<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997
FORM S-1: REGISTRATION NO. 333-25511
FORM S-3: REGISTRATION NO. 333-25511-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORMS S-1 AND S-3
REGISTRATION STATEMENTS UNDER THE SECURITIES ACT OF 1933
---------------
BJ'S WHOLESALE CLUB, INC.
(EXACT NAME OF REGISTRANT ON FORM S-1 AS SPECIFIED IN ITS CHARTER)
DELAWARE 5399 04-3360747
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION) ---------------
WABAN INC.
(EXACT NAME OF REGISTRANT ON FORM S-3 AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0109661
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
---------------
ONE MERCER ROAD, NATICK, MASSACHUSETTS 01760
(508) 651-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
---------------
HERBERT J. ZARKIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WABAN INC.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760 (508) 651-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK G. BORDEN, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000
TELECOPY: (617) 526-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
---------------
As to Form S-1
If any of the securities being registered on this Form S-1 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [_]
If this Form S-1 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-1 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-1 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
As to Form S-3
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form S-3 are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form S-3 is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form S-3 is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Form S-3 prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
---------------
EACH OF THE REGISTRANTS HEREBY AMENDS ITS RESPECTIVE REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
SUCH REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
ITS RESPECTIVE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
RESPECTIVE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
These Registration Statements relate to the proposed tax-free distribution
(the "Distribution") by Waban Inc. ("Waban"), in the form of a special
dividend to its stockholders, of all of the outstanding shares of Common Stock
held by Waban, and the associated stockholders' rights, of BJ's Wholesale
Club, Inc. ("BJI"), a newly formed, wholly owned subsidiary of Waban. One of
the conditions to the Distribution is that all of Waban's outstanding 6.5%
Convertible Subordinated Debentures Due 2002 (the "Convertible Debentures") be
converted or redeemed and that, if applicable, the transactions contemplated
by the Standby Purchase Agreement (as defined in the Registration Statements)
to be entered into in connection with the call for redemption of the
Convertible Debentures be consummated.
The Proxy Statement/Prospectus included herein will be furnished to three
groups of persons: (i) stockholders of Waban, in connection with Waban's 1997
Annual Meeting of Stockholders; (ii) holders of Waban's Convertible
Debentures, in connection with the call for redemption of such Convertible
Debentures; and (iii) purchasers of Waban Common Stock either initially issued
by Waban to the Standby Purchaser (as defined in the Registration Statements)
pursuant to the Standby Purchase Agreement or acquired by the Standby
Purchaser upon conversion of Convertible Debentures.
The documents to be furnished to the members of each of these three groups
are as follows:
(i) Stockholders of Waban will receive:
. Letter to Stockholders
. Notice of Annual Meeting of Stockholders
. Proxy Statement/Prospectus
. Proxy Card
(ii) Debenture holders of Waban will receive:
. Notice of Redemption and Expiration of Conversion Right
. Proxy Statement/Prospectus
. Letter of Transmittal
(iii) Purchasers of Waban Common Stock issued pursuant to the Standby
Purchase Agreement will receive:
. Standby Prospectus cover page and inside front cover
. Proxy Statement/Prospectus
. Standby Prospectus back cover page
<PAGE>
[TO WABAN STOCKHOLDERS ONLY]
PRELIMINARY COPY
Waban Inc.
ONE MERCER ROAD
NATICK, MASSACHUSETTS 01760
(508) 651-6500
June , 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of the
stockholders of Waban Inc. ("Waban" or the "Company") which will be held on
Thursday, July 10, 1997 at 11:00 a.m. at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts (the "Meeting"). All stockholders of
record as of May 23, 1997 are entitled to vote at the Meeting. We urge you to
be present in person or represented by proxy at this important Meeting at
which stockholders will be asked to elect three directors and to approve a
major transaction that will separate Waban into two publicly owned companies.
At the Meeting, you will be asked to consider and vote upon a group of
related proposals which provide for the tax-free distribution (the
"Distribution") in the form of a special dividend to stockholders, on a one-
for-one basis, of all outstanding shares of the common stock held by Waban of
BJ's Wholesale Club, Inc., a newly formed, wholly-owned subsidiary of Waban
("BJI"). The Distribution will separate BJ's Wholesale Club, the Company's
food and general merchandise warehouse club business (the "Warehouse Club
Business"), from HomeBase, the Company's home improvement warehouse business
(the "Home Improvement Business"). After the Distribution, the Company will
change its name to HomeBase, Inc. and will continue to operate and develop the
Home Improvement Business. BJI will operate and develop the Warehouse Club
Business after the Distribution.
The Company's Board of Directors believes that the Distribution will
accomplish a number of important business goals. Separation of the Home
Improvement Business and the Warehouse Club Business into independent publicly
owned companies will allow each company to concentrate exclusively on its own
business objectives without concern for the business objectives of the other
company, and will allow the financial markets to better recognize and evaluate
the merits of the Warehouse Club Business and the Home Improvement Business,
thereby enhancing the likelihood that each will achieve appropriate market
recognition for its own performance.
The Waban Board also believes the improved recognition by the financial
markets resulting from the anticipated separation of the Home Improvement
Business and the Warehouse Club Business into independent publicly owned
companies will facilitate the conversion of the Company's 6.5% Convertible
Subordinated Debentures due 2002 (the "Convertible Debentures") into Common
Stock. The Convertible Debentures are convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable during the period beginning July
1, 1997 at a price of 102.889% of par, plus accrued interest. As described
herein, the Company has called the Convertible Debentures for redemption. The
Distribution and the related transactions described in this Proxy
Statement/Prospectus are expected to reduce the aggregate level of
indebtedness and interest cost borne by the two companies, and to increase the
aggregate amount of stockholders' equity, as compared to Waban.
We at Waban are excited about the future prospects for both HomeBase and BJI
as separate publicly owned companies. The Board of Directors believes that the
Distribution is in the best interests of stockholders and unanimously (with
two directors abstaining) recommends that stockholders vote "FOR" all of the
Distribution proposals.
<PAGE>
Details of the Distribution proposals are set forth in the accompanying
Proxy Statement/Prospectus and should be considered carefully. Stockholders of
Waban are not entitled to appraisal rights under Delaware law in connection
with any of the proposals to be voted on at the Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE MEETING. UNLESS MARKED OTHERWISE, ALL VALIDLY SIGNED PROXY
CARDS WILL BE VOTED "FOR" EACH OF THE PROPOSALS. IF YOU ATTEND THE MEETING,
YOU MAY VOTE IN PERSON EVEN IF YOU HAVE SENT IN YOUR PROXY CARD.
Sincerely,
Herbert J. Zarkin Lorne R. Waxlax
President and Chief Executive Officer Chairman of the Board
<PAGE>
PRELIMINARY COPY
Waban Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 10, 1997
----------------
The 1997 Annual Meeting of Stockholders of Waban Inc. ("Waban" or the
"Company") will be held at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts on Thursday, July 10, 1997, at 11:00 a.m. (the
"Meeting"). At the Meeting, holders of Waban Common Stock will be asked:
1. To consider and vote upon nine related proposals (the "Distribution
Proposals") described in the accompanying Proxy Statement/Prospectus, as
follows:
(i)Proposal One: Approval of a distribution (the "Distribution") in
the form of a tax-free special dividend to all holders of Waban's
outstanding shares of common stock, on a one-for-one basis, of all
outstanding shares of common stock held by Waban, and the associated
stockholders' rights, of a newly formed, wholly-owned subsidiary of the
Company, to be known as "BJ's Wholesale Club, Inc." ("BJI"), which will
own and operate the "BJ's Wholesale Club" business presently conducted
as a division of Waban;
(ii)Proposal Two: Approval of an amendment of the Certificate of
Incorporation of Waban, which will change the name of Waban to
"HomeBase, Inc." after the Distribution;
(iii)Proposal Three: Approval of (x) an amendment to the Waban 1989
Stock Incentive Plan to increase by 1,500,000 shares the number of
shares available for issuance thereunder; and (y) the continuance of
the Waban 1989 Stock Incentive Plan, as amended;
(iv)Proposal Four: Approval of the Waban 1997 Stock Incentive Plan;
(v)Proposal Five: Approval of the BJI 1997 Replacement Stock
Incentive Plan;
(vi)Proposal Six: Approval of the BJI 1997 Stock Incentive Plan;
(vii)Proposal Seven: Approval of the BJI Management Incentive Plan;
(viii)Proposal Eight: Approval of the BJI Growth Incentive Plan; and
(ix)Proposal Nine: Approval of the BJI 1997 Director Stock Option
Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described in the accompanying Proxy Statement/Prospectus,
from and after the Distribution, the Board of Directors of HomeBase will
differ from the Waban Board of Directors (the "Waban Board").
3. To consider such other business as may properly come before the
Meeting.
The approval of Distribution Proposal One will also constitute approval of
the Asset Transfers (as defined in the enclosed Proxy Statement/Prospectus)
from Waban to BJI.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
The record date for stockholders entitled to notice of, and to vote at, the
Meeting is the close of business on May 23, 1997. This Notice, the Proxy
Statement/Prospectus and the accompanying form of proxy are first being mailed
to stockholders of the Company on or about June , 1997. The list of
stockholders will be available for examination by stockholders at the offices
of Hale and Dorr LLP, 60 State Street, Boston, MA 02109-1803 for the ten days
prior to the Meeting.
<PAGE>
The Waban Board has retained discretion, even if stockholder approval of the
Distribution Proposals is obtained and the other conditions to the
Distribution are satisfied, to abandon, defer or modify the Distribution or
any other element contained in the Distribution Proposals.
By Order of the Board of Directors
SARAH M. GALLIVAN
Secretary
Natick, Massachusetts
June , 1997
IT IS EXTREMELY IMPORTANT THAT AS MANY SHARES OF COMMON STOCK AS POSSIBLE BE
REPRESENTED AT THE MEETING. THEREFORE, WHETHER OR NOT YOU PLAN TO BE PRESENT
AT THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND
PROMPTLY RETURN IT IN THE ENCLOSED ADDRESSED ENVELOPE. NO POSTAGE IS NECESSARY
IF THE PROXY IS MAILED IN THE UNITED STATES. IF YOU ARE PRESENT AT THE
MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
[FOR HOLDERS OF CONVERTIBLE DEBENTURES ONLY]
WABAN INC.
NOTICE OF REDEMPTION
AND
EXPIRATION OF CONVERSION RIGHT
TO THE HOLDERS OF 6.5% CONVERTIBLE SUBORDINATED DEBENTURES
DUE JULY 1, 2002
REDEMPTION DATE: JULY , 1997
CONVERSION RIGHT EXPIRATION DATE: 6:00 P.M.,
EASTERN TIME, JUNE , 1997
(CUSIP NO. 929394 AA 2)*
NOTICE IS HEREBY GIVEN that, in accordance with Article Three of the
Indenture, dated as of July 1, 1992 (the "Indenture"), between Waban Inc.
("Waban" or the "Company") and First Trust National Association (as successor
to Continental Bank, National Association, the "Trustee"), the Company has
called for redemption and will redeem on July , 1997 (the "Redemption Date")
all of its outstanding 6.5% Convertible Subordinated Debentures due 2002 (the
"Convertible Debentures").
Convertible Debentures which remain outstanding on the Redemption Date will
be redeemed at a redemption price of $1,028.89, plus accrued interest of $
from July 1, 1997 to the Redemption Date, for a total redemption price of $
for each $1,000 principal amount of Convertible Debentures (the "Redemption
Price"). No interest will accrue on the Convertible Debentures from and after
the Redemption Date. The Redemption Price will become due and payable on the
Redemption Date upon surrender of the Convertible Debentures to the Trustee,
who is also acting as conversion agent and paying agent with respect to the
Convertible Debentures (in such capacities, the "Paying and Conversion
Agent"), at any of its addresses set forth in this Notice. All Convertible
Debentures outstanding on the Redemption Date will be deemed to be redeemed by
the Company, whether or not they have been surrendered for redemption, and all
rights of the holders thereof will terminate, except for the right to receive
payment of the Redemption Price upon surrender of their certificates therefor.
The Convertible Debentures are convertible into shares of Common Stock of
the Company ("Waban Common Stock") at a conversion price of $24.75 per share
of Waban Common Stock (equivalent to a conversion rate of 40.404 shares of
Waban Common Stock for each $1,000 principal amount of Convertible Debentures)
until 6:00 p.m., Eastern time, on June , 1997 (the "Expiration Date"), at
which time the conversion privilege terminates. Cash will be paid in lieu of
any fractional shares of Waban Common Stock upon conversion. The Company will
pay to the persons in whose names outstanding Convertible Debentures are
registered at the close of business on June 15, 1997 (the next scheduled
regular record date for interest payments) the interest payment of $32.50 for
each $1,000 principal amount of Convertible Debentures due on July 1, 1997
(the next scheduled regular interest payment date). ANY HOLDER THAT CONVERTS
CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997 MUST, AS A CONDITION TO SUCH
CONVERSION, SUBMIT WITH THE CONVERTIBLE DEBENTURES BEING CONVERTED AN AMOUNT,
IN NEW YORK CLEARING HOUSE FUNDS OR OTHER FUNDS ACCEPTABLE TO THE COMPANY,
EQUAL TO THE INTEREST OF $32.50 FOR EACH $1,000 PRINCIPAL AMOUNT OF
CONVERTIBLE DEBENTURES PAYABLE ON SUCH CONVERTIBLE DEBENTURES ON JULY 1, 1997.
SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE ECONOMIC BENEFIT OF SUCH INTEREST
PAYMENT. No other payment or adjustment will be made on account of interest on
the Convertible Debentures accruing after January 1, 1997. THE CONVERTIBLE
DEBENTURES WILL NOT BE CONVERTIBLE AFTER 6:00 P.M., EASTERN TIME, ON JUNE ,
1997.
- --------
* The CUSIP number referenced above has been assigned by the Committee on
Uniform Securities Identification and is included solely for the convenience
of holders of the Convertible Debentures. Neither the Company nor the
Trustee nor the Paying and Conversion Agent shall be responsible for the
selection or use of this CUSIP number, nor is any representation made as to
its correctness on the Convertible Debentures or as indicated in any
redemption notice.
<PAGE>
On June , 1997, the reported closing price of the Waban Common Stock on the
New York Stock Exchange ("NYSE") was $ per share. A holder who converted
Convertible Debentures on June , 1997 would have received Waban Common Stock
(including cash in lieu of any fractional share) having a market value of
$ , for each $1,000 principal amount of Convertible Debentures, based on the
reported closing price of the Waban Common Stock on the NYSE on that date. If
such principal amount of Convertible Debentures were surrendered for
redemption on the Redemption Date, such holder would receive $ in cash. In
addition, the holder of record on June 15, 1997 of any Convertible Debentures
surrendered for redemption will have received a payment of interest on July 1,
1997 in the amount of $32.50 for each $1,000 principal amount of Convertible
Debentures. WHILE NO ASSURANCE CAN BE GIVEN AS TO ANY FUTURE PRICE FOR THE
WABAN COMMON STOCK, AS LONG AS THE MARKET PRICE OF THE WABAN COMMON STOCK
(AFTER GIVING EFFECT TO COMMISSIONS AND OTHER COSTS OF SALE) REMAINS AT OR
ABOVE $ PER SHARE, UPON CONVERSION OF THEIR CONVERTIBLE DEBENTURES, HOLDERS
WILL RECEIVE WABAN COMMON STOCK AND CASH FOR FRACTIONAL SHARES HAVING A
CURRENT MARKET VALUE EQUAL TO OR GREATER THAN THE REDEMPTION PRICE PLUS THE
JULY 1 INTEREST PAYMENT OF $32.50 FOR EACH $1,000 PRINCIPAL AMOUNT OF
CONVERTIBLE DEBENTURES. It should be noted, however, that the price of the
Waban Common Stock received upon conversion will fluctuate in the market, and
that holders may incur various expenses of sale if such Waban Common Stock is
sold.
As described in more detail under the heading "Information for Holders of
Convertible Debentures--Redemption of Convertible Debentures and Alternatives
to Redemption" in the accompanying Proxy Statement/Prospectus, holders of
Convertible Debentures have the following three alternatives:
1. Conversion of Convertible Debentures into Waban Common
Stock. Convertible Debentures may be converted at the option of the holder
thereof into fully paid and nonassessable shares of Waban Common Stock at
the conversion price of $24.75 per share of Waban Common Stock (equivalent
to a conversion rate of 40.404 shares of Waban Common Stock for each $1,000
principal amount of Convertible Debentures) until 6:00 p.m., Eastern time,
on the Expiration Date, at which time the conversion privilege terminates.
To effect such conversion, holders of Convertible Debentures must surrender
the certificate(s) for their Convertible Debentures at one of the offices
of the Paying and Conversion Agent set forth below prior to 6:00 p.m.,
Eastern time, on the Expiration Date, accompanied by an irrevocable written
notice of election to convert such Convertible Debentures into Waban Common
Stock. Completion, execution and return of the Letter of Transmittal, a
copy of which has been provided to all holders of Convertible Debentures,
marked clearly to indicate a preference for conversion in Item B of the
Letter of Transmittal, will constitute compliance with such notice
requirements.
ANY HOLDER THAT CONVERTS CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997 MUST,
AS A CONDITION TO SUCH CONVERSION, SUBMIT WITH THE CONVERTIBLE DEBENTURES
BEING CONVERTED AN AMOUNT, IN NEW YORK CLEARING HOUSE FUNDS OR OTHER FUNDS
ACCEPTABLE TO THE COMPANY, EQUAL TO THE INTEREST OF $32.50 FOR EACH $1,000
PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES PAYABLE ON SUCH CONVERTIBLE
DEBENTURES ON JULY 1, 1997. SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE
ECONOMIC BENEFIT OF SUCH INTEREST PAYMENT.
Cash will be paid in lieu of any fractional shares of Waban Common Stock
upon conversion.
2. Redemption of Convertible Debentures for Cash. Any Convertible
Debenture which has not been converted into Waban Common Stock on or prior
to 6:00 p.m., Eastern time, on the Expiration Date, will be redeemed on the
Redemption Date (July , 1997) for the Redemption Price of $ for each
$1,000 principal amount of Convertible Debentures. Payment of the
Redemption Price will be made to the holders of Convertible Debentures by
the Paying and Conversion Agent upon surrender by the holders of
Convertible Debentures to the Paying and Conversion Agent. On and after the
Redemption Date, interest will cease to accrue on the Convertible
Debentures and holders of Convertible Debentures will not have any rights
as such holders other than the right to receive the Redemption Price upon
such surrender for redemption.
3. Sale in Open Market. Convertible Debentures may be sold through open
market brokerage transactions. Holders of Convertible Debentures who wish
to make open market sales should consult with their own advisors concerning
if and when their Convertible Debentures should be sold.
<PAGE>
See "Information for Holders of Convertible Debentures--Certain Federal
Income Tax Considerations" in the accompanying Proxy Statement/Prospectus for
a summary of the material United States federal income tax considerations
relevant to the conversion, redemption or sale of the Convertible Debentures.
Holders of Convertible Debentures are advised to consult their own tax
advisors regarding the federal, state, local and foreign tax consequences of
the conversion, redemption or sale of the Convertible Debentures.
Convertible Debentures must be surrendered to the Paying and Conversion
Agent in order to collect the Redemption Price or to convert the Convertible
Debentures. A Letter of Transmittal, a copy of which is enclosed herewith, or
other appropriate notification in compliance with the Indenture, must be used
in connection with the surrender of Convertible Debentures for conversion.
Convertible Debentures are to be surrendered for conversion or redemption at
one of the following offices of the Paying and Conversion Agent:
<TABLE>
<S> <C> <C>
By Registered Mail or Insured Mail: By Hand or Overnight Courier: By Hand, Overnight Courier,
First Trust National Association First Trust National Association Registered Mail or Insured Mail:
Corporate Trust Depository 180 East 5th Street First Trust National Association
P.O. Box 64111 4th Floor Window 100 Wall Street, Suite 2000
St. Paul, MN 55164-0111 St. Paul, MN 55101 New York, New York 10005
Attn: Corporate Trust Attn: Corporate Trust Attention: Cathy Donohue
</TABLE>
By Facsimile: By Facsimile:
(612) 244-1537 (212) 514-7431
Confirm by Telephone: Confirm by Telephone:
(612) 973-5800 (212) 361-2546
The method of delivery of the Convertible Debentures is at your option and
risk. If mail is used, certified or registered mail, properly insured, is
recommended.
FAILURE TO SURRENDER CONVERTIBLE DEBENTURES AT THE OFFICES OF THE PAYING AND
CONVERSION AGENT FOR CONVERSION PRIOR TO 6:00 P.M., EASTERN TIME, ON JUNE ,
1997, WILL AUTOMATICALLY RESULT IN SUCH CONVERTIBLE DEBENTURES BEING REDEEMED
AT THE REDEMPTION PRICE.
Enclosed herewith is a copy of the Company's Proxy Statement/Prospectus
relating to the issuance of Waban Common Stock upon conversion of the
Convertible Debentures. The Proxy Statement/Prospectus also describes the
proposed spin-off of the Company's BJ's Wholesale Club division. You are
encouraged to review such Proxy Statement/Prospectus prior to making any
decision with respect to the conversion, redemption or sale of your
Convertible Debentures. Additional copies of this Notice, the Letter of
Transmittal and the Proxy Statement/Prospectus may be obtained from the Paying
and Conversion Agent at its address, First Trust National Association, 180
East 5th Street, 4th Floor Window, St. Paul, MN 55164-0111, or telephone
number, (612) 973-5800.
THIS NOTICE OF REDEMPTION AND EXPIRATION OF CONVERSION RIGHT IS NOT
CONDITIONED UPON THE COMPLETION OF THE SPIN-OFF. THERE CAN BE NO ASSURANCE
THAT THE PROPOSED SPIN-OFF WILL TAKE PLACE. SEE "RISK FACTORS--RISK OF NON-
OCCURRENCE OF DISTRIBUTION" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
WABAN INC.
Dated: June , 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+U.S. SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR +
+MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 5, 1997
WABAN INC.
PROXY STATEMENT/PROSPECTUS
4,321,171 SHARES, PAR VALUE $.01 PER SHARE, OF COMMON STOCK OF WABAN INC.
-----------
BJ'S WHOLESALE CLUB, INC.
PROSPECTUS
38,601,761 SHARES, PAR VALUE $.01 PER SHARE, OF COMMON STOCK OF BJ'S WHOLESALE
CLUB, INC.
-----------
This Proxy Statement/Prospectus is being furnished to the stockholders of
Waban Inc., a Delaware corporation ("Waban" or the "Company"), in connection
with the solicitation of proxies by Waban's Board of Directors (the "Waban
Board") from holders of shares of Waban common stock, $.01 par value per share
("Waban Common Stock"), for use at the annual meeting of stockholders of Waban
to be held on July 10, 1997 at 11:00 a.m. at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts (the "Meeting").
This Proxy Statement/Prospectus is also being furnished to the holders of
Waban's 6.5% Convertible Subordinated Debentures due 2002 (the "Convertible
Debentures") in connection with the Notice of Redemption and Expiration of
Conversion Right and to purchasers of Waban Common Stock intially issued by
Waban pursuant to a standby purchase agreement (the "Standby Purchase
Agreement") entered into among Waban, BJ's Wholesale Club, Inc. ("BJI"), and
Prudential Securities Incorporated (the "Standby Purchaser") or acquired by the
Standby Purchaser upon conversion of Convertible Debentures. See "Information
for Holders of Convertible Debentures" and "Standby Agreement".
At the Meeting, the stockholders of the Company will be asked to consider and
vote upon a group of related proposals which provide for the tax-free
distribution (the "Distribution") in the form of a special dividend to
stockholders, on a one-for-one basis, of all outstanding shares of the common
stock held by Waban, and the associated stockholders' rights, of BJI, a newly
formed, wholly-owned subsidiary of Waban. The Distribution will separate BJ's
Wholesale Club, the Company's food and general merchandise warehouse club
business (the "Warehouse Club Business"), from HomeBase, the Company's home
improvement business (the "Home Improvement Business"). After the Distribution,
the Company will change its name to HomeBase, Inc., and will continue to
operate and develop the Home Improvement Business. BJI will operate and develop
the Warehouse Club Business after the Distribution.
The aggregate number of shares of BJI common stock, $.01 par value per share
("BJI Common Stock"), covered by this Proxy Statement/Prospectus is based upon
the number of shares of Waban Common Stock outstanding as of the date of this
Proxy Statement/Prospectus plus the sum of (a) the maximum number of shares of
Waban Common Stock issuable upon the conversion of the Convertible Debentures,
and (b) the maximum number of shares of Waban Common Stock estimated to be
issuable prior to the Distribution pursuant to outstanding options. The
aggregate number of shares of Waban Common Stock covered by this Proxy
Statement/Prospectus is based upon the maximum number of shares of Waban Common
Stock issuable upon the conversion of the Convertible Debentures.
The Distribution may not occur unless all of the Distribution Proposals are
approved. In addition, the Waban Board has reserved discretion to abandon,
defer or modify the Distribution at any time prior to the date of the
Distribution. See "The Distribution--Conditions; Termination." There is
currently no public market for BJI Common Stock. BJI intends to list the BJI
Common Stock on the New York Stock Exchange.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 22.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is June , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Forward-Looking Information............................................... 4
Incorporation of Certain Documents by Reference........................... 4
Proxy Statement/Prospectus Summary........................................ 5
Risk Factors.............................................................. 22
Introduction.............................................................. 27
Matters for Consideration at the Meeting................................ 27
Voting Rights and Proxy Information..................................... 28
No Appraisal Rights..................................................... 29
Recent Developments....................................................... 30
The Distribution.......................................................... 31
Background and Reasons for the Distribution............................. 31
Manner of Effecting the Distribution.................................... 32
Federal Income Tax Aspects of the Distribution.......................... 32
Accounting Treatment.................................................... 34
Listing and Trading of BJI Common Stock................................. 34
Listing and Trading of HomeBase Common Stock............................ 34
Conditions; Termination................................................. 34
Relationship Between BJI and HomeBase after the Distribution; Conflicts of
Interest................................................................. 36
Distribution Agreement.................................................. 36
Leases.................................................................. 37
Services Agreement...................................................... 37
Employee Benefits Agreement............................................. 38
Tax Sharing Agreement................................................... 38
Procedures for Addressing Conflicts..................................... 39
Financing; Treatment of Outstanding Long-Term Debt........................ 39
Consents; Regulatory Approvals............................................ 40
Waban Capitalization...................................................... 41
Selected Historical Financial Data of Waban............................... 42
Pro Forma Financial Data of Waban......................................... 43
Management's Discussion and Analysis of Unaudited Pro Forma Financial Data
of Waban................................................................. 52
BJI Capitalization........................................................ 53
Selected Historical Financial Data of BJI................................. 54
Pro Forma Financial Data of BJI........................................... 55
Management's Discussion and Analysis of Financial Condition and Results of
Operations of BJI........................................................ 62
BJI Business and Properties............................................... 65
HomeBase Business and Properties.......................................... 70
Management of BJI......................................................... 75
Management of HomeBase.................................................... 85
Price Range of Waban Common Stock and Dividend Policy..................... 94
Ownership of Waban Common Stock........................................... 95
Description of BJI Capital Stock.......................................... 97
Certain Provisions of the BJI Certificate and the BJI By-laws............. 97
Description of Waban Capital Stock........................................ 103
Approval of Amendment to the Waban Certificate of Incorporation........... 104
Approval of Amendments to the Waban 1989 Stock Incentive Plan and
Continuance of the Plan.................................................. 104
Approval of Waban 1997 Stock Incentive Plan .............................. 109
Approval of the BJI 1997 Replacement Stock Incentive Plan ................ 111
Approval of the BJI 1997 Stock Incentive Plan............................. 112
Approval of the BJI Management Incentive Plan............................. 113
Approval of the BJI Growth Incentive Plan................................. 114
Approval of the BJI 1997 Director Stock Option Plan....................... 116
Election of Directors..................................................... 117
Information for Holders of Convertible Debentures......................... 122
Standby Purchase Agreement................................................ 126
Experts................................................................... 127
Legal Matters............................................................. 127
Other Matters............................................................. 127
Index to Financial Statements............................................. F-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
Waban is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Waban with the Commission can be
inspected and copied at the Commission's public reference room located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and the public
reference facilities in the Commission's Regional Offices located at: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, Waban is required to file electronic
versions of such material with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy statements and other information regarding registrants, such as
the Company, that file electronically with the Commission. In addition,
reports, proxy statements, and other information concerning Waban can be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-1 (together with all amendments and exhibits, referred to
as the "BJI Registration Statement") filed by BJI with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of BJI Common Stock offered hereby. This Proxy Statement/Prospectus
does not contain all of the information included in the BJI Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements contained herein concerning the
provisions of any document do not purport to be complete, and, in each
instance, are qualified in all respects by reference to the copy of such
document filed as an exhibit to the BJI Registration Statement or otherwise
filed with the Commission. Each such statement is subject to and qualified in
its entirety by such reference. Reference is made to the BJI Registration
Statement and to the exhibits relating thereto for further information with
respect to BJI and the shares of BJI Common Stock offered hereby. The BJI
Registration Statement can be inspected and copied at the public reference
facilities of the Commission listed above.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits, referred to
as the "Waban Registration Statement") filed by Waban with the Commission
under the Securities Act, with respect to the shares of Waban Common Stock
offered hereby. This Proxy Statement/Prospectus does not contain all of the
information included in the Waban Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
document do not purport to be complete, and, in each instance, are qualified
in all respects by reference to the copy of such document filed as an exhibit
to the Waban Registration Statement or otherwise filed with the Commission.
Each such statement is subject to and qualified in its entirety by such
reference. Reference is made to the Waban Registration Statement and to the
exhibits relating thereto for further information with respect to Waban and
the shares of Waban Common Stock offered hereby. The Waban Registration
Statement can be inspected and copied at the public reference facilities of
the Commission listed above.
Following the completion of the Distribution, Waban will continue to be
subject to the informational requirements of the Exchange Act, and, in
accordance therewith, will continue to file reports, proxy statements and
other information with the Commission and the New York Stock Exchange. In
addition, following the completion of the Distribution, BJI also will be
required to comply with the reporting requirements of the Exchange Act and, in
accordance therewith, to file reports, proxy statements and other information
with the Commission and the New York Stock Exchange. After the Distribution,
such reports, proxy statements and other information may be inspected and
copied at the public reference facilities of the Commission listed above and
obtained by mail from the Commission as described above. Additionally,
following the completion of the Distribution, BJI intends to provide annual
reports, containing audited financial statements, to its stockholders in
connection with its annual meetings of stockholders.
3
<PAGE>
FORWARD-LOOKING INFORMATION
This Proxy Statement/Prospectus contains or incorporates by reference
"forward-looking statements," including certain information with respect to
the plans and strategies of Waban and BJI. For this purpose, any statements
contained herein or incorporated herein by reference that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause actual
events or actual results of Waban or BJI to differ materially from those
indicated by such forward-looking statements. These factors include, without
limitation, those set forth in the section of this Proxy Statement/Prospectus
entitled "Risk Factors," as well as other factors noted elsewhere in this
Proxy Statement/Prospectus or incorporated in this Proxy Statement/Prospectus
by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Waban with the Commission are hereby
incorporated by reference by Waban in this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the year ended January 25, 1997, as
amended.
2. The description of Waban's Common Stock in the "Description of Capital
Stock" filed as Exhibit 28.1 to the Waban Registration Statement on Form
10 dated May 12, 1989, as amended to date.
All documents filed by Waban with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the termination of the offering of the
shares of Waban Common Stock hereby shall be deemed to be incorporated herein
by reference by Waban and to be a part hereof from the respective dates of
filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus and the Waban Registration
Statement to the extent that a statement contained herein or in any other
subsequently filed document which is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus or the
Waban Registration Statement.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Waban will provide without
charge to each person, including any beneficial owner, to whom a copy of this
Proxy Statement/Prospectus is delivered, on the written or oral request of any
such person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any or all of the foregoing
documents incorporated herein by reference (other than any exhibits to such
documents which are not specifically incorporated herein by reference).
Requests should be directed to:
Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: Investor Relations Department
Telephone No. (508) 651-6133
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF WABAN OR BJI CONCERNING THE SECURITIES OFFERED
HEREBY, OR ANY OF THE MATTERS BEING CONSIDERED AT THE MEETING IF NOT CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER, OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION.
4
<PAGE>
PROXY STATEMENT/PROSPECTUS SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Proxy Statement/Prospectus, all of which should be
reviewed carefully. Fiscal year references refer to Waban's fiscal year which
ends on the last Saturday of January of the following calendar year. For
example, Waban's 1996 fiscal year ended on January 25, 1997.
THE ANNUAL MEETING
DATE, TIME AND PLACE OF ANNUAL
MEETING........................ The Annual Meeting (the "Meeting") of the
stockholders of the Company will be held on
Thursday, July 10, 1997 at 11:00 a.m. at the
offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts.
PURPOSE OF THE MEETING.......... At the Meeting, the stockholders of the
Company will be asked to consider and vote
upon the following matters:
1. To consider and vote upon the following
nine proposals relating to the Distribution
(the "Distribution Proposals"):
(i) Approval of a distribution (the
"Distribution") in the form of a tax-free
special dividend to all holders of Waban's
outstanding shares of common stock, on a one-
for-one basis, of all outstanding shares of
common stock held by Waban, and the
associated stockholders' rights, of a newly
formed, wholly-owned subsidiary of the
Company, BJ's Wholesale Club, Inc., which
will own and operate the "BJ's Wholesale
Club" business presently conducted as a
division of Waban;
(ii) Approval of an amendment of the
Certificate of Incorporation of Waban, which
will change the name of Waban to "HomeBase,
Inc." after the Distribution;
(iii) Approval of (x) an amendment to the
Waban 1989 Stock Incentive Plan to increase
by 1,500,000 shares the number of shares
available for issuance thereunder, and (y)
the continuance of the Waban 1989 Stock
Incentive Plan, as amended;
(iv) Approval of the Waban 1997 Stock
Incentive Plan;
(v) Approval of the BJI 1997 Replacement
Stock Incentive Plan;
(vi) Approval of the BJI 1997 Stock Incentive
Plan;
(vii) Approval of the BJI Management
Incentive Plan;
(viii) Approval of the BJI Growth Incentive
Plan; and
(ix) Approval of the BJI 1997 Director Stock
Option Plan.
2. To elect three directors to serve until
the 2000 Annual Meeting of Stockholders. As
described herein, from and after the
Distribution, the board of directors of
HomeBase will differ from the Waban Board.
5
<PAGE>
The Waban Board believes that the passage of
each of the Distribution Proposals is
critical to the Distribution. Accordingly,
the Waban Board reserves the right not to
declare the Distribution if any of the
Distribution Proposals is not approved.
VOTING.......................... Each stockholder of record at the close of
business on May 23, 1997 (the "Meeting Record
Date") is entitled to notice of, and to vote
at, the Meeting. Each share of Common Stock
of Waban ("Waban Common Stock") is entitled
to one vote on each matter presented at the
Meeting. All such shares entitled to notice
of and to vote at the Meeting are referred to
herein as "Record Shares". The presence in
person or by proxy of stockholders holding
Record Shares which are entitled to a
majority of the votes of all holders of
Record Shares will constitute a quorum for
the transaction of business at the Meeting.
VOTES REQUIRED.................. The Company believes that, under Delaware
law, which governs the Distribution, a vote
of stockholders is not required in connection
with the transfer of the Warehouse Club
Business to BJI or the Distribution
(Distribution Proposal One). However, the
Company is seeking stockholder approval of
Distribution Proposal One because of the
importance of the Distribution, and to the
extent that a stockholder vote is required,
approval of Distribution Proposal One will
constitute such approval. Approval of
Distribution Proposals One and Two will
require the affirmative vote of the holders
of a majority of the outstanding Record
Shares. Approval of Distribution Proposals
Three through Nine will require the
affirmative vote of the holders of a majority
of the votes cast at the Meeting. Under the
Company's by-laws, so long as a quorum is
present at the Meeting, the election of
directors will require the affirmative vote
of the holders of shares representing a
plurality of the votes cast at the Meeting.
In the event that stockholders fail to
approve all of the Distribution Proposals,
the Waban Board may decide not to proceed
with the Distribution, in which case Waban
intends to continue to operate the Warehouse
Club Business and the Home Improvement
Business and may consider alternative
restructuring options.
Stockholder approval of the Distribution
Proposals may not prevent a stockholder from
subsequently seeking to challenge the
Distribution Proposals or the actions of the
Waban Board in approving the Distribution
Proposals. However, although Waban cannot
determine in advance its position with
respect to any such challenge, it is possible
that Waban could assert a stockholder's
approval of the Distribution Proposals as a
defense, in which case if such defense were
held meritorious, such stockholder could
effectively be estopped from asserting such
claims.
6
<PAGE>
RISK FACTORS.................... Stockholders should carefully consider the
factors discussed under "Risk Factors" as
well as the other information set forth
herein before voting on the Distribution
Proposals or making an investment decision.
Risks relating to the Distribution include:
the absence of operating histories for BJI
and HomeBase as separate companies; the fact
that each of BJI and HomeBase will be a less
diversified company following the
Distribution than Waban currently is; the
adverse tax consequences which would be
incurred if the Distribution fails to qualify
as a tax-free spin-off; the risk that the
Distribution does not occur; uncertainty
regarding the trading prices of BJI and
HomeBase common stock after the Distribution;
the potential for future conflicts of
interest between BJI and HomeBase, including
conflicts resulting from continuing lease and
related indemnification obligations; and the
risk of legal challenges to the Distribution
by creditors of Waban.
BOARD RECOMMENDATION............ THE BOARD OF DIRECTORS OF THE COMPANY
BELIEVES THAT THE DISTRIBUTION IS IN THE BEST
INTERESTS OF STOCKHOLDERS AND UNANIMOUSLY
(WITH MR. LOEWY AND MS. HAMILTON ABSTAINING)
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL
OF THE DISTRIBUTION PROPOSALS. Mr. Loewy and
Ms. Hamilton abstained because they are a
director and employee, respectively, of The
TJX Companies, Inc. See "The Distribution--
Background and Reasons for the Distribution."
THE DISTRIBUTION
EFFECT.......................... The Distribution will separate Waban's food
and general merchandise warehouse club
business (the "Warehouse Club Business"),
which is operated as Waban's "BJ's Wholesale
Club" division (the "BJ's Division"), from
Waban's home improvement warehouse business
(the "Home Improvement Business"), which is
operated as Waban's "HomeBase" division (the
"HomeBase Division"). After the Distribution,
BJI (as used herein, to include BJI's
consolidated subsidiaries unless the context
requires otherwise) will be an independent,
publicly owned company that will operate and
develop the Warehouse Club Business. After
the Distribution, Waban will change its name
to HomeBase, Inc. ("HomeBase"), and HomeBase
(as used herein, to include HomeBase's
consolidated subsidiaries unless the context
requires otherwise) will continue to operate
and develop the Home Improvement Business.
SHARES TO BE DISTRIBUTED........ It is expected that the Waban Board will
declare the Distribution after the Meeting.
On the date of the Distribution (the
"Distribution Date"), Waban will make the
Distribution to stockholders of record of
Waban as of the Distribution
7
<PAGE>
Record Date (as defined below). Each such
stockholder will receive one share of BJI
Common Stock (and one associated BJI
Preferred Stock Purchase Right) for every
share of Waban Common Stock held by such
stockholder. See "The Distribution--Manner of
Effecting the Distribution."
DISTRIBUTION RECORD DATE........ The record date for the Distribution (the
"Distribution Record Date") will be
established by the Waban Board of
Directors (the "Waban Board") following the
Meeting. The Distribution Record Date will be
a date that is as soon as practicable
following the declaration of the
Distribution. See "The Distribution--Manner
of Effecting the Distribution."
DISTRIBUTION DATE............... The Distribution Date will be established by
the Waban Board following the Meeting. On the
Distribution Date, Waban will deliver shares
of BJI Common Stock to the Distribution
Agent. The Distribution Agent will mail stock
certificates as soon as practicable
thereafter. See "The Distribution--Manner of
Effecting the Distribution."
CONDITIONS TO THE DISTRIBUTION..
The Distribution may not occur unless all of
the Distribution Proposals are approved. In
addition, the Distribution is conditioned
upon the following, which are the only
material conditions to the Distribution: (i)
the declaration by the Waban Board of the
Distribution; (ii) all of the Convertible
Debentures having been converted or redeemed
and any shares required to be purchased from
the Company pursuant to the Standby Purchase
Agreement having been issued; (iii) the
transfers of assets and liabilities
contemplated by the Distribution Agreement to
be entered into between BJI and Waban prior
to the Distribution having been consummated
in all material respects; (iv) the BJI Common
Stock and associated BJI Rights having been
approved for listing on the New York Stock
Exchange subject to official notice of
issuance; (v) BJI and HomeBase having entered
into agreements with lenders to provide
sufficient financing upon consummation of the
Distribution; (vi) the Registration Statement
on Form 8-A with respect to the BJI Common
Stock and the BJI Rights (the "Form 8-A
Registration Statement") having become
effective under the Exchange Act; (vii)
continued applicability of the private letter
ruling received by Waban from the IRS with
respect to the tax-free nature of the
Distribution; and (viii) the repayment by
Waban of its outstanding Senior Notes (as
defined below) and the retirement or
defeasance of Waban's Senior Subordinated
Notes (as defined below). Even if all
conditions are satisfied, the Waban Board has
reserved discretion to abandon, defer or
modify the Distribution at any time prior to
the Distribution Date. In order to effect the
redemption of the Convertible Debentures, the
Company must obtain a waiver under its
existing bank line of credit. See "The
Distribution--Conditions; Termination."
8
<PAGE>
BACKGROUND AND REASONS FOR THE
DISTRIBUTION...................
The Waban Board believes that the
Distribution will accomplish a number of
important business goals. Separation of the
Home Improvement Business and the Warehouse
Club Business into independent publicly owned
companies will allow each company to
concentrate exclusively on its own business
objectives without concern for the business
objectives of the other company, and will
allow the financial markets to better
recognize and evaluate the merits of the
Warehouse Club Business and the Home
Improvement Business, thereby enhancing the
likelihood that each will achieve appropriate
market recognition for its own performance.
The Waban Board also believes the improved
recognition by the financial markets
resulting from the anticipated separation of
the Home Improvement Business and the
Warehouse Club Business into independent
publicly owned companies will facilitate the
conversion of the Convertible Debentures into
Common Stock. The Convertible Debentures are
convertible into Waban Common Stock at a
price of $24.75 per share, and are redeemable
during the period beginning July 1, 1997 at a
price of 102.889% of par, plus accrued
interest. Waban has called the Convertible
Debentures for redemption and, in connection
therewith, has entered into the Standby
Purchase Agreement providing for the Standby
Purchaser, subject to certain conditions, to
purchase up to 2,160,606 shares of Waban
Common Stock. Subject to the terms and
conditions of the Standby Purchase Agreement,
the Standby Purchaser will be obligated to
purchase from the Company such number of
shares of Waban Common Stock as would have
been issuable upon conversion of the Excess
Convertible Debentures (but in no event more
than 2,160,606 shares of Waban Common Stock).
The term "Excess Convertible Debentures"
means the aggregate principal amount of
Convertible Debentures that are not duly
surrendered for conversion prior to 6:00
p.m., Eastern time, on June , 1997 (the
"Expiration Date") that exceeds $53,474,000.
The Distribution and the related transactions
described in this Proxy Statement/Prospectus
are expected to reduce the aggregate level of
indebtedness and interest costs borne by
Waban and BJI after the Distribution, and to
increase the aggregate amount of
stockholders' equity, as compared to Waban.
In addition, the Distribution is expected to
enhance the ability of the separate
corporations to attract, motivate and retain
key personnel through the provision of more
effective stock-based incentive compensation
programs that are based on the performance of
the respective business in which such
individuals are employed without being
influenced by the results of the business in
which they have no involvement.
9
<PAGE>
There can be no assurance that any of the
anticipated benefits of the Distribution
described above will be realized.
ASSET TRANSFERS................. Prior to the Distribution Date, Waban intends
to transfer to BJI all of the assets of the
BJ's Division and other related assets,
subject to the assumption by BJI of the
liabilities related thereto and certain other
liabilities (such transfers being referred to
collectively as the "Asset Transfers"). The
approval of the Distribution (Distribution
Proposal One) will also constitute approval
of the Asset Transfers.
RELATIONSHIP BETWEEN HOMEBASE
AND BJI AFTER THE
DISTRIBUTION...................
For purposes of governing certain ongoing
relationships between HomeBase and BJI after
the Distribution and to provide an orderly
transition, Waban and BJI will enter into a
Separation and Distribution Agreement, a
Services Agreement, an Employee Benefits
Agreement, and a Tax Sharing Agreement.
Following the Distribution, certain persons
will be directors of both HomeBase and BJI,
and Herbert J. Zarkin, who is currently
President and Chief Executive Officer of
Waban, will be Chairman of the Board of
Directors of both HomeBase and BJI. BJI and
HomeBase will adopt appropriate procedures to
be followed by the board of directors of each
company to limit the involvement of such
persons in conflict situations, including
matters relating to contractual relationships
or litigation between the companies. See
"Relationship Between HomeBase and BJI after
the Distribution; Conflicts of Interest--
Policies and Procedures for Addressing
Conflicts" and "Risk Factors--Potential
Conflicts."
FINANCING; TREATMENT OF
OUTSTANDING LONG-TERM DEBT.....
Prior to the Distribution, Waban intends to
refinance its outstanding long-term debt.
Waban's outstanding indebtedness as of April
26, 1997 consisted of: (i) $24,000,000 9.58%
unsecured senior notes due May 31, 1998 (the
"Senior Notes"); (ii) $100,000,000 11% senior
subordinated notes due May 15, 2004 ("Senior
Subordinated Notes"); (iii) Convertible De-
bentures (of which, $106,949,000 were out-
standing); (iv) $150,000,000 line of credit
with a group of banks, under which no
borrowings were outstanding; and (v) real es-
tate debt and obligations under capital
leases of $500,000 and $11,725,000, respec-
tively.
Prior to the Distribution, Waban will repay
the Senior Notes, and will retire (via open
market or privately negotiated purchases or a
tender offer) or defease the Senior
Subordinated Notes, with proceeds from bank
borrowings. Waban will be required to pay
certain premiums and prepayment penalties in
connection with the foregoing transactions.
See "Risk Factors--Repayment of Long-Term
Debt."
10
<PAGE>
The Convertible Debentures are convertible by
the holders into Waban Common Stock at a
conversion price of $24.75 per share, and are
redeemable during the period beginning July
1, 1997 at a price of 102.889% of par, plus
accrued interest. Waban has called the
Convertible Debentures for redemption and, in
connection therewith, has entered into the
Standby Purchase Agreement providing for the
Standby Purchaser, subject to certain
conditions, to purchase up to 2,160,606
shares of Waban Common Stock. Subject to the
terms and conditions of the Standby Purchase
Agreement, the Standby Purchaser will be
obligated to purchase from the Company such
number of shares of Waban Common Stock as
would have been issuable upon conversion of
the Excess Convertible Debentures (but in no
event more than 2,160,606 shares of Waban
Common Stock). It is a condition to the
Distribution that (i) all of the Convertible
Debentures are converted or redeemed for cash
and (ii) any shares required to be purchased
from the Company pursuant to the Standby
Purchase Agreement are actually issued. There
can be no assurance that such conditions will
be satisfied. In the event such conditions
are not satisfied, it is likely that the
Distribution would be delayed for a
significant period of time or cancelled. In
the event that the Distribution does not
occur, there can be no assurance that the
price of the Waban Common Stock would not be
materially and adversely affected.
Waban is currently in discussions with
financial institutions to amend certain terms
of its existing bank credit facility in order
to consummate the transactions described
above involving the Senior Notes, the Senior
Subordinated Notes and the Convertible
Debentures and to obtain separate bank credit
facilities for each of BJI and HomeBase
following the Distribution. It is a condition
of the Distribution that such separate credit
facilities be obtained in amounts and on
terms considered appropriate by the Waban
Board. Although Waban expects to obtain such
separate credit facilities, there is no
assurance that they can be obtained on terms
considered appropriate by the Waban Board, if
at all. See "Financing; Treatment of
Outstanding Long-Term Debt."
TAX CONSEQUENCES................ Waban has received a ruling issued by the IRS
on December 12, 1996 to the effect that the
Distribution will constitute a "spin-off"
under Section 355 of the Internal Revenue
Code (the "Code") which is tax-free to Waban
and its stockholders. Accordingly, the
receipt of BJI Common Stock should be tax-
free for Federal income tax purposes to Waban
stockholders, and Waban will not recognize
income, gain or loss solely as a result of
the Asset Transfers or the Distribution.
Waban stockholders will be required to
apportion their tax basis in
11
<PAGE>
Waban Common Stock between the BJI Common
Stock received in the Distribution and the
HomeBase Common Stock based on the relative
fair market values of such stocks on the
Distribution Date. See "Risk Factors--Certain
Tax Considerations" and "The Distribution--
Federal Income Tax Aspects of the
Distribution."
ACCOUNTING TREATMENT............ Upon approval of the Distribution Proposals
at the Meeting, Waban will present the
Warehouse Club Business as discontinued
operations to the extent financial
information for periods prior to the
Distribution is required to be included in
Waban's historical financial statements.
After the Distribution, the business of BJI
will be reflected in separate consolidated
financial statements. See "Selected
Historical Financial Data of Waban," "Pro
Forma Financial Data of Waban," "Selected
Historical Financial Data of BJI," and "Pro
Forma Financial Data of BJI."
BJ'S WHOLESALE CLUB, INC.
BUSINESS AFTER THE The Warehouse Club Business is presently
DISTRIBUTION................... conducted by the BJ's Division. Following the
Distribution, BJI will conduct the Warehouse
Club Business. The BJ's Division introduced
the warehouse club concept to New England in
1984 and has since expanded in the
northeastern and Mid-Atlantic states, as well
as in southern Florida. BJ's sells a narrow
assortment of brand name food and general
merchandise within a wide range of product
categories. As of January 25, 1997, the BJ's
Division was operating 81 warehouse clubs in
12 states and had over four million members.
Waban expects that approximately ten
additional warehouse clubs will be opened in
fiscal 1997. One warehouse club was closed in
April 1997. See "BJI Business and
Properties."
PRINCIPAL OFFICE................ The principal office of the BJ's Division is,
and after the Distribution Date the principal
office of BJI will be, One Mercer Road,
Natick, Massachusetts 01760. Its telephone
number is (508) 651-6500.
BOARD OF DIRECTORS.............. Prior to the Distribution Date, Waban, as the
sole stockholder of BJI, plans to elect the
following eight persons to the Board of
Directors of BJI (the "BJI Board"), effective
as of the Distribution Date: S. James
Coppersmith, Kerry L. Hamilton, Allyn L.
Levy, John J. Nugent, Thomas J. Shields,
Lorne R. Waxlax, Edward J. Weisberger and
Herbert J. Zarkin. All of such persons, other
than Mr. Nugent and Mr. Weisberger (who is a
nominee for election to the Waban Board at
the Meeting), are currently members of the
Waban Board. Members of the BJI Board will be
elected for staggered three-year terms.
Messrs. Zarkin, Waxlax and Weisberger will
serve as directors of both HomeBase and BJI
after the Distribution. Mr. Zarkin will also
serve as Chairman of the Board of Directors
of both HomeBase and BJI after the
Distribution. See "Management of BJI--BJI
Board."
12
<PAGE>
POST-DISTRIBUTION DIVIDEND
POLICY......................... The declaration and payment of dividends by
BJI will be at the discretion of the BJI
Board. It is expected that certain debt
agreements of BJI will substantially limit
its ability to pay cash dividends. Waban has
never paid a cash dividend and does not
expect that the BJI Board will declare any
cash dividends on the BJI Common Stock after
the Distribution. However, the BJI Board will
reevaluate its dividend policy from time to
time in the future in light of its results of
operations, financial condition, cash
requirements, future prospects and other
factors it deems relevant. There can be no
assurance that any dividends will be paid in
the future. See "Risk Factors--Dividend
Policies."
TRADING MARKET.................. There is presently no public market for BJI
Common Stock. BJI intends to list the BJI
Common Stock on the New York Stock Exchange.
See "Risk Factors--No Current Public Market
for BJI Common Stock" and "The Distribution--
Listing and Trading of BJI Common Stock."
CERTAIN PROVISIONS OF THE BJI
CERTIFICATE OF INCORPORATION
AND BY-LAWS....................
BJI's Certificate of Incorporation (the "BJI
Certificate") and By-laws (the "BJI By-
laws"), as they will be in effect following
the Distribution, will contain certain
provisions, which are substantially similar
to provisions contained in the Certificate of
Incorporation and By-laws of Waban, that may
have the effect of making difficult or
expensive an acquisition of control of BJI in
a transaction not approved by the BJI Board.
In addition, prior to the Distribution, the
BJI Board will adopt a Preferred Stock
Purchase Rights Plan, which may have a
similar effect. See "Certain Provisions of
the BJI Certificate and the BJI By-laws--
Preferred Stock Purchase Rights."
The BJI Certificate will limit a director's
monetary liability to BJI or its stockholders
for breach of fiduciary duty to the maximum
extent permitted by Delaware law. See
"Certain Provisions of the BJI Certificate
and the BJI By-laws--Elimination of Liability
in Certain Circumstances."
HOMEBASE, INC.
BUSINESS AFTER THE Following the Distribution, Waban will retain
DISTRIBUTION................... the Home Improvement Business, which is
presently conducted as Waban's HomeBase
Division. Waban believes that the HomeBase
Division is the second largest operator of
home improvement warehouse stores in the
western United States and is the nation's
eighth largest home improvement merchandiser.
The HomeBase Division offers a very broad
assortment of home improvement and building
supply products. The HomeBase Division was
operating 84 warehouse stores as of January
25, 1997. Waban expects to open two new
HomeBase stores and to close one existing
store in fiscal 1997. See "HomeBase Business
and Properties."
13
<PAGE>
PRINCIPAL OFFICE................ After the Distribution Date, the principal
office of HomeBase will be at 3345 Michelson
Drive, Irvine, CA, 92715. Its telephone
number is (714) 442-5000.
BOARD OF DIRECTORS.............. Effective as of the Distribution Date, the
Board of Directors of HomeBase (the "HomeBase
Board") is expected to consist of the
following persons: Arthur F. Loewy, Allan P.
Sherman, Lorne R. Waxlax, Edward J.
Weisberger and Herbert J. Zarkin. Messrs.
Loewy, Waxlax and Zarkin are currently
members of the Waban Board and Mr. Weisberger
is a nominee for election to the Waban Board
at the Meeting. The Waban Board expects to
appoint additional independent directors
prior to the Distribution. Members of the
HomeBase Board will continue to be elected
for staggered three-year terms. Messrs.
Waxlax, Weisberger and Zarkin will serve as
directors of both BJI and HomeBase after the
Distribution. Mr. Zarkin will also serve as
Chairman of the Board of Directors of both
BJI and HomeBase after the Distribution. See
"Management of HomeBase--HomeBase Board."
POST-DISTRIBUTION DIVIDEND
POLICY......................... The declaration and payment of dividends by
HomeBase will be at the discretion of the
HomeBase Board. It is expected that certain
debt agreements of HomeBase will
substantially limit its ability to pay cash
dividends. Waban has never paid a cash
dividend and the Waban Board does not expect
that it will declare any cash dividends on
the HomeBase Common Stock after the
Distribution. However, the HomeBase Board
will reevaluate its dividend policy from time
to time in the future in light of its results
of operations, financial condition, cash
requirements, future prospects and other
factors it deems relevant. There can be no
assurance that any dividends will be paid in
the future. See "Risk Factors--Dividend
Policies."
TRADING MARKET.................. After the Distribution, it is expected that
HomeBase's Common Stock (formerly the Waban
Common Stock) will continue to be listed on
the New York Stock Exchange. As a result of
the Distribution, the trading price range of
the HomeBase Common Stock is expected to be
significantly lower than the trading price
range of the Waban Common Stock prior to the
Distribution. See "Risk Factors--Change in
Trading Prices of HomeBase Common Stock."
NAME CHANGE..................... Stockholders are being asked to authorize the
Waban Board to change the name of the Company
to "HomeBase, Inc." after the Distribution.
AMENDMENT AND CONTINUANCE OF
THE WABAN 1989 STOCK INCENTIVE
PLAN...........................
Stockholders are being asked to approve (i)
an increase in the number of shares
authorized for issuance under Waban's 1989
Stock Incentive Plan by 1,500,000 shares, and
(ii) the
14
<PAGE>
continuance of the Waban 1989 Stock Incentive
Plan. Stockholder approval of the additional
shares is being sought in part to provide the
increased number of shares estimated to be
required in connection with the proportionate
adjustments to be made to unexercised options
under the plan which are held by persons who
continue to be employed by HomeBase after the
Distribution. If the stockholders do not vote
to approve the continuance of the plan, the
plan will terminate and the Company will not
grant any further options or make any further
stock based awards under the plan.
APPROVAL OF THE WABAN 1997
STOCK INCENTIVE PLAN...........
Stockholders are being asked to approve the
Waban 1997 Stock Incentive Plan. Following
the Distribution Date, except for adjustment
awards to be granted under the Waban 1989
Stock Incentive Plan in connection with the
Distribution, Waban generally expects to
grant equity incentive awards under the Waban
1997 Stock Incentive Plan. Subject to
adjustments in the event of stock splits and
other similar events, awards may be made
under the Waban 1997 Stock Incentive Plan for
up to the sum of (i) 1,000,000 shares of
Waban Common Stock, plus (ii) such additional
number of shares of Waban Common Stock (up to
2,500,000 shares) as is equal to the sum of
(x) the number of shares which remain
available for grant under the Waban 1989
Stock Incentive Plan upon its expiration and
(y) the number of shares subject to awards
granted under the Waban 1989 Stock Incentive
Plan which are not actually issued because
such awards expire or otherwise result in
shares not being issued. If the stockholders
do not vote to approve the plan, the plan
will not be effective and the Company will
not grant any awards under the plan.
APPROVAL OF THE BJI 1997
REPLACEMENT STOCK INCENTIVE
PLAN...........................
Stockholders are being asked to approve the
BJI 1997 Replacement Stock Incentive Plan
pursuant to which BJI intends to grant
replacement awards to holders of awards under
the Waban 1989 Stock Incentive Plan who
become employees of BJI in connection with
the Distribution. Grants of awards may be
made under the BJI Replacement Plan during
the period beginning on the Distribution Date
and ending on the date which is six months
after the Distribution Date. Under the terms
of the BJI 1997 Replacement Stock Incentive
Plan, a maximum of 2,500,000 shares (subject
to adjustment as provided in the plan) may be
issued. If the stockholders do not vote to
approve the plan, the plan will not be
effective and BJI will not grant any awards
under the plan.
15
<PAGE>
APPROVAL OF THE BJI 1997 STOCK
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI 1997 Stock Incentive Plan. This plan
would enable BJI to grant options and other
stock incentive awards to employees of BJI
following the Distribution. Subject to
adjustment in the event of stock splits and
other similar events, awards may be made
under the BJI 1997 Stock Incentive Plan for
up to the sum of (i) 1,000,000 shares of BJI
Common Stock plus (ii) such additional number
of shares of BJI Common Stock (up to
2,000,000 shares) as is equal to the sum of
(x) the number of shares which remain
available for grant under the BJI 1997
Replacement Incentive Plan upon its
expiration and (y) the number of shares
subject to awards granted under the BJI 1997
Replacement Stock Incentive Plan which are
not actually issued because such awards
expire or otherwise result in shares not
being issued. If the stockholders do not vote
to approve the plan, the plan will not be
effective and BJI will not grant any awards
under the plan.
APPROVAL OF THE BJI MANAGEMENT
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI Management Incentive Plan (the "BJI
MIP"). The BJI MIP is intended to provide
executive officers and other key employees of
BJI with cash incentive awards, based upon
the attainment of annual performance goals.
The BJI MIP is similar to the Waban
Management Incentive Plan and will cover
BJI's employees currently covered by the
Waban Management Incentive Plan. If the
stockholders do not approve the plan, the
plan will not become effective and BJI will
not grant any awards under the plan.
APPROVAL OF THE BJI GROWTH
INCENTIVE PLAN.................
Stockholders are being asked to approve the
BJI Growth Incentive Plan (the "BJI GIP").
The BJI GIP is intended to provide certain
high-level management employees with cash
awards based on BJI's financial performance
over an award period that typically consists
of two or more fiscal years. The BJI GIP is
similar to the Waban Growth Incentive Plan
and will cover BJI's employees currently
covered by the Waban Growth Incentive Plan.
If the stockholders do not approve the plan,
the plan will not become effective and BJI
will not grant any awards under the plan.
APPROVAL OF THE BJI 1997
DIRECTOR STOCK OPTION PLAN.....
Stockholders are being asked to approve the
BJI 1997 Director Stock Option Plan. Pursuant
to this plan, on the date of each annual
meeting of the stockholders of BJI, (i) each
non-employee director of BJI elected as a
director for the first time at such meeting
(other than persons who were directors of
Waban immediately prior to the Distribution)
will be granted
16
<PAGE>
an option for 3,000 shares of BJI Common
Stock and (ii) each other non-employee
director of BJI will be granted an option for
1,500 shares of BJI Common Stock. In
addition, the plan will provide for the
issuance of options following the
Distribution to persons who become BJI
directors in replacement or adjustment of
options previously granted under the Waban
1995 Director Stock Option Plan which are not
exercised prior to the Distribution Date. A
maximum of 150,000 shares of BJI Common Stock
are reserved for issuance under the plan.
ELECTION OF DIRECTORS........... At the Meeting, stockholders will also be
asked to consider and vote upon a proposal to
elect three directors to serve until the 2000
Annual Meeting of Stockholders. As described
in this Proxy Statement/Prospectus, from and
after the Distribution, the board of
directors of HomeBase will differ from the
Waban Board.
INFORMATION FOR HOLDERS OF
DEBENTURES.....................
The Company has called all of the Convertible
Debentures for redemption. The following
alternatives are available to holders of
Convertible Debentures: (1) holders may
convert the Convertible Debentures into Waban
Common Stock at a conversion price of $24.75
of principal amount per share of Waban Common
Stock prior to the Expiration Date (June ,
1997); (2) holders may sell the Convertible
Debentures in the open market; or (3) holders
may allow the Convertible Debentures to be
redeemed for an amount equal to 102.889% of
the principal amount of Convertible
Debentures, plus accrued interest from July
1, 1997 to the Redemption Date (July ,
1997). See "Information for Holders of
Convertible Debentures." The Company will pay
to the persons in whose names outstanding
Convertible Debentures are registered at the
close of business on June 15, 1997 (the next
scheduled regular record date for interest
payments) the interest payment of $32.50 for
each $1,000 principal amount of Convertible
Debentures due on July 1, 1997 (the next
scheduled regular interest payment date). ANY
HOLDER THAT CONVERTS CONVERTIBLE DEBENTURES
AFTER JUNE 15, 1997 MUST, AS A CONDITION TO
SUCH CONVERSION, SUBMIT WITH THE CONVERTIBLE
DEBENTURES BEING CONVERTED AN AMOUNT, IN NEW
YORK CLEARING HOUSE FUNDS OR OTHER FUNDS
ACCEPTABLE TO THE COMPANY, EQUAL TO THE
INTEREST OF $32.50 FOR EACH $1,000 PRINCIPAL
AMOUNT OF CONVERTIBLE DEBENTURES PAYABLE ON
SUCH CONVERTIBLE DEBENTURES ON JULY 1, 1997.
SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE
ECONOMIC BENEFIT OF SUCH INTEREST PAYMENT. No
other payment or adjustment will be made on
account of interest on the Convertible
Debentures accruing after January 1, 1997.
17
<PAGE>
WABAN INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included in
Waban's Annual Report on Form 10-K for the fiscal year ended January 25, 1997
which is incorporated by reference herein, and the unaudited Pro Forma
Financial Data of Waban included elsewhere in this Proxy Statement/Prospectus.
For a discussion of the basis of presentation of the Waban Consolidated
Financial Statements, see Summary of Accounting Policies in Notes to the Waban
Consolidated Financial Statements contained in its Form 10-K for the fiscal
year ended January 25, 1997.
The summary unaudited pro forma financial data set forth below illustrates
the estimated effects on Waban of the proposed Distribution and (i) the
repayment by BJI to Waban of intercompany indebtedness and current taxes
payable, (ii) the prepayment of the Senior Notes and Senior Subordinated Notes,
(iii) new borrowings under Waban's proposed credit agreement, and (iv) the
conversion or redemption of the Convertible Debentures (the "Related Waban
Transactions"). The Company has called the Convertible Debentures for
redemption and, in connection therewith, has entered into the Standby Purchase
Agreement. See "Standby Purchase Agreement" and "Risk Factors--Conversion or
Redemption of Convertible Debentures". The pro forma financial data has been
prepared to present two alternative scenarios. Scenario A gives pro forma
effect to the conversion of all of the Convertible Debentures into Waban Common
Stock. Scenario B gives pro forma effect to the redemption of $53,474,500 of
the Convertible Debentures for cash and the conversion of the remaining
Convertible Debentures into Waban Common Stock. The pro forma balance sheet
data is based on the January 25, 1997 balance sheet of Waban and assumes the
Distribution and Related Waban Transactions were consummated on that date. The
pro forma income statement data gives effect to the Distribution and Related
Waban Transactions as if they occurred at the beginning of fiscal 1996. The pro
forma financial data of Waban does not purport to represent what the financial
position or results of operations of Waban would have been if the Distribution
and Related Waban Transactions had in fact been consummated on the dates
indicated or at any future date. The pro forma adjustments are based upon
available information and upon certain assumptions that Waban's management
believes are reasonable in the circumstances.
18
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ---------------------------
SCENARIO B:
SCENARIO A: ASSUMING
ASSUMING FULL PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
DEBENTURES(1) DEBENTURES(1)
------------- -------------
FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR
-------------------------------------- ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........... $3,650,281 $3,978,384 $4,375,528 $1,452,696 $1,452,696
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs................... 3,110,787 3,387,992 3,742,599 1,136,997 1,136,997
Selling, general and
administrative expenses. 418,404 455,523 486,868 277,841 277,841
Interest on debt and
capital leases (net).... 14,898 15,431 19,735 2,915 3,917
---------- ---------- ---------- ---------- ----------
Income before income
taxes................... $ 106,192 $ 119,438 $ 126,326 $ 34,943 $ 33,941
========== ========== ========== ========== ==========
Pro forma income from
continuing operations... $ 21,191 $ 20,582
========== ==========
Net income............... $ 64,990 $ 72,977 $ 76,660
========== ========== ==========
Pro forma income per
share from continuing $ 0.56 $ 0.58
operations.............. ========== ==========
Number of common shares
for pro forma earnings
per share computations.. 37,703 35,542
Income per common share:
Primary................. $1.95 $2.20 $2.31
===== ===== =====
Fully diluted........... $1.83 $2.05 $2.15
===== ===== =====
Number of common shares
for earnings per share
computations:
Primary................. 33,405 33,220 33,205
Fully diluted........... 37,793 37,784 37,713
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $ 308,749 $ 265,450 $ 275,842 $ 209,598 $ 208,449
Total assets............. 1,237,521 1,332,451 1,375,966 628,117 626,186
Long-term debt and
obligations under
capital leases.......... 258,763 245,313 232,486 41,826 55,194
Stockholders' equity..... 488,089 555,120 631,925 389,420 374,903
WAREHOUSES OPEN AT END OF
PERIOD:
BJ's Wholesale Club...... 62 71 81
HomeBase................. 77 79 84
</TABLE>
- --------
Note (1): Scenario A gives pro forma effect to the conversion of all of the
Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible
Debentures for cash and the conversion of the remaining Convertible
Debentures.
19
<PAGE>
BJ'S WHOLESALE CLUB, INC.
SUMMARY OF SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table summarizes selected historical financial data of BJI for
the three fiscal years in the period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of the
BJ's Division. The BJI financial statements include certain allocations of the
overhead expenses incurred by Waban that support the BJ's Division. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI. The historical financial data is not necessarily
indicative of BJI's future results of operations or financial condition. The
data set forth below should be read in conjunction with the unaudited Pro Forma
Financial Data of BJI and the Notes thereto, the audited Financial Statements
of BJI and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations of BJI included elsewhere in this
Proxy Statement/Prospectus. For a discussion of the basis of presentation of
the BJI Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Financial Statements.
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of the balance of its intercompany indebtedness and current taxes
payable, (ii) new borrowings under BJI's proposed credit agreement, and (iii)
the impact of the conversion or redemption of the Convertible Debentures and
the related equity contribution by Waban (the "Related BJI Transactions"). The
Company has called the Convertible Debentures for redemption and, in connection
therewith, has entered into the Standby Purchase Agreement. See "Standby
Purchase Agreement" and "Risk Factors--Conversion or Redemption of Convertible
Debentures". The pro forma financial data has been prepared to present two
alternative scenarios. Scenario A gives pro forma effect to the conversion of
all of the Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible Debentures for
cash and the conversion of the remaining Convertible Debentures. The pro forma
balance sheet data is based on the January 25, 1997 balance sheet of BJI and
assumes the Distribution and Related BJI Transactions were consummated on that
date. The pro forma income statement data gives effect to the Distribution and
Related BJI Transactions as if they occurred at the beginning of fiscal 1996.
The Pro Forma Financial Data of BJI does not purport to represent what the
financial position or results of operations of BJI would have been if the
Distribution and Related BJI Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based upon
available information and upon certain assumptions that BJI's management
believes are reasonable in the circumstances.
20
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (UNAUDITED)
-------------------------------------- ---------------------------
SCENARIO B:
SCENARIO A: ASSUMING
ASSUMING FULL PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
FISCAL YEAR ENDED DEBENTURES(1) DEBENTURES(1)
-------------------------------------- ------------- -------------
FISCAL YEAR FISCAL YEAR
ENDED ENDED
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $2,293,091 $2,529,608 $2,922,832 $2,922,832 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,054,167 2,263,532 2,605,602 2,605,602 2,605,602
Selling, general and
administrative
expenses............... 174,416 183,419 212,660 212,660 212,660
Interest on debt and
capital leases (net)... 13,665 14,757 16,838 5,619 8,225
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. $ 50,843 $ 67,900 $ 87,732 $ 98,951 $ 96,345
========== ========== ========== ========== ==========
Net income.............. $ 30,902 $ 41,550 $ 53,624 $ 60,299 $ 58,749
========== ========== ========== ========== ==========
Pro forma earnings per
share.................. $ 1.61 $ 1.66
========== ==========
Number of common shares
for pro forma earnings
per share computations. 37,555 35,394
<CAPTION>
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997 JAN 25, 1997 JAN 25, 1997
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 58,252 $ 77,207 $ 62,942 $ 75,373 $ 75,373
Total assets............ 563,931 676,675 737,211 737,211 737,211
Long-term debt and
obligations under
capital leases......... 2,960 2,731 2,592 100,092 140,198
Loans and advances from
Waban Inc. ............ 142,512 181,730 148,081 -- --
Stockholder's equity.... 180,433 221,983 275,607 338,619 298,513
CLUBS OPEN AT END OF
PERIOD................. 62 71 81
</TABLE>
- --------
Note (1): Scenario A gives pro forma effect to the conversion of all of the
Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,500 of the Convertible
Debentures for cash and the conversion of the remaining Convertible
Debentures.
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<PAGE>
RISK FACTORS
Stockholders should carefully consider the following factors, as well as
other information set forth herein, before acting on the Distribution
Proposals or making an investment decision in Waban Common Stock.
ABSENCE OF OPERATING HISTORIES AS SEPARATE COMPANIES. BJI has been
incorporated for the purpose of effecting the Distribution. While the BJ's
Division and the HomeBase Division have substantial operating histories, BJI
and HomeBase do not have operating histories as separate stand-alone
companies. Prior to the Distribution, each of the two businesses had access to
the cash flow generated by the other and to Waban's credit, which was based on
the combined assets of the BJ's Division and the HomeBase Division. Since
April 1996, monthly comparable store sales of the HomeBase Division have
increased only twice. Accordingly, lenders and other capital providers making
credit decisions with respect to HomeBase and BJI may analyze the credit risk,
and associated pricing, of any offered credit facility or capital differently
than was the case with credit facilities made available to Waban. There can be
no assurance that the access of HomeBase and BJI to credit facilities and to
the capital markets will not differ from that currently available to Waban,
and the ability of each of HomeBase and BJI to access such credit facilities
and capital markets in the future will depend on the financial performance of
each such company. If either HomeBase or BJI experiences reduced access to
borrowings or higher borrowing costs, the ability of such company to finance
inventory purchases and new store acquisitions could be adversely affected.
REDUCED GEOGRAPHIC AND PRODUCT LINE DIVERSIFICATION. BJI's warehouse clubs
are located in the eastern United States, primarily in the northeast, and
HomeBase's home improvement warehouse stores are located in the western United
States, more than half of them in California. Both the BJ's Division and the
HomeBase Division have been adversely affected from time to time by economic
downturns experienced in their respective geographic markets, and future
economic downturns in such regions could adversely affect BJI and HomeBase, as
the case may be. As a result of the separation of the Home Improvement
Business and the Warehouse Club Business into independent companies, neither
company will have the benefit of the broader geographic and product line
diversification that is currently the case with Waban. Accordingly, in the
event of a downturn in the market for either HomeBase's or BJI's products, or
of a general economic downturn in such company's general geographic area, the
impact on the business, operating results and financial condition of that
company would be more severe than is currently the case with Waban.
INCREASED IMPACT OF SEASONAL SALES CYCLES. The BJ's Division's sales and
operating income have been strongest in the Christmas holiday season and
lowest in the first quarter of each fiscal year. The HomeBase Division's sales
and earnings are typically lower in the first and fourth quarters than they
are in the second and third quarters, which correspond to the most active
season for home construction. As a result of the Distribution, the financial
results of each company will reflect these seasonal patterns without any
offsetting effect of the operating results of the other company, and the
seasonal requirements for short-term borrowings for each company will be
greater than is currently the case with Waban.
CONSEQUENCES OF FAILURE TO QUALIFY AS TAX FREE SPIN-OFF. Waban has received
a letter ruling from the Internal Revenue Service (the "IRS") to the effect
that, for Federal income tax purposes, the Asset Transfers and the
Distribution will be tax free to Waban and the Distribution will qualify as a
spin-off under Section 355 of the Internal Revenue Code (the "Code") that will
be tax free to the holders of Waban Common Stock. The letter ruling by the IRS
is based on and subject to certain assumptions, facts, representations and
advice provided by Waban, BJI, holders of 5% or more of Waban Common Stock,
and Bear, Stearns & Co. Inc., Waban's financial advisor. Although Waban is not
aware of any present facts or circumstances which would make such assumptions,
facts, representations and advice unobtainable or untrue, certain future
events not within the control of Waban and BJI, including, for example,
certain dispositions of HomeBase Common Stock or BJI Common Stock after the
Distribution, could cause the Distribution not to qualify for tax-free
treatment.
If the Distribution were not to qualify under Section 355 of the Code, then,
in general, Waban would recognize gain equal to the excess of the fair market
value of the BJI Common Stock over Waban's tax basis in
22
<PAGE>
the BJI Common Stock immediately prior to the Distribution. This tax would be
payable by HomeBase, although under certain circumstances, BJI has agreed to
indemnify HomeBase for all or a portion of such tax liability. See
"Relationship Between BJI and HomeBase after the Distribution; Conflicts of
Interest--Tax Sharing Agreement." Each member of the Waban Consolidated Group
(including BJI and its subsidiaries) would remain jointly and severally liable
for such tax liability. In the event that HomeBase or BJI were determined to
be liable for all or any portion of such a tax, such company's business,
operating results and financial condition could be materially adversely
affected.
In addition, if the transaction were taxable, each Waban stockholder would
be treated as having received a taxable dividend equal to the fair market
value of the BJI Common Stock received, if, and to the extent that, Waban has
(as expected) sufficient current and accumulated earnings and profits. If, and
to the extent that, Waban did not have sufficient earnings and profits, each
Waban stockholder would (a) first reduce its tax basis in Waban Common Stock
(but not below zero) to the extent that the value of the Waban Common Stock
received exceeds its pro rata share of such earnings and profits and (b) then
recognize gain from the exchange of its Waban Common Stock to the extent the
value of the BJI Common Stock received exceeds both its pro rata share of
earnings and profits and its tax basis in its Waban Common Stock. If the
transaction were taxable, each stockholder's tax basis in its BJI Common Stock
after the Distribution would be equal to its fair market value at the time of
the Distribution.
RISK OF NON-OCCURRENCE OF DISTRIBUTION. The occurrence of the Distribution
is conditioned upon the following: (i) the declaration by the Waban Board of
the Distribution; (ii) all of the Convertible Debentures having been converted
or redeemed and any shares required to be purchased from the Company pursuant
to the Standby Purchase Agreement having been issued; (iii) the transfers of
assets and liabilities contemplated by the Distribution Agreement having been
consummated in all material respects; (iv) the BJI Common Stock and the
associated BJI Rights having been approved for listing on the New York Stock
Exchange subject to official notice of issuance; (v) BJI and HomeBase having
entered into agreements with lenders to provide sufficient financing upon
consummation of the Distribution; (vi) the Form 8-A Registration Statement
having become effective under the Exchange Act; (vii) the continued
applicability of the private letter ruling received by Waban from the IRS with
respect to the tax-free nature of the Distribution; and (viii) the repayment
by Waban of its outstanding Senior Notes and the retirement or defeasance of
Waban's Senior Subordinated Notes. Any of these conditions may be waived in
the discretion of the Waban Board. Even if all of such conditions are
satisfied, the Waban Board has reserved the right to abandon, defer or modify
the Distribution or other elements of the Distribution Proposals at any time
prior to the Distribution Date. There can be no assurance that the conditions
to the consummation of the Distribution will be satisfied or waived, or that,
even if all such conditions are satisfied, that the Distribution will occur.
In the event that the Distribution does not occur, Waban will continue to
operate BJ's and HomeBase as divisions of Waban. In order to effect the
redemption of the Convertible Debentures, the Company must obtain a waiver
under its existing bank line of credit.
Holders of Convertible Debentures will be required to decide whether to
convert their Convertible Debentures prior to the Distribution. In the event
that the Distribution does not occur, there can be no assurance that the price
of the Waban Common Stock would not be materially and adversely affected.
NO CURRENT PUBLIC MARKET FOR BJI COMMON STOCK. There is not currently a
public market for BJI Common Stock and there can be no assurance as to the
prices at which trading in BJI Common Stock will occur after the Distribution.
Until BJI Common Stock is fully distributed and an orderly market develops,
the prices at which trading in such stock occurs may fluctuate significantly.
BJI intends to list the BJI Common Stock on the New York Stock Exchange. See
"The Distribution--Listing and Trading of BJI Common Stock."
CHANGE IN TRADING PRICES OF HOMEBASE COMMON STOCK. After the Distribution,
it is expected that HomeBase Common Stock (formerly Waban Common Stock) will
continue to be listed and traded on the New York Stock Exchange. As a result
of the Distribution, the trading price range of HomeBase Common Stock is
23
<PAGE>
expected to be significantly lower than the trading price range of Waban
Common Stock prior to the Distribution. The combined trading prices of BJI
Common Stock and Waban Common Stock held by stockholders after the
Distribution may be less than, equal to or greater than the trading prices of
Waban Common Stock prior to the Distribution. See "The Distribution--Listing
and Trading of HomeBase Common Stock."
NEED TO OBTAIN NEW BANK FINANCING FOR REPAYMENT OF DEBT. Prior to the
Distribution, Waban intends to repay its $24,000,000 9.58% unsecured senior
notes due May 31, 1998 (the "Senior Notes"), and to retire (via open market or
privately negotiated purchases or tender offer) or defease its $100,000,000
11% senior subordinated notes due May 15, 2004 (the "Senior Subordinated
Notes") utilizing borrowings under its line of credit (under which no
borrowings were outstanding as of April 26, 1997) with a group of banks. Waban
is currently in discussions to amend certain terms of its line of credit in
order to consummate these transactions. Waban currently intends to obtain
separate bank credit facilities for BJI and HomeBase that will replace Waban's
line of credit effective as of the Distribution. Such credit agreements have
not yet been negotiated and are referred to herein as "proposed credit
agreements." It is a condition of the Distribution that Waban obtain such
financing. There can be no assurance that Waban will be successful in
obtaining such bank financing, that such financing would be on the same terms
assumed by Waban for purposes of its pro forma analysis, or that a delay in
any such bank financing would not delay the timing of the Distribution.
The Senior Notes may be prepaid by Waban at any time on 30 days' prior
notice. Upon prepayment of the Senior Notes, Waban is obligated to pay a "make
whole" amount in addition to the principal amount to be prepaid and interest
accrued through the date of prepayment. The make whole amount is an amount
equal to the difference the holders of the Senior Notes will earn on the
prepayment, assuming reinvestment of the prepayment at an interest rate 50
basis points higher than the rate of U.S. Government securities with
comparable maturities, and 9.58%. Based on interest rates at May 23, 1997,
Waban believes that the make whole amount on the Senior Notes will total
approximately $0.4 million. The Senior Subordinated Notes may not be prepaid
prior to May 15, 1999. At that time they may be prepaid at a redemption price
equal to 105 1/2% of the principal amount to be redeemed. To satisfy Waban's
obligations with respect to the Senior Subordinated Notes in connection with
the Distribution, Waban may retire the Senior Subordinated Notes via open
market or privately negotiated purchases or a tender offer. Alternatively,
Waban is entitled to defease the Senior Subordinated Notes by depositing with
the indenture trustee U.S. Government securities maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the amounts due
with respect to the Senior Subordinated Notes to the first permitted call
date. Waban believes that the cost to Waban to defease all of the outstanding
Senior Subordinated Notes would total approximately $13.8 million in excess of
principal and accrued interest, based on interest rates at May 23, 1997.
However, this amount could vary depending upon market interest rates. In
addition, prior to the Distribution, Waban expects to call the Convertible
Debentures for redemption. See "--Conversion or Redemption of the Convertible
Debentures."
CONVERSION OR REDEMPTION OF THE CONVERTIBLE DEBENTURES. The Convertible
Debentures are convertible by the holders into Waban Common Stock at a
conversion price of $24.75 per share, and are redeemable during the period
beginning July 1, 1997 at a price of 102.889% of par, plus accrued interest.
Waban has called the Convertible Debentures for redemption and, in connection
therewith, has entered into the Standby Purchase Agreement providing for the
Standby Purchaser, subject to certain conditions, to purchase up to 2,160,606
shares of Waban Common Stock. Subject to the terms and conditions of the
Standby Purchase Agreement, the Standby Purchaser will be obligated to
purchase from the Company such number of shares of Waban Common Stock as would
have been issuable upon conversion of the Excess Convertible Debentures (but
in no event more than 2,160,606 shares of Waban Common Stock). It is a
condition to the Distribution that (i) all of the Convertible Debentures are
converted or redeemed for cash and (ii) any shares required to be purchased
from the Company pursuant to the Standby Purchase Agreement are actually
issued. In addition, in order to effect the redemption of the Convertible
Debentures, the Company must obtain a waiver under its existing bank line of
credit. There can be no assurance that such conditions will be satisfied. In
the event such conditions are not satisfied, it is likely that the
Distribution would be delayed for a significant period of time or cancelled.
CONTINUING OBLIGATIONS OF BJI AND HOMEBASE FOR CERTAIN LEASE LIABILITIES
AFTER THE DISTRIBUTION. Upon the Distribution, BJI will assume all liabilities
to third-party lessors with respect to leases entered into by Waban with
respect to the Warehouse Club Business. While HomeBase will continue to be
liable, by law, with respect to such lease liabilities, BJI will indemnify
HomeBase for such liabilities.
24
<PAGE>
In connection with the spin-off of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement (as amended, the "1989
Agreement") pursuant to which Waban agreed to indemnify TJX against any
liabilities that TJX might incur with respect to 45 current HomeBase leases as
to which TJX is either a lessee or guarantor. Such leases generally expire
through 2011 (other than four leases which expire through 2017) and provide
for minimum rent payments which, in the aggregate, total up to approximately
$39 million in any one year. In settlement of legal proceedings filed by TJX
claiming, among other things, that BJI is required after the Distribution to
assume Waban's indemnification obligations under the 1989 Agreement, BJI has
agreed that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities (as defined in the 1989
Agreement) that TJX may incur with respect to HomeBase leases and thereafter
it will indemnify TJX for 50% of such liabilities. In addition, Waban has
agreed that after the Distribution, HomeBase will not renew any lease
identified in the 1989 Agreement as to which TJX is a lessee or guarantor
unless the applicable lessor agrees to remove TJX as a lessee or guarantor.
BJI may not renew any of its real estate leases (other than ground leases) for
which HomeBase may be liable during any period during which it does not meet
certain standards of creditworthiness. See "Relationship Between BJI and
HomeBase after the Distribution; Conflicts of Interest--Leases." Other than as
provided in such agreement with TJX, BJI will not assume any liability with
respect to leases entered into by Waban with respect to the Home Improvement
Business. In the event that either BJI or HomeBase is required to pay the
lease liabilities of the other company pursuant to the foregoing provisions,
the paying company's business, operating results and financial condition could
be materially adversely affected.
POTENTIAL CONFLICTS OF INTEREST AND MANAGEMENT OVERLAPS FOLLOWING THE
DISTRIBUTION. Subsequent to the Distribution, the interests of BJI and
HomeBase may potentially conflict due to the ongoing relationships between the
companies. Such sources of conflict include the fact that after the
Distribution, HomeBase will remain liable for certain contractual obligations
of BJI, including BJI leases, and the other arrangements between the parties
regarding lease liabilities. See "Relationship Between BJI and HomeBase after
the Distribution; Conflicts of Interest." In addition, following the
Distribution, Herbert J. Zarkin will serve as Chairman of the HomeBase Board
and as Chairman of the BJI Board, and Lorne R. Waxlax and Edward J. Weisberger
will serve as members of the Board of Directors of both HomeBase and BJI.
Messrs. Zarkin, Weisberger and Waxlax will also own shares (and/or options or
other rights to acquire shares) in both companies following the Distribution.
See "Relationship Between BJI and HomeBase after the Distribution; Conflicts
of Interest," "Management of BJI" and "Management of HomeBase." Such
relationships may present conflicts of interest under certain circumstances.
Appropriate procedures will be followed by the Board of Directors of each
company to limit the involvement of Messrs. Zarkin, Weisberger and Waxlax
(and, if appropriate, other officers and directors of such companies) in
conflict situations, including requiring them to abstain from voting as
directors of either BJI or HomeBase on certain matters which present a
conflict between the two companies. See "Relationship Between BJI and HomeBase
after the Distribution; Conflicts of Interest--Policies and Procedures for
Addressing Conflicts."
COMPETITION. Each of the BJ's Division and the HomeBase Division competes
with a large number and variety of retailers and wholesalers, including
several large national chains in the warehouse merchandising business, some of
which have significantly greater financial and marketing resources than either
BJI or HomeBase. Competition for each of the companies will exist primarily in
the areas of price, product selection and service. Both BJI and HomeBase also
expect to continue to experience competition for qualified personnel and
suitable new warehouse locations. Competitive factors could require price
reductions or increased operational costs, including increased expenditures
for marketing and customer service, that could adversely affect each company's
business, operating results and financial condition. See "BJI Business and
Properties--Competition" and "HomeBase Business and Properties--Competition."
DIVIDEND POLICIES. Waban has never paid a cash dividend and the Waban Board
does not believe that either HomeBase or BJI intends to declare any cash
dividends on the HomeBase Common Stock or the BJI Common Stock after the
Distribution. It is expected that certain debt agreements of BJI and HomeBase
or their subsidiaries will substantially limit these companies' respective
abilities to pay dividends. The declaration and payment of dividends by BJI
will be at the discretion of the BJI Board. The declaration and payment of
dividends by HomeBase will be at the discretion of the HomeBase Board. There
can be no assurance that any dividends will be paid in the future.
25
<PAGE>
CERTAIN ANTITAKEOVER FEATURES. If the Distribution Proposals are approved
and the Distribution is consummated, the BJI Certificate and the BJI By-laws
will contain several provisions, all of which are substantially similar to
provisions in effect with respect to Waban and will continue to be in effect
with respect to HomeBase, that may have the effect of making the acquisition
of control of BJI difficult or expensive without the approval of the BJI
Board. In addition, BJI is expected to implement a Preferred Stock Purchase
Rights Plan, which may have a similar effect. See "Certain Provisions of the
BJI Certificate and the BJI By-laws."
RISK OF LEGAL CHALLENGES TO THE DISTRIBUTION. The Waban Board does not
intend to consummate the Distribution unless it is satisfied regarding the
solvency of Waban, BJI and HomeBase and the permissibility of the Distribution
under Section 170 of the Delaware General Corporation Law ("DGCL"). There is
no certainty, however, that a court would find the evidence relied on by the
Waban Board to be binding on creditors of Waban, BJI or HomeBase, or that a
court would reach the same conclusions as the Waban Board as to whether Waban,
BJI or HomeBase was solvent or insolvent at the time of, or after giving
effect to, the Distribution.
If a court in a lawsuit filed by an unpaid creditor or representative of
unpaid creditors, such as a trustee in bankruptcy, were to find that at the
time either the Asset Transfers or the Distribution was consummated, Waban (i)
was insolvent, (ii) was rendered insolvent by reason of the Asset Transfers or
the Distribution, (iii) was engaged in a business or transaction for which the
remaining assets of Waban constituted unreasonably small capital, (iv)
intended to incur, or believed it would incur, debts beyond its ability to pay
as such debts matured, or (v) had actual intent to hinder, delay or defraud
any creditor of Waban, such court may be asked to void the Asset Transfers or
the Distribution (in whole or in part) as a fraudulent conveyance and require
that the stockholders return the special dividend (in whole or in part) to
Waban, or require BJI to fund certain liabilities of HomeBase for the benefit
of HomeBase's creditors. The measure of insolvency for purposes of the
foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, Waban would be considered insolvent if either
prior to the Asset Transfers and the Distribution or after giving effect
thereto the fair value of its assets were less than the amount of its probable
liabilities or if it incurred debt beyond its ability to repay such debt as it
matures. In addition, under Section 170 of the DGCL (which is applicable to
Waban in the Distribution), a corporation generally may make distributions to
its stockholders only out of its surplus (net assets minus capital) and not
out of capital. In the event that the Distribution or the Asset Transfers is
determined to be a fraudulent transfer or an impermissible dividend under
Section 170 of the DGCL, and BJI is required to fund certain liabilities of
HomeBase, BJI's business, operating results and financial condition could be
materially adversely affected.
The Waban Board and management believe that, in accordance with the evidence
examined in connection with the Asset Transfers and the Distribution, (a)
Waban will be solvent prior to and after giving effect to the Asset Transfers
and the Distribution (in accordance with the foregoing definitions), will be
able to repay its debts as they mature following the Distribution, and will
have sufficient capital to carry on its business, and (b) the Distribution
will be made entirely out of surplus, as provided under Section 170 of the
DGCL.
26
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to stockholders of Waban
in connection with the solicitation of proxies by the Waban Board of Directors
from holders of record of Waban Common Stock as of the close of business on
the Meeting Record Date for use at the Meeting to be held on Thursday, July
10, 1997 at 11:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts, and at any adjournment or postponement thereof. This
Proxy Statement/Prospectus is also being furnished to the holders of the
Convertible Debentures in connection with the Notice of Redemption and
Expiration of Conversion Right and to purchasers of Waban Common Stock
initially issued by Waban pursuant to the Standby Purchase Agreement or
acquired by the Standby Purchaser upon conversion of Convertible Debentures.
This Proxy Statement/Prospectus is first being mailed on or about June ,
1997. References in this Proxy Statement/Prospectus to "HomeBase" and
"HomeBase Common Stock" mean Waban and Waban Common Stock following the
Distribution. The principal executive offices of Waban are located at One
Mercer Road, Natick, Massachusetts 01760. Following the Distribution, the
principal executive offices of BJI will be located at One Mercer Road, Natick,
Massachusetts 01760, and the principal executive offices of HomeBase will be
located at 3345 Michelson Drive, Irvine, CA 92715.
MATTERS FOR CONSIDERATION AT THE MEETING
At the Meeting, holders of shares of Waban Common Stock will be asked:
1. To consider and vote upon the following Distribution Proposals:
(i)Proposal One: Approval of a distribution (the "Distribution") in the
form of a tax-free special dividend to all holders of Waban's outstanding
shares of common stock, on a one-for-one basis, of all outstanding shares
of common stock held by Waban, and the associated stockholders' rights, of
a newly formed, wholly-owned subsidiary of the Company, to be known as
"BJ's Wholesale Club, Inc.", which will own and operate the "BJ's Wholesale
Club" business presently conducted as a division of Waban;
(ii)Proposal Two: Approval of an amendment of the Certificate of
Incorporation of Waban, which will change the name of Waban to "HomeBase,
Inc." after the Distribution;
(iii)Proposal Three: Approval of (x) an amendment to the Waban 1989 Stock
Incentive Plan to increase by 1,500,000 shares the number of shares
available for issuance thereunder and (y) the continuance of the Waban 1989
Stock Incentive Plan, as amended;
(iv)Proposal Four: Approval of the Waban 1997 Stock Incentive Plan;
(v)Proposal Five: Approval of the BJI 1997 Replacement Stock Incentive
Plan;
(vi)Proposal Six: Approval of the BJI 1997 Stock Incentive Plan;
(vii)Proposal Seven: Approval of the BJI Management Incentive Plan;
(viii)Proposal Eight: Approval of the BJI Growth Incentive Plan; and
(ix)Proposal Nine: Approval of the BJI 1997 Director Stock Option Plan.
2. To elect three directors to serve until the 2000 Annual Meeting of
Stockholders. As described herein, from and after the Distribution, the board
of directors of HomeBase will differ from the Waban Board.
3. To consider such other business as may properly come before the Meeting.
The Waban Board believes that the passage of each of the Distribution
Proposals is critical to the Distribution. Accordingly, the Waban Board
reserves the right not to declare the Distribution if any of the Distribution
Proposals is not approved.
THE WABAN BOARD BELIEVES THAT THE DISTRIBUTION IS IN THE BEST INTERESTS OF
STOCKHOLDERS AND UNANIMOUSLY (WITH MR. LOEWY AND MS. HAMILTON ABSTAINING)
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ALL OF THE DISTRIBUTION PROPOSALS. Mr.
Loewy and Ms. Hamilton abstained because they are a director and
27
<PAGE>
employee, respectively, of The TJX Companies, Inc. See "The Distribution--
Background and Reasons for the Distribution".
Stockholder approval of the Distribution Proposals may not prevent a
stockholder from subsequently seeking to challenge the Distribution Proposals
or the actions of the Waban Board in approving the Distribution Proposals.
However, although Waban cannot determine in advance its position with respect
to any such challenge, it is possible that Waban could assert a stockholder's
approval of the Distribution Proposals as a defense, in which case if such
defense were held meritorious, such stockholder could effectively be estopped
from asserting such claims.
The Waban Board has retained discretion, even if stockholder approval of the
Distribution Proposals is obtained, to abandon, defer or modify the
Distribution or any other element contained in the Distribution Proposals.
For a description of the reasons for the Distribution, see "The
Distribution--Background and Reasons for the Distribution."
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of Waban Common Stock as of the close of
business on the Meeting Record Date will be entitled to notice of and to vote
at the Meeting or any adjournment or postponement thereof. Such holders of
shares of Waban Common Stock are entitled to one vote per share on any matter
which may properly come before the Meeting. The presence, either in person or
by properly executed proxy, of a majority of the shares of Waban Common Stock
outstanding on the Meeting Record Date will constitute a quorum and such
quorum is necessary to permit action to be taken by the stockholders at such
meeting. The affirmative vote of the holders of a majority of the shares of
Waban Common Stock outstanding on the Meeting Record Date, regardless of
whether such shares are present in person or represented by proxy at the
Meeting, is required to approve Distribution Proposals One and Two. Under
Waban's By-laws, so long as a quorum is present at the Meeting, adoption of
Distribution Proposals Three through Nine will require the affirmative vote of
the holders of a majority of the votes cast at the Meeting. In addition, the
New York Stock Exchange requires that the total votes cast (for or against) on
Distribution Proposals Three through Six represent at least a majority of the
Record Shares. You have three choices in deciding how to vote on each of the
Distribution Proposals. By checking the appropriate box you may: (a) vote
"For" the Proposal; (b) vote "Against" the Proposal; or (c) "Abstain" from
voting on the Proposal. Under the Company's by-laws, so long as a quorum is
present at the Meeting, the election of directors will require the affirmative
vote of the holders of shares representing a plurality of the votes cast at
the Meeting.
As of the Meeting Record Date, there were 32,894,749 shares of Waban Common
Stock outstanding and entitled to vote at the Meeting and 3,543 record holders
of Waban Common Stock. Although shares which abstain from voting as to a
particular matter or which withhold authority for any director nominee and
broker non-votes (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners and (ii) the
broker or nominee does not have the discretionary authority to vote on a
particular matter) will be counted as present at the meeting for quorum
purposes, such shares will not be considered to be votes cast with respect to
Distribution Proposals Three through Nine or with respect to the election of
directors. Accordingly, abstentions and broker non-votes will have no effect
on such Distribution Proposals or the election of directors. However,
abstentions and broker non-votes will have the effect of a vote "against"
Distribution Proposals One and Two.
All shares of Waban Common Stock that are represented at the Meeting by
properly executed proxies received prior to or at the Meeting and not revoked
will be voted at the Meeting in accordance with the instructions indicated in
such proxies. If no instructions are indicated for any Proposal, such proxies
will be voted FOR such Proposal.
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<PAGE>
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason Waban believes that additional time
should be allowed for the solicitation of proxies, Waban may adjourn the
Meeting, and the persons named in the enclosed proxy will vote all shares of
Waban Common Stock for which they have voting authority in favor of such
adjournment, unless such authority is withheld by checking the appropriate box
on the proxy card.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Waban, at or before the Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a
subsequent proxy relating to the same shares of Waban Common Stock and
delivering it to the Secretary of Waban at or before the Meeting, or (iii)
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice revoking a proxy should be sent to the Secretary of Waban at One Mercer
Road, Natick, Massachusetts 01760.
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid
by Waban. In addition to the use of mails, certain directors, officers or
employees of Waban and its subsidiaries, who receive no compensation for their
services other than their regular salaries, may solicit and tabulate proxies.
Waban has retained Shareholder Communications Corporation to assist in the
solicitation of proxies with respect to shares of Waban Common Stock held of
record by brokers, nominees and institutions. The estimated cost of the
services of Shareholder Communications Corporation is $7,500 plus expenses.
Waban's transfer agent, The First Chicago Trust Company of New York, will
tabulate the votes. Representatives of the transfer agent will be appointed as
inspectors of election at the Meeting to count all votes and ballots and
perform the other duties required of inspectors of election.
NO APPRAISAL RIGHTS
Stockholders of Waban will not be entitled to appraisal rights under
Delaware law in connection with any of the proposals to be voted on at the
Meeting.
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<PAGE>
RECENT DEVELOPMENTS
Waban has publicly reported its financial results for the 13-week period
ended April 26, 1997. Such information, together with the results for the
comparable period of the prior year, is unaudited, but reflects all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of such information. These results
are not necessarily indicative of the results to be expected for the entire
year.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
(UNAUDITED)
----------------------
APRIL 26, APRIL 27,
1997 1996
---------- ----------
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......................................... $1,039,151 $ 974,630
---------- ----------
Cost of sales, including buying and occupancy costs..... 894,458 834,793
Selling, general and administrative expenses............ 121,692 119,423
Interest on debt and capital leases (net)............... 5,291 4,815
---------- ----------
Income before income taxes.............................. 17,710 15,599
Provision for income taxes.............................. 6,907 6,084
---------- ----------
Net income.............................................. $ 10,803 $ 9,515
========== ==========
Primary and fully diluted net income per common share... $ 0.32 $ 0.28
========== ==========
Number of common shares for earnings
per share computations:
Primary............................................... 33,286,087 33,592,307
Fully diluted......................................... 37,642,258 38,065,372
BALANCE SHEET DATA:
Working capital......................................... $ 294,867 $ 275,448
Total assets............................................ 1,421,793 1,378,425
Long-term debt and obligations under capital leases..... 230,765 244,803
Stockholders' equity.................................... 645,721 569,192
SELECTED SEGMENT INFORMATION:
Net sales:
BJ's Wholesale Club................................... $ 678,947 $ 622,388
HomeBase.............................................. 360,204 352,242
---------- ----------
$1,039,151 $ 974,630
========== ==========
Operating income:
BJ's Wholesale Club................................... $ 16,571 $ 14,036
HomeBase.............................................. 8,753 8,255
General corporate expense............................. (2,323) (1,877)
---------- ----------
23,001 20,414
Interest on debt and capital leases (net)............... (5,291) (4,815)
---------- ----------
Income before income taxes.............................. $ 17,710 $ 15,599
========== ==========
WAREHOUSES OPEN AT END OF PERIOD:
BJ's Wholesale Club..................................... 80 72
HomeBase................................................ 84 82
</TABLE>
Waban has also publicly reported its sales results for the four-week period
ended May 31, 1997. Such information, together with sales results for the
comparable period of the prior year, is unaudited, but reflects all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of such information. These results
are not necessarily indicative of the results to be expected for the entire
quarter or year.
<TABLE>
<CAPTION>
FOUR WEEKS ENDED TOTAL COMPARABLE
------------------------- REVENUES STORE %
MAY 31, 1997 JUNE 1, 1996 % CHANGE CHANGE
------------ ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BJ's Division..................... $239,451 $229,773 4.2% (1.5)%
HomeBase Division................. 139,365 133,878 4.1% 2.0 %
-------- --------
Total Waban....................... $378,816 $363,651 4.2% (0.2)%
======== ========
</TABLE>
30
<PAGE>
THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
BACKGROUND. In late 1995, management of Waban began to explore the possible
separation of the Home Improvement Business and Warehouse Club Business into
independent companies.
In June 1996, at a meeting of the Waban Board at which all directors were
present, the Waban Board considered the possibility of undertaking an initial
public offering of a minority interest in the Warehouse Club Business and then
spinning off the Warehouse Club Business to Waban stockholders. The Waban
Board authorized management to further investigate the feasibility of such a
transaction.
In July 1996, at a meeting of the Waban Board at which all directors were
present, the Waban Board determined not to proceed with the possible spin-off
of the Warehouse Club Business at that time in view of the lower than expected
sales of the Home Improvement Business during the second quarter of fiscal
1996.
In July 1996, Waban received an inquiry from Leonard Green & Partners, L.P.
("Green") as to whether Waban would consider a possible transaction pursuant
to which Green would acquire HomeBase from Waban and Builders Square from
Kmart Corporation ("Kmart"). On July 23, 1996, Waban entered into a
confidentiality agreement with Green. Discussions ensued concerning a possible
transaction but did not proceed beyond a preliminary stage.
On October 22, 1996, at a meeting of the Waban Board at which all directors
were present, the Waban Board unanimously approved (with Mr. Loewy and Ms.
Hamilton abstaining) the filing with the IRS of a revenue ruling request, and
the filing with the SEC of a proxy statement, with respect to a proposed tax-
free spin-off of the Wholesale Club Business to Waban stockholders. Mr. Loewy
and Ms. Hamilton abstained because they are a director and employee,
respectively, of The TJX Companies, Inc. See "Relationship Between BJI and
HomeBase after the Distribution; Conflicts of Interest--Leases." The principal
factors that served as the basis for the Board's decision are described below,
and no relative weights were assigned by the Board to each factor. See
"Reasons for the Distribution."
In late 1996, Kmart revived discussions with Waban and Green concerning a
possible transaction pursuant to which Green would acquire HomeBase from Waban
and Builders Square from Kmart. On February 3, 1997, Waban announced that it
was postponing the Distribution in order to consider the possible transaction
with Green and Kmart. The parties were unable to reach agreement on the terms
of any such transaction, and on April 2, 1997, Waban announced its intention
to proceed with the Distribution.
From time to time in 1996 and 1997, Waban received inquiries from other
prospective purchasers of HomeBase, but no discussions with any such
purchasers proceeded beyond a preliminary stage.
Waban engaged its financial advisor, Bear, Stearns & Co. Inc., to advise and
assist Waban in connection with the Distribution and sale of HomeBase. Bear,
Stearns & Co. Inc. was not engaged to furnish an opinion to the Waban Board as
to the Distribution.
REASONS FOR THE DISTRIBUTION. The Waban Board believes that the Distribution
will accomplish a number of important business goals. Separation of the Home
Improvement Business and the Warehouse Club Business into independent
companies will allow each company to concentrate exclusively on its own
business objectives without concern for the business objectives of the other
company, and will allow the financial markets to better recognize and evaluate
the merits of the Warehouse Club Business and the Home Improvement Business,
thereby enhancing the likelihood that each will achieve appropriate market
recognition for its own performance. The Waban Board also believes the
improved recognition by the financial markets resulting from the anticipated
separation of the Home Improvement Business and the Warehouse Club Business
into independent publicly owned companies will facilitate the conversion of
the Convertible Debentures into Common Stock. The Convertible Debentures are
convertible into Waban Common Stock at a price of $24.75 per share, and are
redeemable during the period beginning July 1, 1997 at a price of 102.889% of
par, plus accrued interest. Waban has called the Convertible Debentures for
redemption and, in connection therewith, has entered into the Standby Purchase
Agreement providing for the Standby Purchaser, subject to certain conditions,
to purchase up to 2,160,606 shares of Waban Common Stock. Subject to the terms
and conditions of the Standby Purchase Agreement, the Standby Purchaser will
be obligated to purchase from the Company such number of shares of
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<PAGE>
Waban Common Stock as would have been issuable upon conversion of the Excess
Convertible Debentures (but in no event more than 2,160,606 shares of Waban
Common Stock). The Distribution and the related transactions described in this
Proxy Statement/Prospectus are expected to reduce the aggregate level of
indebtedness and interest costs borne by the two companies, and to increase
the aggregate amount of stockholders' equity, as compared to Waban. As shown
on the capitalization tables for Waban and BJI included elsewhere in this
Proxy Statement/Prospectus, as of January 25, 1997, Waban had total debt of
approximately $245 million and stockholders' equity of approximately $632
million. Following the Distribution, on a pro forma basis giving effect to the
adjustments described elsewhere in this Proxy Statement/Prospectus and
assuming conversion of all of the Convertible Debentures, HomeBase will have
total debt of approximately $42 million and stockholders' equity of
approximately $389 million and BJI will have total debt of approximately $100
million and stockholders' equity of approximately $339 million. Assuming
partial conversion of the Convertible Debentures, on a pro forma basis,
HomeBase will have total debt of approximately $56 million and stockholders'
equity of approximately $375 million and BJI will have total debt of
approximately $140 million and stockholders' equity of approximately $299
million. See "Waban Capitalization" and "BJI Capitalization."
In addition, the Distribution is expected to enhance the ability of the
separate corporations to attract, motivate and retain key personnel through
the provision of more effective stock-based incentive compensation programs
that are based on the performance of the respective business in which such
individuals are employed without being influenced by the results of the
business in which they have no involvement.
MANNER OF EFFECTING THE DISTRIBUTION
If the Waban Board declares the Distribution and if all of the other
conditions to the Distribution are satisfied (or waived by the Waban Board),
the Distribution will occur on the Distribution Date. The Distribution Record
Date will be a date that is as soon as practicable following the declaration
of the Distribution. On the Distribution Date, Waban will deliver all
outstanding shares of BJI Common Stock and BJI Rights held by Waban to the
Distribution Agent. As soon as practicable thereafter, certificates therefor
will be mailed by the Distribution Agent to holders of record of Waban Common
Stock as of the Distribution Record Date on the basis of one share of BJI
Common Stock (and one BJI Right) for every share of Waban Common Stock held on
that date. All such shares will be legally issued, fully paid and
nonassessable.
No holder of Waban Common Stock will be required to pay any cash or other
consideration for the shares of BJI Common Stock and BJI Rights received in
the Distribution or to surrender or exchange shares of Waban Common Stock in
order to receive BJI Common Stock and BJI Rights.
FEDERAL INCOME TAX ASPECTS OF THE DISTRIBUTION
The Company has received a letter ruling issued by the IRS on December 12,
1996 to the effect that, for Federal income tax purposes, the Distribution
will qualify as a spin-off under Section 355 of the Code that will be tax free
to the holders of Waban Common Stock and to Waban. Accordingly, the material
Federal income tax consequences of the Distribution should be as follows:
1. No income, gain or loss will be recognized by a stockholder of Waban
Common Stock as a result of the receipt of BJI Common Stock in the
Distribution.
2. The basis of a holder of Waban Common Stock in the HomeBase Common
Stock and the BJI Common Stock received on the Distribution Date in
respect of Waban Common Stock will be determined by allocating such
holder's basis in the Waban Common Stock immediately before the
Distribution between the HomeBase Common Stock and the BJI Common
Stock received with respect to such Waban Common Stock in proportion
to their relative fair market values on the Distribution Date.
3. The holding period of the BJI Common Stock received in the
Distribution will include the holding period of the Waban Common Stock
with respect to which the BJI Common Stock will be distributed,
provided the Waban Common Stock is held as a capital asset on the
Distribution Date.
4. No income, gain or loss will be recognized by Waban solely on account
of the Asset Transfers or the Distribution.
32
<PAGE>
The letter ruling by the IRS is based on and subject to certain assumptions,
facts, representations and advice provided by Waban, BJI, holders of 5% or
more of Waban Common Stock and Bear, Stearns & Co. Inc., Waban's financial
advisor. Waban is not aware of any present facts or circumstances which would
make such assumptions, facts, representations and advice unobtainable or
untrue. However, certain future events not within the control of Waban and
BJI, including, for example, certain dispositions of HomeBase Common Stock or
BJI Common Stock after the Distribution, could cause the Distribution not to
qualify for tax-free treatment.
The material assumptions, facts and representations given to the IRS by
Waban were as follows: (1) Waban anticipated having to raise additional
capital in order to fund the growth of its two businesses; (2) Waban's
competitors were able to raise capital less expensively, which placed Waban at
a disadvantage; (3) it was desirable to increase the amount of Waban's equity
capital; (4) achieving conversion of the Convertible Debentures into Waban
Common Stock would be an efficient method of raising equity capital; (5) the
purpose of the Distribution was to increase the value of Waban's Common Stock
so that holders of the Convertible Debentures would exercise their option to
convert the Convertible Debentures into Waban Common Stock after Waban called
the Convertible Debentures for redemption; (6) following the Distribution,
HomeBase and BJI will continue the active conduct of their respective
businesses, each independent of the other, and that any payments made by one
company to the other will be based on arm's length bargaining; (7) neither
Waban nor BJI has any plan or intention to repurchase outstanding shares of
its common stock after the Distribution; (8) no plan exists to liquidate,
merge, sell or otherwise dispose of the assets of Waban or BJI; and (9) no
shareholder who owns five percent or more of the outstanding Waban Common
Stock has any intention to sell or otherwise dispose of any stock in Waban or
BJI after the Distribution occurs.
In addition, Bear, Stearns & Co. Inc. provided a letter to the Company, for
submission to the IRS, stating its belief that (i), as a result of the
Company's announcement of its intention to spin-off BJI, Waban's stock price
would appreciate sufficiently to allow Waban to call its Convertible
Debentures for redemption and thereby achieve conversion of the Convertible
Debentures into Waban Common Stock, and (ii) as a result of the conversion of
the Convertible Debentures into Waban Common Stock and the restructuring of
Waban's existing debt in connection with the Distribution, the combined
interest expense of BJI and HomeBase would be significantly lower than Waban's
interest expense.
If the Distribution were not to qualify for tax-free treatment under Section
355 of the Code, each holder of Waban Common Stock who receives BJI Common
Stock would be treated as receiving a distribution, generally taxable as a
dividend, in an amount equal to the fair market value of such BJI Common Stock
on the Distribution Date. Furthermore, the tax basis of BJI Common Stock
received in the Distribution would equal its fair market value on the
Distribution Date, the holding period of such stock would begin with and
include the day after the Distribution Date and Waban would recognize taxable
gain on the Distribution. See "Risk Factors--Certain Tax Considerations."
It is expected that, pursuant to the Preferred Stock Purchase Rights Plan to
be adopted by BJI, one preferred stock purchase right (a "BJI Right") will
attach to each share of BJI Common Stock distributed in the Distribution.
While the distribution of the BJI Rights should not be taxable to stockholders
or to BJI, stockholders may, depending upon the circumstances, recognize
taxable income in the event that the BJI Rights become exercisable for BJI
Preferred Stock (or other consideration) or for common stock of an acquiring
company. See "Description of BJI Capital Stock" and "Certain Provisions of the
BJI Certificate and the BJI By-laws--Preferred Stock Purchase Rights."
For a description of the Tax Sharing Agreement pursuant to which BJI and
Waban have provided for various tax matters, see "Relationship Between BJI and
HomeBase After the Distribution; Conflicts of Interest--Tax Sharing
Agreement."
THE FOREGOING SUMMARY OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW, WHILE ACCURATE, DOES NOT
PURPORT TO COVER ALL FEDERAL INCOME TAX CONSEQUENCES (INCLUDING THOSE THAT MAY
APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS) OR ANY TAX CONSEQUENCES THAT
MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS. WABAN HAS NOT
33
<PAGE>
REQUESTED ANY RULINGS OR OPINIONS WITH RESPECT TO THE TAX CONSEQUENCES OF THE
DISTRIBUTION UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN GOVERNMENT. EACH
HOLDER (INCLUDING ANY CORPORATE HOLDER) OF WABAN COMMON STOCK SHOULD CONSULT
SUCH HOLDER'S TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
DISTRIBUTION, INCLUDING APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX
CONSEQUENCES DESCRIBED ABOVE.
ACCOUNTING TREATMENT
Following approval of the Distribution Proposals at the Meeting, Waban will
present the Warehouse Club Business as discontinued operations to the extent
financial information for periods prior to the Distribution is required to be
included in Waban's historical financial statements. Included separately
herein are the financial statements of BJI as if it were a separate entity for
all periods presented. Waban's historical basis in the assets and liabilities
of BJI has been carried over. See "Pro Forma Financial Data of Waban,"
"Selected Historical Financial Data of BJI" and "Pro Forma Financial Data of
BJI."
LISTING AND TRADING OF BJI COMMON STOCK
There is not currently a public market for the BJI Common Stock. BJI intends
to list the BJI Common Stock on the New York Stock Exchange. Prior to the
Distribution, BJI Common Stock may trade on a "when-issued" basis. Prices at
which BJI Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. Until the BJI Common Stock is fully
distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly. The prices at which BJI Common
Stock trades will be determined by the marketplace and may be influenced by
many factors, including, among others, the depth and liquidity of the market
for BJI Common Stock, investor perception of BJI and the industry in which BJI
participates, dividend policy and general economic and market conditions. Such
prices may also be affected by certain provisions of the BJI Certificate and
the BJI By-laws, as each will be in effect following the Distribution, and by
the BJI Preferred Share Purchase Rights Plan. See "Risk Factors--Dividend
Policies" and "Certain Provisions of the BJI Certificate and the BJI By-laws."
BJI initially will have approximately 3,543 stockholders of record based on
the number of stockholders of record of Waban as of May 23, 1997.
LISTING AND TRADING OF HOMEBASE COMMON STOCK
After the Distribution, it is expected that HomeBase Common Stock (formerly
Waban Common Stock) will continue to be listed and traded on the New York
Stock Exchange. Following the Distribution, HomeBase's financial results will
no longer be consolidated with those of BJI, and as a result, HomeBase's
revenues, income and other results of operations will be substantially below
those of Waban prior to the Distribution. Accordingly, as a result of the
Distribution, the trading price range of HomeBase's Common Stock immediately
after the Distribution is expected to be significantly lower than the trading
price range of the Waban Common Stock prior to the Distribution. The combined
trading prices of the HomeBase Common Stock and the BJI Common Stock held by
stockholders after the Distribution may be less than, equal to or greater than
the trading price of Waban Common Stock prior to the Distribution. The prices
at which HomeBase Common Stock trades after the Distribution will be
determined by the marketplace and may be influenced by many factors,
including, among others, the continuing depth and liquidity of the market for
HomeBase's Common Stock, investor perception of HomeBase's Home Improvement
Business and general economic and market conditions.
CONDITIONS; TERMINATION
The Waban Board has conditioned the Distribution upon the following, which
are the only material conditions to the Distribution: (i) the declaration by
the Waban Board of the Distribution; (ii) all of the
34
<PAGE>
Convertible Debentures having been converted or redeemed and any shares
required to be purchased from the Company pursuant to the Standby Purchase
Agreement having been issued; (iii) the transfers of assets and liabilities
contemplated by the Distribution Agreement to be entered into between BJI and
Waban prior to the Distribution having been consummated in all material
respects; (iv) the BJI Common Stock and associated BJI Rights having been
approved for listing on the New York Stock Exchange subject to official notice
of issuance; (v) BJI and HomeBase having entered into agreements with lenders
to provide sufficient financing upon consummation of the Distribution; (vi)
the Form 8-A Registration Statement having become effective under the Exchange
Act; (vii) continued applicability of the private letter ruling received by
Waban from the IRS with respect to the tax-free nature of the Distribution;
and (viii) the repayment by Waban of its outstanding Senior Notes and the
retirement or defeasance of Waban's Senior Subordinated Notes. Any of these
conditions may be waived in the discretion of the Waban Board. Even if all of
the above conditions are satisfied, the Waban Board has reserved the right to
abandon, defer or modify the Distribution or the other elements of the
Distribution Proposals at any time prior to the Distribution Date. See
"Relationship Between HomeBase and BJI after the Distribution; Conflicts of
Interest--Distribution Agreement."
35
<PAGE>
RELATIONSHIP BETWEEN BJI AND HOMEBASE AFTER THE DISTRIBUTION; CONFLICTS OF
INTEREST
Prior to the Distribution, BJI and Waban will enter into a series of
agreements, as described below. Although the following summaries of these
agreements set forth an accurate description of their material terms and
provisions, such summaries are qualified in their entirety by reference to the
detailed provisions of the agreements, the forms of which have been filed as
exhibits to the BJI Registration Statement of which this Prospectus forms a
part.
DISTRIBUTION AGREEMENT
BJI and Waban will enter into a Separation and Distribution Agreement (the
"Distribution Agreement"), which will provide for, among other things, (i) the
principal corporate transactions required to effect the Distribution, (ii) the
division between BJI and Waban of certain assets and liabilities and (iii) the
execution and delivery prior to the Distribution of the Services Agreement,
the Employee Benefits Agreement and the Tax Sharing Agreement, each of which,
as described below, governs certain aspects of the relationship between BJI
and HomeBase following the Distribution.
The Distribution Agreement will provide that on or prior to the Distribution
Date (i) Waban will transfer to BJI all of the assets of the BJ's Division,
including the stock of subsidiaries which hold assets of the BJ's Division,
and the assets associated with the Company's corporate headquarters in
Massachusetts; (ii) BJI will assume the leases and other liabilities of the
BJ's Division and 75% of the amount of all bank indebtedness of Waban existing
as of the Distribution Date; and (iii) BJI will issue to Waban the BJI Common
Stock and the BJI Rights to be distributed in the Distribution. Such
liabilities are reflected, as of January 25, 1997, in the pro forma financial
data of BJI and financial statements and notes of BJI presented elsewhere in
this Proxy Statement/Prospectus. See "The Distribution--Manner of Effecting
the Distribution."
The Distribution Agreement will provide that, except as provided in the
Employee Benefits Agreement or the Tax Sharing Agreement (see"--Employee
Benefits Agreement" and "--Tax Sharing Agreement" below), HomeBase will
indemnify BJI for liabilities relating to the business retained by HomeBase
following the Distribution. Similarly, BJI will agree to indemnify HomeBase
for liabilities pertaining to BJI's business. The Distribution Agreement will
also provide that BJI and HomeBase will each indemnify the other for losses
incurred due to a failure to perform their respective obligations under the
Distribution Agreement or any other agreement entered into in connection with
the Distribution. In addition, the Distribution Agreement will provide that
HomeBase will provide liability insurance for a period of six years following
the Distribution to each individual who served as a director or officer of
Waban prior to the Distribution. BJI will also indemnify, defend and hold
harmless each such individual from any losses and liabilities incurred by them
in connection with the approval of the Distribution Agreement.
The Distribution Agreement will also contain provisions regarding the
settlement of intercompany accounts, certain matters relating to lease
liabilities (see--"Leases" below), access, retention and sharing of
information and records, procedures relating to indemnification claims, the
transfer of insurance coverage and confidentiality.
The Distribution Agreement will provide that the Distribution will be
conditioned upon the following, which are the only material conditions to the
Distribution: (i) the declaration by the Waban Board of the Distribution; (ii)
all of the Convertible Debentures having been converted or redeemed and any
shares required to be purchased from the Company pursuant to the Standby
Purchase Agreement having been issued; (iii) the transfers of assets and
liabilities contemplated by the Distribution Agreement having been consummated
in all material respects; (iv) the BJI Common Stock and associated BJI Rights
having been approved for listing on the New York Stock Exchange subject to
official notice of issuance; (v) BJI and HomeBase having entered into
agreements with lenders to provide sufficient financing upon consummation of
the Distribution; (vi) the Form 8-A Registration Statement having become
effective under the Exchange Act; (vii) continued applicability of the private
letter ruling received by Waban from the IRS with respect to the tax-free
nature of the Distribution; and (viii) the
36
<PAGE>
repayment by Waban of its outstanding Senior Notes and the retirement or
defeasance of Waban's Senior Subordinated Notes. Any of these conditions may
be waived in the discretion of the Waban Board. Even if all of the above
conditions are satisfied, the Waban Board has reserved the right to abandon,
defer or modify the Distribution or the other elements of the Distribution
Proposals at any time prior to the Distribution Date.
LEASES
Pursuant to the Distribution Agreement, upon the Distribution, BJI will
assume all liabilities to third-party lessors with respect to leases entered
into by Waban with respect to the Warehouse Club Business. While HomeBase will
continue to be liable, by law, with respect to such lease liabilities, BJI
will indemnify HomeBase for such liabilities.
In connection with the spin-off of Waban by TJX in 1989, Waban and TJX
entered into an agreement (the "1989 Agreement") pursuant to which Waban
agreed to indemnify TJX against any liabilities that TJX might incur with
respect to 45 current HomeBase real estate leases as to which TJX is either a
lessee or guarantor. On April 10, 1997, TJX filed a complaint against the
Company in the Superior Court for Middlesex County, Massachusetts, alleging
that BJI is required under the terms of the 1989 Agreement to assume Waban's
indemnification obligations under the 1989 Agreement, that the proposed
Distribution constitutes a fraudulent transfer under Massachusetts law, that
the proposed Distribution constitutes a breach of Waban's implied duty of good
faith and fair dealing inherent in the 1989 Agreement, and that the proposed
Distribution constitutes an unfair or deceptive trade practice. While Waban
believed that it had meritorious defenses to each of such allegations, on
April 18, 1997, in exchange for mutual releases, TJX and Waban settled such
litigation by agreeing that BJI would assume a portion of Waban's obligations
under the 1989 Agreement. Specifically, under the settlement agreements, BJI
has agreed that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities (as defined in the 1989
Agreement) that TJX may incur with respect to HomeBase leases and thereafter
it will indemnify TJX for 50% of such liabilities. In addition, Waban has
agreed that after the Distribution, HomeBase will not renew any lease
identified in the 1989 Agreement as to which TJX is a lessee or guarantor
unless the applicable lessor agrees to remove TJX as a lessee or guarantor.
Upon the execution of the settlement agreements, TJX dismissed its complaint
without prejudice. The settlement agreements provide that the dismissal
without prejudice will automatically be converted into a dismissal with
prejudice upon the effective date of the Distribution.
The Distribution Agreement contains restrictions on the renewal of HomeBase
leases similar to those contained in the agreement between Waban and TJX. BJI
may not renew any of its real estate leases (other than ground leases) for
which HomeBase may be liable during any period during which it does not meet
certain standards of creditworthiness.
There can be no assurance that the terms of such agreements will not in the
future have a material adverse effect upon BJI or HomeBase.
SERVICES AGREEMENT
BJI and Waban will enter into a Services Agreement (the "Services
Agreement") pursuant to which BJI will provide certain tax administration
services with respect to Waban's tax year ending January 31, 1998. In
addition, BJI may provide risk management, legal, investor relations and
treasury services to HomeBase for a period of up to twelve months following
the Distribution. The Services Agreement provides that HomeBase will pay BJI a
fixed fee, the amount of which will be determined prior to the Distribution,
for tax administration services with respect to Waban's tax year ending
January 31, 1998, and that risk management, legal, investor relations and
treasury services requested by Waban to be provided by BJI will be billed on
an hourly basis at 2.5 times the providing employee's hourly rate. BJI and
Waban believe that such rates are or will be as favorable as could have been
obtained from disinterested third parties. If a dispute arises between the
parties under the Services Agreement which cannot be resolved, it will be
submitted to arbitration.
37
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
Waban and BJI will enter into an Employee Benefits Agreement which will
contain a number of provisions pertaining to employee benefit plan matters.
BJI will generally agree to establish employee benefit plans substantially
similar to the employee benefit plans currently maintained by Waban and to
assume or retain under the applicable BJI Plan with respect to each BJI
employee or former employee of the BJ's Division all liabilities under the
corresponding Waban plan accrued for the period ending on the date on which
the employee's employment is transfered to BJI or its affiliates (or the date
of the former employee's termination of employment). In addition, the Employee
Benefits Agreement provides that the Waban Retirement Plan will be terminated
and, in connection with such termination, BJI will pay to Waban 75% of any
amount contributed or to be contributed by Waban to the Waban Retirement Plan
after the Distribution Date in order for the Waban Retirement Plan to pay all
accrued benefits.
The Employee Benefits Agreement will provide for appropriate asset transfers
(and corresponding credit for service with Waban prior to the Distribution)
from Waban's 401(k) Savings Plans and Executive Retirement Plan in respect of
persons who will become BJI employees. In addition, the Employee Benefits
Agreement will contain provisions for the issuance of replacement stock
options and restricted stock by BJI to persons who will become BJI employees
on the Distribution Date, subject to such persons' surrender of their
corresponding Waban awards. See "Management of BJI--Incentive and Other
Plans."
TAX SHARING AGREEMENT
Waban and BJI will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") to provide for the allocation between the parties of federal,
state, local and foreign tax liabilities, and the entitlement to tax refunds,
for periods ending on or prior to the Distribution Date, and various related
matters, as described in more detail below.
Note: As used in the following summary of the Tax Sharing Agreement,
references to the "HomeBase Group" include HomeBase and those corporations
that will be members of its consolidated tax group after giving effect to the
Distribution. Similarly, references to the "BJI Group" include BJI and those
corporations that will be members of its consolidated tax group after giving
effect to the Distribution.
HomeBase will retain responsibility pursuant to the Tax Sharing Agreement
for filing all consolidated federal income tax returns (and all similar state
and local tax returns) for periods beginning on or before the Distribution
Date.
In general, the Tax Sharing Agreement will provide that the BJI Group will,
to the extent not previously paid to HomeBase, be liable to HomeBase for
federal, state, local and foreign tax liabilities for all periods beginning on
or before the Distribution Date, including any such liabilities resulting from
the audit of, or adjustment to, previously filed tax returns, which are
clearly attributable to the operations and assets of the BJI Group. HomeBase
will be responsible for all such tax liabilities which are clearly
attributable to the operations and assets of the HomeBase Group. Tax items
(constituting items of income, gain, loss, deduction, credit, provisions for
reserves, recapture of credit or any other item which increases or decreases
taxes paid or payable) not clearly attributable either to the BJI Group or the
HomeBase Group will be taken into account for the HomeBase Group with respect
to unfiled tax returns and will be taken into account 25% for the HomeBase
Group and 75% for the BJI Group with respect to any redetermined tax
liabilities.
In the event that any post-Distribution transaction involving the stock or
assets of the BJI Group, or certain actions taken by members of the BJI Group
after the Distribution, result in the Asset Transfers being a taxable event or
in the Distribution failing to qualify as a tax-free spin-off under the
provisions of Section 355 of the Code, BJI will be responsible and indemnify
HomeBase for all taxes, including penalties and interest ("Restructuring
Taxes"), incurred by HomeBase (but not Waban stockholders) by reason of the
Distribution being a taxable event. In the event that any post-Distribution
transaction involving the stock or assets of the HomeBase Group, or certain
actions taken by members of the HomeBase Group after the Distribution, result
in
38
<PAGE>
the Asset Transfers being a taxable event or in the Distribution failing to
qualify as a tax-free spin-off, HomeBase will be responsible and indemnify BJI
(but not Waban stockholders) for all of such Restructuring Taxes. In the event
that any Restructuring Taxes arise for which neither BJI nor HomeBase is
responsible, BJI and HomeBase will share liability equally for the
Restructuring Taxes and each of BJI and HomeBase will indemnify the other
party (but not Waban stockholders) for its share of such Restructuring Taxes.
The Tax Sharing Agreement will contain procedural provisions requiring
notice of potential claims for reimbursement, participation in conferences
with taxing authorities and, more generally, mutual consultation and
cooperation with respect to the tax matters which are the subject of the
agreement. Decisions with respect to negotiations, settlements and litigation
with taxing authorities relating to matters that may increase BJI's tax
liability will generally require BJI's consent. Disputes under the agreement
will be resolved by a certified public accounting firm or law firm
satisfactory to both HomeBase and BJI.
One consequence of BJI's potential obligations in respect of indemnity
payments for Restructuring Taxes could be to deter a transaction which could
result in a change of control of BJI.
PROCEDURES FOR ADDRESSING CONFLICTS
After the Distribution, BJI and HomeBase will have significant contractual
and other ongoing relationships, as described herein. Such ongoing
relationships may present certain conflict situations for Mr. Zarkin, who will
serve as Chairman of the Board of Directors of both companies, and for Messrs.
Waxlax and Weisberger, who will serve as directors of both companies. Each of
these persons will also own (or have options or other rights to acquire) a
significant number of shares of common stock in both companies. See "Risk
Factors--Potential Conflicts," "Management of BJI," and "Management of
HomeBase." BJI and HomeBase will adopt appropriate procedures to be followed
by the board of directors of each company to limit the involvement of such
persons in conflict situations, including matters relating to contractual
relationships or litigation between the companies. Such procedures will
require that all transactions being considered by either HomeBase or BJI which
relate to the other company (i) must be approved by a majority of the members
of the board of directors and by a majority of the disinterested members of
the board of directors, and (ii) must be on terms no less favorable to the
company whose board is considering such matter than could be obtained from
unaffiliated third parties. Whether or not a significant conflict of interest
situation exists will be determined on a case-by-case basis depending on such
factors as the dollar value of the matter, the degree of personal interest in
the matter, the respective interests of the stockholders of BJI or HomeBase
and the likelihood that resolution of the matter will have significant
strategic, operational or financial implications for the business of the
respective companies.
FINANCING; TREATMENT OF OUTSTANDING LONG-TERM DEBT
Prior to the Distribution, Waban intends to refinance its outstanding long-
term debt. Waban's outstanding indebtedness as of April 26, 1997 consisted of
(i) $24,000,000 Senior Notes; (ii) $100,000,000 Senior Subordinated Notes;
(iii) Convertible Debentures (of which, $106,949,000 were outstanding as of
April 26, 1997); (iv) $150,000,000 line of credit with a group of banks, under
which no borrowings were outstanding at April 26, 1997; and (v) approximately
$12,225,000 of capital lease and real estate obligations.
Prior to the Distribution, Waban intends to repay the Senior Notes and to
retire (via open market or privately negotiated purchases or a tender offer)
or defease the Senior Subordinated Notes, utilizing borrowings under its line
of credit. Waban is currently in discussions to amend certain terms of its
line of credit in order to consummate these transactions. Waban will be
required to pay certain premiums and prepayment penalties in connection with
the foregoing transactions. See "Risk Factors--Repayment of Long-Term Debt."
The Convertible Debentures are convertible by the holders into Waban Common
Stock at a conversion price of $24.75 per share, and are redeemable during the
period beginning July 1, 1997 at a price of 102.889% of par, plus accrued
interest. Waban has called the Convertible Debentures for redemption and, in
connection therewith,
39
<PAGE>
has entered into the Standby Purchase Agreement providing for the Standby
Purchaser, subject to certain conditions, to purchase up to 2,160,606 shares
of Waban Common Stock. Subject to the terms and conditions of the Standby
Purchase Agreement, the Standby Purchaser will be obligated to purchase from
the Company such number of shares of Waban Common Stock as would have been
issuable upon conversion of the Excess Convertible Debentures (but in no event
more than 2,160,606 shares of Waban Common Stock). It is a condition to the
Distribution that (i) all of the Convertible Debentures are converted or
redeemed for cash and (ii) any shares required to be purchased from the
Company pursuant to the Standby Purchase Agreement are actually issued. There
can be no assurance that such conditions will be satisfied. In the event such
conditions are not satisfied, it is likely that the Distribution would be
delayed for a significant period of time or cancelled.
Waban is in discussions with financial institutions to amend certain terms
of its existing credit facility in order to make the changes necessary to
permit the transactions described above involving the Senior Notes, Senior
Subordinated Notes and Convertible Debentures and to obtain bank credit
facilities for each of BJI and HomeBase. In connection with the Distribution
the outstanding bank indebtedness of Waban will be allocated 75% to BJI and
25% to HomeBase. See "Relationship Between BJI and HomeBase After the
Distribution; Conflicts of Interest--Distribution Agreement." While
discussions to date have been held with financial institutions which are
members of Waban's current credit facility, the new BJI and HomeBase
facilities may include additional participants. It is a condition of the
Distribution that such credit facilities be obtained in amounts and on terms
considered appropriate by the management and boards of directors of the
respective companies. Although Waban expects to obtain such credit facilities,
there is no assurance that such credit facilities can be obtained on terms
considered appropriate by the Waban Board, if at all. See "Risk Factors--
Certain Financial Considerations."
CONSENTS; REGULATORY APPROVALS
Other than (i) the filing of the Form 8-A Registration Statement with the
Securities and Exchange Commission with respect to the BJI Common Stock and
the BJI Rights (which must be filed and declared effective prior to the
Distribution) and (ii) the required waiver under the Company's existing bank
line of credit to effect the redemption of the Convertible Debentures, Waban
does not believe that any material consents from third parties or federal or
state regulatory approvals will be necessary in connection with the
Distribution.
40
<PAGE>
WABAN CAPITALIZATION
The following table sets forth the pro forma capitalization of Waban at
January 25, 1997 after giving effect to the conversion of all of the
Convertible Debentures into 4,386,585 shares of Waban Common Stock, or
alternatively, the redemption for cash of $53,474,500 of the Convertible
Debentures and the conversion of the remaining Convertible Debentures into
Waban Common Stock. Both pro forma presentations give effect to (i) borrowings
of long-term debt under Waban's proposed credit agreement, (ii) retirement of
Waban's Senior Notes and Senior Subordinated Notes and related prepayment
penalties, (iii) payment from BJI of its current taxes payable and
intercompany borrowings, and (iv) the Distribution. This data should be read
in conjunction with the historical financial statements and the unaudited pro
forma financial data of Waban incorporated by reference in or included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
-----------------------------------------------
PRO FORMA FOR
FULL CONVERSION OF PRO FORMA FOR
CONVERTIBLE PARTIAL
DEBENTURES CONVERSION
INTO COMMON OF CONVERTIBLE
ACTUAL STOCK DEBENTURES
-------- ---------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current
maturities of long-term debt.. $ 12,817 $ 654 $ 654
Long-term debt, less current
maturities.................... 232,486 41,826 55,194
Stockholders' equity:
Common stock.................. 333 377 355
Additional paid-in capital.... 329,719 389,043 374,371
Treasury stock................ (10,000) -- --
Retained earnings............. 311,873 -- 177
-------- -------- --------
Total stockholders' equity... 631,925 389,420 374,903
-------- -------- --------
Total capitalization....... $877,228 $431,900 $430,751
======== ======== ========
</TABLE>
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WABAN
The data that follows should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto included in Waban's Annual
Report on Form 10-K for the fiscal year ended January 25, 1997, which is
incorporated by reference herein. For a discussion of the basis of
presentation of the Waban Consolidated Financial Statements, see Summary of
Accounting Policies in Notes to the Waban Consolidated Financial Statements
contained in Form 10-K for the fiscal year ended January 25, 1997. For a
discussion of certain financial information for the 13-week period ended April
26, 1997 and the four-week period ended May 31, 1997, see "Recent
Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(53 WEEKS)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $ 3,357,794 $ 3,589,341 $ 3,650,281 $ 3,978,384 $4,375,528
----------- ----------- ----------- ----------- ----------
Cost of sales, including
buying and occupancy
costs.................. 2,881,334 3,086,670 3,110,787 3,387,992 3,742,599
Selling, general and
administrative
expenses............... 401,905 423,026 418,404 455,523 486,868
Restructuring charge.... -- 101,133 -- -- --
Interest on debt and
capital leases (net)... 6,280 12,489 14,898 15,431 19,735
----------- ----------- ----------- ----------- ----------
Income (loss) before
income taxes and
cumulative effect of
accounting principle
changes................ 68,275 (33,977) 106,192 119,438 126,326
Provision (benefit) for
income taxes........... 24,033 (15,290) 41,202 46,461 49,666
----------- ----------- ----------- ----------- ----------
Income (loss) before
cumulative effect of
accounting principle
changes................ 44,242 (18,687) 64,990 72,977 76,660
Cumulative effect of
accounting principle
changes................ -- 905 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)....... $ 44,242 $ (17,782) $ 64,990 $ 72,977 $ 76,660
=========== =========== =========== =========== ==========
Income (loss) per common
share:
Primary earnings per
share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.33 $ (0.56) $ 1.95 $ 2.20 $ 2.31
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.33 $ (0.54) $ 1.95 $ 2.20 $ 2.31
=========== =========== =========== =========== ==========
Fully diluted earnings
per share:
Income (loss) before
cumulative effect of
accounting principle
changes............... $ 1.31 $ (0.56) $ 1.83 $ 2.05 $ 2.15
Cumulative effect of
accounting principle
changes............... -- 0.02 -- -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)...... $ 1.31 $ (0.54) $ 1.83 $ 2.05 $ 2.15
=========== =========== =========== =========== ==========
Number of common shares
for earnings per share
computations:
Primary................ 33,191 33,082 33,405 33,220 33,205
Fully diluted.......... 35,707 33,082 37,793 37,784 37,713
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 286,313 $ 213,315 $ 308,749 $ 265,450 $ 275,842
Total assets............ 1,006,663 1,072,994 1,237,521 1,332,451 1,375,966
Long-term debt and
obligations under
capital leases......... 192,630 174,054 258,763 245,313 232,486
Stockholders' equity.... 436,610 420,492 488,089 555,120 631,925
WAREHOUSES OPEN AT END
OF PERIOD:
BJ's Wholesale Club..... 39 52 62 71 81
HomeBase................ 86 82 77 79 84
</TABLE>
42
<PAGE>
PRO FORMA FINANCIAL DATA OF WABAN
The following unaudited pro forma financial data for the period ended
January 25, 1997 and as of January 25, 1997 illustrate the estimated effects
on Waban of the proposed Distribution and (i) the repayment by BJI to Waban of
intercompany indebtedness and current taxes payable, (ii) the prepayment of
the Senior Notes and Senior Subordinated Notes, (iii) new borrowings under
Waban's proposed credit agreement and (iv) the full or partial conversion of
the Convertible Debentures (the "Related Waban Transactions"). The Company has
called the Convertible Debentures for redemption and, in connection therewith,
has entered into the Standby Purchase Agreement. See "Standby Agreement" and
"Risk Factors--Conversion or Redemption of Convertible Debentures". The pro
forma financial data has been prepared to present two alternative scenarios.
Scenario A gives pro forma effect to the conversion of all of the Convertible
Debentures into Waban Common Stock. Scenario B gives pro forma effect to the
redemption of $53,474,500 of the Convertible Debentures for cash and the
conversion of the remaining Convertible Debentures.
The following unaudited pro forma financial data for the periods ended
January 28, 1995 and January 27, 1996 illustrate the effect on Waban of the
Distribution.
The unaudited pro forma financial data of Waban does not purport to
represent what the financial position or results of operations of Waban would
have been if the Distribution and Related Waban Transactions had in fact been
consummated on the dates indicated or at any future date. The pro forma
adjustments are based upon available information and upon certain assumptions
that Waban's management believes are reasonable in the circumstances.
43
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................ $ 14,593 $ (1,100)(1) $ 3,993
32,500 (2)
(139,500)(3)
97,500 (6)
Accounts receivable...................... 59,267 (34,006)(7) 25,261
Merchandise inventories.................. 611,754 (295,216)(7) 316,538
Current deferred income taxes............ 16,425 (6,549)(7) 9,876
Prepaid expenses......................... 11,066 (6,091)(7) 4,975
---------- --------
Total current assets................... 713,105 360,643
Property, net of depreciation.............. 629,645 (380,610)(7) 249,035
Intercompany debt.......................... -- 12,431 (4) --
(63,012)(5)
(97,500)(6)
148,081 (7)
Other assets............................... 33,216 (1,391)(1) 18,439
(2,192)(3)
(11,194)(7)
---------- --------
Total assets........................... $1,375,966 $628,117
========== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Current liabilities:
Current installments of long-term debt... $ 12,817 (12,000)(3) $ 654
(163)(7)
Accounts payable......................... 284,927 (200,024)(7) 84,903
Accrued expenses and other current
liabilities............................. 135,856 (66,302)(7) 69,554
Accrued federal and state income taxes... 3,663 (563)(1) (4,066)
(6,278)(3)
(888)(3)
12,431 (4)
(12,431)(7)
---------- --------
Total current liabilities.............. 437,263 151,045
Noncurrent liabilities..................... 74,292 (28,466)(7) 45,826
Long-term debt............................. 232,486 (108,568)(1) 41,826
32,500 (2)
(112,000)(3)
(2,592)(7)
<CAPTION>
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C>
Common stock............................... 333 44 (1) 377
Additional paid-in capital................. 329,719 97,696 (1) 389,043
(38,372)(7)
Treasury stock............................. (10,000) 10,000 (1) --
Retained earnings.......................... 311,873 (1,100)(1) --
(9,222)(3)
(1,304)(3)
(63,012)(5)
(237,235)(7)
---------- --------
Total stockholders' equity............. 631,925 389,420
---------- --------
Total liabilities and stockholders'
equity................................ $1,375,966 $628,117
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
44
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (16,820)(2) 2,915
---------- ----------
Total expenses........................... 4,249,202 1,417,753
---------- ----------
Income from continuing operations before
taxes................................... 126,326 34,943
Provision for income taxes............... 49,666 (35,914)(3) 13,752
---------- ----------
Income from continuing operations........ $ 76,660 $ 21,191
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.56
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
45
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of the Convertible Debentures (net of
$1,391,000 unamortized debt expense and related tax benefit) into 4,386,585
shares of common stock and to record payment of $1,100,000 pursuant to the
Standby Purchase Agreement. See "Standby Agreement."
(2) Adjustment to record borrowings under Waban's proposed credit
agreement of $32,500,000. These borrowings, combined with the $97,500,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $9,500,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000) and Senior Subordinated Notes
($100,000,000) plus $15,500,000 of prepayment penalties (see Note (3) which
follows).
(3) Adjustment to record repayment of the Senior Notes and Senior
Subordinated Notes and related prepayment penalties of approximately
$15,500,000, the write-off of unamortized debt expense of $2,192,000, and
related tax benefits as of January 25, 1997, the date of the pro forma
condensed balance sheet. (Based on interest rates as of May 23, 1997, the
prepayment penalties would be reduced from approximately $15,500,000 to
approximately $14,200,000.)
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $63,012,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $97,500,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $275,607,000 excluding Waban's forgiveness of BJI's
intercompany indebtedness (see Note (5) above). $237,235,000 of this amount
is charged to Waban's retained earnings, reducing that balance to zero; the
remaining $38,372,000 is charged to additional paid-in capital.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change interest expense
by $40,625.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
37,127,526 shares of common stock outstanding (including 4,386,585 shares of
common stock issued upon conversion of the Convertible Debentures) plus
575,483 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
46
<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 14,593 $ (1,100)(1) $ 2,062
45,868 (2)
(194,905)(3)
137,606 (6)
Accounts receivable..................... 59,267 (34,006)(7) 25,261
Merchandise inventories................. 611,754 (295,216)(7) 316,538
Current deferred income taxes........... 16,425 (6,549)(7) 9,876
Prepaid expenses........................ 11,066 (6,091)(7) 4,975
---------- --------
Total current assets.................. 713,105 358,712
Property, net of depreciation............. 629,645 (380,610)(7) 249,035
Intercompany debt......................... -- 12,431 (4) --
(22,906)(5)
(137,606)(6)
148,081 (7)
Other assets.............................. 33,216 (706)(1) 18,439
(2,877)(3)
(11,194)(7)
---------- --------
Total assets.......................... $1,375,966 $626,186
========== ========
LIABILITIES
Current liabilities:
Current installments of long-term debt.. $ 12,817 (163)(7) $ 654
(12,000)(3)
Accounts payable........................ 284,927 (200,024)(7) 84,903
Accrued expenses and other current
liabilities............................ 135,856 (66,302)(7) 69,554
Accrued federal and state income taxes.. 3,663 (286)(1) (4,848)
(7,060)(3)
(1,165)(3)
12,431 (4)
(12,431)(7)
---------- --------
Total current liabilities............. 437,263 150,263
Noncurrent liabilities.................... 74,292 (28,466)(7) 45,826
Long-term debt............................ 232,486 (55,094)(1) 55,194
45,868 (2)
(165,474)(3)
(2,592)(7)
STOCKHOLDERS' EQUITY
Common stock.............................. 333 22 (1) 355
Additional paid-in capital................ 329,719 44,652 (1) 374,371
Treasury stock............................ (10,000) 10,000 (1) --
Retained earnings......................... 311,873 (1,100)(1) 177
(10,371)(3)
(1,712)(3)
(22,906)(5)
(275,607)(7)
---------- --------
Total stockholders' equity............ 631,925 374,903
---------- --------
Total liabilities and stockholders'
equity............................... $1,375,966 $626,186
========== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
47
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues........................... $4,375,528 $(2,922,832)(1) $1,452,696
---------- ----------
Cost of sales, including buying and
occupancy costs......................... 3,742,599 (2,605,602)(1) 1,136,997
Selling, general and administrative
expenses................................ 486,868 (209,027)(1) 277,841
Interest on debt and capital leases, net. 19,735 (15,818)(2) 3,917
---------- ----------
Total expenses........................... 4,249,202 1,418,755
---------- ----------
Income from continuing operations before
taxes................................... 126,326 33,941
Provision for income taxes............... 49,666 (36,307)(3) 13,359
---------- ----------
Income from continuing operations........ $ 76,660 $ 20,582
========== ==========
Pro forma earnings per share from
continuing operations................... $ 0.58
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
48
<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of $55,094,000 of the Convertible
Debentures (net of the payment of $1,100,000 pursuant to the Standby
Purchase Agreement and net of $706,000 unamortized debt expense and related
tax benefit) into 2,226,000 shares of common stock. See "Standby
Agreement."
(2) Adjustment to record borrowings under Waban's proposed credit
agreement of $45,868,000. These borrowings, combined with the $137,606,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $11,431,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000), Senior Subordinated Notes
($100,000,000), and $53,474,000 of the Convertible Debentures plus
$17,431,000 of prepayment penalties (see Note (3)).
(3) Adjustment to record repayment of the Senior Notes, Senior
Subordinated Notes and $53,474,000 of the Convertible Debentures and
related prepayment penalties of approximately $17,431,000, the write-off of
unamortized debt expense of $2,877,000, and related tax benefits as of
January 25, 1997, the date of the pro forma condensed balance sheet. (Based
on interest rates as of May 23, 1997, the prepayment penalties would be
reduced from approximately $17,431,000 to approximately $16,131,000.)
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $22,906,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $137,606,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $275,607,000, excluding Waban's forgiveness of BJI's
intercompany indebtedness (See Note (5) above).
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change interest expense
by $57,335.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
34,966,941 shares of common stock outstanding (including 2,226,000 shares of
common stock issued upon conversion of the Convertible Debentures) plus
575,483 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
49
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,978,384 (2,529,608)(1) $1,448,776
---------- ----------
Cost of sales, including buying and
occupancy costs........................ 3,387,992 (2,263,532)(1) 1,124,460
Selling, general and administrative
expenses............................... 455,523 (179,868)(1) 275,655
Interest on debt and capital leases,
net.................................... 15,431 (7,654)(2) 7,777
---------- ----------
Total expenses........................ 3,858,946 1,407,892
---------- ----------
Income from continuing operations before
income taxes........................... 119,438 40,884
Provision for income taxes.............. 46,461 (30,558)(3) 15,903
---------- ----------
Income from continuing operations....... $ 72,977 $ 24,981
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $0.75
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,220,445 common and common equivalent shares outstanding.
50
<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 28, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Total revenues.......................... $3,650,281 $(2,293,091)(1) $1,357,190
---------- ----------
Cost of sales, including buying and oc-
cupancy costs.......................... 3,110,787 (2,054,167)(1) 1,056,620
Selling, general and administrative ex-
penses................................. 418,404 (170,292)(1) 248,112
Interest on debt and capital leases,
net.................................... 14,898 (6,332)(2) 8,566
---------- ----------
Total expenses.......................... 3,544,089 1,313,298
---------- ----------
Income from continuing operations before
income taxes........................... 106,192 43,892
Provision for income taxes.............. 41,202 (24,173)(3) 17,029
---------- ----------
Income from continuing operations....... $ 64,990 $ 26,863
========== ==========
Pro forma earnings per share from
continuing operations:
Primary and fully diluted............. $ 0.80
==========
</TABLE>
- --------
Notes:
(1) Adjustment to remove the operating revenues and expenses of the BJ's
Wholesale Club Division.
(2) Adjustment to allocate interest expense to the discontinued operation
based on the ratio of net assets of the discontinued operation to the sum
of consolidated net assets plus consolidated debt of Waban.
(3) Adjustment to income tax provision for the estimated income tax effect of
the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
33,405,014 common and common equivalent shares outstanding.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF UNAUDITED PRO FORMA FINANCIAL DATA OF WABAN
Waban's Pro Forma Condensed Balance Sheet as of January 25, 1997 and Waban's
Pro Forma Condensed Statement of Income for the fiscal year ended January 25,
1997 summarize the estimated effects on Waban of the proposed Distribution and
related transactions. These transactions (the "related transactions") include
the repayment by BJI of its intercompany debt and current taxes payable to
Waban, the retirement of the Senior Notes and Senior Subordinated Notes, new
borrowings under Waban's proposed credit agreement and the conversion or
partial conversion and redemption of the Convertible Debentures. The Pro Forma
Condensed Balance Sheet assumes that the Distribution and the related
transactions occurred on January 25, 1997. The Pro Forma Condensed Statement
of Income for the period ended January 25, 1997 assumes that the Distribution
and related transactions occurred at the beginning of fiscal 1996 and
summarizes the results of continuing operations. Each of these statements is
presented under two scenarios. One scenario assumes the conversion of the
Convertible Debentures into Waban Common Stock; the other scenario assumes the
conversion of $55,094,000 of the Convertible Debentures into Waban Common
Stock and the redemption of the remaining Convertible Debentures for cash.
Under the first scenario, pro forma long-term debt would be approximately
$42 million as of January 25, 1997, including approximately $33 million of new
borrowings under the proposed credit agreement. (Other long-term debt consists
principally of capital lease obligations.) Stockholders' equity would be
approximately $389 million under the first scenario. Under the second
scenario, pro forma long-term debt would be approximately $55 million as of
January 25, 1997, including approximately $46 million of new borrowings under
the proposed credit agreement. Stockholders' equity would be approximately
$375 million. The distribution of BJI's net assets under both scenarios is
charged to Waban's retained earnings to the extent of Waban's retained
earnings balance; the remainder under the first scenario is charged to
additional paid-in capital.
In the Pro Forma Condensed Statements of Income, pro forma total revenues,
cost of sales (including buying and occupancy costs) and selling, general and
administrative (SG&A) expenses exclude the results of BJ's operations. Pro
forma sales and cost of sales represent HomeBase's results. Pro forma SG&A
expenses represent HomeBase's expenses and all of Waban's corporate overhead,
which corporate overhead totaled $7.3 million for the fiscal year ended
January 25, 1997. As a public entity, HomeBase will incur SG&A costs in
addition to the costs it incurred as a separate division, but its pro forma
SG&A expenses are expected to be approximately $1.5 million less than the
total shown in the Condensed Statements of Income, which include all of
Waban's corporate overhead. Waban's pro forma interest expense is based on the
pro forma debt presented in the Pro Forma Condensed Balance Sheet as of
January 25, 1997.
Waban's Pro Forma Condensed Statements of Income for the fiscal years ended
January 27, 1996 and January 28, 1995 represent Waban's historical
consolidated results of operations adjusted to exclude BJ's historical results
of operations only. Pro forma sales and cost of sales represent HomeBase's
results. Pro forma SG&A expenses represent HomeBase's expenses and all of
Waban's corporate overhead, which corporate overhead totaled $7.1 million in
the fiscal year ended January 27, 1996 and $8.2 million in the fiscal year
ended January 28, 1995. Pro forma interest expense represents Waban's
consolidated interest less an allocation of interest expense to BJ's, which
was based on BJ's ratio of net assets to Waban's consolidated net assets plus
debt.
The pro forma financial data of Waban should be read in conjunction with the
audited Consolidated Financial Statements of Waban and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Waban included in Waban's Annual Report on Form 10-K for the
fiscal year ended January 25, 1997, which is incorporated by reference herein.
52
<PAGE>
BJI CAPITALIZATION
The following table sets forth the pro forma capitalization of BJI at
January 25, 1997 after giving effect to the conversion of the Convertible
Debentures into 4,386,585 shares of Waban Common Stock, or alternatively, the
redemption for cash of $53,474,500 Convertible Debentures and the conversion
of the remaining Convertible Debentures into Waban Common Stock. Both pro
forma presentations give effect to (i) the transfer of BJI's current taxes
payable to Waban through its intercompany account, (ii) borrowings of long-
term debt under BJI's proposed credit agreement and repayment of the remaining
intercompany debt to Waban and (iii) Waban's contribution to BJI's equity
through the forgiveness of a portion of intercompany debt. This data should be
read in conjunction with the historical financial statements and the unaudited
pro forma financial data of BJI included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 25, 1997
------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA PRO FORMA
FOR FULL FOR PARTIAL
CONVERSION OF CONVERSION OF
CONVERTIBLE CONVERTIBLE
ACTUAL DEBENTURES DEBENTURES
-------- ------------- -------------
<S> <C> <C> <C>
Short-term debt and current maturities of
long-term debt........................... $ 163 $ 163 $ 163
Loans and advances from Waban Inc......... 148,081 -- --
Long-term debt, less current maturities... 2,592 100,092 140,198
Stockholder's equity:
Common stock............................ 327 371 349
Additional paid-in capital.............. -- 63,012 22,906
Retained earnings....................... 275,280 275,236 275,258
-------- -------- --------
Total stockholder's equity.............. 275,607 338,619 298,513
-------- -------- --------
Total capitalization.................. $426,443 $438,874 $438,874
======== ======== ========
</TABLE>
53
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BJI
The following table summarizes selected historical financial data of BJI for
each fiscal year in the five-year period ended January 25, 1997. The financial
statements of BJI include the assets, liabilities, revenues and expenses of
the BJ's Division. The BJI financial statements include certain allocations of
the overhead expenses incurred by Waban that support BJI's business. In
management's opinion, these allocations were made on a reasonable basis.
However, such allocations may not be indicative of the level of expenses which
will be incurred by BJI after the Distribution. The expenses were generally
allocated based on specific identification and estimates of the relative time
devoted to supporting BJI.
The historical financial data is not necessarily indicative of BJI's future
results of operations or financial condition. The data set forth below should
be read in conjunction with the unaudited pro forma financial data and the
notes thereto of BJI, the audited Combined Financial Statements of BJI and the
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations of BJI included elsewhere in this Proxy
Statement/Prospectus. The historical financial data is audited except for the
1992 fiscal year. For a discussion of the basis of presentation of the BJI
Combined Financial Statements, see Summary of Accounting Policies in Notes to
the BJI Combined Financial Statements. For a discussion of certain financial
information for the 13-week period ended April 26, 1997 and the four-week
period ended May 31, 1997, see "Recent Developments."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
(53 WEEKS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......... $1,786,916 $2,003,385 $2,293,091 $2,529,608 $2,922,832
---------- ---------- ---------- ---------- ----------
Cost of sales, including
buying and occupancy
costs.................. 1,618,004 1,807,586 2,054,167 2,263,532 2,605,602
Selling, general and
administrative
expenses............... 137,596 155,425 174,416 183,419 212,660
Interest on debt and
capital leases (net)... 446 7,807 13,665 14,757 16,838
---------- ---------- ---------- ---------- ----------
Income before income
taxes and cumulative
effect of accounting
principle changes...... 30,870 32,567 50,843 67,900 87,732
Provision for income
taxes.................. 9,733 12,351 19,941 26,350 34,108
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting
principle changes...... 21,137 20,216 30,902 41,550 53,624
Cumulative effect of
accounting principle
changes................ -- 2,107 -- -- --
---------- ---------- ---------- ---------- ----------
Net income.............. $ 21,137 $ 22,323 $ 30,902 $ 41,550 $ 53,624
========== ========== ========== ========== ==========
<CAPTION>
JAN 30, 1993 JAN 29, 1994 JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 43,907 $ 71,248 $ 58,252 $ 77,207 $ 62,942
Total assets............ 369,533 506,034 563,931 676,675 737,211
Long-term debt and
obligations under
capital leases......... 3,502 3,262 2,960 2,731 2,592
Loans and advances from
Waban Inc.............. 73,984 152,427 142,512 181,730 148,081
Stockholder's equity.... 127,208 149,531 180,433 221,983 275,607
CLUBS OPEN AT END OF
PERIOD................. 39 52 62 71 81
</TABLE>
54
<PAGE>
PRO FORMA FINANCIAL DATA OF BJI
The following unaudited pro forma financial data illustrates the estimated
effects on BJI of the proposed Distribution and (i) the repayment by BJI to
Waban of intercompany indebtedness and current taxes payable, (ii) new
borrowings under BJI's proposed credit agreement, and (iii) the impact of the
full or partial conversion of the Convertible Debentures (the "Related BJI
Transactions"). The Company has called the Convertible Debentures for
redemption and, in connection therewith, has entered into the Standby Purchase
Agreement. See "Standby Agreement" and "Risk Factors--Conversion or Redemption
of Convertible Debentures". The pro forma financial data has been prepared to
present two alternative scenarios. Scenario A gives pro forma effect to the
conversion of all of the Convertible Debentures into Waban Common Stock.
Scenario B gives pro forma effect to the redemption of $53,474,500 of the
Convertible Debentures for cash and the conversion of the remaining
Convertible Debentures into Waban Common Stock. The pro forma balance sheet
data is based on the January 25, 1997 balance sheet of BJI and assumes the
Distribution and Related BJI Transactions were consummated on that date. The
pro forma income statement data gives effect to the Distribution and Related
BJI Transactions as if they occurred at the beginning of fiscal 1996. The
unaudited pro forma financial data should be read in conjunction with the
historical financial statements of BJI included elsewhere in this Proxy
Statement/Prospectus.
The pro forma financial data of BJI does not purport to represent what the
financial position or results of operations of BJI would have been if the
Distribution and Related BJI Transactions had in fact been consummated on the
dates indicated or at any future date. The pro forma adjustments are based
upon available information and upon certain assumptions that BJI's management
believes are reasonable in these circumstances.
55
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ -- $ --
Accounts receivable....................... 34,006 34,006
Merchandise inventories................... 295,216 295,216
Current deferred income taxes............. 6,549 6,549
Prepaid expenses.......................... 6,091 6,091
-------- --------
Total current assets.................... 341,862 341,862
Property, net of depreciation............... 380,610 380,610
Other assets................................ 14,739 14,739
-------- --------
Total assets............................ $737,211 $737,211
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...... $ 163 $ 163
Accounts payable.......................... 200,024 200,024
Accrued expenses and other current
liabilities.............................. 66,302 66,302
Accrued federal and state income taxes.... 12,431 (12,431)(1) --
-------- --------
Total current liabilities............... 278,920 266,489
Noncurrent liabilities...................... 28,466 28,466
Deferred income taxes....................... 3,545 3,545
Loans and advances from Waban Inc........... 148,081 12,431 (1) --
(63,012)(3)
(97,500)(4)
Long-term debt.............................. 2,592 97,500 (4) 100,092
STOCKHOLDER'S EQUITY
Common stock................................ 327 44 (2) 371
Additional paid-in capital.................. -- 63,012 (3) 63,012
Retained earnings........................... 275,280 (44)(2) 275,236
-------- --------
Total stockholder's equity................ 275,607 338,619
-------- --------
Total liabilities and stockholder's
equity................................... $737,211 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
56
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales.................................. $2,868,561 $2,868,561
Membership fee income...................... 54,271 54,271
---------- ----------
Total revenues............................. 2,922,832 2,922,832
---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,605,602 2,605,602
Selling, general and administrative
expenses.................................. 212,660 212,660
Interest on debt and capital leases, net... 16,838 (11,219)(1) 5,619
---------- ----------
Total expenses............................. 2,835,100 2,823,881
---------- ----------
Income before income taxes................. 87,732 98,951
Provision for income taxes................. 34,108 4,544 (2) 38,652
---------- ----------
Net income................................. $ 53,624 $ 60,299
========== ==========
Pro forma earnings per share............... $ 1.61
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
57
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to reflect additional shares outstanding as a result of
conversion of Waban's Convertible Debentures into 4,386,585 shares of
common stock.
(3) Adjustment to record Waban's contribution of $63,012,000 to the
equity of BJI through the forgiveness of intercompany indebtedness.
(4) Adjustment to record borrowings under BJI's proposed credit agreement
and repayment of outstanding intercompany indebtedness to Waban.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$97,500,000 borrowing under BJ's Wholesale Club, Inc.'s proposed credit
agreement in lieu of interest expense on intercompany borrowings from
Waban. Interest on credit agreement borrowings is assumed to be 6.50%. Each
variance of 1/8 of one percent from this assumed interest rate would change
interest expense by $121,875.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
Pro forma earnings per share is based on 37,127,526 shares of common stock
outstanding (including 4,386,585 shares of common stock issued upon conversion
of Waban's Convertible Debentures) plus common equivalent shares of 427,139,
using the treasury stock method of accounting for outstanding stock options.
Management believes the historical financial statements reflect BJI's
historical costs of doing business. As a publicly owned company, BJI will
likely incur additional costs. Such additional costs, estimated to be
approximately $2,000,000 on an annual basis, are not reflected in the Pro
Forma Condensed Statement of Income.
58
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
JANUARY 25, 1997
(DOLLARS IN THOUSANDS)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ -- $ --
Accounts receivable....................... 34,006 34,006
Merchandise inventories................... 295,216 295,216
Current deferred income taxes............. 6,549 6,549
Prepaid expenses.......................... 6,091 6,091
-------- --------
Total current assets.................... 341,862 341,862
Property, net of depreciation............... 380,610 380,610
Other assets................................ 14,739 14,739
-------- --------
Total assets............................ $737,211 $737,211
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...... $ 163 $ 163
Accounts payable.......................... 200,024 200,024
Accrued expenses and other current
liabilities.............................. 66,302 66,302
Accrued federal and state income taxes.... 12,431 (12,431)(1) --
-------- --------
Total current liabilities............... 278,920 266,489
Noncurrent liabilities...................... 28,466 28,466
Deferred income taxes....................... 3,545 3,545
Loans and advances from Waban Inc........... 148,081 12,431 (1) --
(22,906)(3)
(137,606)(4)
Long-term debt.............................. 2,592 137,606 (4) 140,198
STOCKHOLDER'S EQUITY
Common stock................................ 327 22 (2) 349
Additional paid-in capital.................. -- 22,906 (3) 22,906
Retained earnings........................... 275,280 (22)(2) 275,258
-------- --------
Total stockholder's equity................ 275,607 298,513
-------- --------
Total liabilities and stockholder's
equity................................... $737,211 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
59
<PAGE>
BJ'S WHOLESALE CLUB, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
FISCAL YEAR ENDED JANUARY 25, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales................................... $2,868,561 $2,868,561
Membership fee income....................... 54,271 54,271
---------- ----------
Total revenues.............................. 2,922,832 2,922,832
---------- ----------
Cost of sales, including buying and
occupancy costs............................ 2,605,602 2,605,602
Selling, general and administrative
expenses................................... 212,660 212,660
Interest on debt and capital leases, net.... 16,838 (8,613)(1) 8,225
---------- ----------
Total expenses.............................. 2,835,100 2,826,487
---------- ----------
Income before income taxes.................. 87,732 96,345
Provision for income taxes.................. 34,108 3,488 (2) 37,596
---------- ----------
Net income.................................. $ 53,624 $ 58,749
========== ==========
Pro forma earnings per share................ $ 1.66
==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Condensed Financial Statements.
60
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record transfer to Waban of current taxes payable
through the intercompany balance.
(2) Adjustment to reflect additional shares outstanding as a result of
conversion of Waban's Convertible Debentures into 2,226,000 shares of
common stock.
(3) Adjustment to record Waban's contribution of $22,906,000 to the
equity of BJI through the forgiveness of intercompany indebtedness.
(4) Adjustment to record borrowings under BJI's proposed credit agreement
and repayment of outstanding intercompany indebtedness to Waban.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to reflect interest expense in connection with the
$137,606,000 borrowing under BJI's proposed credit agreement in lieu of
interest expense on intercompany borrowings from Waban. Interest on credit
agreement borrowings is assumed to be 6.50%. Each variance of 1/8 of one
percent from this assumed interest rate would change interest expense by
$172,008.
(2) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustment at a marginal tax rate of 40.5%.
Pro forma net income is based on 34,966,941 shares of common stock
outstanding (including 2,226,000 shares of common stock issued upon conversion
of Waban's Convertible Debentures) plus common equivalent shares of 427,139,
using the treasury stock method of accounting for outstanding stock options.
Management believes the historical financial statements reflect BJI's
historical costs of doing business. As a publicly owned company, BJI will
likely incur additional costs. Such additional costs, estimated to be
approximately $2,000,000 on an annual basis, are not reflected in the Pro
Forma Condensed Statement of Income.
61
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BJI
Fiscal year references apply to BJI's fiscal year which ends on the last
Saturday in January of the following calendar year. For example, the fiscal
year ended January 25, 1997 is referred to as "1996" or "fiscal 1996."
RESULTS OF OPERATIONS
The following table presents selected income statement data for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
----------------- ----------------- -----------------
% OF % OF % OF
$ REVENUES $ REVENUES $ REVENUES
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $2,244.6 97.9% $2,478.3 98.0% $2,868.5 98.1%
Membership fee income.... 48.5 2.1 51.3 2.0 54.3 1.9
-------- ----- -------- ----- -------- -----
Total revenues........... $2,293.1 100.0% $2,529.6 100.0% $2,922.8 100.0%
Cost of sales, including
buying and occupancy
costs................... 2,054.2 89.6 2,263.5 89.5 2,605.6 89.1
Selling, general and
administrative expenses. 174.4 7.6 183.4 7.2 212.7 7.3
Interest on debt and
capital leases (net).... 13.7 .6 14.8 .6 16.8 .6
-------- ----- -------- ----- -------- -----
Income before income
taxes................... 50.8 2.2 67.9 2.7 87.7 3.0
Provision for income
taxes................... 19.9 .9 26.3 1.1 34.1 1.2
-------- ----- -------- ----- -------- -----
Net income............... $ 30.9 1.3% $ 41.6 1.6% $ 53.6 1.8%
======== ===== ======== ===== ======== =====
</TABLE>
1996 COMPARED WITH 1995 AND 1994
Total revenues of BJI increased by 15.5% from 1995 to 1996 and by 10.3% from
1994 to 1995. The increases in both years were due principally to the opening
of new warehouse stores. Comparable store sales increased by 5.5% from 1995 to
1996 and by .4% from 1994 to 1995. The comparable store sales increase in 1996
was attained through marketing and merchandising programs that positively
impacted both food and general merchandise sales. The effect of increased
competition and opening of new BJ's clubs in the same markets as existing BJ's
clubs was less pronounced in 1996 than in the two previous years.
Total revenues included membership fee income of $54.3 million in 1996,
$51.3 million in 1995 and $48.5 million in 1994.
Cost of sales (including buying and occupancy costs) as a percentage of
total revenues was 89.1% in 1996, 89.5% in 1995 and 89.6% in 1994. The
decreases in the cost of sales percentage resulted from BJI's continuing
ability to introduce higher margin products into the merchandise mix and
maintaining tight control over inventory.
Selling, general and administrative ("SG&A") expenses as a percentage of
total revenues were 7.3% in 1996, 7.2% in 1995 and 7.6% in 1994. The decrease
in the SG&A ratio from 1994 to 1995 was due to effective expense control and
leveraging home office expenses on a growing number of warehouse clubs.
62
<PAGE>
The components of net interest expense in the last three years were as
follows (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
JAN 28, 1995 JAN 27, 1996 JAN 25, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense on debt............. $14.4 $ 14.6 $16.6
Interest income...................... (1.1) (.1) (.1)
----- ------ -----
Interest on debt (net)............... 13.3 14.5 16.5
Interest on capital leases........... .4 .3 .3
----- ------ -----
Interest on debt and capital leases
(net)............................... $13.7 $ 14.8 $16.8
===== ====== =====
</TABLE>
Interest expense on debt represents interest on intercompany borrowings from
Waban, charged at an annual rate of 10%, less capitalized interest.
Capitalized interest was $1.0 million, $1.5 million and $1.1 million in 1996,
1995 and 1994, respectively.
BJI's income tax provision was 38.9% of pre-tax income in 1996, 38.8% in
1995 and 39.2% in 1994. The decrease in the tax provision rate from 1994 to
1995 was due primarily to a lower effective state income tax rate.
Net income was $53.6 million, or 1.8% of total revenues, in 1996 versus
$41.6 million, or 1.6% of total revenues, in 1995 and $30.9 million, or 1.3%
of total revenues, in 1994.
BJI's business, in common with the business of retailers generally, is
subject to seasonal influences. BJI's sales and operating income have
typically been strongest in the Christmas holiday season and lowest in the
first quarter of each fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $105.2 million in 1996 versus
$50.6 million in 1995. This increase was due mainly to an improved accounts
payable-to-inventory ratio and higher net income before depreciation and
amortization.
Cash expended for property additions was $71.7 million in 1996 versus $90.2
million in 1995. BJI opened ten new BJ's clubs in 1996 and nine new clubs in
1995. Six of the new stores opened in 1996 were owned versus seven in the
previous year. Cash expended for property additions in 1995 included
significant land acquisition and building costs for stores that opened in
1996. Expenditures in 1996 for stores opening in 1997 were immaterial.
Capital expenditures for the full 1997 year are expected to be approximately
$80 million, based on opening ten new BJ's clubs. The timing of actual store
openings and the amount of related expenditures could vary from these
estimates due to the complexity of the real estate development process.
To date, BJI's operations and expansion have been financed through loans
advanced by Waban as needed. BJI expects to establish its own credit agreement
to finance its operations and expansion after the Distribution.
BJI's Pro Forma Condensed Balance Sheet (see "Pro Forma Financial Data of
BJI") summarizes BJI's financial position assuming the Distribution and
related transactions were consummated on January 25, 1997. The Distribution is
conditioned upon, among other things, the conversion into common stock or the
redemption for cash of Waban's Convertible Debentures. If the Convertible
Debentures were converted into common stock on January 25, 1997, BJI would
repay approximately $98 million of its intercompany indebtedness with
borrowings under BJI's proposed credit agreement and Waban would have
contributed approximately $63 million to BJI's equity through forgiveness of
BJI's remaining intercompany indebtedness to Waban. If $55,094,000 of the
Convertible Debentures were converted into Waban Common Stock and the
remainder were
63
<PAGE>
redeemed for cash as of January 25, 1997, BJI would repay approximately $138
million of its intercompany indebtedness with borrowings under BJI's proposed
credit agreement and Waban would have contributed approximately $23 million to
BJI's equity through forgiveness of BJI's remaining intercompany indebtedness
to Waban.
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for BJI's fiscal year ended January 25, 1997. SFAS No. 128, "Earnings Per
Share," was issued in February 1997 and becomes effective for BJI's fiscal
year ending January 31, 1998.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. It also requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The implementation
of SFAS No. 121 did not have a material effect on BJI's financial statements
in fiscal 1996.
SFAS No. 123 provides a choice of adopting its fair value based method of
expense recognition for stock-based awards granted to employees or applying
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." BJI will apply the accounting provisions of APB No. 25 and will
adopt the disclosure-only provisions of SFAS No. 123 when it issues stock
options.
SFAS No. 128 modifies the way in which earnings per share ("EPS") is
calculated and disclosed. BJI will disclose primary and fully diluted EPS when
it becomes a separate public entity. Upon adoption of this standard for the
fiscal year ending January 31, 1998, BJI will disclose basic and diluted EPS
for the full fiscal year and will restate all prior period EPS data presented.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS, similar to fully diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. The effect of adopting SFAS No. 128 is not expected to be
material.
64
<PAGE>
BJI BUSINESS AND PROPERTIES
GENERAL
The Company, through the BJ's Division, introduced the warehouse club
concept to New England in 1984 and has since expanded in the northeastern and
Mid-Atlantic states, as well as in southern Florida. As of January 25, 1997,
the Company operated 81 BJ's warehouse clubs in 12 states and had over four
million members. The table below shows BJ's warehouse club locations by state.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
New York....................................... 21
Massachusetts.................................. 12
New Jersey..................................... 10
Pennsylvania................................... 9
Maryland....................................... 6
Virginia....................................... 6
Connecticut.................................... 5
Florida........................................ 4
New Hampshire.................................. 4
Maine.......................................... 2
Delaware....................................... 1
Rhode Island................................... 1
---
Total........................................ 81
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse clubs typically sell a narrow assortment of brand name food and
general merchandise items 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. The Company believes that it is difficult for
these higher cost channels of distribution to match the low prices offered by
warehouse clubs.
Warehouse clubs eliminate many of the merchandise handling costs associated
with traditional multiple-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. 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 Company believes that the warehouse club industry in the United States
has grown from sales of approximately $14 billion in 1988 to approximately $39
billion in 1996, rapidly gaining market share of both food and general
merchandise sales, and that continued growth in the industry's market share
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.
EXPANSION
Since the beginning of fiscal 1992, the BJ's Division has grown from 29
clubs to 81 clubs in operation at January 25, 1997, one of which was closed in
April 1997. Approximately ten additional clubs are expected to open in fiscal
1997 in the Northeast (Connecticut, Massachusetts, New Jersey, New York and
Rhode Island) and Florida.
65
<PAGE>
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
CLUBS IN CLUBS CLUBS CLUBS IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD PERIOD PERIOD OF PERIOD
----------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
1992 29 10 -- 39
1993 39 13 -- 52
1994 52 11 1 62
1995 62 9 -- 71
1996 71 10 -- 81
</TABLE>
STORE PROFILE
As of January 25, 1997, the Company operated 72 warehouse clubs with an
average size of approximately 112,000 square feet and nine smaller format
warehouse clubs that averaged approximately 69,000 square feet. Three of the
ten new BJ's warehouse clubs planned for 1997 are expected to incorporate the
smaller format. The smaller format clubs are designed to serve markets whose
population is not sufficient to support a full-sized warehouse club and to
enhance market penetration where the Company has established a presence with
two or more larger clubs. Including space for parking, a typical full-sized
BJ's warehouse club requires eight to ten acres of land. The smaller version
typically requires approximately eight acres. BJ's warehouse clubs are located
in both free-standing locations and local shopping centers. 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 full-sized BJ's warehouse club
average approximately $5.0 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. Opening a traditional-sized BJ's
warehouse club entails an initial capital investment of approximately $2.4
million for fixtures and equipment, as well as approximately $2.0 million for
inventory (net of accounts payable) and pre-opening expenses.
MERCHANDISING
The Company seeks to service its current members and attract new members by
providing a broad range of high quality, brand name merchandise at everyday
prices that are consistently lower than the prices available through
traditional wholesalers, discount retailers, supermarkets and specialty retail
operators. The Company limits the items offered in each product line to fast
selling styles, sizes and colors and, therefore, carries an average of
approximately 5,000 active stock-keeping units ("SKUs"). By contrast,
supermarkets normally stock approximately 25,000 SKUs, and discount stores
typically stock approximately 60,000 SKUs. The Company 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 members.
A primary component of the Company's merchandising strategy is to provide a
constantly changing mix of food and general merchandise items for the retail
"Inner Circle(R)" member to create an exciting shopping experience. An equally
important merchandising objective is to provide the business member with
consistent low prices for frequently purchased items such as food service
items and cleaning and office supplies. A number of the Company's specialty
product categories such as eye care products and accessories, jewelry,
perfume, cellular phones and pagers and member services such as discount
travel, one-hour photo finishing, discounts for real estate and new car
purchases and an in-store food court featuring well-known fast food brands are
designed for member convenience as well as for their potential to generate
income and increase operating margins. "Members First" training programs for
the Company's employees support the creation and maintenance of a customer-
friendly shopping experience, despite the warehouse club's no-frills physical
environment.
In recent years, food has accounted for an increasing percentage of the BJ's
Division's sales mix and currently represents approximately 62% of annual
sales. The remaining 38% consists of a wide variety of general merchandise
items. Food categories at BJ's warehouse clubs include frozen foods, meat and
dairy products, dry
66
<PAGE>
grocery items, fresh produce, canned goods, and household paper products and
cleaning supplies. The Company also offers fresh meat and bakery departments
and imported cheeses in nearly all its clubs, and in some clubs is testing new
specialty food offerings such as fresh deli items and refrigerated produce.
General merchandise includes office supplies, office equipment, televisions,
stereos, small appliances, auto accessories, tires, jewelry, housewares,
health and beauty aids, greeting cards and apparel. Other products and
services offered by BJ's warehouse clubs include cellular phones, optical
centers, lottery tickets, an auto buying service and a travel service.
To ensure that its merchandise selection is closely attuned to the tastes of
its members, the Company employs regional buyers who are responsible for
tailoring the product selection in individual warehouse clubs to the regional
and ethnic tastes of the local market.
SEASONALITY
Sales and operating income for the BJ's Division have typically been
strongest in the Christmas holiday season and lowest in the first quarter of
each fiscal year.
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 allows BJI to
concentrate on serving high-volume, repeat customers. The Company has two
primary types of members: business members and Inner Circle members. BJ's
Inner Circle members are likely to be home owners and tend to have incomes
which are above the average for the Company's trading area. The Company
believes that a significant percentage of its business members are also active
BJ's warehouse club shoppers for their personal needs. At January 25, 1997,
the Company had over four million members (including supplemental
cardholders).
The Company charges an annual membership fee for individuals and qualified
businesses of $30 for the primary membership and provides one free
supplemental membership. Additional supplemental memberships for business
members cost $15 each. The Company's membership policy does not restrict
eligibility for membership to persons who belong to certain qualifying groups
(i.e., employees of a particular company or members of a particular
organization). In contrast, the Company's competitors have typically required
individual members to belong to a qualifying group. The Company believes that
its more liberal membership policy has attracted incremental sales without
adversely affecting its costs.
ADVERTISING
The Company increases customer awareness of its BJ's warehouse clubs
primarily through public relations efforts, new store marketing programs,
direct mail solicitations and, during the Christmas holiday season, radio and
television advertising. The Company also employs a team of dedicated marketing
personnel who solicit potential business members and who contact selected
community groups to increase the number of members. From time to time, the
Company runs free trial membership promotions to attract new members with the
objective of converting them to paid membership status and also uses one-day
passes to introduce non-members to its warehouse clubs.
The Company's policy is generally to limit advertising and promotional
expenses to new warehouse club openings and to utilize print and electronic
media advertising sparingly. The Company uses limited vendor-funded television
and radio advertising during the Christmas 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, brand name merchandise at low prices depends upon the efficient
operation of its warehouse clubs and high sales volumes. The Company buys most
of its merchandise at volume discounts from manufacturers for shipment either
to a Company cross-
67
<PAGE>
docking facility or directly to BJ's warehouse clubs. This 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.
The Company routes a significant percentage of its general merchandise as
well as an increasing percentage of food purchases through cross-docking
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. This permits the Company to negotiate better
volume discounts and reduces freight expense, the number of trucks received at
each warehouse club and related receiving costs.
The Company 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, the Company minimizes labor costs by designing its warehouse clubs
to be self-service for members. 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 in
steel racks above the sales floor. The Company's goal is to keep at least one
day's supply of each item on the selling floor.
The Company 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 technology. Problems
associated with payments by check have also been insignificant, since members
who issue dishonored checks are restricted to cash-only terms.
In October 1995, the Company believes that it became the first warehouse
club chain to accept MasterCard, and at the same time introduced a co-branded
BJ's MasterCard. Purchases made at BJ's warehouse clubs with the co-branded
BJ's MasterCard earn a 2% rebate. All other purchases with the BJ's MasterCard
earn a 1% rebate. Rebates are issued in the form of "BJ's Bucks," which can be
redeemed by members only at BJ's warehouse clubs. In addition to MasterCard,
the Company permits members to pay for their purchases by cash, check,
Discover card, or a BJ's credit card, which is provided by Beneficial National
Bank USA on a non-recourse basis.
MANAGEMENT INFORMATION SYSTEMS
Over the past several years, the Company has made a significant investment
in enhancing the efficiency with which it handles merchandise and captures
sales information. The Company believes that it was the first warehouse club
to introduce 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 buying staff. The Company utilizes
a sophisticated merchandise replenishment algorithm to suggest quantities to
be re-ordered, which are monitored daily by the Company's buying staff. The
Company's fully integrated information system also maintains detailed
purchasing data on individual members, permitting the buying staff and store
managers to track changes in members' buying behavior.
COMPETITION
The Company 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, some of which have significantly greater financial and
marketing resources than the Company. Major competitors that operate warehouse
clubs include Costco Companies, Inc. and Sam's Clubs (a division of Wal-Mart
Stores, Inc.).
There is a large number of competitive membership warehouse clubs in the
Company's markets. As of January 25, 1997, seventy of the Company's 72 full-
sized BJ's warehouse clubs had at least one competitive membership warehouse
club in their trading areas at an average distance of approximately seven
miles and none of the smaller format clubs had direct competition from other
warehouse clubs.
68
<PAGE>
The Company believes price is the major competitive factor in the markets in
which it competes. Other competitive factors include store location,
merchandise selection and name recognition. The Company believes its
efficient, low-cost form of distribution gives it a significant competitive
advantage over more traditional channels of wholesale and retail distribution.
As a regional chain, the Company strives to differentiate itself from other
membership warehouse club operators by its attention to local buying
preferences and seasonality.
EMPLOYEES
As of January 25, 1997, the BJ's Division had approximately 11,000
employees, of whom approximately 300 were considered part-time employees
(persons who work less than 20 hours per week). Approximately 600 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse clubs. None of the BJ's Division's employees
is represented by unions. The Company considers its relations with its
employees to be excellent.
PROPERTIES
The Company operated 81 BJ's warehouse clubs as of January 25, 1997, of
which 44 are leased under long-term leases and 27 are owned. The Company owns
the buildings at the remaining ten locations, which are subject to long-term
ground leases.
The unexpired terms of these leases range from approximately three to 44
years, and average approximately 16 years. The Company has options to renew
all but one of its leases for periods that range from approximately five to 50
years and average approximately 20 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. All leases require that the Company pay all
property taxes, insurance, utilities and other operating costs.
The BJ's Division's home office in Natick, Massachusetts occupies 142,000
square feet under leases expiring January 31, 1999 with options to extend
these leases through January 31, 2006.
LEGAL PROCEEDINGS
The BJ's Division is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material adverse effect on its financial condition or
results of operations.
69
<PAGE>
HOMEBASE BUSINESS AND PROPERTIES
GENERAL
The Company believes that the HomeBase Division is the second largest
operator of home improvement warehouse stores in the western United States and
is the nation's eighth largest home improvement merchandiser. The HomeBase
Division offers a very broad assortment of home improvement and building
supply products at attractive prices to a customer base that includes both
serious and casual "Do-It-Yourself" ("DIY") customers, as well as professional
contractors. This merchandising presentation is supported by a strong
commitment to customer service aimed at developing ongoing relationships with
its customers.
The Company opened its first warehouse store in California in October 1983
and, as of January 25, 1997, operated 84 warehouse stores in ten western
states (including one store which the Company plans to close during 1997). The
table below shows HomeBase's locations by state as of January 25, 1997.
<TABLE>
<CAPTION>
NUMBER OF
STATE LOCATIONS
----- ---------
<S> <C>
California..................................... 48
Washington..................................... 9
Colorado....................................... 7
Arizona........................................ 5
Oregon......................................... 4
New Mexico..................................... 3
Utah........................................... 3
Nevada......................................... 2
Texas.......................................... 2
Idaho.......................................... 1
---
Total........................................ 84
===
</TABLE>
INDUSTRY OVERVIEW
Warehouse-format home improvement stores typically provide lower prices than
traditional home improvement and building supply stores. The warehouse format
also 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 individuals and
families that are making purchases and completing projects for their own homes
on a DIY basis. These DIY 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. This group is primarily interested in product
availability, low prices and fast, efficient service.
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 in the United States exceeded $135 billion in 1996.
Over the last ten years, warehouse-format home improvement 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.
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<PAGE>
EXPANSION
The Company is among the two largest home improvement operators in most of
the metropolitan markets which it serves. The Company'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
during the last five fiscal years:
<TABLE>
<CAPTION>
WAREHOUSE WAREHOUSE WAREHOUSE WAREHOUSE
STORES IN STORES STORES STORES IN
OPERATION AT OPENED CLOSED OPERATION
BEGINNING DURING DURING AT END
FISCAL YEAR OF PERIOD THE PERIOD THE PERIOD OF PERIOD
----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
1992 73 13 -- 86
1993 86 5 9 82
1994 82 3 8 77
1995 77 4 2 79
1996 79 5 -- 84
</TABLE>
Since 1993, the Company has completed the remodeling or relocation of 38
older HomeBase stores to reflect its new prototype design. Waban expects to
continue the remodeling program and to open two new HomeBase stores (one in
California and the other in Nevada), and close one existing store (in
California), in fiscal 1997.
Capital expenditures for the full 1997 year are expected to be approximately
$35 million, based on opening two new HomeBase stores and renovating eight
existing HomeBase stores.
STRATEGIC INITIATIVES
In 1993, the Company introduced a series of strategic initiatives designed
to strengthen its market position in the western United States and improve its
profitability. These initiatives included (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 and logistics 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.
CUSTOMER SERVICE
The Company 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. HomeBase's project design
centers and kitchen design centers feature computer assisted design tools that
allow customers to work with design coordinators to conceptualize and plan
virtually any home improvement project. The majority of HomeBase stores also
offer professional interior decorators who provide free design consultations
in the homes of HomeBase's customers.
The Company believes that it is important to expand the DIY marketplace by
encouraging new DIY customers and upgrading the skills and confidence levels
of existing DIY customers. Accordingly, HomeBase provides assistance and
training to DIY customers, including regularly scheduled customer clinics on a
wide range of home improvement projects. Delivery and installation are also
available as services to DIY customers.
HomeBase stores offer services to specifically address the needs of
contractors. A majority of HomeBase 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 stores will also deliver bulk purchases to
job sites for a nominal fee. HomeBase stores offer extended hours, opening
early in the morning to serve professional contractors.
71
<PAGE>
The Company strives to develop the skills of its HomeBase store personnel to
ensure that customers consistently receive knowledgeable and courteous
assistance. The Company's training programs emphasize the importance of
customer service and improve store employees' selling skills. The Company
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 periodic in-house training sessions conducted by the
Company's training staff or by manufacturers' representatives, and they
receive sales, product and other information in frequent meetings with their
managers. The HomeBase Division's satellite television system permits it to
simultaneously broadcast training sessions from its Irvine, California
headquarters to every individual warehouse store location.
Most of the HomeBase Division's merchandise is purchased from manufacturers
for shipment either directly to the selling warehouse store or to cross-
docking 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 stores, the HomeBase Division's fixturing and
operating costs are kept substantially below those of traditional home
improvement retailers.
The HomeBase Division offers its own private label credit card to customers
under a non-recourse program operated by a major financial institution and
also accepts MasterCard, Visa, Discover and American Express.
MERCHANDISING
HomeBase stores' large product offering (approximately 28,000 SKUs) provides
a broad selection of brand name merchandise to both DIY customers and
professional contractors. The Company believes that the operating efficiencies
of the warehouse format provide substantial savings over other channels of
home improvement and building supply product distribution. In order to achieve
greater operational efficiencies and reduce freight and handling costs, as
well as improve the manner in which it acquires products, the Home Base
Division has centralized its merchandise replenishment operations and improved
its logistics of distribution. This program also permits the Company to
redeploy more store personnel to customer service activities.
Merchandise sold by HomeBase stores includes lumber, building materials,
plumbing supplies and fixtures, electrical materials and fixtures, kitchen
cabinets, hand and power tools, hardware, paint, garden supplies, nursery
items, home decorative items and related seasonal and household merchandise.
HomeBase's brand name orientation allows customers to compare HomeBase's
prices to the same items offered by competitors. In selected categories, the
Company supplements these brand name offerings with high quality private label
products at lower prices.
SEASONALITY
Sales and earnings for the HomeBase Division have typically been lower in
the first and fourth quarters of the fiscal year and higher in the second and
third quarters, which include the most active season for home construction.
MARKETING AND ADVERTISING
The HomeBase Division 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 is used to
reinforce the HomeBase image of providing superior customer service and 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. The HomeBase Division solicits vendor
participation in many of its advertising programs.
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<PAGE>
STORE PROFILE
The average size of the 84 HomeBase warehouse stores in operation at January
25, 1997 was approximately 102,000 square feet. Most HomeBase warehouse stores
also utilize outside selling space for nursery and garden centers. HomeBase
warehouse stores are located in both free-standing locations and local
shopping centers. 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 new HomeBase warehouse store requires
eight to ten acres of land. Construction and site development costs for a new
HomeBase warehouse store average approximately $5.0 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 $1.6 million for fixtures and equipment. In addition to
capital expenditures, each new warehouse store requires an investment of
approximately $2.7 million for inventory (net of accounts payable) and pre-
opening expenses.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a fully integrated management information system to monitor
sales, track inventory and provide rapid feedback on the performance of the
HomeBase business. 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 the HomeBase Division's
information center via satellite, where it is processed daily to support
merchandising, inventory replenishment and promotional decisions.
The Company introduced scanning to the home improvement industry and is a
leader in implementing electronic data interchange ("EDI"). EDI permits both
the HomeBase Division and its vendors to save money and reduce errors by
electronically transmitting advance shipment notices and purchase order and
invoicing information. The HomeBase Division now uses EDI with more than 1,200
vendors and continues to expand its use of this technology.
COMPETITION
The Company competes with other home improvement warehouse stores and 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 the HomeBase Division competes are
customer service, price, product selection, location and name recognition. The
Company believes that its improved level of customer service, the value
offered by its 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. The major competitor in the HomeBase
Division's market areas that also uses the warehouse merchandising format is
The Home Depot, Inc., which has significantly greater financial and marketing
resources than HomeBase. Approximately 85% of the HomeBase warehouse stores
compete with Home Depot units. The HomeBase Division also competes with
Builders Square (a division of Kmart Corp.), and a number of smaller regional
operators such as Eagle Hardware & Garden, Inc., Orchard Supply & Hardware (a
division of Sears) and Contractor's Warehouse (a division of Grossman's Inc.).
Approximately 95% of the HomeBase warehouse stores have at least one home
improvement warehouse retailer in their trading areas at an average distance
of approximately three miles.
EMPLOYEES
As of January 25, 1997, the HomeBase Division had approximately 8,500
employees, of whom approximately 2,600 were considered part-time employees
(persons who work less than 33 hours per week). Approximately 500 employees
were employed in divisional management and office support functions; the
balance worked in the warehouse stores. None of the HomeBase Division's
employees is represented by unions. The Company considers its relations with
its employees to be excellent.
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<PAGE>
PROPERTIES
The Company operated 84 HomeBase warehouse locations as of January 25, 1997,
of which 65 are leased under long-term leases, 18 are owned and one is
occupied under a tenancy at will. The unexpired terms of the leases range from
approximately four years to 19 years, and average approximately 13 years. The
Company has options to renew all of its HomeBase leases for periods that range
from approximately five to 25 years and average approximately 18 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. The Company also
remains obligated under leases for three additional stores that have been
closed. Most HomeBase leases require that the Company pay all property taxes,
insurance, utilities and other operating costs.
The HomeBase Division's home office in Irvine, California occupies 164,000
square feet under a lease expiring July 24, 2004, with options to extend this
lease through July 24, 2019.
LEGAL PROCEEDINGS
The HomeBase Division is involved in various legal proceedings incident to
the character of its business. Although it is not possible to predict the
outcome of these proceedings, or any claims against the Company related
thereto, the Company believes that such proceedings will not, individually or
in the aggregate, have a material adverse effect on its financial condition or
results of operations.
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<PAGE>
MANAGEMENT OF BJI
BJI BOARD
Following the Distribution, the business of BJI will be managed under the
direction of the BJI Board. Prior to the Distribution, Waban, as the sole
stockholder of BJI, plans to elect eight persons to the BJI Board, as set
forth below. In accordance with the BJI Certificate and the BJI By-laws, the
BJI Board will be divided into three classes with staggered terms. The initial
terms for Class I Directors, Class II Directors, and Class III Directors will
expire in 1998, 1999 and 2000, respectively. With the exception of the initial
terms, each class of directors will be elected for a term of three years and
until their respective successors are duly elected and qualified. Directors
for each class will be elected at the annual meeting of stockholders held in
the year in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of BJI immediately after the
Distribution.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
S. James Coppersmith, 64 (1998)..... Director of Waban since December 1993. He was
President and General Manager of WCVB-TV, a Boston
television station, from 1990 to 1994. From 1982
to 1990 he was Vice President and General Manager
of WCVB-TV. Mr. Coppersmith is a director of
Kushner-Locke Company, Chyron Corporation, All-
Comm Media Corporation, Sun America Management
Corporation and Uno Restaurant Corporation,
Chairman of the Board of Trustees of Emerson
College and a member of the Board of Governors of
the Boston Stock Exchange.
Thomas J. Shields, 50 (1998)........ Director of Waban since June 1992. He is President
of Shields & Company, Inc., an investment banking
firm. Mr. Shields is also a director of Seaboard
Corporation and Versar, Inc.
Herbert J. Zarkin, 58 (1998)........ Director, President and Chief Executive Officer of
Waban since May 1993. He was President of the BJ's
Division from May 1990 to May 1993. From April
1989 to May 1993 he was Executive Vice President
of Waban. Mr. Zarkin will be Chairman of the BJI
Board and Chairman of the HomeBase Board following
the Distribution.
Allyn L. Levy, 69 (1999)............ Director of Waban since October 1993. He has been a
private investor since 1988. From 1974 until 1986,
he was founder, Chairman of the Board and Chief
Executive Officer of Patriot Bank Corporation, a
commercial bank holding company. He is a director
of CV Reit, Inc.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT
NAME, AGE AND YEAR TERM EXPIRES AND FIVE-YEAR EMPLOYMENT HISTORY
------------------------------- -------------------------------------------
<C> <S>
Lorne R. Waxlax, 63 (1999).......... Director of Waban since January 1990, and Chairman
of the Board of Waban since June 1996. He was an
Executive Vice President of The Gillette Company
from 1985 to 1993. Mr. Waxlax is also a director
of Quaker State Corporation, The Iams Company,
Hon Industries, Inc. and Clean Harbors, Inc. Mr.
Waxlax will also be a member of the HomeBase
Board following the Distribution.
Edward J. Weisberger, 55 (1999)..... Senior Vice President and Chief Financial Officer
of Waban since September 1994. From April 1989
until September 1994 he was Vice President-
Finance of Waban. Mr. Weisberger will be an
employee of both BJI and HomeBase after the
Distribution. Mr. Weisberger will also be a
member of the HomeBase Board following the
Distribution.
Kerry L. Hamilton, 46 (2000)........ Director of Waban since September 1994. Ms.
Hamilton is Vice President, Marketing for
Marshalls. Prior to joining Marshalls in April
1996, Ms. Hamilton was Vice Chairman of Pamet
River Partners, a marketing consulting firm, for
two years. Prior to joining Pamet River Partners,
Ms. Hamilton spent 17 years at Ingalls, Quinn &
Johnson in various capacities, during which time
she was a member of the Board of Directors, a
member of the Agency Executive Committee and
Senior Vice President, Director of Media
Services.
John J. Nugent, 50 (2000)........... Executive Vice President of Waban and President of
the BJ's Division since September 1993. From 1991
until 1993 he was Senior Vice President, Sales
Operations of the BJ's Division, and from 1989
until 1991, he was Vice President and Director,
Sales Operations of the BJ's Division.
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees of BJI will be paid an annual retainer of
$20,000 and fees of $1,250 for each Board meeting attended, $750 for each
Committee meeting attended and $750 for certain telephone meetings. In
addition, the Chairman of the Audit Committee and the Chairman of the
Executive Compensation Committee will each be paid $2,500 per annum for their
services as such. All directors will be reimbursed for out-of-pocket expenses
incurred in attending such meetings. Directors may participate in BJI's
General Deferred Compensation Plan.
Pursuant to the director stock option plan to be adopted by BJI (the "BJI
Director Plan"), on the date of each annual meeting, each continuing non-
employee director will be granted an option to acquire 1,500 shares of BJI
Common Stock, and each non-employee director newly elected or elected
subsequent to the then most recent annual meeting (other than persons who,
immediately prior to the Distribution, were directors of Waban) will receive
an option to purchase 3,000 shares of BJI Common Stock. The option exercise
price for each of these options is the fair market value of a share of BJI
Common Stock on the date of grant. Each option will expire ten years after the
date of grant and will become exercisable in three equal annual installments
beginning
76
<PAGE>
on the first day of the month which includes the first anniversary of the date
of grant. If the director dies or otherwise ceases to be a director prior to
the date the option becomes exercisable, the option will immediately expire.
Any vested options will remain exercisable for a period of one year following
cessation of service as a director of BJI. All unexercised options will become
exercisable in full beginning 20 days prior to the consummation of a merger or
consolidation (as described in the BJI Director Plan), acquisition,
reorganization or liquidation and, to the extent not exercised, shall
terminate immediately after the consummation of such merger, consolidation,
acquisition, reorganization or liquidation. Except as the Board may otherwise
determine, options granted under the plan are not transferable.
Options granted under the Waban 1995 Director Stock Option Plan to persons
who will become directors of BJI following the Distribution (other than Mr.
Waxlax, who will be a director of both HomeBase and BJI) will be replaced with
options granted under the BJI Director Plan on a basis similar to that
applicable to Waban options granted under the Waban 1989 Stock Incentive Plan
to persons who will become employees of BJI. Options granted under the Waban
1995 Director Stock Option Plan to Mr. Waxlax will be replaced by options to
purchase an equal number of shares of both BJI Common Stock and HomeBase
Common Stock. The aggregate exercise price of the BJI and HomeBase options
will equal the exercise price of the replaced options, with the exercise price
of the BJI options being equal to (a) the per share exercise price of the
replaced Waban options, divided by (b) the Stock Value Ratio (as defined
below). See "--Incentive and Other Plans."
COMMITTEES OF THE BOARD
The BJI Board will have four committees: (i) Audit; (ii) Executive; (iii)
Executive Compensation; and (iv) Finance. Committee appointments are expected
to be determined prior to the Distribution.
The Audit Committee will review with management, the internal audit group
and the independent public accountants BJI's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
BJI and its accounting controls and procedures, and such other matters as the
Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate.
The Executive Committee will be authorized to act on behalf of the BJI Board
during intervals between meetings of the BJI Board. In addition, the Executive
Committee will have responsibility for consideration of the qualifications of,
and recommendation to the Board of Directors of, nominees to fill Board
vacancies and will consider nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of the
Company.
The Executive Compensation Committee will review salary policies and
compensation of officers and other members of management, including incentive
compensation plans for certain officers and other members of management. The
compensation policies adopted by Waban's Executive Compensation Committee for
the last fiscal year are described under the heading "Election of Directors--
Executive Compensation Committee Report." It is anticipated that the Executive
Compensation Committee of BJI will initially adopt similar compensation
policies. In addition, the Executive Compensation Committee will have
responsibility for matters of corporate governance other than recommendation
to the Board of Directors of nominees to fill Board vacancies.
The Finance Committee will review with management and advise the BJI Board
with respect to BJI's finances, including exploring methods of meeting BJI's
financing requirements and planning BJI's capital structure.
77
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of BJI immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AGE FIVE-YEAR EMPLOYMENT HISTORY
-------------- --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer
Chairman of the Board of Directors and Director of Waban since May 1993;
Executive Vice President of Waban
(1989-1993); President of the BJ's
Division (1990-1993)
John J. Nugent...................... 50 Executive Vice President of Waban and
President and Chief Executive President of the BJ's Division since
Officer September 1993; Senior Vice President
of the BJ's Division (1991-1993);
Director, Sales Operations of the
BJ's Division (1989-1993)
Frank D. Forward.................... 42 Executive Vice President, Finance of
Executive Vice President and Chief the BJ's Division since February
Financial Officer 1997; Senior Vice President, Finance
of the BJ's Division (1994-1997);
Vice President, Finance of the BJ's
Division (1991-1994)
Laura J. Sen........................ 40 Executive Vice President,
Executive Vice President, Merchandising of the BJ's Division
Merchandising since February 1997; Senior Vice
President, General Merchandise of the
BJ's Division (1993-1997); Vice
President, Logistics of the BJ's
Division (1991-1993)
Michael T. Wedge.................... 43 Executive Vice President, Sales
Executive Vice President, Sales Operations of the BJ's Division since
Operations February 1997; Senior Vice President,
Sales Operations of the BJ's Division
(1993-1997); Vice President, Sales
Operations of the BJ's Division
(1991-1993)
Sarah M. Gallivan................... 54 Vice President and General Counsel of
Vice President and General Counsel Waban since December 1989
</TABLE>
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth with respect to BJI certain information
concerning the annual and long-term compensation paid for services rendered to
Waban for fiscal 1994, 1995 and 1996 by those persons who are expected to be
the Chief Executive Officer and the four other most highly compensated
executive officers of BJI following the Distribution (collectively, the "Named
BJI Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION YEAR(1) SALARY BONUS SATION(2) AWARDS(3) OPTIONS(4) PAYOUTS(5) SATION(6)
--------- ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $25,633 -- 250,000 $360,640 $34,792
Chairman of the 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Board 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
John J. Nugent.......... 1996 382,693 253,450 16,189 -- 20,000 303,278 23,635
President and Chief 1995 350,000 134,967 14,806 -- 50,000 -- 22,000
Executive Officer 1994 332,692 188,038 14,074 -- 65,000 -- 21,135
Frank D. Forward........ 1996 155,885 64,524 5,723 -- 5,000 101,092 12,225
Executive Vice
President, 1995 144,808 46,534 5,316 -- -- -- 11,740
Finance 1994 129,808 58,314 4,766 -- 12,500 -- 10,990
Laura J. Sen............ 1996 203,500 84,234 8,608 -- 5,000 141,530 14,675
Executive Vice
President, 1995 190,500 61,217 8,059 -- -- -- 14,025
Merchandising 1994 179,577 84,580 6,593 -- 20,000 -- 13,479
Michael T. Wedge........ 1996 193,174 79,959 8,172 -- 5,000 141,530 14,159
Executive Vice
President, 1995 178,769 57,447 7,562 -- -- -- 13,439
Sales Operations 1994 164,577 77,515 6,042 -- 20,000 -- 12,729
</TABLE>
- --------
(1) Refers to fiscal year ended in January of the following year.
(2) Includes for all Named BJI Officers the reimbursement for tax liabilities
related to Waban's contributions under the Waban Inc. Executive Retirement
Plan ("WERP") and excludes perquisites having an aggregate value of the
lesser of $50,000 or 10% of salary plus bonus.
(3) No restricted stock awards were granted to the Named BJI Officers in the
last three fiscal years. The following table presents the aggregate
restricted stock holdings as of January 25, 1997 and the value of such
holdings based on the fair market value of Waban Common Stock on January
25, 1997 ($27.25):
<TABLE>
<CAPTION>
RESTRICTED
STOCK HOLDINGS
AT 1/25/97
--------------
SHARES VALUE
------ -------
<S> <C> <C>
Herbert J. Zarkin......................................... 1,706 $46,489
John J. Nugent............................................ 1,440 39,240
Frank D. Forward.......................................... 720 19,620
Laura J. Sen.............................................. 864 23,544
Michael T. Wedge.......................................... 576 15,696
</TABLE>
Holders of restricted shares are entitled to the same dividends as those
paid to holders of unrestricted shares, including shares of BJI Common Stock
to be issued in the Distribution. Upon the Distribution, all unvested
restricted shares of Waban Common Stock and the shares of BJI Common Stock
to be issued in the Distribution to the Named BJI Officers (other than Mr.
Zarkin) will be forfeited to Waban, and a replacement award of BJI Common
Stock subject to the same restrictions and vesting schedule as the forfeited
shares will be made to the Named BJI Officers under the BJI 1997 Stock
Incentive Plan. Following the Distribution, the restricted shares of Waban
Common Stock held by Mr. Zarkin will continue to be subject to the same
restrictions as they were prior to the Distribution and the restricted
shares of BJI Common Stock will be subject to similar conditions related to
continued employment by BJI. In the event of a change of control (as
defined), each Named BJI Officer's restricted shares would become
unrestricted.
(4) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
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<PAGE>
(5) Payouts for fiscal 1996 represent 50% of the Waban Growth Incentive Plan
("WGIP") award earned by the Named BJI Officers for the three-year
performance period ended January 25, 1997. The remaining 50% of the award
is payable in April 1998, contingent on employment continuing through
March 31, 1998.
(6) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin....................... $4,494 $30,298
John J. Nugent.......................... 4,500 19,135
Frank D. Forward........................ 4,431 7,794
Laura J. Sen............................ 4,500 10,175
Michael T. Wedge........................ 4,500 9,659
</TABLE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named BJI Officers during fiscal 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN BASE PRICE PER EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR SHARE(2) DATE 0%(3) 5% 10%
---- ---------- --------------- -------------- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
John J. Nugent.......... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Frank D. Forward........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Laura J. Sen............ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
Michael T. Wedge........ 5,000 0.6% 24.750 4/11/06 0 77,826 197,226
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Securities
and Exchange Commission (the "Commission") and are not intended to
forecast possible future stock price appreciation, if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted to the Named BJI Officers on April 11, 1996
vest in equal annual installments over four years; options granted on
September 19, 1996 vest in equal annual installments over three years. All
options vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
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<PAGE>
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
Waban stock options during fiscal 1996 by each of the Named BJI Officers and
the fiscal year-end value of unexercised options to purchase Waban Common
Stock held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
NUMBER OF AT FISCAL YEAR-END FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
John J. Nugent.......... -- -- 122,250 67,750 1,349,000 544,250
Frank D. Forward........ -- -- 16,000 13,500 141,125 97,625
Laura J. Sen............ 15,000 122,188 10,500 19,500 111,156 161,656
Michael T. Wedge........ -- -- 18,500 18,750 182,000 151,250
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named BJI Officers during fiscal 1996 pursuant to the
WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION --------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ -------------------- -----------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97--1/99 $ 468,000 $ 0 $ 1,710,000
John J. Nugent.......... 15 Units FYE 1/97--1/99 273,000 371,220 1,050,000
Frank D. Forward........ 5 Units FYE 1/97--1/99 91,000 123,740 450,000
Laura J. Sen............ 7 Units FYE 1/97--1/99 127,400 173,236 585,000
Michael T. Wedge........ 7 Units FYE 1/97--1/99 127,400 173,236 555,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for Mr. Zarkin because cumulative net income would be less
than 10% compounded growth over the base period amount. The dollar amounts in
the table are not intended to forecast future payments, if any, under WGIP.
81
<PAGE>
One-half of the cash award earned under WGIP for the three-year award period
ending January 30, 1999 will be paid in April 1999 to participants employed
through January 30, 1999. The remaining one-half of the award will be paid in
April 2000, contingent upon employment continuing through March 31, 2000.
INCENTIVE AND OTHER PLANS
1997 Stock Incentive Plan. BJI has adopted the BJI 1997 Stock Incentive
Plan, pursuant to which BJI will be permitted to grant a variety of stock and
stock-based awards to officers and key employees of BJI and its subsidiaries.
Following the Distribution Date, except for replacement awards to be granted
under the BJI 1997 Replacement Stock Incentive Plan in connection with the
Distribution, BJI generally expects to grant equity incentive awards under the
BJI 1997 Stock Incentive Plan. A description of the BJI 1997 Stock Incentive
Plan is set forth below, under "Approval of the BJI 1997 Stock Incentive
Plan."
1997 Replacement Stock Incentive Plan. BJI has adopted the BJI 1997
Replacement Stock Incentive Plan, pursuant to which BJI will be permitted to
grant options to purchase BJI Common Stock in replacement of outstanding Waban
options held by persons who become employees of BJI on the Distribution Date
and who surrender their Waban options. A description of the BJI 1997
Replacement Stock Incentive Plan is set forth below, under "Approval of the
BJI 1997 Replacement Stock Incentive Plan."
Current Waban employees who are expected to become employees of BJI on the
Distribution Date held as of January 25, 1997 options to purchase an aggregate
of 1,905,896 shares of Waban Common Stock under the Waban 1989 Stock Incentive
Plan. Generally, under such plan, outstanding vested options may be exercised
during the 90-day period following termination and unvested options lapse upon
termination. The Distribution will result in termination of employment of such
persons from Waban under the terms of the Waban 1989 Stock Incentive Plan.
The exercise price and the number of replacement options expected to be
granted under the BJI 1997 Replacement Stock Incentive Plan will be calculated
so as to preserve the Waban options' approximate value as of the date of the
Distribution. To accomplish this, the number of BJI options will be determined
by multiplying the number of shares subject to each outstanding Waban option
that is unexercised as of the Distribution Date by the Stock Value Ratio (as
defined below). The exercise price of each replacement BJI option will equal
(a) the per share exercise price of the surrendered Waban option it replaces,
divided by (b) the Stock Value Ratio. Fractions will be rounded to the next
lowest share and next highest cent, respectively. The "Stock Value Ratio"
equals the number determined by dividing the Waban Common Stock Value by the
BJI Common Stock Value, where the Waban Common Stock Value equals the average
of the closing prices of Waban Common Stock during the ten trading days
immediately preceding the Distribution Date, and the BJI Common Stock Value
equals the average of the closing prices of BJI Common Stock on the New York
Stock Exchange during the ten trading days immediately following the
Distribution Date.
Waban options held by Messrs. Weisberger and Zarkin, who will become
employees of both BJI and HomeBase after the Distribution, will be replaced by
options to purchase an equal number of shares of both BJI Common Stock and
HomeBase Common Stock. The aggregate exercise prices of the BJI and HomeBase
options will equal the exercise price of the replaced Waban options, with the
exercise price of each BJI option being equal to (a) the per share exercise
price of the applicable Waban option, divided by (b) the Stock Value Ratio.
Replacement options granted under the BJI 1997 Replacement Stock Incentive
Plan pursuant to the foregoing adjustments will be subject to the same general
terms as the corresponding replaced Waban options.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named BJI Officers during fiscal 1996 are reflected in the BJI Summary
Compensation Table and the BJI table entitled "Long-Term Incentive Plans--
Awards in Last Fiscal Year." BJI has adopted cash incentive plans similar to
the Waban Management Incentive Plan and Growth Incentive Plan. A description
of each of these plans is set forth below, under the respective discussions of
Distribution Proposal Seven ("Approval of the BJI Management Incentive Plan")
and Distribution Proposal Eight ("Approval of the BJI Growth Incentive Plan").
82
<PAGE>
Executive Retirement Plan. Effective as of January 30, 1994, the Waban
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy. BJI has adopted an executive
retirement plan similar to the WERP.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named BJI
Officers were credited with at least four years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
all Named BJI Officers participate, was frozen on July 4, 1992 and benefits
under the Retirement Plan ceased to accrue after that date. All Named BJI
Officers are fully vested in their accrued benefits. The estimated annual
benefits payable under the Retirement Plan upon normal retirement (age 65) on
the basis of a single life annuity are as follows: Mr. Zarkin, $65,667; Mr.
Nugent, $5,121, Mr. Forward, $8,077; Ms. Sen, $6,200; and Mr. Wedge, $2,982.
EMPLOYMENT AGREEMENTS
Prior to the Distribution, BJI expects to enter into an employment agreement
with Mr. Zarkin pursuant to which he will receive a minimum annual base salary
of $350,000 and will participate in specified incentive and other benefit
plans. BJI will be entitled to terminate Mr. Zarkin's employment at any time
with or without cause (as defined). If his employment terminates by reason of
death, disability, incapacity or termination by BJI other than for cause, or
if Mr. Zarkin resigns as a result of his being removed from his positions with
BJI or as a result of being relocated more than 40 miles from the current
headquarters of BJI, Mr. Zarkin will be entitled to payment of certain cash
compensation amounts and continuation of base salary and certain benefits for
a period of 12 months after termination at the rate in effect upon
termination. In addition, Mr. Zarkin will be entitled to payments under the
BJI Management Incentive Plan (the "BJI MIP") for the fiscal year ended
immediately prior to the date of termination of Mr. Zarkin's employment, and
an amount equal to his MIP target award for the year of termination. Any stock
options or other stock-based awards held by Mr. Zarkin on the date of
termination will become fully vested. The continuing base salary payments are
subject to reduction after three months for compensation earned by Mr. Zarkin
from other employment (other than employment at HomeBase), and the continuing
benefits are subject to reduction at any time for comparable benefits received
by Mr. Zarkin from other employment. Mr. Zarkin will enter into a
substantially similar employment agreement with HomeBase, providing for salary
and other compensation equivalent to that payable by BJI.
Prior to the Distribution, BJI expects to enter into an employment agreement
with Mr. Nugent pursuant to which he will receive a minimum annual base salary
of $520,000 and the other terms of which will be substantially similar to his
existing agreement with Waban. Under Waban's current employment agreement with
Mr. Nugent, he receives a minimum annual base salary of $400,000 and
participates in specified incentive and other benefit plans. If his employment
terminates by reason of death, disability, incapacity or termination by the
Company other than for cause, Mr. Nugent is entitled to payment of certain
cash compensation amounts and to certain benefits and continuation of base
salary for 12 months after termination at the rate in effect upon termination.
The continuing base salary payments are subject to reduction after three
months for compensation earned by Mr. Nugent from other employment, and the
continuing benefits are subject to reduction at any time for comparable
benefits received by Mr. Nugent from other employment.
Prior to the Distribution, BJI expects to enter into an employment agreement
with each of Messrs. Forward and Wedge, and Ms. Sen under which each will
receive a minimum annual base salary of $180,000, $230,000
83
<PAGE>
and $230,000, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by BJI other than for cause, each such executive
officer will be entitled to payment of certain cash compensation amounts and
to certain benefits and continuation of base salary for 12 months after
termination at the rate in effect upon termination. The continuing base salary
payments will be subject to reduction after three months for compensation from
other employment, and the continuing benefits will be subject to reduction at
any time for comparable benefits received from other employment.
In the event of a change of control followed by termination of employment as
described below under""--Change of Control Severance Benefits," each of the
Named BJI Officers would be entitled to the termination benefits described
thereunder, to the extent such benefits would exceed the benefits otherwise
described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
BJI expects to provide change of control severance benefits to each of the
Named BJI Officers under individual agreements to be entered into prior to the
Distribution. Under the agreements, in general, upon a change of control (as
defined) of BJI, the executive would be entitled to accelerated payment of the
BJI MIP target award for the year in which the change of control occurs. If,
during the 24-month period following a change of control, BJI were to
terminate the executive's employment other than for cause (as defined) or the
executive were to terminate his employment for reasons specified in the
agreement, or if employment were to terminate by reason of death, disability
or incapacity, the executive would be entitled to receive an amount equal to
two times the executive's annual base salary. For up to two years following
termination BJI would also be obligated to provide specified benefits,
including continued health, medical and life insurance benefits. The foregoing
benefits would be payable whether or not they gave rise to a federal excise
tax on so-called "excess parachute payments" or were non-deductible, except to
the extent a reduction in amounts paid would increase the executive's after-
tax benefits. BJI would also be obligated to pay all legal fees and expenses
reasonably incurred by the executive in seeking enforcement of contractual
rights following a change of control. In addition, upon involuntary
termination within 24 months following a change of control, any agreement by
the executive not to compete with BJI following termination of his employment
would cease to be effective.
INDEMNIFICATION AGREEMENTS
Prior to the Distribution, BJI will enter into indemnification agreements
with each of its directors and executive officers indemnifying them against
expenses, settlements, judgments and fines incurred in connection with any
threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that he or she is
or was a director or officer of BJI or served at BJI's request as a director
of another organization (except that indemnification is not provided against
judgments and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if he or she is found not to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of BJI, except to the extent Delaware law
permits broader contractual indemnification. The indemnification agreements
provide procedures, presumptions and remedies designed to substantially
strengthen the indemnity rights beyond those provided by BJI's Certificate of
Incorporation and by Delaware law.
84
<PAGE>
MANAGEMENT OF HOMEBASE
HOMEBASE BOARD
Following the Distribution, the business of HomeBase will be managed under
the direction of the HomeBase Board. In accordance with the HomeBase
Certificate, the HomeBase Board is divided into three classes with staggered
terms. Each class of directors is elected for a term of three years and until
their respective successors are duly elected and qualified. Directors for each
class will be elected at the annual meeting of stockholders held in the year
in which the term for such class expires.
The following table sets forth the names and information as to the persons
who are expected to serve as directors of HomeBase immediately after the
Distribution. Messrs. Loewy, Waxlax and Zarkin are currently members of the
Waban Board and Mr. Weisberger is a nominee for election to the Waban Board at
the Meeting. The Waban Board expects to appoint additional independent
directors prior to the Distribution.
<TABLE>
<CAPTION>
NAME, AGE AND YEAR TERM PRESENT PRINCIPAL OCCUPATIONS OR EMPLOYMENT AND
EXPIRES FIVE-YEAR EMPLOYMENT HISTORY
----------------------- -----------------------------------------------
<S> <C>
Allan P. Sherman, 52 (1998)... Executive Vice President of Waban since May 1993
and President of the HomeBase Division since
September 1993. He was President of the BJ's
Division from May 1993 to September 1993 and
Senior Vice President and General Merchandise
Manager--Non-Food of the BJ's Division from 1991
to 1993.
Herbert J. Zarkin, 58 (1998).. Director, President and Chief Executive Officer
of Waban since May 1993. He was President of the
BJ's Division from May 1990 to May 1993. From
April 1989 to May 1993 he was Executive Vice
President of Waban. Mr. Zarkin will be Chairman
of the BJI Board and Chairman of the HomeBase
Board following the Distribution.
Lorne R. Waxlax, 63 (1999).... Director of Waban since January 1990, and
Chairman of the Board of Waban since June 1996.
He was an Executive Vice President of The
Gillette Company from 1985 to 1993. Mr. Waxlax
is also a director of Quaker State Corporation,
The Iams Company, Hon Industries, Inc. and Clean
Harbors, Inc. Mr. Waxlax will also be a member
of the BJI Board following the Distribution.
Arthur F. Loewy, 68 (2000)(1). Director of Waban since February 1989. He is a
director of The TJX Companies, Inc. and was
Chief Financial Officer and Executive Vice
President--Finance of Zayre Corp. from 1982 to
1989.
Edward J. Weisberger, 55 Senior Vice President and Chief Financial
(2000)(1).................... Officer of Waban since September 1994. From
April 1989 until September 1994 he was Vice
President-Finance of Waban. Mr. Weisberger will
be an employee of both BJI and HomeBase after
the Distribution. Mr. Weisberger will also be a
member of the BJI Board following the
Distribution.
</TABLE>
- --------
(1) Nominee for election to the Waban Board. See "Election of Directors."
85
<PAGE>
DIRECTOR COMPENSATION
The compensation to be paid to the members of the Board of Directors of
HomeBase after the Distribution will be the same as that currently payable to
the members of the Waban Board. Directors who are not employees of Waban are
paid an annual retainer of $20,000 and fees of $1,250 for each Board meeting
attended, $750 for each Committee meeting attended and $750 for certain
telephone meetings. As a non-employee Chairman of the Waban Board, Mr. Waxlax
is paid an additional retainer of $100,000 per annum. In addition, the
Chairman of the Audit Committee and the Chairman of the Executive Compensation
Committee are each paid $2,500 per annum for their services as such. All
directors are reimbursed for out-of-pocket expenses incurred in attending such
meetings. Directors may participate in HomeBase's General Deferred
Compensation Plan.
The stockholders approved the 1995 Director Stock Option Plan (the "Waban
Director Plan") at Waban's 1995 annual meeting of stockholders and each non-
employee director of Waban was granted on June 13, 1995 an option to purchase
3,000 shares of Waban Common Stock. On the date of each annual meeting
following the Distribution, each continuing non-employee director will be
granted an option to acquire an additional 1,500 shares of HomeBase Common
Stock, and each non-employee director newly elected or elected subsequent to
the then most recent annual meeting will receive an option to purchase 3,000
shares of HomeBase Common Stock. The option exercise price for each of these
options is the fair market value of a share of HomeBase Common Stock on the
date of grant. Each option is nontransferable except upon death, will expire
10 years after the date of grant and will become exercisable in three equal
annual installments beginning on the first day of the month which includes the
first anniversary of the date of grant. If the director dies or otherwise
ceases to be a director prior to the date the option becomes exercisable, the
option will immediately expire. Any vested options will remain exercisable for
a period of one year following cessation of service as a director of HomeBase.
All unexercised options will become exercisable in full beginning 20 days
prior to the consummation of a merger or consolidation (as described in the
Waban Director Plan), acquisition, reorganization or liquidation and, to the
extent not exercised, shall terminate immediately after the consummation of
such merger, consolidation, acquisition, reorganization or liquidation.
Options granted under the Waban Director Plan to persons who will continue
as directors of HomeBase following the Distribution (other than Mr. Waxlax,
who will be a director of both HomeBase and BJI) will be adjusted on a basis
similar to that applicable to Waban options granted under the Waban 1989 Stock
Incentive Plan to persons who will continue as employees of HomeBase. The
aggregate exercise price of options granted under the Waban 1995 Director
Stock Option Plan to Mr. Waxlax will be adjusted. The aggregate exercise price
of the BJI and HomeBase options will equal the exercise price of the replaced
options, with the exercise price of the BJI options being equal to (a) the per
share exercise price of the replaced Waban options, divided by (b) the Stock
Value Ratio. See "--Incentive and Other Plans."
During fiscal 1996, the Waban Board held twelve meetings and took action by
written consent once. Each director attended at least 75% of all meetings of
the Board and committees of which he or she is a member.
COMMITTEES OF THE BOARD
The HomeBase Board will continue to have four committees: (i) Audit; (ii)
Executive; (iii) Executive Compensation; and (iv) Finance. Committee
appointments are expected to be determined prior to the Distribution.
The Audit Committee reviews with management, the internal audit group and
the independent public accountants HomeBase's financial statements, the
accounting principles applied in their preparation, the scope of the audit,
any comments made by the public accountants upon the financial condition of
HomeBase and its accounting controls and procedures, and such other matters as
the Committee deems appropriate, and the Committee will review with management
such matters relating to compliance with corporate policies as the Committee
deems appropriate. The Audit Committee held three meetings during fiscal 1996.
86
<PAGE>
The Executive Committee is authorized to act on behalf of the HomeBase Board
during intervals between meetings of the HomeBase Board. In addition, the
Executive Committee has responsibility for consideration of the qualifications
of, and recommendation to the Board of Directors of, nominees to fill Board
vacancies and considers nominees recommended by stockholders if such
recommendations are in writing and timely filed with the Secretary of
HomeBase. The Executive Committee held one meeting during fiscal 1996.
The Executive Compensation Committee reviews salary policies and
compensation of officers and other members of management, including incentive
compensation plans for certain officers and other members of management. The
compensation policies adopted by Waban's Executive Compensation Committee for
the last fiscal year are described under the heading "Election of Directors--
Executive Compensation Committee Report." It is anticipated that the Executive
Compensation Committee of HomeBase will initially adopt similar compensation
policies. In addition, the Executive Compensation Committee has responsibility
for matters of corporate governance other than recommendation to the Board of
Directors of nominees to fill Board vacancies. The Executive Compensation
Committee held five meetings during fiscal 1996.
The Finance Committee reviews with management and advises the HomeBase Board
with respect to HomeBase's finances, including exploring methods of meeting
HomeBase's financing requirements and planning HomeBase's capital structure.
The Finance Committee did not meet during fiscal 1996.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of HomeBase immediately following the
Distribution. Mr. Zarkin will serve as Chairman of the Board of Directors of
both BJI and HomeBase following the Distribution.
<TABLE>
<CAPTION>
NAME AND TITLE AFTER THE
DISTRIBUTION AGE FIVE-YEAR EMPLOYMENT HISTORY
------------------------ --- ----------------------------
<C> <C> <S>
Herbert J. Zarkin................... 58 President, Chief Executive Officer and Director
Chairman of the Board of Directors of Waban since May 1993; Executive Vice
President of Waban (1989-1993); President of the
BJ's Division (1990-1993)
Allan P. Sherman.................... 52 Executive Vice President of Waban since May
President and Chief Executive 1993; President of the HomeBase Division since
Officer September 1993; President of the BJ's Division
(May 1993-September 1993); Senior Vice President
and General Merchandise Manager-Non-Food of the
BJ's Division (1991-1993)
Thomas F. Gallagher ................ 45 Executive Vice President, Store Operations of
Executive Vice President, the HomeBase Division since May 1996; Vice
Store Operations President, Sales Operations of the BJ's Division
(1993-1996); Assistant Vice President, Regional
Manager of the BJ's Division (1991-1993)
Scott Richards...................... 39 Executive Vice President, Merchandising of the
Executive Vice President, Merchan- HomeBase Division since August 1996; Vice
dising President, Merchandising of the HomeBase
Division (1993-1996); Buyer for the HomeBase
Division (1991-1993)
William B. Langsdorf................ 40 Senior Vice President, Finance of the HomeBase
Executive Vice President and Division since September 1993; Assistant Vice
Chief Financial Officer President, Finance of the HomeBase Division
(1991-1993)
</TABLE>
87
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual and
long-term compensation paid for services rendered to Waban for fiscal 1994,
1995 and 1996 by (i) those persons who are expected to be the Chief Executive
Officer and the four other most highly compensated executive officers of
HomeBase following the Distribution (the "Named HomeBase Officers") and (ii)
those persons (other than Mr. Nugent, information with respect to whom is
provided under the caption "Management of BJI--Executive Compensation") who
were the Chief Executive Officer and the four most highly compensated
executive officers of Waban during fiscal 1996 who were serving as executive
officers of Waban on January 25, 1997 (the "Named Waban Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- --------------------------------
AWARDS PAYOUTS
OTHER --------------------- ---------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND PRINCIPAL COMPEN- STOCK UNDERLYING LTIP COMPEN-
POSITION(1) YEAR(2) SALARY BONUS SATION(3) AWARDS(4) OPTIONS(5) PAYOUTS(6) SATION(7)
------------------ ------- -------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 1996 $605,962 $199,361 $ 25,633 $ -- 250,000 $360,640 $ 34,792
President and Chief 1995 570,000 171,285 24,112 -- 100,000 -- 33,000
Executive Officer of 1994 552,692 442,154 23,380 -- 100,000 -- 31,969
Waban; Chairman of the
Board of HomeBase
Allan P. Sherman........ 1996 451,346 -- 238,170 -- 20,000 83,190 27,019
President and Chief 1995 435,000 40,000 241,786 -- 50,000 -- 26,250
Executive Officer of 1994 422,885 189,420 219,829 -- 65,000 -- 101,114
HomeBase
Thomas F. Gallagher..... 1996 176,078 40,484 190,670 155,250 15,000 80,874 13,304
Executive Vice 114,634 29,470 3,895 -- -- -- 10,232
President, 1995
Store Operations of 1994 106,558 40,152 3,621 -- 4,000 -- 9,191
HomeBase
Scott Richards.......... 1996 167,910 2,709 6,610 129,375 13,000 24,957 12,562
Executive Vice
President, 1995 131,538 11,122 5,229 -- -- -- 11,027
Merchandising of 1994 123,943 40,871 4,870 -- 7,000 -- 10,125
HomeBase
William B. Langsdorf.... 1996 155,553 -- 6,218 -- 4,000 27,730 12,076
Executive Vice
President, 1995 143,942 7,500 5,766 -- -- -- 11,697
Finance of HomeBase 1994 129,904 38,790 5,204 -- 12,000 -- 10,366
Edward J. Weisberger.... 1996 238,077 46,996 10,071 -- 70,000 180,320 16,404
Senior Vice President
and 1995 225,000 40,567 9,518 -- 40,000 -- 15,750
Chief Financial Officer 1994 197,847 86,777 8,369 -- 40,000 -- 14,392
of Waban
Sarah M. Gallivan....... 1996 154,904 20,385 5,687 -- 6,000 72,128 12,245
Vice President, General 1995 144,808 17,406 5,316 -- -- -- 11,740
Counsel of Waban 1994 131,885 43,074 4,842 -- 10,000 -- 10,849
</TABLE>
- --------
(1) Does not include Mr. Nugent, who also was one of Waban's four most highly
compensated executive officers during fiscal 1996. Information regarding
Mr. Nugent's compensation is described above under "Management of BJI."
During 1996, Mr. Zarkin served as President and Chief Executive Officer of
Waban and Mr. Sherman served as Executive Vice President of Waban and
President of the HomeBase Division of Waban.
(2) Refers to fiscal year ended in January of the following year.
88
<PAGE>
(3) Includes for Mr. Sherman $130,344, $135,204 and $137,240 in fiscal 1996,
fiscal 1995 and fiscal 1994, respectively, for loan forgiveness and the
value of the interest-free component of a housing loan from Waban pursuant
to the terms of his employment contract, and $80,671, $80,797 and $60,374
in fiscal 1996, fiscal 1995 and fiscal 1994, respectively, for
reimbursement of tax liabilities related to that loan and certain items
under "All Other Compensation." Includes for Mr. Gallagher $102,141 in
fiscal 1996 for relocation costs and $74,727 for reimbursement of tax
liabilities related to those costs and certain items under "All Other
Compensation." Includes for Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan in fiscal 1996, fiscal 1995 and fiscal 1994
and for Mr. Gallagher in fiscal 1995 and fiscal 1994 the reimbursement for
tax liabilities related to Waban's contributions under the WERP and
excludes perquisites having an aggregate value of the lesser of $50,000 or
10% of salary plus bonus.
(4) Restricted stock awards were issued at no cost to Mr. Gallagher and Mr.
Richards in 1996. The dollar value of these awards is based on the closing
market price of the Company's Common Stock on the date of grant. Fifty
percent of the shares granted to Mr. Gallagher vest in February 1998 and
25% vest in each of February 1999 and 2000. Forty percent of the shares
granted to Mr. Richards vest in June 1997, with 20% vesting in each of
June 1998, 1999 and 2000. Vesting is contingent upon continued employment
on the vesting dates. The following table presents aggregate restricted
stock holdings as of January 25, 1997 and the value of such holdings based
on the fair market value of Waban Common Stock on January 25, 1997
($27.25):
<TABLE>
<CAPTION>
RESTRICTED
NUMBER OF SHARES STOCK HOLDINGS
OF RESTRICTED STOCK ISSUED AT 1/25/97
----------------------------- ---------------
1996 1995 1994 SHARES VALUE
---------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin.............. 0 0 0 1,706 $ 46,489
Allan P. Sherman............... 0 0 0 5,312 144,752
Thomas F. Gallagher............ 6,000 0 0 6,432 175,272
Scott Richards................. 5,000 0 0 5,450 148,513
William B. Langsdorf........... 0 0 0 450 12,263
Edward J. Weisberger........... 0 0 0 847 23,081
Sarah M. Gallivan.............. 0 0 0 484 13,189
</TABLE>
In the event of a change of control (as defined), each person's restricted
shares would become unrestricted. Holders of restricted shares are entitled
to the same dividends as those paid to holders of unrestricted shares,
including shares of BJI Common Stock to be issued in the Distribution.
Shares of BJI Common Stock received as a dividend will be subject to the
same restrictions and vesting schedule as the restricted shares on account
of which the special dividend was made.
(5) Reflects the grant of options to purchase Common Stock. Waban has never
granted stock appreciation rights.
(6) Payouts for fiscal 1996 represent 50% of the WGIP award earned by the
named person for the three-year performance period ended January 25, 1997.
The remaining 50% of the award is payable in April 1998, contingent on
employment continuing through March 31, 1998.
(7) For fiscal 1996, represents Waban's contributions under its 401(k) Savings
Plan for Salaried Employees and WERP (see "--Incentive and Other Plans--
Executive Retirement Plan") as presented below:
<TABLE>
<CAPTION>
1996 WABAN
CONTRIBUTIONS
---------------
401(K)
SAVINGS
PLAN WERP
------- -------
<S> <C> <C>
Herbert J. Zarkin............................................ $4,494 $30,298
Allan P. Sherman............................................. 4,500 22,519
Thomas F. Gallagher.......................................... 4,500 8,804
Scott Richards............................................... 4,312 8,250
William B. Langsdorf......................................... 4,314 7,762
Edward J. Weisberger......................................... 4,500 11,904
Sarah M. Gallivan............................................ 4,500 7,745
</TABLE>
89
<PAGE>
STOCK OPTION GRANTS
The following table sets forth the stock option grants made by Waban to each
of the Named HomeBase Officers and the Named Waban Officers during fiscal
1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER PERCENT OF POTENTIAL REALIZABLE
OF TOTAL OPTIONS VALUE AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(1)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ---------------------------------
NAME GRANTED YEAR PER SHARE(2) DATE 0%(3) 5% 10%
---- ---------- ------------- ------------ ---------- -------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 40,000 5.1% $24.750 4/11/06 $ 0 $ 622,606 $ 1,577,805
210,000 27.0% 22.875 9/19/06 0 3,021,053 7,655,940
Allan P. Sherman........ 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
Thomas F. Gallagher..... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
12,000 1.5% 25.875 6/11/06 0 195,272 494,857
Scott Richards.......... 3,000 0.4% 24.750 4/11/06 0 46,695 118,335
10,000 1.3% 22.875 9/19/06 0 143,860 364,569
William B. Langsdorf.... 4,000 0.5% 24.750 4/11/06 0 62,261 157,781
Edward J. Weisberger.... 20,000 2.6% 24.750 4/11/06 0 311,303 788,903
50,000 6.4% 22.875 9/19/06 0 719,298 1,822,843
Sarah M. Gallivan....... 6,000 0.8% 24.750 4/11/06 0 93,391 236,671
</TABLE>
- --------
(1) The dollar amounts in these columns are the result of calculations at 0%
and the arbitrary appreciation rates of 5% and 10% set by the Commission
and are not intended to forecast possible future stock price appreciation,
if any.
(2) All options granted in fiscal 1996 were granted with an exercise price
equal to the closing price of the Common Stock on the New York Stock
Exchange on the date of grant. These options expire ten years from the
date of grant. Options granted on April 11, 1996 and June 11, 1996 vest in
equal annual installments over four years; options granted on September
19, 1996 vest in equal annual installments over three years. All options
vest upon a change of control (as defined).
(3) No gain to the optionees is possible without an increase in stock price,
which will benefit all stockholders commensurately. A zero percent stock
price appreciation will result in zero gain for the optionee.
AGGREGATED OPTION EXERCISES AND VALUATION
The following table sets forth, on an aggregated basis, the exercise of
stock options during fiscal 1996 by each of the Named HomeBase Officers and
the Named Waban Officers and the fiscal year-end value of unexercised options
held by such officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR-END (2)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... -- $ -- 265,000 335,000 $2,950,313 $1,949,688
Allan P. Sherman........ 19,000 215,688 108,250 67,750 1,140,844 546,594
Thomas F. Gallagher..... 2,950 33,038 0 18,725 0 65,184
Scott Richards.......... 2,970 31,185 4,800 18,168 49,350 104,581
William B. Langsdorf.... 4,750 56,031 7,550 12,700 84,459 99,447
Edward J. Weisberger.... 500 6,688 72,000 95,500 754,250 508,563
Sarah M. Gallivan....... -- -- 11,750 12,750 107,406 82,406
</TABLE>
- --------
(1) Based on the difference between the option exercise price and the fair
market value of Waban Common Stock on the date of exercise.
(2) Based on the fair market value of Waban Common Stock on January 25, 1997
($27.25 per share), less the option exercise price.
90
<PAGE>
LONG-TERM INCENTIVE AWARDS
The following table sets forth information related to long-term incentive
awards granted to the Named HomeBase Officers and the Named Waban Officers
during fiscal 1996 pursuant to the WGIP:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
OF SHARES, OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
UNITS OR MATURATION -----------------------------------
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------ ------------------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Herbert J. Zarkin....... 20 Units FYE 1/97 - 1/99 $ 468,000 $ 0 $ 1,710,000
Allan P. Sherman........ 15 Units FYE 1/97 - 1/99 194,400 0 1,305,000
Thomas F. Gallagher..... 8 Units FYE 1/97 - 1/99 103,680 0 351,216
Scott Richards.......... 8 Units FYE 1/97 - 1/99 103,680 0 402,000
William B. Langsdorf.... 5 Units FYE 1/97 - 1/99 64,800 0 450,000
Edward J. Weisberger.... 10 Units FYE 1/97 - 1/99 234,000 0 675,000
Sarah M. Gallivan....... 6 Units FYE 1/97 - 1/99 140,400 0 450,000
</TABLE>
Employees in high-level management positions in the Company, as selected by
the Executive Compensation Committee, were awarded units under the WGIP during
fiscal 1996. Each unit has a value in dollars equal to a designated percentage
of improvement in net income (for corporate executives) or divisional pre-tax
income (for divisional executives) during the three-year fiscal period ending
January 30, 1999 over base period income, as defined, for fiscal 1995. No
payment will be made unless cumulative net or pre-tax income, as applicable,
is at least equal to 10% compounded growth over the base period amount. The
"threshold" amounts in the table above would be earned upon achievement of 10%
compounded growth in earnings. No participant may receive a cash award in
excess of 300% of the participant's annualized base salary as of the beginning
of the award period. This limit is reflected in the "maximum" amount column of
the table above. The WGIP does not specify a target payout amount.
Accordingly, pursuant to SEC rules, the target payout level in the table above
assumes in each case that fiscal 1996's income level will be achieved in each
of the three fiscal years during the award period. This assumption would
result in no payout for each of the Named HomeBase Officers or Named Waban
Officers because cumulative net or pre-tax income would be less than 10%
compounded growth over the base period amount. The dollar amounts in the table
are not intended to forecast future payments, if any, under WGIP.
One-half of the cash award earned under the WGIP for the three-year award
period ending January 30, 1999 will be paid in April 1999 to participants
employed through January 30, 1999. The remaining one-half of the award will be
paid in April 2000, contingent upon employment continuing through March 31,
2000.
INCENTIVE AND OTHER PLANS
Stock Incentive Plans. Prior to the Distribution, Waban has granted stock
and stock-based awards to officers and key employees of HomeBase and its
subsidiaries pursuant to the Waban 1989 Stock Incentive Plan. Following the
Distribution Date, except for replacement awards to be granted under the Waban
1989 Stock Incentive Plan in connection with the Distribution, Waban generally
expects to grant equity incentive awards under the Waban 1997 Stock Incentive
Plan. Descriptions of the Waban 1989 Stock Incentive Plan and the Waban 1997
Stock Incentive Plan are set forth below under "Approval of Amendments to the
Waban 1989 Stock Incentive Plan and Continuance of Plan" and "Approval of
Waban 1997 Stock Incentive Plan."
Effective upon the Distribution, all unvested options and vested but
unexercised options granted under the Waban 1989 Stock Incentive Plan and held
by persons who remain HomeBase employees (other than persons who will also be
employees of BJI) will be adjusted so that the number of shares subject to
such options and the exercise price of such options will preserve the
approximate value of the Waban options held by such persons immediately prior
to the Distribution. To accomplish this, the number of Waban options held by
each such person immediately prior to the Distribution will be multiplied by
the pre-Distribution price of a share of Waban Common Stock and the resulting
number will be divided by the average of the closing prices of shares of Waban
91
<PAGE>
Common Stock on the New York Stock Exchange during the ten trading days
immediately following the date of the Distribution (the "Post-Distribution
Waban Share Price"). The exercise price of the Waban option will be multiplied
by the Post-Distribution Waban Share Price and the resulting number will be
divided by the pre-Distribution price of a share of Waban Common Stock.
Fractions will be rounded to the next lower share and the next higher cent,
respectively. The pre-Distribution price per share of Waban Common Stock will
be the average of the closing prices of shares of Waban Common Stock on the
New York Stock Exchange during the ten trading days immediately preceding the
date of the Distribution.
Cash Incentive Plans. Waban has in place its Management Incentive Plan and
its Growth Incentive Plan. Amounts paid or awarded under these plans to the
Named HomeBase Officers during fiscal 1996 are reflected in the HomeBase
Summary Compensation Table and the HomeBase table entitled "Long-Term
Incentive Plans--Awards in Last Fiscal Year." These plans are similar to the
Management Incentive Plan and the Growth Incentive Plan proposed to be adopted
by BJI and described below under the respective discussions of Distribution
Proposal Seven ("Approval of the BJI Management Incentive Plan") and
Distribution Proposal Eight ("Approval of the BJI Growth Incentive Plan").
Executive Retirement Plan. Effective as of January 30, 1994, the Waban Inc.
Executive Retirement Plan ("WERP"), a defined contribution plan, was adopted.
Under the WERP, those employees in high-level management positions in Waban,
as selected by the Executive Compensation Committee, including all executive
officers, are eligible to receive cash annual retirement contributions in an
amount determined by the Executive Compensation Committee; provided that the
smallest annual retirement contribution shall equal, on an after-tax basis, at
least three percent of the participant's base salary. All amounts paid under
the WERP are to be used exclusively to fund an investment vehicle selected by
the Executive Compensation Committee which is appropriate to provide
retirement income, such as an insurance policy.
Waban made retirement contributions after the end of 1996 equal to 5% of
each participant's base salary during 1996. If the participant terminates
employment prior to the end of the fiscal year in which the participant is
credited with four years of service, the participant generally forfeits the
right to any benefit under the WERP. As of January 25, 1997, all Named
HomeBase Officers and Named Waban Officers were credited with at least four
years of service.
Retirement Plan. Waban's Retirement Plan (the "Retirement Plan"), in which
Messrs. Zarkin, Richards, Langsdorf and Weisberger and Ms. Gallivan
participated, was frozen on July 4, 1992 and benefits under the Retirement
Plan ceased to accrue after that date. Messrs. Zarkin, Richards, Langsdorf and
Weisberger and Ms. Gallivan are fully vested in their accrued benefits. The
estimated annual benefits payable to such persons under the Retirement Plan
upon normal retirement (age 65) on the basis of a single life annuity are as
follows: Mr. Zarkin, $65,667; Mr. Richards, $7,140; Mr. Langsdorf, $5,209; Mr.
Weisberger, $27,553; and Ms. Gallivan, $2,472.
EMPLOYMENT AGREEMENTS
Prior to the Distribution, HomeBase expects to enter into an employment
agreement with Mr. Zarkin substantially similar to the employment agreement he
will enter into with BJI. See "Management of BJI--Employment Agreements."
Under the Company's existing employment agreement with Mr. Zarkin (which will
be modified in connection with the Distribution in accordance with the
preceding sentence), Mr. Zarkin receives a minimum annual base salary of
$625,000 and participates in specified incentive and other benefit plans. The
Company is entitled to terminate Mr. Zarkin's employment at any time with or
without cause (as defined). If his employment terminates by reason of death,
disability, incapacity or termination by the Company other than for cause, or
if a change of control occurs, Mr. Zarkin is entitled to payment of certain
cash compensation amounts and continuation of base salary and certain benefits
for a period of 24 months after termination at the rate in effect upon
termination. The continuing base salary payments are subject to reduction
after twelve months for compensation earned by Mr. Zarkin from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Zarkin from other employment.
92
<PAGE>
Under the Company's employment agreement with Mr. Sherman, Mr. Sherman
receives a minimum annual base salary of $460,000 and participates in
specified incentive and other benefit plans. Prior to the Distribution,
HomeBase expects to amend Mr. Sherman's employment agreement to increase his
minimum annual base salary to $520,000. In addition, in connection with his
election as President of the HomeBase Division in 1993, the Company agreed to
extend to him an interest-free loan of $700,000 for the purchase of a
residence in California and to forgive the loan over seven years in equal
installments, $100,000 of which was forgiven in each of fiscal 1994, 1995 and
1996. The Company also agreed to make certain tax "gross-up" payments to Mr.
Sherman. The Company is entitled to terminate Mr. Sherman's employment at any
time with or without cause (as defined). If Mr. Sherman's employment
terminates by reason of death, disability or termination by the Company other
than for cause, the Company is required to pay certain cash compensation
amounts, to continue payment of Mr. Sherman's base salary and certain benefits
for 52 weeks after termination at the rate in effect upon termination, and to
extend the term of Mr. Sherman's relocation loan, including the provisions for
debt forgiveness. The continuing base salary payments are subject to reduction
after three months for compensation earned by Mr. Sherman from other
employment, and the continuing benefits are subject to reduction at any time
for comparable benefits received by Mr. Sherman from other employment.
Prior to the Distribution, HomeBase expects to enter into an employment
agreement with each of Messrs. Gallagher, Richards and Langsdorf under which
each will receive a minimum annual base salary of $220,000, $220,000 and
$190,000, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by HomeBase other than for cause, each such
executive officer will be entitled to payment of certain cash compensation
amounts and to certain benefits and continuation of base salary for 12 months
after termination at the rate in effect upon termination. The continuing base
salary payments will be subject to reduction after three months for
compensation from other employment, and the continuing benefits will be
subject to reduction at any time for comparable benefits received from other
employment.
The Company has an employment agreement with each of Mr. Weisberger and Ms.
Gallivan under which they receive minimum annual base salaries of $245,000 and
$157,500, respectively, and participate in specified incentive and other
benefit plans. If employment terminates by reason of death, disability,
incapacity or termination by the Company other than for cause, each such
executive is entitled to payment of certain cash compensation amounts and to
certain benefits and continuation of base salary for 12 months after
termination at the rate in effect upon termination. The continuing base salary
payments are subject to reduction after three months for compensation earned
by the executive from other employment, and the continuing benefits are
subject to reduction at any time for comparable benefits received by the
executive from other employment.
In the event of a change of control followed by termination of employment as
described below under "--Change of Control Severance Benefits," each of the
Named HomeBase Officers and Named Waban Officers would be entitled to the
termination benefits described thereunder, to the extent such benefits would
exceed the benefits otherwise described above.
CHANGE OF CONTROL SEVERANCE BENEFITS
HomeBase expects to provide change of control severance benefits to each of
the Named HomeBase Officers under individual agreements to be entered into
prior to the Distribution. Under the agreements, in general, upon a change of
control (as defined) of HomeBase, the executive would be entitled to
accelerated payment of the HomeBase Management Incentive Plan target award for
the year in which the change of control occurs. If, during the 24-month period
following a change of control, HomeBase were to terminate the executive's
employment other than for cause (as defined) or the executive were to
terminate his employment for reasons specified in the agreement, or if
employment were to terminate by reason of death, disability or incapacity, the
executive would be entitled to receive an amount equal to two times the
executive's annual base salary. For up to two years following termination
HomeBase would also be obligated to provide specified benefits, including
continued health, medical and life insurance benefits. The foregoing benefits
would be payable whether or not they gave rise to a federal excise tax on so-
called "excess parachute payments" or were non-deductible, except to the
extent a reduction in amounts paid would increase the executive's after-tax
benefits.
93
<PAGE>
HomeBase would also be obligated to pay all legal fees and expenses reasonably
incurred by the executive in seeking enforcement of contractual rights
following a change of control. In addition, upon involuntary termination
within 24 months following a change of control, any agreement by the executive
not to compete with HomeBase following termination of his employment would
cease to be effective.
INDEMNIFICATION AGREEMENTS
Prior to the Distribution, HomeBase will enter into indemnification
agreements with each of its directors and executive officers indemnifying them
against expenses, settlements, judgments and fines incurred in connection with
any threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that he or she is
or was a director or officer of HomeBase or served at HomeBase's request as a
director of another organization (except that indemnification is not provided
against judgments and fines in a derivative suit unless permitted by Delaware
law). An individual may not be indemnified if he or she is found not to have
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of HomeBase, except to the extent Delaware
law permits broader contractual indemnification. The indemnification
agreements provide procedures, presumptions and remedies designed to
substantially strengthen the indemnity rights beyond those provided by
HomeBase's Certificate of Incorporation and by Delaware law. Each of the Named
Waban Officers has entered into an indemnification agreement as described in
this paragraph.
PRICE RANGE OF WABAN COMMON STOCK AND DIVIDEND POLICY
The Waban Common Stock is listed on the New York Stock Exchange and is
traded under the symbol "WBN". The following table sets forth, for the fiscal
periods indicated, the high and low sales prices per share of the Waban Common
Stock as reported on the New York Stock Exchange Composite Tape. On October
22, 1996, the trading date preceding public announcement of the proposed
Distribution, the high, low and closing prices per share of Waban Common Stock
on the New York Stock Exchange were $24 1/4, $23 5/8 and $23 7/8,
respectively. On June 4, 1997, the closing price per share of Waban Common
Stock on the New York Stock Exchange was $30 1/4.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995
1st Quarter............................................ $20 3/8 $15 7/8
2nd Quarter............................................ $16 3/4 $13 1/2
3rd Quarter............................................ $19 1/4 $15 1/2
4th Quarter............................................ $19 5/8 $15 1/4
FISCAL 1996
1st Quarter............................................ $27 1/8 $18 3/4
2nd Quarter............................................ $28 $17 7/8
3rd Quarter............................................ $27 5/8 $18 3/8
4th Quarter............................................ $28 3/8 $25
FISCAL 1997
1st Quarter............................................ $29 3/4 $26 3/8
2nd Quarter (through June 4, 1997)..................... $30 1/2 $26 3/8
</TABLE>
The Company's policy is to retain earnings to provide funds for the
operation and expansion of its business. The Company has not paid cash
dividends on its Common Stock and does not anticipate that it will do so in
the forseeable future. The Senior Notes, Senior Subordinated Notes and the
Company's bank credit agreement contain covenants which, among other things,
limit the payment of cash dividends on Common Stock. Under the most
restrictive requirement, cash dividends are limited to not more than 25% of
the Company's consolidated net income for the immediately preceding fiscal
year.
94
<PAGE>
OWNERSHIP OF WABAN COMMON STOCK
The table following sets forth information as to the beneficial ownership of
Waban Common Stock as of March 31, 1997 by (i) each person or entity known to
the Company to beneficially own more than 5% of the outstanding shares of
Waban Common Stock, (ii) each director or nominee for director of Waban, BJI
or HomeBase, (iii) each of the Named Waban Officers and all current directors
and executive officers of Waban as a group, (iv) each of the Named BJI
Officers and all persons expected to serve as directors or executive officers
of BJI as a group and (v) each of the Named HomeBase Officers and all persons
expected to serve as directors or executive officers of HomeBase as a group.
The following table also reflects the beneficial ownership of BJI Common Stock
and HomeBase Common Stock as of the Distribution Date as if the Distribution
took place on March 31, 1997 by each such person or group.
<TABLE>
<CAPTION>
SHARES OF WABAN PERCENT OF OUTSTANDING SHARES OF
NAME AND ADDRESS OF COMMON STOCK COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- ------------------- --------------------- --------------------------------
<S> <C> <C>
The Prudential
Insurance Company of
America............... 2,983,308(2) 9.09%
751 Broad Street
Newark, New Jersey
01102
Franklin Resources,
Inc. et al............ 2,516,800(3) 7.67%
777 Mariners Island
Blvd.
P.O. Box 7777
San Mateo, CA 94404
David J. Greene and
Company............... 2,428,555(4) 7.40%
599 Lexington Avenue
New York, New York
10022
Morgan Stanley Group
Inc. ................. 1,811,495(5) 5.52%
1585 Broadway
New York, NY 10036
S. James Coppersmith... 3,000 *
Stanley H.
Feldberg(6)........... 16,218 *
Kerry L. Hamilton...... 1,200 *
Allyn L. Levy.......... 6,000 *
Arthur F. Loewy(6)..... 9,632 *
Thomas J. Shields...... 1,500 *
Lorne R. Waxlax........ 8,000 *
Herbert J. Zarkin...... 413,932 1.25%
Sarah M. Gallivan...... 20,896 *
John J. Nugent......... 163,316 *
Allan P. Sherman....... 153,750 *
Edward J. Weisberger... 103,917 *
Frank D. Forward....... 30,922 *
Laura J. Sen........... 23,796 *
Michael T. Wedge....... 26,364 *
Thomas F. Gallagher.... 9,523 *
Scott Richards......... 13,774 *
William B. Langsdorf... 12,425 *
All Directors and
Executive Officers of
Waban as a Group (12
persons).............. 901,361 2.69%
All Directors and
Executive Officers of
BJI as a Group
(12 persons).......... 802,843 2.40%
All Directors and
Executive Officers of
HomeBase as a Group (8
persons).............. 724,953 2.17%
</TABLE>
95
<PAGE>
- --------
* Indicates less than 1%
(1) Includes the following shares of Common Stock that may be acquired upon
exercise of outstanding stock options which were exercisable on March 31,
1997 or within 60 days thereafter: Mr. Coppersmith, 1,000 shares; Mr.
Feldberg, 1,000 shares; Ms. Hamilton, 1,000 shares; Mr. Levy, 1,000
shares; Mr. Loewy, 1,000 shares; Mr. Shields, 1,000 shares; Mr. Waxlax,
1,000 shares; Mr. Zarkin, 301,250 shares; Ms. Gallivan, 16,000 shares; Mr.
Nugent, 142,750 shares; Mr. Sherman, 128,750 shares; Mr. Weisberger,
82,500 shares; Mr. Forward, 20,750 shares; Ms. Sen, 17,000 shares; Mr.
Wedge, 24,250 shares; Mr. Gallagher, 2,875 shares; Mr. Richards, 7,918
shares; Mr. Langsdorf, 11,825 shares; all Directors and Executive Officers
of Waban as a group, 678,250 shares; all Directors and Executive Officers
of BJI as a group, 609,500 shares; all Directors and Executive Officers of
HomeBase as a group, 537,118 shares. Unexercised Waban stock options held
by BJI employees as of the Distribution Date will be replaced by options
that are exercisable for shares of BJI Common Stock based upon a
conversion formula to be calculated after the Distribution Date. See
"Management of BJI--Incentive and Other Plans." See "Management of
HomeBase--Incentive and Other Plans" for a discussion of adjustments to
outstanding HomeBase options that will be made after the Distribution
Date.
(2) As of March 31, 1997 based on information provided to the Company by The
Prudential Insurance Company of America ("Prudential"), which holds shares
for the benefit of its clients by its separate accounts, externally
managed accounts, registered investment companies, subsidiaries and/or
other affiliates. Prudential reported that it has sole power to vote
144,200 shares and shared power to vote 2,783,734 shares and has sole
dispositive power with respect to 193,800 and shared dispositive power
with respect to 2,783,734 shares. Includes 5,818 shares issuable upon
conversion of the Convertible Debentures.
(3) As of March 31, 1997 based on information provided to the Company by
Franklin Resources, Inc., et al. Franklin Mutual Advisors, Inc. reported
that (i) it has sole power to vote or to direct the voting of 2,280,800
shares and Templeton Investment Counsel, Inc. has sole power to vote or
direct the voting of 236,000 shares; and (ii) it has sole dispositive
power with respect to 2,280,800 shares and Templeton Investment Counsel,
Inc. has sole dispositive power with respect to 236,000 shares.
(4) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the Commission by David J. Greene and Company, a registered
broker-dealer and investment adviser. David J. Greene and Company reported
that it has sole power to vote 152,400 shares and shared power to vote
1,546,500 shares and has sole dispositive power with respect to 152,400
shares and shared dispositive power with respect to 2,428,555 shares.
(5) Information is as of December 31, 1996 and is based on a Schedule 13G
filed with the SEC by Morgan Stanley Group Inc. ("Morgan Stanley"). Morgan
Stanley reported that it has shared voting power with respect to 1,708,895
shares and shared dispositive power with respect to 1,811,495 shares.
(6) Includes the following shares beneficially owned by the following persons
as trustees or custodians of which beneficial interest is disclaimed
unless otherwise indicated: Stanley H. Feldberg (8,366 shares). Excludes
the following shares beneficially owned by or held in trust by or for the
benefit of the respective spouses of the following persons and any shares
held in a trust for which the following persons are income beneficiaries,
as to which the following persons disclaim beneficial ownership: Stanley
H. Feldberg (84 shares); Arthur F. Loewy (413 shares).
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DESCRIPTION OF BJI CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
As of the Distribution Date, BJI's authorized capital stock will consist of
200 million shares of capital stock, of which 180 million shares will be
designated as BJI Common Stock, $.01 par value per share, and 20 million
shares will be designated as preferred stock, $.01 par value per share (the
"Preferred Stock"). The following summary description of BJI's capital stock
is qualified in its entirety by reference to the BJI Certificate and the BJI
By-laws, as the same will be in effect on the Distribution Date.
COMMON STOCK
BJI will be authorized to issue 180 million shares of BJI Common Stock.
Based on the number of shares of Waban Common Stock outstanding as of March
31, 1997, approximately 32.8 million shares of BJI Common Stock are expected
to be issued and outstanding immediately following the Distribution Date. If
all of the Convertible Debentures are converted prior to the Distribution, an
additional 4,332,080 shares of BJI Common Stock would be outstanding
immediately following the Distribution Date.
Subject to the rights of holders of Preferred Stock and any other senior
class of stock, holders of BJI Common Stock will be entitled to receive such
dividends as may from time to time be declared by the Board of Directors of
BJI. Holders of BJI Common Stock will be entitled to one vote per share on
every question submitted to them at a meeting of stockholders or otherwise. In
the event of a liquidation, dissolution or winding up and distribution of the
assets of BJI, after paying or setting aside for the holders of Preferred
Stock and any other senior class of stock the full preferential amounts to
which they are entitled, and subject to the rights of any series of Preferred
Stock to participate pro rata with the BJI Common Stock with respect to
distributions, the holders of BJI Common Stock will be entitled to receive pro
rata all of the remaining assets of BJI available for distribution to BJI
stockholders. There are no pre-emptive rights with respect to BJI Common
Stock. The shares of BJI Common Stock to be issued in the Distribution will
not be liable to further calls or assessments.
PREFERRED STOCK
BJI will be authorized to issue up to 20 million shares of Preferred Stock
without further stockholder approval (except as may be required by applicable
stock exchange rules). Accordingly, the Board of Directors will be authorized
to determine, without any further action by the holders of the BJI Common
Stock, the dividend rights, dividend rate, conversion or exchange rights,
voting rights, rights and terms of redemption, liquidation preferences and
sinking fund terms of any series of Preferred Stock, the number of shares
constituting any such series, and the designation thereof. No shares of
Preferred Stock are expected to be issued and outstanding immediately
following the Distribution.
Should the BJI Board elect to exercise its authority to issue any additional
series of Preferred Stock, the rights, preferences and privileges of holders
of BJI Common Stock would be made subject to the rights, preferences and
privileges of such additional series.
CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
The internal affairs of BJI will be governed by, among other things, the
laws of the State of Delaware, the BJI Certificate and the BJI By-laws. The
BJI Certificate will contain several provisions, certain of which are
substantially similar to provisions in Waban's Certificate of Incorporation,
that may impede the acquisition of control of BJI by means of a tender offer,
proxy fight or other means. The BJI By-laws will also contain provisions,
certain of which are substantially similar to provisions contained in Waban's
By-laws, that could have an anti-takeover effect. Set forth below is a
description of such provisions in the BJI Certificate and the BJI By-laws, and
of certain related provisions of Delaware law.
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CLASSIFIED BOARD OF DIRECTORS
The BJI Certificate and BJI By-laws will provide for the BJI Board to be
divided into three classes of directors serving staggered three-year terms. As
a result, beginning in 1998, approximately one-third of the BJI Board will be
elected each year. The classified board is designed to ensure continuity and
stability in the BJI Board's leadership and policies in the event of a hostile
takeover attempt or proxy contest.
The classified board would significantly extend the time required to effect
any change in control of the BJI Board and may tend to discourage any hostile
takeover bid for BJI. Because only a minority of the directors will be elected
at each annual meeting, it would normally take at least two annual meetings
for holders of even a significant majority of BJI's voting stock to effect a
change in the composition of a majority of the BJI Board, absent approval of
the BJI Board. Because of the additional time required to change the
composition of the BJI Board, a classified board may also make the removal of
incumbent management more difficult, even if such removal would be beneficial
to stockholders generally, and may tend to discourage certain tender offers.
The Waban Board believes the classified board provisions will enable the BJI
Board to better protect the interests of BJI stockholders by aiding the BJI
Board to negotiate more favorable terms with a potential acquiror since such
acquiror would be faced with a delay in obtaining control of BJI absent
approval of the BJI Board.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The BJI By-laws will provide that the number of directors will be not less
than three, with the exact number of directors to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
BJI Board. The authority of the BJI Board to determine the exact number of
directors could be used to prevent a stockholder from obtaining majority
representation on the BJI Board simply by enlarging the BJI Board and filling
the new directorships with its own nominees. Moreover, the BJI Certificate
will provide that directors may be removed only for cause (as defined therein)
and only by a vote of at least 67% of the outstanding shares of BJI Common
Stock. This removal provision of the BJI Certificate may only be amended by
the supermajority stockholder votes described below under "--Amendment of
Certain Provisions of the BJI Certificate and the BJI By-laws."
The BJI By-laws will provide that vacancies on the BJI Board may only be
filled by the majority vote of the remaining directors and not by the
stockholders, except that in the case of newly created directorships, if the
remaining directors fail to fill any such vacancy, the stockholders may do so
at the next annual meeting or a special meeting called for that purpose. Any
director so elected to fill a vacancy shall hold office until the next
election of the class for which such director shall have been chosen and until
his or her successor shall have been elected and qualified. This provision may
have the effect in practice of limiting the power to fill vacancies only to
the BJI Board because the BJI By-laws will not permit stockholders to call a
special meeting (at which such vacancies could be filled). See "--Special
Meetings; Stockholder Action by Written Consent" below. In addition, this
vacancy provision of the BJI By-laws may not be amended by the stockholders
without the supermajority stockholder votes described below under "--Amendment
of Certain Provisions of the BJI Certificate and the BJI By-laws."
These removal and vacancy provisions of the BJI Certificate and the BJI By-
laws will preclude the holder of a majority of the BJI Common Stock from
removing incumbent directors, or otherwise taking advantage of vacancies on
the BJI Board, and simultaneously gaining control of the BJI Board by filling
such resulting vacancies with its own nominees.
SPECIAL MEETINGS; STOCKHOLDER ACTION BY WRITTEN CONSENT
The BJI By-laws will provide that special meetings of stockholders may be
called only by the President or the Chairman of the Board or by vote of a
majority of the entire BJI Board. This provision precludes independent
stockholder action to call a special meeting of stockholders for consideration
of any proposals, including
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proposals for certain takeovers or proposals to remove directors from office
prior to the annual meeting of stockholders, unless such officers or the BJI
Board believe consideration of such proposals to be appropriate.
The BJI Certificate will provide that all stockholder action must be
effected at a duly called meeting (and not by a consent in writing). This
provision will give all of the stockholders of BJI an opportunity to
participate in determining the appropriateness of any proposed action and
prevents the holders of a majority of the voting stock from using the written
consent procedure permitted by Delaware law to take action, including any
attempt to gain control of BJI.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER NOMINATIONS OF DIRECTORS AND OTHER
STOCKHOLDER PROPOSALS
The BJI By-laws will establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders and for
nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Board of Directors,
or by a stockholder of BJI who is entitled to vote at the meeting who has
given to the Secretary of BJI timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The
chairman of such meeting has the authority to make such determinations. Only
persons who are nominated by, or at the direction of, the Board of Directors,
or who are nominated by a stockholder who has given timely notice, in proper
form, to the Secretary prior to a meeting at which directors are to be elected
will be eligible for election as directors of BJI.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of BJI at the principal
executive offices of BJI not less than 70 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the ninetieth day prior to such annual meeting and not later than the
close of business on the later of the seventieth day prior to such annual
meeting or the tenth day following the day on which public announcement of the
date of such meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors at a special meeting of stockholders at which a
vacant newly created directorship is to be filled shall be delivered to the
Secretary of BJI at the principal executive offices of BJI not earlier than
the ninetieth day prior to such special meeting and not later than the close
of business on the later of the seventieth day prior to such special meeting
or the tenth day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of BJI held by, the
stockholder who intends to make the nomination and the beneficial owner, if
any, on whose behalf the nomination is being made; the name and address of the
person or persons to be nominated; a representation that the stockholder is a
holder of record of stock of BJI entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; such other information
regarding each nominee proposed by such stockholder as would have been
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission had each nominee been nominated, or intended to be
nominated, by the Board of Directors; and the consent of each nominee to serve
as a director if so elected.
CONSIDERATION OF NON-STOCKHOLDER CONSTITUENCIES
The BJI Certificate will provide that in determining whether to take or to
refrain from taking corporate action on any matter, the BJI Board may take
into account the interests of creditors, customers, employees and
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other constituencies of BJI and its subsidiaries, and the effect upon
communities in which BJI and its subsidiaries do business in addition to any
other considerations which the BJI Board may lawfully take into account. The
purpose of these provisions is to specifically authorize the BJI Board to
consider the interests of various constituencies of BJI and its subsidiaries,
in addition to the interests of stockholders. Waban believes that these
provisions are desirable to emphasize the BJI Board's authority to act to
maintain and protect BJI as an enterprise.
AMENDMENT OF CERTAIN PROVISIONS OF THE BJI CERTIFICATE AND THE BJI BY-LAWS
Under Delaware law, the stockholders may adopt, amend or repeal the by-laws,
and with the approval of the board of directors, the certificate of
incorporation. If the certificate so provides, the by-laws may be adopted,
amended or repealed by the board of directors. The BJI Certificate will
provide for such actions to be taken by the BJI Board, except as provided
below. The BJI Certificate will contain provisions requiring the affirmative
vote of the holders of at least 80% of all outstanding shares of BJI Common
Stock, (i) to alter, amend, repeal or adopt certain provisions of the BJI
Certificate (including the provisions of the BJI Certificate discussed above
in this Section and including the amendment provisions described in this
sentence) or (ii) to amend, alter or repeal provisions of the BJI By-laws
(including the provisions of the BJI By-laws described above in this Section).
These supermajority voting requirements will make it more difficult for
stockholders to make changes in the above-described provisions of the BJI
Certificate or the BJI By-laws, including changes designed to facilitate the
exercise of control over BJI. In addition, these supermajority voting
requirements will enable the holders of a minority of the outstanding shares
of BJI Common Stock to prevent the holders of a majority or more from amending
the above-described provisions of the BJI Certificate or the BJI By-laws. The
supermajority vote requirements may be difficult to obtain, since the holders
of at least 80% of all outstanding shares of BJI Common Stock must be present
or represented by proxy at any meeting at which any such amendment is proposed
and must vote in favor of such amendment.
PREFERRED STOCK
The BJI Certificate will authorize the BJI Board to determine (without any
further vote of the stockholders, except as may be required by applicable
stock exchange rules), with respect to any series of Preferred Stock, the
terms and rights of such series. See "Description of BJI Capital Stock--
Preferred Stock."
In connection with the planned adoption of its Preferred Stock Purchase
Rights, BJI will designate and reserve for issuance upon exercise of such
Rights 100,000 shares of Series A Junior Participating Preferred Stock. See
"--Preferred Stock Purchase Rights" below. Although BJI has no intention at
the present time of doing so, it could issue another series of Preferred Stock
that could, depending on the terms of such series, either impede or facilitate
the completion of a merger, tender offer or other takeover attempt. The BJI
Board is not expected to seek stockholder approval prior to any issuance of
authorized capital stock, including Preferred Stock, unless otherwise required
by law or stock exchange rules. Frequently, opportunities arise that require
prompt action, and the BJI Board believes that the delay occasioned by seeking
stockholder approval of a specific issuance could be detrimental to BJI and
its stockholders.
The provisions of the BJI Certificate and the BJI By-laws described above
pertaining to the classification of the BJI Board, the number, removal and
nomination of directors, the filling of vacancies on the BJI Board,
stockholder action by written consent, special meetings of stockholders and
the related amendment provisions will be made subject to the provisions of any
series of Preferred Stock or any other securities of BJI with respect to the
election of directors upon specified circumstances or the voting of such
securities, as the case may be.
CERTAIN RELATED PROVISIONS OF DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law, a corporation is
prohibited from engaging in a business combination (as defined in said Section
203) with any Interested Stockholder (defined to include any person or group
owning more than 15% of the corporation's outstanding voting stock) for a
period of three years
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following the time such person or group became an Interested Stockholder. This
prohibition does not apply if (i) prior to such time, the corporation's Board
of Directors approved either the pertinent business combination or the
transaction in which the Interested Stockholder became such, (ii) upon
consummation of the transaction which resulted in such person or group first
becoming an Interested Stockholder, such Interested Stockholder owned at least
85% of the corporation's voting stock outstanding at the time the transaction
commenced (excluding, in the calculation of such 85% ownership level, shares
owned by persons who are both officers and directors and shares owned by
employee benefit plans under which participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer) or (iii) subsequent to such time, the
pertinent business combination is approved by the corporation's Board of
Directors and holders of at least two-thirds of the corporation's voting stock
not owned by the Interested Stockholder voting at an annual or special
stockholders' meeting. Any such special stockholders' meeting could only be
called in the manner described above under "--Special Meetings; Stockholder
Action by Written Consents." In addition, subject to certain notice and
related timing requirements, business combinations consisting of (x) mergers
or consolidations requiring stockholder approval, (y) certain asset sales or
related transactions and (z) tender or exchange offers for more than 50% of
the corporation's voting stock are permitted where such business combination
(i) is with a person or group which either was not an Interested Stockholder
during the preceding three years or which became such with the approval of the
corporation's Board of Directors and (ii) is approved (or not opposed) by a
majority of the disinterested directors (as defined in said Section 203).
Delaware law provides certain procedures for a corporation to elect not to
be covered by Section 203. BJI will not seek to adopt any procedure opting out
of Section 203 prior to the Distribution, and, consequently, absent such an
election in the future, any business combination involving an Interested
Stockholder must comply with these provisions of Delaware law. Following the
Distribution Date, any future election to opt out of Section 203 can be
effected only by an amendment to the BJI Certificate or the BJI By-laws. Any
such election would not be effective for a period of 12 months following the
date of adoption of such amendment and would not apply to a business
combination with any Interested Stockholder who became such prior to such date
of adoption.
INDEMNIFICATION AND INSURANCE
Under Delaware law, directors and officers of BJI, as well as other
employees and individuals, may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation (a "derivative action")) if they acted in good faith
in a manner they reasonably believed to be in or not opposed to the best
interests of BJI, and, with respect to any criminal action or proceeding had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with defense or settlement of such actions and Delaware law
requires court approval before there can be any indemnification where the
person seeking indemnification has been found liable to BJI.
The BJI Certificate will provide that each person who was or is made a party
to, or is involved in, any threatened, pending or completed action, suit,
proceeding or claim by reason of the fact that he or she is or was a director
or officer of BJI (or if such person is or was serving at the request of BJI
as a director, officer, employee or agent for any other entity) shall be
indemnified and held harmless by BJI, to the full extent authorized by
Delaware law, as in effect from time to time, against all expenses (including
attorneys' fees), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses to be provided by
the BJI Certificate do not apply to any action, suit, proceeding or claim
initiated by or on behalf of a person otherwise entitled to the benefit of
such provisions. Any person seeking indemnification under the BJI Certificate
shall be deemed to have met the standard of conduct required for such
indemnification unless the contrary shall be established. The BJI Certificate
will provide that the rights to indemnification and the payment of expenses
provided thereby shall not be
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exclusive of any other right which any person may have or acquire under any
statute, provision of the BJI Certificate or BJI By-laws, or otherwise. Any
repeal or modification of such indemnification provisions shall not adversely
affect any right or protection of a director or officer with respect to any
acts or omissions of such director or officer occurring prior to such repeal
or modification.
BJI will also enter into indemnification agreements with each of its
directors and officers. See "Management of BJI--Indemnification Agreements."
BJI is expected to maintain insurance, at its expense, to protect itself and
any of its directors, officers, employees or agents covered thereby against
any expense, liability or loss, whether or not BJI would have the power to
indemnify such person against such expense, liability or loss under the
Delaware law, so long as such insurance is available at reasonable rates.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Consistent with applicable provisions of Delaware law, the BJI Certificate
will limit a director's monetary liability to BJI or its stockholders for
breach of fiduciary duty, except for situations entailing bad faith,
intentional misconduct, a knowing violation of law, unlawful dividend payments
or stock purchases or redemptions, acquisition of improper personal benefit or
breach of duty of loyalty. Future amendments to such provisions of Delaware
law will automatically be applied to BJI without any requirement of
stockholder approval. Consequently, such amendments could result in the
expansion of directors' protections under such exculpation provisions without
additional consideration by stockholders. As a result of inclusion of this
provision, stockholders may be unable to recover monetary damages against
directors for actions which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders for any
particular case, stockholders may not have any effective remedy against the
challenged conduct. Thus, directors will have a personal stake, at the
potential expense of stockholders, in such exculpation provisions of the BJI
Certificate. Such exculpation provisions would not limit directors' liability
for violation of the federal securities laws. Such provisions will not apply
to officers who are not directors of BJI.
PREFERRED STOCK PURCHASE RIGHTS
The BJI Board is expected to authorize a Rights Agreement, pursuant to which
one preferred stock purchase right (a "Right") will be distributed together
with and will attach to each share of BJI Common Stock to be distributed in
the Distribution. The Rights will expire on the tenth anniversary of the
Distribution Date, unless earlier redeemed or exchanged. Each Right will
entitle the holder to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock (the "Series A Preferred Stock") of BJI
at an exercise price to be determined by the BJI Board prior to the
Distribution. The Rights will be exercisable only if a person or group has
acquired beneficial ownership of 20% or more of the outstanding BJI Common
Stock or commences a tender or exchange offer that would result in such person
or group owning 30% or more of the BJI Common Stock. If any person becomes the
beneficial owner of 20% or more of the shares of BJI Common Stock (an
"Acquiring Person"), except pursuant to a Permitted Offer (as defined in the
Rights Agreement), each Right not owned by such Acquiring Person will enable
its holder to purchase that number of shares of the BJI Common Stock which
equals the exercise price of the right divided by one-half of the current
market price of the BJI Common Stock at the date of the occurrence of the
event. In addition, if, after a person or group has become an Acquiring
Person, BJI is involved in a merger or other business combination transaction
in which it is not the surviving corporation or in connection with which the
BJI Common Stock is changed or exchanged (other than a merger which follows a
Permitted Offer), or it sells or transfers 50% or more of its assets or
earning power, each Right that has not previously been exercised or voided
will entitle its holder to purchase that number of shares of common stock of
such other person which equals the exercise price of the Right divided by one-
half of the current market price of such common stock at the date of the
occurrence of the event. BJI will generally be entitled to redeem the Rights
at $.01 per Right at any time until the tenth business day following public
announcement that a person or group has become an Acquiring Person.
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The Series A Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Subject to the rights of holders of any shares of any
Preferred Stock ranking prior and superior to the Series A Preferred Stock,
each share of Series A Preferred Stock will be entitled to a preferential
quarterly dividend payment of the greater of (a) $10.00 per share or (b) an
aggregate dividend of 1,000 times the dividend declared per share of BJI
Common Stock. In the event of liquidation, the holders of the Series A
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $1,000 per share and will be entitled to an aggregate payment of 1,000
times the payment made per share of BJI Common Stock. Each share of Series A
Preferred Stock will have 1,000 votes, voting together with the BJI Common
Stock. Finally, in the event of any merger, consolidation or other transaction
in which BJI Common Stock is exchanged, each share of Series A Preferred Stock
will be entitled to receive 1,000 times the amount received per share of BJI
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of one one-thousandth of a share of
Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of BJI Common Stock.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of BJI, including without limitation the right to vote or
receive dividends.
The Rights are designed to protect stockholders of BJI in the event of
unsolicited offers to acquire BJI and other coercive takeover tactics. The
Rights may cause substantial dilution to a person or group that attempts to
acquire BJI on terms not approved by the BJI Board, and therefore may render
an unsolicited takeover of BJI more difficult or less likely to occur.
However, the Rights should not interfere with any merger or other business
combination approved by the BJI Board since the Rights may be redeemed by BJI
at $.01 per Right prior to the tenth business day following public
announcement that a person or group has become an Acquiring Person.
DESCRIPTION OF WABAN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Waban's authorized capital stock consists of 200 million shares of capital
stock, of which 190 million shares are designated as common stock, $.01 par
value per share (the "Waban Common Stock"), and ten million shares are
designated as preferred stock, $.01 par value per share (the "Waban Preferred
Stock"). The Waban Common Stock is listed on the New York Stock Exchange.
WABAN COMMON STOCK
Waban is authorized to issue 190 million shares of Waban Common Stock. As of
March 31, 1997 approximately 32.8 million shares of Waban Common Stock were
issued and outstanding. If all of the Convertible Debentures are converted,
approximately an additional 4.3 million shares of Waban Common Stock would be
outstanding.
Subject to the rights of holders of Waban Preferred Stock and any other
senior class of stock, holders of Waban Common Stock are entitled to receive
such dividends as may from time to time be declared by the Board of Directors
of Waban. Holders of Waban Common Stock are entitled to one vote per share on
every question submitted to them at a meeting of stockholders or otherwise. In
the event of a liquidation, dissolution or winding up and distribution of the
assets of Waban, after paying or setting aside for the holders of Waban
Preferred Stock and any other senior class of stock the full preferential
amounts to which they are entitled, and subject to the rights of any series of
Waban Preferred Stock to participate pro rata with the Waban Common Stock with
respect to distributions, the holders of Waban Common Stock are entitled to
receive pro rata all of the remaining assets of Waban available for
distribution to Waban stockholders. There are no pre-emptive rights with
respect to Waban Common Stock. The shares of Waban Common Stock are not liable
for further calls or assessments.
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WABAN PREFERRED STOCK
Waban is authorized to issue up to ten million shares of Waban Preferred
Stock without further stockholder approval (except as may be required by
applicable stock exchange rules). Accordingly, the Board of Directors is
authorized to determine, without any further action by the holders of Waban
Common Stock, the dividend rights, dividend rate, conversion or exchange
rights, voting rights, rights and terms of redemption, liquidation preferences
and sinking fund terms of any series of Preferred Stock, the number of shares
constituting any such series, and the designation thereof. No shares of
Preferred Stock are outstanding. One hundred thousand shares of Waban
Preferred Stock have been designated as Series A Junior Participating
Preferred Stock and have been reserved for issuance upon the exercise of
Preferred Stock Purchase Rights attached to each share of Waban Common Stock.
Should the Waban Board elect to exercise its authority to issue any
additional series of Waban Preferred Stock, the rights, preferences and
privileges of holders of Waban Common Stock would be made subject to the
rights, preferences and privileges of such additional series.
TRANSFER AGENT
The Transfer Agent for the Waban Common Stock is The First Chicago Trust
Company of New York.
APPROVAL OF AMENDMENT TO THE WABAN CERTIFICATE OF INCORPORATION
Approval of the Distribution Proposals will also constitute approval of an
amendment to the Certificate of Incorporation of Waban which would change the
name of Waban Inc. to "HomeBase, Inc.", effective only if the Distribution
occurs (the "Name Change"). Even if the Distribution Proposal is approved by
stockholders, the Waban Board may determine not to file the amendment to the
Waban Certificate reflecting the Name Change. In such case, Waban intends to
propose an alternative name change for a vote by the stockholders of Waban at
the next annual meeting of stockholders.
APPROVAL OF AMENDMENTS TO THE WABAN 1989 STOCK INCENTIVE PLAN AND CONTINUANCE
OF PLAN
Stockholders are being asked to approve (i) an amendment to Waban's 1989
Stock Incentive Plan (the "Waban 1989 Stock Incentive Plan") increasing the
maximum number of shares of Common Stock issuable under the Waban 1989 Stock
Incentive Plan from 5,750,000 to 7,250,000 and (ii) the continuance of the
Waban 1989 Stock Incentive Plan, on the terms described below, for a period
ending on the earlier of six months after the Distribution Date or June 14,
1999. Stockholder approval of the additional 1,500,000 shares is being sought
in part to provide the increased number of shares estimated to be required in
connection with the proportionate adjustment to be made to currently
outstanding options under the Waban 1989 Stock Incentive Plan as a result of
the Distribution. See "Management of HomeBase--Incentive and Other Plans."
As of March 31, 1997, options and stock-based awards had been granted under
the Waban 1989 Stock Incentive Plan with respect to an aggregate of 4,203,602
shares (net of cancellations and forfeitures) and 1,546,398 shares remained
available for future grants under the Waban 1989 Stock Incentive Plan. Waban
believes the 1,500,000 additional shares, together with those which currently
remain available for grant and those which will become available for grant as
a result of the termination of outstanding options currently held by persons
who do not continue as employees of Waban after the Distribution, should
provide a sufficient number of shares to enable options and other awards to be
granted through the life of the Waban 1989 Stock Incentive Plan. The following
persons are expected to be eligible to participate in the Waban 1989 Stock
Incentive Plan immediately following the Distribution: five executive officers
and approximately 200 other key employees of
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HomeBase. The approval of the amendment to, and continuance of, the Waban 1989
Stock Incentive Plan is not conditioned upon the approval of any of the other
Distribution Proposals.
DESCRIPTION OF THE WABAN 1989 STOCK INCENTIVE PLAN
The following summary of the Waban 1989 Stock Incentive Plan is qualified in
its entirety by reference to the plan, a copy of which may be obtained by
making a written request to the Secretary of the Company.
The Waban 1989 Stock Incentive Plan permits the granting of a variety of
stock and stock-based awards to officers and key employees of Waban and its
subsidiaries, including: stock options; restricted and unrestricted shares;
rights to receive cash or shares on a deferred basis or based on performance;
rights to receive cash or shares in respect of increases in the value of
Common Stock; cash payments sufficient to offset the federal ordinary income
taxes of participants resulting from transactions under the Waban 1989 Stock
Incentive Plan; loans to participants in connection with awards; and other
Common Stock-based awards, including the sale or award of convertible
securities, that meet the requirements of the Waban 1989 Stock Incentive Plan.
The Waban 1989 Stock Incentive Plan also provides that option holders may,
unless otherwise provided at the time of grant, surrender outstanding options
in exchange for a cash payment during the 60-day period following a Change of
Control of Waban (as defined in the Waban 1989 Stock Incentive Plan).
The Waban 1989 Stock Incentive Plan is administered by the Executive
Compensation Committee. The Executive Compensation Committee has full power to
select, from among the employees eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to any participants
and to determine the specific terms of each grant, subject to the provisions
of the Waban 1989 Stock Incentive Plan.
Subject to adjustment for stock splits and similar events, currently a total
of 5,750,000 shares of Common Stock may be issued under the Waban 1989 Stock
Incentive Plan, and no more than 250,000 shares per calendar year may be made
subject to awards granted to any single participant. If stockholders approve
the amendments at the Meeting, the maximum number of shares of Common Stock
issuable under the Plan will increase to 7,250,000 and the maximum number of
shares that may be made subject to awards granted to any single participant
will increase to 700,000 for the calendar year in which the Distribution Date
occurs. The Waban 1989 Stock Incentive Plan also permits the issuance of
securities convertible into Common Stock, including a maximum of 500,000
shares of preferred stock of Waban. Awards and shares which are forfeited,
reacquired by Waban or satisfied by a cash payment or otherwise without the
issuance of Common Stock are not counted toward the Plan limitations.
The Executive Compensation Committee is required to make appropriate
adjustments in connection with outstanding awards to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation or
similar event, the Committee may provide for substitution or adjustments or
may accelerate or, upon payment or other consideration for the vested portion
of any awards as the Executive Compensation Committee deems equitable,
terminate such awards (subject to the provisions described under "Change of
Control" below). The Board of Directors may at any time amend or discontinue
the Waban 1989 Stock Incentive Plan and the Executive Compensation Committee
may at any time amend or cancel awards (or provide substitute awards or
reduced exercise or purchase prices, including lower-priced awards upon the
termination of any then outstanding awards) and may accelerate awards and
waive conditions and restrictions on any awards to the extent it may determine
to be appropriate. However, no such action may adversely affect any rights
under outstanding awards without the holder's consent. Moreover, any amendment
that would cause the Waban 1989 Stock Incentive Plan to fail to satisfy any
then applicable incentive stock option rules under the Code shall be
ineffective unless approved by the stockholders.
Persons eligible to participate in the Waban 1989 Stock Incentive Plan are
those full- or part-time officers and other key employees of Waban or its
subsidiaries who are responsible for or contribute to the management, growth
or profitability of the business of Waban, as selected from time to time by
the Executive Compensation
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Committee. Persons who are not employees of Waban or a parent or subsidiary
(as those terms are used in Section 422 of the Code) are not eligible to
receive grants of incentive options, as defined below. The Waban 1989 Stock
Incentive Plan limits the terms of awards to ten years (ten years and one day
in the case of non-statutory options, as defined below) and currently
prohibits the granting of awards after June 14, 1999.
The Waban 1989 Stock Incentive Plan is also being amended to revise or
delete certain existing provisions which made reference to old Rule 16b-3
under the Exchange Act.
Stock Options. The Waban 1989 Stock Incentive Plan permits the granting of
non-transferable stock options to acquire Common Stock that qualify as
incentive stock options ("incentive options") under Section 422 of the Code
and non-transferable stock options that do not so qualify ("nonstatutory
options"). The Executive Compensation Committee may provide that, upon
exercise of an option, the participant will receive shares of Restricted Stock
or Deferred Stock awards (see below). The exercise price of each option is
determined by the Executive Compensation Committee, but may not be less than
100% of the fair market value of the shares on the date of grant.
The Executive Compensation Committee determines the term of each option and
at what time or times each option may be exercised, and the exercisability of
options may be accelerated by the Executive Compensation Committee. In the
event of termination of employment by reason of normal retirement, disability
or death, an option may thereafter be exercised (to the extent it was then
exercisable) for a period of three years, or such shorter period as may be
specified by the Executive Compensation Committee at the time of grant,
subject to the stated term of the option. In the event of termination of
employment for any reason other than normal retirement, disability or death,
an option may thereafter be exercised, to the extent then exercisable, for
three months (or such longer period of up to three years as the Executive
Compensation Committee determines at or after the grant date) following
termination, subject to the stated term of the option. However, options cease
to be exercisable upon termination for Cause (as defined in the Waban 1989
Stock Incentive Plan).
Stock Appreciation Rights. The Executive Compensation Committee may grant
non-transferable stock appreciation rights entitling the holder upon exercise
to receive an amount, in any combination of cash or shares of unrestricted
Common Stock, Restricted Stock or Deferred Stock awards, not greater in value
than the increase since the date of grant in the value of the shares covered
by such right. Stock appreciation rights may be granted separately from or in
tandem with the grant of an option. In addition, the Executive Compensation
Committee may determine, if so requested by an option holder, that Waban will
pay the optionee, in cancellation of an option not accompanied by a related
stock appreciation right, any combination of cash, unrestricted Common Stock,
Restricted Stock or Deferred Stock awards not greater in value than the
increase since the date of grant in the value of the shares covered by the
option. The exercise value of a stock appreciation right is generally
determined by reference to the closing sale price of Common Stock on the date
of exercise.
Restricted Stock and Unrestricted Stock. The Executive Compensation
Committee may award shares of Common Stock subject to such conditions and
restrictions (including vesting) as the Committee may determine ("Restricted
Stock"). The purchase price, if any, of shares of Restricted Stock may not
exceed the par value of those shares.
The Executive Compensation Committee may at any time waive such
restrictions, including the waiver of vesting periods through acceleration.
Shares of Restricted Stock are non-transferable and if a participant who holds
shares of Restricted Stock terminates employment for any reason (including
death) prior to the lapse or waiver of the restrictions, Waban may require the
forfeiture of or repurchase the shares. A holder of Restricted Stock has all
rights of a stockholder with respect to such stock, subject only to conditions
and restrictions generally applicable to Restricted Stock or specifically set
forth in the Restricted Stock award agreement.
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The Executive Compensation Committee may grant shares (at no cost or for a
purchase price equal to par value or less) which are free from any
restrictions under the Waban 1989 Stock Incentive Plan ("Unrestricted Stock").
Deferred Stock. The Executive Compensation Committee may make Deferred Stock
awards under the Waban 1989 Stock Incentive Plan. These are non-transferable
awards entitling the recipient to receive shares of Common Stock without any
payment in one or more installments at a future date or dates. Receipt of
Deferred Stock may be conditioned on such matters as the Executive
Compensation Committee shall determine, including continued employment or
attainment of performance goals. Except as otherwise determined by the
Executive Compensation Committee prior thereto, all such rights terminate upon
the participant's termination of employment.
Performance Units. The Executive Compensation Committee may award non-
transferable Performance Units entitling the recipient to receive shares of
Common Stock or cash in such combinations as the Executive Compensation
Committee may determine. Payment of the award may be conditioned on
achievement of specified performance goals over a fixed or determinable period
and such other conditions as the Executive Compensation Committee may
determine. Except as otherwise determined by the Executive Compensation
Committee prior thereto, rights under a Performance Unit award terminate upon
a participant's termination of employment.
Other Stock-Based Awards. The Executive Compensation Committee may grant
other types of awards of, or based on, Common Stock ("Other Stock-Based
Awards"). Such awards may include securities convertible into or exchangeable
for shares of Common Stock upon such conditions, including attainment of
performance goals, as the Executive Compensation Committee may determine.
Convertible securities offered under Other Stock-Based Awards may be
convertible debt or shares, not exceeding in the aggregate 500,000 shares, of
convertible preferred stock.
The Executive Compensation Committee may determine the amount and form of
consideration, if any, payable upon the issuance or exercise of Other Stock-
Based Awards. However, Common Stock must be issued (including upon conversion,
exchange or otherwise) either as bonus stock or for a price equal to at least
50% of its fair market value on the grant or the effective date (or conversion
or exchange date), and securities convertible into Common Stock must be issued
as a bonus or for a price equal to at least 50% of their fair market value on
the grant or issuance date. The Executive Compensation Committee may prescribe
limitations or conditions requiring forfeiture by the participant, or
permitting repurchase by Waban, of Other Stock-Based Awards or related Common
Stock or securities, and may at any time accelerate or waive any such
limitations or conditions. The recipient of an Other Stock-Based Award will
have rights of a stockholder to the extent, if any, specified by the Executive
Compensation Committee in the Other Stock-Based Award agreement.
Supplemental Grants. The Executive Compensation Committee may authorize
loans from Waban in connection with awards granted or exercised under the
Waban 1989 Stock Incentive Plan. Loans may be for up to ten years, may be
secured or unsecured and may be with or without recourse against the
participant. Each loan shall be subject to such additional terms and
conditions and shall bear such rate of interest, if any, as the Executive
Compensation Committee shall determine. However, the amount of any loan may
not exceed the total exercise or purchase price plus an amount equal to the
cash payment which could have been paid to the borrower in respect of taxes as
described in the next paragraph.
The Executive Compensation Committee may at any time grant to a participant
the right to receive a cash payment in connection with taxable events
(including the lapse of restrictions) under grants or awards. The amount of
such payment is determined in relation to the taxable amount recognized in
respect of such other grant or award, based on the maximum marginal federal
tax rate (or such lower rate as the Executive Compensation Committee may
determine) in effect at the time such taxable income is recognized. The amount
of any such payment may be up to but may not exceed the amount estimated to be
necessary to cover the federal income tax so calculated as due with respect to
such other grant or award and with respect to the cash payment itself.
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Dividends and Deferrals. The Executive Compensation Committee may require or
permit the immediate payment or the waiver, deferral or investment of
dividends paid on awards under the Waban 1989 Stock Incentive Plan and amounts
equal to dividends which would have been paid if shares subject to an award
had been outstanding, and may permit participants to make elections to defer
receipt of benefits under the Waban 1989 Stock Incentive Plan. The Executive
Compensation Committee may also provide for the accrual of interest or
dividends on amounts deferred under the Waban 1989 Stock Incentive Plan on
such terms as the Executive Compensation Committee may determine.
Change of Control. The Waban 1989 Stock Incentive Plan provides that, in the
event of a Change of Control of Waban, unless otherwise expressly provided at
the time of grant, all stock options and stock appreciation rights will become
immediately exercisable. Restrictions and conditions on other awards will
automatically be deemed satisfied to the extent that the Executive
Compensation Committee may determine (whether at or after the time of grant).
The definition of Change of Control, however, provides that, unless otherwise
determined by the Executive Compensation Committee, a transaction shall not be
deemed to be a Change of Control with respect to a participant if the
participant takes part in the transaction (within the meaning of the
definition).
Also in the event of a Change of Control, during the 60-day period following
such Change of Control each optionholder (other than the holder of an option
as to whom the Executive Compensation Committee determined at the time of
grant that the rights described below would not apply, and other than any
optionholder who initiates the Change of Control or who participates in the
transaction in the manner specified in the definition of Change of Control)
may, upon notice to Waban, surrender outstanding options to Waban in exchange
for a cash payment equal to the excess of the fair market value (subject to
the special rule for nonstatutory options described below) on the date of
surrender of the shares subject to the option over the aggregate exercise
price. For purposes of the surrender of nonstatutory options, "fair market
value" means the highest reported sales price, regular way, of a share of
Common Stock on the New York Stock Exchange Composite Transactions Index
during the 60-day period prior to the Change of Control or, if higher (in the
case of a Change of Control occurring by reason of certain acquisitions), the
highest per share price paid or reported in connection with such acquisition.
The granting of awards under the Waban 1989 Stock Incentive Plan is
discretionary, and except for the additional options to be issued to adjust
for the Distribution (as described under the caption "Management of HomeBase--
Incentive and Other Plans"), Waban cannot now determine the number or type of
awards to be granted in the future to any particular person or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences of the issuance and exercise of options to the optionee and
Waban, while accurate, does not purport to be a complete description of
federal tax aspects of the Waban 1989 Stock Incentive Plan.
Incentive Options. The grant of an incentive option does not produce taxable
income to the optionee or a deduction to Waban. If an incentive option is
exercised while the optionee is employed or within three months following the
termination of employment (twelve months in the case of termination of
employment because of permanent disability), or after the optionee's death if
death occurs during the foregoing periods, exercise of the option will in
general also not produce taxable ordinary income to the optionee or a
deduction to Waban. For alternative minimum tax purposes, however, such
exercise will increase the optionee's "alternative minimum taxable income" and
may result in a liability to pay the alternative minimum tax.
To the extent that the aggregate fair market value of the stock (determined
at time of grant) with respect to which incentive options granted under all
option plans of Waban and its subsidiary corporations are exercisable for the
first time by an individual during any calendar year exceeds $100,000, such
options will be treated as nonstatutory stock options.
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If stock acquired upon the exercise of an incentive option is disposed of
more than two years after the date the option is granted and one year after
the date the option is exercised, gain or loss recognized upon disposition of
the stock will be capital gain or loss. If these one-year and two-year holding
period requirements are not satisfied, the optionee will realize ordinary
income at the time of disposition of the stock. (A disposition giving rise to
such ordinary income is referred to as "disqualifying disposition".) Upon a
disqualifying disposition, an optionee will generally realize ordinary income
equal to the lesser of (a) the difference between fair market value of the
stock on the date of exercise and the exercise price, or (b) the difference
between the sales price of the shares and the exercise price, and Waban will
be entitled to a deduction equal to such amount. Any additional gain
recognized in the disposition will be a capital gain for which no deduction
will be available to the Company.
If an optionee exercises an incentive option in whole or in part by
surrendering previously acquired stock, no gain or loss is recognized on the
exchange of the previously acquired shares unless the exchange results in a
disqualifying disposition of the shares surrendered. Such a disqualifying
disposition may result in the realization of ordinary income.
Nonstatutory Options. The grant of a nonstatutory option does not produce
taxable income to the optionee or a deduction to Waban. An optionee exercising
a nonstatutory option recognizes ordinary income in the amount of the
difference between the fair market value of the shares at the time of exercise
and the exercise price of the shares, and Waban is entitled to a corresponding
deduction. An optionee will have a basis in the shares acquired upon exercise
of the option equal to the exercise price plus ordinary income recognized upon
exercise of the option. Upon selling the shares, the optionee will recognize a
capital gain or loss equal to the difference between the sale price of the
shares and the optionee's basis in the shares. The capital gain or loss will
be a long term gain or loss if the shares are held more than one year from the
date of exercise.
Waban will have a withholding obligation with respect to any ordinary income
recognized by an optionee.
If an optionee exercises a nonstatutory option by surrendering previously
acquired stock, no gain or loss is recognized on the exchange for an
equivalent number of new shares. The optionee will recognize ordinary income,
and Waban will be entitled to a corresponding deduction, in general equal to
the fair market value of any new shares received in excess of the number of
previously acquired shares surrendered in the exchange.
Surrender of Options. If an optionee surrenders all or any portion of an
option in exchange for cash or stock, the optionee realizes ordinary income
subject to withholding (and Waban is in general entitled to a deduction) equal
to the amount of cash and the fair market value of the stock received.
REASONS FOR STOCKHOLDER APPROVAL
The Waban 1989 Stock Incentive Plan, as proposed to be amended, has been
designed so that options granted under the plan will qualify as performance-
based compensation and, accordingly, not be subject to the deduction limit
imposed by Section 162(m) of the Code. However, in order to qualify as
performance-based compensation, and thereby ensure the Federal tax
deductibility of options granted under the Waban 1989 Stock Incentive Plan,
stockholder approval of the amendment and continuance of the plan at the
Meeting is required. If the stockholders do not vote to continue the Waban
1989 Stock Incentive Plan, the Company will not grant any further options or
make any further awards of restricted stock under the Waban 1989 Stock
Incentive Plan and the plan will terminate. However, options issued prior to
the date of termination will not be affected.
APPROVAL OF WABAN 1997 STOCK INCENTIVE PLAN
Stockholders are being asked to approve the Waban 1997 Stock Incentive Plan
(the "Waban 1997 Plan"). Following the Distribution Date, except for
replacement awards to be granted under the Waban 1989 Stock Incentive Plan in
connection with the Distribution, Waban generally expects to grant equity
incentive awards under the Waban 1997 Plan.
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Subject to adjustment in the event of stock splits and other similar events,
awards may be made under the Waban 1997 Plan for up to the sum of (i)
1,000,000 shares of Waban Common Stock plus (ii) such additional number of
shares of Waban Common Stock (up to 2,500,000) as is equal to the sum of (x)
the number of shares which remain available for grant under the Waban 1989
Stock Incentive Plan upon its expiration and (y) the number of shares subject
to awards granted under the Waban 1989 Stock Incentive Plan which are not
actually issued because such awards expire or otherwise result in shares not
being issued.
SUMMARY OF THE WABAN 1997 PLAN
The following summary of the Waban 1997 Plan is qualified in its entirety by
reference to the plan, a copy of which may be obtained by making a written
request to the Secretary of Waban.
Description of Awards
The 1997 Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards and other stock-based
awards, including the grant of shares based upon certain conditions, the grant
of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may not be granted at
an exercise price which is less than 100% of the fair market value of the
Common Stock on the date of grant and may not be granted for a term in excess
of ten years. The 1997 Plan permits the Board to determine the manner of
payment of the exercise price of options, including through payment by cash,
check or in connection with a "cashless exercise" through a broker, by
surrender to the Company of shares of Common Stock, by delivery to the Company
of a promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the
end of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the Waban 1997 Plan, the Waban Board has the
right to grant other Awards based upon the Common Stock having such terms and
conditions as the Board may determine, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of Waban and its
subsidiaries will be eligible to receive Awards under the Waban 1997 Plan,
including, after the Distribution, five executive officers and approximately
200 other key employees of HomeBase. The maximum number of shares with respect
to which an Award may be granted to any participant under the Waban 1997 Plan
may not exceed 500,000 shares per calendar year.
The granting of Awards under the Waban 1997 Plan is discretionary, and Waban
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group.
Administration
The Waban 1997 Plan is administered by Waban's Board of Directors. The Board
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Waban 1997 Plan and to interpret the
provisions of the Waban 1997 Plan. Pursuant to the terms of the Waban 1997
Plan, the Board of Directors may delegate authority under the Waban 1997 Plan
to one or more committees of the Board, and subject to certain limitations, to
one or more executive officers of the Company. The Board has authorized the
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Waban Executive Compensation Committee to administer certain aspects of the
Waban 1997 Plan, including the granting of options to executive officers.
Subject to any applicable limitations contained in the Waban 1997 Plan, the
Board of Directors, the Waban Executive Compensation Committee, or any other
committee or executive officer to whom the Board delegates authority, as the
case may be, selects the recipients of Awards and determines (i) the number of
shares of Common Stock covered by options and the dates upon which such
options become exercisable, (ii) the exercise price of options (which may not
be less than 100% of fair market value on the date of grant), (iii) the
duration of options (which may not exceed ten years), and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the Waban 1997 Plan and any outstanding Awards to reflect
stock dividends, stock splits and certain other events. In the event of a
merger, liquidation or other Acquisition Event (as defined in the Waban 1997
Plan), the Board of Directors is authorized to provide for outstanding Options
or other stock-based Awards to be assumed or substituted for, to accelerate
the Awards to make them fully exercisable prior to consummation of the
Acquisition Event or to provide for a cash-out of the value of any outstanding
options. In addition, upon the occurrence of a Change of Control Event (as
defined in the Waban 1997 Plan) all Options and stock appreciation rights then
outstanding will automatically become immediately exercisable in full and the
restrictions and conditions on all other Awards then outstanding shall
automatically be deemed to be waived to the extent, if any, specified by the
Board at or after the time of grant. If any Award expires or is terminated,
surrendered, canceled or forfeited, the unused shares of Common Stock covered
by such Award will again be available for grant under the Waban 1997 Plan.
Amendment or Termination
No Award may be made under the Waban 1997 Plan after the tenth anniversary
of the Distribution Date, but Awards previously granted may extend beyond that
date. The Board of Directors may at any time amend, suspend or terminate the
Waban 1997 Plan, except that no Award designated as subject to Section 162(m)
of the Code by the Board of Directors after the date of such amendment shall
become exercisable, realizable or vested (to the extent such amendment was
required to grant such Award) unless and until such amendment shall have been
approved by the Company's stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, Awards under the Waban 1997 Plan will be
treated in the same manner as described above under "Approval of Amendments to
the Waban 1989 Stock Incentive Plan and Continuance of the Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The Waban 1997 Plan has been designed so that options granted under the plan
will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
federal tax deductibility of options granted under the Waban 1997 Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the Waban 1997 Plan, the plan will not be
effective and Waban will not grant any options or make any stock-based awards
under the plan. The approval of the Waban 1997 Plan is not conditioned upon
the approval of any of the other Distribution Proposals.
APPROVAL OF THE BJI 1997 REPLACEMENT STOCK INCENTIVE PLAN
Stockholders are being asked to approve the BJI 1997 Replacement Stock
Incentive Plan (the "BJI Replacement Plan") pursuant to which BJI intends to
grant replacement awards to holders of awards under the Waban 1989 Plan who
become employees of BJI in connection with the Distribution as described under
"Management of BJI--Incentive and Other Plans."
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DESCRIPTION OF THE BJI REPLACEMENT PLAN
The principal provisions of the BJI Replacement Plan are identical to those
of the Waban 1989 Stock Incentive Plan. See "Approval of Amendments to the
Waban 1989 Stock Incentive Plan and Continuance of Plan--Description of the
Waban 1989 Stock Incentive Plan." The following summary of the BJI Replacement
Plan is qualified in its entirety by reference to the plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus forms a part. In addition, copies may be obtained by
making a written request to the Secretary of the Company.
Under the terms of the BJI Replacement Plan, a maximum of 2,500,000 shares
(subject to adjustment as provided in the plan) of authorized but unissued BJI
Common Stock will be reserved for issuance and no more than 700,000 shares per
calendar year may be made subject to awards granted to any single participant.
Grants of awards may be made under the BJI Replacement Plan during the period
beginning on the Distribution Date and ending on the date which is six months
after the Distribution Date. The following persons are expected to be eligible
to participate in the BJI Replacement Plan immediately following the
Distribution: six executive officers and approximately 200 other key employees
of BJI.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, awards under the BJI Replacement Plan will
be treated in the same manner as described above under "Approval of Amendments
to the Waban 1989 Stock Incentive Plan and Continuance of Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The BJI Replacement Plan has been designed so that options granted under the
plan will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of options granted under the BJI Replacement Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the BJI Replacement Plan, the plan will
not be effective and the Company will not grant any options or make any stock
based awards under the plan.
APPROVAL OF THE BJI 1997 STOCK INCENTIVE PLAN
Stockholders are being asked to approve the BJI 1997 Stock Incentive Plan
(the "BJI 1997 Plan"). Following the Distribution Date, except for replacement
awards to be granted under the BJI Replacement Plan in connection with the
Distribution, BJI generally expects to grant equity incentive awards under the
BJI 1997 Plan.
Subject to adjustment in the event of stock splits and other similar events,
awards may be made under the BJI 1997 Plan for up to the sum of (i) 1,000,000
shares of BJI Common Stock plus (ii) such additional number of shares of BJI
Common Stock (up to 2,000,000) as is equal to the sum of (x) the number of
shares which remain available for grant under the BJI Replacement Plan upon
its expiration and (y) the number of shares subject to awards granted under
the BJI Replacement Plan which are not actually issued because such awards
expire or otherwise result in shares not being issued.
SUMMARY OF THE BJI 1997 PLAN
The principal provisions of the BJI 1997 Plan are identical to those of the
Waban 1997 Plan. See "Approval of Waban 1997 Stock Incentive Plan." The
summary of the BJI 1997 Plan contained herein is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of BJI.
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Officers, employees, directors, consultants and advisors of BJI and its
subsidiaries will be eligible to receive Awards under the BJI 1997 Plan,
including, after the Distribution, six executive officers and approximately
200 other key employees of BJI. The maximum number of shares with respect to
which an Award may be granted to any participant under the BJI 1997 Plan may
not exceed 500,000 shares per calendar year.
The granting of Awards under the BJI 1997 Plan is discretionary, and Waban
cannot now determine the number or type of Awards to be granted in the future
to any particular person or group.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, Awards under the BJI 1997 Plan will be
treated in the same manner as described above under "Approval of Amendments to
the Waban 1989 Stock Incentive Plan and Continuance of the Plan--Certain
Federal Income Tax Consequences."
REASONS FOR STOCKHOLDER APPROVAL
The BJI 1997 Plan has been designed so that options granted under the plan
will qualify as performance-based compensation and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
federal tax deductibility of options granted under the BJI 1997 Plan,
stockholder approval of the plan at the Meeting is required. If the
stockholders do not vote to approve the BJI 1997 Plan, the Plan will not be
effective and the Company will not grant any options or make any stock based
awards under the Plan.
APPROVAL OF THE BJI MANAGEMENT INCENTIVE PLAN
Stockholders are being asked to approve the BJI Management Incentive Plan
(the "BJI MIP") which is intended to provide executive officers and other key
employees of BJI with cash incentive awards, based upon the attainment of
annual performance goals. The BJI MIP is similar to the Waban Management
Incentive Plan ("WMIP") and will provide for continuation or replacement
incentive awards to BJI's employees currently covered by the Waban Management
Incentive Plan.
DESCRIPTION OF BJI MANAGEMENT INCENTIVE PLAN
The following summary of the BJI MIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Key employees of BJI, as designated by the BJI Executive Compensation
Committee, will be eligible to receive cash awards under the BJI MIP. The
total number of participants in the BJI MIP is expected to be approximately
600. The following persons are expected to participate in the BJI MIP: (i) six
executive officers, including the Named BJI Officers; and (ii) approximately
600 other employees of the Company.
At the commencement of the performance period (i.e., the fiscal year), the
BJI Executive Compensation Committee will establish performance goals and
corresponding target awards, based on one or more objective performance
criteria. Such goals, criteria and target awards may vary among participants.
The performance criteria are expected to be one or more of the following
objective measurements: operating income, pre-tax income, net income, gross
profit dollars, costs, any of the preceding measures as a percent of sales,
earnings per share, sales, return on equity, and return on investment.
Awards will be based upon the level of achievement of the pre-established
performance goals. Awards will be paid in cash as soon as practicable after
the performance period, except to the extent deferred under any deferred
compensation plan which may be adopted by BJI and applicable to the awards.
Under the BJI MIP, the BJI Executive Compensation Committee may not make any
adjustments to the performance criteria to increase the incentive payment to
executive officers subject to Section 162(m) of the Code, except to make
appropriate
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adjustments in the event of certain specified types of transactions; provided
that in no case shall any such adjustment be made if it would cause an award
to no longer qualify as performance-based compensation under Section 162(m) of
the Code.
Under the BJI MIP, no participant may receive a cash award in excess of
$1,000,000 in any calendar year or, if less, 100% of the base salary earned by
the participant for the applicable performance period.
The granting of awards under the BJI MIP will be discretionary, and except
for continuation and replacement incentive awards anticipated to be granted in
connection with the Distribution in continuation or replacement of existing
awards under the WMIP, BJI cannot now determine the nature of the awards to be
granted in the future to any particular person or group. The continuation
incentive awards will be granted on substantially the same basis as existing
awards under the WMIP, with modifications necessary to reflect changes
resulting from the Distribution. The replacement incentive awards will be
granted on such terms and conditions as the BJI Executive Compensation
Committee deems appropriate.
The BJI Executive Compensation Committee shall have full power to administer
and interpret the BJI MIP and to establish rules for its administration. The
BJI Executive Compensation Committee or the BJI Board may amend, suspend or
terminate the BJI MIP at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI MIP has been designed so that cash awards made under the BJI MIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI MIP, stockholder
approval of the BJI MIP at the Meeting is required. If the stockholders do not
vote to approve the BJI MIP, the plan will not become effective and the
Company will not grant any awards under the plan.
APPROVAL OF THE BJI GROWTH INCENTIVE PLAN
Stockholders are being asked to approve the BJI Growth Incentive Plan (the
"BJI GIP"), which is intended to provide high-level executives of BJI with
cash awards, based upon the growth and performance of BJI. The BJI GIP is
designed to enhance the ability of BJI to attract and retain individuals of
exceptional managerial talent upon whom the sustained progress, growth and
profitability of BJI will depend. The BJI GIP is similar to the Waban Growth
Incentive Plan ("WGIP") and will provide for continuation or replacement
incentive awards to BJI's employees currently covered by the WGIP.
DESCRIPTION OF BJI GROWTH INCENTIVE PLAN
The following summary of the BJI GIP is qualified in its entirety by
reference to the plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
In addition, copies may be obtained by making a written request to the
Secretary of the Company.
Employees in high-level management positions in BJI, as selected by the BJI
Executive Compensation Committee, will be eligible to receive cash awards
under the BJI GIP. The total number of participants in the BJI GIP immediately
following the Distribution is expected to be 23. The following persons are
expected to participate in the BJI GIP: (i) six executive officers, including
the Named BJI Officers, and (ii) approximately 17 non-executive officer
employees of BJI.
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It is anticipated that awards granted under the WGIP prior to the
Distribution will be replaced by continuation or replacement incentive awards
under the BJI GIP for Waban employees who become employees of BJI.
Each participant in the BJI GIP will be eligible to receive a cash award for
each award period, which is expected to consist of a certain number of fiscal
years. Each participant's cash award will correspond to BJI's level of
performance or growth during such award period. Such growth is determined by
and based upon one or more of the following objective measures of performance
or growth, as selected by the BJI Executive Compensation Committee at the
beginning of the award period: operating income, pre-tax income, net income,
costs, any of the preceding measures as a percent of sales, earnings per
share, sales, return on equity, and return on investment. All relevant factors
upon which the cash award is expected to be based (e.g., performance
measurement, length of award period, relation between performance and cash
award) will be determined at the beginning of the award period by the BJI
Executive Compensation Committee.
Under the BJI GIP, no participant may receive a cash award in excess of
$2,000,000 in any calendar year.
Cash awards will be paid as soon as practicable after the end of the award
period, and, in the BJI Executive Compensation Committee's discretion, payment
of a portion of the cash award may be deferred until one or more years
thereafter. Under the BJI GIP, the BJI Executive Compensation Committee may
not make any adjustments to the performance criteria to increase the incentive
payment to executive officers subject to Section 162(m) of the Code, except to
make appropriate adjustments in the event of certain specified types of
transactions; provided that in no case shall any such adjustment be made if it
would cause an award to no longer qualify as performance-based compensation
under Section 162(m) of the Code.
In the event of a change of control (as defined), the participants are
entitled to a cash award based on BJI's performance for that portion of the
award period immediately preceding the change of control.
The granting of awards under the BJI GIP will be discretionary, and except
for continuation and replacement incentive awards anticipated to be granted in
connection with the Distribution in continuation or replacement of existing
awards under the WGIP, BJI cannot now determine the nature of the awards to be
granted in the future to any particular person or group. The continuation
incentive awards will be granted on substantially the same basis as existing
awards under the WGIP, with modifications necessary to reflect changes
resulting from the Distribution. The replacement incentive awards will be
granted on such terms and conditions as the BJI Executive Compensation
Committee deems appropriate.
The BJI Executive Compensation Committee will have full power to administer
and interpret the BJI GIP and to establish rules for its administration. The
BJI Executive Compensation Committee or the BJI Board may amend, suspend or
terminate the BJI GIP at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
When a cash award is paid, the participant will recognize ordinary income
equal to the amount paid, and BJI is expected to be entitled to a
corresponding deduction, subject to the requirements of the Code discussed in
"--Reasons for Stockholder Approval" below.
REASONS FOR STOCKHOLDER APPROVAL
The BJI GIP has been designed so that cash awards made under the BJI GIP
will qualify as performance-based compensation, and, accordingly, not be
subject to the deduction limit imposed by Section 162(m) of the Code. However,
in order to qualify as performance-based compensation, and thereby ensure the
Federal tax deductibility of all cash awards under the BJI GIP, stockholder
approval of the BJI GIP at the Meeting is required. If the stockholders do not
vote to approve the BJI GIP, the plan will not become effective and the
Company will not grant any awards under the plan.
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APPROVAL OF THE BJI 1997 DIRECTOR STOCK OPTION PLAN
Stockholders are being asked to approve the BJI 1997 Director Stock Option
Plan (the "BJI Director Plan"), which is intended to increase the proprietary
interest in BJI of non-employee directors by providing a portion of their
compensation in the form of options to acquire shares of BJI Common Stock and
thereby align the interests of those directors more closely with the interests
of the stockholders.
DESCRIPTION OF THE BJI DIRECTOR PLAN
The principal provisions of the BJI Director Plan are summarized under the
caption "Management of BJI-- Director Compensation." Such summary is qualified
in its entirety by reference to the plan, a copy of which has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
forms a part. In addition, copies may be obtained by making a written request
to the Secretary of the Company.
Under the terms of the BJI Director Plan, a maximum of 150,000 shares
(subject to adjustment as provided in the plan) of authorized but unissued BJI
Common Stock will be reserved for issuance.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, options granted under the BJI Director Plan
are treated as non-statutory options in the manner described above under
"Approval of Amendment to the Waban 1989 Stock Incentive Plan--Certain Federal
Income Tax Consequences."
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ELECTION OF DIRECTORS
The Board of Directors has voted to fix the number of directors of Waban at
eight. The Company's Restated Certificate of Incorporation and by-laws provide
for the classification of the Board of Directors into three classes, as nearly
equal in number as possible, with the term of office of one class expiring
each year. The enclosed proxy will be voted to elect the three nominees named
below, unless otherwise instructed, as directors for a term of three years
expiring at the 2000 Annual Meeting of Stockholders and until their respective
successors are duly elected and qualified (provided, however, that upon the
Distribution, the Board of Directors is expected to be reconstituted as
described above in this Proxy Statement/Prospectus). Stanley H. Feldberg,
whose term of office will expire at the Annual Meeting, will not stand for re-
election after serving as a director since the Company's inception. If any
nominee should become unavailable, such proxy will be voted either for a
substitute nominee designated by the Board of Directors or such lesser number
of directors as may be designated by the Board of Directors, unless
instructions are given to the contrary. Management does not anticipate that
any of the nominees will become unavailable. The nominees as directors and
incumbent directors are as follows:
NOMINEES AS DIRECTORS--TERMS EXPIRING 2000
Kerry L. Hamilton, 46, has been a director of the Company since September
1994. Ms. Hamilton is Vice President, Marketing for Marshalls. Prior to
joining Marshalls in April 1996, Ms. Hamilton was Vice Chairman of Pamet River
Partners, a marketing consulting firm, for two years. Prior to joining Pamet
River Partners, Ms. Hamilton spent 17 years at Ingalls, Quinn & Johnson in
various capacities, during which time she was a member of the Board of
Directors, a member of the Agency Executive Committee and Senior Vice
President, Director of Media Services. Ms. Hamilton is a member of the Audit
Committee.
Arthur F. Loewy, 68, has been a director of the Company since February 1989.
He is a director of The TJX Companies, Inc. and was Chief Financial Officer
and Executive Vice President--Finance of Zayre Corp. from 1982 to 1989. Mr.
Loewy is Chairman of the Audit Committee, Chairman of the Finance Committee
and a member of the Executive Committee.
Edward J. Weisberger, 55, has been Senior Vice President and Chief Financial
Officer of Waban since September 1994. From 1989 to 1994 he was Vice
President--Finance of the Company.
INCUMBENT DIRECTORS--TERMS EXPIRING 1999
Allyn L. Levy, 69, has been a director of the Company since October 1993. He
has been a private investor since 1988. From 1974 until 1986, he was founder,
Chairman of the Board and Chief Executive Officer of Patriot Bank Corporation,
a commercial bank holding company. He is a director of CV Reit, Inc. Mr. Levy
is a member of the Audit Committee.
Lorne R. Waxlax, 63, has been a director of the Company since January 1990
and Chairman of the Board of the Company since June 1996. He was an Executive
Vice President of The Gillette Company from 1985 to 1993. Mr. Waxlax is also a
director of Quaker State Corporation, The Iams Company, Hon Industries, Inc.
and Clean Harbors, Inc. Mr. Waxlax is Chairman of the Executive Committee and
a member of the Finance Committee.
INCUMBENT DIRECTORS--TERMS EXPIRING 1998
S. James Coppersmith, 64, has been a director of the Company since December
1993. He was President and General Manager of WCVB-TV, a Boston television
station, from 1990 to 1994. From 1982 to 1990 he was Vice President and
General Manager of WCVB-TV. Mr. Coppersmith is a director of Kushner-Locke
Company, Chyron Corporation, All-Comm Media Corporation, Sun America Asset
Management Corporation and Uno Restaurant Corporation, Chairman of the Board
of Trustees of Emerson College and a member of the Board of Governors of the
Boston Stock Exchange. Mr. Coppersmith is a member of the Executive
Compensation Committee.
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Thomas J. Shields, 50, has been a director of the Company since June 1992.
He is President of Shields & Company, Inc., an investment banking firm. Mr.
Shields is also a director of Seaboard Corporation and Versar, Inc. Mr.
Shields is Chairman of the Executive Compensation Committee and a member of
the Executive Committee.
Herbert J. Zarkin, 58, has been a director, President and Chief Executive
Officer of the Company since May 1993 and was President of the BJ's Division
from May 1990 to May 1993. From April 1989 to May 1993 he was Executive Vice
President of the Company. Mr. Zarkin is a member of the Executive Committee
and the Finance Committee.
BOARD AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, decisions concerning compensation of Waban's executive
officers were made by the Executive Compensation Committee. Until June 11,
1996, the Executive Compensation Committee consisted of Messrs. Waxlax,
Coppersmith and Feldberg. Effective upon his election as Chairman of the Waban
Board on June 11, 1996, Mr. Waxlax ceased to serve on the Executive
Compensation Committee and was replaced by Mr. Shields.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The following report has been submitted to the Board of Directors of Waban
by its Executive Compensation Committee, in compliance with requirements of
the Commission:
As members of the Executive Compensation Committee ("ECC") of Waban, it is
our responsibility to review the Company's compensation policies and programs,
approve or, with respect to the Chief Executive Officer, recommend to the
Board of Directors for approval, incentive plan awards and all elements of
compensation for the Company's executive officers, and administer the
Company's stock incentive plans. All of the members of the ECC are
independent, non-employee directors.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's executive compensation program is designed to provide
competitive levels of compensation that:
--Integrate compensation with the achievement of the Company's annual and
long-term performance goals and business strategies
--Recognize management initiatives and achievements
--Reward outstanding corporate performance
--Attract and retain key executives critical to the long-term success of
the Company
--Link management's long-term interests with stockholders' interests
through stock-based awards
With respect to Section 162(m) of the Code, which limits the ability of
publicly-held corporations to deduct non-performance-based compensation for
certain executive officers, the ECC believes that the Company's compensation
plans should be structured to satisfy the requirements for tax deductibility,
unless doing so is determined by the ECC to be not in the best interests of
the Company.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
The total compensation program for all executive officers consists of both
cash and equity-based compensation and takes into account applicable
provisions of employment agreements of such officers. Through stock options
and stock grants available under the Company's incentive stock plan, the ECC
seeks to align executive officers' long-range interests with those of
stockholders by providing executive officers with the opportunity to
participate in the growth of the Company's stock value. The ECC is advised by
Frederic W. Cook & Co., Inc. ("Cook"), compensation consultants, concerning
salary competitiveness and the design of the Company's executive compensation
programs. Cook provides services to the Company, which are billed at hourly
rates, on an "as requested" basis. The Company does not have a retainer or
other contract with Cook. The Company has consulted with Cook on at least an
annual basis during the past three years.
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Base Salary. Base salaries for the Company's executive officers, including
Mr. Zarkin, are set within ranges that are determined based upon a review of
publicly available information concerning compensation paid to executives with
similar responsibilities at certain peer companies. The ECC utilizes a
compensation consulting firm to assist in the compilation and interpretation
of this data. The companies selected for these purposes are retail companies,
including major competitors of the Company, as to which compensation
information is available. While some of these peer companies are included in
the Dow Jones Industry Group Index OTS--Other Specialty Retailers appearing in
the Performance Graph on page 121, these peer companies are not all the same
as the companies comprising that index. While the ECC's overall objective is
to set base salaries at approximately the midpoint of competitive ranges, an
individual executive's placement within a range and salary adjustments are
based upon the ECC's subjective evaluation of the executive's performance and
value to the Company.
Annual Incentive Program. Under the Company's Management Incentive Plan
("MIP"), executive officers and other members of management are eligible to
receive incentive awards based upon the attainment of annual corporate or
divisional performance goals, primarily specified levels of earnings per
share, net income, or divisional income. The ECC approves the MIP goals and
participation opportunities at the beginning of each fiscal year and reviews
the payout calculations after the year's financial results have been audited.
Target awards for executive officers, other than Mr. Zarkin, range from 20% to
40% of salary, but if targets are not met, there would be either no MIP award
or a reduced award based on a percentage of the target realized. If results
exceed goal(s), an executive officer, other than Mr. Zarkin, could earn an
additional award, depending upon the extent to which goals are exceeded. No
executive officer may receive a MIP award in excess of 100% of the executive's
base salary as of the beginning of the fiscal year. For 1996, MIP awards for
Messrs. Zarkin and Weisberger and Ms. Gallivan were based on three equally
weighted criteria: BJ's Wholesale Club Division's pre-tax income, HomeBase
Division's pre-tax income, and fully diluted earnings per share of the
Company; Mr. Sherman's MIP award was based on HomeBase Division's pre-tax
income; and Mr. Nugent's MIP award was based on BJ's Wholesale Club Division's
pre-tax income. For 1996, pre-tax income of HomeBase was less than the MIP
goal, resulting in no payout to Mr. Sherman. Pre-tax income of BJ's Wholesale
Club exceeded its MIP goal, resulting in a payout to Mr. Nugent equal to
165.6% of targeted bonus. For 1996, fully diluted earnings per share of the
Company were less than the MIP goal and payouts to Messrs. Zarkin and
Weisberger and Ms. Gallivan were equal to 65.8% of targeted bonus.
Long-Term Incentive Program. The Waban Inc. Growth Incentive Plan ("WGIP"),
is intended to provide high-level executives of the Company, as selected by
the ECC, with cash awards based upon the growth and performance of the
Company. All of the executive officers participate in the WGIP, as well as 35
non-executive officer employees of the Company. Depending on responsibilities
within the Company, awards are earned based on one or more of the following
objective measures of performance or growth, as selected by the ECC at the
beginning of the award period: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a percent of
sales, earnings per share, sales, return on equity, and return on investment.
All relevant factors upon which the cash award is based (e.g., performance
measurement, length of award period, relation between performance and cash
award) are determined at the beginning of the award period by the ECC. Awards
issued to Messrs. Zarkin, Weisberger and Ms. Gallivan in 1994 and 1996 were
based on cumulative net income for the Company for the three-year periods
ending January 25, 1997 and January 30, 1999, respectively. Awards issued to
Mr. Nugent in 1994 and 1996 were based on cumulative pre-tax income for the
BJ's Wholesale Club Division for the three-year periods ending January 25,
1997 and January 30, 1999, respectively. Awards issued to Mr. Sherman in 1994
and 1996 were based on cumulative pre-tax income for HomeBase for the three-
year periods ending January 25, 1997 and January 30, 1999, respectively. Fifty
percent of awards issued under the WGIP in 1994 were paid in April 1997, and
the remaining 50% is payable in cash in April 1998, contingent on employment
continuing through March 31, 1998. All awards issued under the WGIP in 1996
are payable in cash, 50% in April 1999, contingent on employment continuing
through January 30, 1999, and 50% in April 2000, contingent on employment
continuing through March 31, 2000. There is no target amount for each award.
However, there is a threshold amount based on the Company's growth, and the
value of each award increases as achievement of the performance measurement
increases. No award can exceed 300% of the recipient's annual base salary at
the beginning of the performance period.
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The Company has made it a practice to provide incentives to its executive
officers and other senior executives to achieve long-range goals that are
typically expressed as either a compounded rate of earnings growth or three-
year cumulative earnings. In determining the level of long-term incentive
awards, the ECC also takes into account a survey of the same peer companies
referred to above, but does not target a specific percentile.
Stock-Based Incentives. Stock options are awarded to the Company's key
employees, including executive officers, by the ECC, based upon such factors
as the compensation level and responsibility of the particular employee, the
employee's contribution towards Company performance, and a review of
competitive compensation data of executives at the same group of peer
companies referred to previously in this report, with the ECC generally
targeting awards to the median of such survey. The options are designed to
reward recipients to the extent the Company's stock value is enhanced. Because
of the vesting provisions of such grants, the options also provide an
incentive for the employee to remain with the Company. Since the ECC does not
grant options on a cumulative basis, the size of previous grants is not a
factor in making current grants.
CHIEF EXECUTIVE OFFICER COMPENSATION
Pursuant to the terms of Mr. Zarkin's employment contract, his salary is
reviewed annually by the ECC. His salary was increased to $625,000 on June 1,
1996, setting his salary to approximately the 50th percentile of the
compensation range of the survey of peer companies referred to previously in
this report. The number of options granted to Mr. Zarkin in 1996 was
subjectively determined based on Mr. Zarkin's success in providing leadership
to the Company and after a review of competitive compensation data of
executives at the same group of peer companies referred to previously in this
report without targeting a specific percentile range. The granting of options
encourages long-term performance and promotes management retention while
further aligning shareholders' and management's interests in enhancing the
value of the Company's Common Stock.
Mr. Zarkin's MIP award provides a target opportunity equal to 50% of base
salary earned during the fiscal year if performance goals are met; the actual
payout can vary between 0% and 100% of annualized base salary at the beginning
of the fiscal year. The MIP payout to Mr. Zarkin for 1996 was equal to 32.9%
of his fiscal 1996 salary.
Executive Compensation Committee
Thomas J. Shields, Chairman
S. James Coppersmith
Stanley H. Feldberg
Lorne R. Waxlax*
- --------
* Member of Executive Compensation Committee until June 11, 1996.
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies on the Standard and
Poor's 500 Stock Index and the Dow Jones Industry Group Index OTS--Other
Specialty Retailers from January 25, 1992 to January 25, 1997. The Dow Jones
Industry Group Index OTS--Other Specialty Retailers is comprised currently of
208 specialty retail companies, including the Company and all other publicly
traded membership warehouse clubs and home improvement chains (other than
those operated as divisions of other companies). This index does not include
department stores, discount stores, drug stores or supermarkets. The graph
assumes that the value of the investment at January 25, 1992 was $100 and that
all dividends were reinvested. The values of investments in the companies in
the Standard & Poor's 500 Stock Index and the Dow Jones Industry Group Index
OTS--Other Specialty Retailers were measured as of the date nearest the end of
the Company's fiscal year for which index data is readily available.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1/25/92 1/30/93 1/29/94 1/28/95 1/27/96 1/25/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Waban Inc. $100.00 $ 91.22 $ 77.03 $ 91.89 $103.38 $147.30
Dow Jones Industry Index $100.00 $125.50 $134.90 $129.96 $124.19 $145.31
Standard & Poor's 500 Index $100.00 $110.60 $124.85 $125.51 $174.04 $219.89
</TABLE>
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INFORMATION FOR HOLDERS OF CONVERTIBLE DEBENTURES
REDEMPTION OF CONVERTIBLE DEBENTURES AND ALTERNATIVES TO REDEMPTION
Waban has called all of the outstanding Convertible Debentures for
redemption on the Redemption Date (July , 1997) at a redemption price of
$1,028.89, plus accrued interest of $ from July 1, 1997 to the Redemption
Date, for a total redemption price of $ for each $1,000 principal amount
of Convertible Debentures (the "Redemption Price"). No interest will accrue on
the Convertible Debentures from and after the Redemption Date. The Convertible
Debentures are convertible into 40.404 shares of Waban Common Stock for each
$1,000 principal amount of Convertible Debentures. The right to convert
Convertible Debentures expires at 6:00 p.m., Eastern time, on June , 1997
(the "Expiration Date"). Cash will be paid in lieu of any fractional shares
upon conversion. Any Convertible Debentures not surrendered for conversion on
or prior to the Expiration Date will be redeemed. As of June , 1997,
$106,949,000 aggregate principal amount of Convertible Debentures was
outstanding.
The following three alternatives are available to holders of Convertible
Debentures:
1. Conversion of Convertible Debentures into Common Stock. Convertible
Debentures may be converted at the option of the holder thereof into fully
paid and nonassessable shares of Waban Common Stock at the conversion price of
$24.75 per share of Waban Common Stock (equivalent to a conversion rate of
40.404 shares of Waban Common Stock for each $1,000 principal amount of
Convertible Debentures) until 6:00 p.m., Eastern time, on the Expiration Date,
at which time the conversion privilege terminates. To effect such conversion,
holders of Convertible Debentures must surrender the certificate(s) for their
Convertible Debentures at one of the offices of the Paying and Conversion
Agent set forth in the Notice of Redemption and Expiration of Conversion Right
prior to 6:00 p.m., Eastern time, on the Expiration Date, accompanied by an
irrevocable written notice of election to convert such Convertible Debentures
into Waban Common Stock. Completion, execution and return of the Letter of
Transmittal, a copy of which has been provided to all holders of Convertible
Debentures, marked clearly to indicate a preference for conversion in Item B
of the Letter of Transmittal, will constitute compliance with such notice
requirements.
Waban will pay to the persons in whose names outstanding Convertible
Debentures are registered at the close of business on June 15, 1997 (the next
scheduled regular record date for interest payments) the interest payment of
$32.50 for each $1,000 principal amount of Convertible Debentures due on July
1, 1997 (the next scheduled regular interest payment date). ANY HOLDER THAT
CONVERTS CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997 MUST, AS A CONDITION TO
SUCH CONVERSION, SUBMIT WITH THE CONVERTIBLE DEBENTURES BEING CONVERTED AN
AMOUNT, IN NEW YORK CLEARING HOUSE FUNDS OR OTHER FUNDS ACCEPTABLE TO WABAN,
EQUAL TO THE INTEREST OF $32.50 FOR EACH $1,000 PRINCIPAL AMOUNT OF
CONVERTIBLE DEBENTURES PAYABLE ON SUCH CONVERTIBLE DEBENTURE ON JULY 1, 1997.
SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE ECONOMIC BENEFIT OF SUCH INTEREST
PAYMENT. No other payment or adjustment will be made on account of interest on
the Convertible Debentures accruing after January 1, 1997.
No fractional shares of Waban Common Stock are issuable upon conversion.
Instead, Waban will pay each converting holder of Convertible Debentures the
cash equivalent of any such fractional shares based upon the reported closing
price per share of Waban Common Stock on the NYSE on the business day
immediately preceding the day of conversion.
Convertible Debentures may be held in book-entry form through the facilities
of The Depository Trust Company or another depository (the "Depository").
Accordingly, in order for a beneficial owner of an interest in a Convertible
Debenture to exercise conversion rights, such beneficial owner must comply
with the procedures of the Depository, if such beneficial owner is a
participant in the Depository (a "participant"), or if such beneficial owner
is not a participant in the Depository, through the procedures of the
participant through which such beneficial owner owns its interest in the
Convertible Debentures, to effect a conversion.
Waban will decide, in its sole discretion, all questions as to the form of
documents and the validity, eligibility (including time of receipt) and
acceptance for conversion by Waban of any Convertible Debentures.
122
<PAGE>
Any defect or irregularity in the surrender or delivery of any document in
connection with the conversion of Convertible Debentures may result in such
Convertible Debentures not being converted into Waban Common Stock and,
therefore, being redeemed on the Redemption Date.
THE DEADLINE FOR CONVERSION OF THE CONVERTIBLE DEBENTURES IS 6:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE (JUNE , 1997). IN ORDER TO EFFECT
CONVERSION, THE CERTIFICATES EVIDENCING CONVERTIBLE DEBENTURES MUST ACTUALLY
BE IN THE POSSESSION OF THE PAYING AND CONVERSION AGENT. SINCE IT IS THE TIME
OF ACTUAL RECEIPT THAT DETERMINES WHETHER CONVERTIBLE DEBENTURES HAVE BEEN
PROPERLY PRESENTED FOR CONVERSION, SUFFICIENT TIME SHOULD BE ALLOWED FOR
DELIVERY. CONVERTIBLE DEBENTURES NOT ACTUALLY RECEIVED FOR CONVERSION PRIOR TO
6:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE WILL BE REDEEMED AS SET FORTH
BELOW. THE METHOD OF TRANSMITTING CONVERTIBLE DEBENTURES TO THE PAYING AND
CONVERSION AGENT IS AT THE SOLE OPTION AND SOLE RISK OF THE HOLDER.
2. Redemption of Convertible Debentures. Any Convertible Debenture which has
not been converted into Waban Common Stock on or prior to 6:00 p.m., Eastern
time, on the Expiration Date, will be redeemed on the Redemption Date (July ,
1997) for the Redemption Price of $ for each $1,000 principal amount of
Convertible Debentures. Payment of the Redemption Price will be made to the
holders of Convertible Debentures by First Trust National Association, as
paying and conversion agent (the "Paying and Conversion Agent"), upon
surrender by the holders of Convertible Debentures to the Paying and
Conversion Agent. On and after the Redemption Date, interest will cease to
accrue on the Convertible Debentures (unless Waban shall default in the
payment of the Redemption Price) and holders of Convertible Debentures will
not have any rights as such holders other than the right to receive the
Redemption Price upon such surrender for redemption. All Convertible
Debentures outstanding on the Redemption Date will be deemed to be redeemed by
Waban, whether or not they have been surrendered for redemption. Holders of
Convertible Debentures are referred to the Notice of Redemption and Expiration
of Conversion Right for information concerning how and when the Convertible
Debentures are to be surrendered for payment of the Redemption Price.
On June , 1997, the reported closing price of the Waban Common Stock on the
NYSE was $ per share. A holder who converted Convertible Debentures on June
, 1997 would have received Waban Common Stock (including cash in lieu of any
fractional share) having a market value of $ for each $1,000 principal
amount of Convertible Debentures, based on the reported closing price of the
Waban Common Stock on the NYSE on that date. If such principal amount of
Convertible Debentures were surrendered for redemption on the Redemption Date,
such holder would receive $ in cash. In addition, the holder of record on
June 15, 1997 of any Convertible Debenture surrendered for redemption will
have received a payment of interest on July 1, 1997 in the amount of $32.50
for each $1,000 principal amount of Convertible Debentures. While no assurance
can be given as to any future price for the Waban Common Stock, as long as the
market price of the Waban Common Stock (after giving effect to commissions and
other costs of sale) remains at or above $ per share, upon conversion of
their Convertible Debentures, holders will receive Waban Common Stock and cash
for fractional shares having a current market value equal to or greater than
the Redemption Price plus the July 1 interest payment of $32.50 for each
$1,000 principal amount of Convertible Debentures. It should be noted,
however, that the price of the Waban Common Stock received upon conversion
will fluctuate in the market, and that holders may incur various expenses of
sale if such Waban Common Stock is sold. Holders of Convertible Debentures are
urged to obtain current market quotations for the Waban Common Stock.
3. Sale in Open Market Brokerage Transactions. Convertible Debentures may be
sold prior to the Redemption Date through open market brokerage transactions,
and if made sufficiently in advance of the Expiration Date, buyers thereof may
convert Convertible Debentures into Waban Common Stock in the manner described
above. ANY HOLDER THAT CONVERTS CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997
MUST, AS A CONDITION TO SUCH CONVERSION, SUBMIT WITH THE CONVERTIBLE
DEBENTURES BEING CONVERTED AN AMOUNT, IN NEW YORK CLEARING HOUSE FUNDS OR
OTHER FUNDS ACCEPTABLE TO WABAN, EQUAL TO THE INTEREST OF $32.50 FOR EACH
$1,000
123
<PAGE>
PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES PAYABLE ON SUCH CONVERTIBLE
DEBENTURES ON JULY 1, 1997. SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE
ECONOMIC BENEFIT OF SUCH INTEREST PAYMENT. After the Expiration Date a holder
of Convertible Debentures will not be entitled to convert Convertible
Debentures into Waban Common Stock, which fact is expected to have an impact
on the market for Convertible Debentures. Holders of Convertible Debentures
who wish to make open market sales should consult with their own advisors
concerning if and when their Convertible Debentures should be sold. Holders
may incur various fees and expenses in connection with any such sale.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary, based on discussions with counsel, of
the material United States federal income tax considerations relevant to the
conversion, redemption or sale of Convertible Debentures by a beneficial owner
of Convertible Debentures. This summary is based on the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations (including Proposed
Regulations and Temporary Regulations) promulgated thereunder, Internal
Revenue Service ("IRS") rulings, official pronouncements and judicial
decisions, all as in effect on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. This
summary is applicable only to holders who are United States persons for
federal income tax purposes and who hold Convertible Debentures as capital
assets and who will hold any Waban Common Stock received on conversion of
Convertible Debentures as capital assets.
This summary does not discuss all the tax consequences that may be relevant
to a particular holder in light of the holder's particular circumstances and
it is not intended to be applicable in all respects to all categories of
investors, some of whom--such as insurance companies, tax-exempt persons,
financial institutions, regulated investment companies, dealers in securities
or currencies, persons that hold the Convertible Debentures as a position in a
"straddle," as part of a "synthetic security," "hedge," "conversion
transaction" or other integrated investment or persons whose functional
currency is other than United States dollars--may be subject to different
rules not discussed below. In addition, this summary does not address any
state, local or foreign tax considerations that may be relevant to a
particular holder.
Legislative proposals have been under consideration that would reduce the
rate of federal income taxation of certain capital gains. Such legislation, if
enacted, might apply only to gain realized on dispositions occurring after a
date specified in the legislation. It cannot be predicted whether any such
legislation ultimately will be enacted and, if enacted, what its effective
date will be.
HOLDERS OF CONVERTIBLE DEBENTURES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE CONVERSION, SALE OR REDEMPTION OF THE CONVERTIBLE DEBENTURES IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES.
CONVERSION OF CONVERTIBLE DEBENTURES
In general, no gain or loss will be recognized on conversion of Convertible
Debentures solely into Waban Common Stock. The tax basis for the Waban Common
Stock received upon such conversion will be equal to the tax basis of the
Convertible Debentures converted (reduced by the portion of such basis
allocable to any fractional Waban Common Stock interest paid in cash). The
holding period for the Waban Common Stock generally will include the holding
period of the Convertible Debentures converted. However, the holding period
for the Waban Common Stock allocable to original issue discount accrued during
the holder's holding period for the Convertible Debentures converted may be
treated as commencing on the day after the date of the conversion. A holder
generally will recognize gain (or loss) upon a conversion to the extent that
any cash paid in lieu of a fractional share of Waban Common Stock exceeds (or
is less than) its tax basis in such fractional share.
124
<PAGE>
SALE OR REDEMPTION OF CONVERTIBLE DEBENTURES
Generally, the sale or redemption of a Convertible Debenture will result in
taxable gain or loss equal to the difference between the amount realized and
the holder's adjusted tax basis in the Convertible Debentures. Except with
respect to amounts received in respect of accrued interest (which will be
taxable as such) and except as discussed below under "Market Discount," such
gain or loss will be capital gain or loss and will be long term gain or loss
if, at the time of such disposition, the Convertible Debentures had been held
for more than one year.
MARKET DISCOUNT
Special rules will apply to Convertible Debentures acquired with market
discount. A market discount note is, generally, a note the stated redemption
price at maturity (or, if the note has original issue discount, the note's
issue price increased by an accrued original issue discount) of which exceeds
the holder's basis in the note immediately after acquisition. Generally, any
gain recognized on the sale or redemption of a market discount note will be
treated as ordinary income to the extent of the accrued market discount on
such note not previously included in income. Market discount accrues either
ratably or at a constant yield to maturity, at the election of the holder. A
holder of a market discount note also may elect to take market discount into
income as it accrues.
In general, a holder of a Convertible Debenture with market discount should
not have to recognize income on the conversion of the Convertible Debenture,
even with respect to market discount that has accrued but has not been taken
into account. Market discount not recognized on conversion will carry over to
the Waban Common Stock acquired upon conversion thereof and will be recognized
as ordinary income to the extent of gain recognized upon the disposition of
such Waban Common Stock, including any deemed disposition of fractional shares
of Waban Common Stock for cash at the time of conversion.
SALE OR DISPOSITION OF COMMON STOCK
A holder will recognize gain or loss on the sale or exchange of Waban Common
Stock received upon conversion of a Convertible Debenture equal to the
difference between the amount realized on such sale or exchange and the
holder's adjusted tax basis in the Waban Common Stock sold or exchanged. The
holder's adjusted tax basis in the Waban Common Stock generally will equal the
cost of the Convertible Debenture which such holder converted. Except as noted
above under "Market Discount," such gain or loss would be long-term capital
gain or loss if the holder's holding period for the Waban Common Stock were
more than one year. See "--Conversion of Convertible Debentures."
BACKUP WITHHOLDING
A holder of a Convertible Debenture or Waban Common Stock issued upon
conversion of a Convertible Debenture may be subject to backup withholding at
a rate of 31% with respect to dividends on, or the proceeds of a sale,
exchange, or redemption of, such Convertible Debenture or Waban Common Stock,
as the case may be, unless (i) such holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable backup withholding rules.
125
<PAGE>
STANDBY PURCHASE AGREEMENT
Under the terms and subject to the conditions in the Standby Purchase
Agreement dated June , 1997 among Waban, BJI and the Standby Purchaser, the
Standby Purchaser has agreed to purchase from Waban for settlement on ,
1997, such number of shares of Waban Common Stock as would have been issuable
upon conversion of the Excess Convertible Debentures (as defined below), for a
purchase price equal to $ per share, provided that the aggregate principal
amount of Convertible Debentures that are not duly surrendered for conversion
prior to the close of business on the Expiration Date exceeds $53,474,000. The
term "Excess Convertible Debentures" means the aggregate principal amount of
Convertible Debentures that are not duly surrendered for conversion prior to
6:00 p.m. Eastern time, on the Expiration Date that exceeds, and only to the
extent that such aggregate principal amount of Convertible Debentures exceeds,
$53,474,000. In no event shall the Standby Purchaser be obligated to purchase
from the Company more than 2,160,606 shares of Waban Common Stock.
On or prior to the Redemption Date, the Standby Purchaser may also purchase
Waban Common Stock and Convertible Debentures in the open market or otherwise.
The Standby Purchaser has agreed to convert into Waban Common Stock all
Convertible Debentures owned by it. Such Waban Common Stock may be used by the
Standby Purchaser to cover some or all of any short position in the Waban
Common Stock maintained by the Standby Purchaser.
Waban has been advised by the Standby Purchaser that the shares of Waban
Common Stock offered hereby, including shares acquired through the purchase
and conversion of Convertible Debentures, may be offered by the Standby
Purchaser from time to time, both on or prior to and after the Redemption
Date, in one or more transactions on the NYSE or otherwise, at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices, subject to prior sale, when, as and if
delivered to and accepted by the Standby Purchaser and subject to withdrawal,
cancellation or modification of the offer without notice. The Standby
Purchaser may also make sales of such shares to certain securities dealers at
prices that may reflect concessions from the prices at which such shares are
then being offered to the public. The amount of such concessions will be
determined from time to time by the Standby Purchaser. The Standby Purchaser
may thus realize profits or losses independent of the compensation referred to
in the succeeding paragraph.
Pursuant to the terms of the Standby Purchase Agreement and in consideration
of the Standby Purchaser's obligations thereunder, Waban has agreed to pay the
Standby Purchaser (i) a standby fee equal to $ and (ii) an additional $
per share for the aggregate number of shares of Waban Common Stock purchased
by the Standby Purchaser pursuant to the Standby Purchase Agreement.
Waban and BJI have jointly and severally agreed to indemnify the Standby
Purchaser against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Standby
Purchaser may be required to make in respect thereof. Waban has agreed to
reimburse the Standby Purchaser for one-half of its out-of-pocket expenses up
to an aggregate of $ .
Each of Waban and BJI has agreed that it will not, directly or indirectly,
from the date of the Standby Purchase Agreement through the date that is 180
days after the Redemption Date, without the prior written consent of the
Standby Purchaser, with certain exceptions, (i) offer, pledge, sell, offer to
sell, contract to sell, grant any option to purchase, or otherwise sell or
dispose (or announce any offer, pledge, sale, offer of sale, contract of sale,
grant of any option to purchase or other sale or disposition) of any shares of
its common stock or other capital stock or any securities convertible into, or
exchangeable or exercisable for, shares of its common stock or other capital
stock (whether such shares or any such securities are now owned by Waban or
BJI or are hereafter acquired) other than pursuant to stock incentive plans of
Waban or BJI or (ii) enter into any swap or arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
its common stock or other capital stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of common
stock or other capital stock or other such securities, in cash or otherwise.
The executive officers and directors of Waban have entered into similar
agreements extending through August 13, 1997.
126
<PAGE>
In connection with the sale of Waban Common Stock to the Standby Purchaser
pursuant to the Standby Purchase Agreement, the Standby Purchaser may purchase
shares of Waban Common Stock and Convertible Debentures, including purchases
of Waban Common Stock to cover some or all of a short position in the Waban
Common Stock maintained by the Standby Purchaser, which may result in the
maintenance of the price of the Waban Common Stock at a level above that which
might otherwise prevail in the open market or may otherwise affect the market
price of the Waban Common Stock. Such purchases are not required, and, if they
are undertaken, they may be discontinued at any time.
Prudential Securities Incorporated is an indirect, wholly-owned subsidiary
of The Prudential Insurance Company of America.
EXPERTS
The consolidated balance sheets of Waban as of January 25, 1997 and January
27, 1996 and the consolidated statements of income, stockholders' equity and
cash flows of Waban for each of the three years in the period ended January
25, 1997, incorporated by reference in this Proxy Statement/Prospectus, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined balance sheets of BJI as of January 25, 1997 and January 27,
1996 and the combined statements of income, stockholders' equity and cash
flows of BJI for each of the three years in the period ended January 25, 1997,
included in this Proxy Statement/Prospectus, have been included in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of BJI Common Stock and the BJI Rights to be
issued to the stockholders of Waban in connection with the Distribution will
be passed upon for BJI by Hale and Dorr LLP, Boston, Massachusetts. The
validity of the shares of Waban Common Stock (and the associated Preferred
Stock Purchase Rights) issuable upon conversion of the Convertible Debentures
or pursuant to the Standby Purchase Agreement will be passed upon for Waban by
Hale and Dorr LLP, Boston, Massachusetts.
Certain legal matters in connection with the sale of the shares of Waban
Common Stock pursuant to the Standby Agreement will be passed upon for the
Standby Purchaser by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
OTHER MATTERS
INDEPENDENT ACCOUNTANTS
The Waban Board has appointed Coopers & Lybrand L.L.P. as independent
accountants to audit the financial statements of Waban for the fiscal year
ending January 31, 1998. The Company expects that representatives of Coopers &
Lybrand L.L.P. will be present at the Meeting, will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions.
BJI has appointed Coopers & Lybrand L.L.P. as BJI's independent accountants
to audit BJI's financial statements for each fiscal year in the three-year
period ended January 25, 1997. Coopers & Lybrand L.L.P. has served as Waban's
independent accountants for many years, including the periods covered by the
financial statements included in this Proxy Statement.
127
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC and the New
York Stock Exchange initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based on a review of the copies of such reports
furnished to the Company and written representations that no other reports
were required, during fiscal 1996 all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-ten-percent beneficial
owners were complied with, except that Mr. Feldberg filed three months late a
Form 4 relating to the sale of 10,000 shares of Common Stock of the Company by
trusts of which he and his wife are beneficiaries.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders must be received by the Company no later than 5 p.m.
EST on February 7, 1998 in order to be considered for inclusion in the
Company's proxy materials for that meeting. Proposals must be in writing and
sent via registered or certified mail addressed to Waban Inc., Attention:
Corporate Secretary at One Mercer Road, Natick, Massachusetts 01760 or
following the Distribution at 3345 Michelson Drive, Irvine, CA 92715. In
addition, the Company's by-laws specify requirements relating to the timing
and content of the notice which stockholders must provide to the Secretary of
the Company for any matter, including a stockholder nomination for director to
be properly presented at a stockholder meeting.
OTHER MATTERS
The Company has no knowledge of any other matter which may come before the
Meeting and does not intend to present any such other matter. However, if any
such other matters shall properly come before the Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to
vote the shares represented by the accompanying proxy in accordance with their
own judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Sarah M. Gallivan
Secretary
128
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
BJ's Wholesale Club, Inc. Combined Statements of Income for the fiscal
years ended January 28, 1995, January 27, 1996 and January 25, 1997..... F-3
BJ's Wholesale Club, Inc. Combined Balance Sheets as of January 27, 1996
and January 25, 1997.................................................... F-4
BJ's Wholesale Club, Inc. Combined Statements of Cash Flows for the
fiscal years ended January 28, 1995, January 27, 1996 and January 25,
1997.................................................................... F-5
BJ's Wholesale Club, Inc. Combined Statements of Stockholder's Equity for
the fiscal years ended January 28, 1995, January 27, 1996 and January
25, 1997................................................................ F-6
Notes to Combined Financial Statements of BJ's Wholesale Club, Inc. ..... F-7
</TABLE>
The audited financial statements listed above reflect BJ's Wholesale Club,
Inc. combined with the BJ's Wholesale Club Division of Waban Inc. Separate
audited financial statements of BJ's Wholesale Club, Inc. have been omitted
because BJ's Wholesale Club, Inc. is a newly formed shell corporation into
which the assets and liabilities of the BJ's Wholesale Club Division will be
transferred prior to the Distribution.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF BJ'S WHOLESALE CLUB, INC.
We have audited the accompanying combined balance sheets of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997, and
the related combined statements of income, stockholder's equity, and cash
flows for each of the three fiscal years in the period ended January 25, 1997.
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 combined financial position of BJ's Wholesale
Club, Inc. and subsidiaries as of January 27, 1996 and January 25, 1997 and
the combined results of their operations and their cash flows for each of the
three fiscal years in the period ended January 25, 1997 in conformity with
generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Boston Massachusetts February 25, 1997, except
as to the information
presented in Note B, for which
the date is April 18, 1997
F-2
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................. $2,244,591 $2,478,319 $2,868,561
Membership fee income...................... 48,500 51,289 54,271
---------- ---------- ----------
Total revenues............................. 2,293,091 2,529,608 2,922,832
---------- ---------- ----------
Cost of sales, including buying and
occupancy costs........................... 2,054,167 2,263,532 2,605,602
Selling, general and administrative
expenses.................................. 174,416 183,419 212,660
Interest on debt and capital leases (net).. 13,665 14,757 16,838
---------- ---------- ----------
Total expenses............................. 2,242,248 2,461,708 2,835,100
---------- ---------- ----------
Income before income taxes................. 50,843 67,900 87,732
Provision for income taxes................. 19,941 26,350 34,108
---------- ---------- ----------
Net income................................. $ 30,902 $ 41,550 $ 53,624
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................ $ -- $ --
Accounts receivable................................. 30,942 34,006
Merchandise inventories............................. 271,438 295,216
Current deferred income taxes....................... 8,375 6,549
Prepaid expenses.................................... 6,732 6,091
-------- --------
Total current assets.............................. 317,487 341,862
-------- --------
Property at cost:
Land and buildings.................................. 234,972 265,971
Leasehold costs and improvements.................... 33,230 34,764
Furniture, fixtures and equipment................... 163,908 186,696
-------- --------
432,110 487,431
Less accumulated depreciation and amortization...... 83,338 106,821
-------- --------
348,772 380,610
-------- --------
Property under capital leases......................... 4,100 6,219
Less accumulated amortization....................... 2,090 1,618
-------- --------
2,010 4,601
-------- --------
Other assets.......................................... 8,406 10,138
-------- --------
Total assets...................................... $676,675 $737,211
======== ========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Current liabilities:
Accounts payable.................................... $169,115 $200,024
Accrued expenses and other current liabilities...... 60,808 66,302
Accrued federal and state income taxes.............. 10,102 12,431
Obligations under capital leases due within one
year............................................... 255 163
-------- --------
Total current liabilities......................... 240,280 278,920
-------- --------
Obligations under capital leases, less portion due
within one year...................................... 2,731 2,592
Other noncurrent liabilities.......................... 26,034 28,466
Deferred income taxes................................. 3,917 3,545
Loans and advances from Waban Inc..................... 181,730 148,081
<CAPTION>
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C>
Common stock, par value $.01, authorized 180,000,000
shares, issued and outstanding 32,740,941 shares..... 327 327
Retained earnings..................................... 221,656 275,280
-------- --------
Total stockholder's equity........................ 221,983 275,607
-------- --------
Total liabilities and stockholder's equity........ $676,675 $737,211
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 30,902 $ 41,550 $ 53,624
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property............................ 21,829 27,185 33,796
Loss on property disposals........... 903 142 256
Deferred income taxes................ (1,161) (1,040) 1,453
Increase (decrease) in cash due to
changes in:
Accounts receivable................ 1,118 (7,740) (3,064)
Merchandise inventories............ (22,462) (37,581) (23,778)
Prepaid expenses................... (944) (1,039) 641
Other assets....................... (1,477) (700) (1,431)
Accounts payable................... 12,280 18,911 30,909
Accrued expenses................... 8,213 9,014 7,995
Accrued income taxes............... 11,612 (3,278) 2,329
Other noncurrent liabilities....... 9,306 5,177 2,432
-------- -------- --------
Net cash provided by operating
activities.......................... 70,119 50,601 105,162
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions................... (74,506) (90,212) (71,722)
Property disposals................... 6,508 98 440
-------- -------- --------
Net cash used in investing
activities.......................... (67,998) (90,114) (71,282)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease
obligations......................... (276) (304) (231)
Increase (decrease) in loans and
advances from Waban Inc............. (9,915) 39,218 (33,649)
-------- -------- --------
Net cash provided by (used in)
financing activities................ (10,191) 38,914 (33,880)
-------- -------- --------
Net increase (decrease) in cash.... (8,070) (599) --
Cash at beginning of period........ 8,669 599 --
-------- -------- --------
Cash at end of period.............. $ 599 $ -- $ --
======== ======== ========
Supplemental cash flow information:
Interest paid...................... $ 14,774 $ 14,811 $ 16,889
Income taxes paid.................. 9,490 30,668 30,325
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BJ'S WHOLESALE CLUB, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDER'S
PAR VALUE $.01 EARNINGS EQUITY
-------------- -------- -------------
<S> <C> <C> <C>
Balance, January 29, 1994................. $ 327 $149,204 $149,531
Net income.............................. -- 30,902 30,902
----- -------- --------
Balance, January 28, 1995................. 327 180,106 180,433
Net income.............................. -- 41,550 41,550
----- -------- --------
Balance, January 27, 1996................. 327 221,656 221,983
Net income.............................. -- 53,624 53,624
----- -------- --------
Balance, January 25, 1997................. $ 327 $275,280 $275,607
===== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
BJ's Wholesale Club, Inc. (the "Company") is a newly formed Delaware
corporation which is a wholly-owned subsidiary of Waban Inc. ("Waban"). Waban
currently operates two divisions; BJ"s Wholesale Club, a food & general
merchandise warehouse club business, and HomeBase, a home improvement
warehouse business. On October 23, 1996, Waban announced a proposal for a tax-
free distribution (the "Distribution") of all of the outstanding shares of
common stock of the Company held by Waban. Prior to the Distribution, Waban
will transfer all of the assets and liabilities of its BJ's Wholesale Club
Division to the Company. The combined financial statements of the Company
present the financial results of the BJ's Wholesale Club Division.
Fiscal Year
The Company's fiscal year ends on the last Saturday in January.
Merchandise Inventories
Inventories are stated 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.
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.
Membership Fees
Membership fees are included in revenue when received, but not before a
warehouse club opens.
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 club
opens.
Interest on Debt and Capital Leases (Net)
Interest on debt and capital leases in the Combined Statements of Income is
presented net of interest income and investment income of $51,000 in 1996,
$54,000 in 1995 and $1,109,000 in 1994. Interest on debt represents interest
on intercompany loans and advances.
Capitalized Interest
The Company capitalizes interest related to the development of owned
facilities. Interest in the amount of $966,000, $1,547,000 and $1,061,000 was
capitalized in 1996, 1995 and 1994, respectively.
Stock-Based Compensation
The Company applies the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
stock-based compensation.
F-7
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Estimates Included in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A. RELATED PARTY TRANSACTIONS
Waban loans funds to the Company as needed. The intercompany balance is
considered to be long-term debt. Waban charges interest expense to the Company
at the annual rate of 10% based on the Company's average monthly intercompany
balance (net of cash). The Company's intercompany interest expense was
$17,557,000, $16,032,000 and $15,480,000 in fiscal 1996, 1995 and 1994,
respectively.
Selling, general and administrative expenses include certain allocations of
overhead incurred by Waban that support the Company's business. These
expenses, which totalled $3,891,000, $3,587,000 and $5,639,000 in fiscal 1996,
1995 and 1994, respectively, were generally allocated based on specific
identification and management's estimates of the relative time devoted to
supporting the Company.
B. COMMITMENTS AND CONTINGENCIES
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 5 years.
Future minimum lease payments as of January 25, 1997 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEARS ENDING JANUARY LEASES LEASES
--------------------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998........................................... $ 419 $ 44,130
1999........................................... 426 48,122
2000........................................... 427 47,819
2001........................................... 427 46,850
2002........................................... 427 45,332
Later years.................................... 2,387 515,020
---------- ------------
Total minimum lease payments................... 4,513 $ 747,273
============
Less amount representing interest.............. 1,758
----------
Present value of net minimum capital lease
payments...................................... $ 2,755
==========
</TABLE>
Rental expense under operating leases (including contingent rentals which
were not material) amounted to $40,185,000, $37,561,000 and $33,282,000 in
1996, 1995 and 1994, respectively.
In connection with the spinoff of Waban by The TJX Companies, Inc. ("TJX")
in 1989, Waban and TJX entered into an agreement pursuant to which Waban
agreed to indemnify TJX against any liabilities that TJX might incur with
respect to 45 current HomeBase leases as to which TJX was either a lessee or
guarantor. In settlement of legal proceedings filed by TJX, the Company agreed
in April 1997 that for approximately five years after the Distribution it will
indemnify TJX with respect to any liabilities that TJX may incur with respect
to HomeBase leases and thereafter it will indemnify TJX for 50% of such
liabilities. The Company believes that since Waban is primarily liable for
these leases, the Company's contingent liability under this agreement will not
have a material effect on the Company's financial condition.
F-8
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved in various legal proceedings incident to the
character of its business. Although it is not possible to predict the outcome
of these proceedings, or any claims against the Company related thereto, the
Company believes that such proceedings will not, individually or in the
aggregate, have a material effect on its financial condition or results of
operations.
C. CAPITAL STOCK, STOCK OPTIONS AND STOCK PURCHASE PLANS
The historical capitalization of the Company has been retroactively restated
to reflect the anticipated issuance of 32,740,941 shares of common stock for
all periods presented in order to reflect the equity of the Company on an
ongoing basis, as a result of the planned distribution of all of the Company's
common stock to holders of Waban's outstanding shares (the "Distribution").
The Company's authorized capital stock also includes 20,000,000 shares of
Preferred Stock, $.01 par value per share.
The Company intends to adopt a 1997 Replacement Stock Incentive Plan and
1997 Stock Incentive Plan (the "1997 Plans"). The 1997 Plans will permit the
granting of stock options, restricted stock and other stock-based awards. The
Company intends to reserve up to 3,500,000 shares of common stock for issuance
under the 1997 Plans. The Company also intends to adopt a 1997 Director Stock
Option Plan for external directors and intends to reserve 150,000 shares of
common stock for issuance under this plan.
Certain key employees participate in the Waban stock incentive plan. As of
January 25, 1997, these individuals held a total of 1,905,896 options to
purchase Waban stock (of which 859,680 were exercisable). Upon completion of
the Distribution, the Company intends to issue options of equal intrinsic
value, with similar vesting provisions, option periods and ratios of exercise
price to market value per share, under the 1997 Replacement Stock Incentive
Plan to replace unexercised options outstanding under the Waban stock
incentive plan held by the Company's employees.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995 and became effective for the Company's fiscal year ending January
25, 1997. SFAS No. 123 provides a choice of adopting its fair value based
method of expense recognition for stock-based awards granted to employees or
applying the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." The pro forma impact on net income related to the Waban options
granted to BJI employees is immaterial. The Company will apply the accounting
provisions of APB No. 25 and adopt the disclosure-only provisions of SFAS No.
123 when it issues stock options.
D. INCOME TAXES
The Company is included in the consolidated federal income tax return of
Waban and, where applicable, is consolidated for state reporting purposes. The
Company believes the income tax provision is representative of the Company's
tax provision as if it were a stand-alone company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current................................ $17,187 $22,710 $27,208
Deferred............................... (903) (814) 1,153
State
Current................................ 3,915 4,680 5,447
Deferred............................... (258) (226) 300
------- ------- -------
Total income tax provision............... $19,941 $26,350 $34,108
======= ======= =======
</TABLE>
F-9
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
and the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate....... 35% 35% 35%
State income taxes, net of federal tax
benefit................................ 5 4 4
Targeted jobs tax credit................ (1) -- --
--- --- ---
Effective income tax rates.............. 39% 39% 39%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of January 27, 1996 and January 25, 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves............................ $10,858 $11,516
Rental step liabilities............................ 3,294 3,951
Compensation and benefits.......................... 2,788 3,392
Other.............................................. 2,518 2,071
------- -------
Total deferred tax assets........................ 19,458 20,930
------- -------
Deferred tax liabilities:
Accelerated depreciation-property.................. 14,696 15,375
Real estate taxes.................................. -- 2,390
Other.............................................. 304 161
------- -------
Total deferred tax liabilities................... 15,000 17,926
------- -------
Net deferred tax assets.............................. $ 4,458 $ 3,004
======= =======
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting 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.
E. PENSIONS
The Company participates in Waban's 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. No benefits have accrued under
this plan since July 4, 1992, when it was frozen. The Company's share of
Waban's pension expense amounted to $129,000, $124,000 and $144,000 in fiscal
1996, 1995 and 1994, respectively.
F-10
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Waban does not segregate plan assets or liabilities by each participating
subsidiary company and, as a result, the following tables present the periodic
pension cost and funded status of the Waban plans in accordance with SFAS No.
87:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $ 209 $ 182 $ 180
Interest cost on projected benefit
obligation............................. 435 429 455
Actual return on assets................. (73) (1,245) (940)
Net amortization and deferrals.......... (264) 892 561
----- ------- -----
Net pension cost........................ $ 307 $ 258 $ 256
===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested benefits................................... $ 5,991 $6,451
======= ======
Projected benefit obligation........................ $ 5,991 $6,451
Plan assets at fair market value.................... 5,997 6,455
------- ------
Projected benefit obligation less than plan assets.. (6) (4)
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions........................................ (1,088) (878)
------- ------
Prepaid pension cost included in balance sheets..... $(1,094) $ (882)
======= ======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% in 1996 and 1995. The
expected long-term rate of return on assets used was 9.0% in 1996 and 1995.
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.
The Company also participates in Waban's 401(k) Savings Plans, under which
participating employees may make pre-tax contributions up to 15% of covered
compensation. Waban matches employee contributions at 100% of the first one
percent of covered compensation and 50% of the next four percent. Beginning in
1996, Waban's matching contribution is payable as of the end of each calendar
quarter. Previously, the matching contribution was payable at the end of the
year. The Company's share of expense under these plans was $2,259,000 in 1996,
$1,867,000 in 1995 and $1,669,000 in 1994.
In 1994, Waban established a non-contributory defined contribution
retirement plan for certain key employees, including certain of the Company's
employees. Under the plan, Waban funds annual retirement contributions for the
designated participants, on an after-tax basis. For 1994 through 1996, Waban's
contribution equaled 5% of the participants' base salary. Participants become
fully vested in their contribution accounts at the end of the fiscal year in
which they complete four years of service. The Company's share of expense
under this plan was $522,000 in 1996, $485,000 in 1995 and $439,000 in 1994.
F. POSTRETIREMENT MEDICAL BENEFITS
The Company participates in Waban's 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,
F-11
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and who participated in a Waban-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.
In fiscal 1996, 1995 and 1994, the Company's share of Waban's postretirement
medical benefit expense was $87,000, $73,000 and $76,000, respectively. Waban
does not segregate plan liabilities by participating subsidiary company and,
as a result, the following tables present the net periodic postretirement
benefit cost and the funded status of the Waban plan in accordance with SFAS
No. 106:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JANUARY 28, JANUARY 27, JANUARY 25,
1995 1996 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $128 $120 $140
Interest cost........................... 42 44 42
Net amortization and deferrals.......... -- (10) (10)
---- ---- ----
Net periodic postretirement benefit
cost................................... $170 $154 $172
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants.............................. $ -- $ --
Fully eligible active participants................ 63 67
Other active participants......................... 515 693
---- ----
Unfunded accumulated postretirement benefit
obligation......................................... 578 760
Unrecognized net gain............................... 232 222
---- ----
Accrued postretirement benefit cost included in
balance sheets..................................... $810 $982
==== ====
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost
of medical coverage of 8% in 1996 grading down to 4.5% after 8 years was
assumed as of January 27, 1996. 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 1996
by $35,000 and would increase the accumulated postretirement benefit
obligation as of January 25, 1997 by $129,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation of January 25, 1997 and January 27, 1996 was
7.25%.
G. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 25,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Employee compensation............................... $11,208 $14,998
Self-insurance reserves............................. 11,565 13,134
Sales and use taxes, rent, utilities, advertising,
fixed asset additions and other.................... 38,035 38,170
------- -------
$60,808 $66,302
======= =======
</TABLE>
F-12
<PAGE>
BJ'S WHOLESALE CLUB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company's reported expense and reserves for insurance are derived from
estimated ultimate cost based upon individual claim file reserves. Waban
maintains insurance coverage for the Company for individual occurrences above
$250,000 for worker's compensation and general liability, and above $200,000
for medical claims. In addition to the amounts shown above in current
liabilities, noncurrent self-insurance reserves of $15.3 million and $15.2
million as of January 25, 1997 and January 27, 1996, respectively, are
included in other noncurrent liabilities.
H. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal year ended January 25, 1997
Total revenues....................... $622,388 $733,688 $697,818 $868,938
Gross earnings(a).................... 60,079 76,453 73,906 106,792
Net income........................... 5,385 12,780 9,589 25,870
Fiscal year ended January 27, 1996
Total revenues....................... $531,106 $632,371 $604,426 $761,705
Gross earnings(a).................... 48,959 65,351 61,719 90,047
Net income........................... 3,123 10,151 6,926 21,350
</TABLE>
- --------
(a) Gross earnings equals total revenues less cost of sales, including buying
and occupancy costs.
I. SUBSEQUENT EVENT
Subsequent to year-end, the Company transferred certain real estate assets
into a subsidiary, Natick Realty, Inc. Natick Realty, Inc. fully and
unconditionally guarantees Waban's senior notes ($24 million), senior
subordinated notes ($100 million) and borrowings under Waban's credit
agreement.
F-13
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN +
+OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY +
+SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, JUNE 5, 1997
- --------------------------------------------------------------------------------
2,160,606 SHARES
WABAN INC.
COMMON STOCK
- --------------------------------------------------------------------------------
This Prospectus relates to the sale from time to time by Prudential Securities
Incorporated (the "Standby Purchaser") of a maximum of 2,160,606 shares of
common stock, par value $.01 per share ("Waban Common Stock"), of Waban Inc., a
Delaware corporation ("Waban" or the "Company"), that may be acquired by the
Standby Purchaser either (i) upon conversion of the 6.5% Convertible
Subordinated Debentures due 2002 (the "Convertible Debentures") of the Company
or (ii) under the standby arrangements described herein.
The Company has called all of the outstanding Convertible Debentures for
redemption on July , 1997 (the "Redemption Date") at a redemption price of
$1,028.89, plus accrued interest of $ from July 1, 1997 to the Redemption
Date, for a total redemption price of $ for each $1,000 principal amount of
Convertible Debentures (the "Redemption Price"). No interest will accrue on the
Convertible Debentures from and after the Redemption Date. The Convertible
Debentures are convertible into shares of Waban Common Stock at the conversion
price of $24.75 per share of Waban Common Stock (equivalent to a conversion
rate of 40.404 shares of Waban Common Stock for each $1,000 principal amount of
Convertible Debentures), until 6:00 p.m., Eastern time, on June , 1997 (the
"Expiration Date"), at which time the conversion privilege terminates. Cash
will be paid in lieu of any fractional shares of Waban Common Stock upon
conversion. The Company will pay to the persons in whose names outstanding
Convertible Debentures are registered at the close of business on June 15, 1997
(the next scheduled regular record date for interest payments) the interest
payment due on July 1, 1997 (the next scheduled regular interest payment date).
ANY HOLDER THAT CONVERTS CONVERTIBLE DEBENTURES AFTER JUNE 15, 1997 MUST AS A
CONDITION TO SUCH CONVERSION, SUBMIT WITH THE CONVERTIBLE DEBENTURES BEING
CONVERTED AN AMOUNT, IN NEW YORK CLEARING HOUSE FUNDS OR OTHER FUNDS ACCEPTABLE
TO THE COMPANY, EQUAL TO THE INTEREST OF $32.50 FOR EACH $1,000 PRINCIPAL
AMOUNT OF CONVERTIBLE DEBENTURES PAYABLE ON SUCH CONVERTIBLE DEBENTURES ON JULY
1, 1997. SUCH HOLDER, THEREFORE, WILL NOT RECEIVE THE ECONOMIC BENEFIT OF SUCH
INTEREST PAYMENT. No other payment or adjustment will be made on account of
interest on the Convertible Debentures accruing after January 1, 1997.
THE CONVERTIBILITY OF THE CONVERTIBLE DEBENTURES WILL EXPIRE AT 6:00 P.M.,
EASTERN TIME, ON THE EXPIRATION DATE. ANY CONVERTIBLE DEBENTURES NOT
SURRENDERED FOR CONVERSION ON OR PRIOR TO 6:00 P.M., EASTERN TIME, ON THE
EXPIRATION DATE WILL BE REDEEMED.
In the event that less than all of the Convertible Debentures are surrendered
for conversion on or prior to the Expiration Date, the Company has made
arrangements with the Standby Purchaser to purchase from the Company such
number of shares of Waban Common Stock as would have been issuable upon
conversion of the Excess Convertible Debentures (as defined below). The term
"Excess Convertible Debentures" means the aggregate principal amount of
Convertible Debentures in excess of $53,474,000 that are not duly surrendered
for conversion prior to 6:00 p.m., Eastern time, on the Expiration Date. In no
event shall the Standby Purchaser be obligated to purchase from the Company
more than 2,160,606 shares of Waban Common Stock. The Standby Purchaser may
also purchase Convertible Debentures in the open market or otherwise prior to
the expiration of the right of conversion on the Expiration Date, and any
Convertible Debentures so purchased will be converted into Waban Common Stock.
See "Standby Agreement" in the accompanying Proxy Statement/Prospectus for a
description of the Standby Purchaser's compensation and indemnification
arrangements with the Company and BJ's Wholesale Club, Inc.
(continued on next page)
- --------------------------------------------------------------------------------
THE CLOSING UNDER THE STANDBY PURCHASE AGREEMENT AND RESALES OF SHARES OF WABAN
COMMON STOCK PURCHASED THEREUNDER IS NOT CONDITIONED ON THE COMPLETION OF THE
PROPOSED DISTRIBUTION OF SHARES OF COMMON STOCK OF BJ'S WHOLESALE CLUB, INC. TO
THE STOCKHOLDERS OF WABAN INC., AS DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS. THERE CAN BE NO ASSURANCE THAT THE CONDITIONS PRECEDENT
TO SUCH DISTRIBUTION WILL BE SATISFIED OR THAT SUCH DISTRIBUTION WILL TAKE
PLACE. SEE "RISK FACTORS--RISK OF NON-OCCURRENCE OF DISTRIBUTION" IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
THE WABAN COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGES 22 TO 26 OF THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN WABAN COMMON STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PRUDENTIAL SECURITIES INCORPORATED
June , 1997
<PAGE>
Waban Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "WBN." On June , 1997, the last reported sales price of Waban Common
Stock on the NYSE was $ per share. See "Price Range of Waban Common Stock
and Dividend Policy" in the accompanying Proxy Statement/Prospectus.
A HOLDER WHO CONVERTED CONVERTIBLE DEBENTURES ON JUNE , 1997 WOULD HAVE
RECEIVED WABAN COMMON STOCK (INCLUDING CASH IN LIEU OF ANY FRACTIONAL SHARE)
HAVING A MARKET VALUE OF $ FOR EACH $1,000 PRINCIPAL AMOUNT OF CONVERTIBLE
DEBENTURES, BASED ON THE LAST REPORTED SALES PRICE OF WABAN COMMON STOCK ON
THE NYSE ON THAT DATE. IF SUCH PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES WERE
SURRENDERED FOR REDEMPTION ON THE REDEMPTION DATE, SUCH HOLDER WOULD RECEIVE
$ IN CASH. IN ADDITION, THE HOLDER OF RECORD ON JUNE 15, 1997 OF ANY
CONVERTIBLE DEBENTURE SURRENDERED FOR REDEMPTION WILL HAVE RECEIVED A PAYMENT
OF INTEREST ON JULY 1, 1997 IN THE AMOUNT OF $32.50 FOR EACH $1,000 PRINCIPAL
AMOUNT OF CONVERTIBLE DEBENTURES. WHILE NO ASSURANCE CAN BE GIVEN AS TO ANY
FUTURE PRICE FOR WABAN COMMON STOCK, AS LONG AS THE MARKET PRICE OF WABAN
COMMON STOCK (AFTER GIVING EFFECT TO COMMISSIONS AND OTHER COSTS OF SALE)
REMAINS AT OR ABOVE $ PER SHARE, UPON CONVERSION OF THEIR CONVERTIBLE
DEBENTURES, HOLDERS WILL RECEIVE WABAN COMMON STOCK AND CASH FOR FRACTIONAL
SHARES HAVING A CURRENT MARKET VALUE EQUAL TO OR GREATER THAN THE REDEMPTION
PRICE PLUS THE JULY 1 INTEREST PAYMENT OF $32.50 FOR EACH $1,000 PRINCIPAL
AMOUNT OF CONVERTIBLE DEBENTURES. IT SHOULD BE NOTED, HOWEVER, THAT THE PRICE
OF WABAN COMMON STOCK RECEIVED UPON CONVERSION WILL FLUCTUATE IN THE MARKET,
AND THAT HOLDERS MAY INCUR VARIOUS EXPENSES OF SALE IF SUCH WABAN COMMON STOCK
IS SOLD.
The shares of Waban Common Stock offered hereby, including shares acquired
through the purchase and conversion of Convertible Debentures, may be offered
by the Standby Purchaser from time to time, both on or prior to and after the
Redemption Date, in one or more transactions on the NYSE or otherwise, at
market prices prevailing at the time of sale, at prices relating to such
prevailing market prices or at negotiated prices. The Standby Purchaser may
thus realize profits or losses independent of the compensation referred to
under "Standby Agreement." Any Waban Common Stock will be offered by the
Standby Purchaser, subject to prior sale, when, as and if delivered to and
accepted by the Standby Purchaser and subject to withdrawal, cancellation or
modification of the offer without notice.
- -------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE STANDBY PURCHASER MAY PURCHASE
CONVERTIBLE DEBENTURES OR SHARES OF WABAN COMMON STOCK, INCLUDING PURCHASES OF
WABAN COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE WABAN
COMMON STOCK MAINTAINED BY THE STANDBY PURCHASER, WHICH MAY MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE WABAN COMMON STOCK. SEE "STANDBY AGREEMENT".
USE OF PROCEEDS
The net proceeds to be received by the Company from any sale of the Waban
Common Stock to the Standby Purchaser pursuant to the standby purchase
agreement described herein will be used to effect the redemption of
Convertible Debentures not surrendered for conversion. The number of shares of
Waban Common Stock to be acquired by the Standby Purchaser from the Company,
and therefore the proceeds of this offering, will not be determinable until
the close of business on the Redemption Date. The Company will not receive any
proceeds from the issuance of Waban Common Stock on conversion of the
Convertible Debentures. See "Standby Agreement" in the accompanying Proxy
Statement/Prospectus.
S-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE STANDBY PURCHASER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO THE DATE HEREOF.
----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,160,606 SHARES
WABAN INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
PRUDENTIAL SECURITIES INCORPORATED
JUNE , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 TO FORM S-1, ITEM 14 TO FORM S-3. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
The following table sets forth the various expenses in connection with the
distribution of the securities being registered. All amounts shown are
estimates except for the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 98,483
NYSE Listing Fee.............................................. 202,206
Blue Sky Fees and Expenses.................................... 4,000
Paying Agent, Transfer Agent and Registrar Fees............... 15,000
Accounting and Tax Fees and Expenses.......................... 250,000
Legal Fees and Expenses....................................... 600,000
Printing, Engraving and Mailing Expenses...................... 175,000
Standby Underwriting Fees and Expenses........................ 1,150,000
Miscellaneous................................................. 5,311
----------
Total....................................................... $2,500,000
==========
</TABLE>
ITEM 14 TO FORM S-1, ITEM 15 TO FORM S-3. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 145 further provides that a corporation similarly may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite an adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Waban has entered, and BJI intends to enter, into indemnification agreements
with each of its respective directors and officers indemnifying them against
expenses, settlements, judgments and fines incurred in connection with any
threatened, pending or completed action, suit, arbitration or proceeding,
where the individual's involvement is by reason of the fact that such person
is or was a director or officer of Waban or BJI, as the case may be, or served
at the request of Waban or BJI, as the case may be, as a director of another
organization (except that indemnification is not provided against judgments
and fines in a derivative suit unless permitted by Delaware law). An
individual may not be indemnified if such person is found not to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of Waban or BJI, as the case may be, except to
the extent Delaware law permits broader contractual indemnification. These
II-1
<PAGE>
indemnification agreements provide procedures, presumptions and remedies which
substantially strengthen the indemnification rights beyond those provided by
Waban's Restated Certificate of Incorporation (the "Waban Certificate") or
BJI's Amended and Restated Certificate of Incorporation (the "BJI
Certificate"), as the case may be, and by Delaware law.
The Waban Certificate and the BJI Certificate each provide that each person
who was or is made a party to, or is involved in, any action, suit, proceeding
or claim by reason of the fact that he or she is or was a director, officer or
employee of Waban or BJI, as the case may be, (or is or was serving at the
request of Waban or BJI, as the case may be, as a director, officer, trustee,
employee or agent of any other enterprise including service with respect to
employee benefit plans) shall be indemnified and held harmless by Waban or BJI,
as the case may be, to the full extent permitted by Delaware law, as in effect
from time to time, against all expenses (including attorneys' fees and
expenses), judgments, fines, penalties and amounts to be paid in settlement
incurred by such person in connection with the investigation, preparation to
defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Waban Certificate and the BJI Certificate do not apply to any action, suit,
proceeding or claim initiated by or on behalf of a person otherwise entitled to
the benefit of such provisions. Any person seeking indemnification under the
Waban Certificate and BJI Certificate, as the case may be, shall be deemed to
have met the standard of conduct required for such indemnification unless the
contrary shall be established. The Waban Certificate and the BJI Certificate
each provide that the rights to indemnification and the payment of expenses
provided thereby shall not be exclusive of any other right which any person may
have or acquire under any statute, provision of the Waban Certificate or BJI
Certificate, as the case may be, or Waban's By-laws or BJI's By-laws, as the
case may be, or otherwise. Any repeal or modification of such indemnification
provisions shall not adversely affect any right or protection of a director or
officer with respect to any conduct of such director or officer occurring prior
to such repeal or modification.
Pursuant to the Form of Standby Purchase Agreement filed as an exhibit to the
Form S-3, the Purchaser has agreed to indemnify the directors and officers of
Waban and BJI in certain circumstances.
Section 102(b) of the Delaware General Corporation Law, as amended, permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividend and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit. The Waban Certificate and the BJI Certificate provide that directors
shall be exculpated from liability as provided under Delaware Law.
ITEM 15 TO FORM S-1. RECENT SALES OF UNREGISTERED SECURITIES
BJI is a wholly owned subsidiary of Waban. The shares of capital stock of BJI
issued to Waban were offered and sold in reliance upon the exemption from
registration under Section 4(2), relative to transactions not involving any
public offering.
ITEM 16 TO FORM S-1 AND FORM S-3. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
See the Exhibit Indexes included immediately preceding the exhibits to the
Form S-1 and Form S-3, respectively.
(B) FINANCIAL STATEMENT SCHEDULES
Incorporated by reference to Waban's Annual Report on Form 10-K for the
fiscal year ended January 25, 1997.
II-2
<PAGE>
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17 TO FORM S-1 AND FORM S-3. UNDERTAKINGS
A. Waban hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of Waban's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
BJI and Waban pursuant to the provisions described in Item 14 to Form S-1 and
Item 15 to Form S-3, respectively, or otherwise, the Registrants have been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, such Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
C. Waban hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by Waban pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Natick, Commonwealth of Massachusetts, on this 5th day of June, 1997.
BJ'S WHOLESALE CLUB, INC.
/s/ John J. Nugent
By: __________________________________
John J. Nugent
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below by the following persons
in the capacities indicated below on the 5th day of June, 1997.
SIGNATURE TITLE
President
/s/ John J. Nugent (Principal
- ------------------------------------ Executive Officer)
JOHN J. NUGENT
* Treasurer
- ------------------------------------ (Principal
FRANK D. FORWARD Financial and
Accounting
Officer)
* Director
- ------------------------------------
HERBERT J. ZARKIN
Director
/s/ Edward J. Weisberger
- ------------------------------------
EDWARD J. WEISBERGER
/s/ Edward J. Weisberger
* By:_______________________________
EDWARD J. WEISBERGER
ATTORNEY-IN-FACT
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Natick, Commonwealth of Massachusetts, on the 5th day of June, 1997.
WABAN INC.
/s/ Edward J. Weisberger
By: _________________________________
Edward J. Weisberger
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below by the following persons
in the capacities indicated below on the 5th day of June, 1997.
SIGNATURE TITLE
* Chairman of the
- ------------------------------------- Board
LORNE R. WAXLAX
* President, Chief
- ------------------------------------- Executive Officer
HERBERT J. ZARKIN and Director
(Principal
Executive Officer)
Senior Vice
/s/ Edward J. Weisberger President and Chief
- ------------------------------------- Financial Officer
EDWARD J. WEISBERGER (Principal
Financial and
Accounting Officer)
* Director
- -------------------------------------
S. JAMES COPPERSMITH
* Director
- -------------------------------------
STANLEY H. FELDBERG
* Director
- -------------------------------------
KERRY L. HAMILTON
* Director
- -------------------------------------
ALLYN L. LEVY
* Director
- -------------------------------------
ARTHUR F. LOEWY
* Director
- -------------------------------------
THOMAS J. SHIELDS
/s/ Edward J. Weisberger
*By:_________________________________
EDWARD J. WEISBERGER
ATTORNEY-IN-FACT
II-5
<PAGE>
BJ'S WHOLESALE CLUB, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1* Certificate of Incorporation of BJI.
3.2* Form of Amended and Restated Certificate of Incorporation of
BJI, to be filed prior to the Distribution.
3.3* By-Laws of BJI.
3.4* Form of Amended and Restated By-Laws of BJI, to be effective
prior to the Distribution.
4.1* Specimen Certificate for Shares of Common Stock, $.01 par
value per share, of BJI.
4.2* Form of Rights Agreement to be entered into between BJI and
the Rights Agent thereunder.
5 Opinion of Hale and Dorr LLP with respect to the validity of
the securities being registered.
10.1* Form of Separation and Distribution Agreement to be entered
into between BJI and Waban.
10.2* Form of Services Agreement to be entered into between BJI
and Waban.
10.3* Form of Tax Sharing Agreement to be entered into between BJI
and Waban.
10.4* Form of Employee Benefits Agreement to be entered into
between BJI and Waban.
10.5 Management Incentive Plan of BJI.
10.6* Growth Incentive Plan of BJI.
10.7* 1997 Director Stock Option Plan of BJI.
10.8* Executive Retirement Plan of BJI.
10.9* Form of Indemnification Agreement between BJI and each of
its directors and executive officers.
10.10* 1997 Replacement Stock Incentive Plan of BJI.
10.11* 1997 Stock Incentive Plan of BJI.
10.12* General Deferred Compensation Plan of BJI.
10.13* Indemnification Agreement, dated as of April 18, 1997,
between BJI and The TJX Companies, Inc.
21* Subsidiaries of BJI.
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of S. James Coppersmith.
23.4* Consent of Thomas J. Shields.
23.5* Consent of Herbert J. Zarkin.
23.6* Consent of Allyn L. Levy.
23.7* Consent of Lorne R. Waxlax.
23.8* Consent of Edward J. Weisberger.
23.9* Consent of Kerry L. Hamilton.
23.10* Consent of John J. Nugent.
24* Power of Attorney.
</TABLE>
- --------
* Previously filed.
<PAGE>
WABAN INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
1A** Form of Standby Purchase Agreement
4A.1 Restated Certificate of Incorporation of Waban(1)
4A.2 By-laws, as amended, of Waban(2)
4A.3 Rights Agreement dated as of May 23, 1989 between Waban and
Morgan Shareholder Services Trust Company, as Rights Agent(1)
4A.4 Indenture dated as of July 1, 1992 between Waban and
Continental Bank, National Association, as Trustee, with
respect to 6 1/2% Convertible Subordinated Debentures due
July 1, 2002(3)
4A.5* Specimen Certificate for Shares of Common Stock, $.01 par
value per share, of Waban
5A Opinion of Hale and Dorr LLP
23A.1* Consent of Coopers & Lybrand L.L.P.
23A.2 Consent of Hale and Dorr LLP (included in Exhibit 5)
23A.3* Consent of Allan P. Sherman
24A* Power of Attorney
99A.1 Form of Proxy Card
99A.2* 1989 Stock Incentive Plan of Waban (as proposed to be
amended)
99A.3* 1997 Stock Incentive Plan
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(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 (#1-10259)
(3) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423)
<PAGE>
EXHIBIT 5
HALE AND DORR LLP
COUNSELLORS AT LAW
60 State Street
Boston, Massachusetts 02109
617-526-6000 * FAX 617-526-5000
June 5, 1997
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-25511) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 38,601,761 shares of Common Stock, $.01 par value per share (the "Shares"),
of BJ's Wholesale Club, Inc., a Delaware corporation (the "Company"), and the
associated Preferred Stock Purchase Rights (the "Rights") to be issued under the
Rights Agreement to be entered into by the Company and First Chicago Trust
Company of New York, as Rights Agent (the "Rights Agreement"). The Company is a
newly formed, wholly owned subsidiary of Waban Inc. ("Waban").
The Shares and the Rights are to be distributed (the "Distribution"),
on a one-for-one basis, in the form of a special dividend to all holders of
outstanding shares of common stock of Waban as of the Distribution Record Date
(as defined in the Registration Statement).
We are acting as counsel for the Company in connection with the
Distribution. We have examined signed copies of the Registration Statement and
all exhibits thereto, all as filed with the Commission. We have also examined
and relied upon minutes of meetings of the Board of Directors of the Company as
provided to us by the Company, stock record books of the Company as provided to
us by the Company, the Certificate of Incorporation and By-Laws of the Company,
the forms of Amended and Restated Certificate of Incorporation of the Company,
Amended and Restated By-Laws of the Company and Rights Agreement, each as filed
as exhibits to the Registration Statement, and such other documents as we have
deemed necessary for purposes of rendering the opinions hereinafter set forth.
<PAGE>
BJ's Wholesale Club, Inc.
June 5, 1997
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We have not made any investigation of the laws of any jurisdiction
other than the Commonwealth of Massachusetts, and the federal laws of the United
States and the Delaware General Corporation Law statute, and we are opining
herein solely with respect to the laws of the Commonwealth of Massachusetts, the
federal laws of the United States and the Delaware General Corporation Law
statute. To the extent that the laws of any other jurisdiction govern the
agreements or transactions as to which we are opining herein, we have assumed,
with your permission, that such laws are identical to those of the Commonwealth
of Massachusetts, and we are expressing no opinion herein as to whether such
assumption is reasonable or correct.
We assume that the appropriate action will be taken, prior to the
issuance of the Shares and the Rights in the manner described in the
Registration Statement, to register and qualify the Shares and the Rights for
sale under all applicable state securities or "blue sky" laws.
Based upon and subject to the foregoing, we are of the opinion that,
upon the filing with the Secretary of State of the State of Delaware of the
Amended and Restated Certificate of Incorporation of the Company and the due
authorization, execution and delivery by the Company and the Rights Agent of the
Rights Agreement, each in the form filed as an exhibit to the Registration
Statement:
1. The Shares will be duly authorized for issuance and, when issued
in the manner described in the Registration Statement, will be validly issued,
fully paid and nonassessable.
2. Assuming that the Rights Agreement has been duly authorized,
executed and delivered by the Rights Agent, when the Shares have been validly
issued in the manner described in the Registration Statement, the Rights
attributable to the Shares will be validly issued.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
<PAGE>
BJ's Wholesale Club, Inc.
June 5, 1997
Page 3
Very truly yours,
/s/ HALE AND DORR LLP
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.5
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BJ'S WHOLESALE CLUB, INC.
MANAGEMENT INCENTIVE PLAN
1. Purpose
The purpose of the BJ's Wholesale Club, Inc. Management Incentive Plan
(the "Plan") is to provide officers and other employees who are key to the
growth and profitability of BJ's Wholesale Club, Inc. and its subsidiaries
with reward opportunities commensurate with their performance relative to
annual objectives.
2. Definitions
Unless the context requires otherwise, the following expressions as
used in the Plan shall have the meanings ascribed to each below, it being
understood that masculine, feminine and neuter pronouns are used
interchangeably, and that each comprehends the others.
"Committee" shall mean the BJ's Wholesale Club, Inc. Incentive Plan
Committee, consisting of the President and Chief Executive Officer of BJ's
Wholesale Club, Inc., who shall serve as the Chairman of the Committee; the
Chairman of the Board of BJ's Wholesale Club, Inc.; the Chief Financial Officer
of BJ's Wholesale Club, Inc.; and others who from time to time are designated by
the Chairman of the Committee to serve as members of the Committee.
"Company" shall mean BJ's Wholesale Club, Inc. and its subsidiaries.
"ECC" shall mean the Executive Compensation Committee of the Board of
Directors of BJ's Wholesale Club, Inc.
"Effective Date" shall mean the date on which Waban Inc. completes the
spin-off of the Company by distributing to Waban's stockholders on a pro rata
basis all of the outstanding shares of Common Stock of the Company held by
Waban Inc.
"Fiscal Year" shall mean the period ending on the last Saturday in January,
and commencing on (i) the Sunday following the last Saturday in January of the
preceding calendar year or (ii) with respect to the Fiscal Year in which the
Effective Date occurs, such Effective Date.
"Participant" shall mean an officer or other employee of the Company who is
designated a participant pursuant to Section 5 below.
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"Performance Criteria" shall mean the standards of measurement of Company
performance and individual performance for each Performance Period as
established by the Committee and the ECC pursuant to paragraph (a) of Section 6
below.
"Performance Goals" shall mean the levels of performance with respect to
each Performance Criterion at which awards are payable pursuant to this Plan.
Performance goals are established by the Committee and the ECC pursuant to
paragraph (b) of Section 6 below.
"Performance Period" shall mean one Fiscal Year or, with respect to the
Fiscal Year in which the Effective Date occurs, the remainder of such Fiscal
Year.
3. Administration
This Plan shall be administered by the ECC, which in its sole
discretion, may take into account recommendations of the Committee. The ECC
shall have full authority to interpret the Plan; to establish, amend, and
rescind rules for carrying out the Plan; to administer the Plan; to
determine the terms and provisions of any agreements pertaining to the
Plan; and to make all other determinations necessary or advisable for its
administration.
Any person objecting to any interpretation, rule, determination or
other action made or taken by the Committee or the ECC which affects said
person shall have the right to appeal in writing to the ECC, setting forth
the objections in reasonable detail, provided that such appeal shall be
made within 90 days after promulgation of such interpretation, rule, or
other determination, or such additional time as the ECC shall deem
reasonable.
The ECC shall not be bound to any standards of uniformity or
similarity of action, interpretation or conduct in the discharge of its
duties hereunder, regardless of the apparent similarity of the matters
coming before the ECC. Its determination shall be binding on all parties.
No member or former member of the Committee, the ECC, or the Board of
Directors of the Company shall be liable for any action or determination
made in good faith with respect to the Plan or any award or payment made
under the Plan.
4. Eligibility
For each Performance Period, the ECC shall designate, based upon
recommendations of the Committee, Participants to receive annual management
incentive awards, subject to the terms and conditions of the Plan.
Participants in the Plan shall be key employees of the Company, including
such executives and
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other full-time employees of the Company as the ECC shall, at any time,
designate as Participants for said Performance Period.
5. Description of Awards
(a) Designation of Performance Criteria
At the commencement of each Performance Period, the Committee shall
recommend, for the ECC's approval, one or more Performance Criteria
for said Performance Period and the relative weight to be given to
each Performance Criterion. Performance Criteria and the weighting
thereof may vary by Participant and may be different for different
Performance Periods. Such Performance Criteria shall include only the
following measures: operating income, pre-tax income, net income,
gross profit dollars, costs, any of the preceding measures as a
percent of sales, earnings per share, sales, return on equity, and
return on investment.
(b) Performance Goals
At the commencement of each Performance Period, the Committee shall
establish a range of Performance Goals from minimum to target to
maximum for each Performance Criterion for said Performance Period.
Performance Goals may vary by Participant and may be different for
different Performance Periods.
At any time designated by the ECC during a Performance Period or
thereafter, but prior to award payment, appropriate adjustments in the
Performance Goals may be made 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 shall, in its sole discretion,
determine, subject to paragraph (d) below.
Performance Goals and any adjustments thereto shall be reported to the
ECC. The ECC shall have the right at its election to reject any
Performance Goals or adjustments and direct reconsideration by the
Committee.
(c) Award Opportunity
At the commencement of each Performance Period, the Committee shall
assign to each Participant the minimum, target, and maximum award
opportunities to be earned for said Performance Period based upon the
Participant's position and ability to impact annual performance
relative to
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goals during the Performance Period. Said award opportunities are
subject to the approval of the ECC. Award opportunity may be expressed
as a fixed amount or as a percentage of the Participant's base salary
earned for the Performance Period. No individual award opportunity in
any calendar year shall exceed $1,000,000 or, if less, 100% of the
base salary earned by the Participant for the applicable Performance
Period.
From time to time, discretionary awards, in addition to the annual
management incentive awards, may be made by the Committee to any
Participant due to outstanding performance or extraordinary
circumstances which occur during the Performance Period. No
discretionary award shall be made to any Participant whose
compensation is subject to the approval of the ECC, unless such award
shall be approved by the ECC. All discretionary awards shall be
reported to the ECC for each Performance Period.
(d) Adjustments to Performance Goals for Certain Officers
The Committee shall make no adjustments to the Performance Goals whose
effect is to increase the incentive payment to the Chief Executive
Officer or to other executive officers as of the end of the fiscal
year who are named in the proxy statement, except for the following:
1) Events classified as extraordinary items or discontinued
operations or presented as special nonrecurring charges (or
income) in accordance with generally accepted accounting
principles.
2) Disposal of a business segment or a group of two or more
warehouse stores, a major administrative unit, or major assets,
if quantified and disclosed in Management's Discussion and
Analysis of Financial Condition and Results of Operations of the
Company's Annual Report on Form 10-K.
3) Conversion of convertible bonds or preferred stock convertible
into common stock; a repurchase by the Company of outstanding
shares of stock, if such a repurchase has a material impact on
the performance that is being measured; or an increase in the
number of shares of common stock for earnings per share
calculation purposes due to a new equity or convertible debenture
offering, but not by exercise of stock options, restricted stock
or other stock-based awards under the Company's 1997 Stock
Incentive Plans or any similar plan.
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<PAGE>
4) Balance sheet recapitalization or restructuring that materially
alters the allocation between debt and equity for the Company.
5) Changes in accounting practice to comply with new legislation or
with rules promulgated by the Securities and Exchange Commission
or the Financial Accounting Standards Board and changes in tax
laws that affect tax rates, credits, or the definition of taxable
income, if material.
6) Unusual and material losses beyond the Company's control, such as
acts of God (e.g., earthquake or widespread hurricane damage).
7) Reserves for future period events which will not occur until
after the performance measurement period.
8) Adjustments attributable to prior periods in the case of a newly
acquired business.
9) Adjustments of goals made immediately after completion by the
Company's independent public accountants of the audit of the
Company's financial statements for the fiscal year immediately
preceding the Performance Period, made solely to "true-up" goals
that were based on estimated results for said preceding year.
10) Gains and losses from sales of a minority interest in a
subsidiary.
11) Net incremental expense incurred by the Company as a result of
opening new warehouse stores in excess of the number incorporated
in the Performance Goals. The amount of the adjustment shall be
equal to the average operating loss incurred by new warehouse
stores opened by the Company in the same fiscal year.
In no event, however, shall the Committee make any adjustment which
would cause incentive awards not to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
6. Determination of Awards
(a) Upon completion of each Performance Period and certification of the
Company's financial statements by the Company's independent public
accountants for the Fiscal Year included in such Performance Period,
the ECC will review performance relative to Performance Goals, as
adjusted from time to time in accordance with paragraph (b) of Section
5 above, and determine the value of the awards for each Performance
Period.
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<PAGE>
Achievement of all Performance Goals will result in payment of a
Participant's target award. Failure to achieve Performance Goals will
result in a decrease or elimination of the Participant's award.
Exceeding performance goals will result in an award greater than the
target award but not greater than the maximum award.
(b) If an employee becomes a Participant after the beginning of a
Performance Period, the award payable to such employee will be pro-
rated in accordance with the portion of the Performance Period during
which such employee is a Participant.
(c) In the event of termination of employment of a Participant for any
reason prior to the last day of the Performance Period, a Participant
shall have no further rights under the Plan thereafter and shall not
be entitled to payment of any award.
If termination of employment occurs (i) by reason of death, (ii) due
to normal retirement under a retirement plan of the Company, or (iii)
due to early retirement after age 55 with the consent of the Company,
the ECC may, in its sole discretion, value and direct that some
portion of the award be deemed earned and payable, taking into account
the duration or employment during the Performance Period, the
Participant's performance, and such other matters as the ECC shall
deem appropriate.
In the event of termination of employment for cause, as defined and
determined by the ECC in its sole discretion, no payment shall be made
with regard to any prior or current Performance Period.
(d) If a Participant shall be actively employed less than a full
Performance Period because of an accident or illness but shall
complete active employment during one-half of the weeks of said
Performance Period, the incentive award otherwise payable to said
Participant for said Performance Period shall not be reduced because
of a failure of active employment because of such accident or illness.
If a Participant shall be actively employed less than a full
Performance Period because of an accident or illness and shall not
complete active employment during one-half of the weeks of said
Performance Period, said Participant shall receive such incentive
award, if any, for said Performance Period as the Committee shall
determine, subject to approval by the ECC. The time during which a
Participant receives sick leave and/or vacation payments shall be
deemed active employment time. Time during which a Participant
receives short-term income protection, short-term disability
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<PAGE>
and/or long-term disability payments shall not be deemed active
employment time.
7. Payment of Awards
As soon as practicable after valuation of the award for each
Performance Period, payment will be made in cash with respect to the award
earned by each Participant.
8. Deferral of Awards
Participants who are designated by the ECC as being eligible to
participate in the Company's General Deferred Compensation Plan may elect
to defer all or a portion of their awards in accordance with the terms of
such General Deferred Compensation Plan.
9. Designation of Beneficiary
(a) Subject to applicable law, each Participant shall have the right to
file with the Company, to the attention of the ECC or the Committee, a
written designation of one or more persons as the beneficiary(ies) who
shall be entitled to receive the amount, if any, payable under the
Plan upon his death. A Participant may from time to time revoke or
change the beneficiary by filing a new designation with the ECC or the
Committee. The last such designation received by the ECC or the
Committee shall be controlling; provided, however, that no
designation, change, or revocation thereof shall be effective unless
received by the ECC or the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to receipt.
(b) If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with law, the payment of
the amount, if any, payable under the Plan upon the Participant's
death shall be made to the Participant's estate by the Committee. If
the Committee is in doubt as to the right of any person to receive any
amount, the Committee may retain such amount, without liability for
any interest thereon, until the rights thereto are determined, or the
Committee may pay such amount into any court of appropriate
jurisdiction, and such payment shall be a complete discharge of the
liability of the Plan, the Company, the Committee and the ECC
therefor.
10. Notices
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<PAGE>
Each Participant whose employment relationship with the Company has
terminated, either voluntarily or involuntarily, shall be responsible for
furnishing the Committee or the Chief Financial Officer of the Company with
the current and proper address for mailing of notices and the delivery of
agreements and payments. Any notice required or permitted to be given
shall be deemed given if directed to the person to whom addressed at such
address and mailed by regular United States mail, first-class and prepaid.
If any item mailed to such address is returned undeliverable to the
addressee, mailing will be suspended until the Participant furnishes the
proper address.
11. Rights of Participants
Nothing contained in the Plan and no action taken pursuant to the Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and any Participant or such Participant's
legal representative or designated beneficiary, or other persons.
If and to the extent that any Participant or his legal representative
or designated beneficiary, as the case may be, acquires a right to receive
any payment from the Company pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company.
12. No Employment Rights
Nothing in the Plan or any other document describing or referring to
the Plan shall be deemed to confer on any Participant the right to continue
in the employ of the Company or affect the right of the Company to
terminate the employment of any such person with or without cause.
13. Certain Payments Upon a Change of Control
If, upon a Change of Control (as defined in Annex A hereto) of the
Company, amounts payable or that would or might be payable in respect of an
individual under the Plan instead are paid to such individual or such
individual's estate or beneficiary pursuant to any change of control
severance plan or agreement, or any similar plan, agreement or arrangement
to which the Company is a party, payments in respect of such individual
hereunder shall be reduced pro tanto.
14. Nonalienation of Awards
No amounts payable or other rights under the Plan shall be sold,
transferred, assigned, pledged, or otherwise disposed of or encumbered by a
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<PAGE>
Participant, except as provided herein, nor shall they be subject to
attachment, garnishment, execution, or other creditor's processes.
15. Withholding Taxes
The Company shall have the right to deduct withholding taxes from any
payments made pursuant to the Plan, or make such other provisions as it
deems necessary or appropriate to satisfy its obligations for withholding
federal, state, or local income or other taxes from payments to the
Participant.
16. Termination, Amendment, and Modification
The ECC or the Board of Directors may from time to time amend, modify,
or discontinue the Plan or any provision hereof. No amendment to, or
discontinuance or termination of, the Plan shall, without the written
consent of the Participant, adversely affect any rights of such Participant
that have vested. This Plan shall continue until terminated by the ECC or
the Board of Directors of the Company.
17. Headings 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.
18. Controlling Law
This Plan shall be construed and enforced according to the laws of the
Commonwealth of Massachusetts, to the extent not preempted by Federal law,
which shall otherwise control.
19. Miscellaneous Provisions
(a) All costs and expenses involved in administering the Plan as provided
herein, or incident thereto, shall be borne by the Company.
(b) If any Participant shall also participate in other annual incentive
plans of the Company, the ECC shall determine the amount, if any, by
which such Participant's award under the Plan shall be adjusted, so as
to coordinate the benefits under the Plan with the other plans.
(c) The Committee or the ECC may, in its sole discretion, reduce or
eliminate awards granted or money payable to any Participant or all
Participants if it determines that such awards or payments may cause
the Company to
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<PAGE>
violate any applicable law, regulation, controls, or guidelines. Such
reduction or elimination may be made notwithstanding that the possible
violation might be eliminated by reducing or not increasing
compensation or benefits of other associates, it being the intent of
the Plan not to inhibit the discretion of the Company to provide such
forms and amounts of compensation and benefits to employees as it
deems advisable.
20. CONTINUATION INCENTIVE AWARDS AND REPLACEMENT INCENTIVE AWARDS GRANTED IN
CONNECTION WITH SPIN-OFF
Notwithstanding any other provision of the Plan, in connection with the
spin-off of the Company by Waban Inc. ("Waban"), the Committee, subject to
the approval of the ECC, which approval may be granted or withheld in the
ECC's sole discretion, may grant to any Participant (i) incentive awards
which are intended to serve as a continuation of incentive awards
previously granted to such Participant ("Continuation Incentive Awards")
under the Waban Management Incentive Plan (the "WMIP"), and (ii) incentive
awards which are intended to serve as a replacement of incentive awards
previously granted to such Participant ("Replacement Incentive Awards")
under the WMIP.
Each Continuation Incentive Award shall (i) be considered to be a
continuation of the incentive award previously granted under the WMIP, as
adjusted to reflect the assumption by the Company of Waban's obligations
under such incentive award, (ii) be based upon the same Performance Periods
and Performance Criteria as the continued incentive award, as adjusted to
reflect the effects of the spin-off on the Company structure (e.g.,
interest expense, corporate overhead), and (iii) as determined by the
Committee (subject to the approval of the ECC), provide no additional value
or benefits other than those provided by the continued incentive award, the
approval of the ECC to be final and binding for all purposes. In addition,
with respect to each Continuation Incentive Award, a Change in Control
shall have the meaning set forth in Annex B hereto. Except as otherwise
set forth in this Section 20 or determined by the Committee (subject to the
approval of the ECC), each Continuation Incentive Award shall be subject to
all other terms of the Plan and shall be subject, before payment, to
certification by the ECC that all Performance Criteria have been satisfied.
Each Replacement Incentive Award shall be granted upon such terms and
conditions as the Committee (subject to the approval of the ECC) deems
appropriate and in accordance with such Performance Periods (including a
Performance Period beginning prior to the effective date of the Plan) and
Performance Criteria as the Committee deems appropriate.
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ANNEX A
DEFINITION OF CHANGE IN CONTROL
-------------------------------
For the purposes of this Plan, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequently
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board (except that this proviso shall
not apply to any individual whose initial assumption of office as a director
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board); or
(c) Consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
immediately following such Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, of the
corporation resulting from such Business Combination (which as used in section
(c) of this definition shall include, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation and (iii) at least half
of the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
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ANNEX B
DEFINITION OF CHANGE IN CONTROL
WITH RESPECT TO CONTINUATION INCENTIVE AWARDS
---------------------------------------------
For the purposes of the Plan, "Change of Control" with respect to
Continuation Incentive Awards 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"); provided, however, that no
transaction shall be deemed to be a Change of Control as to a
Participant (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 ECC shall otherwise determine prior to
such occurrence, if the Participant or a Participant 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
ECC shall otherwise determine prior to the acquisition of such 20%
ownership, such acquisition of ownership shall not constitute a Change
of Control as to a Participant if the Participant or a Participant
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
(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 ECC, no transaction shall constitute a Change of Control as to
Participant if, immediately after such transaction, the Participant or
any Participant 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 Participant and any Participant 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 Annex 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.
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.
A "Participant Related Party" shall mean any affiliate or
associate of the Participant 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).
"Participant" means a participant in the Plan.
<PAGE>
EXHIBIT 5A
HALE AND DORR LLP
COUNSELLORS AT LAW
60 State Street
Boston, Massachusetts 02109
617-526-6000 *FAX 617-526-5000
June 5, 1997
Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (File No. 333-25511-01) (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 4,321,171 shares of Common Stock, $.01 par value per share (the "Shares"), of
Waban Inc., a Delaware corporation (the "Company"), and the associated Preferred
Stock Purchase Rights (the "Rights") issuable under the Rights Agreement, dated
as of May 23, 1989, between the Company and Morgan Shareholder Services Trust
Company, as Rights Agent (the "Rights Agreement").
The Shares and the Rights are to be issued as follows: (i) up to 2,160,606
Shares (the "Standby Shares") and the associated Rights are issuable pursuant to
a Standby Purchase Agreement (the "Standby Agreement") to be entered into
between the Company and the purchaser named therein in substantially the form
filed as Exhibit 1A to the Registration Statement; and (ii) up to 4,321,171
Shares (less any Standby Shares issued) (the "Conversion Shares") and the
associated Rights are issuable upon the conversion of the Company's outstanding
6.5% Convertible Subordinated Debentures due 2002 (the "Convertible
Debentures"), which were originally issued and sold pursuant to an Indenture,
dated as of July 1, 1992 (the "Indenture"), between the Company and Continental
Bank, National Association, as Trustee.
We are acting as counsel for the Company in connection with the
Registration Statement. We have examined signed copies of the Registration
Statement and all exhibits thereto, all as filed with the Commission. We have
also examined and relied upon the original or copies of minutes of meetings of
the stockholders and the Board
<PAGE>
Waban Inc.
June 5, 1997
Page 2
of Directors of the Company, stock record books of the Company, a copy of the
By-Laws of the Company, as amended, a copy of the Restated Certificate of
Incorporation of the Company, as amended, the Rights Agreement, and such other
documents as we have deemed necessary for purposes of rendering the opinions
hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as copies, the authenticity of the originals of such latter documents and
the legal competence of all signatories to such documents.
We have not made any investigation of the laws of any jurisdiction other
than the Commonwealth of Massachusetts, and the federal laws of the United
States and the Delaware General Corporation Law statute, and we are opining
herein solely with respect to the laws of the Commonwealth of Massachusetts, the
federal laws of the United States and the Delaware General Corporation Law
statute. To the extent that the laws of any other jurisdiction govern the
agreements or transactions as to which we are opining herein, we have assumed,
with your permission, that such laws are identical to those of the Commonwealth
of Massachusetts, and we are expressing no opinion herein as to whether such
assumption is reasonable or correct.
We assume that the appropriate action will be taken, prior to the issuance
of the Shares and the Rights in accordance with the Indenture, to register and
qualify the Shares and the Rights for sale under all applicable state securities
or "blue sky" laws.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Conversion Shares have been duly authorized and, when issued by the
Company upon conversion of the Convertible Debentures in accordance
with the terms of the Indenture, will be validly issued, fully paid and
nonassessable.
2. Assuming that the Rights Agreement has been duly authorized, executed
and delivered by the Rights Agent, when the Conversion Shares have been
validly issued upon conversion of the Convertible Debentures in
accordance with the terms of the Indenture, the Rights attributable to
the Conversion Shares will be validly issued.
<PAGE>
Waban Inc.
June 5, 1997
Page 3
3. The Standby Shares have been duly authorized and, when issued by the
Company and paid for in accordance with the terms of the Standby
Agreement, will be validly issued, fully paid and nonassessable.
4. Assuming that the Rights Agreement has been duly authorized, executed
and delivered by the Rights Agent, when the Standby Shares have been
validly issued and paid for in accordance with the terms of the Standby
Agreement, the Rights attributable to the Standby Shares will be
validly issued.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ HALE AND DORR LLP
HALE AND DORR LLP
<PAGE>
P WABAN INC.
R PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
O TO BE HELD JULY 10, 1997
X THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY AND
SHOULD BE RETURNED AS SOON AS POSSIBLE TO THE FIRST CHICAGO TRUST COMPANY OF
Y NEW YORK
The undersigned, having received notice of the Annual Meeting and the Board of
Directors' proxy statement therefor, and revoking all prior proxies, hereby ap-
point(s) Thomas J. Shields and Sarah M. Gallivan, and each of them, attorneys
or attorney of the undersigned (with full power of substitution in them and
each of them) for and in the name(s) of the undersigned to attend the Annual
Meeting of Stockholders of WABAN INC. (the "Company") to be held on Thursday,
July 10, 1997 at 11:00 a.m. at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, and any adjournments thereof, and there to vote
and act upon the following matters in respect of all shares of stock of the
Company which the undersigned may be entitled to vote or act upon, with all the
powers the undersigned would possess if personally present.
IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
The shares represented by this proxy will be voted as directed by the under-
signed. If no direction is given with respect to any proposal, this proxy will
be voted as recommended by the Board of Directors. Attendance of the under-
signed at the meeting or at any adjournment thereof will not be deemed to re-
voke this proxy unless the undersigned shall revoke this proxy in writing.
Change of address:
________________________________
________________________________
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this
card.)
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
-----------
SEE REVERSE
SIDE
-----------
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE>
7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7
7 7 7 7 7 7 7 7 7 7 7 7
--- 2741
PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
X
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
ALL OF THE FOLLOWING PROPOSALS. TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS JUST SIGN THIS PROXY; NO BOXES NEED TO BE CHECKED.
UNLESS MARKED OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BOARD
OF DIRECTORS' RECOMMENDATIONS.
FOR
WITHHELD
FOR
AGAINST
ABSTAIN
FOR
AGAINST
ABSTAIN
1. Election of three Directors for a term to expire in 2000 (for all nominees
except as marked below)
- -------------------
NOMINEES: Kerry
L. Hamilton,
Arthur F.
Loewy,
Edward J.
Weisberger
2. Approval of a distribution (the "Distribution") in the form of a tax-free
special dividend to all holders of the Company's outstanding shares of common
stock, on a one-for-one basis, of all outstanding shares of common stock, and
the associated stockholders' rights, of BJ's Wholesale Club, Inc. ("BJI") held
by the Company on the date of the Distribution.
5. Approval of the Company's 1997 Stock Incentive Plan.
6. Approval of the BJI 1997 Replacement Stock Incentive Plan.
7. Approval of the BJI 1997 Stock Incentive Plan.
3. Approval of an amendment to the Company's Certificate of Incorporation to
change the name of the Company to "HomeBase, Inc."
8. Approval of the BJI Management Incentive Plan.
9. Approval of the BJI Growth Incentive Plan.
4. Approval of amendment and continuance of the Company's 1989 Stock Incentive
Plan.
10. Approval of the BJI 1997 Director Stock Option Plan.
11. To adjourn the meeting, upon motion by the Chairman of the Board or his
designee, to allow additional time for solicitation of proxies.
12. To consider such other business, if any, as may properly come before the
meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE ON THE REVERSE SIDE OF THIS CARD.
DATE _____________________________________
SIGNATURE(S) ____________________
NOTE: Please sign exactly as name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
^ FOLD AND DETACH HERE ^^
