<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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COMMISSION FILE NUMBER 1-10259
WABAN INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MERCER ROAD 01760
NATICK, MASSACHUSETTS (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (508) 651-6500
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, par value $.01 New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
6 1/2% Convertible Subordinated Debentures due July 1, 2002 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
- -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on February 26, 1994 was $527,514,000.
There were 33,088,651 shares of the Registrant's Common Stock, $.01 par value,
outstanding as of February 26, 1994.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on June 14, 1994 (Part III).
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<PAGE>
PART I
ITEM 1. 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.
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.
BJ'S WHOLESALE CLUB
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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
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<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, 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.
1
<PAGE>
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 installing 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.
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>
2
<PAGE>
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 everyday 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 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
3
<PAGE>
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.
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.
4
<PAGE>
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 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.
5
<PAGE>
HOMEBASE
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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
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<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>
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* Includes 16 stores in operation at January 29, 1994, which the
Company plans to close as part of the restructuring 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
of 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 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,
6
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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.
The new management team also undertook a thorough review of HomeBase's
business and real estate strategies, the result of which was a recommendation
to take certain actions in a restructuring plan, which the Company's Board of
Directors approved on November 15, 1993. Consequently, 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, assign or sublease
the remaining three midwestern stores, as well as the other 16 stores
identified for closing.
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.
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 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.
7
<PAGE>
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.
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
8
<PAGE>
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 everyday 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 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 the 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.
9
<PAGE>
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 electronic data interchange ("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.
EMPLOYEES
- ---------
As of January 29, 1994, the Company had approximately 16,000 employees, of
whom approximately 2,300 were part-time employees. Approximately 1,100
employees were corporate and divisional management and office support
employees; the balance were warehouse personnel.
None of the Company's employees is represented by unions. The Company
considers its relations with its employees to be excellent.
ITEM 2. 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.
The Company's principal executive offices in Natick, Massachusetts, which
include the home office of its BJ's division, occupy approximately 125,000
square feet under a lease expiring January 31, 1996, with an option to extend
this lease through January 31, 2001. The Company also maintains a home office
for its HomeBase division in Irvine, California, occupying approximately
164,000 square feet under a lease expiring July 24, 2004, with options to
extend this lease through July 24, 2019.
See Note D of Notes to the Consolidated Financial Statements included
elsewhere in this report for additional information with respect to the
Company's leases.
Certain of the Company's locations are financed through long-term secured
financings. See Note C of Notes to the Consolidated Financial Statements for
additional information with respect to such financings.
10
<PAGE>
A list of BJ's and HomeBase locations within each state is shown on pages 1
and 6, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company considers all current legal proceedings to be ordinary routine
litigation incident to the character of its business. The Company believes that
such proceedings will not, individually or in the aggregate, have a material
adverse effect on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended January 29, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are the executive officers of the Company as of the date
hereof:
<TABLE>
<CAPTION>
OFFICE AND EMPLOYMENT
NAME AGE DURING LAST FIVE YEARS
---- --- ----------------------
<C> <C> <S>
Sumner L. Feldberg 69 Chairman of the Board of the Company since February
1989; Chairman of the Executive Committee (1987-1989)
and Chairman of the Board (1973-1987 and since 1989)
of The TJX Companies, Inc. ("TJX").
Herbert J Zarkin 55 President, Chief Executive Officer and Director of
the Company since May 1993; Executive Vice President
of the Company (1989-1993); President of BJ's
Wholesale Club Division (1990-1993); previously with
TJX as Senior Vice President--Warehouse Club
Divisions (December 1988 to June 1989); Chairman of
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; President of TJX's HomeBase Division (1986-
1988).
John J. Nugent 47 Executive Vice President of the Company and President
of BJ's Wholesale Club since September 1993; Senior
Vice President of BJ's Wholesale Club (1991-1993);
Director of Sales Operations of BJ's Wholesale Club
(1989-1993); Vice President of Operations at Child
World (1980-1989).
Allan P. Sherman 49 Executive Vice President of the Company since May
1993 and President of HomeBase since September 1993;
President of BJ's Wholesale Club (May 1993 to
September 1993); Senior Vice President and General
Merchandise Manager--Non Food of BJ's Wholesale Club
(August 1991 to May 1993); Vice President and General
Merchandise Manager--Non Food of BJ's Wholesale Club
(February 1991 to August 1991); President of My
House, a division of Jamesway (1989-1991); 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 44 Senior Vice President and Chief Financial Officer of
the Company since September 1992 and Treasurer since
December 1992; Senior Vice President, Finance and
Chief Financial Officer of Talbot's, Inc. (1989-
1991).
Sarah M. Gallivan 51 Employed by the Company since October 1989 and
elected Vice President, General Counsel and Secretary
of the Company in December 1989; with Damon
Corporation as legal counsel (1973-1989).
Edward J. Weisberger 52 Vice President--Finance of the Company since April
1989; Vice President--Corporate Controller of TJX
(1987-1989).
</TABLE>
All officers hold office until the next annual meeting of the Board of
Directors in 1994 and until their successors are elected and qualified.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company is listed on the New York Stock Exchange
(symbol WBN). The quarterly high and low stock prices for fiscal years 1994 and
1993 were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 29, 1994 JANUARY 30, 1993
----------------- -------------------
QUARTER HIGH LOW HIGH LOW
------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
First 17 11 3/4 26 1/2 18 1/4
Second 15 1/8 12 26 1/4 17 3/4
Third 16 12 21 1/4 16 1/2
Fourth 15 1/4 12 1/4 22 15 3/4
</TABLE>
The approximate number of stockholders of record at February 26, 1994 was
4,900. The Company has not paid any dividends. For restrictions on the payment
of dividends, see Note C of Notes to the Consolidated Financial Statements.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JAN. 29, 1994 JAN. 30, 1993 JAN. 25, 1992 JAN. 26, 1991 JAN. 27, 1990
------------- ------------- ------------- ------------- -------------
(53 WEEKS)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 3,589,341 $ 3,357,794 $ 2,783,585 $ 2,409,726 $ 2,056,512
----------- ----------- ----------- ----------- -----------
Cost of sales, includ-
ing buying and occu-
pancy costs 3,086,670 2,881,334 2,399,765 2,076,372 1,770,791
Selling, general and
administrative ex-
penses 423,026 401,905 322,705 288,377 234,076
Restructuring charge 101,133 -- -- -- --
Cost of closing BJ's
warehouse clubs in
Chicago -- -- 5,500 -- --
Discontinuation of
HomeClub name and mem-
bership program -- -- 3,400 8,800 --
Interest on debt and
capital leases (net) 12,489 6,280 3,292 5,491 3,120
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes and cumu-
lative effect of ac-
counting principle
changes (33,977) 68,275 48,923 30,686 48,525
Provision (benefit) for
income taxes (15,290) 24,033 18,914 12,274 19,760
----------- ----------- ----------- ----------- -----------
Income (loss) before
cumulative effect of
accounting principle
changes (18,687) 44,242 30,009 18,412 28,765
Cumulative effect of
accounting principle
changes 905 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (17,782) $ 44,242 $ 30,009 $ 18,412 $ 28,765
=========== =========== =========== =========== ===========
Income (loss) per com-
mon share:
Primary earnings per
share:
Income (loss) before
cumulative effect of
accounting principle
changes $ (0.56) $ 1.33 $ 1.01 $ 0.64 $ 1.01
Cumulative effect of
accounting principle
changes 0.02 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (0.54) $ 1.33 $ 1.01 $ 0.64 $ 1.01
=========== =========== =========== =========== ===========
Fully diluted earnings
per share:
Income (loss) before
cumulative effect of
accounting principle
changes $ (0.56) $ 1.31 $ 1.01 $ 0.64 $ 1.01
Cumulative effect of
accounting principle
changes 0.02 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (0.54) $ 1.31 $ 1.01 $ 0.64 $ 1.01
=========== =========== =========== =========== ===========
Number of common shares
for earnings per share
computations:
Primary 33,082,362 33,191,497 29,807,255 28,597,817 28,457,170
Fully diluted 33,082,362 35,706,763 29,810,348 28,689,256 28,457,170
BALANCE SHEET DATA:
Working capital $ 203,809 $ 285,797 $ 268,559 $ 154,344 $ 137,722
Total assets 1,072,994 1,007,014 786,405 579,784 537,313
Long-term debt and
obligations under
capital leases 174,054 192,630 86,774 29,199 31,420
Stockholders' equity 420,492 436,610 388,645 284,185 265,266
WAREHOUSES OPEN AT END
OF YEAR:
BJ's Wholesale Club 52 39 29 27 23
HomeBase 82 86 73 66 58
</TABLE>
13
<PAGE>
ITEM 7. 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 year ended January 30, 1993), the Company achieved sales
growth at both BJ's and HomeBase, primarily through the opening of new stores
and also from comparable store sales growth. In fiscal 1994 (the year ended
January 29, 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 decrease at BJ's was due
largely to increased competition from other warehouse club operators; the
effects of opening new BJ's stores 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 decrease at
HomeBase was due largely to increased competition and the depressed economic
conditions in its major markets, particularly California.
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.
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 warehouse stores, through an
increase in the number of salespeople, including hiring of 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 efficiencies created
by the 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.
The new management team also undertook a thorough review of HomeBase's
business and real estate strategies, the result of which was a recommendation
to take certain actions in a restructuring plan, which the Company's Board of
Directors approved on November 15, 1993. Consequently, 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 of 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, assign or
sublease the remaining three midwestern locations as well as the other 16
stores identified for closing.
The results at HomeBase for fiscal 1994 exclude sales and operating income or
losses since October 31, 1993 for the eight midwestern HomeBase warehouse
stores that have closed and since November 28, 1993 for the other 16 HomeBase
warehouse stores planned to be closed. Sales from all 24 warehouse stores have
been removed from comparable store sales.
14
<PAGE>
The disposition of the 24 HomeBase stores is expected to generate a
significant amount of cash flow (see "Liquidity and Capital Resources") and to
improve HomeBase's operating income. If the results of the 24 stores had been
excluded for the full year ended January 29, 1994, sales would have been
reduced by approximately $270 million and operating income would have been
increased by approximately $8 million.
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.
FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND JANUARY 25, 1992
The following table presents selected income statement and segment data for
the last three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
JANUARY 29, 1994 JANUARY 30, 1993 JANUARY 25, 1992
------------------- ------------------ ------------------
(53 WEEKS)
% OF % OF % OF
$ NET SALES $ NET SALES $ NET SALES
-------- --------- -------- --------- -------- ---------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $3,589.3 100.0% $3,357.8 100.0% $2,783.6 100.0%
Cost of sales, including
buying and occupancy
costs 3,086.7 86.0 2,881.3 85.8 2,399.8 86.2
Selling, general and
administrative expenses 423.0 11.8 401.9 12.0 322.7 11.6
Restructuring charge 101.1 2.8 -- -- -- --
Cost of closing BJ's
clubs in Chicago -- -- -- -- 5.5 .2
Change of HomeClub name
to HomeBase -- -- -- -- 3.4 .1
Interest on debt and
capital leases (net) 12.5 .3 6.3 .2 3.3 .1
-------- ----- -------- ----- -------- -----
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes (34.0) (.9) 68.3 2.0 48.9 1.8
Provision (benefit) for
income taxes (15.3) (.4) 24.1 .7 18.9 .7
-------- ----- -------- ----- -------- -----
Income (loss) before
cumulative effect of
accounting principle
changes (18.7) (.5) 44.2 1.3 30.0 1.1
Cumulative effect of
accounting principle
changes .9 -- -- -- -- --
-------- ----- -------- ----- -------- -----
Net income (loss) $ (17.8) (.5)% $ 44.2 1.3% $ 30.0 1.1%
======== ===== ======== ===== ======== =====
Fully diluted net income
(loss) per common share $ (0.54) $ 1.31 $ 1.01
======== ======== ========
SELECTED SEGMENT DATA:
BJ's Wholesale Club:
Net sales $2,003.4 100.0% $1,786.9 100.0% $1,432.2 100.0%
Operating income $ 45.2 2.3% $ 35.4 2.0% $ 17.4 1.2%
HomeBase:
Net sales $1,586.0 100.0% $1,570.9 100.0% $1,351.4 100.0%
Operating income (loss) $ (55.8) (3.5)% $ 47.2 3.0% $ 42.1 3.1%
</TABLE>
15
<PAGE>
Total sales of the Company increased by 6.9% from fiscal 1993 (which contained
53 weeks) to fiscal 1994 and by 20.6% from fiscal 1992 to fiscal 1993. The
increases in both years were due primarily to the opening of new warehouse
stores. Comparable store sales increases (decreases) on a same-week basis for
the last two fiscal years were as follows:
<TABLE>
<CAPTION>
FY 1994 VS. FY 1993 VS.
FY 1993 FY 1992
----------- -----------
<S> <C> <C>
BJ's Wholesale Club (9.9%) 3.9%
HomeBase (1.5%) 2.0%
Total (6.4%) 2.9%
</TABLE>
Comparable store sales at BJ's, on a same-week basis, decreased 9.9% from
fiscal 1993 to fiscal 1994, and during fiscal 1993 comparable store sales at
BJ's declined from double-digit increases in the first quarter to decreases in
the fourth quarter. These decreases were 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.
HomeBase's comparable store sales, on a same-week basis, decreased 1.5% from
fiscal 1993 to fiscal 1994, following an increase of 2.0% from fiscal 1992 to
fiscal 1993. The decrease at HomeBase in fiscal 1994 was due largely to
increased competition and the depressed economic conditions in its major
markets, particularly California.
Cost of sales (including buying and occupancy costs) as a percentage of sales
was 86.0% in fiscal 1994, compared with 85.8% in fiscal 1993 and 86.2% in
fiscal 1992. The increase in the percentage from fiscal 1993 to fiscal 1994 was
attributable primarily to the increased proportion of consolidated sales
contributed by BJ's, which is a lower margin business than HomeBase. Gross
selling margins increased at both divisions from fiscal 1993 to fiscal 1994,
particularly at BJ's. The decrease in cost of sales as a percentage of sales
from fiscal 1992 to fiscal 1993 was due mainly to higher gross selling margins
at HomeBase.
Selling, general and administrative ("SG&A") expenses as a percentage of sales
were 11.8% in fiscal 1994 versus 12.0% in fiscal 1993 and 11.6% in fiscal 1992.
The ratio of SG&A expenses to sales was lower in fiscal 1994 than in fiscal
1993 mainly because of BJ's increased proportion of consolidated sales, and
operating efficiencies and improvements in expense controls at BJ's. SG&A
expenses as a percentage of sales are lower at BJ's than at HomeBase, which
offers a higher level of customer service. The increase in the SG&A ratio from
fiscal 1992 to fiscal 1993 was attributable primarily to higher payroll and
preopening expenses at HomeBase. The Company expects that its SG&A expenses
will increase in fiscal 1995 as a result of hiring a significant number of
additional customer service personnel at its HomeBase warehouse stores.
The Company's $101.1 million pre-tax restructuring charge in fiscal 1994
relates primarily to store closings and the write-down of discontinued
inventory at HomeBase. The main components of this charge were:
1) Operating losses and store closing costs (excluding employee termination
costs) were estimated to be approximately $31.3 million. This charge
comprises the actual losses and costs of the eight midwestern HomeBase
warehouse stores from the beginning of November 1993 through their
closing at the end of January 1994, and the estimated losses and costs of
16 other warehouse stores from the beginning of December 1993 through
their anticipated closings in the fiscal year ending in January 1995.
2) Employee termination costs were estimated to be approximately $3.6
million, including severance pay and postemployment medical expenses.
3) The net book value of HomeBase property to be disposed of was written
down by approximately $17.4 million. This charge represents the
difference between the net book value of owned real estate, leasehold
improvements and furniture, fixtures and equipment to be disposed of and
the estimated proceeds to be realized from their sale.
4) Contract termination costs were estimated to be approximately $36.9
million. This charge primarily represents HomeBase's obligations for
leased properties after their closing date offset by estimated sublease
income expected to be realized, net of expenses.
5) The write-down to net realizable value of inventory being discontinued
because it is not related to HomeBase's core home improvement merchandise
was estimated to be approximately $9.8 million.
The Company's restructuring charge was based on a number of estimates, and the
actual loss could vary from these estimates, depending on certain factors,
principally the Company's ability to sublease, assign or sell closed HomeBase
locations on favorable terms.
16
<PAGE>
BJ's operating income of $45.2 million in fiscal 1994 included a pre-tax
charge of $2.2 million for the estimated expenses related to the relocation of
the BJ's Wholesale Club in Syracuse, New York. BJ's fiscal 1993 operating
income of $35.4 million included a $1.1 million pre-tax gain from the disposal
of real estate properties. BJ's operating income of $17.4 million in fiscal
1992 included a pre-tax charge of $5.5 million for closing the four BJ's clubs
in Chicago. Excluding these items, operating income at BJ's was $47.4 million,
or 2.4% of sales, in fiscal 1994, compared with $34.3 million, or 1.9% of
sales, in fiscal 1993 and $22.9 million, or 1.6% of sales, in fiscal 1992. The
improvement in operating income over the three-year period 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
improvements in expense controls.
HomeBase posted an operating loss of $55.8 million in fiscal 1994, which
included a pre-tax restructuring charge of $98.5 million. Excluding this charge
from fiscal 1994, and excluding a fiscal 1992 charge of $3.4 million for
changing HomeBase's name from "HomeClub," operating income at HomeBase was
$42.7 million, or 2.7% of sales, in fiscal 1994, $47.2 million, or 3.0% of
sales, in fiscal 1993 and $45.5 million, or 3.4% of sales, in fiscal 1992.
Increased payroll and occupancy costs in fiscal 1994, partially offset by
decreased advertising and preopening costs, accounted for the decrease in
operating income from fiscal 1993 to fiscal 1994. The increase in operating
income from fiscal 1992 to fiscal 1993 was attributable to improved gross
merchandise margins, offset by higher payroll and preopening expenses.
The components of net interest expense in the last three fiscal years were as
follows (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
JAN. 1994 JAN. 1993 JAN. 1992
--------- --------- ---------
<S> <C> <C> <C>
Interest expense on debt $11.4 $ 8.4 $ 4.5
Interest and investment income (1.5) (4.7) (3.9)
----- ----- -----
Interest on debt (net) 9.9 3.7 .6
Interest on capital leases 2.6 2.6 2.7
----- ----- -----
Interest on debt and capital leases (net) $12.5 $ 6.3 $ 3.3
===== ===== =====
</TABLE>
Interest on debt, net of interest and investment income, increased in each of
the last two years because of the borrowing of $60.0 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 and
the subsequent investment of these funds in the expansion of the Company's
businesses. For additional information, see "Liquidity and Capital Resources"
below.
The Company's income tax benefit was 45.0% of its pre-tax loss in fiscal 1994.
This compares with income tax provisions of 35.2% of pre-tax income in fiscal
1993 and 38.7% of pre-tax income in fiscal 1992. During the Company's third
quarter of fiscal 1994, 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 the
tax law changes on the Company's provision (benefit) for income taxes, which
was recorded in the third quarter of fiscal 1994, was not material. The
Company's provision for income taxes in fiscal 1994 includes 38.2% of pre-tax
income before the restructuring charge and a 40.5% tax benefit from the
restructuring charge. Fiscal 1993's tax rate was favorably impacted by a
benefit resulting from the difference in the book and tax bases of real estate
which was sold, and by an increase in Targeted Jobs Tax Credits over the
previous fiscal year. See Note F of Notes to the Consolidated Financial
Statements for additional information.
In the first quarter of fiscal 1994, 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 millions):
<TABLE>
<S> <C>
SFAS No. 109, "Accounting for Income Taxes" $1.6
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," net of tax benefit (.2)
SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
net of tax benefit (.5)
----
$ .9
====
</TABLE>
Barring a significant change in tax rates, which would affect the Company's
accrual for deferred income taxes, the Company believes that the ongoing effect
of adopting SFAS Nos. 106, 109 and 112 will not be material. (See Notes F and H
of Notes to the Consolidated Financial Statements for additional information.)
17
<PAGE>
The Company's net loss for fiscal 1994 was $17.8 million, or $.54 per share,
fully diluted, compared to net income of $44.2 million, or $1.31 per share, in
fiscal 1993, and net income of $30.0 million, or $1.01 per share, in fiscal
1992.
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 1994:
Restructuring charge $(101.1) $(60.2)
Cost of relocating BJ's Syracuse, NY club (2.2) (1.3)
Charge related to resignation of Company's previous
president (1.0) (.6)
Cumulative effect of accounting changes (net) -- .9
------- ------
(104.3) (61.2)
------- ------
Fiscal 1993:
Net gain from 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)
------- ------
(8.9) (5.4)
------- ------
</TABLE>
Excluding the items in the preceding table from the respective periods, net
income for fiscal 1994 was $43.4 million, or $1.27 per share, fully diluted,
compared to $41.9 million, or $1.25 per share, in fiscal 1993 and $35.4
million, or $1.19 per share, in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1994, the Company opened 13 BJ's and five HomeBase stores. Cash
expended for property additions was $132.0 million versus $164.9 million in
fiscal 1993, when the Company opened a total of 23 stores. Ten of the new
stores opened in fiscal 1994 were owned versus seven in fiscal 1993. The
Company is increasingly required to acquire and develop, rather than lease from
third parties, sites for new stores.
The Company expects to open approximately 15 additional BJ's (including the
relocation of one warehouse club) and four additional HomeBase warehouse stores
in fiscal 1995. Capital expenditures are planned to be approximately $165
million, including an estimated $100 million for new store real estate. The
timing and amount of actual openings and expenditures could vary from these
estimates due to the complexity of the real estate development process.
During fiscal 1994, the Company reduced its average merchandise inventories
per warehouse store from $4.2 million at January 30, 1993 to $3.8 million at
January 29, 1994, including the effect of a $9.7 million reserve for write-down
of discontinued inventory. Cash provided by the reduction of inventories, net
of accounts payable, was $24.3 million in fiscal 1994 compared with a net cash
outflow for these items of $83.4 million in fiscal 1993.
The Company's restructuring is expected to generate a significant amount of
cash flow. The total pre-tax restructuring charge of $101.1 million includes
approximately $27 million for write-downs of property and inventory, which are
non-cash charges. In addition to tax benefits, cash flow will be generated by
the sale of inventory and property in the stores to be closed (net of accounts
payable and closing costs) and from the liquidation of HomeBase's discontinued
inventory. The initial phase of the restructuring, including the disposition of
all warehouse store locations and merchandise inventories, is expected to
result in $90 million to $100 million of cash inflow (including tax benefits).
The net cash outflow for long-term lease obligations (net of tax benefits)
after closing these locations is estimated to be $15 million to $20 million
over the remaining terms of the leases. The terms of these leases expire at
various dates through 2012. The actual amount of cash flow could vary from
these estimates, depending on certain factors, principally the Company's
ability to sublease or sell closed HomeBase locations on favorable terms.
As of January 29, 1994, the balance of the current portion of the
restructuring reserve liability was $29.4 million and the noncurrent
restructuring reserve liability was $28.6 million. Merchandise inventories were
stated net of a reserve for write-down of discontinued inventories of $9.7
million, and property held for sale was stated net of a reserve for write-down
of $17.5 million. The balances of deferred tax assets at January 29,
18
<PAGE>
1994 were significantly higher than those at the end of the previous fiscal
year primarily because most of the restructuring charge was not currently
deductible. The Company has not established a valuation allowance because its
deferred tax assets can be realized by offsetting taxable income mainly in the
carryback period, and also against deferred tax liabilities and future taxable
income, which management believes will more likely than not be earned, based on
the Company's historical earnings record.
Under a bank 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, with any borrowings to be repaid by 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 requirements and
limit the payment of cash dividends on common stock in any fiscal year to not
more than 25% of the Company's consolidated net income for the immediately
preceding fiscal year.
On March 15, 1994, the Company filed a registration statement for the proposed
sale of $100 million of senior subordinated notes. The proceeds of any offering
of such notes will be used to fund the opening of new stores, including
acquisition of real estate and the construction of stores; to make scheduled
principal repayments on senior debt, including a $12 million principal payment
due in May 1994 on the Company's 9.58% senior notes; to repay short-term
borrowings (subject to reborrowing) under the Company's bank credit agreement
(under which $20 million was outstanding at February 26, 1994); and for general
corporate purposes. Assuming the successful closing of this debt offering, the
Company expects to renegotiate the terms and expiration date of its bank credit
facility.
As of January 29, 1994, the Company had $19.9 million of cash and cash
equivalents. In addition to its $80 million bank credit agreement, the Company
maintained unsecured lines of credit to provide up to $15 million of short-term
borrowings with interest payable at a rate no greater than prime. There were no
borrowings outstanding under either the Company's bank credit agreement or its
unsecured lines of credit at January 29, 1994.
The Company expects that the proceeds of the planned senior subordinated debt
offering, together with anticipated cash flow from operations, proceeds from
the disposition of inventory and 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 the 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.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Statements of Income for the fiscal years ended January 29,
1994, January 30, 1993 and January 25, 1992 21
Consolidated Balance Sheets as of January 29, 1994 and January 30, 1993 22
Consolidated Statements of Cash Flows for the fiscal years ended January
29, 1994, January 30, 1993 and January 25, 1992 23
Consolidated Statements of Stockholders' Equity for the fiscal years
ended January 29, 1994, January 30, 1993 and January 25, 1992 24
Notes to Consolidated Financial Statements 25
Selected Quarterly Financial Data 35
Report of Independent Accountants 36
Report of Management 36
Schedules:
II Amounts Receivable from Related Parties and Underwriters, Promoters
and Employees Other than Related Parties 37
VProperty, Plant and Equipment 38
VIAccumulated Depreciation and Amortization of Property, Plant and
Equipment 39
VIIIValuation and Qualifying Accounts 40
IXShort-Term Borrowings 41
XSupplementary Income Statement Information 42
Consent and Report of Independent Accountants 43
</TABLE>
20
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------- ------------- -------------
(53 WEEKS)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales $ 3,589,341 $ 3,357,794 $ 2,783,585
------------- ------------- -------------
Cost of sales, including buying
and occupancy costs 3,086,670 2,881,334 2,399,765
Selling, general and
administrative expenses 423,026 401,905 322,705
Restructuring charge 101,133 -- --
Cost of closing BJ's warehouse
clubs in Chicago -- -- 5,500
Discontinuation of HomeClub name -- -- 3,400
Interest on debt and capital
leases (net) 12,489 6,280 3,292
------------- ------------- -------------
Total expenses 3,623,318 3,289,519 2,734,662
------------- ------------- -------------
Income (loss) before income taxes
and cumulative effect of
accounting principle changes (33,977) 68,275 48,923
Provision (benefit) for income
taxes (15,290) 24,033 18,914
------------- ------------- -------------
Income (loss) before cumulative
effect of accounting principle
changes (18,687) 44,242 30,009
Cumulative effect of accounting
principle changes 905 -- --
------------- ------------- -------------
Net income (loss) $ (17,782) $ 44,242 $ 30,009
============= ============= =============
Income (loss) per common share:
Primary earnings per share:
Income (loss) before cumulative
effect of accounting principle
changes $ (0.56) $ 1.33 $ 1.01
Cumulative effect of accounting
principle changes .02 -- --
------------- ------------- -------------
Net income (loss) $ (0.54) $ 1.33 $ 1.01
============= ============= =============
Fully diluted earnings per
share:
Income (loss) before cumulative
effect of accounting principle
changes $ (0.56) $ 1.31 $ 1.01
Cumulative effect of accounting
principle changes .02 -- --
------------- ------------- -------------
Net income (loss) $ (0.54) $ 1.31 $ 1.01
============= ============= =============
Number of common shares for
earnings per share computations:
Primary 33,082 33,191 29,807
Fully diluted 33,082 35,707 29,810
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
WABAN INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,877 $ 35,644
Marketable securities -- 16,872
Accounts receivable 62,447 41,405
Merchandise inventories (net) 505,188 525,002
Current deferred income taxes 36,996 10,013
Prepaid expenses 9,662 9,211
---------- ----------
Total current assets 634,170 638,147
---------- ----------
Property at cost:
Land and buildings 222,522 182,446
Leasehold costs and improvements 59,844 70,132
Furniture, fixtures and equipment 195,740 183,235
---------- ----------
478,106 435,813
Less accumulated depreciation and amortization 96,623 91,565
---------- ----------
381,483 344,248
---------- ----------
Property under capital leases 18,452 22,094
Less accumulated amortization 6,924 7,032
---------- ----------
11,528 15,062
---------- ----------
Property held for sale (net) 30,247 --
Deferred income taxes 4,967 --
Other assets 10,599 9,557
---------- ----------
Total assets $1,072,994 $1,007,014
========== ==========
LIABILITIES
Current liabilities:
Current installments of long-term debt $ 13,814 $ 2,222
Accounts payable 253,232 239,017
Restructuring reserve 29,444 --
Accrued expenses and other current liabilities 129,637 105,991
Accrued federal and state income taxes 2,970 3,923
Obligations under capital leases due within one year 1,264 1,197
---------- ----------
Total current liabilities 430,361 352,350
---------- ----------
Real estate financings, exclusive of current install-
ments 4,075 5,889
General corporate debt 48,000 60,000
Subordinated debt 108,600 108,600
Obligations under capital leases, less portion due
within one year 13,379 18,141
Noncurrent restructuring reserve 28,642 --
Other noncurrent liabilities 19,445 15,856
Deferred income taxes -- 9,568
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 190,000,000
shares,
issued and outstanding 33,086,295 and 33,004,536
shares 331 330
Additional paid-in capital 322,915 321,252
Retained earnings 97,246 115,028
---------- ----------
Total stockholders' equity 420,492 436,610
---------- ----------
Total liabilities and stockholders' equity $1,072,994 $1,007,014
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (17,782) $ 44,242 $ 30,009
Adjustments to reconcile net income to
net cash provided by operating
activities:
Restructuring charge 101,133 -- --
Depreciation and amortization of prop-
erty 37,039 29,823 22,128
Utilization of net operating loss and
investment tax credit carryforwards -- -- 2,599
(Gain) loss on property disposals 790 (706) 23
Amortization of premium on marketable
securities 9 2,280 1,019
Other non-cash items, net 3,102 1,536 1,185
Deferred income taxes (41,518) (1,825) (2,041)
Increase (decrease) in cash due to
changes in:
Accounts receivable (21,042) (11,580) (9,049)
Merchandise inventories 10,048 (128,705) (40,604)
Prepaid expenses (1,121) (3,558) (1,127)
Other assets, net (1,042) (1,160) (1,253)
Accounts payable 14,215 45,280 28,503
Restructuring reserves (15,850) -- --
Accrued expenses 20,411 18,611 9,324
Accrued income taxes (953) (487) 78
Other noncurrent liabilities 3,589 1,705 1,926
--------- --------- ---------
Net cash provided by (used in) operating
activities 91,028 (4,544) 42,720
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (135,274) (96,533)
Sale of marketable securities 16,905 186,600 25,491
Property additions (131,974) (164,928) (68,565)
Property disposals 14,839 2,658 1,440
--------- --------- ---------
Net cash used in investing activities (100,230) (110,944) (138,167)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt, net of is-
suance costs of $2,569 in FY 1993 and
$496 in FY 1992 -- 106,031 59,504
Repayment of long-term debt (2,222) (2,051) (2,767)
Repayment of capital lease obligations (5,024) (1,020) (746)
Proceeds from sale and issuance of common
stock 681 1,815 73,018
--------- --------- ---------
Net cash provided by (used in) financing
activities (6,565) 104,775 129,009
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (15,767) (10,713) 33,562
Cash and cash equivalents at beginning
of year 35,644 46,357 12,795
--------- --------- ---------
Cash and cash equivalents at end of year $ 19,877 $ 35,644 $ 46,357
========= ========= =========
Supplemental cash flow information:
Interest paid $ 13,682 $ 10,226 $ 6,282
Income taxes paid 25,099 26,345 18,569
Noncash financing and investing activi-
ties:
Capital lease obligations 329 786 572
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
WABAN INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------
COMMON ADDITIONAL TOTAL
STOCK PAID-IN RETAINED STOCKHOLDERS'
PAR VALUE $.01 CAPITAL EARNINGS EQUITY
-------------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance, January 26, 1991 $286 $243,122 $ 40,777 $284,185
Net income -- -- 30,009 30,009
Sale and issuance of common
stock 41 74,410 -- 74,451
---- -------- -------- --------
Balance, January 25, 1992 327 317,532 70,786 388,645
Net income -- -- 44,242 44,242
Sale and issuance of common
stock 3 3,720 -- 3,723
---- -------- -------- --------
Balance, January 30, 1993 330 321,252 115,028 436,610
Net loss -- -- (17,782) (17,782)
Sale and issuance of common
stock 1 1,663 -- 1,664
---- -------- -------- --------
Balance, January 29, 1994 $331 $322,915 $ 97,246 $420,492
==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
years ended January 29, 1994 and January 25, 1992 each included 52 weeks. The
fiscal year ended January 30, 1993 included 53 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 were collateralized by U.S.
government agency securities, and $6,761,000 of municipal securities. These
investments were stated at the lower of amortized cost or market value.
Merchandise Inventories
Inventories are stated primarily at the lower of cost, determined under the
average cost method, or market. The Company recognizes the write-down of slow-
moving or obsolete inventory in cost of sales when such write-downs are
probable and estimable. At January 29, 1994, merchandise inventories are stated
net of a reserve of $9,653,000, which was established in connection with the
Company's restructuring.
Property and 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 consist of direct incremental costs of opening a facility and
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 $1,507,000 in fiscal 1994,
$4,743,000 in fiscal 1993 and $3,886,000 in fiscal 1992.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $2,773,000, $2,441,000 and $521,000 was
capitalized in fiscal 1994, 1993 and 1992, respectively.
Net Income Per Common Share
Primary and fully diluted net income per common share are based on the
weighted average number of common and common equivalent shares and other
dilutive securities outstanding in each year.
25
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A.CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE CHANGES
Effective January 31, 1993 (the first day of fiscal 1994), 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 benefit of $328 (501)
------
$ 905
======
</TABLE>
B.RESTRUCTURING CHARGE
In the fourth quarter of the fiscal year ended January 29, 1994 the Company
recorded a pre-tax restructuring charge of $101.1 million ($60.2 million
post-tax) primarily related to repositioning its HomeBase division, which
includes:
1) closing or relocating 16 HomeBase warehouses which have limited
potential for long-term profitability. This group of warehouses
consists mostly of older units which do not have desirable locations
or are not suitable for the current HomeBase prototype;
2) closing all eight HomeBase warehouses in the midwestern markets of
Chicago and Toledo;
3) liquidating discontinued merchandise; and
4) related administrative expenses.
The main components of the restructuring charge in fiscal 1994 are:
1) Operating losses and store closing costs (excluding employee
termination costs) are estimated to be approximately $31.3 million.
This charge comprises the actual losses and costs of the eight
midwestern HomeBase warehouse stores from the beginning of November
1993 through their closing at the end of January 1994, and the
estimated losses and costs of 16 other warehouse stores from
the beginning of December 1993 through their anticipated closings in
the fiscal year ending in January 1995.
2) Employee termination costs are estimated to be approximately $3.6
million, including severance pay and postemployment medical expenses.
3) The net book value of HomeBase property to be disposed of was written
down by approximately $17.4 million. This charge represents the
difference between the net book value of owned real estate, leasehold
improvements and furniture, fixtures and equipment to be disposed of
and the estimated proceeds to be realized from their sale.
4) Contract termination costs are estimated to be approximately $36.9
million. This charge primarily represents HomeBase's obligations for
leased properties after their closing date offset by estimated
sublease income expected to be realized, net of expenses.
5) The write-down to net realizable value of inventory being discontinued
because it is not related to HomeBase's core home improvement
merchandise is estimated to be approximately $9.8 million.
At January 29, 1994, merchandise inventories are stated net of a reserve
for write-down of discontinued inventories of $9,653,000, and property held
for sale was stated net of a reserve for write-down of $17,479,000.
26
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
C.DEBT
At January 29, 1994 and January 30, 1993, long-term debt, exclusive of
current installments, consisted of the following:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Real estate financings, interest
at 8.19% to 9.25%, maturing
through March 1, 2003 $ 4,075 $ 5,889
======== ========
General Corporate Debt:
Senior notes, interest at 9.58%,
maturing May 31, 1994 through
May 31, 1998 $ 48,000 $ 60,000
======== ========
Subordinated Debt:
Convertible debentures, interest
at 6.5%, maturing July 1, 2002 $108,600 $108,600
======== ========
</TABLE>
The aggregate maturities of long-term debt outstanding at January 29, 1994
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>
1996 $1,344 $12,000 $ -- $ 13,344
1997 1,458 12,000 -- 13,458
1998 810 12,000 -- 12,810
1999 72 12,000 -- 12,072
Later years 391 -- 108,600 108,991
------ ------- -------- --------
Total $4,075 $48,000 $108,600 $160,675
====== ======= ======== ========
</TABLE>
As of January 29, 1994, real estate financings were collateralized by land
and buildings with a net book value of $23,740,000.
The Company's 9.58% unsecured senior 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.
Under a bank 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, with any borrowings to be repaid by 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 senior note and bank credit agreements contain 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 requirements, cash dividends in any
fiscal year are limited to not more than 25% of the Company's consolidated
net income for the immediately preceding fiscal year, and cumulative cash
dividends are limited to not more than $10 million plus 50% of adjusted net
income after January 26, 1991 and 50% of the cash proceeds from common
stock sales after July 1, 1991, reduced by any investments deemed to be
restricted.
27
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has unsecured lines of credit that provide up to $15 million of
short-term borrowings with interest payable at a rate no greater than
prime. There were no borrowings outstanding under either the Company's bank
credit agreement or its unsecured lines of credit at January 29, 1994. In
addition, the Company has letter of credit facilities of approximately
$36.4 million primarily to support the purchase of inventories, of which
approximately $12.6 million were outstanding at January 29, 1994. The
Company does not have any compensating balance requirements nor does it pay
commitment fees under this arrangement.
D.COMMITMENTS
The Company is obligated under long-term leases for the rental of real
estate and fixtures and equipment, some of which are classified as capital
leases pursuant to SFAS No. 13. In addition, the Company is generally
required to pay insurance, real estate taxes and other operating expenses
and, in some cases, additional 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 7 years.
Future minimum lease payments as of January 29, 1994 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING JANUARY LEASES LEASES
--------------------------- ------- ----------
(IN THOUSANDS)
<S> <C> <C>
1995 $ 3,005 $ 97,551
1996 2,614 105,871
1997 2,181 104,433
1998 1,831 103,263
1999 1,859 100,698
Later years 21,253 1,132,296
------- ----------
Total minimum lease payments 32,743 $1,644,112
==========
Less amount representing interest 18,100
-------
Present value of net minimum capital lease payments $14,643
=======
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $90,699,000, $81,006,000 and $67,345,000 for
the fiscal years ended January 29, 1994, January 30, 1993 and January 25,
1992, respectively.
As of January 29, 1994, the Company is contingently liable on three
warehouse store leases that were assigned to a third party in connection
with HomeBase's restructuring. The Company believes that this contingent
liability will not have a material effect on the Company's financial
condition.
E.CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS
Under its Stock Incentive Plan, the Company has granted certain key
employees options which expire five to ten years from the grant date to
purchase common stock at 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 date. At January 29, 1994, 472,139 shares
were exercisable under the Stock Incentive Plan.
28
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Option activity during the past three fiscal years was as follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTION PRICES OPTIONS
--------------- ---------
<S> <C> <C>
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
Fiscal 1994:
Options granted $12.625-$13.375 908,131
Options exercised $ 6.25-$ 9.125 (78,165)
Cancellations $ 8.125-$25.625 (942,346)
---------
Outstanding at January 29, 1994 $ 6.25-$25.625 1,502,901
=========
</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
transferability 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 1994, 1993 and 1992 the Company
issued 237,250, 160,250 and 93,500 restricted shares, respectively;
229,145, 2,125 and 9,250 restricted shares were returned to the Company and
cancelled in fiscal 1994, 1993 and 1992, respectively.
As of January 29, 1994 and January 30, 1993, respectively, 1,450,010 and
1,423,900 shares were reserved for future stock awards under the Company's
Stock Incentive Plan.
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.INCOME TAXES
Effective January 31, 1993 (the first day of fiscal 1994), the Company
adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 changes
the Company's method of accounting for income taxes from the income
statement approach prescribed by Accounting Principles Board Opinion No. 11
to an assets and liabilities approach. The cumulative effect of this
accounting change was to increase net income by $1,616,000 in the fiscal
year ended January 29, 1994 (See Note A). As permitted by SFAS No. 109,
prior years' financial statements were not restated.
29
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the Company's third quarter of fiscal 1994, 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 the tax law changes on the Company's
provision (benefit) for income taxes, which was recorded in the third
quarter of fiscal 1994, was not material.
The provision (benefit) for income taxes on income (loss) before the
cumulative effect of accounting changes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current $ 18,450 $20,523 $15,978
Deferred (29,555) (1,442) (1,581)
State
Current 3,665 5,335 4,977
Deferred (7,850) (383) (460)
-------- ------- -------
Total income tax provision (benefit) $(15,290) $24,033 $18,914
======== ======= =======
</TABLE>
The following is a reconciliation of the statutory federal income tax rates
and the effective income tax rates on income (loss) before the cumulative
effect of accounting principle changes:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rates (35)% 34% 34%
State income taxes, net of federal tax
benefit (8) 5 6
Benefit from sale of real estate -- (2) --
Targeted jobs tax credits (3) (1) (1)
Other 1 (1) --
--- --- ---
Effective income tax rates (45)% 35% 39%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 29, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Self-insurance reserves $14,032
Rental step liabilities 7,116
Restructuring reserves 32,993
Capital leases 1,261
Compensation and benefits 4,664
Other 4,175
-------
Total deferred tax assets 64,241
-------
Deferred tax liabilities:
Accelerated depreciation -- property 21,805
Other 473
-------
Total deferred tax liabilities 22,278
-------
Net deferred tax assets $41,963
=======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting taxable income mainly in the
carryback period, and also against deferred tax liabilities and future
taxable income, which management believes will more likely than not be
earned, based on the Company's historical earnings record.
30
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For fiscal 1993 and 1992, the deferred income tax provisions, computed in
accordance with Accounting Principles Board Opinion No. 11, represent the
effects of timing differences between financial and income tax reporting.
The following summarizes the major items comprising federal and state
deferred income tax expense in those years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
JANUARY 30, JANUARY 25,
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accelerated depreciation $ 1,746 $ 688
Self-insurance reserves (4,368) (2,975)
Discontinuation of HomeClub name and membership
program 1,702 1,818
Rental step adjustments (564) (641)
Other (341) (931)
------- -------
Total $(1,825) $(2,041)
======= =======
</TABLE>
During the fiscal year ended January 25, 1992, the Company utilized $6.4
million of net operating loss carryforwards and $.4 million of investment
tax credit carryforwards related to a prior acquisition. The Company
recognized the utilization of these carryforwards by reducing the recorded
value of the acquired fixed assets by $.9 million 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 expense was not
affected. The deferred credits are being amortized over the estimated
useful lives of the acquired assets.
G.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. In December 1993, the
Company terminated its unfunded plan which provided additional retirement
benefits for certain key employees. The net income effect of the
termination and settlement of this plan was not material. The Company also
has 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 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $451 $ 722 $ 793
Interest cost on projected benefit ob-
ligation 592 656 494
Actual return on assets (380) (157) (279)
Net amortization and deferrals 21 (81) 110
---- ------ ------
Net pension cost $684 $1,140 $1,118
==== ====== ======
</TABLE>
31
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit pension plan for full-time employees as of January 29, 1994
(amounts related to the Directors' plan are immaterial) and of all plans as
of January 30, 1993 in accordance with SFAS No. 87 (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, 1994 JANUARY 30, 1993
---------------- ------------------
FUNDED FUNDED UNFUNDED
---------------- ------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested benefits $ 4,790 $ 3,035 $ 1,010
Nonvested benefits 940 1,180 455
------- ------- --------
$ 5,730 $ 4,215 $ 1,465
======= ======= ========
Projected benefit obligation $ 5,730 $ 4,215 $ 3,577
Plan assets at fair market value 4,880 4,384 --
------- ------- --------
Projected benefit obligation in excess
of (less than) plan assets 850 (169) 3,577
Unrecognized net loss from past
experience different from that assumed
and effects of changes in assumptions -- -- (1,853)
Prior service cost reduction not yet
recognized 34 52 --
Unrecognized net obligation (1,431) (249) (154)
Minimum liability adjustment 1,397 -- --
------- ------- --------
Accrued (prepaid) pension cost included
in balance sheets $ 850 $ (366) $ 1,570
======= ======= ========
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation were 7.5% in fiscal 1994
and 8.5% in fiscal 1993. The assumed rate of increase in future
compensation levels used in fiscal 1993 was 5.5%. This assumption is not
applicable in fiscal 1994 because no benefits accrue under the Company's
retirement plan after July 4, 1992. The expected long-term rate of return
on assets was 9.5% in both years. The Company's funding policy is to
contribute annually an amount allowable for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income
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 covered compensation, as allowed under Section 401(k) of the
Internal Revenue Code. The Company matches employee contributions at 100%
of the first one percent of covered compensation 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
covered compensation, and the Company matched contributions of the first
five percent of covered compensation at rates ranging from 25% to 50%. The
Company's expense under this plan was $3,277,000 in fiscal 1994, $2,216,000
in fiscal 1993 and $838,000 in fiscal 1992.
H.POSTRETIREMENT MEDICAL BENEFITS
The Company sponsors a defined benefit postretirement medical plan that
covers employees and their spouses who retire after age 55 with at least 10
years of service, who are not eligible for Medicare, and who participated
in a Company-sponsored medical plan. Amounts contributed by retired
employees under this plan are based on years of service prior to
retirement. The plan is not funded.
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," requires employers to recognize postretirement benefits over the
periods during which employees render services rather than at the time
benefits are paid. SFAS No. 106 was implemented by the Company by
recognizing the transition obligation of $348,000 in the first quarter of
fiscal 1994.
32
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic postretirement medical benefit cost for the fiscal year ended
January 29, 1994, presented in accordance with SFAS No. 106, includes the
following components (in thousands):
<TABLE>
<S> <C>
Service cost $100
Interest cost 38
----
Net periodic postretirement benefit cost $138
====
</TABLE>
The following table sets forth the funded status of the Company's
postretirement medical plan and the amount recognized in the Company's
balance sheet at January 29, 1994 in accordance with SFAS No. 106 (in
thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retired participants $ --
Fully eligible active participants 11
Other active participants 424
----
Unfunded accumulated postretirement benefit obligation 435
Unrecognized net gain 51
----
Accrued postretirement benefit cost included in balance sheet $486
====
</TABLE>
For measurement purposes as of January 31, 1993, an annual rate of increase
in the per capita cost of medical coverage of 12% in fiscal 1994 grading
down to 5% after 20 years was assumed. For measurement purposes as of
January 29, 1994, an annual rate of increase in the per capita cost of
medical coverage of 10% in fiscal 1995 grading down to 5% after 10 years
was assumed. Increasing the assumed health care cost trend rate one
percentage point would increase the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for fiscal 1994
by $27,000 and would increase the accumulated postretirement benefit
obligation as of January 29, 1994 by $87,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5% as of January 31, 1993 and 7.5%
as of January 29, 1994.
I.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Sales and use taxes payable $ 16,966 $ 18,634
Employee compensation 18,995 19,325
Self-insurance reserves 34,472 21,090
Rent, utilities, advertising and other 59,204 46,942
-------- --------
$129,637 $105,991
======== ========
</TABLE>
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. The
Company maintains insurance coverage for individual occurrences above
$250,000 for worker's compensation and general liability, and above
$200,000 for group medical claims.
33
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
J.SELECTED INFORMATION BY MAJOR BUSINESS SEGMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
(53 WEEKS)
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
BJ's Wholesale Club $2,003,385 $1,786,916 $1,432,228
HomeBase 1,585,956 1,570,878 1,351,357
---------- ---------- ----------
$3,589,341 $3,357,794 $2,783,585
========== ========== ==========
Operating income (loss):
BJ's Wholesale Club (net of $5,500
charge in FY 1992 for cost to close
Chicago clubs) $ 45,216 $ 35,366 $ 17,392
HomeBase (net of $98,533 restructuring
charge in FY 1994 and $3,400 charge
in FY 1992 for discontinuation of
HomeClub name) (55,805) 47,170 42,077
General corporate expense (including
$2,600 restructuring charge in FY
1994) (10,899) (7,981) (7,254)
---------- ---------- ----------
(21,488) 74,555 52,215
Interest on debt and capital leases
(net) (12,489) (6,280) (3,292)
---------- ---------- ----------
Income (loss) before income taxes and
cumulative effect of accounting
principle changes $ (33,977) $ 68,275 $ 48,923
========== ========== ==========
Identifiable assets:
BJ's Wholesale Club $ 501,230 $ 364,154 $ 230,473
HomeBase 551,887 590,344 439,469
Corporate (cash, cash equivalents and
marketable securities) 19,877 52,516 116,463
---------- ---------- ----------
$1,072,994 $1,007,014 $ 786,405
========== ========== ==========
Depreciation and amortization:
BJ's Wholesale Club $ 16,825 $ 11,362 $ 8,480
HomeBase 20,214 18,461 13,648
---------- ---------- ----------
$ 37,039 $ 29,823 $ 22,128
========== ========== ==========
Capital expenditures:
BJ's Wholesale Club $ 95,170 $ 89,765 $ 40,905
HomeBase 37,974 76,083 33,377
---------- ---------- ----------
$ 133,144 $ 165,848 $ 74,282
========== ========== ==========
</TABLE>
K.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.
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.
34
<PAGE>
WABAN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 29, 1994 JANUARY 30, 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 19,877 $ 19,877 $ 35,644 $ 35,644
Marketable securities -- -- 16,872 16,924
Real estate financings (5,889) (6,287) (8,111) (8,736)
General corporate debt (60,000) (65,085) (60,000) (63,902)
Subordinated debt (108,600) (102,627) (108,600) (106,700)
</TABLE>
L.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal year ended January 29,
1994
Net sales $834,225 $967,209 $897,646 $890,261
Gross earnings (a) 113,379 137,438 124,169 127,685
Income (loss) before cumula-
tive effect of accounting
principle changes 4,425 13,704 8,087 (44,903)(b)
Per common share, fully di-
luted .13 .39 .24 (1.36)(b)
Net income 5,330 13,704 8,087 (44,903)(b)
Per common share, fully di-
luted .16 .39 .24 (1.36)(b)
Fiscal year ended January 30,
1993
Net sales $736,012 $863,501 $820,648 $937,633
Gross earnings (a) 99,979 124,764 115,771 135,946
Net income 6,169 12,787 11,198 14,088 (c)
Per common share, fully di-
luted .19 .38 .33 .41 (c)
</TABLE>
(a) Gross earnings equals net sales less cost of sales, including buying
and occupancy costs.
(b) Includes a post-tax restructuring charge of $60.2 million and a $1.3
million post-tax charge for relocating a BJ's Wholesale Club warehouse.
Excluding these items, fully diluted earnings per share would have been
$.47.
(c) 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.
M.RELATIONSHIP WITH THE TJX COMPANIES, INC. ("TJX")
The Company was formed in 1989, when Zayre Corp. (now TJX), as part of its
restructuring, combined its BJ's Wholesale Club and HomeBase divisions to
form Waban Inc. In connection with the 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, for which the Company paid TJX $6,483,000,
$5,547,000 and $5,241,000 in fiscal 1994, 1993 and 1992, respectively. The
Company has elected to continue to purchase data processing and certain
other services through fiscal 1995.
35
<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 29, 1994 and January 30, 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three fiscal years in the period ended January 29, 1994. 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 29, 1994 and January 30, 1993 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 29, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes A, F and H to the Consolidated Financial Statements, the
Company changed its methods of accounting for postretirement benefits other
than pensions, for postemployment benefits and for income taxes in fiscal 1994.
Boston, Massachusetts Coopers & Lybrand
March 1, 1994
REPORT OF MANAGEMENT
The financial statements and related financial information in this annual
report have been prepared by and are the responsibility of management. The
financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include amounts which are based upon
judgments and estimates made by management.
The Company maintains a system of internal controls designed to provide, at
appropriate cost, reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorization and the
accounting records may be relied upon for the preparation of financial
statements. The accounting and control systems are continually reviewed by
management and modified as necessary in response to changing business
conditions and the recommendations of the Company's internal auditors and
independent public accountants.
The Audit Committee, which is comprised of members of the Board of Directors
who are neither officers nor employees, meets periodically with management, the
internal auditors and the independent public accountants to review matters
relating to the Company's financial reporting, the adequacy of internal
accounting controls and the scope and results of audit work. The internal
auditors and the independent public accountants have free access to the
Committee.
The financial statements have been audited by Coopers & Lybrand, whose opinion
as to their fair presentation in accordance with generally accepted accounting
principles appears above.
Herbert J Zarkin Dale N. Garth
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
March 1, 1994
36
<PAGE>
WABAN INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND JANUARY 25,
1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DEDUCTIONS BALANCE AT END OF PERIOD
BALANCE AT ---------------------- --------------------------
BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------- ---------- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended January 29,
1994:
Murray L.
Wachtenheim(2) $ 150,000 $ -- $ -- $50,000 $ 50,000 $ 50,000
William E. Patterson
(4) -- 350,000 350,000 -- -- --
Allan P. Sherman (5) -- 700,000 -- -- 100,000 600,000
---------- ---------- ---------- ------- ----------- -------------
$ 150,000 $1,050,000 $ 350,000 $50,000 $ 150,000 $ 650,000
========== ========== ========== ======= =========== =============
Year ended January 30,
1993:
Murray L.
Wachtenheim(2) $ 585,000 $ -- $ 385,000 $50,000 $ 50,000 $ 100,000
James F. Halpin(3) 800,000 -- 800,000 -- -- --
---------- ---------- ---------- ------- ----------- -------------
$1,385,000 $ -- $1,185,000 $50,000 $ 50,000 $ 100,000
========== ========== ========== ======= =========== =============
Year ended January 25,
1992:
Murray L. Wachtenheim $ 585,000 $ -- $ -- $ -- $ -- $ 585,000(1)
James F. Halpin 800,000 -- -- -- -- 800,000(1)
---------- ---------- ---------- ------- ----------- -------------
$1,385,000 $ -- $ -- $ -- $ -- $ 1,385,000
========== ========== ========== ======= =========== =============
</TABLE>
(1) Represent notes receivable, interest at 1 1/2%, collateralized by real
estate first mortgages. Loans were made to facilitate executives'
relocation to California.
(2) On June 23, 1992, Mr. Wachtenheim's original loan was refinanced, reduced
by $50,000 of debt forgiveness treated as compensation. The current loan is
secured by a real estate second mortgage that bears interest from June 23,
1992 at 6%. On June 23, 1993, $50,000 of debt was forgiven and treated as
compensation. An additional $50,000 of debt will be forgiven and treated as
compensation on June 23, 1994 and June 23, 1995, subject to Mr.
Wachtenheim's continued employment.
(3) In connection with his return to Massachusetts, Mr. Halpin discharged his
indebtedness in full by transferring ownership of his California residence
to the Company.
(4) Represents note receivable, interest at 8%, collateralized by a real estate
second mortgage. This debt was collected by offsetting the balance due
against severance payable to executive upon his termination of employment.
(5) Represents note receivable, no interest, collateralized by a real estate
second mortgage, to facilitate executive's relocation to California.
$100,000 of this debt will be forgiven each year for seven years and
treated as compensation.
37
<PAGE>
WABAN INC.
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (1)
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993
AND JANUARY 25, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E* COLUMN F
BALANCE AT
BEGINNING ADDITIONS OTHER CHANGES BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD (DEDUCT) END OF PERIOD
-------------- ---------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended January 29,
1994:
Land and buildings $182,446 $ 78,489 $ 118 $(38,295) $222,522
Leasehold costs and im-
provements 70,132 7,634 3,715 (14,207) 59,844
Furniture, fixtures and
equipment 183,235 46,982 7,658 (26,819) 195,740
-------- -------- ------- -------- --------
435,813 133,105 11,491 (79,321) 478,106
Property under capital
leases 22,094 329 3,971 -- 18,452
Property held for sale -- 39 13,892 79,321 65,468
-------- -------- ------- -------- --------
$457,907 $133,473 $29,354 $ -- $562,026
======== ======== ======= ======== ========
Year ended January 30,
1993:
Land and buildings $ 84,974 $ 99,792 $ 2,320 $ -- $182,446
Leasehold costs and im-
provements 52,950 17,200 18 -- 70,132
Furniture, fixtures and
equipment 137,511 48,856 3,132 -- 183,235
-------- -------- ------- -------- --------
275,435 165,848 5,470 -- 435,813
Property under capital
leases 21,308 786 -- -- 22,094
-------- -------- ------- -------- --------
$296,743 $166,634 $ 5,470 $ -- $457,907
======== ======== ======= ======== ========
Year ended January 25,
1992:
Land and buildings $ 56,600 $ 29,319 $ -- $ (945) $ 84,974
Leasehold costs and im-
provements 41,043 11,915 8 -- 52,950
Furniture, fixtures and
equipment 111,278 33,048 6,815 -- 137,511
-------- -------- ------- -------- --------
208,921 74,282 6,823 (945) 275,435
Property under capital
leases 20,736 572 -- -- 21,308
-------- -------- ------- -------- --------
$229,657 $ 74,854 $ 6,823 $ (945) $296,743
======== ======== ======= ======== ========
</TABLE>
* Column E represents utilization of net operating loss carryforwards in FY
1992, and the transfer of property expected to be disposed of in connection
with the Company's restructuring to "property held for sale" in FY 1994.
(1) For financial reporting purposes, the Company provides for depreciation by
use of the straight-line method as follows: buildings--33 years; leasehold
costs and improvements--shorter of the lease term or estimated useful life;
and furniture, fixtures and equipment--2 to 10 years.
38
<PAGE>
WABAN INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993
AND JANUARY 25, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E* COLUMN F
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER CHANGES AT END OF
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS ADD (DEDUCT) PERIOD
----------- ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended January 29,
1994:
Buildings $ 6,670 $ 3,273 $ -- $ (2,564) $ 7,379
Leasehold costs and im-
provements 18,389 5,127 3,649 (4,653) 15,214
Furniture, fixtures and
equipment 66,506 26,010 6,789 (11,697) 74,030
------- ------- ------- -------- --------
91,565 34,410 10,438 (18,914) 96,623
Property under capital
leases 7,032 1,855 1,963 -- 6,924
Property held for sale -- 774 1,946 18,914 17,742
------- ------- ------- -------- --------
$98,597 $37,039 $14,347 $ -- $121,289
======= ======= ======= ======== ========
Year ended January 30,
1993:
Buildings $ 5,779 $ 1,866 $ 975 $ -- $ 6,670
Leasehold costs and im-
provements 13,523 4,866 -- -- 18,389
Furniture, fixtures and
equipment 47,639 21,410 2,543 -- 66,506
------- ------- ------- -------- --------
66,941 28,142 3,518 -- 91,565
Property under capital
leases 5,351 1,681 -- -- 7,032
------- ------- ------- -------- --------
$72,292 $29,823 $ 3,518 $ -- $ 98,597
======= ======= ======= ======== ========
Year ended January 25,
1992:
Buildings $ 4,651 $ 1,128 $ -- $ -- $ 5,779
Leasehold costs and im-
provements 9,836 3,689 2 -- 13,523
Furniture, fixtures and
equipment 36,091 15,731 4,183 -- 47,639
------- ------- ------- -------- --------
50,578 20,548 4,185 -- 66,941
Property under capital
leases 3,771 1,580 -- -- 5,351
------- ------- ------- -------- --------
$54,349 $22,128 $ 4,185 $ -- $ 72,292
======= ======= ======= ======== ========
</TABLE>
* Column E represents the transfer of accumulated depreciation and
amortization of property expected to be disposed of in connection with the
Company's restructuring to "property held for sale."
39
<PAGE>
WABAN INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JANUARY 29, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
---------------------
(1) (2)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Reserve for write-down
of discontinued
inventories $ -- $ 9,766 $ -- $ 113 (a) $ 9,653
Reserve for write-down
of property held for
sale -- 17,431 -- (48)(a) 17,479
Restructuring reserve -- 45,294 -- 15,850 (b) 29,444
Noncurrent restructuring
reserve -- 28,642 -- -- 28,642
---- -------- ---- ------- -------
$ -- $101,133 $ -- $15,915 $85,218
==== ======== ==== ======= =======
</TABLE>
(a) Net (gain) loss on sale or disposal of discontinued inventory and property
held for sale in connection with the Company's restructuring.
(b) Other costs and expenses incurred in connection with the Company's
restructuring, mainly operating losses and closing costs in HomeBase
warehouse stores to be disposed of.
40
<PAGE>
WABAN INC.
SCHEDULE IX--SHORT-TERM BORROWINGS (1)
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993
AND JANUARY 25, 1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (2) COLUMN F (3)
MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED
WEIGHTED OUTSTANDING OUTSTANDING AVERAGE INTEREST
CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING DURING RATE DURING
SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE THE PERIOD THE PERIOD THE PERIOD
--------------------- ------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Payable to Banks:
Year ended January 29,
1994 -- -- $25,000,000 $6,406,000 4.33%
Year ended January 30,
1993 -- -- -- -- --
Year ended January 25,
1992 -- -- $22,000,000 $6,170,000 7.31%
</TABLE>
(1) See Note C in Notes to Consolidated Financial Statements for description of
credit lines.
(2) Daily weighted average.
(3) Actual amount of short-term interest divided by average amount outstanding.
41
<PAGE>
WABAN INC.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993
AND JANUARY 25, 1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------
ITEM CHARGED TO COSTS AND EXPENSES
---- -----------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
----------- ----------- -----------
<C> <S> <C> <C> <C>
1. Maintenance and repairs * * *
2. Depreciation and amortization of
intangible assets, preopening costs
and similar deferrals * * *
3. Taxes, other than payroll and income
taxes * * *
4. Royalties * * *
5. Advertising costs $ * $ * $29,889,000
==== ==== ===========
</TABLE>
* Less than 1% of sales
42
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Waban Inc. on Form S-8 (File Nos. 33-29473 and 33-40155) of our reports dated
March 1, 1994 on our audits of the consolidated financial statements and
financial statement schedules of Waban Inc. as of January 29, 1994 and January
30, 1993, and for the three years ended January 29, 1994, January 30, 1993 and
January 25, 1992, which report is included in this Annual Report on Form 10-K.
Boston, Massachusetts Coopers & Lybrand
March 30, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF WABAN INC.:
Our report on the consolidated financial statements of Waban Inc. and
Subsidiaries is included in this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedules listed herein.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Boston, Massachusetts Coopers & Lybrand
March 1, 1994
43
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will file with the Securities and Exchange Commission a definitive
Proxy Statement no later than 120 days after the close of its fiscal year ended
January 29, 1994 (the "Proxy Statement"). The information required by this Item
and not given in Item 4A, Executive Officers of the Registrant, is incorporated
by reference from the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement. However, information under "Executive Compensation Committee
Report" and "Performance Graph" in the Proxy Statement is not so incorporated.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by the Item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. The Financial Statements and Financial Statement Schedules filed as part
of this report are listed and indexed on page 20. Schedules other than
those listed in the index have been omitted because they are not
applicable or the required information has been included elsewhere in this
report.
B. Listed below are all Exhibits filed as part of this report. Certain
Exhibits are incorporated by reference to documents previously filed by
the Registrant with the Securities and Exchange Commission pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws, as amended, of the Company (2)
4.1 Instruments Defining Rights of Security Holders (See Exhibits 3.1,
3.2, 4.2, 4.3 and 10.16)
4.2 Rights Agreement dated as of May 23, 1989 between the Company and
Morgan Shareholder Services Trust Company, as Rights Agent (1)
4.3 Indenture dated as of July 1, 1992 between the Company and
Continental Bank, National Association, as Trustee, with respect
to 6 1/2% Convertible Subordinated Debentures due July 1, 2002 (6)
10.1 Services Agreement, as amended, dated as of May 1, 1989 between
the Company and Zayre Corp. (2)
10.1a Agreement dated as of January 28, 1993 between the Company and The
TJX Companies, Inc. extending the Services Agreement referred to
in Exhibit 10.1 (7)
10.2 Distribution Agreement dated as of May 1, 1989 between the Company
and Zayre Corp. (1)
10.3 Waban Inc. 1989 Stock Incentive Plan, as amended through June 13,
1991* (5)
10.4 Waban Inc. Executive Retirement Plan*
10.5 Waban Inc. Retirement Plan for Directors, as amended September 17,
1990* (3)
10.6 Waban Inc. General Deferred Compensation Plan* (2)
10.7 Waban Inc. Growth Incentive Plan*
10.8 Employment Agreement dated as of June 1, 1989 with John F. Levy*
(2)
10.8a Separation Agreement dated as of May 25, 1993 with John F. Levy*
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.9 Executive Services Agreement dated as of June 1, 1989 between the
Company and Zayre Corp. with respect to Sumner L. Feldberg* (2)
10.10 Executive Services Agreement dated as of June 1, 1989 between the
Company and Zayre Corp. with respect to Arthur F. Loewy* (2)
10.10a Amendment dated as of January 29, 1994 between the Company and The
TJX Companies, Inc. to Executive Services Agreement with respect
to Arthur F. Loewy referred to in Exhibit 10.10*
10.11 Employment Agreement dated as of October 29, 1992 with William E.
Patterson* (7)
10.11a Separation Agreement dated as of September 29, 1993 with William
E. Patterson*
10.12 Employment Agreement dated as of May 25, 1993 with Herbert J
Zarkin*
10.12a Change of Control Severance Agreement dated as of May 25, 1993
with Herbert J Zarkin*
10.13 Employment Agreement dated as of June 1, 1991 with Edward J.
Weisberger* (5)
10.14 Employment Agreement dated as of August 27, 1992 with Dale N.
Garth* (7)
10.15 Employment Agreement dated as of September 29, 1993 with Allan P.
Sherman*
10.15a Change of Control Severance Agreement dated as of September 29,
1993 with Allan P. Sherman*
10.15b Loan Agreement dated as of January 19, 1994 with Allan P. Sherman*
10.15c Promissory Note dated as of January 19, 1994 from Allan P. Sherman
to the Company*
10.16 Form of Indemnification Agreement between the Company and its
officers and directors* (2)
10.17 Form of Change of Control Severance Agreement between the Company
and officers of the Company* (2)
10.18 Note Purchase Agreement dated as of June 15, 1991 with respect to
9.58% Senior Notes due May 31,1998 (4)
10.18a Amendment dated as of December 16, 1991 to Note Purchase Agreement
dated as of June 15, 1991 referred to in Exhibit 10.18 (5)
10.19 Credit Agreement dated as of July 8, 1993 among the Company and
certain banks (8)
10.19a Amendment dated as of November 15, 1993 to Credit Agreement dated
as of July 8, 1993 among the Company and certain banks referred
to in Exhibit 10.19 (9)
10.20 Waban Inc. Supplemental Executive Retirement Plan* (2)
11.0 Statement regarding computation of per share earnings
21.0 Subsidiaries of the Company
</TABLE>
- --------
* Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Registrant's Form 10 (#1-
10259)
(2) Incorporated herein by reference to the Registrant's Form 10-K for
the fiscal year ended January 27, 1990
(3) Incorporated herein by reference to the Registrant's Form 10-Q for
the fiscal quarter ended October 27, 1990
(4) Incorporated herein by reference to the Registrant's Form 10-Q for
the fiscal quarter ended July 27, 1991
(5) Incorporated herein by reference to the Registrant's Form 10-K for
the fiscal year ended January 25, 1992
(6) Incorporated herein by reference to the Registrant's Form S-3 (#33-
48423)
(7) Incorporated herein by reference to the Registrant's Form 10-K for
the fiscal year ended January 30, 1993
(8) Incorporated herein by reference to the Registrant's Form 10-Q for
the fiscal quarter ended July 31, 1993
(9) Incorporated herein by reference to the Registrant's Form 10-Q for
the fiscal quarter ended October 30, 1993
C. The Registrant has not filed any reports on Form 8-K during the last
quarter of the period covered by this Report.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WABAN INC.
Dated: March 30, 1994
/s/ Herbert J Zarkin
_____________________________________
Herbert J Zarkin
President and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Herbert J Zarkin /s/ Sumner L. Feldberg
_____________________________________ _____________________________________
Herbert J Zarkin, President Sumner L. Feldberg
Principal Executive Officer and Chairman of the Board and Director
Director
/s/ Dale N. Garth /s/ Edward J. Weisberger
_____________________________________ _____________________________________
Dale N. Garth, Senior Vice President Edward J. Weisberger
and Chief Financial Officer Vice President -- Finance
(Principal Financial Officer) (Principal Accounting Officer)
/s/ S. James Coppersmith /s/ Stanley H. Feldberg
_____________________________________ _____________________________________
S. James Coppersmith, Director Stanley H. Feldberg, Director
/s/ Allyn L. Levy /s/ Arthur F. Loewy
_____________________________________ _____________________________________
Allyn L. Levy, Director Arthur F. Loewy, Director
/s/ Thomas J. Shields /s/ Lorne R. Waxlax
_____________________________________ _____________________________________
Thomas J. Shields, Director Lorne R. Waxlax, Director
Dated: March 30, 1994
46
<PAGE>
WABAN INC.
EXECUTIVE RETIREMENT PLAN
_______________
Effective as of January 30, 1994
<PAGE>
WABAN INC.
EXECUTIVE RETIREMENT PLAN
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
ARTICLE 1. DEFINITIONS....................... 1
ARTICLE 2. BENEFITS UNDER THIS PLAN.......... 2
ARTICLE 3. FUNDING........................... 3
ARTICLE 4. EFFECT ON EMPLOYMENT RIGHTS....... 4
ARTICLE 5. ADMINISTRATION.................... 4
ARTICLE 6. AMENDMENT OR TERMINATION OF PLAN.. 4
ARTICLE 7. NON-ASSIGNMENT.................... 5
ARTICLE 8. CONSTRUCTION...................... 5
ARTICLE 9. RELEVANT LAW...................... 5
</TABLE>
<PAGE>
WABAN INC.
EXECUTIVE RETIREMENT PLAN
_______________
Waban Inc. hereby establishes the Waban Inc. Executive Retirement Plan
(the "Plan"), effective as of January 30, 1994.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Participants are in high-level management positions in the
Company and are key to the profitability and long-term success of the
Company; and
WHEREAS, in recognition of the Participants' services to the Company, the
Company desires to provide the Participants with certain retirement benefits;
NOW THEREFORE, the Company hereby adopts the Plan, as hereinafter set
forth, effective as of January 30, 1994.
* * * * * *
ARTICLE 1. DEFINITIONS. The following terms as used in this Plan shall
-----------
have the following meanings:
1.1 "Code" shall mean the Internal Revenue Code of 1986, as the same
presently exists and as the same may hereafter be amended, or any successor
statute of similar purpose.
1.2 "Committee" shall mean the Executive Compensation Committee of the
Board of Directors of Waban Inc.
1.3 "Company" shall mean Waban Inc. and any wholly-owned subsidiaries.
1.4 "Compensation" shall mean, for any Plan Year, a Participant's actual
base salary earned during the Plan Year (before taking into account any
reduction in base salary pursuant to a salary reduction agreement under
Section 401(k) or Section 125 of the Code). Any base salary that is deferred
under a non-qualified deferred compensation plan shall be included as
"Compensation" for the Plan Year in which the salary is earned but not
included for the Plan Year in which such deferred compensation is paid.
Notwithstanding anything to the contrary, Compensation shall not include any
base salary earned prior to January 30, 1994.
1.5 "Effective Date" shall mean January 30, 1994.
<PAGE>
1.6 "Plan" shall mean the Waban Inc. Executive Retirement Plan, as herein
set forth, including any and all amendments hereto and restatements hereof.
1.7 "Plan Year" shall mean the Company's fiscal year.
1.8 "Participant" shall mean an employee of the Company selected by the
Committee to be a Participant in the Plan; provided, however, that the
-------- ------- ----
Committee shall in no event designate as a Participant hereunder any employee
who is not a highly compensated employee or a member of the Company's select
group of management-level employees. The list of Participants is attached as
"Schedule A" hereto, which list shall be periodically updated. The Committee,
in its sole and absolute discretion, may designate new Participants and remove
persons as Participants hereunder, provided that the Committee may not take any
-------- ----
action so as to reduce a former Participant's funded benefit hereunder.
1.9 "Annual Retirement Contribution" shall mean that amount the Company
contributes on behalf of each Participant pursuant to Article 2 hereof.
1.10 "Years of Service" shall mean the total completed years and months
of a Participant's uninterrupted service with the Company, including service
with Zayre Corp. and its subsidiaries. A non-compensated leave of absence
shall be excluded from Years of Service.
ARTICLE 2. BENEFITS UNDER THIS PLAN
------------------------
2.1 Annual Retirement Contribution. The Committee shall determine, in
------------------------------
its sole discretion, at any time within two (2) months prior to the end of
the Plan Year but no later than two and one-half (2-1/2) months following the
close of the Plan Year, the amount of the Annual Retirement Contribution the
Company will make on behalf of each Participant, which amount shall be
distributed or deemed distributed (as the case may be) as soon as practicable
after the Committee's determination.
A Participant hereunder shall be entitled to an Annual Retirement
Contribution in a Plan Year only if the Participant was actively employed by the
Company on the last day of such Plan Year, unless the Participant's termination
------
of employment during the Plan Year occurred due to either the Participant's (i)
retirement on or after the attainment of age fifty-five (55), or (ii) disability
(as defined under the Company's long-term disability plan).
2.2 Amount of Annual Retirement Contribution. The Committee shall have
----------------------------------------
sole and absolute discretion to determine the amount of the Annual Retirement
Contribution; provided that the smallest Annual Retirement Contribution the
-------- ----
Committee may determine on behalf of each Participant shall be that amount
sufficient to provide the Participant with a benefit equal to three percent
(3%) of the Participant's Compensation on
2
<PAGE>
an "after-tax" basis, taking into account the Participant's appropriate
marginal tax bracket. The "after-tax" value of the Annual Retirement
Contribution is hereinafter referred to as the "After-Tax Benefit".
2.3 Investment of After-Tax Benefit. As a condition of being a
-------------------------------
Participant hereunder, each Participant agrees, understands and accepts that the
After-Tax Benefit will be used to fund an appropriate vehicle to provide
retirement income and benefit to the Participant (such as an insurance policy),
which such vehicle shall be chosen by the Committee. If the Committee chooses
an insurance program as said appropriate vehicle, then in the Committee's sole
discretion either: (i) the Participant shall apply the After-Tax Benefit to
purchase and maintain an individual policy (with the Participant as the owner
thereof), or (ii) the Committee shall, on behalf of the Participant, apply the
After-Tax Benefit to purchase and maintain an individual account (with the
Participant as the owner thereof) under a group policy.
The Committee reserves the right not to make Annual Retirement
Contributions on behalf of a Participant if it becomes aware or determines that
prior Annual Retirement Contributions are not being applied in accordance with
the terms and intent of this paragraph 2.3.
ARTICLE 3. FUNDING
-------
3.1 Four Year Rule. Notwithstanding anything to the contrary herein
--------------
contained or implied, including Section 2.1 hereof, the Company will make
payment in respect of a Participant's Annual Retirement Contribution for a Plan
Year only if the Participant has been credited with at least four (4) Years of
Service by the end of such Plan Year.
3.2 Treatment of Participants With Less Than Four Years of Service. If a
--------------------------------------------------------------
Participant hereunder is credited with less than four (4) Years of Service by
the end of the applicable Plan Year, the Participant will accrue the right to an
Annual Retirement Contribution for that Plan Year, based on (i) the Annual
Retirement Contribution approved by the Committee for that Plan Year, and (ii)
the Participant's Compensation for that Plan Year.
In the Plan Year in which the Participant is first credited with four (4)
Years of Service, the Company will, in the time-frame determined in accordance
with Section 2.1 hereof, make an aggregate retirement contribution on behalf of
the Participant equal to: (i) the amount of the Annual Retirement Contribution
for such Plan Year, plus (ii) the Annual Retirement Contribution amounts the
Participant had accrued in the prior three (3) Plan Years, as determined
pursuant to the first sentence of this Section 3.2. The aggregate retirement
contribution shall be treated as provided in Section 2.3 hereof.
3
<PAGE>
3.3 Forfeitures. If a Participant hereunder terminates employment with
-----------
the Company prior to being credited with four (4) Years of Service, the
Participant shall forfeit the right to any benefit accrued hereunder.
ARTICLE 4. EFFECT ON EMPLOYMENT RIGHTS. This Plan shall not constitute an
---------------------------
employment contract and nothing contained in this Plan shall confer upon the
Participant the right to be retained in the service of the Company nor limit the
right of the Company to discharge or otherwise deal with the Participant without
regard to the existence of this Plan.
ARTICLE 5. ADMINISTRATION.
--------------
5.1 Plan Administration. The authority to control and manage the
-------------------
operation and administration of the Plan shall be placed in the Committee. The
Committee shall have full power, discretion and authority to interpret, construe
and administer the Plan and any part thereof.
Subject to the limitations of this Plan, the Committee from time to time
may establish rules for the administration and interpretation of the Plan and
the transaction of its business. The determination of the Committee as to any
disputed question shall be conclusive.
The members of the Committee may authorize one or more of their number or
any officer of the Company to execute or deliver any instrument, make any
payment or perform any other act which the Plan authorizes or requires the
Committee to do.
The Committee may employ counsel and other agents and may procure such
clerical, accounting, actuarial, consulting and other services as it may require
in carrying out the provisions of the Plan.
5.2 Indemnification. The Company shall indemnify and save harmless each
---------------
member of the Committee against all expenses and liabilities arising out of
membership on such Committee, excepting only expenses and liabilities arising
from such member's own gross negligence or willful misconduct, as determined by
the Board of Directors or outside counsel designated by the Board of Directors.
ARTICLE 6. AMENDMENT OR TERMINATION OF PLAN. The Plan may be amended,
--------------------------------
suspended or terminated in whole or in part at any time and from time to time by
the Committee. No such amendment, suspension or termination shall retroactively
impair or otherwise adversely affect the rights of any Participant to benefits
under this Plan that have been funded prior to the date of such amendment,
suspension or termination.
4
<PAGE>
ARTICLE 7. NONASSIGNMENT. The right to benefits hereunder shall not be
-------------
assignable, and the Participant shall not be entitled to have such payments
commuted or made otherwise than in accordance with the provisions of the Plan.
ARTICLE 8. CONSTRUCTION.
------------
8.1 Heading and Captions. The headings and captions herein are provided
--------------------
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
8.2 Singular Includes Plural. Except where otherwise clearly indicated by
------------------------
context, the singular shall include the plural, and vice-versa.
ARTICLE 9. RELEVANT LAW. This Plan shall be construed and enforced in
------------
accordance with the laws of the Commonwealth of Massachusetts to the extent such
laws are not preempted by federal law.
* * * * * *
IN WITNESS WHEREOF, Waban Inc. has caused this instrument to be duly
executed in its name and on its behalf and to have its seal affixed hereto this
___ day of January, 1994.
[Seal] WABAN INC.
ATTEST: By: /s/ Edward J. Weisberger
-----------------------------
Title: Vice President-Finance
/s/ Sarah M. Gallivan
- ------------------------
Secretary
5
<PAGE>
WABAN INC.
GROWTH INCENTIVE PLAN
______________
Effective as of January 30, 1994
<PAGE>
WABAN INC.
GROWTH INCENTIVE PLAN
______________
TABLE OF CONTENTS
______________
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
ARTICLE 1. DEFINITIONS.............................. 1
ARTICLE 2. BENEFITS UNDER THIS PLAN................. 2
ARTICLE 3. DESIGNATION OF BENEFICIARY............... 3
ARTICLE 4. PLAN ADMINISTRATION AND INDEMNIFICATION.. 4
ARTICLE 5. EFFECT ON EMPLOYMENT RIGHTS.............. 4
ARTICLE 6. CHANGE OF CONTROL........................ 4
ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN......... 5
ARTICLE 8. NON-ASSIGNMENT........................... 5
ARTICLE 9. CONSTRUCTION............................. 5
ARTICLE 10. RELEVANT LAW............................ 5
</TABLE>
<PAGE>
WABAN INC.
GROWTH INCENTIVE PLAN
_______________
Waban Inc. hereby establishes the Waban Inc. Growth Incentive Plan (the
"Plan"), effective as of January 30, 1994.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Participants are in high-level management positions in Waban
Inc. or its subsidiaries and are key to the long-term success of the Company;
WHEREAS, the Company desires to provide an incentive to focus the
Participants' attention and efforts on long-term growth and profitability;
NOW THEREFORE, the Company hereby adopts the Plan, as hereinafter set
forth, effective as of January 30, 1994.
* * * * * *
ARTICLE 1. DEFINITIONS. The following terms as used in this Plan shall
-----------
have the following meanings:
1.1 "Award Period" shall mean a period of a certain number of
consecutive fiscal years, as determined by the Committee in its discretion.
Award Periods may overlap and employees may participate simultaneously with
respect to more than one Award Period.
1.2 "Committee" shall mean the Executive Compensation Committee of the
Board of Directors of Waban Inc.
1.3 "Company" shall mean Waban Inc. and its subsidiaries.
1.4 "Effective Date" shall mean January 30, 1994.
1.5 "Incentive Unit" shall mean an incentive unit granted to each
Participant, the value of which equals a certain percentage of the growth in the
Incentive Measurement achieved over the Award Period, as determined by the
Committee.
1.6 "Incentive Measurement" shall mean that objective measure of
performance or growth as the Committee shall, in its discretion, determine,
which may comprise, by way of example and not by way of limitation: divisional
pre-tax income, consolidated pre-
<PAGE>
tax income, consolidated net income, earnings per share, return on investment,
any such other measurement as the Committee shall determine, or any
combination of the foregoing.
1.7 "Participant" shall mean an employee in a high-level management
position in the Company who is selected by the Committee, in its discretion, to
be a Participant in the Plan.
1.8 "Plan" shall mean the Waban Inc. Growth Incentive Plan, as herein set
forth, including any and all amendments hereto and restatements hereof.
ARTICLE 2. BENEFITS UNDER THIS PLAN.
------------------------
2.1 Granting of Awards.
-----------------
(a) The Grant. On or before the commencement of each Award Period,
---------
the Committee shall determine (i) which employees shall be Participants in the
Plan, (ii) the amount of Incentive Units to be granted to each Participant, and
(iii) the method or formula for determining the value of each Incentive Unit,
based on the Incentive Measurement.
(b) Payment Dates. On or before the commencement of each Award
-------------
Period, the Committee shall determine (i) the date or dates on or about which
payment in respect of Incentive Units shall be made, and (ii) the amount of each
Participant's Incentive Units which may be redeemed on such payment dates. One
such payment date shall occur at some time within three (3) months after the end
of the Award Period and other date(s) may occur one (1) or more years after such
date (the "Deferred Payment Date").
2.2 Value of Incentive Units. On or before the commencement of each
------------------------
Award Period, the Committee shall determine (i) the factor(s) comprising the
Incentive Measurement, and (ii) the Incentive Measurement's base value, i.e.,
----
the value against which growth shall be measured. Notwithstanding the prior
sentence, the Incentive Measurement's base value may be appropriately adjusted
by the Committee, in its discretion, after the certification of the Company's
financial statements by the Company's independent public accountant for the
fiscal year immediately preceding the commencement of the Award Period. In the
Committee's discretion, Incentive Measurements may vary with respect to
Incentive Unit grants made to individual Participants or groups of Participants.
2.3 Award Opportunity. Upon the completion of each Award Period and the
-----------------
certification of the Company's financial statements by the Company's
independent public accountant for the last fiscal year in said Award Period,
the Committee shall cause to be re-valued the Incentive Measurement in order
to determine the growth over the Incentive Measurement's base value and, thus,
the value of each Incentive Unit.
2
<PAGE>
Notwithstanding anything to the contrary herein contained or implied, the
Committee may make appropriate adjustments to the value of the Incentive
Measurement to avoid undue windfalls or hardships due to external conditions
outside the control of management, nonrecurring or abnormal items, changes in
accounting practices, or such other matters as the Committee, in its
discretion, shall determine.
2.4 Payment of Awards.
-----------------
(a) Employees on Last Day of Award Period or Deferred Payment Date.
--------------------------------------------------------------
Participants employed by the Company on the last day of the Award Period shall
be entitled to receive payment (to the extent not deferred) as soon as
practicable thereafter; Participants employed on the Deferred Payment Date
shall be entitled to receive payment of deferred amounts, if applicable, as
soon as practicable thereafter.
(b) Termination of Employment in the Event of Death, Disability or
--------------------------------------------------------------
Retirement. If the termination of employment occurs before the end of the Award
- ----------
Period due to: (i) death, (ii) disability (as defined under the Company's long-
term disability plan), or (iii) retirement on or after the attainment of age
fifty-five (55), the Participant shall be entitled to pro rated payment in
respect of Incentive Units, determined as of the end of the fiscal year in which
occurs the Participant's death, disability or retirement. Payment shall be made
as soon as practicable following the end of the fiscal year in which death,
disability or retirement has occurred. In the event of termination of
employment due to death, disability or retirement after the end of the Award
Period and prior to a Deferred Payment Date, payment with respect to any
outstanding deferred payment amount shall be made as soon as practicable after
such termination.
(c) Termination of Employment for any Reason Other than Death,
----------------------------------------------------------
Disability or Retirement. In the event of the Participant's termination of
- ------------------------
employment for any reason other than death, disability or retirement prior to
the end of the Award Period, the Participant shall have no rights under the Plan
and shall not be entitled to receive payment with respect to any Incentive Unit.
In the event of the Participant's termination of employment for any reason other
than death, disability or retirement prior to a Deferred Payment Date, the
Participant shall not be entitled to receive payment with respect to any
outstanding deferred payment amount. In the event of termination of employment
for cause, as determined by the Committee in its discretion, no payment shall be
made with respect to any Incentive Unit.
ARTICLE 3. DESIGNATION OF BENEFICIARY. Each Participant shall have
--------------------------
the right to file with the Committee a written designation of one or more
persons as beneficiary(ies) who shall be entitled to receive the amount, if any,
payable under the Plan upon the Participant's death. A Participant may modify
the beneficiary designation by filing a new designation with the Committee. The
last such designation received by the
3
<PAGE>
Committee shall be controlling, provided, however, that no designation or
-------- ------- ----
modification thereof shall be effective unless received by the Committee prior
to the Participant's death.
If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the Participant,
the amount payable under the Plan upon the Participant's death shall be made to
the Participant's surviving spouse; if there is no surviving spouse, payment
shall be made to the Participant's estate.
ARTICLE 4. PLAN ADMINISTRATION AND INDEMNIFICATION.
---------------------------------------
4.1 Plan Administration. This Plan shall be administered by the
-------------------
Committee. The Committee shall have full authority to interpret the Plan; to
establish, amend, and rescind rules for carrying out the Plan; to interpret the
terms and provisions of the Plan; and to make all other determinations necessary
or advisable for its administration. The Committee's determination shall be
final and binding on all parties.
4.2 Indemnification. The Company shall indemnify and save harmless each
---------------
member of the Committee against all expenses and liabilities arising out of
membership on such Committee, excepting only expenses and liabilities arising
from such member's own gross negligence or willful misconduct, as determined by
the Board of Directors or outside counsel designated by the Board of Directors.
ARTICLE 5. EFFECT ON EMPLOYMENT RIGHTS. This Plan shall not constitute an
---------------------------
employment contract and nothing contained in this Plan shall confer upon the
Participant the right to be retained in the service of the Company nor limit the
right of the Company to discharge or otherwise deal with the Participant without
regard to the existence of this Plan.
ARTICLE 6. CHANGE OF CONTROL. In the event of the merger, sale,
-----------------
consolidation, dissolution, liquidation, or Change of Control of the Company (as
defined in the Change of Control Severance Benefit Plan for Key Employees), the
Committee shall thereupon cause to be re-valued the Incentive Measurement, in
the manner described herein, and shall provide that Incentive Units be redeemed
as soon as practicable thereafter, regardless of when the end of the Award
Period or Deferred Payment Date is scheduled to occur. Such re-valuation of the
Incentive Measurement shall be determined based on (i) the Company's actual
performance or growth with respect to those fiscal years within the Award Period
which have ended prior to the merger, sale, consolidation, dissolution,
liquidation, or Change of Control, plus (ii) for the fiscal year in which occurs
the merger, sale, consolidation, dissolution, liquidation, or Change of Control,
the Company's projected performance or growth as provided in the fiscal year's
financial plan (as presented to the Company's Board of Directors at the
beginning of the fiscal year) pro
4
<PAGE>
rated based on the number of days in said fiscal year preceding the merger,
sale, consolidation, dissolution, liquidation, or Change of Control.
ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN. The Plan may be amended,
--------------------------------
suspended or terminated in whole or in part at any time and from time to time by
the Committee. No such amendment, suspension or termination shall retroactively
impair or otherwise adversely affect the rights of any Participant to benefits
under this Plan if the end of the Award Period has occurred prior to the date of
such amendment, suspension or termination.
ARTICLE 8. NONASSIGNMENT. The right to benefits hereunder shall not be
-------------
assignable, and the Participant shall not be entitled to have such payments
commuted or made otherwise than in accordance with the provisions of the Plan.
ARTICLE 9. CONSTRUCTION.
------------
9.1 Heading and Captions. The headings and captions herein are provided
--------------------
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
9.2 Singular Includes Plural. Except where otherwise clearly indicated by
------------------------
context, the singular shall include the plural, and vice-versa.
ARTICLE 10. RELEVANT LAW. This Plan shall be construed and enforced in
------------
accordance with the laws of the Commonwealth of Massachusetts to the extent such
laws are not preempted by federal law.
* * * * * *
IN WITNESS WHEREOF, Waban Inc. has caused this instrument to be duly
executed in its name and on its behalf and to have its seal affixed hereto this
3rd day of March, 1994.
[Seal] WABAN INC.
By: /s/ Edward J. Weisberger
-----------------------------
Title: Vice President-Finance
ATTEST:
/s/ Sarah M. Gallivan
- ------------------------
5
<PAGE>
Agreement
---------
Agreement dated as of May 25, 1993 between Waban Inc. (the "Company") and
John F. Levy ("Levy").
Recitals
--------
The Company and Levy entered into an Employment Agreement dated as of June
1, 1989 (the "Employment Agreement"). Terms defined in the Employment Agreement
are used herein as so defined.
The Company and Levy have agreed that Levy will resign from his employment
and offices with the Company, subject to the provisions of this Agreement.
Agreement
---------
The Company and Levy agree as follows:
1. Levy hereby resigns as President and Chief Executive Officer and a
director of the Company and from all other offices and positions with the
Company and each of its subsidiaries, effective as of the date hereof.
2. The Employment Period shall terminate as of the date hereof.
3. Levy shall be entitled to all compensation and benefits specified in
Section 5(b) of the Employment Agreement in the case of termination pursuant to
clause (ii) of such Section 5(b), except that (x) the Company will pay to Levy
pursuant to Section 5(b)(i) his current Base Salary through May 23, 1995,
without reduction for compensation earned from other employment or self-
employment through May 23, 1994, and thereafter reduced by such compensation
earned from other employment or self-employment and (y) Levy shall be entitled
to the benefits specified in Section 5(b)(ii) until the expiration of the period
of Base Salary payments (except to the extent that Levy shall obtain the same
from another employer or from self-employment). For purposes of his 1989 PARS
grant, pursuant to the third paragraph of Section 2 of Exhibit A to the
Employment Agreement, Levy shall vest in 4,167 shares as his pro rated PARS
entitlement.
In addition, Levy shall be deemed vested in his benefits under SERP,
with 19 years and six months Years of Service under SERP, for all purposes of
SERP (including Sections 5.02 and 5.05) other than Section 5.07. SERP benefits
shall become payable at the time and in the manner provided in SERP. Sections
8.02 and 8.03 of SERP shall not apply to Levy. In the event that the Company
shall at any time during or after the Employment Period generally offer to
participants in SERP the
<PAGE>
right to convert their SERP benefits into a lump sum or third party annuity
payment, or shall generally accelerate payments under SERP for any reason,
including a change of control of the Company, the Company will grant Levy or his
legal representative a comparable right, except that he shall not be entitled to
any tax gross up rights whether or not extended to other SERP participants. The
Company shall provide Levy notice of any such offer or acceleration within 10
days after the occurrence thereof.
The Company shall also continue to provide Levy with his car allowance
through May 31, 1994 or until his earlier other employment. The Company shall
within a reasonable time obtain and provide to Levy at the Company's expense
office space within 20 miles of Waban, Massachusetts and reasonable secretarial
assistance until May 31, 1994 or until his earlier other employment. Levy shall
have reasonable access to his present office and secretarial assistance for the
purpose of removing his personal files and effects.
4. Sections 6(a) and 6(c) of the Employment Agreement shall remain
applicable to Levy in accordance with their terms. Section 6(b) shall be
superseded by the following agreement of Levy, which shall remain applicable to
Levy through May 31, 1994:
During the course of his employment, Levy has learned many trade
secrets of the Company and has had access to confidential information
and business plans for the Company. Therefore, Levy will not engage,
either as a principal, employee, partner, consultant or investor
(other than a less-than-1% stock interest in a corporation), in any of
the following businesses:
Home Depot, Builders Square, Sams, Price Club, Costco and Pace.
Levy agrees that if, at any time, pursuant to action of any court,
administrative or governmental body or other arbitral tribunal, the
operation of any part of this paragraph shall be determined to be
unlawful or otherwise unenforceable, then the coverage of this
paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the extent, and only to the
extent, necessary to make this paragraph lawful and enforceable in the
particular jurisdiction in which such determination is made.
5. In consideration of this Agreement and the benefits provided to Levy
hereunder, Levy hereby releases and absolves the Company and its affiliates,
agrees not to sue or commence
-2-
<PAGE>
proceedings or initiate or file a complaint against the Company and its
affiliates, the successors and assigns of the Company and its affiliates, and
all officers, directors, stockholders, agents and employees of each (hereinafter
referred to as "Releasees"), of, from and with respect to the following: (i)
any claims arising out of, based upon or connected with Levy's employment by the
Company, the compensation and working conditions for that employment and/or the
termination of that employment; and (ii) any claim that might exist under
federal, state or local employment discrimination laws, fair employment practice
laws, civil rights or pension statutes or regulations (other than vested pension
rights) pursuant thereto or the common law with respect to that employment or
the termination thereof, including, without limitation, The Age in
Discrimination Employment Act. There is excepted from the foregoing release and
other undertakings by Levy in this paragraph 5 (i) any payment required to be
made pursuant to this Agreement and (ii) any indemnification rights to which
Levy is presently entitled under Delaware law, the Company's Certificate of
Incorporation, By-laws, Resolution of the Board of Directors of the Company or
indemnification agreement with the Company, all of which rights shall remain in
effect.
For good and valuable consideration, the receipt of which is hereby
acknowledged by the Company, the Company does hereby release Levy and agrees not
to sue or commence proceedings against Levy, his heirs and assigns, of, from and
with respect to any claim arising out of, based upon or connected with Levy's
employment by the Company.
-3-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
/s/ John F. Levy
--------------------------------
John F. Levy
WABAN INC.
By /s/ Sumner Feldberg
-----------------------------
Chairman of the Board
-4-
<PAGE>
AMENDMENT NO. 4 DATED AS OF JANUARY 29, 1994
TO EXECUTIVE SERVICES AGREEMENT
-------------------------------
AGREEMENT dated as of January 29, 1994 between WABAN INC. ("Waban") and THE
TJX COMPANIES, INC. ("TJX").
Waban and TJX entered into an Executive Services Agreement dated as of June
1, 1989, as amended by Amendment dated as of January 26, 1991, Amendment No. 2
dated as of January 25, 1992, and Amendment No. 3 dated as of January 30,
1993, (the "Executive Services Agreement") with respect to the services of
Arthur Loewy (the "Executive"). The parties desire to amend the Executive
Services Agreement to reflect the amendment, dated as of the date hereof, of
the Employment Agreement dated as of June 1, 1989 between the Executive and
TJX.
In consideration of the premises and for other valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. The first paragraph of the Executive Services Agreement is hereby
amended by adding the words "and January 29, 1994" after the words "Agreement
(as amended January 26, 1991, January 25, 1992 and January 30, 1993" on the
first line thereof.
2. The second paragraph of the Executive Services Agreement is hereby
amended by deleting the date "January 29, 1994" from the tenth line thereof and
substituting therefor the date "January 28, 1995".
3. Section (d) of the Executive Services Agreement is hereby amended by
deleting the date "January 29, 1994" from the second and third lines thereof and
substituting therefor the date "January 28, 1995".
Except to the extent specifically amended hereby, the provisions of the
Executive Services Agreement shall remain unmodified, and the Executive Services
Agreement as amended hereby is hereby confirmed as being in full force and
effect.
WITNESS the due execution by the parties hereto.
WABAN INC.
By: /s/ Herbert Zarkin
-----------------------------
Herbert Zarkin
THE TJX COMPANIES, INC.
By: /s/ Bernard Cammarata
-----------------------------
Bernard Cammarata
<PAGE>
CONFIDENTIAL CONFIDENTIAL
- ------------ ------------
WABAN INC.
- --------------------------------------------------------------------------------
INTRA-COMPANY COMMUNICATION
TO WILLIAM E. PATTERSON DEPT. ROUTE NO.
FROM HERBERT J ZARKIN DEPT. DATE as of 09/29/93
SUBJECT SEPARATION OF EMPLOYMENT AND RELEASE OF CLAIMS
- --------------------------------------------------------------------------------
This memorandum ("Agreement") confirms the discussion and agreement by
and among William E. Patterson ("Employee"), on the one hand, and Waban Inc., a
Delaware corporation, including HomeBase, a division of Waban Inc.
(collectively, the "Company"), on the other hand, concerning Employee's
resignation from employment with the Company, including from his positions as
President of HomeBase and Executive Vice President of Waban Inc., and sets forth
below the terms and conditions which have been agreed upon in that connection.
A. Pursuant to the terms of an offer letter dated October 29, 1992
(the "Offer Letter"), Employee has been an employee of the Company since on
or about November 2, 1992. The Offer Letter provides, in part, that if
Employee's employment is terminated by the Company for any reason other than
cause, Employee will be entitled to receive 52 weeks of severance pay. Such
severance pay, however, is to be reduced, after the first 12 weeks, dollar-for-
dollar for income that Employee earns from other employment (including self-
employment).
B. Employee and his wife, Cathryn Patterson ("C. Patterson"),
entered into a Loan Agreement as of July 14, 1993 (the "Loan Agreement"),
setting forth the terms and conditions of a loan from the Company to Employee
and C. Patterson in the principal amount of Three Hundred Fifty Thousand Dollars
($350,000) (the "Loan") to be used for the purchase of a principal residence in
the Southern California area for Employee and C. Patterson ("Employee
Residence"). The Loan Agreement is evidenced by a Promissory Note in the
principal amount of the Loan (the "Note"), which Note is secured by a Deed of
Trust which was recorded on September 13, 1993, as Instrument No. 93-614467 in
the Official Records of Orange County, California (the "Deed of Trust") which
encumbers the Employee Residence. The Loan Agreement, the Note, the Deed of
Trust and any and all other documents evidencing or securing the Loan are
collectively referred to herein as the "Loan Documents."
C. The Loan Agreement provides that if Employee ceases to be
employed by the Company, the Company shall have the right to set off against any
severance payments payable to Employee (i) the outstanding balance of the Loan
together with all accrued interest thereon and all other sums owing to the
Company pursuant to the Loan Documents and (ii) any other amounts advanced by
the Company to facilitate the purchase of the Employee Residence.
D. The Company presented Employee with a form of this Agreement
on September 29, 1993, which was subsequently negotiated by the parties and the
results of these negotiations are reflected in the terms and conditions set
forth below.
- --------------------------------------------------------------------------------
<PAGE>
In consideration of the mutual covenants and agreements contained
herein, the recitals set forth above, which are incorporated herein by
reference, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Resignation. Employee confirms his resignation from employment
-----------
with the Company effective September 29, 1993 ("Date of Resignation"), and
agrees to execute all necessary or appropriate documentation to reflect such
resignation, including, without limitation, that certain resignation letter in
the form attached hereto as Exhibit "A". Effective as of the Date of
-----------
Resignation, Employee shall not have any further responsibilities with respect
to the business of the Company, and will have no authority to enter into any
obligations on behalf of or to bind the Company.
2. Transition; Cooperation with the Company; Assistance in
-------------------------------------------------------
Legal Actions.
- --------------
(a) Upon the request of any officer or director of the Company,
Employee will assist the Company in effectuating a smooth transition of his
responsibilities. Employee agrees promptly to provide any and all information
requested by the Company in order for it to comply with federal securities or
other laws.
(b) In the event the Company is or becomes involved in any
legal action relating to events which occurred while Employee was rendering
services to the Company or about which Employee possesses any information,
Employee agrees to assist in the capacity of a witness in the preparation,
prosecution or defense of any such action involving the Company, including,
without limitation, executing truthful declarations or documents or providing
information requested by the Company.
3. Severance Pay; Offset. The Company will provide Employee
---------------------
with 52 weeks of severance pay at his current bi-weekly rate of $16,346.15, for
a total gross amount of $425,000. Such severance pay will be paid one (1)
business day following the expiration of the revocation period set forth in
Paragraph 27 below in one lump sum, less applicable payroll taxes and
withholdings. The net amount of such severance pay due Employee equals
$314,500.00 and such amount shall be set off against the outstanding principal
balance of the Loan, together with all accrued interest thereon and all other
sums owed to the Company under the Loan Documents, which amounts are immediately
due and payable under the Loan Documents on the Date of Resignation.
4. Vacation. Employee hereby authorizes the Company to set off
--------
all of his unused vacation, less applicable payroll taxes and withholdings,
against all amounts outstanding under the Loan Documents. The net amount of
such accrued vacation due Employee equals $18,144.23.
5. Loan Agreement. Employee acknowledges that his resignation
--------------
as an employee of the Company constitutes an "Event of Default" under the Loan
Documents, thereby causing the entire outstanding principal balance of the
Loan, plus accrued interest and other sums owed pursuant to the Loan Documents
to become immediately due and payable. Concurrently
-2-
<PAGE>
with the payment and offset of the severance pay and accrued vacation
referenced in Paragraphs 3 and 4, the Company will forgive Employee and C.
Patterson from their obligation to pay the Company the remaining outstanding
principal and accrued interest on the Loan in the amount of $17,355.77 ("Debt
Forgiveness"). The Debt Forgiveness shall be increased by the amount of
$6,097.97 in consideration of the federal and state taxes incurred by Employee
and C. Patterson on the Debt Forgiveness. This amount and the gross up of
relocation expenses under Paragraph 7(vi) below will be appropriately
reflected in Employee's tax forms from the Company. Employee understands that
the entire amount of $6,097.97 and the gross up of relocation expenses under
Paragraph 7(vi) below will be applied to federal and state withholding.
6. Housing Allowance. Employee acknowledges and agrees that as
-----------------
of the Date of Resignation, he has been employed by the Company for less than
one year, and, as a result thereof, the Company is entitled to repayment of the
housing allowance previously provided to him in the amount of $135,000.
7. Consideration to Employee. Concurrently with the payment of
-------------------------
severance pay and the setoff referenced in Paragraphs 3 and 4 above, the Company
agrees to (i) release Employee and C. Patterson from their obligation to pay any
amounts of principal and interest outstanding under the Loan Documents not set
off by the payment of severance pay and accrued vacation, (ii) cause the trustee
under the Deed of Trust to reconvey the Deed of Trust and return the original
Note to Employee marked "cancelled" within thirty (30) days after the effective
date of this Agreement pursuant to Paragraph 27 below, (iii) release Employee
from his obligation to repay the housing allowance as described in Paragraph 6
above, (iv) remove the dollar-for-dollar reduction of severance pay by income
earned by Employee after the first twelve weeks after his date of termination
of employment (as provided in the Offer Letter); (v) gross up the Debt
Forgiveness for state and federal income taxes as provided in Paragraph 5
above; and (vi) gross up any relocation expenses that are subject to federal
and state income taxes to account for the tax consequences to Employee of any
reimbursements from the Company of such relocation expenses through September
29, 1993, in accordance with the terms of the Offer Letter.
8. Insurance. Employee's Basic, Optional and Executive Life
---------
Insurance and other term life insurance and disability insurance provided him
will terminate as of the Date of Resignation.
9. COBRA. Employee and/or his spouse and dependents will be
-----
provided the appropriate forms to continue his/their current participation in
the Company's group health insurance plans at his/their expense after the Date
of Resignation pursuant to the provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA").
10. 401(K) Plan. Employee's contributions to the Waban Inc.
-----------
401(k) Savings Plan (the "Plan") will cease as of the Date of Resignation, and
his account balance may remain in the Plan pursuant to the terms of the Plan, as
it may be amended from time to time.
11. Stock Incentive Plan. Employee acknowledges that no stock
--------------------
options issued to him pursuant to the Company's Stock Incentive Plan, have
vested as of the Date of Resignation. No vesting of options will occur after
the Date of Resignation.
-3-
<PAGE>
12. PARS. Employee acknowledges that pursuant to the Company's
----
Stock Incentive Plan he has no vested Performance Accelerated Restricted Stock
("PARS"), and all unvested PARS will be cancelled as of the Date of Resignation
and will revert to the Company.
13. Moving Expenses. The Company shall pay the reasonable costs
---------------
of transporting Employee's personal property currently in storage in California
to a location in Newport Beach, California. The transportation company shall be
selected by the Company.
14. Return of Company Property. Employee will vacate his office
--------------------------
promptly on request by the Company and will immediately relinquish and return
all Company files, records, property, equipment, and keys maintained by him in
his office or elsewhere, including, without limitation, any credit cards,
security access cards, financial statements, business plans, cellular
telephones, facsimile machines and computer hardware and software.
15. Reimbursement of Expenses. Expenses incurred on or before
-------------------------
September 29, 1993, by Employee in connection with business on behalf of the
Company will be reimbursed in accordance with Company policy, subject to
Employee submitting appropriate documentation substantiating the expense on or
before November 5, 1993.
16. Binding Effect; Confidentiality. This Agreement, and all
-------------------------------
the terms and provisions hereof, shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, legal representatives,
successors and assigns. The parties further agree that the terms and conditions
of this Agreement and any and all actions in accordance therewith are strictly
confidential and shall not hereafter be disclosed, discussed or revealed to any
other persons, entities or organizations, except: (i) to the extent necessary to
report income to appropriate taxing authorities; (ii) in response to an order of
a court of competent jurisdiction or a subpoena issued under the authority
thereof; (iii) in response to a subpoena issued by a state or federal government
agency; (iv) to the parties' immediate family members, attorneys, accountants,
auditors, financial advisors, tax advisors, lenders and banks; (v) to directors,
officers and employees of the Company in the ordinary course of business; (vi)
as necessary to enforce this Agreement between the parties hereto or to prevent
a breach thereof; (vii) as otherwise required by the Company to the extent it is
a public company; or (viii) as otherwise required by law. Employee acknowledges
the particular value of this Paragraph 16, the violation of which cannot be
reasonably or adequately compensated in an action at law. Therefore, Employee
expressly agrees that, in addition to any other rights or remedies it may have,
the Company shall be entitled to injunctive and other equitable relief to
prevent or remedy a breach of this Paragraph 16 by Employee.
17. No Disclosure of Confidential Information.
-----------------------------------------
(a) Employee acknowledges and agrees that (i) by reason of
his positions with the Company, he has been given access to information, trade
secrets, strategies, procedures, and expertise unique to the Company, as well as
confidential information concerning financial matters that pertain to the
Company and other confidential materials and information; and (ii) the foregoing
constitute trade secrets and/or confidential, privileged and proprietary
information respecting the business affairs of the Company which gravely affect
the successful and
-4-
<PAGE>
effective operation of the Company. As such, Employee agrees that he will not
directly or indirectly disclose to any third person or use for the benefit of
anyone other than the Company, or use for his own benefit or purposes any such
confidential or proprietary information without the prior written approval of
the Company. Such confidential and/or proprietary information shall not
include any materials or information which (i) are generally available to the
public other than as a result of a disclosure by Employee or any of Employee's
representatives, attorneys, agents or affiliates; (ii) were available to
Employee on a non-confidential basis from a source other than the Company;
(iii) have been independently acquired or developed by Employee without
violating any of Employee's obligations under this Paragraph 17; or (iv) are
identified in writing by the Company as not being confidential. Employee
agrees to immediately return all documents and writings of any kind, including
both originals and copies, within his custody, possession or control, which
contain any non-public information which in any way relates or refers to the
Company.
(b) Employee acknowledges the particular value to the
Company of this Paragraph 17, the loss of which cannot be reasonably or
adequately compensated in an action at law. Therefore, Employee expressly
agrees that the Company, in addition to any other rights or remedies that the
Company shall possess, shall be entitled to injunctive and other equitable
relief to prevent or remedy a breach of this Paragraph 17 by Employee.
18. General Release of All Claims Against Company Releasees by
----------------------------------------------------------
Employee; Indemnification.
- -------------------------
(a) General Release. In consideration of this Agreement
---------------
and for the release of the financial obligations and other consideration
referred to herein, and except for the obligations undertaken by the Company
hereunder, Employee agrees to, and by signing this Agreement does, forever
release, acquit, relieve and discharge Waban Inc. and HomeBase, and each of
their affiliated or related entities, subsidiaries, parent corporations,
divisions, partnerships, general partners, limited partners, joint ventures,
joint venturers, investors, shareholders, officers, directors, licensees,
employees, agents, representatives, accountants, attorneys, consultants, benefit
plans, successors and assigns, and all persons acting by, through, under or in
concert with any of them (collectively, the "Company Releasees"), from any and
all known and unknown claims, suits, rights, actions, complaints, liabilities,
obligations, promises, agreements, contracts, causes of action, demands, costs,
losses, damages, debts, and expenses (including attorneys' fees and costs) of
any nature whatsoever, whether known or unknown, whether suspected or
unsuspected, whether disclosed or undisclosed, whether contingent or vested,
which Employee ever had, now has, or may claim to have as of the moment he
signs this Agreement by reason of any act, event or omission concerning any
matter, cause, or thing, including, without limiting the generality of the
foregoing, any claim arising out of (i) Employee's employment with the
Company, or the cessation of that employment; (ii) any restrictions on the
right of the Company or any of the other Company Releasees to terminate any
employee, including Employee; (iii) any statements, oral or written, express
or implied, made by any of the Company Releasees concerning or relating to
Employee; (iv) any purported right of Employee to receive any bonus,
insurance, severance pay, Management Incentive Plan award, stock options,
and/or PARS in, or from, the Company; (v) any alleged damages, losses,
expenses or costs arising out of the purchase or sale by Employee of
Employee's property and/or residences in Illinois, Wisconsin or California;
-5-
<PAGE>
(vi) any impairment of Employee's ability to compete in the labor market;
(vii) any permanent or temporary disability or loss of future earnings as a
result of injury or disability arising from or associated with his employment
or the termination of his employment relationship with the Company; (viii) any
common law causes of action or torts, including, without limitation, wrongful
termination and infliction of emotional distress, defamation, libel,
interference with contract, and interference with prospective economic
advantage; (ix) any federal, state or governmental constitution, statute,
regulation or ordinance or law of the United States, or any state, territory
or possession thereof, including, without limitation, Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the California
Fair Employment and Housing Act, the Rehabilitation Act of 1973, the Americans
With Disabilities Act, and the Employee Retirement Income Security Act of
1974, as amended; or (x) any agreement between Employee and the Company, oral
or written, express or implied, including, without limitation, the Offer
Letter and the Loan Documents.
(b) Indemnification. The foregoing release of Employee in
---------------
favor of the Company Releasees specifically does not and shall not apply to any
obligations of the Company to indemnify Employee to the extent required pursuant
to the December 1992 Indemnification Agreement between Employee and the Company
or where required by law for any third party actions which are filed after the
date of this Agreement and which are not provoked by Employee or his agents.
19. General Release of All Claims Against Employee by Company;
----------------------------------------------------------
Exceptions.
- -----------
(a) General Release. In consideration of this Agreement
---------------
and of Employee's resignation from employment with the Company, and subject to
the exceptions set forth in subparagraph (b) below, the Company agrees to, and
by signing this Agreement does, forever release, acquit, relieve and discharge
Employee and his agents, representatives, accountants, attorneys, successors and
assigns (collectively, the "Employee Releasees"), from any and all known and
unknown claims, suits, rights, actions, complaints, liabilities, obligations,
promises, agreements, contracts, causes of action, demands, costs, losses,
damages, debts and expenses (including attorneys' fees and costs) of any nature
whatsoever, whether known or unknown, or whether suspected or unsuspected,
whether disclosed or undisclosed, whether contingent or vasted, which the
Company ever had, now has, or may claim to have as of the moment it signs this
Agreement by reason of any act, event or omission concerning any matter, cause
or thing including, without limiting the generality of the foregoing, any claim
arising out of (i) Employee's employment with the Company, or the cessation of
that employment; (ii) any statements, oral or written, express or implied, made
by any of the Employee Releasees relating to Company; (iii) any alleged damages,
losses, expenses or costs arising out of any purchase or sale by the Company of
Employee's property and/or residences in Illinois, Wisconsin or California; (iv)
any common law causes of action or torts, including, without limitation,
defamation, libel, interference with contract, and interference with prospective
economic advantage; and (v) any federal, state or governmental constitution,
statute, regulation, ordinance or law of the United States or any state,
territory or possession thereof.
(b) Exceptions. The foregoing release of the Company in
----------
favor of the Employee Releasees specifically does not apply to (a) any
obligations created under this
-6-
<PAGE>
Agreement, (b) claims against Employee for willful misconduct, securities laws
violations, fraud, misrepresentation, dishonesty, disclosure or
misappropriation of trade secrets or self-dealing, (c) criminal acts, or (d)
any obligations of Employee to indemnify the Company to the extent required
pursuant to the December 1992 Indemnification Agreement between Employee and
the Company or where required by law for any third party actions.
20. Waiver of California Civil Code Section 1542. Further, the
--------------------------------------------
parties agree to waive and relinquish all rights and benefits they may have
under Section 1542 of the Civil Code of the State of California. Section 1542
reads as follows:
"(Section) 1542. [Certain claims not affected by general
release.] A general release does not extend to
claims which the creditor does not know or suspect
to exist in his favor at the time of executing the
release, which if known by him must have
materially affected his settlement with the debtor."
Notwithstanding the provisions of Section 1542, and for the purpose of
implementing a full and complete release and discharge of the Company Releasees
and the Employee Releasees, the parties expressly acknowledge that this
Agreement is intended to include and does include in its effect, without
limitation, all claims which they do not know or suspect to exist in their
favor against the Company Releasees or the Employee Releasees at the moment of
execution hereof, and that this Agreement expressly contemplates the
extinguishment of all such claims.
21. No Admission of Liability. The parties to this Agreement
-------------------------
agree that nothing contained herein shall constitute or be construed as an
admission of liability. The parties hereto have entered into this Agreement in
good faith and with the desire to forever settle between them those matters
described in this Agreement.
22. Severability. Should any portion, word, clause, phrase,
------------
sentence or paragraph of this Agreement be declared void or unenforceable, such
portion may be considered independent and severable from the remainder, the
validity of which shall remain unaffected.
23. No Waiver. Failure to insist on compliance with any term,
---------
covenant or condition contained in this Agreement shall not be deemed a waiver
of that term, covenant or condition, nor shall any waiver or relinquishment of
any right or power contained in this Agreement at any one time or more times be
deemed a waiver or relinquishment of any right or power at any other time or
times.
24. Representations and Warranties. Both parties to this
------------------------------
Agreement represent and warrant as follows:
(a) This Agreement in all respects has been voluntarily and
knowingly executed;
-7-
<PAGE>
(b) They have had an opportunity to seek and have sought
independent legal advice from attorneys of their choice with respect to the
advisability of executing this Agreement, and they are not relying on the
representations of any other party or the counsel of any other party;
(c) They have had an opportunity to seek and have sought
independent tax advice from accountants, attorneys or tax advisors of their
own choice with respect to the tax ramifications, if any, which may result
from entering into this Agreement;
(d) They have made such investigation of the facts pertaining to
this Agreement as they deem necessary;
(e) The terms of this Agreement are contractual and are the
result of discussions;
(f) The consideration Employee is receiving pursuant to this
Agreement is in addition to anything of value to which he already is
entitled; and
(g) They have carefully read this Agreement and the contents
hereof are known and understood by them.
25. Choice of Law; Forum Selection. This Agreement has been
------------------------------
negotiated and executed in the State of California and shall be interpreted,
enforced and governed in accordance with the laws of California. Any dispute,
controversy or claim arising between the parties hereto, or any of them,
concerning the breach, meaning or interpretation of this Agreement, or the
rights, duties or obligations of the parties hereto, including those respecting
Employee's employment or its termination, whether based upon contract or tort,
shall be brought in Orange County, California.
26. Entire Agreement. This Agreement, together with the Loan
----------------
Documents, constitutes the entire integrated agreement between the parties and
supersedes any and all other agreements, understandings, negotiations, or
discussions, either oral or in writing, express or implied, between the parties
to this Agreement. The parties to this Agreement each acknowledge that no
representations, inducements, promises, agreements or warranties, oral or
otherwise, have been made by them, or anyone acting on their behalf, which are
not embodied in this Agreement, that they have not executed this Agreement in
reliance on any such representation, inducement, promise, agreement or warranty,
and that no representation, inducement, promise, agreement or warranty not
contained in this Agreement including, without limitation, any purported
supplements, modifications, waivers or terminations of this Agreement shall be
valid or binding, unless executed in writing by all of the parties to this
Agreement.
27. Effectiveness; Revocation Period. Under the Older Workers
--------------------------------
Benefit Protection Act of 1990 (see 29 U.S.C. (Section) 626(f)), Employee, who
is over the age of 40, is advised as follows: (i) that he should consult an
attorney regarding this Agreement before executing it; (ii) that he has twenty-
one (21) days in which to consider this Agreement and whether he will enter into
it; (iii) this Agreement does not waive rights or claims that may arise after it
is
-8-
<PAGE>
executed; and (iv) that, at any time within seven (7) days after executing this
Agreement, Employee may revoke this Agreement. This Agreement shall not become
effective or enforceable until the seven (7)-day revocation period set forth
herein has passed.
28. Counterparts. This Agreement may be executed in one or more
------------
counterparts and the counterparts signed in the aggregate shall constitute a
single, original agreement.
"EMPLOYEE" WILLIAM E. PATTERSON
Dated: 11/11/93 By: /s/ William E. Patterson
----------------------- ------------------------------
William E. Patterson
"COMPANY" WABAN INC.
Dated: 11/9/93 By: /s/ Herbert J Zarkin
----------------------- ------------------------------
Herbert J Zarkin
President
-9-
<PAGE>
September 29, 1993
Mr. Herbert J Zarkin
President
Waban Inc.
One Mercer Road
P.O. Box 9600
Natick, MA 01760
Dear Herb:
I hereby resign as President of HomeBase, a division of Waban Inc.,
and as Executive Vice President of Waban Inc., as well as from all other offices
and positions I hold with Waban Inc. and its affiliates, subsidiaries or
divisions, effective immediately.
Sincerely,
/s/ William E. Patterson
William E. Patterson
EXHIBIT "A"
-----------
-10-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
DATED AS OF MAY 25, 1993
BETWEEN HERBERT J. ZARKIN AND WABAN INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of May 25, 1993 between Herbert J. Zarkin of 8 Lands End
Lane, Sudbury, Massachusetts 01776 ("Executive") and Waban Inc., a Delaware
corporation (the "Company"), whose principal office is in Natick, Massachusetts
01760.
RECITALS
--------
Executive was employed by the Company in various executive management
positions, including most recently Executive Vice President of the Company and
President of the Company's BJ's Wholesale Club Division.
The Company desires that Executive serve as its President and Chief
Executive Officer and Executive is willing to serve in such capacity.
The Company and Executive deem it desirable and appropriate, therefore, to
enter into this Agreement.
AGREEMENT
---------
The parties hereto, in consideration of the mutual agreements hereinafter
contained, agree as follows:
1. EFFECTIVE DATE; TERM OF AGREEMENT. This agreement shall become
---------------------------------
effective as of May 25, 1993 (the "Effective Date"). This Agreement shall
supersede any existing employment agreement including, without limitation, the
Employment Contract dated as of May 16, 1988 between Executive and the Company,
or similar agreement between Executive and the Company and any of its
Subsidiaries. Notwithstanding the foregoing, the Amended and Restated Change of
Control Severance Agreement between the Company and Executive dated May 25, 1993
(the "Change of Control Agreement") shall remain in full force and effect. The
employment shall continue on the terms provided herein until January 25, 1997
and thereafter until terminated by either Executive or the Company, subject to
earlier termination as provided herein (such period of employment hereinafter
called the "Employment Period").
2. SCOPE OF EMPLOYMENT.
-------------------
(a) Nature of Services. Executive shall diligently perform the duties and
------------------
assume the responsibilities of President and Chief Executive Officer of the
Company and such additional executive duties and responsibilities as shall from
time to time be assigned to him by the Board or its Chairman.
-2-
<PAGE>
(b) Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote substantially all his working time and attention and his
best efforts to the performance of his duties and responsibilities under this
Agreement. However, Executive may (a) make any passive investments where he is
not obligated or required to, and shall not in fact, devote any managerial
efforts, (b) participate in charitable or community activities or in trade or
professional organizations or (c) subject to Board approval (which approval
shall not be unreasonably withheld or withdrawn), hold directorships in public
companies, except only that the Board shall have the right to limit such
services as a director or such participation whenever the Board shall believe
that the time spent on such activities infringes in any material respect upon
the time required by Executive for the performance of his duties under this
Agreement or is otherwise incompatible with those duties.
3. COMPENSATION AND BENEFITS.
-------------------------
(a) Base Salary. Executive shall be paid a base salary at the rate of no
-----------
less than $520,000 per year to be reviewed annually by the Committee (the "Base
Salary"). Base Salary shall be payable in such manner and at such times as the
Company shall pay base salary to other executive employees.
(b) Existing Performance Accelerated Restricted Stock. Reference is made
-------------------------------------------------
to grant to the Executive of 12,500 shares of performance accelerated restricted
stock ("PARS") of the Company dated April 7, 1993 and the 12,500 PARS grant
dated April 13, 1992 (collectively, the "Existing PARS") issued under the
Company's 1989 Stock Incentive Plan, as amended (the "Waban 1989 Plan"). The
Existing PARS have been amended and restated, effective June 10, 1993, to
provide for Company, rather than divisional, performance goals by the Company.
Executive's April 7, 1993 PARS grant has been further amended and the 37,500
PARS grant effective June 10, 1993 has been amended to provide for accelerated
vesting based on revised corporate goals for fiscal 1995 and 1996. The
Executive's other existing PARS grants dated June 23, 1989 and April 11, 1991
shall remain in effect without modification or amendment.
(c) Intentionally omitted.
(d) Existing MIP Awards. Executive and the Company agree that Executive's
-------------------
existing award under the Company's Management Incentive Plan ("MIP") for fiscal
1994 (the "Existing MIP Award") shall be replaced by a new award as provided in
paragraph (e) below.
(e) New MIP Awards. Executive shall be eligible to receive awards under
--------------
MIP applicable to Executive. The goals, scope and conditions of any award shall
be established annually by mutual
-3-
<PAGE>
agreement between Executive and the Committee. In each fiscal year, Executive
shall be entitled to earn up to a specified percentage of his Base Salary as a
Target, or Maximum Award, as the case may be. For each fiscal year of the
Company commencing in fiscal year 1994, the Target Award shall equal 50% of
Executive's Base Salary, and the Maximum Award shall equal 80% of the
Executive's Base Salary, with the payment potential scaling from 0% to 80% of
Executive's Base Salary as established by the terms of the Award; provided,
--------
however, that in no event shall Executive's award under MIP for fiscal year 1994
- -------
under the above formula be less than the award Executive would have received had
Executive retained his Existing MIP Award, as adjusted to give effect to
Executive's Base Salary for fiscal 1994 as set forth in Section 3(a) of this
Agreement.
(f) New Company Options. The Committee has granted Executive non-
-------------------
statutory options under the Waban 1989 Plan (the "New Options"), for 75,000
shares of Stock, effective June 10, 1993.
(g) Qualified Plans. Executive shall be entitled during the Employment
---------------
Period to participate in the Company's tax-qualified retirement and profit-
sharing plans, if any, in accordance with the terms of those plans.
(h) Policies and Fringe Benefits. Executive shall be subject to Company
----------------------------
policies applicable to its executives generally and Executive shall be entitled
to receive all such fringe benefits as the Company shall from time to time make
available to other executives generally (subject to the terms of any applicable
fringe benefits plan).
4. TERMINATION OF EMPLOYMENT; IN GENERAL.
-------------------------------------
(a) The Company shall have the right to end Executive's employment at any
time and for any reason, with or without Cause.
(b) The Employment Period shall terminate when Executive becomes Disabled.
In addition, if by reason of Incapacity Executive is unable to perform his
duties for at least six continuous months, upon written notice by the Company to
Executive the Employment Period will be terminated for Incapacity.
(c) Whenever the Employment Period shall terminate, Executive shall resign
all offices or other positions he shall hold with the Company and any affiliated
corporations, including any position on the Board.
-4-
<PAGE>
5. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
(a) Certain Terminations Prior to January 25, 1997. If the Employment
----------------------------------------------
Period shall have terminated prior to January 25, 1997 (i) by reason of death,
Disability or Incapacity of Executive, (ii) by termination by the Company for
any reason other than Cause or (iii) by termination by Executive in the event
that either (A) Executive shall be removed from or fail to be reelected to the
offices of President, Chief Executive Officer, a Director and a member of the
Executive Committee of the Board (other than in connection with termination of
Executive's employment for Cause or by Executive's voluntary termination for
reasons not specified in this clause (iii) or (B) Executive is relocated more
than 40 miles from the current corporate headquarters of the Company, in either
case without his prior written consent (a "Specified Voluntary Termination",
which termination shall not constitute a voluntary termination for any purpose
of this Agreement), then all compensation and benefits for Executive shall be as
follows:
(i) For the longer of 24 months after such termination or until
January 25, 1997, the Company will continue to pay to Executive Base Salary
at the rate in effect at termination of employment. Base Salary shall be
paid for the first twelve months of the period without reduction for
compensation earned from other employment or self-employment, and shall
thereafter be reduced by such compensation earned from other employment or
self-employment.
(ii) Until the expiration of the period of Base Salary payments
described in (i) above, except to the extent that Executive shall obtain
the same from another employer or from self-employment, the Company will
provide such medical and hospital insurance, and term life insurance for
Executive and his family, comparable to the insurance provided for
executives generally, as the Company shall determine, and upon the same
terms and conditions as the same shall be provided for other Company
executives generally; provided, however, that in no event shall such
-------- -------
benefits or the terms and conditions thereof be less favorable to Executive
than those afforded to him as of the date of termination.
(iii) The Company will pay to Executive, without offset for
compensation earned from other employment or self-employment, the following
amounts under the Company's MIP applicable to Executive:
. First, if not already paid, any amounts to which Executive is entitled
under MIP for the fiscal year of the Company ended immediately prior
to Executive's
-5-
<PAGE>
termination of employment. These amounts will be paid at the same
time as other awards for such prior year are paid.
. Second, an amount equal to Executive's MIP Target Award for the year
of termination. This amount will be paid at the same time as other
MIP awards for the year of termination are paid.
In addition, the Company will pay to Executive such amounts as Executive
shall have deferred (but not received) under the Company's General Deferred
Compensation Plan in accordance with the provisions of that Plan.
(iv) Executive shall also be entitled to the benefits with respect to
any PARS and Stock Options of Executive held on the date of termination as
provided under the Waban 1989 Plan. In addition, Executive shall be
entitled to benefits under other Company plans, to the extent, if any,
therein provided in the circumstances.
(v) If termination occurs by reason of Incapacity or Disability,
Executive shall be entitled to such compensation, if any, as is payable
pursuant to the Company's long-term disability plan or any successor
Company disability plan. Any payments made to Executive under any long
term disability plan of the Company with respect to the salary continuation
period in clause (i) above shall be offset against such salary continuation
payments and to the extent not so offset, Executive shall promptly make
reimbursement payments to the Company of such disability payments.
(b) Certain Terminations on or after January 25, 1997. If the Employment
-------------------------------------------------
Period shall have terminated on or after January 25, 1997, (i) by reason of
Death, Disability or Incapacity of Executive or (ii) by termination by the
Company for any reason other than Cause or (iii) by termination by Executive in
respect of a Specified Voluntary Termination, then all compensation and benefits
for Executive shall be as follows:
(i) The Company will pay to Executive his then Base Salary for a
period of twelve months from the Date of Termination, which Base Salary
shall be reduced after six months for compensation earned from other
employment or self employment.
(ii) Until the expiration of the Period of Base Salary payments
described in (i) immediately above, except to the extent that Executive
shall obtain the same from another employer or from self-employment, the
Company will provide such medical and hospital insurance, and term life
insurance
-6-
<PAGE>
for Executive and his family, comparable to the insurance provided for
executives generally, as the Company shall determine, and upon the same
terms and conditions as the same shall be provided for executives
generally; provided, however, that in no event shall such benefits or the
--------- -------
terms and conditions thereof be less favorable to Executive then those
afforded to him as of the date of termination.
(iii) The Company will pay to Executive, without offset for
compensation earned from other employment or self-employment, the following
amounts under the Company's MIP applicable to Executive:
. First, if not already paid, any amounts to which Executive is entitled
under MIP for the fiscal year of the Company ended immediately prior
to Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
. Second, an amount equal to Executive's MIP Target Award for the year
of termination. This amount will be paid at the same time as other
MIP awards for the year of termination are paid.
In addition, the Company will pay to Executive such amounts as Executive
shall have deferred (but not received) under the Company's General Deferred
Compensation Plan in accordance with the provisions of that Plan.
(iv) Executive shall also be entitled to the benefits with respect to
any PARS and Stock Options of Executive held on the date of termination as
provided under the Waban 1989 Plan. In addition, Executive shall be
entitled to the benefits under other Company plans to the extent, if any,
therein provided in the circumstances.
(v) If termination occurs by reason of Incapacity or Disability,
Executive shall be entitled to such compensation, if any, as is payable
pursuant to the Company's long-term disability plan or any successor
Company disability plan. Any payments made to Executive under any long
term disability plan of the Company with respect to the salary continuation
period in clause (i) above shall be offset against such salary continuation
payments and to the extent not so offset, Executive shall promptly make
reimbursement payments to the Company of such disability payments.
(c) Certain Voluntary Terminations; Termination for Cause; Violation of
-------------------------------------------------------------------
Certain Agreements. If, prior to, on, or after January 25, 1997 Executive
- ------------------
should end his employment voluntarily
-7-
<PAGE>
or if the Company should end Executive's employment for Cause, or,
notwithstanding (a) or (b) above, if Executive should violate the protected
persons or noncompetition provisions of Section 6 to the extent then applicable,
all compensation and benefits otherwise payable pursuant to this Agreement shall
cease, other than (x) such amounts as Executive shall have deferred (but not
received) under the Company's General Deferred Compensation Plan in accordance
with the provisions of that Plan, (y) any benefits to which Executive may be
entitled with respect to any PARS and Stock Options held on such date, in each
case, as provided under the Waban 1989 Plan and (z) any benefits to which
Executive may be entitled under other Company plans to the extent, if any,
therein provided in the circumstances. The Company does not waive any rights it
may have for damages or for injunctive relief.
(d) Benefits Upon Change of Control. Following a Change of Control (as
-------------------------------
defined in the Change of Control Agreement), any rights of Executive under this
Agreement or any other agreement or plan with respect to uncompleted MIP periods
shall be governed solely by the Change of Control Agreement. Upon a termination
constituting Qualified Termination (as defined in the Change of Control
Agreement), all rights of Executive with respect to salary continuation, life
insurance, medical insurance and disability benefits shall be governed solely by
the Change of Control Agreement unless Executive shall elect to have all such
rights governed by the applicable terms of this Agreement (including a
determination of whether the termination was voluntary or involuntary), in
which case the Change of Control Agreement shall have no effect as to such
rights (upon such election, the nature of the termination, e.g. voluntary,
involuntary or for Specified Voluntary Termination, shall be determined by
reference to this Agreement and shall not be determined by reference to the
classification of the termination under the Change of Control Agreement). To be
effective, written notice of such election must be furnished by Executive to the
Company within seven days following the Qualified Termination.
6. AGREEMENT NOT TO SOLICIT OR COMPETE.
-----------------------------------
(a) Upon the termination of employment at any time, then for a period of
two years after the termination of the Employment Period, Executive shall not
under any circumstances employ, solicit the employment of, or accept unsolicited
the services of, any "protected person" or recommend the employment of any
"protected person" to any other business organization. A "protected person"
shall be a person known by Executive (i) to be employed by the Company or its
Subsidiaries or (ii) to have been employed by Company or its Subsidiaries within
six months prior to the commencement of conversations with such person with
respect to employment.
-8-
<PAGE>
As to (i) each "protected person" to whom the foregoing applies, (ii) each
limitation on (A) employment, (B) solicitation and (C) unsolicited acceptance of
services of each "protected person" and (iii) each month of the period during
which the provisions of this Subsection (a) apply to each of the foregoing, the
provisions set forth in this Subsection (a) are deemed to be separate and
independent agreements and in the events of unenforceable agreement shall be
deemed automatically deleted from the provisions hereof and such deletion shall
not affect the enforceability of any other provision of this Subsection (a) or
any other term of this Agreement.
(b) During the course of his employment, Executive has learned many trade
secrets of the Company and has had access to confidential information and
business plans for the Company. Therefore, if Executive should end his
employment voluntarily at any time prior to January 25, 1997, including by
reason of retirement or disability, or if the Company should end Executive's
employment at any time for Cause prior to January 25, 1997, then for a period of
two years thereafter, Executive will not engage, either as a principal,
employee, partner, consultant or investor (other than a less-than-1% stock
interest in a corporation), in a business which is a competitor of the Company
(a "Competitive Business"). The foregoing noncompetition provision shall not
apply to any such voluntary or any other termination on or after January 25,
1997. A business shall be deemed a Competitive Business if and only if it shall
then be so regarded by retailers or wholesalers generally, or if it shall
operate home improvement warehouse stores (such as Home Depot, Builders Square,
Lowe's or Home Quarters) or warehouse wholesale clubs (such as Sams, Price Club,
Costco or Pace). Nothing herein shall restrict the right of Executive to engage
in a business that operates exclusively conventional or full mark-up department
stores or general merchandise discount department stores. In addition, if
during a period of salary continuation under Section 5(a)(i) or 5(b)(i)
following Executive's termination by the Company for any reason other than
Cause, Executive so engages in a Competitive Business (whether or not the
provisions of this paragraph (b) are otherwise then applicable to Executive),
Executive's rights to any further salary continuation or benefits continuation
under Sections 5(a)(i) and 5(a)(ii) and 5(b)(i) and 5(b)(ii) shall terminate.
Executive agrees that if, at any time, pursuant to action of any court,
administrative or governmental body or other arbitral tribunal, the operation of
any part of this paragraph shall be determined to be unlawful or otherwise
unenforceable, then the coverage of this paragraph shall be deemed to be
restricted as to duration, geographical scope or otherwise, to the extent, and
only to the extent, necessary to make this paragraph lawful and enforceable in
the particular jurisdiction in which such determination is made.
-9-
<PAGE>
(c) If the Employment Period terminates, Executive agrees (i) to notify
the Company promptly upon his securing employment or becoming self-employed
during any period when Executive's compensation from the Company shall be
subject to reduction or his benefits provided by the Company shall be subject to
termination as provided in Section 5 and (ii) to furnish to the Company written
evidence of his compensation earned from any such employment or self-employment
as the Company shall from time to time reasonably request. In addition, upon
termination of the Employment Period for any reason other than the death of
Executive, Executive shall immediately return all written trade secrets,
confidential information and business plans of the Company and shall execute a
certificate certifying that he has returned all such items in his possession or
under his control.
7. ASSIGNMENT. The rights and obligations of the Company shall enure to
----------
the benefit of and shall be binding upon the successors and assigns of the
Company. The rights and obligations of Executive are not assignable except only
that payments payable to him after his death shall be made by devise or descent.
8. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given by mailing the same by certified or
registered mail, return receipt requested, postage prepaid. If sent to the
Company the same shall be mailed to the Company at One Mercer Road, Natick,
Massachusetts 01701, Attention: Chairman of the Board of Directors, or other
such address as the Company may hereafter designate by notice to Executive; and
if sent to Executive, the same shall be mailed to Executive at 8 Lands End
Lane, Sudbury, Massachusetts 01776 or at such other address as Executive may
hereafter designate by notice to the Company.
9. WITHHOLDING. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
10. GOVERNING LAW. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be governed by and construed in accordance with the
domestic substantive laws of The Commonwealth of Massachusetts without giving
effect to any choice or conflict of laws rule or provision that would cause the
application of the domestic substantive laws of any other jurisdiction.
11. ARBITRATION. In the event that there is any claim or dispute arising
-----------
out of or relating to this Agreement, or the breach thereof, and the parties
hereto shall not have resolved
-10-
<PAGE>
such claim or dispute within 60 days after written notice from one party to the
other setting forth the nature of such claim or dispute, then such claim or
dispute shall be settled exclusively by binding arbitration in Boston,
Massachusetts in accordance with the Commercial Arbitration Rules of the
American Arbitration Association by an arbitrator mutually agreed upon by the
parties hereto or, in the absence of such agreement, by an arbitrator selected
according to such Rules. Notwithstanding the foregoing, if either the Company
or Executive shall request, such arbitration shall be conducted by a panel of
three arbitrators, one selected by the Company, one selected by Executive and
the third selected by agreement of the first two, or, in the absence of such
agreement, in accordance with such Rules. Judgment upon the award rendered by
such arbitrator(s) shall be entered in any Court having jurisdiction thereof
upon the application of either party.
12. LEGAL FEES. The Company will pay the reasonable fees and expenses of
----------
Executive's legal counsel in connection with Executive's entering into this
Agreement.
13. ENTIRE AGREEMENT. This Agreement, including Exhibits, supersedes all
----------------
prior written or oral agreements between the Company and Executive and
represents the entire agreement between the parties relating to the terms of
Executive's employment by the Company, except the Change of Control Agreement.
/s/ Herbert J. Zarkin
-----------------------------------
Executive
WABAN INC.
By: /s/ Sumner Feldberg
-------------------------------
Chairman of the Board
-11-
<PAGE>
EXHIBIT A
---------
Certain Definitions
- -------------------
In this Agreement, the following terms shall have the following meanings:
(a) "Base Salary" means, for any period, the amount described in Section
3(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Executive Compensation Committee of the Board.
(d) "Cause" means dishonesty by Executive in the performance of his
duties, conviction of a felony (other than a conviction arising solely under a
statutory provision imposing criminal liability upon Executive on a per se
--- --
basis due to the Company offices held by Executive, so long as any act or
omission of Executive with respect to such matter was not taken or omitted in
contravention of any applicable policy or directive of the Board), gross neglect
of duties (other than as a result of Disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
(e) "Date of Termination" means the date on which Executive's employment
is terminated
(f) "Disability" has the meaning given it in the Company's long-term
disability plan. Executive's employment shall be deemed to be terminated for
Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(g) "Incapacity" means a disability (other than Disability within the
meaning of (f) above) or other impairment of health that renders Executive
unable to perform his duties to the reasonable satisfaction of the Committee.
(h) "Stock" means the common stock, $0.01 par value, of the Company.
(i) "Subsidiary" means any corporation in which the Company owns, directly
or indirectly, 50 percent or more of the total combined voting power of all
classes of stock.
A-1
<PAGE>
CHANGE OF CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED AGREEMENT between Waban Inc., a Delaware
corporation (the "Company"), and Herbert J. Zarkin ("Executive"), dated as of
May 25, 1993.
Executive is a key executive of the Company or a Subsidiary and an integral
part of its management.
The Company recognizes that the possibility of a change of control of the
Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following a change of control of
the Company and to assure Executive of certain other benefits upon a change of
control.
In consideration of Executive's continued employment with the Company or a
Subsidiary and other good and valuable consideration, the parties agree that
Executive's present Change of Control Severance Agreement dated as of June 23,
1989 shall be amended and restated to read as follows:
1. Benefits Upon Change of Control.
-------------------------------
1.1. In General. Within 30 days following a Change of Control, whether or
----------
not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Waban Inc.
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of Control
occurs;
1.2. Benefits Following Qualified Termination of Employment. Executive
------------------------------------------------------
shall be entitled to the following benefits upon a Qualified Termination:
(a) Within 30 days following the Date of Termination, the Company shall
pay to Executive the following in a lump sum:
(i) an amount equal to two times Executive's Base Salary for one year
at the rate in effect immediately prior to the Date of Termination or
the Change of Control, plus the accrued and unpaid portion of
<PAGE>
Executive's Base Salary through the Date of Termination. Any payments
made to Executive under any long term disability plan of the Company
with respect to the two years following termination of employment
shall be offset against such two times Base Salary payment. Executive
shall promptly make reimbursement payments to the Company to the
extent any such disability payments are received after the Base Salary
payment.
(ii) an amount equal to two times Executive's automobile allowance for
one year at the rate in effect immediately prior to the Date of
Termination or the Change of Control, plus any portion of Executive's
auto allowance payable but unpaid through the Date of Termination;
provided, that no payment shall be due under this subparagraph (iii)
--------
if Executive is entitled to use of an automobile under paragraph
1.2(c) below.
(b) Until the second anniversary of the Date of Termination, the Company
shall maintain in full force and effect for the continued benefit of Executive
and his family all life insurance, medical insurance and disability plans and
programs in which Executive was entitled to participate immediately prior to the
Change of Control, provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that Executive is ineligible to participate in such plans or programs, the
Company shall arrange upon comparable terms to provide Executive with benefits
substantially similar to those which he is entitled to receive under such plans
and programs. Notwithstanding the foregoing, the Company's obligations
hereunder with respect to life, medical or disability coverage or benefits shall
be deemed satisfied to the extent (but only to the extent) of any such coverage
or benefits provided by another employer.
1.3. Coordination With Certain Tax Rules. Payments under Sections 1.1 and
-----------------------------------
1.2 shall be made without regard to whether the deductibility of such payments
(or any other payments to or for the benefit of Executive) would be limited or
precluded by Internal Revenue Code Section 280G and without regard to whether
such payments (or any other payments) would subject Executive to the federal
excise tax levied on certain "excess parachute payments" under Internal Revenue
Code Section 4999; provided , that if the total of all payments to or for the
--------
benefit of Executive, after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
- 2 -
<PAGE>
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by Coopers & Lybrand or by such other certified
public accounting firm as the Executive Compensation Committee of the Company's
Board of Directors may designate prior to a Change of Control. In the event of
any underpayment or overpayment under Sections 1.1 or 1.2, as determined by
Coopers & Lybrand (or such other firm as may have been designated in accordance
with the preceding sentence), the amount of such underpayment or overpayment
shall forthwith be paid to Executive or refunded to the Company, as the case may
be, with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
-------------------------------------------------------------------
Withholding.
- -----------
2.1. Noncompetition. Upon a Change of Control, any agreement by Executive
--------------
not to engage in competition with the Company subsequent to the termination of
his employment, whether contained in an employment contract or other agreement,
shall no longer be effective.
2.2. No Duty to Mitigate Damages. Executive's benefits under this
---------------------------
Agreement shall be considered severance pay in consideration of his past service
and his continued service from the date of this Agreement, and his entitlement
thereto shall neither be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
2.3. Other Severance Payments. Following a Change of Control, any rights
------------------------
of Executive under this Agreement or any other agreement or plan with respect to
uncompleted MIP periods shall be governed solely by this Agreement. Upon a
termination constituting Qualified Termination (as defined in this Agreement),
all rights of Executive with respect to salary continuation, life insurance,
medical insurance and disability benefits shall be governed solely by this
Agreement, unless Executive shall elect to have all such rights governed by the
applicable terms of his Employment Agreement determination of whether the
termination was voluntary or in which case this Agreement shall have no effect
as to such rights (upon such election, the nature of the termination, e.g.
voluntary, involuntary or Specified Voluntary Termination, shall be determined
by reference to the Employment Agreement and shall not be determined by
reference to the classification of the
- 3 -
<PAGE>
termination under this Agreement). To be effective, written notice of such
election must be furnished by Executive to the Company within seven days
following the Qualified Termination.
2.4. Withholding. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of his employment during a Standstill Period is for Cause or other
than for good reason (as defined in paragraph (k) of Exhibit A) or in obtaining
any right or benefit to which Executive is entitled under this Agreement. Any
amount payable under this Agreement that is not paid when due shall accrue
interest at the base rate as from time to time in effect at the First National
Bank of Boston, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
---------------------
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attention: Vice President-Finance
To Executive: At his home address,
as last shown on the
records of the Company
- 4 -
<PAGE>
7. Severability. In the event that any provision of this Agreement
------------
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in
any event the remaining provisions shall remain in full force and effect to
the fullest extent permitted by law.
8. General Provisions.
------------------
8.1. Binding Agreement. This Agreement shall be binding upon and inure
-----------------
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to him hereunder, benefits would still be provided to his
family hereunder or rights would still be exercisable by him hereunder as if
he had continued to live, such amounts shall be paid to Executive's estate,
such benefits shall be provided to Executive's family and such rights shall
remain exercisable by Executive's estate in accordance with the terms of this
Agreement. This Agreement shall not otherwise be assignable by Executive.
8.2. Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
(where the Company is not the surviving corporation), lease or otherwise, by
agreement in form and substance satisfactory to Executive, to assume expressly
this Agreement. If the Company shall not obtain such agreement prior to the
effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in
paragraph (k) of Exhibit A) under this Agreement. This Agreement shall not
otherwise be assignable by the Company.
8.3. Amendment or Modification; Waiver. This Agreement may not be
---------------------------------
amended unless agreed to in writing by Executive and the Company. No waiver
by either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4. Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
8.5. Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from
the Company or any Subsidiary except the right specifically stated herein to
certain severance and other benefits, and shall not limit the
- 5 -
<PAGE>
Company's (or a Subsidiary's) right to change the terms of or to terminate
Executive's employment, with or without Cause, at any time other than during a
Standstill Period, except as may be otherwise provided in a written employment
agreement between the Company (or a Subsidiary) and Executive.
8.6. Termination of Agreement Outside of Standstill Period. This
-----------------------------------------------------
Agreement shall be automatically terminated upon the termination of
Executive's employment for any reason, whether voluntary or involuntary, at
any time other than during a Standstill Period.
8.7. Prior Agreement. This Agreement shall supersede and replace any
---------------
prior change of control severance agreement between the Company or any of its
subsidiaries, or any predecessor, and Executive.
8.8. Binding on Successors. This Agreement shall be binding on any
---------------------
successor to all or substantially all of the Company's business or assets.
8.9. Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WABAN INC.
By /s/ Sumner Feldberg
--------------------------
Chairman of the Board
/s/ Herbert J. Zarkin
--------------------------
Executive
- 7 -
<PAGE>
EXHIBIT A
---------
Definitions
-----------
The following terms as used in this Agreement shall have the following
meanings:
(a) "Base Salary" shall mean Executive's annual base salary, exclusive of
any bonus or other benefits he may receive.
(b) "Cause" shall mean dishonesty by Executive in the performance of his
duties, conviction of a felony (other than a conviction arising solely under a
statutory provision imposing criminal liability upon Executive on a per se basis
--- --
due to the Company offices held by Executive, so long as any act or omission of
Executive with respect to such matter was not taken or omitted in contravention
of any applicable policy or directive of the Board), gross neglect of duties
(other than as a result of Disability or death), or conflict of interest which
conflict shall continue for 30 days after the Company gives written notice to
Executive requesting the cessation of such conflict.
In respect of any termination during a Standstill Period, Executive shall
not be deemed to have been terminated for Cause until the later to occur of (i)
the 30th day after notice of termination is given and (ii) the delivery to
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the Company's directors at a meeting called and held for
that purpose (after reasonable notice to Executive), and at which Executive
together with his counsel was given an opportunity to be heard, finding that
Executive was guilty of conduct described in the definition of "Cause" above,
and specifying the particulars thereof in detail; provided, however, that the
-------- -------
Company may suspend Executive and withhold payment of his Base Salary from the
date that notice of termination is given until the earliest to occur of (a)
termination of Executive for Cause effected in accordance with the foregoing
procedures (in which case Executive shall not be entitled to his Base Salary for
such period), (b) a determination by a majority of the Company's directors that
Executive was not guilty of the conduct described in the definition of "Cause"
above (in which case Executive shall be reinstated and paid any of his
previously unpaid Base Salary for such period), or (c) the 90th day after notice
of termination is given (in which case Executive shall be reinstated and paid
any of his previously unpaid Base Salary for such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit B.
(d) "Company" shall mean Waban Inc. or any successor.
- 8 -
<PAGE>
(e) "Current Title" shall mean Executive's title on the date 180 days prior
to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's long-term
disability plan. Executive's employment shall be deemed to be terminated for
Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(h) Intentionally omitted.
(i) "Executive" shall have the meaning set forth in the first paragraph of
this Agreement.
(j) "Incapacity" shall mean a disability (other than Disability within the
meaning of the immediately preceding definition) or other impairment of health
that renders Executive unable to perform his duties to the satisfaction of the
Executive Compensation Committee of the Board of Directors of the Company. If
by reason of Incapacity Executive is unable to perform his duties for at least
six months in any 12-month period, upon written notice by the Company the
employment of Executive shall be deemed to have terminated by reason of
Incapacity.
(k) "Qualified Termination" shall mean the termination of Executive's
employment during a Standstill Period (1) by the Company other than for Cause,
or (2) by Executive for good reason, or (3) by reason of death, Incapacity or
Disability.
For purposes of this definition, termination for "good reason" shall mean
the voluntary termination by Executive of his employment (A) within 120 days
after the occurrence without Executive's express written consent of any of the
events described in clauses (I), (II), (III), (IV), (V) or (VI) below, provided
that Executive gives notice to the Company at least 30 days in advance
requesting that the situation described in those clauses be remedied, and the
situation remains unremedied upon expiration of such 30-day period; (B) within
120 days after the occurrence without Executive's express written consent of the
events described in clause (VII) below, provided that Executive gives notice to
the Company at least 30 days in advance; or (C) upon occurrence of the events
described in clause (VIII) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to him of any duties inconsistent with his positions,
duties, responsibilities, reporting
- 9 -
<PAGE>
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change in
Executive's titles or offices as in effect immediately prior to a
Change of Control, or any removal of Executive from or any failure to
reelect him to such positions, except in connection with the
termination of Executive's employment by the Company for Cause or by
Executive other than for good reason; or any other action by the
Company which results in a diminishment in such position, authority,
duties or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Company promptly after
receipt of notice thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less than
100 percent of the rate of Base Salary paid to Executive in the
completed fiscal year immediately preceding the Change of Control, or
if Executive's total cash compensation opportunities, including salary
and incentives, for any fiscal year are less than 100 percent of the
total cash compensation opportunities made available to Executive in
the completed fiscal year immediately preceding the Change of Control,
unless any further reduction represents an overall reduction in the
rate of Base Salary paid or cash compensation opportunities made
available, as the case may be, to executives in the same
organizational level (it being the Company's burden to establish this
fact); or
(III) the failure of the Company to continue in effect any benefits or
perquisites, or any pension, life insurance, medical insurance or
disability plan in which Executive was participating immediately prior
to a Change of Control unless the Company provides Executive with a
plan or plans that provide substantially similar benefits, or the
taking of any action by the Company that would adversely affect
Executive's participation in or materially reduce Executive's benefits
under any of such plans or deprive Executive of any material fringe
benefit enjoyed by Executive immediately prior to a Change of Control,
unless the elimination or reduction of any such benefit, perquisite or
plan affects all other executives in the same organizational level (it
being the Company's burden to establish this fact); or
(IV) any purported termination of Executive's employment by the Company for
Cause during a Standstill Period which
- 10 -
<PAGE>
is not effected in compliance with paragraph (b) of this Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place where
Executive was located at the time of the Change of Control; or
(VI) any other breach by the Company of any provision of this Agreement; or
(VII) the Company sells or otherwise disposes of, in one transaction or a
series of related transactions, assets or earning power aggregating
more than 30 percent of the assets (taken at asset value as stated on
the books of the Company determined in accordance with generally
accepted accounting principles consistently applied) or earning power
of the Company (on an individual basis) or the Company and its
subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit B); or
(VIII) the voluntary termination by Executive of his employment (i) at any
time within one year after the Change of Control or (ii) at any time
during the second year after the Change of Control until the Company
(or a Subsidiary) offers Executive an employment contract having a
minimum two-year duration which provides Executive with substantially
the same title, responsibilities, annual and long-range compensation,
benefits and perquisites that he had immediately prior to the
Standstill Period. Notwithstanding the foregoing, the Board of
Directors of the Company may expressly waive the application of this
clause (VIII) if it waives the applicability of substantially similar
provisions with respect to all persons with whom the Company has a
written severance agreement (or may condition its application on any
additional requirements or employee agreements which such Board shall
in its discretion deem appropriate in the circumstances). The
determination of whether to waive or impose conditions on the
application of this clause (VIII) shall be within the complete
discretion of the Board of Directors of the Company but shall be made
prior to the Change of Control.
(l) "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
- 11 -
<PAGE>
(m) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power of
all classes of stock.
- 12 -
<PAGE>
EXHIBIT B
---------
Definition of Change of Control
-------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature that
would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") or in any other filing under the
Exchange Act; provided, however, that no transaction shall be deemed to be
-------- -------
a Change of Control (i) if the person or each member of a group of persons
acquiring control is excluded from the definition of the term "Person"
hereunder or (ii) unless the Committee shall otherwise determine prior to
such occurrence, if the Executive or an Executive Related Party is the
Person or a member of a group constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly-owned subsidiary of
the Company, or any employee benefit plan of the Company or such a
subsidiary becomes the owner of 20% or more of the Company's Common Stock
and thereafter individuals who were not directors of the Company prior to
the date such Person became a 20% owner are elected as directors pursuant
to an arrangement or understanding with, or upon the request of or
nomination by, such Person and constitute at least 1/4 of the Company's
Board of Directors; provided, however, that unless the Committee shall
-------- -------
otherwise determine prior to the acquisition of such 20% ownership, such
acquisition of ownership shall not constitute a Change of Control if the
Executive or an Executive Related Party is the Person or a member of a
group constituting the Person acquiring such ownership; or
(c) there occurs any solicitation or series of solicitations of
proxies by or on behalf of any Person other than the Company's Board of
Directors and thereafter individuals who were not directors of the Company
prior to the commencement of such solicitation or series of solicitations
are elected as directors pursuant to an arrangement or understanding with,
or upon the request of or nomination by, such Person and constitute at
least 1/4 of the Company's Board of Directors; or
- 13 -
<PAGE>
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date provided
for in such agreement, all or substantially all of the business and/or
assets of the Company shall be owned, leased or otherwise controlled by
another Person and (ii) individuals who are directors of the Company when
such agreement is executed shall not constitute a majority of the board of
directors of the survivor or successor entity immediately after the
effective date provided for in such agreement; provided, however, that
-------- -------
unless otherwise determined by the Committee, no transaction shall
constitute a Change of Control if, immediately after such transaction, the
Executive or any Executive Related Party shall own equity securities of any
surviving corporation ("Surviving Entity") having a fair value as a
percentage of the fair value of the equity securities of such Surviving
Entity greater than 125% of the fair value of the equity securities of the
Company owned by the Executive and any Executive Related Party immediately
prior to such transaction, expressed as a percentage of the fair value of
all equity securities of the Company immediately prior to such transaction
(for purposes of this paragraph ownership of equity securities shall be
determined in the same manner as ownership of Common Stock); and provided,
--------
further, that, for purposes of this paragraph (d), if such agreement
-------
requires as a condition precedent approval by the Company's shareholders of
the agreement or transaction, a Change of Control shall not be deemed to
have taken place unless and until such approval is secured (but upon any
such approval, a Change of Control shall be deemed to have occurred on the
date of execution of such agreement).
In addition, for purposes of this Exhibit B the following terms have the
meanings set forth below:
"Common Stock" shall mean the then outstanding Common Stock of the Company
plus, for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise. Notwithstanding the foregoing, the term Common Stock
shall not include shares of Preferred Stock or convertible debt or options or
warrants to acquire shares of Common Stock (including any shares of Common Stock
issued or issuable upon the conversion or exercise thereof) to the extent that
the Board of Directors of the Company shall expressly so determine in any future
transaction or transactions.
- 14 -
<PAGE>
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as such
term is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, as in effect on March
1, 1989; or
(ii) of which such Person would be the "beneficial owner" for purposes
of Section 16 of the Exchange Act and the rules of the Commission
promulgated thereunder, as in effect on March 1, 1989; or
(iii) which such Person or any of its affiliates or associates (as
such terms are defined in Rule 12b-2 promulgated by the Commission under
the Exchange Act, as in effect on March 1, 1989) has the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or
otherwise.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on March 1, 1989; provided, however, that the term "Person" shall
-------- -------
not include (a) any individuals who are descendants of Max Feldberg or Morris
Feldberg, (b) any relatives of the fourth degree of consanguinity or closer of
such descendants or (c) custodians, trustees or legal representatives of such
persons.
An "Executive Related Party" shall mean any affiliate or associate of the
Executive other than the Company or a Subsidiary of the Company. The terms
"affiliate" and "associate" shall have the meanings ascribed thereto in Rule
12b-2 under the Exchange Act (the term "registrant" in the definition of
"associate" meaning, in this case, the Company).
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
DATED - AS OF SEPTEMBER 29, 1993
BETWEEN ALLAN P. SHERMAN AND WABAN INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 29, 1993 between Allan P. Sherman of
Chestnut Hill, Massachusetts ("Executive") and Waban Inc., a Delaware
corporation (the "Company"), whose principal office is in Natick,
Massachusetts.
RECITALS
--------
The Company desires that Executive serve as President of its HomeBase
Division ("the Division") and Executive is willing to serve in such capacity.
The Company and Executive deem it desirable to enter into this Agreement.
AGREEMENT
---------
In consideration of the mutual agreements hereinafter contained, the
parties agree as follows:
1. EFFECTIVE DATE; TERM OF AGREEMENT; DEFINITIONS. This agreement
----------------------------------------------
shall become effective as of September 29, 1993 (the "Effective Date"). This
Agreement shall supersede any existing employment agreement between Executive
and the Company or any of its Subsidiaries. Notwithstanding the foregoing, the
Change of Control Severance Agreement between the Company and Executive of
even date herewith (the "Change of Control Agreement"), shall remain in full
force and effect. The employment shall continue on the terms provided herein
until January 27, 1996 and thereafter for an unspecified period until
terminated by either Executive or the Company, subject to earlier termination
as provided herein (such period of employment hereinafter called the
"Employment Period"). The terms defined in Exhibit A hereto are used herein as
so defined.
2. SCOPE OF EMPLOYMENT.
-------------------
(a) Nature of Services. Executive shall diligently perform the duties
------------------
and assume the responsibilities of President of the Division and such
additional executive duties and responsibilities as shall from time to time be
assigned to him by the President of the Company (the "President") or the
Board.
(b) Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote substantially all his working time and attention and
his best efforts to the performance of his duties and responsibilities under
this Agreement. However, Executive may (a) make any passive investments where
he is not obligated or required to, and shall not in fact, devote any
managerial efforts, (b) participate in charitable or community
-2-
<PAGE>
activities or in trade or professional organizations or (c) subject to
approval of the President or the Board, hold directorships in public
companies, except only that the President or the Board shall have the right to
limit such services as a director or such participation whenever the President
or Board shall believe that the time spent on such activities infringes in any
material respect upon the time required by Executive for the performance of
his duties under this Agreement or is otherwise incompatible with those
duties.
3. COMPENSATION AND BENEFITS.
-------------------------
(a) Base Salary. Executive shall be paid a base salary at the
-----------
annualized rate of not less than $400,000 per year, to be reviewed annually by
the Committee (the "Base Salary"). Base Salary shall be payable in such manner
and at such times as the Company shall pay base salary to other executive
employees.
(b) Existing Performance Accelerated Restricted Stock. Reference is
-------------------------------------------------
made to a grant to the Executive of 7,500 shares of Performance-Accelerated
Restricted Stock ("PARS") of the Company dated April 11, 1991 (the "1991
Grant"), the 5,000 share PARS grant dated April 13, 1992 (the "1992 Grant"),
the 5,000 share PARS grant dated April 7, 1993 and the 12,500 share PARS grant
dated June 10, 1993 (the "1993 Grants") issued under the Company's 1989 Stock
Incentive Plan, as amended (the "Waban 1989 Plan"). The 1991 Grant is hereby
amended to provide that the restricted shares subject to the grant shall vest in
accordance with the terms of such grant but in no event shall less than 5,000 of
such shares vest as of January 29, 1994. The 1992 Grant and the 1993 Grants are
hereby amended by substituting for the BJ's Wholesale Club division's goals, the
Division's goals for PARS granted to Divisional Executives in calendar 1992 and
1993, subject to further amendment by the Committee.
(c) MIP Awards. Executive shall be eligible to receive awards under
----------
the Company's Management Incentive Plan ("MIP") applicable to Executive. In
each fiscal year, Executive shall be eligible to earn up to a specified
percentage of his Base Salary as a Target Award or as a Maximum Award, as the
case may be. The Target Award shall equal 30% of Executive's Base Salary, and
the Maximum Award shall equal 60% of Executive's Base Salary. Immediately
prior to Executive's entering into an escrow agreement for the purchase of a
home in southern California, but not later than December 31, 1993, if then
employed hereunder, Executive shall receive payment of $94,615 (which equals
his Target Award for fiscal 1994). Such payment shall be credited against
amounts, if any, subsequently payable with respect to Executive's fiscal 1994
MIP Award, which shall be based on the performance of BJ's Wholesale Club and
shall not give recognition to Executive's increase in base salary on the
Effective Date.
-3-
<PAGE>
(d) Policies and Fringe Benefits. Executive shall be subject to
-----------------------------
Company policies applicable to its executives generally and Executive shall be
entitled to receive all such fringe benefits as the Company shall from time to
time make available to other executives generally (subject to the terms of the
applicable fringe benefits plan).
(e) Relocation and Real Estate Assistance. The Company undertakes the
-------------------------------------
following:
(i) The Company shall retain, at its expense, a third party
relocation firm to arrange for appraisals of the fair market value of
Executive's residence in Chestnut Hill, Massachusetts and to offer to purchase
such residence for cash at the average of the appraised values so obtained,
subject to customary conditions.
(ii) The Company shall reimburse Executive for all relocation costs
reasonably incurred by Executive. In the case of Executive's existing
residence in Chestnut Hill and the residence first purchased by Executive in
California, in addition to the Company's undertaking in paragraph (i) above,
the Company's obligations shall be limited to reimbursing Executive for legal
costs, any transfer taxes and other normal and reasonable costs (including,
but not limited to, packing and moving expenses, and other expenses covered
under the Company's existing relocation policy) incurred by Executive upon any
such sale and purchase.
(iii) The Company shall pay Executive an additional $50,000 as a
relocation bonus with respect to all other relocation expenses which might be
incurred by Executive, including any legal expenses in negotiating this
Agreement. Such payment shall be made in conjunction with the Company's
guaranteed MIP payment under Section 3(c).
(iv) Upon Executive's entering into an escrow agreement for the
first purchase by Executive of a residence in Southern California during the
Employment Period, the Company will pay Executive an additional $100,000
relocation bonus.
(v) The Company will pay Executive's temporary living expenses
in California until the earlier of (a) March 31, 1994, or (b) Executive's
establishment of a permanent residence is California.
(vi) The Company shall make additional "gross-up" payments to
Executive in the amount of any additional federal or state income taxes
payable by Executive solely as a result of the Company's payments under
clauses (ii) and (v) above. The Company will not be obligated to gross-up
-4-
<PAGE>
any other payments or consideration it provides to Executive under this
Agreement.
(f) Housing Loan. To facilitate Executive's relocation from
------------
Massachusetts to California, the Company will, at the closing of the first
purchase by Executive of a residence in California, loan Executive $700,000.
The loan shall not bear interest and shall mature on January 25, 2001. Unless
the loan shall have earlier been accelerated, the Company shall forgive
$100,000 principal amount of the loan on each of January 25, 1995, 1996, 1997,
1998, 1999, 2000 and 2001, whether or not Executive shall then be employed
hereunder. The Company shall also pay for Executive's benefit a total of
$190,000 of federal and state withholding taxes (the "Loan Cash Payment").
The Loan Cash Payment shall be paid in installments on one or more dates of
forgiveness of principal in an amount proportionate to the amount of the Loan
which Executive recognizes as forgiven on his federal tax return for any year
(so that the Loan Cash Payment would be $27,142.86 in each of seven years if
such tax recognition occurred in equal annual amounts over seven years). The
loan shall automatically be accelerated and become due 60 days after
termination in the event Executive shall voluntarily terminate his employment
hereunder or shall be terminated by the Company for Cause. The loan and the
Company's obligation to make Loan Cash Payments shall remain in effect
following termination for any other reason, including but not limited to a
Qualified Termination pursuant to the Change of Control Agreement. The loan
shall be secured by a valid and perfected first or second mortgage on the
first residence purchased by Executive in California. The aggregate face
amount of all indebtedness secured by mortgages on such residence shall not
exceed the purchase price of such residence. The loan shall be evidenced by a
note, which note and mortgage shall have terms and conditions reasonably
satisfactory to the Company. The net proceeds from any sale of such residence
shall be applied to reduce or eliminate the loan and such net proceeds shall
be subsequently reloaned by the Company to Executive on a similar
secured basis by the Company at the closing of Executive's subsequent purchase
of another residence within or outside California. Such reloan shall have the
same terms and maturity date as the original loan and shall be treated as
constituting part of the original loan, if any part of the original loan is
then outstanding. Upon a reloan, Executive shall receive credit for any debt
forgiveness and Loan Cash Payments which would have occurred had the loan been
continuously outstanding. Such repayment and relending provisions shall apply
to all subsequent sales and purchases of residences by Executive.
The Company's obligation under this Subsection 3(f) shall terminate if
Executive does not close on the purchase of a home in Southern California on
or before May 31, 1994.
-5-
<PAGE>
4. TERMINATION OF EMPLOYMENT; IN GENERAL.
-------------------------------------
(a) The Company shall have the right to end the Employment Period (and
thereby terminate Executive's employment) at any time, with or without notice,
and for any reason with or without Cause.
(b) Unless otherwise prohibited by law, the Employment Period shall
terminate when Executive becomes Disabled. In addition, if by reason of
Incapacity Executive is unable to perform his duties for at least six
continuous months, upon written notice by the Company to Executive the
Employment Period will be terminated for Incapacity.
(c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions he shall hold with the Company and any
affiliated corporations, including any position on the Board.
5. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
(a) Certain Terminations. If the Employment Period shall have
--------------------
terminated prior to, on or after January 27, 1996 (i) by reason of death,
Disability or Incapacity of Executive, or (ii) by termination by the Company
for any reason other than Cause, then all compensation and benefits for
Executive shall be as follows:
(i) For 52 weeks after such termination, or until January 28, 1996
(in the case of termination occurring prior to January 28, 1995), the Company
will continue to pay to Executive Base Salary at the rate in effect at
termination of employment. Base Salary shall be paid for the first three
months of the period without reduction for compensation earned from other
employment or self-employment, and shall thereafter be reduced by such
compensation earned from other employment or self-employment.
(ii) Until the expiration of the period of Base Salary payments
described in (i) above, except to the extent that Executive shall obtain the
same from another employer or from self-employment, the Company will provide
such medical and hospital insurance and term life insurance for Executive and
his family, comparable to the insurance provided for executives generally, as
the Company shall determine, and upon the same terms and conditions as the
same shall be provided for other Company executives generally; provided,
--------
however, that in no event shall such benefits or the terms and conditions
- -------
thereof be less favorable to Executive than those afforded to him as of the
date of termination.
-6-
<PAGE>
(iii) The Company will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under the Company's MIP applicable to Executive:
. First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year of the Company ended
immediately prior to Executive's termination of employment. These
amounts will be paid at the same time as other awards for such prior
year are paid.
. Second, an amount equal to Executive's MIP Target Award for the year
of termination, prorated for Executive's period of service during
such year prior to termination. This amount will be paid at the same
time as other MIP awards for the year of termination are paid.
In addition, the Company will pay to Executive such amounts as Executive
shall have deferred (but not received) under the Company's General
Deferred Compensation Plan in accordance with the provisions of that
Plan.
(iv) Executive shall also be entitled to the benefits with respect
to any PARS and Stock Options of Executive held on the date of
termination, only to the extent provided under the Waban 1989 Plan in the
circumstances. In addition, Executive shall be entitled to benefits under
other Company plans only to the extent, if any, therein provided in the
circumstances.
(v) If termination occurs by reason of Incapacity or Disability,
Executive shall be entitled to such compensation, if any, as is payable
pursuant to the Company's long-term disability plan or any successor
Company disability plan. Any payments made to Executive under any long
term disability plan of the Company with respect to the salary
continuation period in clause (i) above shall be offset against such
salary continuation payments and to the extent not so offset, Executive
shall promptly make reimbursement payments to the Company of such
disability payments.
(b) Certain Voluntary Terminations; Termination for Cause; Violation of
------------------------------------------------------------------
Certain Agreements. If Executive should end his employment voluntarily at any
- ------------------
time prior to, on or after January 27, 1996 or if the Company should at any
time end Executive's employment for Cause, or, notwithstanding (a) above, if
Executive should at any time violate the provisions of Section 6, all
compensation and benefits otherwise payable pursuant to this Agreement shall
cease, other than (x) such
-7-
<PAGE>
amounts as Executive shall have deferred (but not received) under the Company's
General Deferred Compensation Plan in accordance with the provisions of that
Plan, (y) any benefits to which Executive may be entitled with respect to any
PARS and Stock Options held on such date only as provided under the Waban 1989
Plan in the circumstances and (z) any benefits to which Executive may be
entitled under other Company plans only to the extent, if any, therein
provided in the circumstances. The Company does not waive any rights,
including rights it may have for damages or for injunctive relief.
(c) Benefits Upon Change of Control. Upon a Change of Control (as
-------------------------------
defined in the Change of Control Agreement) any stock options then held by
Executive shall automatically become fully exercisable and all restrictions and
conditions, including vesting conditions, applicable to any shares of restricted
stock (including PARS) then held by Executive shall be deemed automatically
waived. Following a Change of Control (as defined in the Change of Control
Agreement), any rights of Executive under this Agreement or any other agreement
or plan with respect to uncompleted MIP or LRMIP periods or cycles shall be
governed solely by the Change of Control Agreement. Upon a Qualified
Termination (as defined in the Change of Control Agreement), all rights of
Executive with respect to salary continuation, life insurance, medical
insurance and disability benefits and auto allowance or auto lease benefits
shall be governed solely by the Change of Control Agreement but Sections 3(e)
and 3(f) hereof shall remain in effect notwithstanding the occurrence of a
Change of Control or Qualified Termination.
6. AGREEMENT NOT TO SOLICIT OR COMPETE.
-----------------------------------
(a) Upon the termination of employment at any time for any reason, then
for a period of two years after the termination of the Employment Period,
Executive shall not under any circumstances employ, solicit the employment of,
or accept unsolicited the services of, any "protected person" or recommend the
employment of any "protected person" to any other business organization. A
"protected person" shall be a person known by Executive (i) to be employed by
the Company or its Subsidiaries or (ii) to have been employed by the Company or
its Subsidiaries within six months prior to the commencement of conversations
with such person with respect to employment.
As to (i) each "protected person" to whom the foregoing applies, (ii) each
limitation on (A) employment, (B) solicitation and (C) unsolicited acceptance
of services of each "protected person" and (iii) each month of the period during
which the provisions of this Subsection (a) apply to each of the foregoing, the
provisions set forth in this Subsection (a) are deemed to be separate and
independent agreements and in the events of unenforceable agreement shall be
deemed automatically deleted
-8-
<PAGE>
from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this Subsection (a) or any other term
of this Agreement.
(b) During the course of his employment, Executive has learned many
trade secrets of the Company and has had access to confidential information
and business plans for the Company. Therefore, if Executive should end his
employment voluntarily at any time prior to, on or after January 27, 1996,
including by reason of retirement or disability, or if the Company should end
Executive's employment at any time for Cause, then for a period of two years
thereafter, Executive will not engage, either as a principal, employee,
partner, consultant or investor (other than a less-than-1% stock interest in a
corporation), in a business which is a competitor of the Company (a
"Competitive Business"). A business shall be deemed a Competitive Business if
and only if it shall then be so regarded by retailers or wholesalers
generally, or if it shall operate home improvement warehouse stores (such as
Home Depot, Builders Square, Lowe's or Home Quarters) or warehouse clubs (such
as Sams, Price Club, Costco or Pace). Nothing herein shall restrict the right
of Executive to engage in a business that operates exclusively conventional or
full mark-up department stores or general merchandise discount department
stores. In addition, if during a period of salary continuation under Section
5(a)(i) or 5(b)(i) following Executive's termination by the Company for any
reason other than Cause, Executive so engages in a Competitive Business,
Executive's rights to any further salary continuation or benefits continuation
under Sections 5(a)(i) and 5(a)(ii) shall terminate. Executive agrees that if,
at any time, pursuant to action of any court, administrative or governmental
body or other arbitral tribunal, the operation of any part of this paragraph
shall be determined to be unlawful or otherwise unenforceable, then the
coverage of this paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the extent, and only to the extent,
necessary to make this paragraph lawful and enforceable in the particular
jurisdiction in which such determination is made.
(c) During the Employment Period and upon termination for any reason,
Executive shall keep confidential and not disclose Company plans or other
confidential or proprietary information of the Company to any unauthorized
person unless legally required to do so, in which case Executive will first
notify the Company and cooperate with the Company to obtain a judicial or
administrative order protecting such confidentiality. If the Employment Period
terminates, Executive agrees (i) to notify the Company promptly upon his
securing employment or becoming self-employed during any period when
Executive's compensation from the Company shall be subject to reduction or his
benefits provided by the Company shall be subject to termination as provided
in Section 5 and (ii) to furnish to the Company written evidence of his
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<PAGE>
compensation earned from any such employment or self-employment as the Company
shall from time to time reasonably request. In addition, upon termination of
the Employment Period for any reason other than the death of Executive,
Executive shall immediately return all Company property and all written trade
secrets, confidential information and business plans of the Company and shall
execute a certificate certifying that he has returned all such items in his
possession or under his control.
7. ASSIGNMENT. The rights and obligations of the Company (including,
----------
without limitation, the provisions of Section 3(f)) shall enure to the benefit
of and shall be binding upon the successors and assigns of the Company. The
rights and obligations of Executive are not assignable except only that
payments payable to him after his death shall be made by devise or descent.
8. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given by mailing the same by certified or
registered mail, return receipt requested, postage prepaid. If sent to the
Company the same shall be mailed to the Company at One Mercer Road, Natick,
Massachusetts 01701, Attention: President, or such other address as the
Company may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at 228 Allendale Road,
Apartment 2D, Chestnut Hill, Massachusetts 02167 or at such other address as
Executive may hereafter designate by notice to the Company.
9. WITHHOLDING. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
10. GOVERNING LAW. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be governed by and construed in accordance with the
domestic substantive laws of The Commonwealth of Massachusetts without giving
effect to any choice or conflict of laws rule or provision that would cause
the application of the domestic substantive laws of any other jurisdiction.
11. CONSENT TO JURISDICTION, ETC. Each party hereto (i) irrevocably
----------------------------
submits to the nonexclusive jurisdiction of the state courts of The
Commonwealth of Massachusetts and to the nonexclusive jurisdiction of the
United States District Court for the District of Massachusetts for the purpose
of any suit, action, or other proceeding arising out of or based upon this
Agreement or the subject matter hereof or in any way connected with or related
or incidental to the dealings of either party
-10-
<PAGE>
hereto in connection with any of the above; (ii) agrees that any such
proceeding shall be brought or maintained only in such courts; (iii) waives to
the extent not prohibited by applicable law, and agrees not to assert (by way
of motion, as a defense, or otherwise) in any such proceeding, any claim that
it or he is not subject personally to the jurisdiction of the above-named
courts, that it or he is immune from extraterritorial injunctive relief or
other injunctive relief, that its or his property is exempt or immune from
attachment or execution, that any such proceeding may not be properly brought
or maintained in one of the above-named courts, that any such proceeding
brought or maintained in one of the above-named courts should be dismissed on
grounds of forum non conveniens, should be transferred to any court other than
----- --- ----------
one of the above-named courts, or should be stayed by reason of the pendency
of some other proceeding in any court other than one of the above-named
courts, or that this Agreement or the subject matter hereof may not be
enforced in or by any of the above-named courts; (iv) agrees that service of
process in any such proceeding may be made in any manner permitted by the law
applicable in the court where any such proceeding is brought or maintained or
by registered or certified mail, return receipt requested, at its or his
principal place of business to its or his notice address for purposes of this
Agreement; (v) agrees that service of process made in accordance with clause
(iv) is reasonably calculated to give actual notice of any such proceeding;
and (vi) waives and agrees not to assert (by way of motion, as a defense, or
otherwise) in any such proceeding any claim that service of process made in
accordance with clause (iv) does not constitute good and sufficient service
of process.
12. SEVERABILITY. In the event that any provision of this Agreement
------------
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in
any event the remaining provisions shall remain in full force and effect to
the fullest extent permitted by law.
13. AMENDMENT OF MODIFICATION, WAIVER. This Agreement may not be amended
---------------------------------
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement shall be deemed a waiver of a subsequent
breach.
-11-
<PAGE>
14. ENTIRE AGREEMENT. This Agreement, including Exhibit A incorporated
----------------
herein, supersedes all prior written or oral agreements between the Company and
Executive and represents the entire agreement between the parties relating to
the terms of Executive's employment by the Company, except the Change of
Control Agreement.
/s/ Allan Sherman
-------------------------------
Executive
WABAN INC.
By: /s/ Herbert J. Zarkin
----------------------------
President
-12-
<PAGE>
EXHIBIT A
---------
Certain Definitions
- -------------------
In this Agreement, the following terms shall have the following meanings:
(a) "Base Salary" means, for any period, the amount described in Section
3(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Executive Compensation Committee of the Board.
(d) "Cause" means dishonesty by Executive in the performance of his
duties, conviction of a felony (other than a conviction arising solely
under a statutory provision imposing criminal liability upon Executive on
a per se basis due to the Company offices held by Executive, so long as
------
any act or omission of Executive with respect to such matter was not
taken or omitted in contravention of any applicable policy or directive
of the Board), gross neglect of duties (other than as a result of
Disability or death), or conflict of interest which conflict shall
continue for 30 days after the Company gives written notice to Executive
requesting the cessation of such conflict.
(e) "Date of Termination" means the date on which Executive's employment
is terminated
(f) "Disability" has the meaning given it in the Company's long-term
disability plan. Executive's employment shall be deemed to be terminated for
Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(g) "Incapacity" means a disability (other than Disability within the
meaning of (i) above) or other impairment of health that renders Executive
unable to perform his duties to the reasonable satisfaction of the Committee.
(h) "Stock" means the common stock, $0.01 par value, of the Company.
(i) "Subsidiary" means any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power
of all classes of stock.
A-1
<PAGE>
CHANGE OF CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED AGREEMENT between Waban Inc., a Delaware
corporation (the "Company"), and Allan P. Sherman ("Executive"), dated as of
September 29, 1993.
Executive is a key executive of the Company or a Subsidiary and an
integral part of its management.
The Company recognizes that the possibility of a change of control of the
Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following a change of control
of the Company and to assure Executive of certain other benefits upon a change
of control.
In consideration of Executive's continued employment with the Company or
a Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
-------------------------------
1.1. In General. Within 30 days following a Change of Control, whether
----------
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Waban Inc.
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of
Control occurs (or if Executive's title was changed to a level below that
of Executive's Current Title within 180 days before the commencement of a
Standstill Period, the "Target Bonus" applicable to Executive for the
fiscal year in which such change occurred as if he continued to hold
Executive's Current Title, if higher); and
(b) if Executive is a participant in the Waban Inc. Long Range
Management Incentive Plan or any other performance-based long-range
incentive plan ("LRMIP") at the Change of Control, an amount with respect
to each Award Period (as that term is defined in LRMIP) for which
Executive has been designated as an LRMIP participant equal to 50 percent
of the product of (i)
<PAGE>
the maximum award payable to Executive for such Award Period, as
designated by the Company's Executive Compensation Committee under LRMIP
(or, if Executive's title was changed to a level below that of
Executive's Current Title within 180 days before the commencement of a
Standstill Period, in the case of an Award Period which commences after
such change, the maximum award payable to Executive for such Award Period
shall be deemed to be the maximum award payable to Executive for the
Award Period which commenced immediately prior to such change, if
higher), and (ii) a fraction, the denominator of which is the total
number of fiscal years in the Award Period and the numerator of which is
the number of fiscal years which have elapsed in such Award Period prior
to the Change of Control (for purposes of this fraction, if the Change of
Control occurs during the first quarter of a fiscal year, then one-
quarter of the fiscal year shall be deemed to have elapsed prior to the
Change of Control, and if the Change of Control occurs after the first
quarter of the fiscal year, then the full fiscal year shall be deemed to
have elapsed prior to the Change of Control).
1.2. Benefits Following a Qualified Termination of Employment.
--------------------------------------------------------
Executive shall be entitled to the following benefits upon a Qualified
Termination:
(a) Within 30 days following the Date of Termination, the Company shall
pay to Executive the following in a lump sum:
(i) an amount equal to two times Executive's Base Salary for one
year at the rate in effect immediately prior to the Date of
Termination or the Change of Control (or if Executive's title was
changed to a level below that of Executive's Current Title within
180 days before the commencement of a Standstill Period, the rate
in effect immediately prior to such change), whichever is highest,
plus the accrued and unpaid portion of Executive's Base Salary
through the Date of Termination. Any payments made to Executive
under any long term disability plan of the Company with respect to
the two years following termination of employment shall be offset
against such two times Base Salary payment. Executive shall
promptly make reimbursement payments to the Company to the extent
any such disability payments are received after the Base Salary
payment; and
(ii) an amount equal to two times Executive's automobile allowance
for one year at the rate in effect immediately prior to the Date of
Termination or the Change of Control (or if Executive's title was
changed to a level below that of Executive's Current Title within
180 days before the commencement of a Standstill
-2-
<PAGE>
Period, the rate in effect immediately prior to such change),
whichever is highest, plus any portion of Executive's auto
allowance payable but unpaid through the Date of Termination;
provided, that no payment shall be due under this subparagraph
--------
(iii) if Executive is entitled to use of an automobile under
paragraph 1.2(c) below.
(b) Until the second anniversary of the Date of Termination, the Company
shall maintain in full force and effect for the continued benefit of Executive
and his family all life insurance, medical insurance and disability plans and
programs in which Executive was entitled to participate immediately prior to
the Change of Control (or if Executive's title was changed to a level below
that of Executive's Current Title within 180 days before the commencement of a
Standstill Period, all such plans and programs in which Executive was entitled
to participate immediately prior to such change, if the benefits thereunder
are greater), provided that Executive's continued participation is possible
under the general terms and provisions of such plans and programs. In the
event that Executive is ineligible to participate in such plans or programs,
the Company shall arrange upon comparable terms to provide Executive with
benefits substantially similar to those which he is entitled to receive under
such plans and programs. Notwithstanding the foregoing, the Company's
obligations hereunder with respect to life, medical or disability coverage or
benefits shall be deemed satisfied to the extent (but only to the extent) of
any such coverage or benefits provided by another employer.
(c) For a period of two years after the Date of Termination, the Company
shall make available to Executive the use of any automobile that was made
available to Executive prior to the Date of Termination, including ordinary
replacement thereof in accordance with the Company's automobile policy in
effect immediately prior to the Change of Control, or if Executive's title was
changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, the Company shall make
available to Executive the use of an automobile of a type comparable to the
automobile that was made available to him immediately prior to such change
(or, in lieu of making such automobile available, the Company may at its
option pay to Executive the present value of its cost of providing such
automobile).
1.3. Coordination With Certain Tax Rules. Payments under Sections 1.1
-----------------------------------
and 1.2 shall be made without regard to whether the deductibility of such
payments (or any other payments to or for the benefit of Executive) would be
limited or precluded by Internal Revenue Code Section 280G and without regard
to whether such payments (or any other payments) would subject Executive to
the federal excise tax levied on certain "excess parachute
-3-
<PAGE>
payments" under Internal Revenue Code Section 4999; provided, that if the
--------
total of all payments to or for the benefit of Executive, after reduction for
all federal taxes (including the tax described in Internal Revenue Code
Section 4999, if applicable) with respect to such payments ("Executive's total
after-tax payments"), would be increased by the limitation or elimination of
any payment under Sections 1.1 or 1.2, amounts payable under Sections 1.1 and
1.2 shall be reduced to the extent, and only to the extent, necessary to
maximize Executive's total after-tax payments. The determination as to whether
and to what extent payments under Sections 1.1 or 1.2 are required to be
reduced in accordance with the preceding sentence shall be made at the
Company's expense by Coopers & Lybrand or by such other certified public
accounting firm as the Executive Compensation Committee of the Company's Board
of Directors may designate prior to a Change of Control. In the event of any
underpayment or overpayment under Sections 1.1 or 1.2, as determined by
Coopers & Lybrand (or such other firm as may have been designated in
accordance with the preceding sentence), the amount of such underpayment or
overpayment shall forthwith be paid to Executive or refunded to the Company,
as the case may be, with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
-------------------------------------------------------------------
Withholding.
- -----------
2.1. Noncompetition. Upon a Change of Control, any agreement by
--------------
Executive not to engage in competition with the Company subsequent to the
termination of his employment, whether contained in an employment contract or
other agreement, shall no longer be effective.
2.2. No Duty to Mitigate Damages. Executive's benefits under this
---------------------------
Agreement shall be considered severance pay in consideration of his past
service and his continued service from the date of this Agreement, and his
entitlement thereto shall neither be governed by any duty to mitigate his
damages by seeking further employment nor offset by any compensation which he
may receive from future employment.
2.3. Other Severance Payments. Following a Change of Control, any
------------------------
rights of Executive under any agreement or plan with respect to uncompleted
MIP or LRMIP periods or cycles shall be governed solely by this Agreement.
Upon a Qualified Termination (as defined in this Agreement), all rights of
Executive with respect to salary continuation, life insurance, medical
insurance and disability benefits and auto allowance or auto lease benefits
shall be governed solely by this Agreement.
2.4. Withholding. Anything to the contrary notwithstanding, all
-----------
payments required to be made by the Company
-4-
<PAGE>
hereunder to Executive shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Boston, Massachusetts in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees,
printing costs, etc. reasonably incurred by Executive in contesting or
disputing that the termination of his employment during a Standstill Period is
for Cause or other than for good reason (as defined in paragraph (k) of
Exhibit A) or in obtaining any right or benefit to which Executive is entitled
under this Agreement. Any amount payable under this Agreement that is not paid
when due shall accrue interest at the prime rate as from time to time in
effect at the First National Bank of Boston, until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
---------------------
employment may be terminated by the Company (or a Subsidiary) only upon 30
days' written notice to Executive.
6. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attention: Vice President-Finance
To Executive: At his home address,
as last shown on the
records of the Company
7. Severability. In the event that any provision of this Agreement
------------
shall be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in
any event the remaining provisions shall remain in full force and effect to
the fullest extent permitted by law.
-5-
<PAGE>
8. General Provisions.
------------------
8.1. Binding Agreement. This Agreement shall be binding upon and inure
-----------------
to the benefit of the parties and be enforceable by Executive's personal or
legal representatives or successors. If Executive dies while any amounts would
still be payable to him hereunder, benefits would still be provided to his
family hereunder or rights would still be exercisable by him hereunder as if
he had continued to live, such amounts shall be paid to Executive's estate,
such benefits shall be provided to Executive's family and such rights shall
remain exercisable by Executive's estate in accordance with the terms of this
Agreement. This Agreement shall not otherwise be assignable by Executive.
8.2. Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
(where the Company is not the surviving corporation), lease or otherwise, by
agreement in form and substance satisfactory to Executive, to assume expressly
this Agreement. If the Company shall not obtain such agreement prior to the
effective date of any such succession, Executive shall have all rights
resulting from termination by Executive for good reason (as defined in
paragraph (k) of Exhibit A) under this Agreement. This Agreement shall not
otherwise be assignable by the Company.
8.3. Amendment or Modification; Waiver. This Agreement may not be
---------------------------------
amended unless agreed to in writing by Executive and the Company. No waiver
by either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
8.4. Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
8.5. Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from
the Company or any Subsidiary except the right specifically stated herein to
certain severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6. Termination of Agreement Outside of Standstill Period. This
-----------------------------------------------------
Agreement shall be automatically terminated upon the first to occur of (i) the
termination of Executive's
-6-
<PAGE>
employment for any reason, whether voluntary or involuntary, at any time other
than during a Standstill Period or (ii) the 180th day after a change in
Executive's title to a level below that of Executive's Current Title unless a
Standstill Period was in effect on the date of such change or within 180 days
thereafter.
8.7. Prior Agreement. This Agreement shall supersede and replace any
---------------
prior change of control severance agreement between the Company or any of its
subsidiaries, or any predecessor, and Executive.
8.8. Binding on Successors. This Agreement shall be binding on any
---------------------
successor to all or substantially all of the Company's business or assets.
8.9. Definitions. The terms defined in Exhibits A and B hereto are used
-----------
herein as so defined.
8.10. Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WABAN INC.
By /s/ Herbert J. Zarkin
-------------------------
/s/ Allan Sherman
-------------------------
Executive
-7-
<PAGE>
EXHIBIT A
---------
Definitions
-----------
The following terms as used in this Agreement shall have the following
meanings:
(a) "Base Salary" shall mean Executive's annual base salary, exclusive of
any bonus or other benefits he may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross neglect
of duties (other than as a result of Disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
In respect of any termination during a Standstill Period, Executive shall
not be deemed to have been terminated for Cause until the later to occur of
(i) the 30th day after notice of termination is given and (ii) the delivery to
Executive of a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the Company's directors at a meeting called and
held for that purpose (after reasonable notice to Executive), and at which
Executive together with his counsel was given an opportunity to be heard,
finding that Executive was guilty of conduct described in the definition of
"Cause" above, and specifying the particulars thereof in detail; provided,
--------
however, that the Company may suspend Executive and withhold payment of his
- -------
Base Salary from the date that notice of termination is given until the
earliest to occur of (a) termination of Executive for Cause effected in
accordance with the foregoing procedures (in which case Executive shall not be
entitled to his Base Salary for such period), (b) a determination by a
majority of the Company's directors that Executive was not guilty of the
conduct described in the definition of "Cause" above (in which case Executive
shall be reinstated and paid any of his previously unpaid Base Salary for such
period), or (c) the 90th day after notice of termination is given (in which
case Executive shall be reinstated and paid any of his previously unpaid Base
Salary for such period).
(c) "Change of Control" shall have the meaning set forth in Exhibit B.
(d)(1) "Company" shall mean Waban Inc. or any successor.
(d)(2) "Committee" shall mean the Executive Compensation Committee or
other Committee of the Board of
-8-
<PAGE>
Directors of the Company then administering the Waban 1989 Stock Incentive Plan
or any successor plan.
(e) "Current Title" shall mean Executive's title on the date 180 days
prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's long-
term disability plan. Executive's employment shall be deemed to be terminated
for Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability within
the meaning of the immediately preceding definition) or other impairment of
health that renders Executive unable to perform his duties to the satisfaction
of the Executive Compensation Committee of the Board of Directors of the
Company. If by reason of Incapacity Executive is unable to perform his duties
for at least six months in any 12-month period, upon written notice by the
Company the employment of Executive shall be deemed to have terminated by
reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of Executive's
employment during a Standstill Period (1) by the Company other than for Cause,
or (2) by Executive for good reason, or (3) by reason of death, Incapacity or
Disability.
For purposes of this definition, termination for "good reason" shall mean
the voluntary termination by Executive of his employment (A) within 120 days
after the occurrence without Executive's express written consent of any of the
events described in clauses (I), (II), (III), (IV), (V) or (VI) below,
provided that Executive gives notice to the Company at least 30 days in
advance requesting that the situation described in those clauses be remedied,
and the situation remains unremedied upon expiration of such 30-day period;
(B) within 120 days after the occurrence without Executive's express written
consent (which must expressly refer to such consent as being given under this
Agreement) of the events described in clauses (VII) or (VIII) below, provided
that Executive gives notice to the Company at least 30 days in advance; or (C)
upon occurrence of the events
-9-
<PAGE>
described in clause (IX) below, provided that Executive gives notice to the
Company at least 30 days in advance:
(I) the assignment to him of any duties inconsistent with his positions,
duties, responsibilities, reporting requirements, and status with
the Company (or a Subsidiary) immediately prior to a Change of
Control, or a substantive change in Executive's titles or offices as
in effect immediately prior to a Change of Control, or any removal
of Executive from or any failure to reelect him to such positions,
except in connection with the termination of Executive's employment
by the Company (or a Subsidiary) for Cause or by Executive other
than for good reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position,
authority, duties or responsibilities, other than an insubstantial
and inadvertent action which is remedied by the Company or the
Subsidiary promptly after receipt of notice thereof given by
Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less than
100 percent of the rate of Base Salary paid to Executive in the
completed fiscal year immediately preceding the Change of Control,
or if Executive's total cash compensation opportunities, including
salary and incentives, for any fiscal year are less than 100 percent
of the total cash compensation opportunities made available to
Executive in the completed fiscal year immediately preceding the
Change of Control, unless any reduction represents an overall
reduction in the rate of Base Salary paid or cash compensation
opportunities made available, as the case may be, to executives in
the same organizational level (it being the Company's burden to
establish this fact); or
(III) the failure of the Company (or a Subsidiary) to continue in effect
any benefits or perquisites, or any pension, life insurance, medical
insurance or disability plan in which Executive was participating
immediately prior to a Change of Control unless the Company (or a
Subsidiary) provides Executive with a plan or plans that provide
substantially similar benefits, or the taking of any action by the
Company (or a Subsidiary) that would adversely affect Executive's
participation in or materially reduce Executive's benefits under any
of such plans or deprive Executive of any material fringe benefit
enjoyed by
-10-
<PAGE>
Executive immediately prior to a Change of Control, unless the
elimination or reduction of any such benefit, perquisite or plan
affects all other executives in the same organizational level (it
being the Company's burden to establish this fact); or
(IV) any purported termination of Executive's employment by the Company
(or a Subsidiary) for Cause during a Standstill Period which is not
effected in compliance with paragraph (b) of this Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control; or
(VI) any other breach by the Company of any provision of this Agreement;
or
(VII) the Company sells or otherwise disposes of, in one transaction or a
series of related transactions, assets or earning power aggregating
more than 30 percent of the assets (taken at asset value as stated
on the books of the Company determined in accordance with generally
accepted accounting principles consistently applied) or earning
power of the Company (on an individual basis) or the Company and its
subsidiaries (on a consolidated basis) to any other Person or
Persons (as those terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or sells
or otherwise disposes of, in one transaction or a series of related
transactions, assets or earning power aggregating more than 30
percent of the assets (taken at asset value as stated on the books
of the Subsidiary determined in accordance with generally accepted
accounting principles consistently applied) or earning power of such
Subsidiary (on an individual basis) or such Subsidiary and its
subsidiaries (on a consolidated basis) to any other Person or
Persons (as those terms are defined in Exhibit B); or
(IX) the voluntary termination by Executive of his employment (i) at any
time within one year after the Change of Control or (ii) at any time
during the second year after the Change of Control until the Company
(or a Subsidiary) offers Executive an employment contract having a
minimum two-year
-11-
<PAGE>
duration which provides Executive with substantially the same title,
responsibilities, annual and long-range compensation, benefits and
perquisites that he had immediately prior to the Standstill Period.
Notwithstanding the foregoing, the Board of Directors of the Company
may expressly waive the application of this clause (IX) if it waives
the applicability of substantially similar provisions with respect
to all persons with whom the Company has a written severance
agreement (or may condition its application on any additional
requirements or employee agreements which such Board shall in its
discretion deem appropriate in the circumstances). However, in the
case of a Change of Control pursuant to paragraph (e) of the
definition of Change of Control, any such waiver or conditions shall
not extend beyond 11 months following the Change of Control. The
determination of whether to waive or impose conditions on the
application of this clause (IX) shall be within the complete
discretion of the Board of Directors of the Company but shall be
made prior to the Change of Control.
(k) "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
(l) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power
of all classes of stock.
-12-
<PAGE>
EXHIBIT B
---------
Definition of Change of Control
-------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature
that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") or in any other
filing under the Exchange Act; provided, however, that no transaction
-------- -------
shall be deemed to be a Change of Control (i) if the person or each
member of a group of persons acquiring control is excluded from the
definition of the term "Person" hereunder or (ii) unless the Committee
shall otherwise determine prior to such occurrence, if the Executive or
an Executive Related Party is the Person or a member of a group
constituting the Person acquiring control; or
(b) any Person other than the Company, any wholly-owned subsidiary
of the Company, or any employee benefit plan of the Company or such a
subsidiary becomes the owner of 20% or more of the Company's Common Stock
and thereafter individuals who were not directors of the Company prior to
the date such Person became a 20% owner are elected as directors pursuant
to an arrangement or understanding with, or upon the request of or
nomination by, such Person and constitute at least 1/4 of the Company's
Board of Directors; provided, however, that unless the Committee shall
-------- -------
otherwise determine prior to the acquisition of such 20% ownership, such
acquisition of ownership shall not constitute a Change of Control if the
Executive or an Executive Related Party is the Person or a member of a
group constituting the Person acquiring such ownership; or
(c) there occurs any solicitation or series of solicitations of
proxies by or on behalf of any Person other than the Company's Board of
Directors and thereafter individuals who were not directors of the
Company prior to the commencement of such solicitation or series of
solicitations are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such
Person and constitute at least 1/4 of the Company's Board of Directors;
or
-13-
<PAGE>
(d) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date
provided for in such agreement, all or substantially all of the business
and/or assets of the Company shall be owned, leased or otherwise
controlled by another Person and (ii) individuals who are directors of
the Company when such agreement is executed shall not constitute a
majority of the board of directors of the survivor or successor entity
immediately after the effective date provided for in such agreement;
provided, however, that unless otherwise determined by the Committee, no
-------- -------
transaction shall constitute a Change of Control if, immediately after
such transaction, the Executive or any Executive Related Party shall own
equity securities of any surviving corporation ("Surviving Entity")
having a fair value as a percentage of the fair value of the equity
securities of such Surviving Entity greater than 125% of the fair value
of the equity securities of the Company owned by the Executive and any
Executive Related Party immediately prior to such transaction, expressed
as a percentage of the fair value of all equity securities of the Company
immediately prior to such transaction (for purposes of this paragraph
ownership of equity securities shall be determined in the same manner as
ownership of Common Stock); and provided, further, that, for purposes of
-------- -------
this paragraph (d), if such agreement requires as a condition precedent
approval by the Company's shareholders of the agreement or transaction, a
Change of Control shall not be deemed to have taken place unless and
until such approval is secured (but upon any such approval, a Change of
Control shall be deemed to have occurred on the date of execution of such
agreement); or
(e) substantially all the assets of the HomeBase division are
acquired by any Person other than one or more Subsidiaries of the Company
or the Company discontinues the business of the HomeBase division.
In addition, for purposes of this Exhibit B the following terms have the
meanings set forth below:
"Common Stock" shall mean the then outstanding Common Stock of the
Company plus, for purposes of determining the stock ownership of any Person,
the number of unissued shares of Common Stock which such Person has the
right to acquire (whether such right is exercisable immediately or only
after the passage of time) upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise. Notwithstanding the foregoing, the
term Common Stock shall
-14-
<PAGE>
not include shares of Preferred Stock or convertible debt or options or
warrants to acquire shares of Common Stock (including any shares of Common
Stock issued or issuable upon the conversion or exercise thereof) to the
extent that the Board of Directors of the Company shall expressly so determine
in any future transaction or transactions.
A Person shall be deemed to be the "owner" of any Common Stock:
(i) of which such Person would be the "beneficial owner," as such
term is defined in Rule 13d-3 promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, as in effect on
March 1, 1989; or
(ii) of which such Person would be the "beneficial owner" for
purposes of Section 16 of the Exchange Act and the rules of the
Commission promulgated thereunder, as in effect on March 1, 1989; or
(iii) which such Person or any of its affiliates or associates (as
such terms are defined in Rule 12b-2 promulgated by the Commission under
the Exchange Act, as in effect on March 1, 1989) has the right to acquire
(whether such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options
or otherwise.
"Person" shall have the meaning used in Section 13(d) of the Exchange
Act, as in effect on March 1, 1989; provided, however, that the term "Person"
-------- -------
shall not include (a) any individuals who are descendants of Max Feldberg or
Morris Feldberg, (b) any relatives of the fourth degree of consanguinity or
closer of such descendants or (c) custodians, trustees or legal
representatives of such persons.
An "Executive Related Party" shall mean any affiliate or associate of the
Executive other than the Company or a Subsidiary of the Company. The terms
"affiliate" and "associate" shall have the meanings ascribed thereto in Rule
12b-2 under the Exchange Act (the term "registrant" in the definition of
"associate" meaning, in this case, the Company).
-15-
<PAGE>
LOAN AGREEMENT
--------------
This LOAN AGREEMENT ("Agreement") is made and entered into as of the
19th day of January, 1994, by and between ALLAN P. SHERMAN, an unmarried man
("Borrower"), and WABAN INC., a Delaware corporation ("Lender"), with reference
to the following facts:
A. Borrower is currently an employee of Lender. Pursuant to the
terms of that certain Employment Agreement dated September 29, 1993, between
Borrower and Lender, Lender has agreed to loan Borrower the sum of Seven Hundred
Thousand Dollars ($700,000) (the "Loan") for the purpose of enabling Borrower to
purchase a principal residence in the Southern California area.
B. Lender hereby desires to make the Loan to Borrower, and Borrower
desires to borrow the Loan from Lender, on the terms and conditions set forth
herein.
NOW, THEREFORE, for and in consideration of the foregoing facts and
the terms and conditions contained herein, Borrower and Lender hereby agree as
follows:
ARTICLE I
THE LOAN
--------
1.1 Loan. Lender hereby agrees to make, and Borrower hereby agrees
----
to accept, a loan of Seven Hundred Thousand Dollars ($700,000) (the "Loan") upon
the terms and conditions set forth in this Agreement and the documents and
instruments executed in connection herewith.
1.2 Note; Deed of Trust. The Loan shall be evidenced by a Promissory
-------------------
Note in the amount of the Loan (the "Note") in the form of Exhibit "A" attached
-----------
hereto. The Note shall be secured by a Deed of Trust ("Deed of Trust"), in the
form attached hereto as Exhibit "B," encumbering that certain real property
------------
improved with a residence and used for Borrower's principal residence and
described in Exhibit "A" attached to the Deed of Trust (the "Property"), which
-----------
encumbrance shall constitute a second priority lien on the Property. This
Agreement, the Note, the Deed of Trust and any other documents executed in
connection with this Agreement are collectively referred to herein as the "Loan
Documents."
1.3 Title Policy. On the date the Deed of Trust is recorded in the
------------
Official Records of Orange County, California, and at the request and expense of
Lender, Borrower shall provide Lender with a CLTA Lender's Title Insurance
Policy naming Lender as an insured, with liability in the amount of the Loan,
and showing that title to the Property is vested in Borrower, that the lien of
the Deed of Trust is a valid second priority lien on the Property and that the
Property is free from all other monetary liens or encumbrances and all liens,
encumbrances, easements or other exceptions which could affect the marketability
or use of the Property, except
<PAGE>
for that certain lien securing a loan from Chase Manhattan Bank to Borrower in
the amount of $300,000 which is a first deed of trust encumbering the Property
(the "Senior Lien").
ARTICLE II
INTEREST RATE AND
REPAYMENT/MATURITY OF LOAN
--------------------------
2.1 Interest. Borrower shall have no obligation to pay interest
--------
on the outstanding principal balance of the Loan.
2.2 Maturity Date; Reduction of Principal. The entire unpaid
-------------------------------------
principal balance outstanding under the Loan, together with all other amounts
due under the Loan Documents, shall be due and payable in full on January 25,
2001. Unless the Loan shall have been earlier accelerated pursuant to the terms
hereof or of the Employment Agreement, Lender shall automatically reduce the
principal balance outstanding under the Loan by the sum of $100,000 on each of
January 25, 1995, 1996, 1997, 1998, 1999, 2000 and 2001 (each such date referred
to herein as a "Loan Forgiveness Date"). On each Loan Forgiveness Date, Lender
shall also pay to Borrower a "Loan Cash Payment" (as defined in the Employment
Agreement) installment in accordance with the terms of the Employment Agreement.
All sums payable as provided herein or in any other document required hereby
shall be paid in lawful money of the United States of America.
2.3 Acceleration Upon Default. Upon occurrence of an Event of
-------------------------
Default as specified in this Agreement, Lender shall have the option, without
written notice or written demand, of declaring the principal balance of the
Loan, to be immediately due and payable.
ARTICLE III
DEFAULTS AND REMEDIES
---------------------
3.1 Defaults by Borrower. The occurrence of any one or more of the
--------------------
following shall constitute an "Event of Default" hereunder:
(a) Performance of Obligations. If Borrower fails to timely
--------------------------
perform any of his obligations or agreements contained in or required by
this Agreement, the Loan Documents or any other document executed herewith
or required hereby; or
(b) Transfer of Property. If Borrower transfers the Property or
--------------------
any portion thereof or interest therein in violation of the terms provided
in Paragraph 5.3 hereof; or
(c) Senior Lien. If Borrower defaults in the payment of any
-----------
principal or interest under the note secured by the Senior Lien or other
indebtedness secured by the Senior Lien or breaches or defaults in the
performance of any other term, covenant, condition or obligation under the
Senior Lien or document executed in connection with or
-2-
<PAGE>
evidencing the Senior Lien, including, without limitation, any deed of
trust or assignment of rents, which is not cured within the applicable
cure period set forth therein; or
(d) Employment. Upon the occurrence of the events and subject
----------
to the conditions described in Paragraph 4.1.
3.2 Remedies. Upon the occurrence of any Event of Default, Lender
--------
shall be entitled to declare the principal balance of the Loan, immediately due
and payable, to demand payment thereof, and to exercise all other rights and
remedies provided under this Agreement, the Loan Documents or any other
documents executed in connection herewith or required hereby or otherwise
available under applicable law.
ARTICLE IV
TERMINATION OF EMPLOYMENT
-------------------------
4.1 Termination of Employment. Notwithstanding the maturity date set
-------------------------
forth in Paragraph 2.2 of Article II hereof, the entire unpaid principal balance
of the Loan, and all other sums owing under the Loan Documents, shall be due and
payable, without demand or notice by Lender, 60 days after termination in the
event Borrower shall voluntarily terminate his employment with Lender or shall
be terminated by Lender "for Cause," (as defined in the Employment Agreement).
As provided in the Employment Agreement, if Borrower's employment with Lender is
terminated for any other reason, including, without limitation, a "Qualified
Termination" (as defined in that certain Change of Control Severance Agreement
("Change of Control Agreement") dated September 29, 1993 between Borrower and
Lender), the Loan and the Loan Documents shall remain in full force and effect.
ARTICLE V
COVENANTS OF BORROWER
---------------------
5.1 Title Exceptions. Borrower shall not impose any restrictive
----------------
covenants, easements, rights of way or encumbrances upon the Property without
the prior written consent of Lender.
5.2 Removal of Lien. If at any time an encumbrance, lien or charge
---------------
(other than the Senior Lien) is placed or claimed upon the Property which
adversely affects the use or marketability of the Property, Borrower shall
satisfy and remove such encumbrance, lien or charge or provide affirmative title
insurance coverage over such liens as Lender may require.
5.3 Application of Proceeds from Sale of the Property; Subsequent
-------------------------------------------------------------
Loans. Borrower agrees that in the event he sells the Property, he will cause
- -----
the net proceeds from such sale to be applied to reduce the principal
outstanding under the Loan and all other sums owing under the Loan Documents.
Borrower agrees to give Lender prior written notice of any such sale of the
Property. So long as the Loan is required to remain in effect in accordance
with the provisions of the Employment Agreement if at any time Borrower
subsequently purchases another
-3-
<PAGE>
principal residence within or outside the State of California prior to January
25, 2001, then Lender shall make a new loan ("New Loan") to Borrower at the
closing of Borrower's subsequent purchase of such other principal residence in
an amount equal to the net proceeds from the sale of the Property which have
been repaid to Lender, which New Loan shall be on the same terms and
conditions as set forth in the Loan Documents, including the maturity date,
and which shall be secured by a first or second mortgage or deed of trust
encumbering such new principal residence. The New Loan shall be considered a
part of the Loan if any portion of the Loan is still outstanding at the time
the New Loan is made. At the time Lender makes the New Loan to Borrower, the
principal amount thereof shall be reduced by any debt reductions which would
have occurred under Section 2.2 above and any Loan Cash Payments will be paid
to Borrower which would have been paid under the Employment Agreement, had the
Loan been continuously outstanding. The foregoing provisions shall apply to
all subsequent sales and purchases of principal residences by Borrower prior
to January 25, 2001, so long as the Loan is required to remain in effect in
accordance with the provisions of the Employment Agreement.
ARTICLE VI
SENIOR LIEN
-----------
6.1 Notice. Borrower agrees to cause to be recorded in the Official
------
Records of Orange County, California a Request for Notice Under Section 2924b of
the California Civil Code with respect to the Senior Lien for the benefit of
Lender.
6.2 No Amendments. Borrower agrees that he will not modify or amend
-------------
the terms of the Senior Lien without the prior written consent of Lender.
6.3 Senior Lien Notices. Borrower agrees to promptly notify Lender
-------------------
of any and all material notices of default or non-performance which Borrower
receives from the holder of the Senior Lien.
6.4 Aggregate Amount of Encumbrances. Borrower agrees that the
--------------------------------
aggregate face amount of all indebtedness secured by the Property, including the
Senior Loan and the Loan, shall not exceed the purchase price paid by Borrower
for the Property.
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
7.1 Notices. All notices required or permitted under this Agreement
-------
shall be in writing and addressed to the respective party as hereinafter set
forth.
Borrower: Mr. Allan P. Sherman
2198 Ruby Place
Laguna Beach, California 92651
-4-
<PAGE>
Lender: Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: President
and a copy to: Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: General Counsel
Notices may be delivered in person, by facsimile, by private carrier for
overnight delivery, or by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as hereinabove set forth. All
notices so given shall be deemed effective upon personal delivery, facsimile
confirmation, the next day following delivery to an overnight carrier, or three
days after deposit into the U.S. Mail. The addresses above set forth may be
changed from time to time by either of the parties upon written notice to the
other.
7.2 No Assignment. Borrower shall not assign any of his rights under
-------------
this Agreement and any purported assignment in violation hereof shall be void.
7.3 No Waiver. No failure on Lender's part at any time to require
---------
the performance by Borrower of any term of this Agreement shall in any way
affect Lender's rights to subsequently enforce such term, nor shall any
omission on Lender's part to notify Borrower of any event which would
constitute an Event of Default be construed as a waiver of such Event of
Default or any right or remedy of Lender, nor shall any waiver by Lender of
any term hereof be taken or held to be a waiver of any other term hereof.
7.4 Certification by Borrower. Borrower certifies to Lender that
-------------------------
Borrower reasonably expects to be entitled to and will itemize deductions on
his Federal Income Tax Return until such time as the outstanding balance of
the Loan is paid in full.
7.5 Successors. The provisions of this Agreement shall be binding
----------
upon and shall inure to the benefit of each of the parties hereto and their
respective successors in interest, heirs, personal representatives, and the
assigns of Lender. With respect to Lender, successors in interest shall
include, but not be limited to, any successors by way of merger, acquisition
or the sale of substantially all of Lender's assets.
7.6 Governing Law. This Agreement shall be interpreted and enforced
-------------
under the laws of the State of California.
7.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which together shall constitute one and the same
instrument.
7.8 Severability. In the event any of the provisions of this
------------
Agreement are determined to be invalid or unenforceable, such provisions
shall be deemed severed from the remainder of this Agreement and shall not cause
the invalidity or unenforceability of the remainder of this Agreement.
-5-
<PAGE>
7.9 Integration. This Agreement, the Note, the Deed of Trust, the
-----------
Employment Agreement, the Change of Control Agreement and the exhibits hereto
contain the sole and entire agreement and understanding of the parties with
respect to the entire subject matter hereof. Any and all prior discussions,
negotiations, commitments and understandings related hereto or thereto are
hereby merged herein or therein. There are no representations, oral or
otherwise, express or implied, made by any party, other than those contained
herein or therein.
7.10 Amendment. This Agreement may not be modified, changed, amended,
---------
varied or waived except in a writing executed by each of the parties hereto.
7.11 Further Assurances. Each of the parties hereto agrees to
------------------
execute any and all documents or instruments reasonably necessary to
effectuate the transaction contemplated hereby or to confirm or clarify any
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
BORROWER: /s/ Allan P. Sherman
-----------------------------------
ALLAN P. SHERMAN
LENDER: WABAN INC., a Delaware corporation
By: /s/ Herbert J. Zarkin
--------------------------------
Herbert J. Zarkin
President
By: /s/ Edward J. Weisberger
--------------------------------
Name:
---------------------------
Title: Vice President-Finance
--------------------------
-6-
<PAGE>
PROMISSORY NOTE
---------------
$700,000.00 Irvine, California
January 19, 1994
FOR VALUE RECEIVED, the undersigned, ALLAN P. SHERMAN, an unmarried
man ("Maker"), hereby promises to pay to Waban Inc., a Delaware corporation
("Holder"), or order, the principal sum of Seven Hundred Thousand Dollars
($700,000.00), without interest, at One Mercer Road, Natick, Massachusetts
01760, or at such other place as from time to time may be designated in writing
by the holder of this Note.
1. Loan Agreement. This Note is the Note referred to in that certain
--------------
Loan Agreement of even date herewith (the "Loan Agreement") between Maker and
Holder, and is entitled to all of the benefits of the Loan Agreement and the
collateral described therein and such other collateral which may be given by
Maker to secure Maker's obligations thereunder or hereunder. All capitalized
terms not otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
2. Principal Reduction. As provided in Section 2.2 of the Loan
-------------------
Agreement, Holder shall reduce the principal balance hereunder by the sum of One
Hundred Thousand Dollars ($100,000.00) on each of January 25, 1995, 1996, 1997,
1998, 1999, 2000 and 2001, unless the Note shall have previously become due
pursuant to the terms of the Loan Agreement.
3. Maturity Date. The entire unpaid outstanding principal balance
-------------
hereof and all other amounts due under the Loan Documents, shall be due and
payable on January 25, 2001, or such earlier date as may be provided in the Loan
Agreement.
4. Prepayments; Application of Payments. Maker may prepay the
------------------------------------
principal balance due under this Note at any time in whole or in part. All
payments hereunder are to be applied first to the discharge of any expenses or
damages for which Holder may be entitled to receive reimbursement under the
terms of this Note, the Deed of Trust (defined below) or the Loan Agreement, and
the balance remaining applied to the payment of principal. All payments to be
made under this Note shall be payable in lawful money of the United State of
America which shall be legal tender for public and private debts at the time of
payment.
5. Security. This Note shall be secured by a deed of trust ("Deed of
--------
Trust") of even date herewith, encumbering real property described therein, in
which Maker is named as Trustor, First American Title Company is named as
Trustee, and Holder is named as Beneficiary.
6. (a) Defaults by Maker. The occurrence of any one or more of the
-----------------
following shall constitute an "Event of Default" hereunder:
1
<PAGE>
(i) Performance of Obligations. If Maker fails to timely
--------------------------
perform any of his obligations or agreements contained in or required
by the Loan Documents or any other document executed therewith or
required thereby or there is any other default under the Loan
Documents; or
(ii) Default Under Senior Lien. If Maker defaults in the
-------------------------
payment of any principal or interest under the note secured by the
"Senior Lien" (as defined in the Loan Agreement) or other indebtedness
secured by the Senior Lien or breaches or defaults in the performance
of any other term, covenant, condition or obligation under the
Senior Lien or document executed in connection with or evidencing
the Senior Lien, including, without limitation, any deed of trust or
assignment of rents, which is not cured within the applicable cure
period set forth therein.
(b) Remedies on Default. Upon the occurrence of an "Event of
-------------------
Default" and at the option of the Holder, the unpaid principal balance
hereof shall without demand or notice become immediately due and payable
and Holder may exercise all other rights and remedies provided under the
Loan Agreement or other documents executed in connection therewith or
required thereby or otherwise available under applicable law. No delay or
omission on the part of Holder in exercising any right under this Note
shall operate as a waiver of such right. All rights and remedies of Holder
provided in this Note and the other Loan Documents, at law, in equity or
otherwise are cumulative and not excessive, and Holder may exercise any and
all such rights and remedies at any time.
7. Waiver. Maker for himself, his legal representatives, successors
------
and assigns and all other persons liable or to become liable on this Note,
jointly and severally, waives presentment for payment, demand, notice of demand
and of dishonor and nonpayment of this Note, notice of intention to accelerate
the maturity of this Note, protest and notice of protest, diligence in
collecting, and the bringing of suit against any other party, and agrees to all
renewals, extensions, modifications, partial payments, releases or substitutions
of security, in whole or in part, with or without notice, before or after
maturity. Maker waives, to the full extent permissible by law, any right he may
have to plead any and all statutes of limitation as a defense to any demands on
this Note. No single or partial exercise of any power hereunder or under the
Deed of Trust or any other instrument securing this Note shall preclude other or
further exercise thereof, or the exercise of any other power. Holder shall at
all times have the right to proceed against any portion of the security held
heretofore in such order and in such manner as Holder may deem fit without
waiving any rights with respect to any other security. The release by Holder of
any party liable on this Note shall not operate to release any other party
liable hereon.
8. Attorneys' Fees. Should the indebtedness represented by this
---------------
Note or any part hereof not be paid by Maker when due, or if any Event of
Default occurs, Maker shall pay the costs of enforcement and collection
including, but not limited to, reasonable attorneys' fees, whether or not such
enforcement and collection includes the filing of a lawsuit.
9. Severability. Every provision of this Note is intended to be
------------
severable. In the event that any term or provision hereof is declared to be
illegal or invalid for any reason
2
<PAGE>
whatsoever by a court of competent jurisdiction, such illegality or invalidity
shall not affect the balance of the provisions hereof, which terms and
provisions remain binding and enforceable.
10. Governing Law. This Note shall be construed and enforced in
-------------
accordance with the laws of the State of California.
11. Absolute and Unconditional. No reference herein to any other
--------------------------
instrument or agreement and no provisions of this Note or any such instrument or
agreement shall alter or impair the obligation of Maker, which is absolute and
unconditional, to pay the principal of this Note at the place, respective times
and in the manner herein prescribed.
12. Parties Bound. This Note shall be binding upon the undersigned,
-------------
his heirs, executors, administrators and assigns, and the terms hereof shall
inure to the benefit of Holder and its successors and assigns.
"Maker" /s/ Allan P. Sherman
-----------------------------------
ALLAN P. SHERMAN
3
<PAGE>
EXHIBIT 11
WABAN INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
JANUARY 29, JANUARY 30, JANUARY 25,
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
The computation of net income available
and adjusted shares outstanding fol-
lows:
Net income as reported $(17,782,000) $44,242,000 $30,009,000
============ =========== ===========
Net income used for primary computation $(17,782,000) $44,242,000 $30,009,000
Add (where dilutive):
Tax effected interest and amortization
of debt expense on convertible debt -- 2,560,000 --
------------ ----------- -----------
Net income used for fully diluted compu-
tation $(17,782,000) $46,802,000 $30,009,000
============ =========== ===========
Weighted average number of common shares
outstanding 33,082,362 32,869,945 29,522,575
Add (where dilutive):
Assumed exercise of those options that
are common stock equivalents net of
treasury shares deemed to have been
repurchased -- 321,552 284,680
------------ ----------- -----------
Weighted average number of common and
common equivalent shares outstanding,
used for primary computation 33,082,362 33,191,497 29,807,255
Add (where dilutive):
Shares applicable to stock options in
addition to those used in primary com-
putation due to the use of period-end
market price when higher than average
price -- -- 3,093
Assumed exercise of convertible securi-
ties -- 2,515,266 --
------------ ----------- -----------
Adjusted shares outstanding used for
fully diluted computation 33,082,362 35,706,763 29,810,348
============ =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
The following is a list of Subsidiaries of Waban Inc. as of February 26, 1994:
<TABLE>
<CAPTION>
OPERATING SUBSIDIARIES STATE OF INCORPORATION
---------------------- ----------------------
<S> <C>
HomeClub, Inc. Nevada
HomeClub, Inc. of Texas Delaware
Fullerton Corporation Delaware
Natick Security Corp. Massachusetts
Natick Corporation Delaware
<CAPTION>
REALTY SUBSIDIARIES
-------------------
<S> <C>
HCI Development Corp. California
HomeClub First Realty Corp. Colorado
Natick First Realty Corp. Connecticut
Natick Second Realty Corp. Massachusetts
Natick Third Realty Corp. New Jersey
Natick Fourth Realty Corp. New Jersey
Natick Fifth Realty Corp. Maryland
Natick Sixth Realty Corp. Connecticut
BJW Development Corp. Connecticut
Natick MA Realty Corp. Massachusetts
Natick NH Realty Corp. New Hampshire
Natick NY Realty Corp. New York
HCWA Realty Corp. Washington
HCCA Realty Corp. California
Natick NY 1992 Realty Corp. New York
Natick PA Realty Corp. Pennsylvania
Natick VA Realty Corp. Virginia
HBNM Realty Corp. New Mexico
HBOK Realty Corp. Oklahoma
HBIN Realty Corp. Indiana
Natick Portsmouth Realty Corp. New Hampshire
HBKS Realty Corp. Kansas
HBCA 1993 Realty Corp. California
HBOR Realty Corp. Oregon
HBUT Realty Corp. Utah
HCWA 1993 Realty Corp. Washington
Natick NJ Realty Corp. New Jersey
Natick NJ 1993 Realty Corp. New Jersey
Natick NJ 1994 Realty Corp. New Jersey
<CAPTION>
NON-OPERATING SUBSIDIARIES
--------------------------
<S> <C>
CWC Beverages Corp. Connecticut
FWC Beverages Corp. Florida
JWC Beverages Corp. New Jersey
Mormax Beverages Corp. Delaware
Mormax Corporation Massachusetts
RWC Beverages Corp. Rhode Island
YWC Beverages Corp. New York
Alken Wholesale Distributors, Inc. Delaware
</TABLE>
