assets of the Company
and its Subsidiaries (measured at the end of the most recent
fiscal quarter ended prior to such Asset Sale), the Company shall
offer to purchase from all Holders the maximum principal amount
of Securities that may be purchased out of such Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued interest, if any, to the
date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture (the "Excess Proceeds
Offer"). To the extent that the aggregate amount of the
Securities tendered pursuant to the Excess Proceeds offer is less
than the Excess Proceeds, the Company may use such deficiency, or
a portion thereof, for general corporate purposes. If the
aggregate principal amount of the Securities surrendered by
Holders thereof exceeds the amount of Net Proceeds, the Company
shall select the Securities to be purchased on a pro rata basis.
Upon completion of such offer, the amount of Excess Proceeds
shall be reset at zero. Notwithstanding the foregoing, $5
million of Cash received from any Asset Sale or Asset Sales in
<PAGE>

any fiscal year shall not be subject to the restrictions
contained in this covenant.

The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations
are applicable in connection with the repurchase of the
Securities pursuant to an Excess Proceeds offer.

SECTION 4.13. Limitation on Transactions with
-------------------------------
Affiliates. Except as otherwise permitted by the Indenture,
----------
neither the Company, nor any of its Subsidiaries, will make any
Investment, loan, advance, guarantee or capital contribution to,
or for the benefit of, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter
into or amend any contract, agreement or understanding with, or
for the benefit of, any Affiliate of the Company or any of its
Subsidiaries (other than the Company or any of its Wholly-owned
Subsidiaries) unless (i) the Board of Directors of the Company or
such Subsidiary, as the case may be, determines, in its reason-
able good faith judgment, that such transaction or series of
transactions is in the best interest of the Company or such
Subsidiary based on full disclosure of all relevant facts and
circumstances, (ii) such transaction or series of transactions is
fair to the Company or such Subsidiary and on terms that are no
less favorable to the Company or the relevant Subsidiary, as the
case may be, than those that could have been obtained in a
comparable transaction on an arm's length basis from a Person
that is not an Affiliate and (iii) with respect to a transaction
or series of transactions involving aggregate payments greater
than $5 million, a majority of independent directors of the
Company shall approve such transaction or series of transactions
by a resolution certifying that such transaction or series of
related transactions comply with the clause (ii) above.

SECTION 4.14. Subsidiary Guarantees. If (i) the
---------------------
Company or any Subsidiary of the Company that is a Subsidiary
Guarantor transfers or causes to be transferred, in one
transaction or a series of related transactions, property or
assets (including, without limitation), businesses, divisions,
real property, assets or equipment which in the aggregate have a
book value equal to or greater than 15% of the book value of the
Company's total assets determined on a consolidated basis as of
the time of transfer to any Subsidiary or Subsidiaries of the
Company that is not a Subsidiary Guarantor, other than in
connection with a Real Estate Financing or (ii) any Subsidiary of
the Company guarantees or otherwise becomes obligated with
<PAGE>

respect of any Indebtedness, other than Real Estate Financing,
the Company shall cause such Subsidiary or Subsidiaries to
(A) execute and deliver to the Trustee a supplemental indenture
substantially in the form of Exhibit B hereto, which supplemental
indenture shall also be in form and substance reasonably
satisfactory to the Trustee, pursuant to which such Subsidiary or
Subsidiaries shall unconditionally guarantee all of the Company's
Obligations under the Indenture and the Securities on the terms
set forth in such supplemental indenture, which Guarantee shall
be subordinate to any Guarantee granted by such Subsidiary
Guarantor in respect of Senior Indebtedness of the Company or
Indebtedness of the Subsidiary or Subsidiaries, and (B) deliver
to the Trustee (x) an Opinion of Counsel reasonably satisfactory
to the Trustee that such supplemental indenture has been duly
executed and delivered by such Subsidiary Guarantor or
Subsidiaries Guarantors and (y) an opinion from a nationally
recognized appraisal firm, in form and substance reasonably
satisfactory to the Trustee, stating that after giving effect to
such Guarantee, the Subsidiary Guarantor or Subsidiaries
Guarantors is or are solvent, as the case may be. The form of
Guarantee required to be delivered is attached as an exhibit to
the Indenture.

SECTION 4.15. Payment of Taxes and Other Claims. The
---------------------------------
Company shall pay or discharge or cause to be paid or discharged,
before any penalty accrues thereon, (i) all material taxes,
assessments and governmental charges levied or imposed upon the
Company or any Subsidiary thereof upon the income, profits or
property of the Company or any Subsidiary thereof and (ii) all
material lawful claims for labor, materials and supplies which,
if unpaid, would by law become a Lien upon the property of the
Company or any Subsidiary thereof; provided that none of the
Company or any Subsidiary thereof shall be required to pay or
discharge or cause to be paid or discharged any such tax,
assessment, charge or claims the amount, applicability or
validity of which is being contested in good faith by appropriate
proceedings and for which adequate provision has been made or
where the failure to effect such payment or discharge is not
adverse in any material respect to the Holders.

SECTION 4.16. Corporate Existence. Subject to Article
-------------------
5 hereof, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other
existence of any of its Subsidiaries in accordance with the
respective organizational documents of such Subsidiary and the
rights (charter and statutory), licenses and franchises of the
Company and its Subsidiaries; provided, however, that the Company
<PAGE>

shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of
any of its Subsidiaries, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and that the loss thereof is not
adverse in any material respect to the Holders.

SECTION 4.17. Maintenance of Properties and Insurance.
---------------------------------------
The Company shall cause all material properties owned by or
leased to it or any of its Subsidiaries and used or useful in the
conduct of its business or the business of such Subsidiary to be
maintained and kept in normal condition, repair and working order
and supplied with all necessary equipment and shall cause to be
made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section 4.17 shall
prevent the Company or any Subsidiary thereof from discontinuing
the maintenance of any such properties, if such discontinuance is
desirable in the conduct of its business or the business of such
Subsidiary.

The Company shall provide or cause to be provided, for
itself and any of its Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds
customarily insured against by corporations similarly situated
and owning like properties, including, but not limited to, public
liability insurance, with reputable insurers in such amounts with
such deductibles and by such methods as shall be customary for
corporations similarly situated in the industry.

SECTION 4.18. Stay, Extension and Usury Laws. The
------------------------------
Company covenants (to the extent it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time
hereafter enforce, which may affect the covenants or the
performance of this Indenture and the Company (to the extent it
may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law
has been enacted.
<PAGE>

SECTION 4.19. Investment Company Act. The Company
----------------------
shall not become an investment company subject to registration
under the Investment Company Act of 1940, as amended.

SECTION 4.20. Payments for Consents. Neither the
---------------------
Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Securityholder of any
Securities for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or
the Securities unless such consideration is offered to be paid or
agreed to be paid to all Securityholders of the Securities which
so consent, waive or agree to amend in the time frame set forth
in solicitation documents relating to such consent, waiver or
agreement.

SECTION 4.21. Covenant to Comply with Securities Laws
---------------------------------------
upon Purchase of Securities. In connection with any offer to
---------------------------
purchase or purchase of Securities under Section 4.11 or 4.12
hereof, the Company shall (i) comply with Rule 14e-1 under the
Exchange Act and (ii) otherwise comply with all Federal and state
securities laws so as to permit the rights and obligations under
Sections 4.11 and 4.12 hereof to be exercised in the time and in
the manner specified in Sections 4.11 and 4.12 hereof.

ARTICLE 5
SUCCESSOR CORPORATION
---------------------

SECTION 5.01. When the Company May Merge or Transfer
--------------------------------------
Assets. The Company will not consolidate with or merge into any
------
Person or permit any Person to merge with or into it or directly
or indirectly transfer (by lease, assignment, sale, conveyance or
otherwise) all or substantially all of its properties and assets,
in a single transaction or through a series of related
transactions, to another Person or group of affiliated Persons or
permit a Subsidiary of the Company to enter into any such
transaction or transactions if such transaction or transactions
would result in a direct or indirect transfer (by lease,
assignment, sale, conveyance or otherwise) of all or
substantially all of the assets of the Company and its
Subsidiaries on a consolidated basis, unless:

(1) The Company shall be the continuing Person, or the
Person, if other than the Company, formed by such consolidation
or into or with which the Company is merged or to which the
properties and assets of the Company, substantially as an
entirety, are transferred shall be a corporation organized and
<PAGE>

existing under the laws of the United States or any state thereof
or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the Obligations
of the Company under the Securities and this Indenture, and this
Indenture remains in full force and effect;

(2) immediately before and immediately after giving
effect to such transaction, no Event of Default and no Default
shall have occurred and be continuing;

(3) the Person which is formed by or survives such
consolidation or merger or to which such assets are transferred
(the "surviving entity"), after giving pro forma effect to such
transaction, could incur $1.00 of additional Indebtedness under
the first paragraph of Section 4.09 hereof; provided, however,
that the transfer by the Company of all or substantially all of
its assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to one or more
Wholly-owned Subsidiaries shall not be subject to the provisions
of this paragraph if each such Subsidiary (i) is organized and
existing under the laws of the United States or any State thereof
or the District of Columbia and (ii) complies with the covenants
described in Section 4.14; and

(4) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of
the surviving entity shall be equal to or greater than the
Consolidated Net Worth of the Company immediately before such
transaction.

In connection with any consolidation, merger or
transfer contemplated hereby, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger
or transfer and the supplemental indenture in respect thereto
comply with this Section 5.01 and that all conditions precedent
herein provided for relating to such transactions have been
complied with.

SECTION 5.02. Successor Corporation Substituted. Upon
---------------------------------
any consolidation or merger or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially
all of the assets of the Company in accordance with Section 5.01
hereof, the successor corporation formed by such consolidation or
into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is
<PAGE>

made, shall succeed to, and be substituted for, and may exercise
every right and power of the Company under this Indenture with
the same effect as if such successor corporation had been named
as the Company herein.

ARTICLE 6
DEFAULTS AND REMEDIES
---------------------

SECTION 6.01. Events of Default. An "Event of
-----------------
Default" occurs if one of the following shall have occurred and
be continuing:

(1) The Company defaults in the payment, when due and
payable, of (i) interest on any Security and the default
continues for a period of thirty (30) days or (ii) the principal
of or premium, if any, on any Securities when the same becomes
due and payable at maturity, acceleration, on the Redemption
Date, on the Change of Control Payment Date, on any payment date
respecting an Excess Proceeds Offer or otherwise;

(2) The Company fails to comply with any of its
covenants or agreements in the Securities or this Indenture
(other than those referred to in clause (1) above) and such
failure continues for forty-five (45) days after receipt by the
Company of a Notice of Default;

(3) default under any mortgage, indenture or
instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Subsidiaries) whether
such Indebtedness or guarantee is now existing or hereafter
created and either (i) such default is in the payment of any
principal of or interest on any such Indebtedness when due at
maturity and the principal amount of such Indebtedness exceeds
$10 million in the aggregate and such Indebtedness does not
constitute Real Estate Financing that is guaranteed by or with
recourse to the Company or any of its other Subsidiaries and, as
a result of such default, Indebtedness of the Company or its
Subsidiaries (other than such Real Estate Financing) aggregating
$10 million or more is accelerated or (ii) as a result of such
default the maturity of such Indebtedness has been accelerated
prior to its express maturity and the principal amount of such
Indebtedness, together with the principal amount of any other
such Indebtedness (in each case other than Real Estate Financing
that is not guaranteed by or with recourse to the Company or any
<PAGE>

of the Subsidiaries) the maturity of which has been accelerated,
aggregates $10 million or more;

(4) The Company or any of its Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law:

(A) commences a voluntary case or proceeding;

(B) consents to the entry of an order for relief
against it in an involuntary case or
proceeding;

(D) makes a general assignment for the benefit of
its creditors; or

(E) admits in writing its inability to pay its
debts generally as they become due;

(5) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:

(A) is for relief against the Company or any of
its Subsidiaries in an involuntary case or
proceeding;

(B) appoints a Custodian of the Company or any of
its Subsidiaries for all or substantially all
of its property;

(D) and in each case the order or decree remains
unstayed and in effect for sixty (60) days;
or

(6) final judgments for the payments of money which in
the aggregate exceed $10,000,000 shall be rendered against the
Company or any Subsidiary by a court and either (i) enforcement
proceedings have been commenced upon such judgments or (ii) such
judgements shall remain unstayed or undischarged for a period of
sixty (60) days and the Trustee shall receive notice thereof from
the Company or any Holder or shall otherwise obtain actual
knowledge thereof.
<PAGE>

"Bankruptcy Law" means Title 11, United States Code, or
any similar Federal or state law for the relief of debtors.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator, custodian or similar official under any Bankruptcy
Law.

A Default under clause (2) above is not an Event of
Default until the Trustee notifies the Company or the Holders of
at least 25% in aggregate principal amount of the Securities at
the time outstanding notify the Company and the Trustee of the
Default and the Company does not cure such Default within the
time specified in clause (2) above after receipt of such notice.
Any such notice must specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default."

In the case of any Event of Default (other than as a
result of a failure to comply with Section 4.11 hereof) pursuant
to the provisions of this Section 6.01 occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the
premium which the Company would have to pay if the Company then
had elected to redeem the Securities pursuant to paragraph 5 of
the Securities, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law,
anything in this Indenture or in the Securities contained to the
contrary notwithstanding.

In the case of an Event of Default as a result of a
failure to comply with Section 4.11 hereof occurring by reason of
any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding payment of
the premium which the Company would have to pay pursuant to
Section 4.11 hereof, such premium shall also become and be
immediately due and payable at such time as the principal and
interest on the Securities become due and payable pursuant to
Section 6.02 hereof to the extent permitted by law, anything in
this Indenture or in the Securities contained to the contrary
notwithstanding.

SECTION 6.02. Acceleration. If any Event of Default
------------
under clauses (1), (2), (3) or (6) of Section 6.01 occurs and is
continuing, the Trustee may, by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the
Securities then outstanding may, by notice to the Company and the
Trustee (each, an "Acceleration Notice"), and the Trustee shall,
upon the request of such Holders, declare the principal of the
Securities, premium, if any, and accrued but unpaid interest on
all Securities to be due and payable (i) immediately if no amount
<PAGE>

is outstanding and no commitment is in effect under the Specified
Senior Indebtedness or (ii) if any amount is outstanding or there
exists any commitment under the Specified Senior Indebtedness,
upon the earlier of five business days after delivery of the
Acceleration Notice to the Company by the Trustee or the Holders,
as the case may be, or acceleration of the Specified Senior
Indebtedness, and thereupon the Trustee may, at its discretion,
proceed to protect and enforce the rights of the Holders of the
Securities by appropriate judicial proceedings. Upon a
declaration of acceleration, such principal, premium, if any, and
accrued interest shall be due and payable. If any Event of
Default under clauses (4) or (5) of Section 6.01 occurs, all
principal, premium, if any, and interest on the Securities will
ipso facto become and be immediately due and payable. Except as
set forth in Section 10.05, the Holders of a majority in
aggregate principal amount of the Securities then outstanding by
written notice to the Trustee and to the Company may rescind an
acceleration and its consequences (except an acceleration due to
a default in payment of the principal or interest on any of the
Securities) if all existing Events of Default have been cured or
waived except non-payment of principal or interest that has
become due solely because of the acceleration.

SECTION 6.03. Other Remedies. If an Event of Default
--------------
occurs and is continuing, the Trustee may pursue any available
remedy by proceeding at law or in equity to collect the payment
of principal of, premium, if any, or interest on the Securities
or to enforce the performance of any provision of the Securities
or this Indenture.

The Trustee may maintain a proceeding even if the
Trustee does not possess any of the Securities or does not
produce any of the Securities in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any
right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or
acquiescence in, the Event of Default. No remedy is exclusive of
any other remedy. Except as set forth in Section 2.07 hereof,
all remedies are cumulative to the extent permitted by law.

SECTION 6.04. Waiver of Past Defaults. The Holders of
-----------------------
a majority in aggregate principal amount of the Securities at the
time outstanding, by notice to the Trustee (and without notice to
any other Securityholder), may waive an existing Default or Event
of Default and its consequences except (a) an Event of Default
described in Section 6.01(1) hereof or (b) a Default in respect
of a provision that under Section 9.02 hereof cannot be amended
without the consent of each Securityholder affected. When a
<PAGE>

Default is waived, it is deemed cured and shall cease to exist,
but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.

SECTION 6.05. Control by Majority. The Holders of a
-------------------
majority in aggregate principal amount of the Securities at the
time outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or that the Trustee
determines in good faith is unduly prejudicial to the rights of
other Securityholders or would involve the Trustee in personal
liability. The Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.

SECTION 6.06. Limitation on Suits. Except as provided
-------------------
in Section 6.07 hereof, a Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:

(1) the Holder gives to the Trustee written notice
stating that an Event of Default is continuing;

(2) the Holders of at least 25% in aggregate principal
amount of the Securities at the time outstanding make a written
request to the Trustee to pursue the remedy;

(3) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability or
expense satisfactory to the Trustee;

(4) the Trustee does not comply with the request
within thirty (30) days after receipt of the notice, the request
and the offer of security or indemnity; and

(5) the Holders of a majority in aggregate principal
amount of the Securities at the time outstanding do not give the
Trustee a direction inconsistent with the request during such
30-day period.

A Securityholder may not use this Indenture to
prejudice the rights of any other Securityholder or to obtain a
preference or priority over any other Securityholder.

SECTION 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of the principal amount,
premium, if any, or interest, in respect of the Securities held
<PAGE>

by such Holder, on or after the respective due dates expressed in
the Securities, any Redemption Date, any Change of Control
Payment Date, any Interest Coverage Date or any payment date
respecting an Excess Proceeds Offer, or to bring suit for the
enforcement of any such payment on or after such respective dates
or the right to convert, shall not be impaired or affected
adversely without the consent of each such Holder.

SECTION 6.08. Collection Suit by Trustee. If an Event
--------------------------
of Default described in Section 6.01(1) hereof occurs and is
continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole
amount owing with respect to the Securities and the amounts
provided for in Section 7.07 hereof.

SECTION 6.09. Trustee May File Proofs of Claim. In
--------------------------------
case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company
or the property of the Company, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise:

(1) to file and prove a claim for the whole amount of
the principal amount, premium, if any, and interest on the
Securities and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding;
and

(2) to collect and receive any moneys or other
property payable or deliverable on any such claims and to
distribute the same;

and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay the Trustee any
amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 7.07
hereof.

Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights
<PAGE>

of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 6.10. Priorities. If the Trustee collects any
----------
money pursuant to this Article 6, it shall pay out the money in
the following order:

FIRST: to the Trustee for amounts due under
Section 7.07 hereof;

SECOND: to Securityholders for amounts due and unpaid
on the Securities for the principal, premium, if any, and
interest, ratably, without preference or priority of any kind,
according to such amounts due and payable on the Securities for
principal, premium, if any, and interest respectively; and

THIRD: the balance, if any, to the Company.

The Trustee may fix a record date and payment date for
any payment to Securityholders pursuant to this Section 6.10.

SECTION 6.11. Undertaking for Costs. In any suit for
---------------------
the enforcement of any right or remedy under this Indenture or in
any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing
by any party litigant (other than the Trustee) in the suit of an
undertaking to pay the costs of the suit and the court in its
discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the
suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof or a suit by Holders of more than
10% in aggregate principal amount of the Securities at the time
outstanding.

SECTION 6.12. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any
stay or extension law or any usury or other law wherever enacted,
now or at any time hereafter in force, that would prohibit or
forgive the Company from paying all or any portion of the
principal or premium, if any, or interest on the Securities as
contemplated herein or affect the covenants or the performance by
the Company of its obligations under this Indenture and the
Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and
<PAGE>

covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law
had been enacted.

ARTICLE 7
TRUSTEE
-------

SECTION 7.01. Duties of Trustee.
-----------------
(1) If an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care
and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.

(2) Except during the continuance of an Event of
Default:

(A) the Trustee need perform only those duties
that are specifically set forth in this
Indenture and no implied covenants or
obligations shall be read into this Indenture
against the Trustee; and

(B) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the
truth of the statements and the correctness
of the opinions expressed therein, upon
certificates or opinions furnished to the
Trustee and conforming to the requirements of
this Indenture; however, in the case of any
such certificate or opinion which by any
provision hereof are specifically required to
be furnished to the Trustee, the Trustee
shall examine the certificates and opinions
to determine whether or not they conform to
the requirements of this Indenture.

The Trustee shall not be liable for any interest on
any money received by it.

(3) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its
own willful misconduct, except that:
<PAGE>

(A) this paragraph (3) does not limit the effect
of paragraph (2) of this Section 7.01;

(B) the Trustee shall not be liable for any error
of judgment made in good faith by a Trust
Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent
facts; and

(C) the Trustee shall not be liable with respect
to any action it takes or omits to take in
good faith in accordance with a direction
received by it pursuant to Section 6.05
hereof.

(4) Whether or not expressly so provided, every
provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (1), (2), (3) and (5) of this
Section 7.01.

(5) The Trustee may refuse to perform any duty or
exercise any right or power or extend or risk its own funds or
otherwise incur any financial liability unless it receives
security or indemnity satisfactory to it against any loss,
liability or expense.

(6) Money held by the Trustee in trust hereunder need
not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on
any money held by it hereunder.

SECTION 7.02. Rights of Trustee.
-----------------
(1) The Trustee may rely on any document believed by
it to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or
matter stated in the document.

(2) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate and an Opinion of
Counsel. The Trustee shall not be liable for any action it takes
or omits to take in good faith in reliance on such Officers'
Certificate and Opinion of Counsel.

(3) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent
appointed with due care.
<PAGE>

(4) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers.

(5) The Trustee may consult with counsel of its
selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.

(6) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders
pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security and indemnity against
the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction.

SECTION 7.03. Individual Rights of Trustee. The
----------------------------
Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the
Company or its Affiliates with the same rights it would have if
it were not Trustee. Any Paying Agent, Registrar or co-registrar
may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11 hereof.

SECTION 7.04. Trustee's Disclaimer. The Trustee makes
--------------------
no representation as to the validity or adequacy of this
Indenture or the Securities. The Trustee shall not be account-
able for the Company's use of the proceeds from the Securities
and it shall not be responsible for any statement in the
registration statement for the Securities under the Securities
Act of 1933, as amended (the "Securities Act"), (other than
statements contained in the Form T-1 filed with the SEC under the
TIA) or in this Indenture or in the Securities (other than its
certificate of authentication) or responsible for the
determination as to which beneficial owners are entitled to
receive any notices hereunder.

SECTION 7.05. Notice of Defaults. If a Default occurs
------------------
and is continuing and if it is known to the Trustee, the Trustee
shall mail to each Securityholder, as their names and addresses
appear on the Register, notice of the Default within ninety (90)
days after it becomes known to the Trustee unless such Default
shall have been cured or waived. Except in the case of a Default
described in Sections 6.01(1) and 6.01(2) hereof, the Trustee may
withhold such notice if and so long as a committee of Trust
<PAGE>

Officers in good faith determines that the withholding of such
notice is in the interests of Securityholders.

SECTION 7.06. Reports by Trustee to Holders. Within
-----------------------------
sixty (60) days after each March 15 beginning with the March 15
following the date of this Indenture, the Trustee shall mail to
each Securityholder a brief report dated as of such reporting
date that complies with Section 313(a) of the TIA. The Trustee
shall also transmit all reports as required by Section 313(b)(2) of
the TIA to such Holders. The Trustee shall transmit such reports
in such manner as required by Section 313(c) of the TIA.

A copy of each report at the time of its mailing to
Securityholders shall be filed with the Company, the SEC and each
stock exchange on which the Securities are listed. The Company
shall promptly notify the Trustee whenever the Securities become
listed on any stock exchange and of any delisting thereof.

SECTION 7.07. Compensation and Indemnity. The Company
--------------------------
agrees:

(1) To pay to the Trustee from time to time such
compensation as shall be agreed in writing between the Company
and the Trustee for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);

(2) To reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made
by the Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses,
disbursements and advances of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and

(3) To indemnify the Trustee for, and to hold it
harmless against, any and all loss, liability or expense,
incurred without negligence, willful misconduct or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties
hereunder.

The Trustee shall have a claim and lien prior to the
Securities as to all property and funds held by it hereunder for
any amount owing it or any predecessor Trustee pursuant to this
Section 7.07, except with respect to funds held in trust for the
<PAGE>

payment of principal of, premium, if any, or interest on
particular Securities.

The Company's payment obligations pursuant to this
Section 7.07 shall survive the discharge of this Indenture. When
the Trustee renders services or incurs expenses after the
occurrence of a Default specified in Section 6.01(4) or (5)
hereof, the compensation for services and expenses are intended
to constitute expenses of administration under any Bankruptcy
Law.

SECTION 7.08. Replacement of Trustee. The Trustee may
----------------------
resign by so notifying the Company in writing at least thirty
(30) days prior to the date of the proposed resignation;
provided, however, no such resignation shall be effective until a
successor Trustee has accepted its appointment pursuant to this
Section 7.08. The Holders of a majority in aggregate principal
amount of the Securities at the time outstanding may remove the
Trustee by so notifying the Trustee and the Company. The Company
may remove the Trustee if:

(1) the Trustee fails to comply with Section 7.10
hereof;

(2) the Trustee is adjudged bankrupt or insolvent or
an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;

(3) a Custodian or public officer takes charge of the
Trustee or its property; or

(4) the Trustee otherwise becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Company shall
promptly appoint, by resolution of its Board of Directors, a
successor Trustee.

A successor Trustee shall deliver a written acceptance
of its appointment to the retiring Trustee and to the Company.
Thereupon the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. Subject to payment of all amounts
owing to the Trustee under Section 7.07 hereof and subject
further to its lien under Section 7.07 hereof, the retiring
<PAGE>

Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee.

If a successor Trustee does not take office within
thirty (30) days after the retiring Trustee resigns or is
removed, the retiring Trustee, the Company or the Holders of a
majority in aggregate principal amount of the Securities at the
time outstanding may petition any court of competent jurisdiction
for the appointment of a successor Trustee.

If the Trustee fails to comply with Section 7.10
hereof, any Securityholder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment
of a successor Trustee.

SECTION 7.09. Successor Trustee by Merger. If the
---------------------------
Trustee consolidates with, merges or converts into, or transfers
all or substantially all its corporate trust business or assets
to, another corporation, the resulting, surviving or transferee
corporation without any further act shall be the successor
Trustee; provided that such successor is eligible and qualified
under Section 7.10 hereof.

SECTION 7.10. Eligibility; Disqualification. The
-----------------------------
Trustee shall at all times satisfy the requirements of
Section 310(a)(1) of the TIA. The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee
shall comply with Section 310(b) of the TIA. In determining
whether the Trustee has conflicting interests as defined in
Section 310(b)(1) of the TIA, the provisions contained in the
proviso to Section 310(b)(1) of the TIA shall be deemed
incorporated herein.

SECTION 7.11. Preferential Collection of Claims
---------------------------------
Against the Company. The Trustee is subject to Section 311(a) of
-------------------
the TIA, excluding any creditor relationship listed in
Section 311(b) of the TIA. A Trustee who has resigned or been
removed shall be subject to Section 311(a) of the TIA to the
extent indicated therein.

ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
---------------------------------------

SECTION 8.01. Termination of the Company's Obliga
-----------------------------------
tions. The Company may terminate all of its obligations under
-----
the Securities and this Indenture (except those obligations
<PAGE>

referred to in the immediately succeeding paragraph) if all
Securities previously authenticated and delivered (other than
destroyed, lost or stolen Securities which have been replaced or
paid or Securities for whose payment money has theretofore been
held in trust and thereafter repaid to the Company as provided in
Section 8.03 hereof) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it
hereunder, or if the Company irrevocably deposits or causes to be
deposited in trust with the Trustee or the Paying Agent money or
U.S. Government Obligations maturing as to principal and interest
in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the
principal of and interest on the Securities then outstanding to
maturity and to pay all other sums payable by it hereunder. The
Company may make an irrevocable deposit pursuant to this Section
8.01 only if at such time it is not prohibited from doing so
under the provisions of Article 10 hereof and the Company shall
have delivered to the Trustee and any such Paying Agent an
Officers' Certificate to that effect.

The Company's obligations in paragraph 10 of the
Securities and in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01,
7.07, 7.08 and 8.04 hereof shall survive until the Securities are
no longer outstanding. Thereafter, the Company's obligations in
such paragraph 10 and in Section 7.07 shall survive.

After such irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the
Company's obligations under the Securities and this Indenture,
except for those surviving obligations specified above.

"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which guarantee or
obligation the full faith and credit of the United States is
pledged.

SECTION 8.02. Application of Trust Money. The Trustee
--------------------------
or Paying Agent shall hold in trust, for the benefit of the
Holders, money or U.S. Government Obligations deposited with it
pursuant to Section 8.01 hereof, and shall apply the deposited
money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of the principal of
and interest on the Securities. Money and U.S. Government
Obligations so held in trust shall not be subject to the
subordination provisions of Article 10 hereof.
<PAGE>

SECTION 8.03. Repayment to the Company. Subject to
------------------------
Section 8.01 hereof, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money or U.S.
Government Obligations held by them at any time.

The Trustee and the Paying Agent shall pay to the
Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for two (2) years
after a right to such money has matured; provided, however, that
the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be
published once in a newspaper of general circulation in the City
of New York or mail to each Holder entitled to such money notice
that such money remains unclaimed and that after a date specified
therein, which shall be at least thirty (30) days from the date
of such publication or mailing, any unclaimed balance of such
money then remaining will be repaid to the Company. After
payment to the Company, Securityholders entitled to money must
look to the Company for payment as general creditors unless
otherwise prohibited by law.

SECTION 8.04. Reinstatement. If the Trustee or Paying
-------------
Agent is unable to apply any money or U.S. Government Obligations
in accordance with Section 8.01 hereof by reason of any legal
proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under
this Indenture and the Securities shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.01 hereof
until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance
with Section 8.01 hereof; provided, however, that if the Company
has made any payment of the principal of or interest on any
Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such
Securities to receive any such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.

ARTICLE 9
AMENDMENTS
----------

SECTION 9.01. Without Consent of Holders. From time
--------------------------
to time, when authorized by a resolution of its Boards of
Directors, the Company and the Trustee, without notice to or the
consent of the holders of the Securities issued hereunder, may
amend or supplement this Indenture or the Securities as follows:
<PAGE>

(1) to cure any ambiguity, defect or inconsistency;

(2) to comply with Section 5.01 hereof;

(3) to provide for uncertificated Securities in
addition to or in place of certificated Securities so long as
such uncertificated Securities are in registered form for
purposes of the Internal Revenue Code of 1986, as amended;

(4) to make any other change that does not adversely
affect the rights of any Securityholder; or

(5) to comply with any requirement of the SEC in
connection with the qualification of this Indenture under the
TIA.

SECTION 9.02. With Consent of Holders. With the
-----------------------
written consent of the Holders of at least a majority in
aggregate principal amount of the Securities at the time
outstanding, the Company and the Trustee may amend this Indenture
or the Securities or may waive compliance in a particular
instance by the Company with any provisions of this Indenture or
the Securities. However, without the consent of each
Securityholder affected thereby, a waiver or an amendment to this
Indenture or the Securities may not:

(1) reduce the percentage of principal amount of the
Securities whose Holders must consent to an amendment or waiver
of any provision of this Indenture or the Securities; or

(2) make any change to the Stated Maturity of the
principal of, premium, if any, or any interest on the Securities
or any Redemption Price thereof, make any change to the time or
amount of any required sinking fund payment, or impair the right
to institute suit for the enforcement of any such payment or make
any Security payable in money or securities other than that
stated in the Security; or

(3) make any change in Article 10 hereof that
adversely affects the rights of any Securityholder or any change
to any other Section hereof that adversely affects the rights of
any Securityholder under Article 11 hereof; or

(4) waive a default in the payment of the principal
of, premium, if any, or interest on, any Security; or

(5) make any change in the provisions of Sections
4.11, 4.12, 6.04 or 6.07 hereof; or
<PAGE>

(6) make any change to Sections 9.01 or 9.02 hereof.

It shall not be necessary for the consent of the
Holders under this Section 9.02 to approve the particular form of
any proposed amendment, but it shall be sufficient if such
consent approves the substance thereof.

In the event that certain Holders are willing to defer
or waive certain obligations of the Company hereunder with
respect to Securities held by them, such deferral or waiver shall
not be deemed to affect any other Holder who receives the subject
payment or performance in a timely manner.

After an amendment or waiver under this Section 9.02
becomes effective, the Company shall mail to each Holder a notice
briefly describing the amendment or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such
amendment or waiver.

SECTION 9.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to this Indenture or the Securities at a time
when this Indenture shall be qualified under the TIA shall be set
forth in a supplement that complies with the TIA as then in
effect.

SECTION 9.04. Revocation and Effect of Consents,
----------------------------------
Waivers and Actions. Until an amendment, waiver or other action
-------------------
by Holders becomes effective, a consent to it or any other action
by a Holder of a Security hereunder is a continuing consent by
the Holder and every subsequent Holder of that Security or
portion of the Security that evidences the same obligation as the
consenting Holder's Security, even if notation of the consent,
waiver or action is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent, waiver or
action as to such Holder's Security or portion of the Security if
the Trustee receives the notice of revocation before the consent
of the requisite aggregate principal amount of the Securities
then outstanding has been obtained and not revoked. After an
amendment, waiver or action becomes effective, it shall bind
every Securityholder, except as provided in Section 9.02 hereof.

The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled
to consent to any amendment or waiver. If a record date is
fixed, then, notwithstanding the first two sentences of the
immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only
<PAGE>

those Persons, shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for
more than ninety (90) days after such record date.

SECTION 9.05. Notation on or Exchange of Securities.
-------------------------------------
Securities authenticated and made available for delivery after
the execution of any supplemental indenture pursuant to this
Article 9 may, and shall, if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company
shall so determine, new Securities so modified as to conform, in
the opinion of the Trustee and the Board of Directors, to any
such supplemental indenture may be prepared and executed by the
Company and authenticated and made available for delivery by the
Trustee in exchange for outstanding Securities.

SECTION 9.06. Trustee to Sign Supplemental Indentures.
---------------------------------------
The Trustee shall sign any supplemental indenture authorized
pursuant to this Article 9 if the supplemental indenture does not
adversely affect the rights, duties, liabilities or immunities of
the Trustee. If it does, the Trustee may, but need not, sign it.
In signing such amendment the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an
Officers' Certificate and Opinion of Counsel stating that such
supplemental indenture is authorized or permitted by this
Indenture.

SECTION 9.07. Effect of Supplemental Indentures. Upon
---------------------------------
the execution of any supplemental indenture under this Article 9,
this Indenture shall be modified in accordance therewith, and
such supplemental indenture shall form a part of this Indenture
for all purposes, and every Holder of Securities theretofore or
thereafter authenticated and made available for delivery
hereunder shall be bound thereby.

ARTICLE 10
SUBORDINATION
-------------

SECTION 10.01. Agreement to Subordinate. The Company
------------------------
agrees, and each Securityholder by accepting a Security agrees,
that all Indebtedness and other monetary claims and obligations
evidenced by the Securities (including, without limitation,
principal, premium, if any, and interest) is subordinated in
right of payment, to the extent and in the manner provided in
this Article 10, to the prior payment in full of all Senior
<PAGE>

Indebtedness in cash or, at the sole option of the holders of Senior
Indebtedness, cash equivalents, and that the subordination is for the
benefit of the holders of the Senior Indebtedness.

SECTION 10.02. Liquidation; Dissolution; Bankruptcy.
------------------------------------
Upon any (i) bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property (whether
voluntary or involuntary), (ii) assignment for the benefit of creditors
or any marshalling of the assets and liabilities of the Company or (iii)
distribution to creditors of the Company in a liquidation or dissolution
of the Company:

(1) the holders of Senior Indebtedness shall first
be entitled to receive payment of all amounts owing in respect of
such Senior Indebtedness in full in cash or, at the sole option of
the holders of the Senior Indebtedness, cash equivalents (including,
without limitation, interest accruing before or after the
commencement of any such proceeding at the applicable rate specified
in such Senior Indebtedness, whether or not a claim therefor is
allowed in any such proceeding) to the date of payment on the Senior
Indebtedness before (a) Securityholders shall be entitled to receive
any payment of principal, premium or interest on the Securities or
any payment of any other monetary claims in respect of the
Securities, including, without limitation, such monetary claims as
may result from rights of repurchase or rescission, under or in
respect of the Securities, (b) any payment is made to acquire the
Securities for cash, property or other securities, or (c) any
distribution is made with respect to the Securities upon any
proceedings described in clause (i), clause (ii) or clause (iii)
hereof; and

(2) until the Senior Indebtedness (as provided in
subsection (1) above) is paid in full in cash or, at the sole option
of the holders of the Senior Indebtedness, cash equivalents, any
distribution to which Securityholders would be entitled but for this
Article 10 shall be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other person making
such payment or distribution, or by the Trustee under this Indenture
if received by it, directly to holders of Senior
Indebtedness (pro rata to each such holder on the basis of the
respective amounts of Senior Indebtedness held by such holder), as
their interests may appear, or by the holders of Securities, if
received by any of them, to the Trustee for payment to the holders
of Senior Indebtedness as set forth above, except that
Securityholders may receive securities that are subordinated to
Senior Indebtedness and to any securities issued in exchange for
Senior Indebtedness to at least the same extent as the Securities to
Senior Indebtedness.

For purposes of this Article 10, a "distribution" shall
be defined as any payment or distribution of cash, securities
or other property, by set-off or otherwise.

The consolidation of the Company with, or the merger of
the Company into, another corporation or the liquidation or dissolution
of the Company following the conveyance or transfer of its properties and
assets substantially as an entirety to another Person upon the terms and
conditions set forth in Article 5 hereof shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes
of this Section 10.02 if the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by
conveyance or transfer such properties and assets substantially as an
entirety, as the case may be, shall, as a part of such
<PAGE>

consolidation, merger, conveyance or transfer comply with (a) the
conditions set forth in Article 5 hereof and (b) any and all provisions
with respect to any such merger or other transaction set forth in any
instrument governing or relating to any Senior Indebtedness as in effect
on the date of the initial issuance of the Securities.

SECTION 10.03. Default on Senior Indebtedness. Upon
------------------------------
the final maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all such Senior Indebtedness shall first be
paid in full in cash, or such payment duly provided for in a manner
satisfactory to the holders of such Senior Indebtedness, in their sole and
absolute discretion, before any payment is made by the Company or any
Person acting on behalf of the Company, directly or indirectly, on
account of the principal, premium or interest of the Securities, any
payment is made to any Securityholder in respect of any redemption or
purchase of any Securities or any other distribution is paid or made in
respect of the Securities.

Until all Senior Indebtedness has been paid in full, in cash
or, at the sole option of the holders of Senior Indebtedness, cash
equivalents, the Company may not, directly or indirectly, make any
payment of principal, premium, if any, or interest on the Securities and
may not acquire any Securities for cash or property or make any other
distribution with respect to the Securities if:

(i) a default in the payment of the principal of, or interest
on, or the payment of other amounts due (including, without
limitation, any premium) under or in connection with any Senior
Indebtedness occurs and is continuing (a "Payment Default") unless
and until such default has been cured or waived by the holder of
such Senior Indebtedness; or

(ii) a default, other than a Payment Default, on any Senior
Indebtedness occurs and is continuing that then permits the holders
(or the agent) of such Senior Indebtedness to accelerate its
maturity (a "Non-Payment Default") and either (a) such default is
either (x) the subject of judicial proceedings or (y) the Trustee
and such Paying Agent receive a notice of the default from the
holder or holders of at least 25% in aggregate principal amount of
any Specified Senior Indebtedness, the trustee or a Person who may
give such notice with respect to such Specified Senior Indebtedness
pursuant to Section 10.11 hereof at least two (2) Business Days
prior to the relevant payment date; provided, however, that only one
such notice relating to the same event of default or any other
default existing at the time of such notice under the Senior
Indebtedness may be given during any 360-consecutive-day period or
(b) such Non-Payment Default results from the acceleration of the
Securities, (in which case, the foregoing restriction shall
commence upon the date of such acceleration). Notwithstanding the
foregoing, the holders of more than one class of Senior Indebtedness
who collectively meet the $20,000,000 threshold for Specified Senior
<PAGE>

Indebtedness may act in concert to cause a Payment Blockage
Period, as hereafter defined.

The Company shall resume payments on the Securities and may
acquire them upon the earlier of when (a) the default is cured or waived
by the requisite percentage of the holders of Senior Indebtedness
specified in the agreement or agreements relating to such Senior
Indebtedness or (b) in the case of a default referred to in Section
10.03(ii) above, on the earlier of the 179th day after (x) the receipt of
notice by the Trustee or the Paying Agent or (y) if such Non-Payment
Default results from the acceleration of the Securities, the date of such
acceleration (with respect to a Non-Payment Default, such period of time
shall be hereinafter referred to as a "Payment Blockage Period") unless
(x) enforcement proceedings shall have been commenced and be continuing in
respect of such Non-Payment Default (in which event the Payment Blockage
Period shall end at the later to occur of (1) the 179th day after receipt
of notice of commencement of such Payment Blockage Period or (2) the date
the enforcement proceedings terminate) or (y) such Payment Blockage
Period shall have been earlier terminated.

In addition, no default which existed or was continuing
on the date of the commencement of any Payment Blockage Period
with respect to the Specified Senior Indebtedness and which was
known to the holder or holders (or agent) of such Specified Senior
Indebtedness on such date of commencement shall be made the basis
for the commencement of a second Payment Blockage Period by the
holders (or the agent) of such Specified Senior Indebtedness
whether or not within a period of 360 consecutive days unless and
until all scheduled payments of interest, principal and/or
premium then due and payable have been made on the Securities.

SECTION 10.04. No Suspension of Remedies. Nothing
-------------------------
contained in this Article 10 shall limit the right of the Trustee
or the Securityholders to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 hereof or to
pursue any other rights or remedies hereunder or under applicable
law; provided, however, that all Senior Indebtedness of the
Company then due and payable, or which thereafter is declared to
be, or shall otherwise become, due and payable, pursuant to its
terms (whether by acceleration or otherwise) shall first be paid
in full in cash or, at the sole option of the holders of Senior
Indebtedness, cash equivalents before the Securityholders or the
Trustee are entitled to receive any payment from the Company of
principal, premium and/or interest on the Securities or in respect
of any other monetary claim relating to the Securities (including,
without limitation, any payments in respect of the redemption or
purchase of the Securities). Notwithstanding the foregoing, any
acceleration of the maturity of the Securities due to the default
by the Company to make a payment required by Section 6.01(l) hereof
resulting from the operation of Section 6.02 hereof shall be automatically
rescinded to the extent permitted by applicable law and all Events of
Default which permitted the acceleration of the Securities or under
applicable law shall be deemed to be automatically and permanently cured
to the extent permitted by applicable law if (i) all defaults on Senior
Indebtedness are permanently cured or waived and (ii) the payment or
payments the omission of which

<PAGE>

gave rise to the Event of Default is or are made, within 179 days
after the date on which the Trustee or the Paying Agent received
notice of the default or defaults on the Senior Indebtedness; and
provided, further, that at the time of such automatic rescission
no other Event of Default or Defaults shall have occurred and be
continuing. Such automatic rescission shall be effective as of
the date both conditions specified in clauses (i) and (ii) above
are satisfied.

SECTION 10.05. When Distribution Must Be Paid Over. In
-----------------------------------
the event that any payment or distribution of assets of the Company
of any kind or character (in each case, whether in cash, property or other
securities) is made to the Trustee on account of the principal or interest
on the Securities at a time when such payment is prohibited by Section
10.02 or 10.03 hereof, such payment shall be held by the Trustee, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the
basis of the respective amounts of Senior Indebtedness held by them) or
their duly authorized representative, as their respective interests may
appear, for application to the payment of all Senior Indebtedness in full
in accordance with their terms in cash, or at their sole option, cash
equivalents, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.

In the event that any payment or distribution of assets of the
Company of any kind or character (in each case, whether in cash, property
or other securities) is made to Securityholders that because of this
Article 10 should not have been made to them, the Securityholders who
receive the distribution shall hold it in trust for the benefit of the
holders of Senior Indebtedness, and shall forthwith pay over and deliver
such distribution to the Trustee, which shall, as provided in the
immediately proceeding paragraph, hold it in trust for the benefit of and
shall forthwith pay over and deliver such distribution to, the holders of
the Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts of Senior Indebtedness held by them) or their
duly authorized representative, as their respective interests may appear,
for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full in
cash, or, at the sole option of the holders of Senior Indebtedness, cash
equivalents, in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior
Indebtedness.

SECTION 10.06. Notice by the Company. The Company
---------------------
shall promptly notify the Trustee and the Paying Agent of any facts known
to the Company that would cause any payment or distribution of property
or assets in respect of the Securities to violate this Article 10, but
failure to give such notice shall not affect the subordination of the
Securities to the Senior Indebtedness provided in this Article 10. Nothing
in this Article 10 shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.07 hereof.

SECTION 10.07. Subrogation. After all Senior
-----------
Indebtedness is paid in full in cash or, at the sole option of the
<PAGE>

holders of Senior Indebtedness, cash equivalents and until the
Securities are paid in full, Securityholders shall be subrogated
to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent
that distributions otherwise payable to Securityholders have been
applied to the payment of Senior Indebtedness.

If any payment or distribution to which the Holders
would otherwise have been entitled but for the provisions of this
Article 10 shall have been applied pursuant to the provisions of
this Article 10 to the payment of all amounts payable in respect
of the Senior Indebtedness of the Company, then and in such case,
the Securityholders shall be entitled to receive from the holders
of such Senior Indebtedness at the time outstanding any payments
or distributions received by such holders of Senior Indebtedness
in excess of the amount sufficient to pay all amounts payable in
respect of the Senior Indebtedness of the Company in full in cash
or, at the sole option of the holders of Senior Indebtedness, cash
equivalents.

SECTION 10.08. Relative Rights. This Article 10
---------------
defines the relative rights of Securityholders and holders of
Senior Indebtedness. Nothing in this Indenture shall:

(1) impair, as between the Company and Security-
holders, the obligation of the Company, which is absolute
and unconditional, to pay principal of and interest on the
Securities in accordance with their terms;

(2) affect the relative rights of Securityholders and
creditors of the Company other than holders of Senior
Indebtedness; or

(3) prevent the Trustee or any Securityholder from
exercising its available remedies upon a Default or Event of
Default, subject in all respects to the rights of holders of Senior
Indebtedness under this Article 10.

If the Company fails because of this Article 10 to pay
principal of or interest on a Security on the due date, the
failure is still a Default or Event of Default.

The provisions of this Article 10 shall continue to be
effective or be reinstated, as the case may be, if at any time
any payment of any Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness upon
the insolvency, bankruptcy or reorganization of the Company or
otherwise, all as though such payment had not been made.
<PAGE>

SECTION 10.09. No Waiver of Subordination Provisions.
-------------------------------------
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Securities
shall be prejudiced or impaired by any act or failure to act
by such holder or by any failure by the Company to comply with
this Indenture regardless of any knowledge thereof any such
holder of Senior Indebtedness may have or may otherwise be
charged with.

The holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the
Trustee or the Holders of the Securities and without incurring
responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article
10 or the obligations hereunder of the Securityholders to the
holders of Senior Indebtedness, do any one or more of the
following: (1) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding;
(2) accept, sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness;
(3) release any Person liable in any manner for the collection or
payment of Senior Indebtedness; (4) exercise or refrain from exercising
any rights against the Company or any other Person or (5) apply any
moneys or other property paid by any Person or released in any manner
to the Senior Indebtedness.

SECTION 10.10. Distribution or Notice to Repre
-------------------------------
sentative. Whenever a distribution is to be made or a notice
---------
given to holders of Senior Indebtedness, the distribution may be
made and the notice given to their duly authorized representative.

Upon any payment or distribution of assets of the
Company referred to in this Article 10, the Trustee and the
Securityholders shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction or upon any
certificate of such representative or of the liquidating trustee
or agent or other Person making any distribution to the Trustee
or to the Securityholders for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders
of the Senior Indebtedness and other Indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or
to this Article 10. In the event that the Trustee determines, in
good faith, that further evidence is required with respect to the
right of any Person, as a holder of Senior Indebtedness, to
participate in any payment or distribution pursuant to this
Section 10.10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the
amount of such Senior Indebtedness held by such Person, as to the
extent to which such Person is entitled to participation in such
payment or distribution, and as to other facts pertinent to the
<PAGE>

rights of such Person under this Section 10.10, and if such
evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of
such Person to receive such payment.

SECTION 10.11. Rights of Trustee and Paying Agent. The
----------------------------------
Trustee or Paying Agent shall not at any time be charged with
the knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee unless and until
an officer in the Corporate Trust Department of the Trustee and
each Paying Agent shall have received written notice thereof from
the Company or a holder of (or an agent or trustee of) Senior
Indebtedness (which such holder, agent or trustee shall have delivered
reasonably satisfactory evidence of the capacity of such holder, agent or
trustee); and, prior to the receipt of any such written notice, the
Trustee and each Paying Agent shall be entitled to assume conclusively
that no such facts exist. Unless at least two (2) Business Days prior to
the date on which by the terms of this Indenture any monies are to be
deposited by the Company with the Trustee or any Paying Agent (whether or
not in trust) for any purpose (including, without limitation, the payment
of either the principal of or the interest on any Security), the Trustee
and each Paying Agent shall have received with respect to such monies the
notice provided for in the preceding sentence, the Trustee and each
Paying Agent shall have full power and authority to receive such monies
and to apply the same to the purpose for which they were received, and
shall not be affected by any notice to the contrary which may be received
by it on or after such date. The foregoing shall not apply to the Paying
Agent if the Company is acting as Paying Agent.

The Trustee in its individual or any other capacity may
hold Senior Indebtedness with the same rights it would have if it
were not Trustee.

SECTION 10.12. Authorization to Effect Subordination;
--------------------------------------
Limited Fiduciary Duty to Holders of Senior Indebtedness. Each Holder
--------------------------------------------------------
of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary
or appropriate to effectuate the subordination as provided in
this Article 10, and appoints the Trustee as attorney-in-fact for
any and all purposes including, in the event of any dissolution, winding
up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency, or receivership or similar proceedings or upon an assignment
for the benefit of creditors or otherwise) tending towards liquidation of
the business and assets of the Company, to file a claim for the unpaid
balance of its Securities in the form required in said proceedings and to
cause said claim to be approved. If the Trustee or holders of a majority
in interest of the then outstanding Securities do not file a proper claim
or proof of debt in the form required in such proceeding prior to 30 days
before the expiration of the time to file such claim or proof, then, to
the extent permitted by applicable law, the holders of the Senior
Indebtedness shall have the right to file and are hereby authorized to
file an appropriate claim for and on behalf of the holders of said
Securities, but such right shall not prevent the Trustee or the holders
of a majority in interest of the then outstanding Securities from filing
a proof of claim subsequent to the commencement of such 30-day period.
Notwithstanding anything to the contrary in this Article 10, the Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall have no duties to such holders, except for the
Trustee's duty to hold cash, properties or securities in trust for the
benefit of the holders of the Senior Indebtedness and as otherwise
expressly set forth in this Article 10, and no implied covenants or
obligation shall be read into this Indenture against the Trustee.
<PAGE>

SECTION 10.13. Miscellaneous.
-------------
(a) All rights and interests under this Article 10 of
the holders of Senior Indebtedness, and all agreements and
obligations of the Securityholders, the Trustee and the Company
under this Article 10, shall remain in full force and effect
irrespective of:

(i) any lack of validity or enforceability of the
Credit Agreement or the purchase agreement made with respect
to the Senior Securities, the notes or security instruments
issued pursuant thereto or any other agreement or instrument
relating thereto;

(ii) any exchange, release or non-perfection of any
Lien securing Senior Indebtedness or any release or
amendment or waiver of or consent to departure from any
guaranty, for all or any of the Senior Indebtedness; or

(iii) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, the
Company in respect of Senior Indebtedness.

(b) The provisions of this Article 10 constitute a
continuing agreement and shall (i) remain in full force and
effect until the Senior Indebtedness shall have been paid in
full, and (ii) be binding upon the Securityholders and the Trustee,
the Company and their successors and assigns.

(c) Each holder of a Security by its acceptance thereof
acknowledges and agrees that the foregoing subordination provisions
are, and are intended to be, an inducement and a consideration to each
holder of any Senior Indebtedness (by its original terms or amendment
thereof), whether such Senior Indebtedness was created or acquired before
or after the issuance of the Securities, to acquire and continue to hold,
or to continue to hold, such Senior Indebtedness, and such holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Indebtedness. The subordination provisions
in this Article 10 may be enforced directly, from time to time, by any
holder of Specified Senior Indebtedness or any holder of Senior Securities.

ARTICLE 11
MISCELLANEOUS
-------------

SECTION 11.01. Trust Indenture Act Controls. If any
----------------------------
provision of this Indenture limits, qualifies or conflicts with
the duties imposed by operation of subsection (c) of Section 318
of the TIA, the imposed duties shall control. The provisions of
Sections 310 to 317, inclusive, of the TIA that impose duties on
any Person (including provisions automatically deemed included in
an indenture unless the indenture provides that such provisions
are excluded) are a part of and govern this Indenture, except as,
<PAGE>

and to the extent, expressly excluded from this Indenture, as
permitted by the TIA.

SECTION 11.02. Notices. Any notice or communication
-------
shall be in writing and delivered in Person or mailed by
first-class mail, postage prepaid, or overnight air courier
guaranteeing next day delivery, addressed as follows:

if to the Company:

Waban Inc.
One Mercer Road
Natick, MA 01760

Attention: General Counsel

if to the Trustee:

The First National Bank of Boston
100 Federal Street
Boston, MA 02110

Attention: Corporate Trust Department

The address of the Trustee for presentation of
Securities for payment or for registration of transfer, exchange
or for redemption is:

The First National Bank of Boston
100 Federal Street
Boston, MA 02110

The Company or the Trustee, by notice to the other, may
designate additional or different addresses for subsequent
notices or communications or presentation of Securities.

Any notice or communication given to a Securityholder
shall be mailed to the Securityholder at the Securityholder's
address as it appears on the registration books of the Registrar
and shall be sufficiently given if so mailed within the time
prescribed.

Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders. If a notice
or communication is mailed in the manner provided above, it is
duly given, whether or not received by the addressee, except that
<PAGE>

no notice or communication to the Trustee shall be deemed given
unless actually received by the Trustee.

If the Company mails a notice or communication to the
Securityholders, it shall mail a copy to the Trustee and each
Registrar, Paying Agent or co-registrar.

SECTION 11.03. Communication by Holders with Other
-----------------------------------
Holders. Securityholders may communicate pursuant to Sec
-------
tion 312(b) of the TIA with other Securityholders with respect to
their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar, the Paying Agent and anyone
else shall have the protection of Section 312(c) of the TIA.

SECTION 11.04. Certificate and Opinion as to Conditions
----------------------------------------
Precedent. Upon any request or application by the Company to the
---------
Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:

(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action
have been complied with; and

(2) an Opinion of Counsel stating that, in the opinion
of such counsel, all such conditions precedent have been complied
with.

SECTION 11.05. Statements Required in Certificate or
-------------------------------------
Opinion. Each Officers' Certificate and Opinion of Counsel with
-------
respect to compliance with a covenant or condition provided for
in this Indenture shall include:

(1) a statement that each Person making such Officers'
Certificate or Opinion of Counsel has read such covenant or
condition;

(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or
opinions contained in such Officers' Certificate or Opinion of
Counsel are based;

(3) a statement that, in the opinion of each such
Person, he has made such examination or investigation as is
necessary to enable such Person to express an informed opinion as
to whether or not such covenant or condition has been complied
with; and
<PAGE>

(4) a statement that, in the opinion of such Person,
such covenant or condition has been complied with; provided,
however, that with respect to matters of fact, an Opinion of
Counsel may rely on an Officers' Certificate or certificates of
public officials.

SECTION 11.06. Separability Clause. In case any
-------------------
provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.

SECTION 11.07. Rules by Trustee, Paying Agent and
----------------------------------
Registrar. The Trustee may make reasonable rules for action by
---------
or a meeting of Securityholders. The Registrar and Paying Agent
may make reasonable rules for their functions.

SECTION 11.08. Legal Holidays. A "Legal Holiday" is
--------------
any day other than a Business Day. If any specified date
(including a date for giving notice) is a Legal Holiday, the
action shall be taken on the next succeeding day that is not a
Legal Holiday, and, if the action to be taken on such date is a
payment in respect of the Securities, no principal, premium, if
any, or interest installment shall accrue for the intervening
period.

SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE
-------------
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

SECTION 11.10. No Recourse Against Others. A director,
--------------------------
officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation.
By accepting a Security, each Securityholder shall waive and
release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.

SECTION 11.11. Successors. All agreements of the
----------
Company in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture
shall bind its successor.

SECTION 11.12. Multiple Originals. The parties may
------------------
sign any number of copies of this Indenture. Each signed copy
<PAGE>

shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the undersigned, being duly
authorized, have executed this Indenture on behalf of the
respective parties hereto as of the date first above written.

WABAN INC.

By:
-------------------------------------
Name:
Title:

THE FIRST NATIONAL BANK OF BOSTON

By:
-------------------------------------
Name:
Title:
<PAGE>

EXHIBIT A

[FORM OF FACE OF SECURITY]

WABAN INC.

_____% Senior Subordinated Note due _________, 2004

CUSIP
No._____ $________

Waban Inc., a Delaware corporation (the "Company,"
which term includes any successor corporation under the Indenture
hereinafter referred to), promises to pay to ________ or
registered assigns, the principal amount of ________ Dollars on
___________, 2004.

Interest Payment Dates: __________ and _________,
commencing ___________, 1994.

Record Dates: ______________ and __________.

Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof which further
provisions shall for all purposes have the same effect as if set
forth at this place.

IN WITNESS WHEREOF, the Company has caused this
Security to be signed manually or by facsimile by its duly
authorized officers and a facsimile of its corporate seal to be
affixed hereto or imprinted hereon and attested by its Secretary
or one of its Assistant Secretaries.

WABAN INC.

By:____________________________

By:____________________________
[SEAL]

Dated:___________________

TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture.

THE FIRST NATIONAL BANK OF BOSTON

By: ______________________
Authorized Officer
<PAGE>

[FORM OF REVERSE SIDE OF SECURITY]

______% Senior Subordinated Note due _________, 2004

1. Interest
--------
Waban Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security
at the rate per annum shown above. Interest will be payable
semi-annually on each interest payment date referred to on the
face hereof, commencing ____________, 1994. Interest on the
Securities will accrue from the most recent date to which
interest has been paid, or if no interest has been paid, from
___________, 1994; provided that, if there is no existing Event
of Default in the payment of interest and if this Security is
authenticated between a record date referred to on the face
hereof and the next succeeding interest payment date, interest
shall accrue from such interest payment date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

The Company shall pay interest on overdue principal and
interest on overdue installments of interest, to the extent
lawful, at the rate per annum borne by the Securities.

2. Method of Payment
-----------------
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered Holders at
the close of business on the record dates referred to on the face
hereof immediately preceding the respective interest payment
dates even if the Security is cancelled on registration of
transfer or registration of exchange (other than with respect to
the purchase of Securities pursuant to an offer to purchase
securities made in connection with Section 4.11 or 4.12 of the
Indenture after such record date). Holders must surrender
Securities to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the
Company may pay principal and interest by its check payable in
such money. It may mail an interest payment to a
Securityholder's registered address.
<PAGE>

3. Paying Agent and Registrar
--------------------------
Initially, the Trustee will act as Paying Agent and
Registrar. The Company may appoint and change any Paying Agent
or Registrar without notice, other than notice to the Trustee.
The Company or any Subsidiary or an Affiliate of either of them
may act as Paying Agent, Registrar or co-registrar.

4. Indenture
---------
The Company issued the Securities under an Indenture,
dated as of ____________, 1994 (the "Indenture"), between the
Company and the Trustee. The terms of the Securities include
those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as
amended and as in effect on the date of the Indenture (the
"TIA"), and as provided in the Indenture. Capitalized terms used
herein and not defined herein have the meanings ascribed thereto
in the Indenture. The Securities are subject to all such terms,
and Securityholders are referred to the Indenture and the TIA for
a statement of those terms.

The Securities are general obligations of the Company
limited to $100,000,000 aggregate principal amount.

5. Optional Redemption
-------------------
The Securities are not redeemable at the option of the
Company prior to __________, 1999. Thereafter, the Securities
will be subject to redemption at the option of the Company, in
whole or in part, at the redemption prices (expressed as a
percentage of the principal amount) set forth below plus accrued
and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve (12) month period beginning
________________ of the years indicated below:

Redemption
Year Prices
---- ----------
1999 ____%
2000 ____%
2001 ____%
2002 and thereafter 100.00%
<PAGE>

6. Notice of Redemption
--------------------
Notice of redemption will be mailed at least fifteen
(15) days but not more than sixty (60) days before the Redemption
Date to each Holder of Securities to be redeemed at the Holder's
registered address. Securities in denominations larger than
$1,000 of principal amount may be redeemed in part but only in
integral multiples of $1,000 of principal amount.

7. Requirement that the Company Offer to Purchase Securities
----------
under Certain Circumstances
------------------------------------
Subject to the terms and conditions of the Indenture,
the Company shall become immediately obligated to offer to
purchase the Securities pursuant to Section 4.11 of the Indenture
after the occurrence of a Change of Control of the Company at a
price equal to 101% of aggregate principal amount plus accrued
and unpaid interest, if any, to the date of purchase. In
addition, subject to the terms and conditions of the Indenture,
to the extent that the aggregate amount of Excess Proceeds from
an Asset Sale exceeds 10% of the aggregate book value of the
tangible assets of the Company and its Subsidiaries, the Company
will be obligated to offer to purchase Securities at 100% of
principal amount plus accrued and unpaid interest, if any, in
accordance with Section 4.12 of the Indenture.

8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness. To
the extent provided in the Indenture, Senior Indebtedness must be
paid before the Securities may be paid. The Company agrees, and
each Securityholder by accepting a Security agrees, to such
subordination and authorizes the Trustee to give it effect.

9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form, without coupons,
in denominations of $1,000 of principal amount and integral
multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar
need not transfer or exchange any Securities selected for
redemption (except, in the case of a Security to be redeemed in
part, the portion of the Security not to be redeemed) or any
Securities for a period of fifteen (15) days before a selection
of Securities to be redeemed.
<PAGE>

10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated
as the owner of this Security for all purposes.

11. Amendment; Waiver
-----------------
Subject to certain exceptions set forth in the
Indenture, (i) the Indenture or the Securities may be amended
with the written consent of the Holders of at least a majority in
aggregate principal amount of the Securities at the time
outstanding and (ii) certain defaults or noncompliance with
certain provisions may be waived with the written consent of the
Holders of a majority in aggregate principal amount of the
Securities at the time outstanding. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, defect or
inconsistency, or to comply with Article 5 of the Indenture, or
to provide for uncertificated Securities in addition to
certificated Securities, or to comply with any requirements of
the Securities and Exchange Commission in connection with the
qualification of the Indenture under the TIA, or to make any
change that does not adversely affect the rights of any
Securityholder.

12. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include:
(i) default in payment of the principal amount, premium if any,
or interest, in respect of the Securities when the same becomes
due and payable, subject, in the case of interest, to the grace
period contained in the Indenture; (ii) failure by the Company to
comply with other agreements in the Indenture or the Securities,
subject to notice and lapse of time; (iii) certain events of
acceleration prior to maturity of certain indebtedness;
(iv) certain defaults under any mortgage, indenture or other
instrument evidencing Indebtedness for borrowed money by the
Company or any of its Subsidiaries; (v) certain final judgments
which remain undischarged; or (vi) certain events of bankruptcy
or insolvency. If an Event of Default occurs and is continuing,
the Trustee, or the Holders of at least 25% in aggregate
principal amount of the Securities at the time outstanding, may
declare all the Securities to be due and payable immediately.
Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities becoming due and payable
immediately upon the occurrence of such Events of Default.

Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may
<PAGE>

refuse to enforce the Indenture or the Securities unless it
receives reasonable indemnity or security. Subject to certain
limitations, Holders of a majority in aggregate principal amount
of the Securities at the time outstanding may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold
from Securityholders notice of any continuing Default (except a
Default in payment of amounts specified in clause (i) above) if
it determines that withholding notice is in their interests.

13. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the TIA, the
Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may
otherwise deal with and collect obligations owed to it by the
Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were
not Trustee.

14. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such,
of the Company shall not have any liability for any obligations
of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations or
their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.

15. Authentication
--------------
This Security shall not be valid until an authorized
officer of the Trustee manually signs the Trustee's Certificate
of Authentication on the other side of this Security.

16. Abbreviations
-------------
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in
common), TEN ENT (=tenants by the entireties), JT TEN (=joint
tenants with right of survivorship and not as tenants in common),
CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

17. Unclaimed Money
---------------
If money for the payment of principal or interest
remains unclaimed for two (2) years, the Trustee or Paying Agent
will pay the money back to the Company at its request. After
that, Holders entitled to money must look to the Company for
payment.
<PAGE>

18. Discharge Prior to Maturity
---------------------------
If the Company deposits with the Trustee or Paying
Agent money or U.S. Government Obligations sufficient to pay the
principal of and interest on the Securities to maturity, the
Company will be discharged from the Indenture except for certain
Sections thereof.

19. Governing Law
-------------
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE
OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
<PAGE>

ASSIGNMENT FORM

To assign this Security, fill in the form below: (I)
or (we) assign and transfer this Security to:

------------------------------------------------------------
(insert assignee's social security or tax I.D. number)

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

------------------------------------------------------------
(print or type assignee's name, address and zip code)

and irrevocably appoint
---------------------------------------

agent to transfer this Security on the books of the
-----------
Company. The agent may substitute another to act for him.

Dated: Signature:
------------------ -------------------
(Sign exactly as your name
appears on the other side of
this Security)

Signature
Guarantee:
-------------------------------------------------

OPTION OF HOLDER TO ELECT PURCHASE

If you wish to elect to have all or any portion of this
Security purchased by the Company pursuant to Section 4.11
("Change of Control Offer") or Section 4.12 ("Excess Proceeds
Offer") of the Indenture, check the applicable boxes:
<PAGE>

[_] Change of Control Offer: [_] Excess Proceeds Offer:

in whole [_] in whole [_]
in part [_] in part [_]

Amount to be Amount to be
purchased: $ purchased: $
------- --------

Dated: Signature:
--------------- -------------------
(Sign exactly as your name
appears on the other side of
this Security)

Signature
Guarantee:
-------------------------------------------------

Social Security Number or
Taxpayer Identification Number:
----------------------------
<PAGE>

EXHIBIT B

FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSIDIARY GUARANTORS

SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
dated as of ________________, between ______________ (the
"Subsidiary Guarantor"), a subsidiary of Waban Inc. (or its
successor), a Delaware corporation (the "Company"), and The First
National Bank of Boston, a national banking association, as
trustee under the indenture referred to below (the "Trustee").

W I T N E S S E T H

WHEREAS, the Company has heretofore executed and
delivered to the Trustee an indenture (the "Indenture"), dated as
of April ___, 1994, providing for the issuance of an aggregate
principal amount of $100,000,000 of ____% Senior Subordinated
Notes due 2004 (the "Securities");

WHEREAS, Section 4.15 of the Indenture provides that
under certain circumstances the Company is required to cause the
Subsidiary Guarantor to execute and deliver to the Trustee a
supplemental indenture pursuant to which the Subsidiary Guarantor
shall unconditionally guarantee all of the Company's Obligations
under the Securities pursuant to a Subsidiary Guarantee on the
terms and conditions set forth herein; and

WHEREAS, pursuant to Section 9.06 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental
Indenture.

NOW THEREFORE, in consideration of the foregoing and
for other good and valuable consideration, the receipt of which
is hereby acknowledged, the Subsidiary Guarantor and the Trustee
mutually covenant and agree for the equal and ratable benefit of
the holders of the Securities as follows:

1. CAPITALIZED TERMS. Capitalized terms used herein
without definition shall have the meanings assigned to them in
the Indenture.
<PAGE>

2. AGREEMENT TO GUARANTEE. The Subsidiary Guarantor
hereby agrees as follows:

(a) The Subsidiary Guarantor, jointly and severally
with all other Subsidiary Guarantors, if any, unconditionally
guarantees to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors
and assigns, regardless of the validity and enforceability of the
Indenture, the Securities and the Obligations of the Company
under the Indenture and the Securities, that:

(i) the principal of, premium, if any, and interest on
the Securities will be promptly paid in full when
due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of, premium, if any, and
interest on the Securities, to the extent lawful,
and all other Obligations of the Company to the
Holders or the Trustee thereunder will be promptly
paid in full, all in accordance with the terms
thereof; and

(ii) in case of any extension of time for payment or
renewal of any Securities or any of such other
obligations, that the same will be promptly paid
in full when due in accordance with the terms of
the extension or renewal, whether at stated
maturity, by acceleration or otherwise.

Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant
jurisdiction, the liability of the Subsidiary Guarantor under
this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law.

3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.

(a) To evidence its Subsidiary Guarantee set forth in
this Supplemental Indenture, the Subsidiary Guarantor hereby
agrees that a notation of such Subsidiary Guarantee substantially
in the form of Exhibit C to the Indenture shall be endorsed by an
officer of such Subsidiary Guarantor on each Security
authenticated and delivered by the Trustee after the date hereof.

(b) Notwithstanding the foregoing, the Subsidiary
Guarantor hereby agrees that its Subsidiary Guarantee set forth
<PAGE>

herein shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Subsidiary
Guarantee.

(c) If an officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer
holds that office at the time the Trustee authenticates the
Security on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.

(d) The delivery of any Security by the Trustee, after
the authentication thereof under the Indenture, shall constitute
due delivery of the Subsidiary Guarantee set forth in this
Supplemental Indenture on behalf of the Subsidiary Guarantor.

(e) The Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Securities or the
Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to
any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.

(f) The Subsidiary Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in
the event of insolvency or bankruptcy of the Company, any right
to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its
Subsidiary Guarantee made pursuant to this Supplemental Indenture
will not be discharged except by complete performance of the
obligations contained in the Securities and the Indenture.

(g) If any Holder or the Trustee is required by any
court or otherwise to return to the Company or the Subsidiary
Guarantors, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the
Subsidiary Guarantors, any amount paid by either to the Trustee
or such Holder, the Subsidiary Guarantee made pursuant to this
Supplemental Indenture, to the extent theretofore discharged,
shall be reinstated in full force and effect.

(h) The Subsidiary Guarantor agrees that it shall not
be entitled to any right of subrogation in relation to the
Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. The
Subsidiary Guarantor further agrees that, as between the
<PAGE>

Subsidiary Guarantors, on the one hand, and the Holders and the
Trustee, on the other hand:

(i) the maturity of the obligations guaranteed hereby
may be accelerated as provided in Article 6 of the
Indenture for the purposes of the Subsidiary
Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby; and

(ii) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such
obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary
Guarantor for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental
Indenture.

(i) The Subsidiary Guarantor shall have the right to
seek contribution from any other non-paying Subsidiary Guarantor
so long as the exercise of such right does not impair the rights
of the Holders under the Subsidiary Guarantee made pursuant to
this Supplemental Indenture.

4. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON
CERTAIN TERMS.

(a) Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Securities shall prevent any consolidation or
merger of the Subsidiary Guarantor with or into the Company or
any other Subsidiary Guarantor or shall prevent any transfer,
sale or conveyance of the property of the Subsidiary Guarantor as
an entirety or substantially as an entirety, to the Company or
any other Subsidiary Guarantor.

(b) Except as set forth in Article 4 of the Indenture,
nothing contained in the Indenture, this Supplemental Indenture
or in the Securities shall prevent any consolidation or merger of
the Subsidiary Guarantor with or into a corporation or
corporations other than the Company or any other Subsidiary
Guarantor (in each case, whether or not affiliated with the
Subsidiary Guarantor), or successive consolidations or mergers in
which a Subsidiary Guarantor or its successor or successors shall
be a party or parties, or shall prevent any sale or conveyance of
the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to a corporation other than the
<PAGE>

Company or any other Subsidiary Guarantor (in each case, whether
or not affiliated with the Subsidiary Guarantor) authorized to
acquire and operate the same; provided, however, that the
Subsidiary Guarantor hereby covenants and agrees that, upon any
such consolidation, merger, sale or conveyance, the due and
punctual performance and observance of all of the covenants and
conditions of the Indenture and this Supplemental Indenture to be
performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the
surviving corporation in the merger), by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to
the Trustee, by the corporation formed by such consolidation, or
into which the Subsidiary Guarantor shall have been merged, or by
the corporation which shall have acquired such property.

(c) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation,
by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture and the
due and punctual performance of all of the covenants and
conditions of the Indenture and this Supplemental Indenture to be
performed by the Subsidiary Guarantor, such successor corporation
shall succeed to and be substituted for the Subsidiary Guarantor
with the same effect as if it had been named herein as the
Subsidiary Guarantor. Such successor corporation thereupon may
cause to be signed any or all of the Subsidiary Guarantees to be
endorsed upon the Securities issuable under the Indenture which
theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Subsidiary Guarantees so
issued shall in all respects have the same legal rank and benefit
under the Indenture and this Supplemental Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in
accordance with the terms of the Indenture and this Supplemental
Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.

5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently
with any sale of assets (including, if applicable, all of the
Capital Stock of the Subsidiary Guarantor), all Liens in favor of
the Trustee in the assets sold thereby shall be released;
provided that in the event of an Asset Sale, the Net Proceeds
from such sale or other disposition are treated in accordance
with the provisions of Section 4.10 of the Indenture. If the
assets sold in such sale or other disposition include all or
substantially all of the assets of the Subsidiary Guarantor or
all of the Capital Stock of the Subsidiary Guarantor, then the
Subsidiary Guarantor (in the event of a sale or other disposition
<PAGE>

of all of the Capital Stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of
such Subsidiary Guarantor) shall be released from and relieved of
its obligations under this Supplemental Indenture and its
Subsidiary Guarantee made pursuant hereto or Section 4 of this
Supplemental Indenture, as the case may be; provided that in the
--------
event of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of
Section 4.12 of the Indenture. Upon delivery by the Company to
the Trustee of an Officers' Certificate to the effect that such
sale or other disposition was made by the Company in accordance
with the provisions of the Indenture and this Supplemental
Indenture, including without limitation, Section 4.12 of the
Indenture, the Trustee shall execute any documents reasonably
required in order to evidence the release of the Subsidiary
Guarantor from its obligations under this Supplemental Indenture
and its Subsidiary Guarantee made pursuant hereto. If the
Subsidiary Guarantor is not released from its obligations under
its Subsidiary Guarantee, it shall remain liable for the full
amount of principal of and interest on the Securities and for the
other obligations of such Subsidiary Guarantor under the
Indenture as provided in this Supplemental Indenture.

6. NEW YORK LAW TO GOVERN. The internal law of the
State of New York shall govern and be used to construe this
Supplemental Indenture.

7. COUNTERPARTS. The parties may sign any number of
copies of this Supplemental Indenture. Each signed copy shall be
an original, but all of them together represent the same
agreement.

8. EFFECT OF HEADINGS. The Section headings herein
are for convenience only and shall not affect the construction
hereof.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as
of the date first above written.

Dated: __________ __, ____ [Subsidiary Guarantor]

By: __________________________
Name:
Title:

Dated: __________ __, ____ THE FIRST NATIONAL BANK OF BOSTON
as Trustee

By: __________________________
Name:
Title:
<PAGE>

EXHIBIT C

FORM OF NOTATION ON SENIOR NOTE RELATING TO SUBSIDIARY GUARANTEE

Each Subsidiary Guarantor (as defined in the Indenture
(the "Indenture") referred to in the Security upon which this
notation is endorsed), (i) has jointly and severally
unconditionally guaranteed (a) the due and punctual payment of
the principal of, premium and liquidated damages (if any) with
respect to, and interest on the Securities, whether at maturity
or an interest payment date, by acceleration, call for redemption
or otherwise, (b) the due and punctual payment of interest on the
overdue principal and premium of, and (if lawful) interest on,
the Securities, and (c) in case of any extension of time of
payment or renewal of any Securities or any of such other
obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise and (ii) has agreed
to pay any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Subsidiary Guarantee.

Notwithstanding the foregoing, in the event that the
Subsidiary Guarantee of any Subsidiary Guarantor would constitute
or result in a violation of any applicable fraudulent conveyance
or similar law of any relevant jurisdiction, the liability of
such Subsidiary Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law.

No director, officer, employee, agent, manager,
stockholder or other Affiliate (other than the other Subsidiary
Guarantors) of the Subsidiary Guarantors, as such, shall have any
liability for any obligations of the Subsidiary Guarantors under
the Indenture, any supplemental indenture delivered pursuant to
Section 4.15 of the Indenture by such Subsidiary Guarantors or
the Subsidiary Guarantees, or for any claim based on, in respect
of or by reason of such obligations or their creation. Each
Holder by accepting a Security waives and releases all such
liability.

This Subsidiary Guarantee shall be binding upon the
Subsidiary Guarantors and their successors and assigns and shall
inure to the benefit of the successors and assigns of the Trustee
and the Holders and, in the event of any transfer or assignment
of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to
<PAGE>

and be vested in such transferee or assignee, all subject to the
terms and conditions hereof.

This Subsidiary Guarantee shall not be valid or
obligatory for any purpose until the certificate of
authentication on the Security upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized
officers.

[Subsidiary Guarantor]

By: ______________________________
Name:
Title:

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-3 of our
reports dated March 2, 1993 on our audits of the consolidated financial
statements and financial statement schedules of Waban Inc. as of January 30,
1993 and January 25, 1992 and for the years ended January 30, 1993, January 25,
1992 and January 26, 1991. We also consent to the incorporation by reference of
our report dated March 2, 1993 on our audits of the consolidated financial
statements and financial statement schedules of Waban Inc. as of January 30,
1993 and January 25, 1992 and for the years ended January 30, 1993, January 25,
1992 and January 26, 1991. We also consent to the reference to our firm under
the captions "Experts", "Summary Consolidated Financial Information", "Selected
Consolidated Financial Information" and "Selected Information by Major Business
Segment".

Coopers & Lybrand

Boston, Massachusetts
March 10, 1994

<PAGE>

EXHIBIT 25.1

SECURITIES ACT OF 1933 FILE NO: (IF APPLICATION TO DETERMINE ELIGIBILITY
OF TRUSTEE FOR DELAYED OFFERING PURSUANT TO SECTION 305(b)(2)

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)________

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

THE FIRST NATIONAL BANK OF BOSTON
(Exact name of Trustee as specified in its charter)

04-2472499
(I.R.S. Employer Identification No.)

100 Federal Street, Boston, Massachusetts 02110
(Address of principle executive offices) (Zip Code)

Gary A. Spiess, Cashier and General Counsel
100 Federal Street, 24th Floor, Boston, Massachusetts 02110 (617) 434-2870

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

WABAN INC.
(Exact name of obligor as specified in its charter)

DELAWARE 33-0109661
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Mercer Road 01760
Natick, MA (Zip Code)
(Address of principle executive offices)

% Senior Subordinated Notes
(Title of Indenture Securities)

================================================================================

<PAGE>

1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to which
it is subject

Comptroller of the Currency of the United States, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
Federal Deposit Insurance Corporation, Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

Trustee is authorized to exercise corporate trust powers.

2. Affiliations with Obligor and Underwriters.

If the obligor or any underwriter for the obligor is an affiliate of the
trustee, describe each such affiliation.

None with respect to the Trustee.
(See Notes on page 2)
None with respect to Bank of Boston Corporation.

16. List of Exhibits.

List below all exhibits filed as part of this statement of eligibility and
qualification.

1. A copy of the articles of association of the trustee as now in effect.

A certified copy of the Articles of Association of the trustee is filed as
Exhibit No. 1 to statement of eligibility and qualification No. 22-9514 and is
incorporated herein by reference thereto.

2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.

A copy of the certificate of T. McLean Griffin, Cashier of the trustee,
dated February 3, 1978, as to corporate succession containing copies of the
Certificate of the Comptroller of the Currency that The Massachusetts Bank,
National Association, into which The First National Bank of Boston was merged
effective January 4, 1971, is authorized to commence the business of banking
as a national banking association, as well as a certificate as to such merger
is filed as Exhibit No. 2 to statement of eligibility and qualification
No. 22-9514 and is incorporated herein by reference thereto.

3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified in
paragraph (1) or (2) above.

A copy of a certificate of the Office of the Currency dated February 6,
1978 is filed as Exhibit No. 3 to statement of eligibility and qualification
No. 22-9514 and is incorporated herein by reference thereto.

4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.

A certified copy of the existing By-Laws of the trustee dated December 23,
1993 is filed as Exhibit No. 4.

5. The consent of the trustee required by Section 321(b) of the Act.

The consent of the trustee required by Section 321(b) of the Act is
annexed hereto and made a part hereof.

6. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.

A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority is annexed
hereto as Exhibit 7 and made a part hereof.

<PAGE>

In answering any item in this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information furnished
to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.

The answer furnished to Item 2 of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.

SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939, THE TRUSTEE,
THE FIRST NATIONAL BANK OF BOSTON, A NATIONAL BANKING ASSOCIATION ORGANIZED
AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA, HAS DULY CAUSED
THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF BOSTON AND
COMMONWEALTH OF MASSACHUSETTS, ON THE 7TH DAY OF MARCH, 1994.

THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE

BY /s/ ERIC J. DONAGHEY
--------------------
ERIC J. DONAGHEY
ACCOUNT MANAGER

EXHIBIT 6

CONSENT OF TRUSTEE

PURSUANT TO THE REQUIREMENTS OF SECTION 321(B) OF THE TRUST INDENTURE ACT
OF 1939, IN CONNECTION WITH THE PROPOSED ISSUE OF WABAN INC. % SENIOR
SUBORDINATED NOTES WE HEREBY CONSENT THAT REPORTS OF EXAMINATIONS BY FEDERAL,
STATE, TERRITORIAL, OR DISTRICT AUTHORITIES MAY BE FURNISHED BY SUCH
AUTHORITIES TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST THEREFOR.

THE FIRST NATIONAL BANK OF BOSTON, TRUSTEE

BY /s/ ERIC J. DONAGHEY
--------------------
ERIC J. DONAGHEY
ACCOUNT MANAGER

<PAGE>

EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION, INCLUDING DOMESTIC AND
FOREIGN SUBSIDIARIES, OF

THE FIRST NATIONAL BANK OF BOSTON

In the Commonwealth of Massachusetts, at the close of business on
December 31, 1993. Published in response to call made by Comptroller of the
Currency, under Title 12, United States Code, Section 161. Charter number
200. Comptroller of the Currency Northeastern District.

ASSETS

<TABLE>
<CAPTION>
Dollar
Amounts in
Thousands
----------
<S> <C>
Cash and balances due from depositary institutions:
Noninterest-bearing balances and currency and coin............. $ 1,896,648
Interest-bearing balances.................................. 989,983
Securities......................................................... 2,120,299
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's:
Federal funds sold................................................. 786,594
Securities purchased under agreements to resell.......................... 0
Loans and lease financing receivables:
Loans and leases, net of unearned income.......$21,760,082
LESS: Allowance for loan and lease losses......... 488,235
LESS: Allocated transfer risk reserve................... 0
Loans and leases, net of unearned income, allowance and reserve. 21,271,847
Assets held in trading accounts...................................... 303,841
Premises and fixed assets (including capitalized leases)............. 317,599
Other real estate owned............................................... 42,600
Investments in unconsolidated subsidiaries and associated companies.. 118,921
Customers' liability to this bank on acceptances outstanding......... 374,873
Intangible assets.................................................... 307,582
Other assets....................................................... 1,020,881
---------
Total Assets.................................................. $29,551,668
===========
<CAPTION>

LIABILITIES
<S> <C>
Deposits:
In domestic offices............................................ $13,331,731
Noninterest-bearing........................... $ 3,780,365
Interest-bearing................................ 9,551,366
In foreign offices, Edge and Agreement subsidiaries, and IBF's..... 7,295,863
Noninterest-bearing............................... 525,888
Interest-bearing................................ 6,769,975
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's:
Federal funds purchased.......................................... 1,302,034
Securities sold under agreements to repurchase..................... 199,132
Demand notes issued to the U.S. Treasury.............................. 48,780
Other borrowed money............................................... 3,590,568
Mortgage indebtedness and obligations under capitalized leases........ 14,180
Bank's liability on acceptances executed and outstanding............. 375,153
Subordinated notes and debentures.................................... 598,835
Other liabilities.................................................... 723,480
-------
Total Liabilities............................................. $27,479,757
===========

Limited-life preferred stock and equity capital............................ 0

EQUITY CAPITAL
<S> <C>
Perpetual preferred stock and related surplus.......................... $ 0
Common stock.......................................................... 75,200
Surplus.............................................................. 893,227
Undivided profits and capital reserves............................. 1,076,870
LESS: Net unrealized loss on marketable equity securities........... (34,746)
Cumulative foreign currency translation adjustments.................. (8,132)
Total equity capital............................................... 2,071,911
---------
Total Liabilities, Limited-life preferred stock, and equity... $29,551,668
===========
</TABLE>

<PAGE>

I, Robert T. Jefferson, Comptroller of the above-named bank, do hereby
declare that this Report of Condition is true and correct to the best of my
knowledge and belief.

Robert T. Jefferson

February 9, 1994

We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declare that it has been examined
by us, and to the best of our knowledge and belief has been prepared in
conformance with the instructions and is true and correct.

Charles G. Gifford
Ira Stepanian
Paul C. O'Brien
Directors

February 9, 1994

<PAGE>

================================================================================
============================

[LOGO OF THE FIRST NATIONAL BANK OF BOSTON APPEARS HERE]

BY-LAWS

THE FIRST NATIONAL BANK OF BOSTON

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

Revised to December 23, 1993

HH-875 CERTIFIED COPY
Rev. (12-93) (See Inside Page)

================================================================================
============================
<PAGE>

CERTIFICATE OF TRUE COPY

I, the undersigned, ________________________________________________,
hereby certify that I am the duly appointed Assistant Secretary of the Board of
Directors of THE FIRST NATIONAL BANK OF BOSTON and in that capacity have access
to its corporate documents and records and have authority to certify to such
documents and records, and I do hereby certify that the within document is a
complete and correct copy of the By-Laws of said bank as they are in effect on
this date.

The table of contents is not a part of the By-Laws but is included therein
as a matter of convenience.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed hereto the seal
of THE FIRST NATIONAL BANK OF BOSTON this ___________ day of ___
__________________________________________________________________.

______________________________________________
_____________
Assistant Secretary of the Board
of Directors
<PAGE>

[LOGO OF THE FIRST NATIONAL BANK OF BOSTON APPEARS HERE]

BY-LAWS

THE FIRST NATIONAL BANK OF BOSTON

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

TABLE OF CONTENTS

ARTICLE I

MEETINGS OF SHAREHOLDERS

PAGE
----
<S> <C> <C>
SECTION 1. Place of Meeting ....................................... 1
SECTION 2. Annual Meetings ........................................ 1
SECTION 3. Special Meetings ....................................... 2
SECTION 4. Notices of Meetings .................................... 2
SECTION 5. Quorum ................................................. 2
SECTION 6. Organization ........................................... 2
SECTION 7. Voting ................................................. 2
SECTION 8. Action Without a Meeting ............................... 2

ARTICLE II

BOARD OF DIRECTORS

SECTION 1. General Powers ......................................... 3
SECTION 2. Number, Qualification, Election and Term
of Office ............................................. 3
SECTION 3. Quorum and Manner of Acting ............................ 3
SECTION 4. Organization Meeting ................................... 3
SECTION 5. Regular Meetings ....................................... 3
SECTION 6. Special Meetings ....................................... 4
SECTION 7. Notices of Meetings .................................... 4
SECTION 8. Organization of Meetings ............................... 4
SECTION 9. Order of Business ...................................... 4
SECTION 10. Resignation ............................................ 4
SECTION 11. Vacancies .............................................. 4
SECTION 12. Fees and Expenses of Directors ......................... 5
SECTION 13. Validity of Acts of Directors .......................... 5
SECTION 14. Action by Directors Without a Meeting .................. 5
SECTION 15. Transactions With the Bank ............................. 5
</TABLE>
<PAGE>

PAGE
----

ARTICLE III

COMMITTEES

<S> <C> <C>
SECTION 1. Executive Committee .................................... 6
SECTION 2. Audit Committee ........................................ 7
SECTION 3. Compensation Committee ................................. 7
SECTION 4. Trust Committee ........................................ 8
SECTION 5. Community Investment Committee ......................... 8
SECTION 6. Other Committees ....................................... 8
SECTION 7. Changes in Committee Membership and Filling of
Vacancies ............................................. 9
SECTION 8. Records of Committee Action and Board
of Directors' Approval ................................ 9
SECTION 9. Committee Proceedings .................................. 9
SECTION 10. Action of Committees Without a Meeting ................. 9
SECTION 11. General Authority of Committees ........................ 9

ARTICLE IV

OFFICERS

SECTION 1. Titles and Qualifications .............................. 10
SECTION 2. Appointment ............................................ 10
SECTION 3. Terms of Office ........................................ 10
SECTION 4. Duties; Fidelity Bond .................................. 10
SECTION 5. The Chairman of the Board .............................. 11
SECTION 6. The President .......................................... 11
SECTION 7. The Vice Chairmen ...................................... 11
SECTION 8. Executive Officers ..................................... 11
SECTION 9. The Cashier and the Secretary of the
Board of Directors .................................... 11
SECTION 10. Assistant Cashiers and Assistant Secretaries ........... 12
SECTION 11. The General Auditor .................................... 12
SECTION 12. The Authorized Officers................................. 12
SECTION 13. Resignation ............................................ 12
SECTION 14. Designated Officer ..................................... 12
</TABLE>

ARTICLE V

CONVEYANCE OF REAL PROPERTY, TRANSFER OF PERSONAL PROPERTY,
AND EXECUTION AND DELIVERY OF DEEDS, LEASES, CONTRACTS, ETC.
<PAGE>

iii

PAGE
----

ARTICLE VI

STOCK CERTIFICATES AND TRANSFER OF STOCK

<S> <C> <C>
SECTION 1. Certificates of Stock .................................. 13
SECTION 2. Transfer of Stock ...................................... 13

ARTICLE VII

INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS

SECTION 1. Indemnification Generally .............................. 13
SECTION 2. Indemnification for Successful Defense ................. 14
SECTION 3. Receipt of Indemnification ............................. 14
SECTION 4. Definitions ............................................ 14
SECTION 5. Insurance .............................................. 14

ARTICLE VIII

AMENDMENTS

ARTICLE IX

GENERAL PROVISIONS

SECTION 1. Advisory Boards ........................................ 15
SECTION 2. Voting of Securities ................................... 15
SECTION 3. Powers of Attorney ..................................... 16
SECTION 4. Minute Book; By-Laws ................................... 16
SECTION 5. Seal ................................................... 16
SECTION 6. Fiscal Year ............................................ 17
SECTION 7. Waiver of Notice ....................................... 17

ARTICLE X

EMERGENCY BY-LAWS

SECTION 1. Effective Period ....................................... 17
SECTION 2. Meetings of the Board of Directors ..................... 17
SECTION 3. Emergency Location of Head Office ...................... 17
SECTION 4. Preservation of Continuity of Management ............... 17
SECTION 5. Immunity ............................................... 17
SECTION 6. Amendments of Emergency By-Laws ........................ 17
</TABLE>
<PAGE>

[LOGO OF THE FIRST NATIONAL BANK OF BOSTON APPEARS HERE]

BY-LAWS

THE FIRST NATIONAL BANK OF BOSTON

ARTICLE I

MEETINGS OF SHAREHOLDERS

SECTION 1. Place of Meeting. All meetings of the shareholders of the
Bank shall be held at its Head Office in the City of Boston, Suffolk County,
Commonwealth of Massachusetts or at such other place as the Board of Directors
may designate. If, when any meeting is convened, the presiding officer deems
the place designated therefor to be inadequate, he or she may adjourn the
meeting for such period of time on the same day as he or she may deem reasonably
necessary to permit the meeting to be reconvened at some adequate and convenient
place located in the same city. The presiding officer in such event shall
announce the adjournment and time and place of reconvening.

SECTION 2. Annual Meetings. The regular annual meeting of the
shareholders for the election of directors and for the transaction of such other
business as properly may come before the meeting shall be held on the fourth
Thursday of April of each year (or if that day would not be a business day (as
hereinafter defined) in the City of Boston, then on the first such following
business day) at ten o'clock in the forenoon unless another hour shall have been
designated by the Board of Directors. If no election of directors is held on
the date so determined for the annual meeting of shareholders or at any
adjournment of such meeting, an election shall be held on some subsequent day
within 60 days thereafter and notice thereof shall be given in accordance with
the provisions of Section 75 of Title 12 of the United States Code. All
elections shall be held in accordance with such regulations as may be prescribed
by the Board of Directors, not inconsistent with law and these By-Laws. It
shall be the duty of the Board of Directors prior to each annual election to
appoint two judges of the election. Failing such an appointment by the Board of
Directors, the appointment shall be made by the presiding officer at the
shareholders' meeting. If a judge previously appointed shall fail to attend the
meeting or shall decline or be unable to serve, a judge to serve in his or her
place shall be appointed either by the Board of Directors or by the presiding
officer at the meeting. The judges shall oversee the conduct of the election
and at the conclusion thereof shall submit to the Cashier a certificate setting
forth the results thereof. As used in these By-Laws, the expression "business
day" means a day other than a day which, at a particular place, is a public
holiday or a day other than a day on which banking institutions at such place
are allowed or required, by law or otherwise, to remain closed.

SECTION 3. Special Meetings. Except as otherwise provided by law,
special meetings of the shareholders may be called for any purpose at any time
by the Board of Directors, the Chairman of the Board, the President or by the
holder or holders of at least one-tenth of the then outstanding shares.

SECTION 4. Notices of Meetings. Except as otherwise provided by law,
printed or typewritten notice of the time, place and purpose of each meeting of
the shareholders shall be mailed by the Cashier (or any other person authorized
to do so by law, the Board of Directors or these By-Laws), by first-class mail,
postage prepaid, at least l0 days before the day on which the meeting is to be
held, to each shareholder of record entitled to vote at such meeting at such
shareholder's address as shown on the stock books of the Bank. Such further
notice shall be given by publication or otherwise as may be required by law or
as may
<PAGE>

-2-

be ordered by the Board of Directors.

SECTION 5. Quorum. Except as otherwise provided by law or these By-
Laws, all the business of a duly convened meeting of shareholders may be
transacted by the shareholders present in person or represented by proxy owning
of record a majority of the outstanding shares entitled to vote thereat.

SECTION 6. Organization. At every meeting of the shareholders, the
Chairman of the Board or the President or, in their absence, a person chosen by
majority vote of the shareholders entitled to vote thereat present in person or
represented by proxy shall act as chairman; and the Cashier or, in his or her
absence, an Assistant Secretary of the Board of Directors or, in their absence,
any person present appointed by the chairman shall act as secretary of the
meeting.

SECTION 7. Voting. Save for the statutory right of shareholders to
cumulate their votes for the election of directors as provided in Section 61 of
Title 12 of the United States Code, in deciding all questions at meetings of the
shareholders, each shareholder, except such shareholders as are prohibited from
voting under the provisions of said Section 61, shall be entitled to one vote
for each share of stock registered in the name of such shareholder on the books
of the Bank. Any vote on stock may be given by the shareholder entitled
thereto, either in person or by proxy appointed by an instrument in writing,
subscribed by such shareholder or by such shareholder's attorney-in-fact
thereunto authorized and delivered to the secretary of the meeting, provided,
however, that no officer or employee of the Bank may act as proxy. A proxy
shall be valid for only one meeting, to be specified therein, and all
adjournments of such meeting. A majority of the votes cast shall decide each
matter submitted to the shareholders at any meeting except in cases where a
larger vote is required by law. The election of directors at any meeting of the
shareholders shall be by ballot. Except as otherwise provided by law or these
By-Laws, the vote on any other matter considered at a meeting of the
shareholders may be taken by show of hands or by voice vote unless any
shareholder present in person or represented by proxy and entitled to vote
thereon shall demand a vote by ballot, in which case such vote by ballot shall
immediately be taken.

SECTION 8. Action Without A Meeting. Any action which may be taken
by shareholders may be taken without a meeting if all shareholders entitled to
vote on the matter consent to the action by a writing filed with the records of
the meetings of shareholders. Any such consent shall be treated for all
purposes as a vote at a meeting and may be described as such in any certificate
or other document filed with or furnished to any official, governmental agency
or other person having dealings with the Bank.
<PAGE>

-3-

ARTICLE II

BOARD OF DIRECTORS

SECTION 1. General Powers. The property and business of the Bank
shall be managed by the Board of Directors which may exercise all corporate
powers of the Bank except such powers as are by law or the Articles of
Association or these By-Laws conferred upon or reserved to the shareholders.

SECTION 2. Number, Qualification, Election and Term of Office. The
number of directors shall not be less than five nor more than twenty-five.
Within those limits, the number of directors shall be determined from time to
time by vote of a majority of the entire Board or by resolution of the
shareholders at any meeting at which directors are to be elected; provided,
however, that no director shall be required to vacate office by reason only of a
reduction in the number comprising the entire Board of Directors made pursuant
to this Section. Each director must during his or her whole term of office have
the qualifications prescribed in Section 72 of Title 12 of the United States
Code. Except in the case of directors appointed by the Board of Directors to
fill vacancies pursuant to Section 11 of this Article, directors shall be
elected by ballot at the regular annual meeting of the shareholders; provided
that in the event of failure to hold such meeting or to hold such election at
such meeting, such election shall be held within 60 days of the day fixed as
prescribed by Section 75 of Title 12 of the United States Code. Directors,
except those appointed by the Board of Directors to fill vacancies, shall be
elected as provided in Section 61 of Title 12 of the United States Code. Each
director shall hold office until the annual meeting next following the date of
his or her election or appointment and until the election and qualification of
his or her successor or until his or her earlier resignation, death or
disqualification. As used in these By-Laws, the expression "entire Board" means
the number of directors in office at a particular time.

SECTION 3. Quorum and Manner of Acting. A majority of the number of
directors in office shall constitute a quorum for the transaction of business at
any meeting, and except as otherwise provided by law or these By-Laws, the act
of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors. Directors shall be deemed
present at a meeting when present in person or by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time. In the
absence of a quorum, a majority of the directors present, or if only two
directors are present, either director, or the sole director present, may
adjourn any meeting to a day certain or from time to time until a quorum is
present. At any adjourned meeting at which a quorum is present any business
may be transacted which might have been transacted if the meeting had been
held when originally called. A director may not vote or otherwise act by proxy.

SECTION 4. Organization Meeting. The Board of Directors elected at
any meeting of the shareholders shall meet in the directors' room at the Head
Office of the Bank immediately after the final adjournment of such meeting or as
soon as practicable (but not more than 30 days) thereafter for purposes of
taking the oath prescribed by law, organization, the election of officers for
the succeeding year and the transaction of other business.

SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors (other than the organization meeting of the Board of Directors to be
held each year following the annual election of directors) shall be held on the
fourth Thursday in each month, at eleven o'clock in the forenoon in the
directors' room at the Head Office of the Bank, or at such other place or at
such other time, or both, as shall be designated in the notice of meeting given
to the directors as provided in these By-Laws. If the day designated for a
regular meeting of the Board of Directors would not be a business day (as
defined in Section 2 of Article I of these By-Laws) at the place where the
meeting is to be held, then the meeting shall be held on such other business day
as the Board of Directors may have previously designated, or if no such day
shall have been designated, the meeting shall be held on the first business day
at such place preceding the date originally designated for such meeting. Any
regular meeting of the Board of Directors may be dispensed with by an
appropriate vote passed by the Board of Directors at any prior meeting.

SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by the
<PAGE>

-4-

Chairman of the Board or the President and shall be called by the Cashier at
the written request of three or more directors. A special meeting of the
Board of Directors shall be held at such place and time as may be designated
in the call of the meeting.

SECTION 7. Notices of Meetings. Notice of the time and place of each
regular or special meeting of the Board of Directors shall be given to each
director at least 48 hours before such meeting if delivered personally or sent
by mail or at least 24 hours before such meeting if given by telephone, telex,
or other electronic means. Notice by mail shall be deemed to be given when
deposited in the post office or a letter box in postage-paid sealed wrappers or
when transmitted by telegraph or telex, and addressed separately to each
director at his or her address appearing on the records of the Bank. Notices
of meetings of the Board of Directors need not include a statement of the
business to be transacted thereat unless required by law or these By-Laws. No
notice of any adjourned meeting of the Board of Directors need be given other
than by announcement at the session of the meeting which is being adjourned.
Failure to give any such notice of any meeting, or any irregularity in the
notice thereof, shall not invalidate any proceedings taken thereat if a quorum
is present and if all absent directors, either before or after the meeting,
shall sign a waiver of notice or a consent to the holding of such meeting or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the minutes of the meeting to which they relate.

SECTION 8. Organization of Meetings. At each meeting of the Board of
Directors, the Chairman of the Board or the President or in their absence, a
director chosen by a majority of the directors present shall act as chairman.
The Cashier or, in his or her absence, any person appointed by the chairman,
shall act as secretary of the meeting and keep minutes of the proceedings. The
secretary of the meeting need not be sworn.

SECTION 9. Order of Business. At all meetings of the Board of
Directors, business shall be transacted in the order determined by the chairman
of the meeting, subject to approval of the directors present thereat.

SECTION 10. Resignation. Any director may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Cashier. The resignation of any director shall take effect upon its receipt or
on any later date specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be required to make it effective.

SECTION 11. Vacancies. The Board of Directors may act
notwithstanding a vacancy or vacancies in its membership; but if the office of
any director becomes vacant by reason of resignation, death or any other
circumstance (including a vacancy resulting from an enlargement of the Board of
Directors), the remaining directors in office, although more or
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less than a quorum, by a majority vote of such remaining directors may appoint a
successor or one or more additional directors, as the case may be, each of whom
shall hold office until the next annual election of directors and until the
election and qualification his or her successor, or until his or her earlier
resignation, death or disqualification.

SECTION 12. Fees and Expenses of Directors. Each director who is not
an officer or employee of the Bank or any of its affiliates may be paid such
fees for his or her services and for attendance at meetings of the Board of
Directors or of any committee thereof as the Board of Directors may determine
from time to time to be appropriate. Such fees may be payable currently or on a
deferred basis. In addition, each such director shall be entitled to
reimbursement for reasonable expenses incurred by him or her in order to attend
meetings of the Board of Directors and committees thereof or otherwise in
connection with the performance of his or her duties as a director.

SECTION 13. Validity of Acts of Directors. All action taken by any
meeting of the Board of Directors or a committee of the directors or by any
person acting as a director shall, notwithstanding that it shall afterwards be
discovered that there was some defect in the election or appointment or
continuance in office of any such director or person acting as a director, or
that they or any of them were disqualified, or had vacated office, or were not
entitled to vote in relation to the matter acting upon, be as valid as if every
such person had been duly elected or appointed, had duly continued in office and
was qualified to be a director and entitled to vote on such matter.

SECTION 14. Action by Directors Without a Meeting. Unless otherwise
restricted by the Articles of Association or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee. Any such consent shall be
treated for all purposes as a vote duly adopted by the Board of Directors or
such committee at a meeting and may be described as such in any certificate or
other document filed with or furnished to any public official, governmental
agency or other person having dealings with the Bank.

SECTION 15. Transactions With the Bank. No contract or other
transaction between the Bank and one or more of its directors or between the
Bank or any other corporation, partnership, voluntary association, trust or
other organization of which any of its directors is a director or officer or in
which he or she has any financial interest shall be void or voidable for this
reason or because any such director is present at or participates in the meeting
of the Board of Directors or of the committee thereof which authorizes the
contract or transactions or because his or her vote is counted for such purpose
(a) if the material facts as to the contract or transaction and as to his or her
relationship or interest are disclosed to the Board of Directors or such
committee and the Board of Directors or such committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of
disinterested directors even though the disinterested directors be less than a
quorum or (b) if the material facts as to the contract or transaction and as to
his or her relationship or interest are disclosed or are known to the
shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of the shareholders or (c) if the
contract or transaction is fair and reasonable as to the Bank as of the time it
is authorized, approved or ratified by the Board of Directors, such committee or
the shareholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee thereof which authorizes the contract or transaction.

ARTICLE III

COMMITTEES

SECTION 1. Executive Committee. There shall be an Executive
Committee composed of the Chairman of the Board, the President and such number
of other directors, not less than five nor more than seven, as the Board of
Directors may appoint from time to time by resolution passed by the vote of a
majority of the entire Board. The Board of Directors may also, from time to
time, by similar resolution, appoint one or more alternate members of the
Executive Committee who may attend and act in the place of any absent or
disqualified member or members of the Executive Committee at any meeting
thereof. Subject
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to the provisions of Section 6 of this Article III, the term of office of any
appointed member or alternate member of the Executive Committee shall expire
on the date specified in the resolution of appointment or any earlier date on
which he or she ceases to be a director. Any director who has served as a
member or alternate member of the Executive Committee shall be eligible for
reappointment to a new term of office on the Committee.

During the intervals between meetings of the Board of Directors, the
Executive Committee, unless expressly provided otherwise by law or these By-
laws, shall have and may exercise all the authority of the Board of Directors,
except that it shall not be entitled to

(i) change the principal office of the Bank;

(ii) amend or repeal these By-Laws or to adopt new by-laws;

(iii) issue stock;

(iv) establish and designate series of stock or to fix and
determine the relative rights and preferences of any series of stock;

(v) elect officers required by law to be elected by the
shareholders or directors or to fill vacancies in any such offices;

(vi) change the number of the Board of Directors or to fill
vacancies in the Board of Directors;

(vii) fix the remuneration of any director for serving on the
Board of Directors or any Committee thereof or for services to the
Bank in any other capacity; or

(viii) authorize the payment of any dividend or distribution to
shareholders.

The action taken by the Executive Committee at each meeting shall be
reported to the Board of Directors and shall be subject to alteration or repeal
by the latter, provided that no alteration or repeal by the Board of Directors
of action taken by the Executive Committee shall prejudice the rights or acts of
any third person.

The Executive Committee shall hold meetings at such times and places
and upon such notice as it may from time to time determine. Other meetings of
the Executive Committee may be called at any time by the Chairman of the Board
or by the President or by any three members of the Executive Committee or by the
Secretary of the Board of Directors at the written request of the person or
persons entitled to call such a meeting.
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SECTION 2. Audit Committee. There shall be an Audit Committee
composed of such number of directors (not less than three) as the Board of
Directors, by resolution passed by the vote of a majority of the entire Board,
may appoint. No employee of the Bank or of Bank of Boston Corporation (or of
any other corporation, company, trust or firm which succeeds to the ownership of
a majority or more of the shares of the capital stock of the Bank having
ordinarily the power to vote for the election of directors) shall be a member of
the Audit Committee.

The duties of the Audit Committee shall be

(a) at least once in each calendar year and within 15 months of the
last occasion, to make, or cause to be made by accountants responsible only
to the Board of Directors, a suitable examination and evaluation of the
practices and internal accounting, operating and administrative controls
being employed by the Bank in the performance of its fiduciary functions in
order to ascertain, since the last such review and evaluation, whether such
fiduciary functions have been administered in accordance with applicable
law and rules and regulations thereunder and sound fiduciary principles;

(b) to make, or cause to be made by the independent accountants, such
other examinations or audits of the affairs and operations of the Bank or
of any one or more of its subsidiaries, of such scope, with such objects
and at such times or intervals as the Committee may determine in its
discretion or as may be ordered by the Board of Directors or the Executive
Committee;

(c) to submit to the Board of Directors as soon as may be convenient
following the conclusion of each examination or audit made by or at the
direction of the Committee, a written report relative thereto; and

(d) to oversee the activities of the General Auditor and his or her
staff. The Committee shall also be responsible for conducting periodic
performance evaluations and establishing the compensation of the General
Auditor.

A notation with respect to each report made to the Board of Directors
by the Audit Committee and of the action taken thereon by the Board of Directors
shall be made in the minutes of the latter.

SECTION 3. Compensation Committee. There shall be a Compensation
Committee composed of such number of directors (not less than three nor more
than five) as the Board of Directors, by resolution passed by the vote of a
majority of the entire Board, may appoint. No employee of the Bank or of Bank
of Boston Corporation (or of any other corporation, company, trust or firm
which succeeds to the ownership of a majority or more of the shares of the
capital stock of the Bank having ordinarily the power to vote for the election
of directors) may be a member of the Compensation Committee.

The duties of the Compensation Committee shall be

(a) after considering the recommendations of management, to make
recommendations to the Board of Directors from time to time as to the
salaries of those officers of the Bank who are in positions or at salary
levels designated from time to time by the Board of Directors on the
recommendation of the Committee and after considering the recommendations
of management, to approve salaries of such other officers as the Committee
deems appropriate;

(b) to review those benefit plans and arrangements affecting
directors of the Bank and as the Board of Directors deems appropriate from
time to time, to review benefit plans and arrangements affecting employees
of the Bank, to discharge any responsibility placed upon the Committee by
any such benefit plans or arrangements;

(c) to make, or cause to be made, such special studies and reports
pertaining to the Bank's compensation policies and practices as may be
requested of the Committee from time to time by the Board of Directors; and

(d) to discharge any other duties or responsibilities specifically
delegated to the Committee by the Board of Directors.
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SECTION 4. Trust Committee. The Board of Directors shall appoint a
Trust Committee composed of not less than five directors or officers, or both.

The functions of the Trust Committee shall be

(a) to review and approve all general policies pertaining to the
exercise of fiduciary powers by the Bank and to oversee the exercise
of the fiduciary powers and policies of the Bank;

(b) to discharge any other duties or responsibilities specifically
delegated to the Committee by the Board of Directors; and

In order to assist in the administration of fiduciary powers, the
Trust Committee may from time to time appoint or revoke the appointment of one
or more committees responsible only to the Trust Committee composed of one or
more directors or officers or both. Any such committee shall perform such
functions as the Trust Committee may assign to it.

SECTION 5. Community Investment Committee. The Board of Directors
may from time to time appoint a Community Investment Committee composed of not
less than three nor more than five directors.

The duties of the Committee shall be from time to time to review the
policies established by the Bank relating to the discharge by the Bank of its
responsibilities under the Community Reinvestment Act of 1977 (Section 2901 et
seq. of Title 12 of the United States Code) and regulations thereunder, or any
other applicable Federal or state law or regulations thereunder relating to
substantially the same subject as the said Community Reinvestment Act of 1977,
and to evaluate such policies and the measures being taken by the Bank to
implement them and to make reports to the Board of Directors from time to time
of its findings and recommendations.

SECTION 6. Other Committees. The Board of Directors may, from time
to time, by resolution passed by the vote of a majority of the entire Board,
constitute such other standing or special committees made up of such directors,
officers or other persons as it deems desirable and may dissolve any such
committee by like resolution at its pleasure. Each such committee shall have
such authority and perform such duties not inconsistent with law and these By-
Laws as may be assigned to it by the Board of Directors. Vacancies in any such
committee shall be filled by resolution passed by the vote of a majority of the
entire Board. No such committee shall be granted or shall exercise any
authority which shall have been delegated to another committee by these By-Laws
or by resolution of the Board of Directors or which, in the absence of such
delegation, could not be exercised by the Executive Committee.

SECTION 7. Changes in Committee Membership and Filling of Vacancies.
The Board of Directors by resolution passed by the vote of a majority of the
entire Board may at any time or from time to time (a) increase or reduce the
number of members of any committee, within any applicable limits imposed by
these By-Laws, (b) remove any member (except a member ex officio) from any
committee, (c) appoint a director or other eligible person to fill a vacancy in,
or to be an additional member of, any committee, and (d) discharge any committee
except a standing committee established pursuant to Section 1 through 4 of this
Article III.

SECTION 8. Records of Committee Action and Board of Directors'
Approval. Each committee appointed by the Board of Directors shall keep a
record of its acts and proceedings which shall be open for inspection at
any time by any director. Such records shall be submitted to the Board of
Directors at such time or times as may be required by these By-Laws or as may be
requested by the Board of Directors. Failure to submit such record, or failure
of the Board of Directors to approve any action indicated therein, shall not
invalidate any action otherwise lawful, to the extent that it has been carried
out by the Bank prior to the time the record of such action was, or should have
been, submitted to the Board of Directors as herein provided. The action of the
Board of Directors at any meeting with respect to action taken by any standing
<PAGE>

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committee shall be recorded in the minutes of the meeting.

SECTION 9. Committee Proceedings. In the absence of specific
provisions in these By-Laws or regulations imposed by the Board of Directors, a
committee may meet and adjourn and otherwise regulate its meetings as it thinks
fit. A committee may appoint a chairman of its meetings if none has been
appointed by the Board of Directors or is designated elsewhere in this Article
III. If no such chairman has been appointed, or if at any meeting the chairman
is not present within five minutes after the time appointed for the holding of
the meeting, the members present may choose one of their number to be chairman
of the meeting. A quorum for the transaction of business at any meeting of a
committee shall be a majority of the fixed number of members thereof for the
time being (whether or not any seat is vacant) unless a different rule shall
have been adopted by a resolution passed by the vote of a majority of the Board
of Directors. A resolution passed by the vote of a majority of the members
present at the time of voting if a quorum is present shall be the act of the
committee. In the case of an equality of votes the Chairman shall have a second
or casting vote. A committee cannot sub-delegate any of its powers or duties
within its membership or to any other person or persons unless authorized to do
so by the Board of Directors or these By-Laws. Committee members cannot vote by
proxy.

SECTION 10. Action of Committees Without a Meeting. Any action
required or permitted to be taken by a committee of the Board of Directors may
be taken without a meeting if all members of the committee consent thereto in
writing either before or after the action is taken and the writing or writings
evidencing such consent are filed with the minutes of proceedings of such
committee. For all purposes of these By-Laws, any such consent shall constitute
a resolution duly passed by such committee.

SECTION 11. General Authority of Committees. Any committee appointed
by the Board of Directors pursuant to this Article III shall be at liberty

(a) to meet and confer with employees of the Bank and its
subsidiaries on all matters relating to the work of the Committee which
fall within the purview of such employees and to be informed by any of them
as to the policies, practices, and controls of the division or department
of the Bank or of the subsidiary of the Bank to which he or she is
assigned; and

(b) to examine all reports which are relevant to the work of the
Committee (i) made by the Bank or any of its subsidiaries to regulatory
authorities and (ii) of examinations of the Bank or any of its subsidiaries
made by regulatory authorities.

ARTICLE IV

OFFICERS

SECTION 1. Titles and Qualifications. The officers of the Bank shall
be a Chairman of the Board, a President, a Cashier, a General Auditor, and such
other officers, including one or more Vice Chairmen, as may be appointed from
time to time in accordance with these By-Laws. Except as otherwise provided by
law, the duties of any two officers may be discharged by the same person, but
the President shall not serve at the same time as Cashier. The Chairman of the
Board and the President must be directors.

SECTION 2. Appointment. The Chairman of the Board, the President,
any Vice Chairman, Executive Officers, the Cashier and General Auditor, shall be
appointed by a majority vote of the entire Board. The Chairman of the Board,
the President, any Vice Chairman or any member of the Corporate Working
Committee to whom the Chairman of the Board, the President or any Vice Chairman
has delegated authority by written delegation filed from time to time with the
Cashier as a part of the official records of the Bank shall appoint the
Authorized Officers of the Bank and shall establish the grades of the Authorized
Officers and prescribe the titles, designations, qualifications, and duties of
the Authorized Officers so appointed. In addition, there may be from time to
time such other officers or agents of the Bank with such titles, designations,
qualifications, and duties as the Chairman of the Board, the President, a Vice
Chairman or a member of the Corporate Working Committee may see fit to appoint
or employ, provided that such member of the Corporate Working Committee is one
to whom the Chairman of the Board, the President or a Vice Chairman has
delegated the authority to appoint such officers or agents in one or more
written
<PAGE>

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delegations filed from time to time with the Cashier as a part of the records
of the Bank.

SECTION 3. Terms of Office. Each officer or agent of the Bank shall
occupy his or her office or continue as such officer or agent only during the
pleasure of the Board of Directors or of the officer who appointed him or her
or until such officer or agent sooner resigns, retires or dies except that the
Board of Directors, the Chairman of the Board, the President or Vice Chairman
may delegate to one or more of the members of the Corporate Working Committee
the authority to vary or terminate the term of office of an officer or agent
of the Bank. The delegation of authority to vary or terminate the term of
office of an officer or agent shall be effected by or in accordance with the
terms of a resolution of the Board of Directors.

SECTION 4. Duties; Fidelity Bond. The duties and authority of each
officer, employee or other agent of the Bank, other than as set forth in these
By-Laws, shall be prescribed, and may be varied from time to time, by the body
or officer of the Bank which appointed or employed him or her. Each officer and
employee of the Bank shall be covered by a bond or fidelity insurance approved
by the Board of Directors and conditioned for the honest discharge of his or her
duties as such officer or employee. Such bonds or insurance may be in
individual, schedule or blanket form and the premiums therefor shall be paid by
the Bank.
<PAGE>

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SECTION 5. The Chairman of the Board. The Chairman of the Board
shall be the Chief Executive Officer of the Bank and shall have the general
control and management of the business and affairs of the Bank. When present,
he or she shall preside at all meetings of the Board of Directors and of the
shareholders. He or she shall have such powers and duties as usually are
incident to the Office of Chief Executive Officer and shall perform such other
duties as may be imposed on him or her by law, the Articles of Association and
these By-Laws, or as may be assigned by the Board of Directors. The Chairman of
the Board shall be a member of the Executive Committee. A vacancy occurring in
the office of Chairman of the Board shall be filled promptly by the Board of
Directors.

SECTION 6. The President. The President shall be the Chief Operating
Officer of the Bank and shall have the general control and management of the
operations of the Bank. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the Board of Directors and the
shareholders. The President shall be subject to the direction of the Board of
Directors and of the Chairman of the Board under whose direct supervision he or
she shall be. The President shall perform such duties as may be imposed on him
or her by law, the Articles of Association and these By-Laws or as may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
He or she shall have such other powers and duties as are usually incident to the
Office of President and Chief Operating Officer. The President shall be a
member of the Executive Committee. A vacancy occurring in the office of
President shall be filled promptly by the Board of Directors.

SECTION 7. The Vice Chairmen. Each Vice Chairman shall perform the
duties imposed upon him or her by these By-Laws or assigned to him or her by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President. The Vice Chairmen shall be senior in rank to all officers other than
the Chairman of the Board and the President.

SECTION 8. Executive Officers. The Chairman of the Board, the
President, the Vice Chairmen, the Cashier and such other Executive Officers as
may be so designated from time to time by the Board of Directors shall be the
Executive Officers of the Bank and shall be charged with the major policy-making
functions of the Bank.

SECTION 9. The Cashier and the Secretary of the Board of Directors.
The Cashier shall be the principal recording officer of the Bank. The Cashier
shall be ex officio, the Secretary of the Board of Directors and of the
Executive Committee and of the Audit Committee. The Cashier shall attend and
keep minutes of the proceedings at all meetings of the shareholders, the Board
of Directors, the Executive Committee and the Audit Committee and of each
other committee appointed by the Board of Directors which shall not have
appointed any other person to serve as its secretary. As required by law,
these By-Laws, the Board of Directors or the Executive Committee, the Cashier
shall give or cause to be given notice to the shareholders of each annual and
special meeting and to the directors of each regular and special meeting of
the Board of Directors, except the organization meeting held immediately after
the regular annual meeting of the shareholders. The Cashier shall have charge
of the corporate seal and minute books of the Bank and of such other corporate
records, books and papers as the Board of Directors or the Executive Committee
may order to be kept in his or her custody or under his or her control. The
Cashier shall have authority to affix the seal of the Bank to all instruments
executed under seal and to attest thereto. The Cashier shall perform such
other duties as may be imposed upon him or her by law, the Articles of
Association, these By-Laws, the Board of Directors, any Committee thereof or
the Chairman of the Board, under whose direct supervision he or she shall be.
A vacancy occurring in the office of Cashier shall be filled promptly by the
Board of Directors.

SECTION 10. Assistant Cashiers and Assistant Secretaries. Each
Assistant Cashier and Assistant Secretary shall perform such duties as may be
assigned to him or her by the Board of Directors, the Chairman of the Board, the
President or the Cashier, and shall have the authority to affix the seal of the
Bank to all instruments executed under seal and to attest thereto.

SECTION 11. The General Auditor. The General Auditor shall direct
the internal audit activities of the Bank and shall provide the Audit Committee
with objective and timely information regarding the internal audit activities of
the Bank. In the conduct of this responsibility, the General Auditor shall
perform
<PAGE>

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such duties as may be imposed upon him or her by these By-Laws, the
Board of Directors and the Audit Committee. To assure the professional
independence of the General Auditor, he or she shall report directly and solely
to the Audit Committee. For purposes of internal administration, the General
Auditor shall report to an Executive Officer of the Bank other than the Chairman
of the Board or the President. A vacancy occurring in the office of the General
Auditor shall be filled promptly by the Board of Directors.

SECTION 12. The Authorized Officers. Each Authorized Officer shall
bear such title as may be conferred on him or her from time to time by the
Chairman of the Board, the President, the Vice Chairman or member of the
Corporate Working Committee appointing him or her and shall perform the duties
imposed upon him or her by these By-Laws or assigned to him or her by the
Board of Directors, the Executive Committee, the Chairman of the Board, the
President, the Vice Chairman or member of the Corporate Working Committee
appointing him or her or the officer to whom he or she reports.

SECTION 13. Resignation. Any officer may resign at any time by
giving written notice to the Chairman of the Board, the President, a Vice
Chairman, the Cashier or to the member of the Corporate Working Committee to
whom he or she reports. The resignation of any officer shall take effect upon
its receipt or on any later date specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be required to
make it effective.

SECTION 14. Designated Officer. The term designated officer of the
Bank, whenever it appears in a resolution or vote of the Board of Directors of
the Bank, shall refer to any one of the Chairman of the Board, the President,
any Vice Chairman, any Executive Officer, the Cashier, the General Auditor, and
any Authorized Officer unless the resolution or vote of the Board of Directors
otherwise provides.

ARTICLE V

CONVEYANCE OF REAL PROPERTY, TRANSFER OF PERSONAL
PROPERTY, AND EXECUTION AND DELIVERY OF
DEEDS, LEASES, CONTRACTS, ETC.

Authority to convey real property, transfer personal property, sign,
execute and deliver deeds, leases, contracts, notes, negotiable instruments,
agreements and all other written instruments and documents for and on behalf of
this Bank, other than as set forth in these By-Laws or as prescribed by law,
shall be prescribed by resolutions adopted by the Board of Directors of the Bank
from time to time.
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ARTICLE VI

STOCK CERTIFICATES AND TRANSFER OF STOCK

SECTION 1. Certificates of Stock. Certificates for shares of the
Capital Stock of the Bank shall be in such form as shall be approved by the
Board of Directors. They shall be numbered consecutively and entered in the
stock record book of the Bank as they are issued. They shall be signed by the
Chairman of the Board or the President and by the Cashier or an Assistant
Cashier of the Bank and shall be sealed with its corporate seal. The seal may
be a facsimile. Where a stock certificate is manually countersigned by a
transfer agent other than the Bank or its employee and by a registrar other than
the Bank or its employee, the signature thereon of any officer of the Bank may
be a facsimile. In case any person who, as officer, transfer agent or
registrar, shall have signed, or whose facsimile signature shall have been
placed on, a stock certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate shall have been delivered by the
Bank, such certificate may nevertheless be delivered with the same effect as
though such person had not ceased to be such officer, transfer agent or
registrar. Each certificate shall recite on its face that it is transferable
only on the books of the Bank and shall meet the requirements of the laws of the
United States. The stock record book and blank stock certificates shall be kept
in the custody and under the control of the Cashier or of any other officer or
agent designated by the Board of Directors or the Executive Committee.

SECTION 2. Transfer of Stock. Transfer of shares of the Capital
Stock of the Bank shall be made only on the books of the Bank subject to the
restrictions and provisions of the laws of the United States, and a transfer
book shall be provided in which all assignments and transfers of shares of the
Capital Stock of the Bank shall be made.

ARTICLE VII

INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS

SECTION 1. Indemnification Generally. The Bank may, to the extent
legally permissible, indemnify each of the directors and officers of the Bank
or of the Bank's wholly-owned subsidiaries against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and counsel fees, reasonably incurred by such
director or officer in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which such
director or officer may be involved or with which such director or officer may
be threatened, while in office or thereafter, by reason of such director or
officer being or having been such a director or officer of the Bank or of the
Bank's wholly-owned subsidiaries or by reason of such director or officer
serving or having served at the request of the Bank as a director, officer or
trustee of any firm, corporation, or organization or by reason of such
director or officer serving or having served in any capacity with respect to
any employee benefit plan maintained by the Bank or any wholly-owned
subsidiary of the Bank, except with respect to any matter as to which such
director or officer shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Bank or of such subsidiary or, to the extent that such
matter relates to service with respect to any such employee benefit plan, in
the best interest of the participants or beneficiaries of such employee
benefit plan; provided, however, that no person may be indemnified for
expenses, penalties or other payments incurred in an administrative proceeding
or action instituted by an appropriate bank regulatory agency which proceeding
or action results in a final order assessing civil money penalties or
requiring affirmative action by an individual or individuals in the form of
payments to the Bank; provided, further, that as to any matter disposed of by
a compromise payment by such director or officer pursuant to a consent decree
or otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be ordered by a
court or unless such compromise shall be approved as in the best interest of
the Bank, after notice that it involves such indemnification: (i) by a
disinterested majority of the directors of the Bank then in office; or (ii) by
a majority of the disinterested directors of the Bank then in office, provided
that there has been obtained an opinion in writing of independent legal
counsel to the effect that such director or officer appears to have acted in
good faith in the reasonable belief that his or her action was in the best
interest of the Bank; or (iii) by the holders of a majority of the outstanding
stock at the time entitled to vote for directors, voting as a single class,
exclusive of any stock owned by any interested director or officer. Expenses,
including counsel fees,
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reasonably incurred by any director or officer of the Bank in connection with
the defense or disposition of any such action, suit or other proceeding shall
be paid from time to time by the Bank in advance of the final disposition
thereof upon receipt of an undertaking by such director or officer to repay
the amounts so paid to the Bank if it is ultimately determined that
indemnification for such expenses is not authorized under this Section 1.

SECTION 2. Indemnification for Successful Defense. To the extent
that any director or officer of the Bank serving as such or in any capacity with
respect to any employee benefit plan maintained by the Bank has been wholly
successful in the defense of any action, suit or proceeding referred to above in
Section 1 or of any claim or issue therein, such person shall, without further
authorization of the Board of Directors of the Bank, be indemnified by the Bank
as herein above provided upon presentation to the Board of Directors of the Bank
of a claim for indemnification and evidence reasonably satisfactory to the Board
of Directors of the Bank of such wholly successful defense. As used in this
Section the term "wholly successful" means that the action, suit or proceeding
or the claim or issue has been finally terminated without a finding of liability
or guilt against the person seeking indemnification and the time for taking an
appeal or other court or administrative action therein has expired or, in the
case of a threatened proceeding, a reasonable period of time, determined by
independent legal counsel selected by the Board of Directors of the Bank, has
elapsed since the threat was made without the proceeding have been instituted
and, in either case without any payment or promise having been made to induce a
settlement or compromise.

SECTION 3. Receipt of Indemnification. Receipt of indemnification by
any person pursuant to this Article shall bar such persons from receiving
indemnification pursuant to the by-laws or charter of Bank of Boston Corporation
or any subsidiary or affiliate thereof. Except as otherwise provided in this
Section, the indemnification by the Bank provided for in this Article shall not
be exclusive of or affect any other rights to which any director, officer,
trustee or pension plan fiduciary or other person may be entitled. Nothing
contained in this Article shall either (i) limit the power of the Bank to
indemnify directors, officers, employees or agents of the Bank or of its wholly-
owned subsidiaries in a manner not inconsistent with this Article or (ii) affect
any rights to indemnification by the Bank to which such persons may be entitled
by contract or otherwise under law.

SECTION 4. Definitions. As used here in this Article, the terms
"director", "officer" and "trustee" shall include the relevant individual's
heirs, executors and administrators, an "interested" director or officer is one
against whom in such capacity the proceedings in question or another proceeding
on the same or similar grounds is then pending, and a "wholly-owned subsidiary"
means any corporation, business trust, partnership or other business entity of
which the Bank owns directly or through one or more wholly-owned subsidiaries
all of the outstanding capital stock or other shares of beneficial interest
(other than directors' qualifying shares) entitled to vote generally.

SECTION 5. Insurance. The Bank, may upon the affirmative vote of a
majority of the Board of Directors, purchase insurance for the purpose of
indemnifying its directors, officers, other employees and agents to the extent
that such indemnification is allowed under this Article; provided, however,
that such insurance shall not provide coverage for any expenses, penalties or
other payments incurred in connection with a formal order assessing civil
money penalties against any director, officer, other employee or agent of the
Bank. Such insurance may, but need not, be for the benefit of all directors,
officers, employees or agents.

ARTICLE VIII

AMENDMENTS

Except as otherwise provided in Article X hereof, these By-Laws may be
repealed or amended, or new by-laws may be adopted by resolution passed by the
vote of a majority of the entire Board at any regular or special meeting of the
Board of Directors, provided that notice of the proposal to repeal or amend
these By-Laws or to adopt new by-laws was included in the notice of the meeting
at which action on such proposal is taken.

ARTICLE IX
<PAGE>

-15-

GENERAL PROVISIONS

SECTION 1. Advisory Boards. Whenever, in the opinion of the Board of
Directors, it shall be advisable to have an advisory board for any division or
department of the Bank or for any branch or branches of the Bank, the Board of
Directors may, by resolution passed by the vote of a majority of the entire
Board, establish such an advisory board to have such powers and duties as may be
fixed by the Board of Directors. The Board of Directors, the Chairman of the
Board or the President shall have the power to appoint and to change the
membership of any such advisory board at any time and fill vacancies therein.
The Board of Directors shall have the power to discontinue the existence of any
such advisory board at any time. Members of any advisory board who are not
officers or employees of the Bank or any of its affiliates shall be paid such
compensation for services on such board as the Board of Directors, the Chairman
of the Board or the President may fix from time to time. In addition, each such
member shall be entitled to reimbursement for reasonable expenses incurred by
him or her to attend meetings of such advisory board or otherwise in connection
with the performance of his or her duties thereon.

SECTION 2. Voting of Securities. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the President, each Vice
Chairman, each Executive Officer, each Authorized Officer, and the Cashier,
each acting alone, shall have authority on behalf of the Bank (a) to attend
and act and vote in person for the Bank, and as its duly appointed agent and
attorney-in-fact, at any meeting of the holders of securities or creditors of
any person (as herein defined) any securities of which are owned or held with
power to vote by the Bank or any indebtedness of which is owed to the Bank,
(b) by an instrument in writing, to appoint a proxy or proxies to attend and
act and vote for the Bank at any such meeting and (c) to execute and deliver
in the name and on behalf of the Bank any notice, demand, protest, receipt,
consent or waiver by the Bank as a holder of securities or a creditor of any
person. Each officer named in this Section and each person designated by any
such officer as a proxy for the Bank shall have and may exercise at any such
meeting for and on behalf of the Bank any and all rights and powers incident
to the ownership of such securities or indebtedness which an owner would have
if personally present.

As used in this Section and in Section 3 of this Article IX, the word
"person" includes a natural person, a corporation, a company, a partnership, a
voluntary association, a proprietorship, a trust, an estate, a government
(national, state, regional or local) or a department or agency thereof, and any
other form of legal entity or business organization however denominated and
wherever formed or existing.

SECTION 3. Powers of Attorney. The Chairman of the Board, the
President, each Vice Chairman, or member of the Corporate Working Committee may
from time to time and at any time by power of attorney appoint any person (as
herein defined) or persons to be the attorney or attorneys of the Bank for such
purposes and with such powers, authorities and discretions (not exceeding those
vested in or exercisable by the Board of Directors) and for such period and
subject to such conditions as the officer making such appointment may think fit;
and any such power of attorney may contain such provisions for the protection
and convenience of persons dealing with such attorney or attorneys as the
officer making such appointment may think fit and may also authorize any such
attorney to appoint a substitute or substitutes and to delegate all or any of
the powers, authorities and discretions vested in any such attorney or
attorneys, except such power of substitution (without prejudice to the power of
such attorney or attorneys to exercise concurrently any of the powers delegated
and to revoke or vary any such appointment). The Chairman of the Board, the
President, a Vice Chairman, or member of the Corporate Working Committee may at
any time revoke any power of attorney executed by any of those officers then or
formerly in office, provided that no such revocation shall invalidate any act
performed by the attorney or attorneys (or any substitute or substitutes
appointed thereunder) in the exercise of the powers conferred hereby between the
revocation thereof and the time such revocation becomes known to the attorney or
attorneys, or to any such substitute or substitutes, and any such power of
attorney shall at all times be conclusively binding on the Bank and its
successors in favor of third parties who have not received notice of the
revocation thereof.

SECTION 4. Minute Book; By-Laws. The organization papers of the
Bank, the Articles of Association, the returns of the judges of election and the
proceedings of all regular and special meetings of the shareholders and of the
Board of Directors and of committees appointed by the Board of Directors shall
be recorded in appropriate minute books kept in the custody and under the
control of the Cashier. The minutes
<PAGE>

-16-

of each such meeting shall be signed by the Cashier or other person appointed
to act as secretary of the meeting. The By-Laws of this Bank and all
amendments thereto shall be kept by the Cashier in a special book entitled "By-
Laws of The First National Bank of Boston" and shall be open to inspection by
any shareholder during banking hours.

SECTION 5. Seal. The seal of the Bank shall be substantially in the
following form:

The seal of the Bank may be affixed to any document executed in the
name of the Bank either by impression or, when authorized by these By-Laws or by
resolution of the Board of Directors or the Executive Committee, by imprinting,
stamping or otherwise producing thereon a facsimile, and may be attested by the
Cashier or any Assistant Cashier or any Assistant Secretary of the Board of
Directors.

SECTION 6. Fiscal Year. The fiscal year of the Bank shall be
coincident with the calendar year.

SECTION 7. Waiver of Notice. Whenever any notice whatever is
required to be given by law or by these By-Laws or the Articles of Association,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. The presence of any director at any regular or special
meeting of the Board of Directors or of any standing or special committee of
directors shall constitute waiver of notice thereof.

ARTICLE X

EMERGENCY BY-LAWS

SECTION 1. Effective Period. The emergency by-laws set forth in this
Article X shall be effective only during the continuance of a national emergency
proclaimed by the President of the United States of America or by other
governmental authority following an attack on the United States of America or
another catastrophic event as a result of which a regular quorum of the Board of
Directors or of the Executive Committee cannot be convened readily. During any
such emergency, the provisions of this Article X shall supersede any different
provisions contained in the preceding Articles of these By-Laws.

SECTION 2. Meetings of the Board of Directors. During any such
emergency, a meeting of the Board of Directors may be called by any director or
officer who deems it necessary. The meeting shall be held at such time or place
as the person calling the meeting may specify in giving notice thereof. Such
notice may be given in writing or orally and by such means of communication
(including announcement by radio) as in the judgment of the person giving the
same are then feasible to reach as many of the directors as it is reasonably
possible to reach under the prevailing circumstances. Three directors shall
constitute a quorum for the transaction of business at any such meeting.

SECTION 3. Emergency Location of Head Office. With effect during any
such emergency, the Board of Directors may change the location of the Head
Office of the Bank or designate one or more alternative locations or authorize
one or more officers to do so.

SECTION 4. Preservation of Continuity of Management. In order to
preserve continuity of
<PAGE>

-17-

management of the Bank during any such emergency, the Board of Directors may
provide and from time to time change lines of succession in management in the
event that during any such emergency any or all of the officers of the rank of
Executive Officer or higher shall die or be missing or for any reason be
rendered incapable of discharging his or her or their respective duties.

SECTION 5. Immunity. No director, officer or employee of the Bank
acting in accordance with these emergency by-laws shall be liable for any act or
omission except willful misconduct.

SECTION 6. Amendments of Emergency By-Laws. The provisions of this
Article X can be amended or repealed during any emergency by resolution of the
directors or the shareholders but no such amendment or repeal shall prejudice
any rights or immunities acquired by any director, officer or employee under
Section 5 of this Article X in respect of action taken or omitted by him or
her prior to such amendment or repeal. Any such amendment may make such further
or different provisions as may be deemed to be practical and necessary to deal
with the circumstances of the emergency.

<PAGE>

EXHIBIT 12.1
WABAN INC. AND CONSOLIDATED SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
-------------------------------------------- -----------------
JAN. 28, JAN. 27, JAN. 26, JAN. 25, JAN. 30, OCT. 24, OCT. 30,
1989 1990 1991 1992 1993 1992 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes and cumulative
effect of accounting
change................. $28,839 $48,525 $30,686 $48,923 $ 68,275 $48,635 $42,336
Add:
Portion of rents repre-
sentative of interest
factor................ 10,416 14,147 18,402 22,448 27,002 20,030 23,175
Interest on indebted-
ness.................. 13,179 3,918 5,578 7,178 11,023 7,501 10,097
------- ------- ------- ------- -------- ------- -------
Income as adjusted.... $52,434 $66,590 $54,666 $78,549 $106,300 $76,166 $75,608
======= ======= ======= ======= ======== ======= =======
Fixed charges
Portion of rents repre-
sentative of the in-
terest factor......... $10,416 $14,147 $18,402 $22,448 $ 27,002 $20,030 $23,175
Interest on indebted-
ness.................. 13,179 3,918 5,578 7,178 11,023 7,501 10,097
Capitalized interest... -- 103 217 521 2,441 1,728 2,242
------- ------- ------- ------- -------- ------- -------
Fixed charges......... $23,595 $18,168 $24,197 $30,147 $ 40,466 $29,259 $35,514
======= ======= ======= ======= ======== ======= =======
Ratio of earnings to
fixed charges.......... 2.22 3.67 2.26 2.61 2.63 2.60 2.13
==== ==== ==== ==== ==== ==== ====
</TABLE>