<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended July 26, 1997
Commission file number 1-10259
HOMEBASE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3345 Michelson Drive
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
(714) 442-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
The number of shares of the Registrant's common stock outstanding as of August
23, 1997: 37,586,705
<PAGE>
PART I. FINANCIAL INFORMATION
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------------
July 26, July 27,
1997 1996
------------------ --------------
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $ 420,404 $ 424,271
Cost of sales, including buying and
occupancy costs 327,049 328,602
Selling, general and administrative expenses 73,276 74,666
------------------ --------------
Operating income 20,079 21,003
Interest on debt and capital leases (net) 1,409 2,493
------------------ --------------
Income from continuing operations before
income taxes and extraordinary loss 18,670 18,510
Provision for income taxes 7,452 7,281
------------------ --------------
Income from continuing operations before
extraordinary loss 11,218 11,229
Income from discontinued operations, net
of income taxes of $11,055 and $9,378 12,043 14,383
------------------ --------------
Income before extraordinary loss 23,261 25,612
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $5,896 (8,663) -
------------------ --------------
Net income $ 14,598 $ 25,612
================== ==============
Net income per common share (see Exhibit 11 for detailed computations):
Primary earnings per share:
Income from continuing operations
before extraordinary loss $ 0.31 $ 0.34
Income from discontinued operations 0.34 0.43
------------------ --------------
Income before extraordinary loss 0.65 0.77
Extraordinary loss (0.24) -
------------------ --------------
Net income $ 0.41 $ 0.77
================== ==============
Fully diluted earnings per share:
Income from continuing operations
before extraordinary loss $ 0.30 $ 0.31
Income from discontinued operations 0.32 0.40
------------------ --------------
Income before extraordinary loss 0.61 0.71
Extraordinary loss (0.23) -
------------------ --------------
Net income $ 0.38 $ 0.71
================== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------------------
July 26, July 27,
1997 1996
--------------- ----------------
(In Thousands Except Per Share Amounts)
<S> <C> <C>
Net sales $ 780,608 $ 776,513
Cost of sales, including buying and
occupancy costs 609,308 601,086
Selling, general and administrative expenses 144,720 147,980
---------------- -----------------
Operating income 26,580 27,447
Interest on debt and capital leases (net) 4,173 4,949
---------------- -----------------
Income from continuing operations before
income taxes and extraordinary loss 22,407 22,498
Provision for income taxes 8,918 8,804
---------------- -----------------
Income from continuing operations before
extraordinary loss 13,489 13,694
Income from discontinued operations, net
of income taxes of $16,496 and $13,939 20,575 21,433
---------------- -----------------
Income before extraordinary loss 34,064 35,127
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $5,896 (8,663) -
---------------- -----------------
Net income $ 25,401 $ 35,127
================ =================
Net income per common share (see Exhibit 11 for detailed computations):
Primary earnings per share:
Income from continuing operations
before extraordinary loss $ 0.39 $ 0.41
Income from discontinued operations 0.60 0.64
---------------- -----------------
Income before extraordinary loss 0.99 1.05
Extraordinary loss (0.25) -
---------------- -----------------
Net income $ 0.74 $ 1.05
================ =================
Fully diluted earnings per share:
Income from continuing operations
before extraordinary loss $ 0.37 $ 0.39
Income from discontinued operations 0.56 0.60
---------------- -----------------
Income before extraordinary loss 0.93 0.99
Extraordinary loss (0.23) -
---------------- -----------------
Net income $ 0.70 $ 0.99
================ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
July 26, January 25, July 27,
1997 1997 1996
------------- -------------- -------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,070 $ 16,896 $ 5,571
Marketable securities - - 14,223
Accounts receivable 34,050 25,261 29,105
Merchandise inventories 305,295 316,538 316,466
Current deferred income taxes 11,463 9,876 13,044
Prepaid expenses 5,090 4,975 5,402
Net current assets of discontinued operations - 62,942 94,207
------------- -------------- -------------
Total current assets 368,968 436,488 478,018
------------- -------------- -------------
Property at cost:
Land and buildings 157,019 156,862 152,292
Leasehold costs and improvements 55,907 58,762 53,649
Furniture, fixtures and equipment 135,846 132,409 129,474
------------- -------------- -------------
348,772 348,033 335,415
Less accumulated depreciation and amortization 104,644 98,998 93,839
------------- -------------- -------------
244,128 249,035 241,576
------------- -------------- -------------
Property under capital leases 9,695 10,213 10,879
Less accumulated amortization 3,839 4,123 4,500
------------- -------------- -------------
5,856 6,090 6,379
------------- -------------- -------------
Property held for sale (net) - - 59
Deferred income taxes 8,882 11,300 12,880
Other assets 10,140 4,632 4,570
Net noncurrent assets of discontinued operations - 360,746 341,749
------------- -------------- -------------
Total assets $ 637,974 $ 1,068,291 $ 1,085,231
============= ============== =============
LIABILITIES
Current liabilities:
Current installments of long-term debt $ 69 $ 12,474 $ 12,862
Accounts payable 113,663 84,903 115,188
Restructuring reserve 2,932 2,799 4,257
Accrued expenses and other current liabilities 62,134 69,058 74,049
Accrued federal and state income taxes (1,096) (8,768) 4,134
Obligations under capital leases due within one year 181 180 260
------------- -------------- -------------
Total current liabilities 177,883 160,646 210,750
------------- -------------- -------------
Real estate debt 415 450 484
General corporate debt 24,000 12,000 12,000
Senior subordinated debt 6,637 100,000 100,000
Convertible subordinated debt - 108,568 108,600
Obligations under capital leases, less portion
due within one year 8,778 8,876 8,959
Noncurrent restructuring reserve 9,135 10,738 15,583
Other noncurrent liabilities 37,579 35,088 39,490
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized 190,000,000
shares, issued 37,484,937, 33,269,537 and
33,270,685 shares 375 333 333
Additional paid-in capital 373,172 329,719 329,341
Unrealized holding losses - - (5)
Retained earnings - 311,873 270,340
Treasury stock, at cost, 0, 528,596 and 562,649 shares - (10,000) (10,644)
------------- -------------- -------------
Total stockholders' equity 373,547 631,925 589,365
------------- -------------- -------------
Total liabilities and stockholders' equity $ 637,974 $ 1,068,291 $ 1,085,231
============= ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------------
July 26, July 27,
1997 1996
------------- -------------
(In Thousands)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 13,489 $ 13,694
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization of property 12,023 11,120
(Gain) loss on property disposals (116) 678
Amortization of premium on marketable securities - 116
Other noncash items (net) 663 436
Deferred income taxes 831 2,639
Increase (decrease) in cash
due to changes in:
Accounts receivable (8,789) (826)
Merchandise inventories 11,243 (17,668)
Prepaid expenses (115) (1,379)
Other assets (1,420) (100)
Accounts payable 28,760 8,340
Restructuring reserves (1,530) (7,958)
Accrued expenses (3,081) 592
Accrued income taxes 7,672 5,465
Other noncurrent liabilities 2,491 2,830
------------- -------------
Net cash provided by operating activities of:
Continuing operations 62,121 17,979
Discontinued operations 7,455 26,565
------------- -------------
Net cash provided by operating activities 69,576 44,544
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (7,694) (20,873)
Sale of marketable securities - 23,694
Maturity of marketable securities - 3,140
Property additions (8,555) (30,523)
Property disposals 309 4,416
------------- -------------
Net cash used in investing activities of:
Continuing operations (15,940) (20,146)
Discontinued operations (23,269) (37,236)
------------- -------------
Net cash used in investing activities (39,209) (57,382)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 24,000 -
Repayment of long-term debt (130,712) (12,406)
Repayment of capital lease obligations (97) (232)
Purchase of treasury stock - (11,392)
Proceeds from sale and issuance of common stock 7,984 10,423
Cash paid to BJ's Wholesale Club, Inc. in spin-off (5,000) -
------------- -------------
Net cash provided by (used in) financing activities of:
Continuing operations (103,825) (13,607)
Discontinued operations 71,935 (139)
------------- -------------
Net cash used in financing activities (31,890) (13,746)
------------- -------------
Net decrease in cash and cash equivalents (1,523) (26,584)
Cash and cash equivalents at beginning of year 14,593 32,155
------------- -------------
Cash and cash equivalents at end of period $ 13,070 $ 5,571
============= =============
Supplemental cash flow information:
Interest paid $ 9,251 $ 10,450
Income taxes paid 29,550 21,307
Noncash financing and investing activities:
Treasury stock issued for compensation plans 4,031 9,815
Conversion of long-term debt for stock (net) 107,061 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands Except Per Share Amounts)
------------------------------------------------------------------------------------------------
Common Additional Unrealized Total
Stock Paid-In Holding Retained Treasury Stockholders'
Par Value $.01 Capital Gains (Losses) Earnings Stock Equity
--------------- ---------------- --------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 27, 1996 $ 333 $ 328,619 $ 22 $ 235,213 $ (9,067) $ 555,120
Net income - - - 35,127 - 35,127
Unrealized holding losses - - (27) - - (27)
Purchase of treasury stock - - - - (11,392) (11,392)
Sale and issuance of
common stock - 722 - - 9,815 10,537
------------- ------------- ---------- ------------- ---------- -----------
Balance, July 27, 1996 $ 333 $ 329,341 $ (5) $ 270,340 $ (10,644) $ 589,365
============= ============= ========== ============= ========== ===========
Balance, January 25, 1997 $ 333 $ 329,719 $ - $ 311,873 $ (10,000) $ 631,925
Net income - - - 25,401 - 25,401
Sale and issuance of
common stock 2 4,165 - - 4,031 8,198
Conversion of 6.5%
debentures 40 101,052 - - 5,969 107,061
Equity transfer in spin-off
of BJ's Wholesale
Club, Inc. - (61,764) - (337,274) - (399,038)
------------- ------------- ---------- ------------- ---------- -----------
Balance, July 26, 1997 $ 375 $ 373,172 $ - $ - $ - $ 373,547
============= ============= =========== ============= ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. As of July 26, 1997, HomeBase, Inc. (the "Company"), formerly known as Waban
Inc. ("Waban"), transferred all of the net assets of its BJ's Wholesale Club
division to BJ's Wholesale Club, Inc. ("BJI"), a wholly-owned subsidiary. BJI's
net assets totaled $399.0 million, including the Company's contribution of
$101.4 million to BJI's equity through forgiveness of its intercompany debt.
On July 28, 1997, the Company distributed to its stockholders of record on July
18, 1997 on a pro rata basis all of the outstanding common stock of BJI (the
"Distribution").
2. The financial statements for all periods presented have been restated to
present the BJ's Wholesale Club division as a discontinued operation. Corporate
interest expense was allocated to discontinued operations based on the ratio of
BJ's net assets to the sum of consolidated net assets plus consolidated debt.
Income from discontinued operations in the quarterly and year-to-date periods
ended July 26, 1997 also included transaction costs of $5.0 million (net of tax)
incurred in connection with the Distribution. The assets and liabilities of the
BJ's Wholesale Club division, which have been reclassified in the balance sheets
of prior periods for comparative purposes as net current and noncurrent assets,
consist primarily of merchandise inventories, property and equipment, accounts
payable and accrued expenses.
Operating results of discontinued operations included the following (in
thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------- --------------------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
--------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Total revenues $785,455 $733,688 $1,464,402 $1,356,076
========= ========= ============ ==========
Income before income taxes $ 23,098 $ 23,761 $ 37,071 $ 35,372
Provision for income taxes 11,055 9,378 16,496 13,939
--------- --------- ------------ ----------
Net income $ 12,043 $ 14,383 $ 20,575 $ 21,433
========= ========= ============ ==========
</TABLE>
3. During the quarter ended July 26, 1997, $106.7 million of the Company's 6.5%
convertible subordinated debentures were converted into common stock and the
remaining $.2 million were redeemed for cash. During July 1997, the Company
repaid all of its 9.58% senior notes due May 31, 1998 totaling $12.0 million,
and, pursuant to a tender offer, $93.4 million of its 11% senior subordinated
notes due May 15, 2004. Results for the quarterly and year-to-date periods ended
July 26, 1997 included an extraordinary loss of $8.7 million for the after-tax
cost of the early extinguishment of Company debt.
A total of $6.6 million of the Company's senior subordinated notes remains
outstanding, which the Company intends to call and repay on May 15, 1999. The
Company has defeased these notes by purchasing and depositing in escrow with the
trustee of the notes $7.7 million of U.S. Treasury securities, which are
included in other assets on the balance sheet.
4. The results for the first six months are not necessarily indicative of
results for the full fiscal
<PAGE>
year because, among other things, the Company's business is subject to seasonal
influences. Sales and profits 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.
5. The interim financial statements are unaudited and reflect all normal
recurring adjustments considered necessary by the Company for a fair
presentation of its financial statements in accordance with generally accepted
accounting principles.
6. These interim financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Annual
Report on Form 10-K for the fiscal year ended January 25, 1997.
7. The Company's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. However, in accordance with generally
accepted accounting principles, the additional cost to terminate the Plan is not
recognized until the Plan termination is settled. Prior to the Distribution, the
Company contributed to the Plan amounts sufficient to make the Plan's assets
equal to its estimated termination liabilities, based on actuarial projections.
The Company's share of these amounts is included in prepaid expenses on its
balance sheet. The Company expects to record a post-tax charge applicable to its
Plan participants of approximately $.5 million in the fourth quarter of the
current fiscal year or in the first quarter of the following year, when the Plan
termination is settled.
8. The Company operated 84 warehouse stores on July 26, 1997 versus 82 warehouse
stores on July 27, 1996.
9. Certain amounts in the prior year's financial statements have been
reclassified for comparative purposes.
<PAGE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Thirteen Weeks (Second Quarter) and Twenty-Six Weeks (Six Months) Ended July 26,
1997 versus Thirteen and Twenty-Six Weeks Ended July 27, 1996.
Forward-Looking Information
- ---------------------------
This report contains "forward-looking statements," including statements
regarding expected expenses to be incurred by the Company after the
Distribution, planned capital expenditures, certain charges expected to be
incurred in connection with the termination of the Waban Inc. Retirement Plan
and other information with respect to the Company's plans and strategies. For
this purpose, any statements contained herein 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 the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, the
success of the Company's management team in transitioning the Company to its
status as a stand-alone entity operating a single business, general economic
conditions prevailing in the Company's markets, competition and the other
factors included in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders under the heading "Risk Factors".
Spin-off of BJ's Wholesale Club, Inc.
- -------------------------------------
As of July 26, 1997, HomeBase, Inc. (the "Company"), formerly known as Waban
Inc., transferred all of the net assets of its BJ's Wholesale Club division to
BJ's Wholesale Club, Inc. ("BJI"). On July 28, 1997, the Company distributed to
its stockholders on a pro rata basis all of the outstanding common stock of BJI
(the "Distribution"). The financial statements for all periods presented have
been restated to present the BJ's Wholesale Club division as a discontinued
operation. Income from discontinued operations in the quarterly and year-to-date
periods ended July 26, 1997 also included transaction costs of $5.0 million (net
of tax) incurred in connection with the Distribution. The discussion which
follows pertains to the continuing operations of the Company unless otherwise
noted.
Results of Operations
- ---------------------
Net sales for the second quarter ended July 26, 1997 were $420.4 million, down
0.9% from $424.3 million in last year's second quarter. Sales for the first half
of the year totaled $780.6 million, or 0.5% higher than last year's comparable
period. Comparable store sales declined 3.1% from last year in the quarter and
2.2% in the year-to-date period. Comparisons were affected by weather conditions
that boosted sales in seasonal categories in June of last year and negatively
impacted sales in July this year. In addition, a special credit card promotion
during last year's second quarter was not repeated this year.
<PAGE>
Cost of sales (including buying and occupancy costs) as a percentage of sales
was 77.8% in the second quarter versus 77.5% in the comparable period last year.
For the first six months, the cost of sales percentage was 78.1% versus 77.4%
last year. These increases were due to a combination of slightly lower average
selling margins, an increased provision for inventory shrinkage and somewhat
higher buying and occupancy costs as a percentage of sales.
Selling, general and administrative ("SG&A") expenses were 17.4% of sales in the
second quarter versus 17.6% in last year's comparable period. Year-to-date SG&A
expenses were 18.5% of net sales this year versus 19.1% last year. These
decreases were due mainly to tight control of operating expenses and lower net
advertising costs resulting from increased usage of cooperative advertising.
SG&A expenses include corporate administrative expenses of $2.0 million in both
this year's and last year's second quarter and $4.2 million in this year's first
half versus $3.8 million in the same period last year. However, going forward,
the Company's corporate administrative expenses are expected to be lower than
historical corporate administrative expenses.
The components of consolidated net interest expense were as follows (in
thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense on debt $ 3,022 $4,815 $8,221 $9,751
Interest and investment income (995) (657) (1,284) (1,176)
-------- -------- ------ ------
Interest on debt (net) 2,027 4,158 6,937 8,575
Interest on capital leases 379 393 760 791
--------- --------- -------- --------
Interest on debt and capital leases (net) 2,406 4,551 7,697 9,366
Less: interest allocated to discontinued
operations (997) (2,058) (3,524) (4,417)
-------- ------- ------ ------
Net interest - continuing operations $1,409 $2,493 $4,173 $4,949
======= ======= ====== ======
</TABLE>
Consolidated interest expense was net of capitalized interest of $210,000 in
this year's second quarter and $296,000 year-to-date. Capitalized interest for
continuing operations in the quarterly and year-to-date periods was $6,000 and
$12,000, respectively. Last year's consolidated capitalized interest was
$615,000 in the second quarter and $1,309,000 in the first six months. Of these
amounts, $244,000 and $698,000, respectively, applied to continuing operations.
The decrease from last year in consolidated interest on debt was due principally
to the conversion of the Company's 6.5% convertible subordinated debentures into
common stock.
The year-to-date provision rate for income taxes was 39.8% this year versus
39.1% last year.
Income from continuing operations before extraordinary loss was $11.2 million,
or $.30 per share, fully diluted, for the quarter ended July 26, 1997 versus
$11.2 million, or $.31 per share, in the same period last year. Income from
continuing operations before extraordinary loss for the six months ended July
26, 1997 was $13.5 million, or $.37 per share, fully diluted, versus $13.7
million, or $.39 per share last year. Income from continuing operations included
all of the corporate overhead expenses incurred by Waban prior to the
Distribution and an allocation of Waban's historical interest
<PAGE>
expense. As a result of the Distribution, the conversion of Waban's convertible
subordinated debt into common stock, and the refinancing of $112 million of
other indebtedness, income from continuing operations through July 26, 1997 does
not accurately reflect the Company's expense structure after the Distribution.
Presented below are tables that recast income from continuing operations on a
pro forma basis to reflect the estimated effects of the Distribution, which
include reductions in administrative expenses and interest costs. On this pro
forma basis, income from continuing operations for the quarter ended July 26,
1997 was $11.9 million, or $.31 per share, compared to $12.4 million, or $.33
per share, in the second quarter of 1996, and income from continuing operations
for the six months ended July 26, 1997 was $15.7 million, or $.41 per share,
compared to $15.9 million, or $.42 per share, for the first half of fiscal 1996.
The following unaudited pro forma financial information for the ten quarters
ended July 26, 1997, based on management's good faith estimate of what
HomeBase's operating performance would have been as a stand-alone corporation,
is provided for comparative analytical purposes only. Selling, general, and
administrative expenses reflect a pro forma estimate of costs that HomeBase,
Inc. would have incurred related to corporate overhead activities performed by
the Waban corporate staff. These costs, estimated at $5.5 million in the fiscal
year ended January 1996 and $5.8 million in the fiscal years ended January 1997
and ending January 1998, have been allocated evenly between quarters. Pro forma
interest expense for all periods assumes that the capital structure that was
established immediately after the Distribution had been in place for all periods
presented. The components of interest expense are capital lease interest,
mortgage interest, and credit agreement costs, all of which have been spread
evenly by quarter, and bank borrowing interest expense, which has been spread to
reflect the typical seasonal requirements of the business. The average estimated
draw under the revolving credit facility is assumed to be $23 million. These
unaudited financial data do not purport to represent the actual changes in the
historical cash/borrowing position. The provision for income taxes is estimated
at 39.8%. The number of shares used in the calculation of earnings per share is
37.9 million for all periods shown. All pro forma adjustments are based upon
available information and assumptions that management in good faith believes are
reasonable under the circumstances. This information does not purport to
represent what the results of operations of the Company would have actually been
if the Distribution had in fact been consummated in prior periods or at any
future date or what the results of operations of the Company will be for any
future period.
<PAGE>
HomeBase, Inc.
Operating Performance
Pro Forma as a Stand-Alone Public Company (Unaudited)
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Year 1/98
----------------
Q1 Q2
----- -----
<S> <C> <C>
Sales $360,204 $420,404
Cost of sales, including buying and
occupancy costs 282,259 327,049
Selling, general and administrative
expenses 70,642 72,768
-------- --------
Operating income 7,303 20,587
Interest on debt and capital leases, net 1,012 853
Provision for income taxes 2,504 7,854
-------- --------
Net income from continuing operations $ 3,787 $ 11,880
======== ========
Earnings per share from continuing
operations $ 0.10 $ 0.31
======== ========
<CAPTION>
Fiscal Year 1/97
-----------------------------------------------------------------
Q1 Q2 Q3 Q4 Full Year
-------- ---------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Sales $352,242 $424,271 $366,410 $309,773 $1,452,696
Cost of sales, including buying and
occupancy costs 272,484 328,602 287,973 247,938 1,136,997
Selling, general and administrative
expenses 72,953 74,181 67,878 61,363 276,375
-------- -------- -------- -------- ----------
Operating income 6,805 21,488 10,559 472 39,324
Interest on debt and capital leases, net 1,012 853 771 1,153 3,789
Provision for income taxes 2,306 8,213 3,896 (272) 14,143
-------- -------- -------- -------- ----------
Net income from continuing operations $ 3,487 $ 12,422 $ 5,892 $ (409) $ 21,392
======== ======== ======== ======== ==========
Earnings per share from continuing
operations $ 0.09 $ 0.33 $ 0.16 $ (0.01) $ 0.56
======== ======== ======== ======== ==========
<CAPTION>
Fiscal Year 1/96
-----------------------------------------------------------------
Q1 Q2 Q3 Q4 Full Year
-------- ---------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Sales $353,349 $419,511 $361,564 $314,352 $1,448,776
Cost of sales, including buying and
occupancy costs 273,406 324,258 282,779 244,017 1,124,460
Selling, general and administrative
expenses 71,808 72,154 66,807 63,285 274,054
-------- -------- -------- -------- ----------
Operating income 8,135 23,099 11,978 7,050 50,262
Interest on debt and capital leases, net 1,012 853 771 1,153 3,789
Provision for income taxes 2,835 8,854 4,460 2,347 18,496
-------- -------- -------- -------- ----------
Net income from continuing operations $ 4,288 $ 13,392 $ 6,747 $ 3,550 $ 27,977
======== ======== ======== ======== ==========
Earnings per share from continuing
operations $ 0.11 $ 0.35 $ 0.18 $ 0.09 $ 0.74
======== ======== ======== ======== ==========
</TABLE>
<PAGE>
Income from discontinued operations, which includes the net income of the BJ's
Wholesale Club division reduced by $5.0 million of transaction costs incurred in
connection with the Distribution, was $12.0 million for the second quarter and
$20.6 million for the six months ended July 26, 1997. Income from discontinued
operations reported for periods in 1996, which includes only the net income of
the BJ's Wholesale Club division, was $14.4 million for the second quarter and
$21.4 million for the half.
The quarterly and year-to-date results reported for 1997 include an
extraordinary loss of $8.7 million after-tax for the cost of retiring the
Company's senior debt and senior subordinated debt in July.
Net income for the second quarter ended July 26, 1997 was $14.6 million, or $.38
per share, fully diluted, versus $25.6 million, or $.71 per share, in the second
quarter of last year. Net income for the six months ended July 26, 1997 was
$25.4 million, or $.70 per share, fully diluted, versus $35.1 million, or $.99
per share, in 1996.
The Company's Board of Directors approved the termination of the Waban Inc.
Retirement Plan effective July 26, 1997. However, in accordance with generally
accepted accounting principles, the additional cost to terminate the Plan is not
recognized until the Plan termination is settled. Prior to the Distribution, the
Company contributed to the Plan amounts sufficient to make the Plan's assets
equal to its estimated termination liabilities, based on actuarial projections.
The Company's share of these amounts is included in prepaid expenses on its
balance sheet. The Company expects to record a post-tax charge applicable to its
Plan participants of approximately $.5 million in the fourth quarter of the
current fiscal year or in the first quarter of the following fiscal year, when
the Plan termination is settled.
The Company's business is subject to seasonal influences. Sales and profits 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.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by income from continuing operations plus depreciation in this
year's first six months was $25.5 million versus $24.8 million in last year's
comparable period. Net cash provided by operating activities of continuing
operations for the six month period was $62.1 million this year and $18.0
million last year. The increase this year was attributable mainly to a lower
accounts payable-to-inventory ratio at the beginning of this year as compared to
the beginning of last year.
Year-to-date capital expenditures for property additions for continuing
operations was $8.6 million this year versus $30.5 million in the same period
last year. During the first half of this year, the Company opened one new
warehouse store and closed one warehouse store whose lease had expired. Last
year the Company opened three new warehouse stores and relocated one store in
the first half. The Company's capital expenditures are expected to total
approximately $30 million to $35 million in the current fiscal year, based on
opening one additional new warehouse store and renovating eight existing stores.
The timing of actual store openings and renovations and the amount of related
expenditures could vary from these estimates due, among other things, to the
complexity of the real estate development process.
<PAGE>
During the quarter ended July 26, 1997, the Company called for redemption its
6.5% convertible subordinated debentures totaling $106.9 million, virtually all
of which were converted to common stock. The Company also repaid its 9.58%
senior notes totaling $12.0 million and $93.4 million of its 11% senior
subordinated notes and replaced this debt with $96 million of borrowings under
its existing bank credit agreement. $72 million of these borrowings were assumed
by BJ's Wholesale Club, Inc. and, therefore, are included in net noncurrent
assets of discontinued operations. $24 million remained on the Company's balance
sheet as general corporate debt on July 26, 1997. A total of $6.6 million of the
Company's senior subordinated notes remains outstanding, which the Company
intends to call and repay on May 15, 1999. The Company has defeased these notes
by purchasing and depositing in escrow with the trustee of the notes $7.7
million of U.S. Treasury securities, which are included in other assets on the
balance sheet. The Distribution reduced stockholders' equity by $399.0 million,
which was charged to available retained earnings and to additional paid-in
capital.
In July the Company entered into a new $125 million credit agreement with a
group of banks which expires July 9, 2000. This agreement replaced the Company's
$150 million credit facility which was scheduled to expire March 30, 1999, but
was terminated immediately following the Distribution. The new agreement
includes a $40 million sub-facility for letters of credit. The Company is
required to pay an annual facility fee which is currently 0.30% of the total
commitment. Interest on borrowings is payable at the Company's option either at
(a) the Eurodollar rate plus a margin, which is currently 1.20% or (b) the agent
bank's prime rate plus, under certain circumstances, a margin. The facility fee
and borrowing margins are subject to adjustment based upon the Company's fixed
charge coverage ratio. The credit facility is subject to certain covenants which
include minimum tangible net worth and fixed charge coverage requirements and a
maximum funded debt-to-capital limitation, and prohibit the payment of cash
dividends. The Company is required to cause the credit facility to become
secured if its fixed charge coverage ratio falls below a designated level. The
Company also maintains a separate credit line for letters of credit in the
amount of $20 million.
Cash and cash equivalents totaled $13.1 million as of July 26, 1997. The Company
expects that its current resources, including the bank credit agreement,
together with anticipated cash flow from operations, will be sufficient to
finance its operations through January 30, 1999. However, the Company may from
time to time seek to obtain additional financing.
<PAGE>
PART II. OTHER INFORMATION
Item 2 - Changes in Securities
---------------------
(c) During the quarter ending July 26, 1997, the Company issued
606 shares of Common Stock upon conversion of $15,000
aggregate principal amount of its 6 1/2% Convertible
Subordinated Debentures due June 1, 2002 in reliance upon
the exemption from registration set forth in Section 3(a)(9)
of the Securities Act. No underwriters were engaged in
connection with such issuances. The Company did not sell any
other equity securities during the quarter ended July 26,
1997 that were not registered under the Securities Act.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the 1997 Annual Meeting of Stockholders of the Company (the "Annual
Meeting") held on July 10, 1997, the following matters were acted upon by the
stockholders of the Company:
1. Approval of the distribution (the "Distribution") in the form of a
tax-free special dividend to all holders of the Company's Common Stock, on a
one-for-one basis, of all outstanding shares of Common Stock of BJ's Wholesale
Club, Inc. and the associated stockholders' rights;
2. Approval of an amendment (the "Charter Amendment") to the Company's
Certificate of Incorporation to change the Company's name to "HomeBase, Inc.";
3. Approval of an amendment to the Company's 1989 Stock Incentive Plan
("1989 Plan") to increase by 1,500,000 shares the number of shares of Common
Stock available for issuance thereunder and the continuance of the 1989 Plan as
amended;
4. Approval of the Company's 1997 Stock Incentive Plan ("1997 Plan");
5. Approval of the BJ's Wholesale Club, Inc. 1997 Replacement Stock
Incentive Plan ("BJI Replacement Plan");
6. Approval of the BJ's Wholesale Club, Inc. 1997 Stock Incentive Plan
("BJI 1997 Plan");
7. Approval of the BJ's Wholesale Club, Inc. Management Incentive Plan
("BJI MIP");
8. Approval of the BJ's Wholesale Club, Inc. Growth Incentive Plan ("BJI
GIP");
9. Approval of the BJ's Wholesale Club, Inc. 1997 Director Stock Option
Plan ("BJI Director Plan"); and
10. The election of Kerry L. Hamilton, Arthur F. Loewy and Edward J.
Weisberger as directors for the ensuing three years.
The number of shares of Common Stock outstanding and entitled to vote at
the Annual
<PAGE>
Meeting was 32,894,749. The other directors of the Company, whose terms of
office as directors continued after the Annual Meeting, were S. James
Coppersmith, Allyn L. Levy, Thomas J. Shields, Lorne R. Waxlax and Herbert J.
Zarkin. The results of the voting on each of the matters presented to
stockholders at the Annual Meeting are set forth below:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
For Withheld Against Abstentions Non-Votes
--- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Approval of
Distribution 23,059,734 N/A 13,873 44,558 2,168,501
Approval of Charter
Amendment 23,293,901 N/A 19,631 48,478 1,984,654
Approval of Amendment
to 1989 Plan 19,974,153 N/A 3,069,353 74,657 2,168,501
Approval of 1997 Plan 20,312,639 N/A 2,729,395 75,529 2,168,501
Approval of BJI 1997
Replacement Plan 20,447,377 N/A 2,590,931 79,855 2,168,501
Approval of BJI 1997 Plan 20,466,852 N/A 2,573,250 78,061 2,168,501
Approval of BJI MIP 22,280,457 N/A 754,527 83,179 2,168,501
Approval of BJI GIP 22,252,479 N/A 788,493 77,191 2,168,501
Approval of BJI
Director Plan 22,174,922 N/A 864,724 78,457 2,168,501
Election of Directors:
Kerry L. Hamilton 24,938,319 348,345 N/A N/A N/A
Arthur F. Loewy 24,938,319 348,345 N/A N/A N/A
Edward J. Weisberger 24,938,319 348,345 N/A N/A N/A
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation is
incorporated herein by reference to the Company's
Registration Statement on Form S-8, dated July 30, 1997
(Commission File No. 333-32473)
3.2 By-Laws, as amended, is incorporated herein by reference to
the Company's Registration Statement on Form S-8, dated July
30, 1997 (Commission File No. 333-32473)
<PAGE>
10.1a Amendment No. 1 to Distribution Agreement dated as of May 1,
1989 between the Company and Zayre Corp.
10.2 HomeBase, Inc. 1989 Stock Incentive Plan, as amended
10.7 Employment Agreement, dated as of July 28, 1997 with Herbert
J. Zarkin
10.9 Employment Agreement, dated as of July 28, 1997 with Edward
J. Weisberger
10.12 Form of Change of Control Severance Agreement between the
Company and officers of the Company
10.17 HomeBase, Inc. 1997 Stock Incentive Plan
10.18 Employment Agreement, dated as of July 28, 1997 with Thomas
F. Gallagher
10.19 Employment Agreement, dated as of July 28, 1997 with Scott
Richards
10.20 Employment Agreement, dated as of July 28, 1997 with William
B. Langsdorf
10.21 Credit Agreement, dated as of July 9, 1997 among the Company
and certain banks
10.22 Separation and Distribution Agreement, dated as of July 10,
1997, between the Company and BJ's Wholesale Club, Inc. is
incorporated herein by reference to the Company's Current Report
on Form 8-K, dated July 28, 1997 (Commission File No. 1-10259)
10.23 Services Agreement, dated as of July 28, 1997, between the
Company and BJ's Wholesale Club, Inc. is incorporated herein
by reference to the Company's Current Report on Form 8-K,
dated July 28, 1997 (Commission File No. 1-10259)
10.24 Tax Sharing Agreement, dated as of July 28, 1997, between
the Company and BJ's Wholesale Club, Inc. is incorporated
herein by reference to the Company's Current Report on Form
8-K, dated July 28, 1997 (Commission File No. 1-10259)
10.25 Employee Benefits Agreement, dated as of July 28, 1997,
between the Company and BJ's Wholesale Club, Inc. is
incorporated herein by reference to the Company's Current
Report on Form 8-K, dated July 28, 1997 (Commission File No.
1-10259)
11.0 Statement regarding computation of per share earnings
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K
with the Securities and Exchange Commission during the
quarter ended July 26, 1997:
(1) Current Report on Form 8-K, dated June 6, 1997, filing as an
exhibit thereto the Standby Purchase Agreement, dated as of
June 6, 1997, by and among the Company, BJ's Wholesale Club,
Inc. and Prudential Securities Incorporated.
(2) Current Report on Form 8-K, dated June 16, 1997, presenting
updated pro forma financial data for each of the Company and
BJ's Wholesale Club, Inc. for the quarter ended April 26,
1997, illustrating the estimated effects of the Distribution
and certain related transactions.
<PAGE>
(3) Current Report on Form 8-K, dated June 18, 1997, filing as an
exhibit thereto the Company's press release dated June 18, 1997,
relating to the commencement by the Company of a tender offer in
respect of its 11% Senior Subordinated Notes Due May 15, 2004.
(4) Current Report on Form 8-K, dated June 27, 1997, presenting
certain financial information regarding BJ's Wholesale Club,
Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOMEBASE, INC.
----------------------------
(Registrant)
Date: September 9, 1997 /s/ ALLAN P. SHERMAN
--------------------------- ----------------------------
Allan P. Sherman
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 9, 1997 /s/ WILLIAM B. LANGSDORF
--------------------------- ------------------------
William B. Langsdorf
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 10.1a
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT
-----------------------------------------
First Amendment to Distribution Agreement dated as of April 18, 1997 by and
between The TJX Companies, Inc., a Delaware corporation (f/k/a Zayre Corp.)
("TJX"), and Waban Inc., a Delaware corporation ("Waban"). TJX and Waban are
referred to collectively herein as the "Parties."
WHEREAS, the Parties are signatories to a Distribution Agreement dated as
of May 1, 1989 (the "Distribution Agreement") pursuant to which, among other
things, Waban agreed to indemnify TJX for certain Waban Liabilities.
WHEREAS, Waban has stated its intention of consummating a transaction
providing for (i) the transfer by Waban of the assets of its BJ's Wholesale Club
division to a newly formed subsidiary, BJ's Wholesale Club, Inc. ("BJ's"), and
(ii) the subsequent transfer, through a special dividend (the "Distribution"),
of the stock of BJ's to the stockholders of Waban (the "Spinoff").
WHEREAS, the Parties desire to modify the Distribution Agreement to reflect
the change in circumstances caused by the consummation of the Spinoff.
Now, therefore, in consideration of the premises and the mutual promises
and covenants contained herein, the Parties agree as follows.
1. Definitions. Capitalized terms not defined herein shall have the
-----------
meanings ascribed to them in the Distribution Agreement. Any references to
Waban shall be construed to include HomeBase, Inc. on and after the date on
which the Distribution is made to the stockholders of Waban (the "Effective
Date").
1.01 "BJ's" shall have the meaning set forth in the recitals hereof.
----
1.02 "BJ's Lease" shall mean any lease or sub-lease of property ever
----------
used in connection with the Waban Businesses for which TJX or any Affiliate
thereof may be liable as a tenant, surety, sub-lessee or guarantor, other than
(i) a HomeBase Lease and (ii) the One Mercer Road, Natick, Massachusetts lease,
to the extent (and only to the extent) provided in the letter, dated April 18,
1997, from Mark G. Borden, counsel for Waban, to Luc A. Despins, counsel for
TJX.
1.03 "Distribution Agreement" shall have the meaning set forth in the
----------------------
recitals hereof.
1.04 "HomeBase Lease" shall mean any of the leases or sub-leases of
--------------
property listed on the Schedule of Leases for which TJX or any Affiliate thereof
may be liable as a tenant, sub-lessee, surety or guarantor.
<PAGE>
1.05 "Indemnification Agreement" shall have the meaning set forth in
-------------------------
section 4.02 hereof.
1.06 "Parties" shall have the meaning set forth in the recitals
-------
hereof.
1.07 "Schedule of Leases" shall mean the schedule of leases initialed
------------------
by the parties, provided as of the date hereof and setting forth the HomeBase
Leases.
1.08 "Spinoff" shall have the meaning set forth in the recitals
-------
hereof.
1.09 "TJX" shall have the meaning set forth in the recitals hereof.
---
1.10 "Waban" shall have the meaning set forth in the recitals hereof.
-----
2. Covenants Regarding Extension or Renewal of HomeBase Leases. Waban
-----------------------------------------------------------
hereby covenants that it shall not increase the amount of base rent scheduled to
come due under, extend the term of, or exercise any option to renew or extend
any HomeBase Lease without first securing from the Person holding the landlord's
interest and from any mortgagee with respect to the HomeBase Lease in question
(if the consent of such Person or mortgagee is required to release any Liability
of TJX and its Affiliates on such HomeBase Lease), a full and complete release
of Liability of TJX and its Affiliates on any such HomeBase Lease, in a form
reasonably satisfactory to TJX. Waban shall not transfer or assign any HomeBase
Lease unless the transferee or assignee shall execute and deliver an agreement
to be bound by terms equivalent to the terms of this section 2 (which would also
condition subsequent transfers or assignments upon an equivalent transfer
restriction) and Waban will be liable to TJX for any breach thereof.
3. Reporting Obligations and Access to Information. Waban shall provide
-----------------------------------------------
TJX with 30 days prior written notice of its intention to extend or renew,
transfer or assign any HomeBase Lease, and Waban shall provide TJX with any
document (including releases) executed in satisfaction of Waban's obligations
under section 2 hereof. Moreover, Waban shall afford TJX and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to third parties possessing
Information) and duplicating rights during normal business hours to Information
within Waban's possession relating to the HomeBase Leases insofar as such access
is reasonably required by TJX.
4. Reaffirmation.
-------------
4.01 Each Party hereby acknowledges and represents to each other that
the Distribution Agreement is presently, and upon giving effect to this First
Amendment will be, valid and enforceable in accordance with its terms, not
subject to any defenses, counterclaims or right of set-off whatsoever.
-2-
<PAGE>
4.02 Except as modified by this First Amendment, the Distribution
Agreement shall remain in full force and effect in accordance with its terms.
The fact that BJ's has entered into an Indemnification Agreement dated as of
April 18, 1997 (the "Indemnification Agreement") shall not be used as a defense
(other than as a defense of payment if and to the extent that BJ's had paid such
Liability to a TJX Indemnitee pursuant to the Indemnification Agreement) by
Waban to any claim of TJX against Waban.
5. No Third-Party Beneficiaries. This First Amendment shall not confer
----------------------------
any rights or remedies upon any Person other than the Parties and their
respective successors and assigns.
6. Entire Agreement. This First Amendment (including the documents
----------------
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings and agreements (other than the Distribution
Agreement and any other agreement between the parties that expressly so
provides), by or among the Parties, written or oral, to the extent they related
in any way to the subject matter hereof.
7. Succession and Assignment. This First Amendment shall be binding upon
-------------------------
and inure to the benefit of the Parties and their respective successors and
assigns.
8. Counterparts. This First Amendment is an agreement under seal and may
------------
be executed in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
9. Headings. The section headings contained in this First Amendment are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this First Amendment.
10. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to TJX:
---------
The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopy No.: (508) 390-2457
Attention: General Counsel
-3-
<PAGE>
Copy to:
-------
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy No.: (212) 446-4900
Attention: Luc A. Despins, Esq.
If to Waban:
-----------
Waban Inc.
One Mercer Road
Natick, Massachusetts 01760
Telecopy No.: (508) 651-6251
Attention: Treasurer
Copy to:
-------
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopy No.: (617) 526-5000
Attention: Mark G. Borden, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
11. Governing Law. This First Amendment shall be governed by and
------------- ---------------------------------------------
construed in accordance with the domestic laws of the Commonwealth of
- ---------------------------------------------------------------------
Massachusetts without giving effect to any choice or conflict of law provision
- ------------------------------------------------------------------------------
or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction)
- --------------------------------------------------------------------------------
that would cause the application of the laws of any jurisdiction other than the
- -------------------------------------------------------------------------------
Commonwealth of Massachusetts.
- -----------------------------
12. Amendments and Waivers. No amendment of any provision of this First
----------------------
Amendment shall be valid unless the same shall be in writing and signed by TJX
and Waban. No waiver by any Party of any default or breach of covenant
-4-
<PAGE>
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default or breach of covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence.
13. Severability. Any term or provision of this First Amendment that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
14. Expenses. Each Party will bear his or its own costs and expenses
--------
(including legal fees and expenses) incurred in connection with this First
Amendment.
15. Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this First Amendment. In the event an ambiguity or
question of intent or interpretation arises, this First Amendment shall be
construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship
of any of the provisions of this First Amendment.
16. Specific Performance. Each Party acknowledges and agrees that the
--------------------
other Party would be damaged irreparably in the event any of the provisions of
this First Amendment are not performed in accordance with their specific terms
or otherwise are breached. Accordingly, each Party agrees that the other Party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this First Amendment
and the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity.
17. Modifications to Indemnification Rights. Sections 7.4.2, 7.4.3, and
---------------------------------------
7.4.4 of the Distribution Agreement shall not apply to Third Party Claims
against TJX arising out of, or in any way relating to, HomeBase Leases.
18. Indemnification Agreement. Waban shall cause BJ's to execute the
-------------------------
Indemnification Agreement in the form attached hereto as Exhibit "A".
19. Spinoff. Waban hereby covenants that the Spinoff will only be
-------
effected by the transfer of the assets of the BJ's Wholesale Club division to
BJ's, and not to any other person or entity.
-5-
<PAGE>
20. Further Assurances. Each Party to this First Amendment shall execute
------------------
such documents and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and of the Distribution Agreement.
21. Authority. The Parties hereto represent and warrant to each other
---------
that the signatories to this First Amendment are authorized to execute this
First Amendment; that each has full power and authority to enter into this First
Amendment; that this First Amendment is duly executed and delivered, and
constitutes a valid, binding agreement in accordance with its terms.
22. Effective Date. This First Amendment, and all of the rights and
--------------
obligations of the Parties hereunder, shall become effective upon the Effective
Date, and if the Effective Date does not occur by December 31, 1997, this First
Amendment shall be null and void.
23. Waiver of Jury Trial. THE PARTIES HERETO EACH WAIVE THEIR RESPECTIVE
--------------------
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS FIRST AMENDMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY A
PARTY AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION 23 AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS FIRST AMENDMENT OR ANY PROVISION HEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, OR
MODIFICATIONS TO THIS FIRST AMENDMENT.
*****
-6-
<PAGE>
IN WITNESS HEREOF, the Parties hereto have executed this First Amendment as
of the date first above written.
THE TJX COMPANIES, INC.
By: /s/ Donald G. Campbell
---------------------------
Title: Executive Vice President
---------------------------
WABAN INC.
By: /s/ Edward J. Weisberger
---------------------------
Title: Senior Vice President
---------------------------
-7-
<PAGE>
EXHIBIT "A" to
First Amendment to
Distribution Agreement
INDEMNIFICATION AGREEMENT
-------------------------
Indemnification Agreement dated as of April 18, 1997 by and between The TJX
Companies, Inc., a Delaware corporation (f/k/a Zayre Corp.) ("TJX"), and BJ's
Wholesale Club, Inc., a Delaware corporation ("BJ's"). TJX and BJ's are
referred to collectively herein as the "Parties."
WHEREAS, Waban Inc. ("Waban") and TJX are signatories to a Distribution
Agreement, dated as of May 1, 1989 (as amended on April 18, 1997, the
"Distribution Agreement"), pursuant to which, among other things, Waban agreed
to indemnify TJX for certain Waban Liabilities (as defined in the Distribution
Agreement).
WHEREAS, Waban has stated its intention of consummating a transaction
providing for (i) the transfer by Waban of the assets of its BJ's Wholesale Club
division to BJ's, a newly formed subsidiary of Waban, and (ii) the subsequent
transfer, through the declaration and distribution of a special dividend (the
"Distribution"), of the stock of BJ's to the stockholders of Waban (the
"Spinoff").
WHEREAS, the Parties desire to enter into this indemnification agreement to
provide for BJ's indemnification of TJX for certain Waban Liabilities (as
defined in the Distribution Agreement), effective upon the date on which the
Distribution is made to Waban's stockholders (the "Effective Date").
Now, therefore, in consideration of the premises and the mutual promises
and covenants contained herein, the Parties agree as follows.
1. Definitions. Capitalized terms not defined herein shall have the
-----------
meanings ascribed to them in the Distribution Agreement.
Any references on or after the Effective Date to Waban shall be
construed to include HomeBase, Inc.
1.01 "Applicable Credits" shall have the meaning set forth in section 7
------------------
hereof.
1.02 "BJ's" shall have the meaning set forth in the recitals hereof.
----
1.03 "BJ's Control Period" shall have the meaning set forth in
-------------------
section 4 hereof.
<PAGE>
1.04 "BJ's Lease" shall mean any lease or sub-lease of property ever
----------
used in connection with the Waban Businesses for which TJX or any Affiliate
thereof may be liable as a tenant, surety, sub-lessee or guarantor, other than
(i) a HomeBase Lease and (ii) the One Mercer Road, Natick, Massachusetts lease,
to the extent (and only to the extent) provided in the letter, dated April 18,
1997, from Mark G. Borden, counsel for Waban, to Luc A. Despins, counsel for
TJX.
1.05 "BJ's Lease Liability" shall mean (i) any Liability arising in
--------------------
connection with a BJ's Lease or a BJ's Third Party Claim and (ii) any Liability
arising in connection with a HomeBase Lease or a HomeBase Third Party Claim,
other than a HomeBase Lease Liability.
1.06 "BJ's Lease Liability Payment" shall mean an amount paid by BJ's
----------------------------
(or by TJX, if BJ's breaches its obligation, pursuant to sections 3 and 5.01
hereof, to make all payments on account of such Liabilities) in satisfaction of
a BJ's Lease Liability.
1.07 "BJ's Third Party Claim" shall mean a Third Party Claim arising
----------------------
out, or relating to, a BJ's Lease.
1.08 "Disabling Conduct" shall mean the conduct of a Person that
-----------------
constitutes fraud, self-dealing, willful violation of the law, bad faith or
gross negligence.
1.09 "Distribution" shall have the meaning set forth in the recitals
------------
hereof.
1.10 "Distribution Agreement" shall have the meaning set forth in the
----------------------
recitals hereof.
1.11 "Effective Date" shall have the meaning set forth in the recitals
--------------
hereof.
1.12 "First Amendment" shall mean the First Amendment to the
---------------
Distribution Agreement, dated as of April 18, 1997.
1.13 "HomeBase Lease" shall mean any of the leases or sub-leases of
--------------
property listed on the Schedule of Leases for which TJX or any Affiliate thereof
may be liable as a tenant, sub-lessee, surety or guarantor.
1.14 "HomeBase Lease Liability" shall mean (i) any Liability arising
------------------------
under any HomeBase Lease, during the current term (without any extension or
renewals after the date hereof) of such HomeBase Lease as set forth on the
Schedule of Leases, for any of the Specified Obligations in regard to such
HomeBase Lease and
-2-
<PAGE>
(ii) any Liability arising by reason of any HomeBase Third Party Claim with
respect to any Liability described in clause (i) of this section 1.14.
1.15 "HomeBase Lease Liability Payment" shall mean any amount paid by
--------------------------------
TJX or BJ's in satisfaction of any HomeBase Lease Liability.
1.16 "HomeBase Third Party Claim" shall mean a Third Party Claim
--------------------------
arising out of, or relating to, a HomeBase Lease.
1.17 "Liability" shall mean any and all debts, liabilities and
---------
obligations, absolute or contingent, mature or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless
otherwise specified in this Agreement), and all costs and expenses related
thereto, including, without limitation, (i) those debts, liabilities and
obligations arising under any law, rule, regulation, action, threatened action,
order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking, (ii) reasonable attorneys' and accountants' fees, (iii) fees paid
to real estate consultants and brokers, and (iv) amounts paid or incurred in
investigating, preparing or defending against Third Party Claims or settling or
mitigating such claims (including, without limitation, costs for repairs,
remodeling or any other modification to premises that are incurred in connection
with the letting of the premises).
1.18 "Net HomeBase Lease Liability Payments" shall have the meaning
-------------------------------------
set forth in section 7 hereof.
1.19 "Parties" shall have the meaning set forth in the recitals
-------
hereof.
1.20 "Schedule of Leases" shall mean the schedule of leases initialed
------------------
by the parties, provided as of the date hereof and setting forth the HomeBase
Leases.
1.21 "Significant Subsidiary" shall have the meaning set forth in
----------------------
section 6.01(d)(i) hereof.
1.22 "Specified Obligations" shall mean, in regard to any HomeBase
---------------------
Lease, (i) the base rent in regard to such HomeBase Lease, provided, however,
-------- -------
that any such base rent in excess of the annual base rent set forth with
respect to such HomeBase Lease in the Schedule of Leases shall not constitute
Specified Obligations except to the extent, and then only to the extent, that
the amount of such excess results from the fact that the actual rate of
adjustment in minimum rent exceeds that reflected in the Schedule of Leases
because the actual rate of increase in the CPI (or similar inflation index) used
to calculate such increase under the current terms of such HomeBase Lease
exceeds the 3% annual rate assumed in developing the Schedule of Leases; and
(ii) such amounts of common area maintenance charges and
-3-
<PAGE>
property taxes and similar assessments as come due from time to time under the
terms of such HomeBase Lease as such terms are currently in effect.
1.23 "Spinoff" shall have the meaning set forth in the recitals
-------
hereof.
1.24 "Third Party Claim" shall mean the assertion by a Person (other
-----------------
than Waban, TJX, BJ's or any of their Affiliates) of any claim or the
commencement by any such Person of any Action against any TJX Indemnitee.
1.25 "TJX" shall have the meaning set forth in the recitals hereof.
---
1.26 "TJX Control Period" shall have the meaning set forth in section
------------------
6.04 hereof.
1.27 "TJX Indemnitees" shall mean TJX, its Affiliates and their
---------------
directors, officers, employees, representatives, attorneys, accountants, and
agents.
1.28 "Waban" shall have the meaning set forth in the recitals hereof.
-----
2. Indemnification for Breach of First Amendment. BJ's shall indemnify
---------------------------------------------
and hold harmless the TJX Indemnitees for any and all Liability paid or
satisfied by the TJX Indemnitees arising out of the non-performance by Waban or
any assignee, for any reason (including bankruptcy), of the covenants contained
in section 2 of the First Amendment, as such covenants existed on the date
hereof, or any agreement entered into in accordance with said covenants.
3. Indemnification for BJ's Leases. BJ's shall indemnify and hold
-------------------------------
harmless the TJX Indemnitees for one hundred percent (100%) of any BJ's Lease
Liability Payment.
4. Indemnification for HomeBase Leases. BJ's shall indemnify and hold
-----------------------------------
harmless the TJX Indemnitees for fifty percent (50%) of any Net HomeBase Lease
Liability Payment. Notwithstanding anything to the contrary contained in this
Agreement, BJ's shall indemnify and hold harmless the TJX Indemnitees for one
hundred percent (100%) of any HomeBase Lease Liability Payment that is made
either during or with respect to the period up to and including January 31, 2003
(the "BJ's Control Period"), net of an amount equal to the fair market value of
any benefit (such as by way of example, any rental income received by TJX or any
Affiliate thereof from a sublease with respect to the HomeBase Lease that is the
subject of the HomeBase Lease Liability Payment in question) that has inured to
TJX or any Affiliate thereof during the BJ's Control Period (i) in regard to the
premises that are the subject of the HomeBase Lease as to which the HomeBase
Lease Liability Payment in question was made or (ii) by reason of any claim made
by TJX against
-4-
<PAGE>
any third party for reimbursement in whole or in part of the HomeBase Lease
Liability Payment in question.
5. Control of Third Party Claims and Payment Mechanism.
---------------------------------------------------
5.01 BJ's shall have control of the defense and settlement of all BJ's
Third Party Claims and shall be obligated to make all BJ's Lease Liability
Payments. TJX shall have the right, at its expense, to participate with BJ's in
the defense and settlement of such BJ's Third Party Claims.
5.02 During the BJ's Control Period, BJ's shall have the right to
control the defense and settlement of all HomeBase Third Party Claims, and shall
be obligated to make all HomeBase Lease Liability Payments with respect thereto.
During the BJ's Control Period, TJX shall have the right to participate, at its
expense, with BJ's in the defense and settlement of such HomeBase Third Party
Claims.
5.03 During the BJ's Control Period (unless TJX has exercised its right
to control under section 6 hereof), BJ's may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to the HomeBase
Third Party Claims in any manner it may deem appropriate, and BJ's need not
obtain any consent from TJX in connection therewith, provided, however, that any
-------- -------
claim of TJX based on a Disabling Conduct on the part of BJ's in the handling of
the defense or settlement of such HomeBase Third Party Claims is hereby
expressly preserved.
5.04 From and after February 1, 2003 (the "TJX Control Period"), TJX
shall have the right to control the defense and settlement of all pending and
future HomeBase Third Party Claims. During the TJX Control Period, BJ's shall
have the right to participate, at its expense, with TJX on the defense and
settlement of such HomeBase Third Party Claims. During the TJX Control Period,
TJX shall provide BJ's with monthly statements (with reasonable supporting
documentation) of any HomeBase Lease Liability Payments and any Applicable
Credits during the month in question. Except for any HomeBase Lease Liability
Payment as to which TJX is one hundred percent (100%) indemnified pursuant to
(and subject to the potential netting called for by) the second sentence of
section 4 hereof (all of which such payments shall be 100% reimbursed by BJ's to
TJX after taking into account any netting called for by said sentence), BJ's
shall pay to TJX fifty percent (50%) of the Net HomeBase Lease Liability
Payments within fifteen (15) days of the receipt of such statement.
5.05 During the TJX Control Period or, subject to section 6.03 hereof,
after TJX has exercised its right to control pursuant to section 6.01 hereof,
TJX may defend against, and consent to the entry of any judgment or enter into
any settlement with respect to any Third Party Claims as to which it has control
in any manner it may deem appropriate, and TJX need not obtain any consent from
BJ's in connection therewith, provided, however, that any claim of BJ's based on
-------- -------
a Disabling Conduct
-5-
<PAGE>
on the part of TJX in the handling of the defense or settlement of such Third
Party Claims is hereby expressly preserved.
5.06 TJX shall provide BJ's with written notice within ten (10)
business days after the receipt of a written BJ's Third Party Claim or HomeBase
Third Party Claim, provided that the failure of TJX to give such notice shall
not relieve BJ's of its obligations under this Agreement except to the extent
BJ's is materially prejudiced by such failure to give notice. Such notice shall
describe the Third Party Claim in reasonable detail. Thereafter, TJX shall
deliver to BJ's within five (5) business days after TJX's receipt thereof,
copies of all notices and documents (including court papers) received by TJX
relating to such Third Party Claim.
5.07 Both TJX and BJ's shall make available to the other any personnel
(to the extent that such tasks shall not unreasonably interfere with the
performance of such employee's responsibilities) and any books, records or other
documents within such Party's control or which it otherwise has the ability to
make available that are reasonably necessary or appropriate for the defense,
settlement or compromise, and shall otherwise cooperate in the defense,
settlement or compromise of any BJ's Third Party Claim or HomeBase Third Party
Claim, including pursuing any appeals of any judgments relating thereto.
5.08 During the BJ's Control Period, TJX shall assign, at BJ's request,
to the extent permitted to do so under the relevant lease or guaranty, TJX's
tenants' rights (if any) under the relevant lease or guaranty (including such
rights, if any, under TJX guaranties of HomeBase Leases) that would enable BJ's,
as sub-lessor, to enter into sub-leases with respect to the premises covered by
such HomeBase Leases.
6. Right of TJX To Control Third Party Claims Upon
Occurrence of Control Event
------------------------------------------------
6.01 TJX shall have the right at any time following the occurrence of a
Control Event which is not cured within 30 days following written notice thereof
to BJ's by TJX to elect to control the defense and settlement of all pending and
future BJ's Third Party Claims or HomeBase Third Party Claims (or both). Control
Event shall mean the occurrence of any of the following events:
(a) BJ's shall have failed to perform in a material respect any of
its obligations hereunder;
(b) (i) BJ's shall have failed to maintain at the end of any
fiscal quarter an actual or implied senior debt rating of at least B- by
Standard & Poors or BB by Moodys and (ii) at the end of such quarter, BJ's shall
have failed to maintain on a consolidated basis as of the end of such fiscal
quarter a Fixed Charge Coverage Ratio (as such term is defined in the Agreement,
dated as of April 4, 1995,
-6-
<PAGE>
between Waban, The First National Bank of Boston, and the other Lenders party
thereto, without regard to any subsequent amendments, and interpreting such term
as if BJ's were the borrower rather than Waban) greater than 1.20 to 1.0;
provided, however, that, in calculating the Fixed Charge Coverage Ratio,
- -------- -------
extraordinary items and HomeBase Lease Liability Payments shall be excluded;
(c) BJ's or any of its subsidiaries shall have defaulted in the
payment of any obligation for borrower money exceeding $10 million in principal
amount which has been accelerated and is beyond any grace period provided with
respect thereto; or
(d) any of the following bankruptcy events shall have occurred:
(i) any decree or order for relief in respect of BJ's or any
Significant Subsidiary (as defined in SEC Regulation SX) or any other
three subsidiaries is entered under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution
or liquidation or similar law (collectively, the "Bankruptcy Law"), of
any jurisdiction; or
(ii) BJ's or any Significant Subsidiary or any other three
subsidiaries petitions or applies to any tribunal for, or consents to,
the appointment of, or the taking of possession by, a trustee,
receiver, custodian, liquidator or similar official of BJ's or any
Significant Subsidiary or any other three subsidiaries, or of any
substantial part of the assets of BJ's or any Significant Subsidiary or
any other three subsidiaries, or commences a voluntary case under the
Bankruptcy Law of the United States or any similar proceedings relating
to BJ's or any Significant Subsidiary or any other three subsidiaries
under the Bankruptcy Law of any other jurisdiction; or
(iii) any petition or application referred to in clause (b)
above is filed, or any such proceedings are commenced, against BJ's,
any Significant Subsidiary or any other three subsidiaries and BJ's or
such Significant Subsidiary or such other three subsidiaries by any act
indicates its or their approval thereof or acquiescence therein, or an
order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 60 days.
6.02 From and after the end of the fourth fiscal quarter beginning from
the date hereof, BJ's shall promptly report in writing to TJX any failure at any
-7-
<PAGE>
time of BJ's to comply with any of the tests set forth in paragraphs (a) through
(d) of section 6.01 hereof. From and after the end of the fourth fiscal quarter
beginning from the date hereof, BJ's also shall furnish to TJX, within 45 days
following the end of each fiscal quarter and within 90 days following the end of
each fiscal year, a certificate signed by the President or Chief Financial
Officer of BJ's certifying BJ's compliance (and, with respect to paragraph (b)
of section 6.01, specifying the applicable credit rating or financial ratio for
such fiscal quarter or fiscal year) as of the end of such fiscal quarter or
fiscal year with each of the tests set forth in paragraphs (a) through (d) of
section 6.01.
6.03 From and after the end of the fourth fiscal quarter beginning from
the date hereof, TJX shall promptly report in writing to BJ's any failure at any
time of TJX to comply with any of the tests set forth in paragraphs (a) through
(d) of section 6.01 hereof (as if such paragraphs applied to TJX). From and
after the end of the fourth fiscal quarter beginning from the date hereof, TJX
also shall furnish to BJ's, within 45 days following the end of each fiscal
quarter and within 90 days following the end of each fiscal year, a certificate
signed by the President or Chief Financial Officer of TJX certifying TJX's
compliance (and, with respect to paragraph (b) of section 6.01, specifying the
applicable credit rating or financial ratio for such fiscal quarter or fiscal
year) as of the end of such fiscal quarter or fiscal year with each of the tests
set forth in paragraphs (a) through (d) of section 6.01 (as if such paragraphs
applied to TJX).
6.04 After the exercise by TJX of its right to control the HomeBase
Third Party Claims pursuant to section 6.01 hereof, TJX shall provide BJ's
during the remainder of the BJ's Control Period with prior written notice of any
settlement agreement between TJX and the holder of a HomeBase Third Party Claim
pursuant to which more than three (3) months of Liability of a HomeBase Lease is
being extinguished. TJX shall not enter into any such settlement agreement
without the consent of BJ's; provided, however, that such consent shall not be
-------- -------
unreasonably withheld. BJ's shall be deemed to have consented to such
settlement agreement unless it notifies TJK in writing of its objection to such
settlement agreement within 10 days of receipt of such notice.
7. Calculation of Net HomeBase Lease Liability Payments. For purposes of
----------------------------------------------------
calculating the Net HomeBase Lease Liability Payments for which TJX is entitled
to partial reimbursement from BJ's pursuant to section 5.04 hereof, (a) the
"Applicable Credits" shall be an amount equal to the fair market value of any
benefit (such as by way of example, any rental income received by TJX or any
Affiliate thereof from a sublease with respect to a HomeBase Lease) that has
inured to TJX or any Affiliate thereof during the period covered by the monthly
statement in question (i) in regard to the premises that are the subject of the
HomeBase Leases that are covered by such monthly statement or (ii) by reason of
any claim made by TJX against any third party for reimbursement in whole or in
part of any HomeBase Lease Liability Payment; and
-8-
<PAGE>
(b) the "Net HomeBase Lease Liability Payments" shall be the amount of the
HomeBase Lease Liability Payments during the month in question less the amount
of any Applicable Credits during such month.
8. No Set Off or Recoupment. The obligations of BJ's to indemnify the TJX
------------------------
Indemnitees as provided for in this Agreement shall be absolute and not subject
to any set off or recoupment. Moreover, TJX shall have no obligation to
prosecute any claim or right of indemnification from Waban in order to be
entitled to indemnification from BJ's pursuant to the terms of this Agreement.
9. No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and assigns.
10. Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings and agreements (unless such agreements expressly so
provide), by or among the Parties, written or oral, to the extent they relate in
any way to the subject matter hereof.
11. Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties and their respective successors and assigns.
12. Counterparts. This Agreement is an agreement under seal and may be
------------
executed in one or more counterparts, each of which shall be deemed an original
but all of which together will constitute one and the same instrument.
13. Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to TJX:
---------
The TJX Companies, Inc.
770 Cochituate Road
Framingham, Massachusetts 01701
Telecopy No.: (508) 390-2457
Attention: General Counsel
-9-
<PAGE>
Copy to:
-------
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy No.: (212) 446-4900
Attention: Luc A. Despins, Esq.
If to BJ's:
----------
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Telecopy No.: (508) 651-6251
Attention: Treasurer
Copy to:
-------
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Telecopy No.: (617) 526-5000
Attention: Mark G. Borden, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by given the other Party
notice in the manner herein set forth.
15. Governing Law. This Agreement shall be governed by and construed in
------------- ----------------------------------------------------
accordance with the domestic laws of the Commonwealth of Massachusetts without
- ------------------------------------------------------------------------------
giving effect to any choice or conflict of law provision or rule (whether of the
- --------------------------------------------------------------------------------
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
- -----------------------------------------------------------------------------
application of the laws of any jurisdiction other than the Commonwealth of
- --------------------------------------------------------------------------
Massachusetts.
- --------------
16. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default or breach of covenant hereunder,
-10-
<PAGE>
whether intentional or not, shall be deemed to extend to any prior or subsequent
default or breach of covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
17. Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
18. Expenses. Each Party will bear his or its own costs and expenses
--------
(including legal fees and expenses) incurred in connection with this Agreement.
19. Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.
20. Specific Performance. Each Party acknowledges and agrees that the
--------------------
other Party would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each Party agrees that the other Party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any State thereof having jurisdiction over the Parties and the matter,
in addition to any other remedy to which they may be entitled, at law or in
equity.
21. Further Assurances. Each Party to this Agreement shall execute such
------------------
documents and take such further actions as may be reasonable required or
desirable to carry out the provisions hereof.
22. Authority. The Parties hereto represent and warrant to each other
---------
than the signatories to this Agreement are authorized to execute this Agreement;
that each has full power and authority to enter into this Agreement; that this
Agreement is duly executed and delivered, and constitutes a valid, binding
agreement in accordance with its terms.
23. Effective Date. This Agreement, and all of the rights and obligations
--------------
of the parties hereunder, shall become effective upon the Effective Date, and if
the Effective Date does not occur by December 31, 1997, this Agreement shall be
null and void.
-11-
<PAGE>
24. Waiver of Jury Trial. THE PARTIES HERETO EACH WAIVE THEIR RESPECTIVE
--------------------
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY A PARTY
AGAINST THE OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION 24 AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT.
25. TJX Representation. TJX hereby represents that it has no knowledge of
------------------
the existence of a lease or sub-lease of property that is (i) currently used by
the HomeBase division for which TJX or any Affiliate thereof may be liable as a
tenant, sub-lease, surety or guarantor and (ii) not listed on the Schedule of
Leases. For the purposes of this Agreement, "Knowledge" shall mean the actual
present knowledge of Donald G. Campbell, without investigation; provided,
--------
however, that the fact that Mr. Campbell may have executed a guaranty with
- -------
respect to such lease shall not be deemed to be actual knowledge of Mr. Campbell
unless such guaranty was executed by Mr. Campbell on or after January 18, 1997.
26. Subrogation. In the event of any payment by BJ's to a TJX Indemnitee
-----------
in connection with any Third Party Claim, BJ's shall be subrogated to and shall
stand in the place of such TJX Indemnitee as to events or circumstances for
which such TJX Indemnitee may have any right or claim relating to such Third
Party Claim against any claimant or plaintiff asserting such Third Party Claim
or as against any other Person; provided, however, that BJ's shall have no such
-------- -------
right of subrogation in regard to any HomeBase Lease Liability or any BJ's Lease
Liability if the TJX Indemnitees have not been fully discharged and exonerated
from any and all liability in respect of the HomeBase Lease or BJ's Lease in
question. If BJ's is entitled to subrogation under this section 26, the TJX
Indemnitees shall cooperate with BJ's in a reasonable manner, at the cost and
expense of BJ's, in prosecuting any subrogated right or claim.
****
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
THE TJX COMPANIES, INC.
By: /s/ Donald G. Campbell
------------------------------
Title: Executive Vice President
------------------------------
BJ'S WHOLESALE CLUB, INC.
By: /s/ Edward J. Weisberger
------------------------------
Title: Senior Vice President
------------------------------
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<PAGE>
EXHIBIT 10.2
HOMEBASE, INC.
1989 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the HomeBase, Inc. 1989 Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to secure for HomeBase, Inc. (the "Company")
and its stockholders the benefit of the incentives inherent in Common Stock
ownership and the receipt of incentive awards by selected key employees of the
Company and its Subsidiaries who contribute to and will be responsible for its
continued long term growth. The Plan is intended to stimulate the efforts of
such key employees by providing an opportunity for capital appreciation and
giving suitable recognition for services which contribute materially to the
success of the Company.
The following terms shall be defined as set forth below:
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Award" or "Awards" except where referring to a particular category
of grant under the Plan shall include Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards,
Performance Unit Awards and Other Stock-based Awards.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, any of which is
directly harmful to the business or reputation of the Company or any
Subsidiary.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
(f) "Committee" means the Committee referred to in Section 2. If at any
time no Committee shall be in office, the functions of the Committee
shall be exercised by the Board.
(g) "Deferred Stock Award" is defined in Section 9(a).
<PAGE>
(h) "Disability" means disability as determined in accordance with
standards and procedures similar to those used under the Company's
long term disability program.
(i) "Fair Market Value" on any given date means the last sale price
regular way at which Stock is traded on such date as reflected in
the New York Stock Exchange Composite Transactions Index or, where
applicable, the value of a share of Stock as determined by the
Committee in accordance with the applicable provisions of the Code.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" as defined in the Code.
(k) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(l) "Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the normal retirement date
specified in the HomeBase, Inc. Retirement Plan.
(m) "Other Stock-based Award" is defined in Section 11(a).
(n) "Performance Unit Award" is defined in Section 10(a).
(o) "Restricted Stock Award" is defined in Section 8(a).
(p) "Stock" means the Common Stock, $.01 par value, of the Company,
subject to adjustments pursuant to Section 3.
(q) "Stock Appreciation Right" means a right described in Section 7(a)
and granted, either independently of other Awards or in tandem with
the grant of a Stock Option.
(r) "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 6.
(s) "Subsidiary" means any corporation or other entity (other than the
Company) 50% or more of the total combined voting power of all
classes of stock or other interests of which is owned, directly or
indirectly, by the Company.
(t) "Unrestricted Stock Award" is defined in Section 8(b).
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SECTION 2. COMMITTEE AUTHORITY TO SELECT PARTICIPANTS AND DETERMINE AWARDS,
ETC.
The Plan shall be administered by a Committee of not less than two members,
who shall be appointed by the Board and who shall serve at the pleasure of the
Board.
The Committee shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Unrestricted Stock, Deferred
Stock, Performance Units and any Other Stock-based Awards, or any
combination of the foregoing, granted to any one or more
participants;
(iii) to determine the number of shares to be covered by any Award
(subject, however, to the per participant limitation contained in
Section 3(a));
(iv) to determine the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms
and conditions may differ among individual Awards and participants;
(v) to determine whether, to what extent, and under what circumstances
Stock and other amounts payable with respect to an Award shall be
deferred either automatically or at the election of the participant
and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(vi) to adopt, alter and repeal such rules, guidelines and practices for
administration of the Plan and for its own acts and proceedings as
it shall deem advisable; to interpret the terms and provisions of
the Plan and any Award (including related Award Agreements); to make
all determinations it deems advisable for the administration of the
Plan; to decide all disputes arising in connection with the Plan;
and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
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SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) Shares Issuable; Per Participant Limit.
The maximum number of shares of Stock reserved and available for issuance
under the Plan shall be 7,250,000, including shares issued in lieu of or upon
reinvestment of dividends arising from Awards. For purposes of this limitation,
Awards and Stock which are forfeited, reacquired by the Company or satisfied
without the issuance of Stock shall not be counted and such limitation shall
apply only to shares which have become free of any restrictions under the Plan.
Subject to such overall limitation, shares may be issued up to such maximum
pursuant to any type or types of Award, including Incentive Stock Options.
Shares issued under the Plan may be authorized but unissued shares or shares
reacquired by the Company. Subject to adjustment as provided in Section 3(b)
below, the maximum number of shares of Stock with respect to which Stock Options
and Stock Appreciation Rights may be granted to any employee under the Plan
shall not exceed the greater of (i) 250,000 shares of Stock during any one
calendar year or (ii) 700,000 shares of Stock during the calendar year in which
the Company completes the spin-off (the "Spin-Off") of BJ's Wholesale Club, Inc.
("BJI") by distributing to the Company's stockholders, on a pro rata basis, all
of the outstanding shares of common stock of BJI. For purposes of calculating
such maximum number, (i) each Stock Option and Stock Appreciation Right shall
continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration, (ii) the repricing of an outstanding Stock Option or
Stock Appreciation Right or the issuance of a new Stock Option or Stock
Appreciation Right in substitution for a cancelled Stock Option or Stock
Appreciation Right shall be deemed to constitute the grant of a new additional
Stock Option or Stock Appreciation Right separate from the original grant of the
Stock Option or Stock Appreciation Right that is repriced or cancelled and (iii)
a Stock Appreciation Right that is granted in tandem with a Stock Option shall
not be included.
(b) Stock Dividends, Mergers, etc.
In the event of a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities on which
Awards may thereafter be granted, (ii) the number and kind of shares remaining
subject to outstanding Awards, and (iii) the option or purchase price in respect
of such shares. In the event of any merger, consolidation, dissolution or
liquidation of the Company, the Committee in its sole discretion may, as to any
outstanding Awards, make such substitution or adjustment in the aggregate number
of shares reserved for issuance under the Plan and in the number and purchase
price (if any) of shares subject to such Awards as it may determine, or
accelerate, amend or terminate such Awards upon such terms and conditions as it
shall provide (which, in the case of the termination of the vested portion of
any Award, shall require payment or other consideration which the Committee
deems equitable in the circumstances), subject, however, to the provisions of
Section 15.
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(c) Substitute Awards.
The Company may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who concurrently
become employees of the Company or a Subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a Subsidiary of property or stock of the
employing corporation. The Committee may direct that the substitute Awards be
granted on such terms and conditions as the Committee considers appropriate in
the circumstances.
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part time officers and other
key employees of the Company and its Subsidiaries (excluding any director who is
not an employee) who are responsible for or contribute to the management, growth
or profitability of the Company and its Subsidiaries and who are selected from
time to time by the Committee, in its sole discretion. Persons who are not
employees of the Company or a subsidiary (within the meaning of Section 422 of
the Code) shall not be eligible to receive grants of Incentive Stock Options.
SECTION 5. LIMITATIONS ON TERM AND DATES OF AWARDS.
(a) Duration of Awards.
Subject to Sections 16(a) and 16(c) below, no restrictions or limitations
on Awards shall extend beyond 10 years (or 10 years and one day in the case of
Non-Qualified Stock Options) from the grant date, except that deferrals elected
by participants of the receipt of Stock or other benefits under the Plan may
extend beyond such date.
(b) Latest Grant Date.
No Award shall be granted after the earlier to occur of (i) June 14, 1999
(i.e., the tenth anniversary of the effective date of the Plan) or (ii) six
months after the date on which the Company completes the Spin-Off; provided,
that then-outstanding Awards may extend beyond such date.
SECTION 6. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
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Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted to the Committee under the Plan be
so exercised, so as to disqualify the Plan or, without the consent of the
optionee, any Incentive Stock Option under Section 422 of the Code.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price.
The option price per share of Stock purchasable under a Stock Option shall
be determined by the Committee at the time of grant but shall be not less than
100% of Fair Market Value on the date of grant. If an employee owns or is deemed
to own (by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation and an Incentive Stock
Option is granted to such employee, the option price shall be not less than 110%
of Fair Market Value on the grant date.
(b) Option Term.
The term of each Stock Option shall be fixed by the Committee, but no
Incentive Stock Option shall be exercisable more than ten years after the date
the option is granted and no Non-Qualified Stock Option shall be exercisable
more than ten years and one day after the date the option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation and an Incentive
Stock Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(c) Exercisability.
Stock Options shall be exercisable at such future time or times, whether or
not in installments, as shall be determined by the Committee at or after the
grant date. The Committee may at any time accelerate the exercisability of all
or any portion of any Stock Option.
(d) Method of Exercise.
Stock Options may be exercised in whole or in part, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by certified or
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bank check or other instrument acceptable to the Committee. As determined by
the Committee, in its discretion, at (or, in the case of Non-Qualified Stock
Options, after) grant, payment in full or in part may also be made either (i)
through the surrender by the optionee of shares of Stock not then subject to
restrictions under any Company plan or (ii) through the withholding by the
Company of shares of Stock which would otherwise be delivered to the optionee
upon exercise of the option. Such surrendered or withheld shares shall be
valued at Fair Market Value on the exercise date. An optionee shall have the
rights of a shareholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
Notwithstanding the foregoing paragraph, during the 60-day period following
a Change of Control as defined in Exhibit A, any optionee shall have the right
(by giving written notice to the Company in form satisfactory to the Committee)
to surrender all or part of the Stock Option to the Company and to receive a
cash payment equal to the excess of the fair market value per share of Stock on
the date of exercise over the option exercise price per share times the number
of shares subject to the surrendered Stock Option. The foregoing right shall not
apply to (i) any Stock Option as to which the Committee shall expressly exclude
such right at the date of grant, (ii) any Stock Option held by an optionee who
initiates the Change of Control or (iii) any Stock Option held by an optionee
described in any of the following provisions of the definition of Change of
Control set forth in Exhibit A: the proviso to paragraph (a) of such definition;
the proviso to paragraph (b) of such definition; or the first proviso to
paragraph (d) of such definition. For purposes of clause (iii) of the
immediately preceding sentence, whether an optionee is described in any of the
provisos specified in such clause shall be determined without regard to any
discretionary determination by the Committee pursuant to the terms of Exhibit A
hereto. As used in this paragraph with respect to an election by an optionee to
receive cash in respect of a Non-Qualified Stock Option the term "fair market
value" shall mean the higher of (x) the highest reported sales price, regular
way, of a share of the Stock on the New York Stock Exchange Composite
Transactions Index during the 60-day period prior to the Change of Control and
(y) if the Change of Control is the result of a transaction or series of
transactions described in paragraphs (a), (b) or (d) of the definition of Change
of Control set forth in Exhibit A, the highest price per share of the Stock paid
in such transaction or series of transactions (which in the case of paragraph
(b) shall be the highest price per share of the Stock as reflected in a Schedule
13D filed by the person having made the acquisition), and as used in this
paragraph with respect to an election by an optionee to receive cash in respect
of an Incentive Stock Option the term "fair market value" shall mean Fair Market
Value.
(e) Non-transferability of Options.
No Stock Option shall be transferable by the optionee otherwise then by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
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(f) Termination by Death.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of death, the Stock Option may thereafter be exercised, to the extent
then exercisable (or on such accelerated basis as the Committee shall at any
time determine prior to death), by the legal representative or legatee of the
optionee, for a period of three years (or such shorter period as the Committee
shall specify at time of grant) from the date of death or until the expiration
of the stated term of the option, if earlier.
(g) Termination by Reason of Disability.
Any Stock Option held by an optionee whose employment by the Company and
its Subsidiaries has terminated, or who has been designated an inactive
employee, by reason of Disability may thereafter be exercised to the extent it
was exercisable at the time of the earlier of such termination or such
designation (or on such accelerated basis as the Committee shall at any time
determine prior to such termination or designation) for a period of three years
(or such shorter period as the Committee shall specify at time of grant) from
the date of such termination of employment or designation or until the
expiration of the stated term of the option, if earlier. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
the final year of such exercise period shall extend such period for one year
following death, subject to termination on the expiration of the stated term of
the option, if earlier. The Committee shall have the authority to determine
whether a participant has been terminated or designated an inactive employee by
reason of Disability.
(h) Termination by Reason of Normal Retirement.
If an optionee's employment by the Company and its Subsidiaries terminates
by reason of Normal Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent that it was then exercisable (or on such
accelerated basis as the Committee shall at any time determine) for a period of
three years (or such shorter period as the Committee shall specify at time of
grant) from the date of Normal Retirement or until the expiration of the stated
term of the option, if earlier. Except as otherwise provided by the Committee at
the time of grant, the death of an optionee during the final year of such
exercise period shall extend such period for one year following death, subject
to earlier termination on the expiration of the stated term of the option, if
earlier.
(i) Other Termination.
Unless otherwise determined by the Committee, if an optionee's employment
by the Company and its Subsidiaries terminates for any reason other than death,
Disability, Normal Retirement, or for Cause, any Stock Option held by such
optionee may thereafter be exercised to the extent it was exercisable on the
date of termination of employment
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(or on such accelerated basis as the Committee shall determine at or after
grant) for a period of three months (or such longer period up to three years as
the Committee shall specify at or after grant) from the date of termination of
employment or until the expiration of the stated term of the option, if earlier.
If an optionee's employment terminates for Cause, the unexercised portion of any
Stock Option then held by the optionee shall immediately terminate.
(j) Form of Settlement.
Subject to Section 16(a) and Section 16(c) below, shares of Stock issued
upon exercise of a Stock Option shall be free of all restrictions under the
Plan, except as provided in the following sentence. The Committee may provide at
time of grant that the shares to be issued upon the exercise of a Stock Option
shall be in the form of Restricted Stock or Deferred Stock, or may reserve the
right to so provide after time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS; DISCRETIONARY PAYMENTS.
(a) Nature of Stock Appreciation Right.
A Stock Appreciation Right is an Award entitling the recipient to receive
an amount in cash or shares of Stock (or in a form of payment permitted under
paragraph (e) below) or a combination thereof having a value equal to (or if the
Committee shall so determine at time of grant, less than) the excess of the Fair
Market Value of a share of Stock on the date of exercise over the Fair Market
Value of a share of Stock on the date of grant (or over the option exercise
price, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares with respect to which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights.
Stock Appreciation Rights may be granted in tandem with, or independently
of, any Stock Option granted under the Plan. In the case of a Stock Appreciation
Right granted in tandem with a Non-Qualified Stock Option, such Right may be
granted either at or after the time of the grant of such option. In the case of
a Stock Appreciation Right granted in tandem with an Incentive Stock Option,
such Right may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option
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shall not be reduced until the exercise or termination of the related Stock
Option exceeds the number of shares not covered by the Stock Appreciation Right.
(c) Terms and Conditions of Stock Appreciation Rights.
Stock Appreciation Rights shall be subject to such terms and conditions as
shall be determined from time to time by the Committee, subject to the
following:
(i) Stock Appreciation Rights granted in tandem with Stock Options shall
be exercisable only at such time or times and to the extent that the
related Stock Options shall be exercisable.
(ii) Upon the exercise of a Stock Appreciation Right, the applicable
portion of any related Stock Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with a Stock Option
shall be transferable only with such Stock Option. Other Stock
Appreciation Rights shall not be transferable otherwise than by will
or the laws of descent and distribution. All Stock Appreciation
Rights shall be exercisable during the participant's lifetime only
by the participant or the participant's legal representative.
(iv) A Stock Appreciation Right granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of
such option.
(d) Discretionary Payments.
Notwithstanding that a Stock Option at the time of exercise shall not be
accompanied by a related Stock Appreciation Right, if the market price of the
shares subject to such Stock Option exceeds the exercise price of such Stock
Option at the time of its exercise, the Committee may, in its discretion, cancel
such Stock Option, in which event the Company shall pay to the person exercising
such Stock Option an amount equal to the difference between the Fair Market
Value of the Stock to have been purchased pursuant to such exercise of such
Stock Option (determined on the date the Stock Option is cancelled) and the
aggregate consideration to have been paid by such person upon such exercise.
Such payment shall be by check, bank draft or in Stock (or in a form of payment
permitted under paragraph (e) below) having a Fair Market Value (determined on
the date the payment is to be made) equal to the amount of such payments or any
combination thereof, as determined by the Committee. The Committee may exercise
its discretion under the first sentence of this paragraph (d) only in the event
of a written request of the person exercising the option, which request shall
not be binding on the Committee.
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(e) Settlement in the Form of Restricted Shares or Rights to Receive
Deferred Stock.
Subject to Sections 16(a) and 16(c) below, shares of Stock issued upon
exercise of a Stock Appreciation Right or as a Discretionary Payment shall be
free of all restrictions under the Plan, except as provided in the following
sentence. The Committee may provide at the time of grant in the case of a Stock
Appreciation Right (and at the time of payment in the case of a Discretionary
Payment) that such shares shall be in the form of shares of Restricted Stock or
rights to acquire Deferred Stock, or in the case of a Stock Appreciation Right
may reserve the right to so provide at any time after the time of grant. Any
such shares and any shares subject to rights to acquire Deferred Stock shall be
valued at Fair Market Value on the date of exercise of the Stock Appreciation
Right or the date the Stock Option is cancelled in the case of Discretionary
Payments.
SECTION 8. RESTRICTED STOCK; UNRESTRICTED STOCK.
(a) Nature of Restricted Stock Award.
A Restricted Stock Award is an Award entitling the recipient to acquire
shares of Stock for a purchase price (which may be zero) equal to or less than
their par value, subject to such conditions, including a Company right during a
specified period or periods to repurchase such shares at their original purchase
price (or to require forfeiture of such shares, if the purchase price was zero)
upon participant's termination of employment, as the Committee may determine at
the time of grant.
(b) Award Agreement.
A participant who is granted a Restricted Stock Award shall have no rights
with respect to such Award unless the participant shall have accepted the Award
within 60 days (or such shorter date as the Committee may specify) following the
award date by making payment to the Company by certified or bank check or other
instrument acceptable to the Committee in an amount equal to the specified
purchase price, if any, of the shares covered by the Award and by executing and
delivering to the Company a Restricted Stock Award Agreement in such form as the
Committee shall determine.
(c) Rights as a Shareholder.
Upon complying with paragraph (b) above, a participant shall have all the
rights of a shareholder with respect to the Restricted Stock including voting
and dividend rights, subject to nontransferability restrictions and Company
repurchase or forfeiture rights described in this Section and subject to any
other conditions contained in the Award Agreement. Unless the Committee shall
otherwise determine, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares are free of any
restrictions under the Plan.
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(d) Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of except as specifically provided herein.
In the event of termination of employment with the Company and its subsidiaries
for any reason such shares shall be resold to the Company at their purchase
price, or forfeited to the Company if the purchase price was zero, except as set
forth below.
(i) The Committee at the time of grant shall specify the date or dates
(which may depend upon or be related to the attainment of
performance goals and other conditions) on which the
nontransferability of the Restricted Stock and the obligation to
resell such shares to the Company shall lapse. The Committee at any
time may accelerate such date or dates and otherwise waive or,
subject to Section 13, amend any conditions of the Award.
(ii) Except as may otherwise be provided in the Award Agreement, in the
event of termination of employment by the Company and its
Subsidiaries for any reason (including death), a participant or the
participant's legal representative shall offer to resell to the
Company, at the price paid therefor, all Restricted Stock, and the
Company shall have the right to purchase the same at such price, or
if the price was zero to require forfeiture of the same, provided
that except as otherwise specified in the Award Agreement, the
Company must exercise such right of repurchase or forfeiture not
later than the 60th day following such termination of employment.
(e) Waiver, Deferral and Reinvestment of Dividends.
The Restricted Stock Award Agreement may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock. Unless otherwise specified in the Award Agreement, dividends will be paid
at the same time as dividends are paid with respect to shares of Stock not
subject to restrictions under the Plan.
(f) Unrestricted Stock.
The Committee may, in its sole discretion, grant (or sell at a purchase
price not to exceed par value per share) to any participant shares of Stock free
of restrictions under the Plan ("Unrestricted Stock"). Shares of Unrestricted
Stock may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration.
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SECTION 9. DEFERRED STOCK AWARDS.
(a) Nature of Deferred Stock Award.
A Deferred Stock Award is an award entitling the recipient to acquire
shares of Stock without payment in one or more installments at a future date or
dates, all as determined by the Committee. The Committee may condition such
acquisition on the attainment of specified performance goals.
(b) Award Agreement.
A participant who is granted a Deferred Stock Award shall have no rights
with respect to a such Award unless within 60 days of the grant of such Award or
such shorter period as the Committee may specify, the participant shall have
accepted the Award by executing and delivering to the Company a Deferred Stock
Award Agreement.
(c) Restrictions on Transfer.
Deferred Stock Awards and all rights with respect to such Awards may not
be sold, assigned, transferred, pledged or otherwise encumbered. Rights with
respect to such Awards shall be exercisable during the participant's lifetime
only by the participant or the participant's legal representative.
(d) Rights as a Shareholder.
A participant receiving a Deferred Stock Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate for shares of Deferred Stock only upon satisfaction of all
conditions therefor specified in the Deferred Stock Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Deferred Stock Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
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(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment the
Committee may in its discretion accelerate, waive, or, subject to Section 13,
amend any or all of the restrictions or conditions imposed under any Deferred
Stock Award.
(g) Payments in Respect of Deferred Stock.
Without limiting the right of the Committee to specify different terms,
the Deferred Stock Award Agreement may either make no provisions for, or may
require or permit the immediate payment, deferral or investment of amounts equal
to, or less than, any cash dividends which would have been payable on the
Deferred Stock had such Stock been outstanding, all as determined by the
Committee in its sole discretion.
SECTION 10. PERFORMANCE UNIT AWARDS.
(a) Nature of Performance Units.
A Performance Unit Award is an award entitling the recipient to acquire
cash or shares of Stock, or a combination of cash and Stock, upon the attainment
of specified performance goals. The Committee in its sole discretion shall
determine whether and to whom Performance Unit Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Unit. Performance Units may be awarded
independently of or in connection with the granting of any other Award under the
Plan.
(b) Award Agreement.
A participant shall have no rights with respect to a Performance Unit
Award unless within 60 days of the grant of such Award or such shorter period as
the Committee may specify, the participant shall have accepted the Award by
executing and delivering to the Company a Performance Unit Award Agreement.
(c) Restrictions on Transfer.
Performance Unit Awards and all rights with respect to such Awards may not
be sold, assigned, transferred, pledged or otherwise encumbered, and if
exercisable over a specified period, shall be exercisable during the
participant's lifetime only by the participant or the participant's legal
representative.
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(d) Rights as a Shareholder.
A participant receiving a Performance Unit Award will have rights of a
shareholder only as to shares actually received by the participant under the
Plan and not with respect to shares subject to the Award but not actually
received by the participant. A participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Unit Award only upon satisfaction of all conditions therefor specified in the
Performance Unit Award Agreement.
(e) Termination.
Except as may otherwise be provided by the Committee at any time prior to
termination of employment, a participant's rights in all Performance Unit Awards
shall automatically terminate upon the participant's termination of employment
by the Company and its Subsidiaries for any reason (including death).
(f) Acceleration, Waiver, etc.
At any time prior to the participant's termination of employment by the
Company and its Subsidiaries, the Committee may in its sole discretion
accelerate, waive or, subject to Section 13, amend any or all of the goals,
restrictions or conditions imposed under any Performance Unit Award.
(g) Exercise.
The Committee in its sole discretion shall establish procedures to be
followed in exercising any Performance Unit, which procedures shall be set forth
in the Performance Unit Award Agreement. The Committee may at any time provide
that payment under a Performance Unit shall be made, upon satisfaction of the
applicable performance goals, without exercise by the participant. Except as
otherwise specified by the Committee, (i) a Performance Unit granted in tandem
with a Stock Option may be exercised only while the Stock Option is exercisable,
and (ii) the exercise of a Performance Unit granted in tandem with any Award
shall reduce the number of shares subject to the related Award on such basis as
is specified in the Performance Unit Award Agreement.
SECTION 11. OTHER STOCK-BASED AWARDS; SUPPLEMENTAL GRANTS.
(a) Nature of Awards.
The Committee may grant other Awards under which Stock is or may in the
future be acquired ("Other Stock-based Awards"). Such awards may include,
without limitation, securities (including shares of Preferred Stock not
exceeding in the aggregate 500,000 shares) convertible into or exchangeable for
shares of Stock upon such conditions, including attainment of performance goals,
as the Committee shall determine.
-15-
<PAGE>
Subject to the purchase price limitations in paragraph (b) below, such
convertible or exchangeable securities may have such terms and conditions as the
Committee may determine at the time of grant. However, no convertible or
exchangeable debt or preferred stock shall be issued unless the Committee shall
have provided (by Company right of repurchase, right to require conversion or
exchange or other means deemed appropriate by the Committee) a means of avoiding
any right of the holders of such debt or Preferred Stock to prevent a Company
transaction by reason of covenants in such debt or voting rights in such
Preferred Stock.
(b) Purchase Price; Form of Payment.
The Committee may determine the consideration, if any, payable upon the
issuance or exercise of an Other Stock-based Award, subject to the following
conditions. No equity security other than Stock may be issued pursuant to an
Other Stock-based Award unless (i) issued at no cost to the recipient (or for a
purchase price not in excess of the par value of any preferred stock so issued)
or (ii) sold by the Company and the Company shall have received payment for such
equity security equal to at least 50% of its par value on the grant or issuance
date, as determined in good faith by the Committee. In addition, no shares of
Stock (whether acquired by purchase, conversion or exchange or otherwise) shall
be issued unless (i) issued at no cost to the recipient (or for a purchase price
not in excess of the par value of the Stock) or (ii) sold, converted or
exchanged by the Company, and the Company shall have received payment for such
Stock or securities so exchanged or converted equal to at least 50% of Fair
Market Value of the Stock on the grant or effective date, or the exchange or
conversion date, under the Award, as specified by the Committee. The Committee
may permit payment by certified check or bank check or other instrument
acceptable to the Committee or by surrender of other shares of Stock (excluding
shares then subject to restrictions under the Plan).
(c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver
of Restrictions.
The Committee may determine the conditions under which an Other Stock-
based Award shall be forfeited or, in the case of an Award involving a payment
by the recipient, the conditions under which the Company may or must repurchase
such Award or related Stock. At any time the Committee may in its sole
discretion accelerate, waive or, subject to Section 13, amend any or all of the
limitations or conditions imposed under any Other Stock-based Award.
(d) Award Agreements.
A participant shall have no rights with respect to any Other Stock-based
Award unless within 60 days after the grant of such Award (or such shorter
period as the Committee may specify) the participant shall have accepted the
Award by executing and delivering to the Company an Other Stock-based Award
Agreement.
-16-
<PAGE>
(e) Nontransferability.
Other Stock-based Awards may not be sold, assigned, transferred, pledged
or encumbered except as may be provided in the Other Stock-based Award
Agreement. However, in no event shall any Other Stock-based Award be transferred
other than by will or by the laws of descent and distribution or be exercisable
during the participant's lifetime by other than the participant or the
participant's legal representative.
(f) Rights as a Shareholder.
A recipient of any Other Stock-based Award will have rights of a
shareholder only at the time and to the extent, if any, specified by the
Committee in the Other Stock-based Award Agreement.
(g) Deemed Dividend Payments; Deferrals.
Without limiting the right of the Committee to specify different terms at
or after grant, an Other Stock-based Award Agreement may require or permit the
immediate payment, waiver, deferral or investment of dividends or deemed
dividends payable on Stock subject to the Award.
(h) Supplemental Grants.
The Company may in its sole discretion make a loan to the recipient of an
Award hereunder, either on or after the date of grant of such Award. Such loans
may be made either in connection with the exercise of a Stock Option, a Stock
Appreciation Right, or an Other Stock-based Award, in connection with the
purchase of shares under any Award, or in connection with the payment of any
federal income tax in respect of income recognized under an Award. The Committee
shall have full authority to decide whether to make a loan hereunder and to
determine the amount, term and provisions of any such loan, including the
interest rate (which may be zero) charged in respect of any such loan, whether
the loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no loan hereunder shall have a
term (including extensions) exceeding ten years in duration or be in an amount
exceeding the total exercise or purchase price paid by the borrower under an
Award under the Plan plus an amount equal to the cash payment permitted in the
following paragraph.
The Committee may at any time authorize a cash payment, in respect of the
grant or exercise of an Award under the Plan or the lapse or waiver of
restrictions under an Award, which shall not exceed the amount which would be
required in order to pay in full the federal income tax due as a result of
ordinary income recognized by the recipient under both the Award and such cash
payment, in each case assuming that such income
-17-
<PAGE>
is taxed at the regular maximum marginal rate applicable to individuals under
the Code as in effect at the time such income is includable in the recipient's
income. Subject to the foregoing, the Committee shall have complete authority to
decide whether to make such cash payments in any case, to make provision for
such payments either simultaneously with or after the grant of the associated
Award, and to determine the amount of each such payment.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to
another;
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's
right to reemployment is guaranteed either by a statute or by
contract or under the policy pursuant to which the leave of
absence was granted or if the Committee otherwise so provides in
writing.
For purposes of the Plan, the employees of a Subsidiary of the Company shall be
deemed to have terminated their employment on the date on which such Subsidiary
ceases to be a Subsidiary of the Company.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by stockholders, shall be effective if it would cause the Plan
to fail to satisfy the incentive stock option requirements of the Code as in
effect on the date of such amendment.
SECTION 14. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award
-18-
<PAGE>
or Awards. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the Company's obligations to deliver Stock
or make payments with respect to awards hereunder, provided that the existence
of such trusts or other arrangements is consistent with the provision of the
foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS.
As used herein, a Change of Control and related definitions shall have the
meanings set forth in Exhibit A to this Plan.
Upon the occurrence of a Change of Control:
(a) Each Stock Option and Stock Appreciation Right shall automatically
become fully exercisable unless the Committee shall otherwise
expressly provide at the time of grant.
(b) Restrictions and conditions on Restricted Stock, Deferred Stock,
Performance Units and Other Stock-based Awards shall automatically
be deemed waived only if and to the extent, if any, specified
(whether at or after time of grant) by the Committee.
The Committee may at any time prior to or after a Change of Control accelerate
the exercisability of any Stock Options and Stock Appreciation Rights and may
waive restrictions, limitations and conditions on Restricted Stock, Deferred
Stock, Performance Units and Other Stock-based Awards to the extent it shall in
its sole discretion determine.
SECTION 16. GENERAL PROVISIONS.
(a) No Distribution; Compliance with Legal Requirements, etc.
The Committee may require each person acquiring shares pursuant to an
Award to represent to and agree with the Company in writing that such person is
acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) Other Compensation Arrangements; No Employment Rights.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such
-19-
<PAGE>
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of the Plan does not confer
upon any employee any right to continued employment with the Company or a
Subsidiary, nor does it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(c) Tax Withholding, etc.
Each participant shall, no later than the date as of which the value of an
Award or of any Stock or other amounts received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
The Committee may provide, in respect of any transfer of Stock or
Preferred Stock under an Award, that if and to the extent withholding of any
Federal, state or local tax is required in respect of such transfer, the
participant may elect, at such time and in such manner as the Committee shall
prescribe, to have the Company hold back from the transfer Stock (or Preferred
Stock) having a value calculated to satisfy such withholding obligation.
SECTION 17. EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board and approved by Zayre Corp. as sole
stockholder of the Company on April 6, 1989. The effective date of the Plan is
June 14, 1989 (i.e., the date of the spin-off by Zayre Corp. of the stock of the
Company to the stockholders of Zayre Corp.)
-20-
<PAGE>
EXHIBIT A
---------
Definition of "Change of Control"
--------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) there occurs a change of control of the Company of a nature that
would be required to be reported in response to Item 1(a) of the Current Report
on Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") or in any other filing under the Exchange Act;
provided, however, that no transaction shall be deemed to be a Change of Control
- -------- -------
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 Committee 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 Committee 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
-------- -------
Committee, no transaction shall constitute a Change of Control as to a
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
<PAGE>
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 Exhibit A 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
<PAGE>
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, with respect to a Participant,
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 10.7
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated as of July 28, 1997 between Herbert J Zarkin of 8 Lands End
Lane, Sudbury, Massachusetts 01776 ("Executive") and HomeBase, Inc., a Delaware
corporation (the "Company"), whose principal office is in Irvine, California
92612.
RECITALS
--------
The Executive has served as President and Chief Executive Officer of Waban
Inc., ("Waban"), which has been renamed HomeBase as of the date hereof, under an
Employment Agreement dated as of September 19, 1996, with a term ending January
29, 2000.
In connection with distribution of common stock of BJ's Wholesale Club,
Inc. ("BJI") by Waban to its shareholders (the "Distribution"), the Company and
Executive desire to enter into a new agreement with respect to Executive's
employment by Company, following the Distribution, as Chairman of the Board of
Directors of the Company.
The Company and Executive deem it desirable and appropriate, therefore, to
enter into this Agreement.
AGREEMENT
---------
The parties hereto, in consideration of the mutual agreements hereinafter
contained, agree as follows:
1. EFFECTIVE DATE; TERM OF AGREEMENT. This agreement shall become
----------------------------------
effective as of the date first written above (the "Effective Date"). This
Agreement shall supersede any other employment agreement including, without
limitation, the Employment Agreement dated as of September 19, 1996 between
Executive and Waban, other than the Employment Agreement dated as of the date
hereof between the Executive and BJI (the "BJI Employment Agreement") and the
Change of Control Severance Agreement dated as of the date hereof between the
Company and Executive (the "Change of Control Agreement"). Executive's
employment by the Company shall continue on the terms provided herein until July
31, 2000 and thereafter until terminated by either Executive or the Company,
subject to earlier termination as provided herein (such period of employment
hereinafter called "Employment Period").
<PAGE>
2. SCOPE OF EMPLOYMENT.
--------------------
(a) Nature of Services. Executive shall diligently perform the duties and
------------------
the responsibilities of Chairman of the Board of Directors of the Company and
such additional duties and responsibilities as an employee of the Company as
shall from time to time be agreed by him and the Board.
(b) Extent of Services. Executive shall devote approximately one-half
------------------
(1/2) of his working time and attention and his best efforts to the performance
of his duties and responsibilities under this Agreement, provided that, to the
-------- ----
extent of any conflicts between the time required to be devoted under this
Agreement and under the BJI Employment Agreement, the Employee shall allocate
his time between the Company and BJI in such manner as he deems reasonably
appropriate under the circumstances. However, Executive may (a) make any
passive investments where he is not obligated or required to, and shall not in
fact, devote any managerial efforts, (b) participate in charitable or community
activities or in trade or professional organizations or (c) subject to Board
approval (which approval shall not be unreasonably withheld or withdrawn), hold
directorships in public companies, except only that the Board shall have the
right to limit such services as a director or such participation whenever the
Board shall believe that the time spent on such activities infringes in any
material respect upon the time required by Executive for the performance of his
duties under this Agreement or is otherwise incompatible with those duties.
3. COMPENSATION AND BENEFITS.
--------------------------
(a) Base Salary. Executive shall be paid a base salary at the rate of
-----------
$350,000 per year to be reviewed annually by the Committee (the "Base Salary");
however, any reduction in the Base Salary shall be subject to Executive's
consent. Base Salary shall be payable in such manner and at such times as the
Company shall pay base salary to other executive employees.
(b) New MIP Awards. Executive shall be eligible to receive awards under
--------------
the Company's Management Incentive Plan ("MIP") applicable to Executive. The
goals, scope, and conditions of any award shall be established annually by
mutual agreement between Executive and the Committee. In each fiscal year,
Executive shall be entitled to earn up to a specified percentage of his Base
Salary as a Target, or Maximum Award, as the case may be. For each fiscal year
of the Company, the Target Award shall equal 50% of Executive's Base Salary
earned during the fiscal year under this Agreement, and the Maximum Award shall
equal (a) 100% of the Executive's annualized base salary at the beginning of the
Company's fiscal year with respect to which the Award is made, (b) $1,000,000,
or (c) the Maximum Award under the terms of the MIP, whichever is lowest, with
the payment potential scaling from 0% to the Maximum Award, as established by
the terms of the Award.
-2-
<PAGE>
(c) Qualified Plans. Executive shall be entitled during the Employment
---------------
Period to participate in the Company's tax-qualified retirement and profit-
sharing plans, if any, in accordance with the provisions of those plans.
(d) Policies and Fringe Benefits. Executive shall be subject to Company
----------------------------
policies applicable to its executives generally and Executive shall be entitled
to receive all such fringe benefits as the Company shall from time to time make
available to other executives generally (subject to the terms of any applicable
fringe benefits plan other than terms requiring minimum hours served for
participation).
4. TERMINATION OF EMPLOYMENT; IN GENERAL.
--------------------------------------
(a) The Company and the Executive shall each have the right to end
Executive's employment at any time and for any reason, with or without Cause.
(b) The Employment Period shall terminate when Executive becomes Disabled.
In addition, if by reason of Incapacity Executive is unable to perform his
duties for at least six continuous months, upon written notice by the Company to
Executive the Employment Period will be terminated for Incapacity.
(c) Whenever the Employment Period shall terminate, Executive shall resign
all offices or other positions he shall hold with the Company and any affiliated
corporations, including his position as a Director of the Company.
5. BENEFITS UPON TERMINATION OF EMPLOYMENT.
----------------------------------------
(a) Certain Terminations for Death, Disability or Incapacity; Termination
---------------------------------------------------------------------
by Company without Cause; Termination under Specified Circumstances. If the
- -------------------------------------------------------------------
Employment Period shall be terminated prior to, on, or after July 31, 2000 (i)
by reason of death, Disability or Incapacity of Executive, (ii) by termination
by the Company for any reason other than Cause or (iii) by termination by
Executive in the event that Executive shall be removed from or fail to be
reelected to the office of Chairman of the Board of Directors and a member of
the Executive Committee of the Board (other than in connection with termination
of Executive's employment for Cause or by Executive's voluntary termination for
reasons not specified in this clause (iii)) without his prior written consent (a
"Specified Voluntary Termination," which termination shall not constitute a
voluntary termination for any purpose of this Agreement), then all compensation
and benefits for Executive shall be as follows:
(i) For 12 months after such termination, the Company will continue to pay
to Executive Base Salary at the rate in effect at termination of employment.
Base Salary shall be paid for the first three months of the period without
reduction for
-3-
<PAGE>
compensation earned from other employment or self-employment, and
shall thereafter be reduced by such compensation earned from other employment or
self-employment (other than any compensation received from BJI).
(ii) Until the expiration of the period of Base Salary payments described
in (i) above, except to the extent that Executive shall obtain the same from
another employer or from self-employment (other than such employment by BJI),
the Company will provide such medical and hospital insurance, and life insurance
for Executive and his family, comparable to the insurance provided for
executives generally, as the Company shall determine, and upon the same terms
and conditions as the same shall be provided for other Company executives
generally; provided, however, that in no event shall such benefits or the terms
and conditions thereof be less favorable to Executive than those afforded to him
as of his termination of employment.
(iii) The Company will pay to Executive, without offset for
compensation earned from other employment or self-employment, the following
amounts under the Company's MIP applicable to Executive:
. First, if not already paid, any amounts to which Executive is entitled
under MIP for the fiscal year of the Company ended immediately prior
to Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
. Second, such amount as Executive would have earned under MIP if his
employment had continued until the end of the fiscal year during which
the termination of employment occurs (prorated for the period of
active employment during such fiscal year). This amount will be paid
at the same time as other MIP awards for the year of termination are
paid.
In addition, the Company will pay to Executive such amounts as Executive
shall have deferred (but not received) under the Company's General Deferred
Compensation Plan in accordance with the provisions of that Plan.
(iv) Executive shall also be entitled to the benefits with respect to any
Stock Options or other Stock-based awards held by Executive on his termination
of employment as provided under the terms of any Company options or any
applicable Company equity incentive plan including, without limitation, the
benefit of continued vesting following such termination of employment; provided
that if any option does not expire by its terms (or the terms of the option plan
under which it was issued) by the third anniversary of the Executive's
termination of employment, then such options shall terminate on such third
anniversary.
-4-
<PAGE>
(v) In addition, Executive shall be entitled to payments or benefits under
other Company plans, such as the Company's 401(k) Savings Plan, to the extent
that such plans provide benefits following a termination of employment.
(vi) If termination occurs by reason of Incapacity or Disability, Executive
shall be entitled to such compensation, if any, as is payable pursuant to the
Company's long-term disability plan or any successor Company disability plan.
Any payments made to Executive under any long-term disability plan of the
Company with respect to the salary continuation period in clause (i) above shall
be offset against such salary continuation payments and to the extent not so
offset, Executive shall promptly make reimbursement payments to the Company of
such disability payments.
(b) Certain Voluntary Terminations; Termination for Cause; Violation of
-------------------------------------------------------------------
Certain Agreements. If, prior to, on, or after July 31, 2000, Executive should
- ------------------
end his employment voluntarily or if the Company should end Executive's
employment for Cause, or, notwithstanding (a) above, if Executive should violate
the protected persons or noncompetition provisions of Section 6 to the extent
then applicable, all compensation and benefits otherwise payable pursuant to
this Agreement shall cease, other than (x) such amounts as Executive shall have
deferred (but not received) under the Company's General Deferred Compensation
Plan in accordance with the provisions of that Plan, and (y) any benefits to
which the Executive may be entitled under other Company plans to the extent, if
any, such plans provide benefits following such termination of employment.
The Company does not waive any rights it may have for damages or for injunctive
relief.
(c) Benefits Upon Change of Control. Following a Change of Control (as
-------------------------------
defined in the Change of Control Agreement), any rights of Executive under this
Agreement or any other agreement or plan with respect to uncompleted MIP periods
shall be governed solely by the Change of Control Agreement. Upon a termination
constituting Qualified Termination (as defined in the Change of Control
Agreement), all rights of Executive with respect to salary continuation, life
insurance, medical insurance and disability benefits shall be governed solely by
the Change of Control Agreement unless Executive shall elect to have all such
rights governed by the applicable terms of this Agreement (including a
determination of whether the termination was voluntary or involuntary), in which
case the Change of Control Agreement shall have no effect as to such rights
(upon such election, the nature of the termination, e.g. voluntary, involuntary
or for Specified Voluntary Termination, shall be determined by reference to this
Agreement and shall not be determined by reference to the classification of the
termination under the Change of Control Agreement). To be effective, written
notice of such election must be furnished by Executive to the Company within
seven days following the Qualified Termination.
-5-
<PAGE>
6. AGREEMENT NOT TO SOLICIT OR COMPETE.
------------------------------------
(a) Upon the termination of employment at any time, then for a period of
two years after the termination of the Employment Period, Executive shall not
under any circumstances employ, solicit the employment of, or accept unsolicited
the services of, any "protected person" or recommend the employment of any
"protected person" to any other business organization. A "protected person"
shall be a person known by Executive (i) to be employed by the Company or its
Subsidiaries or (ii) to have been employed by the Company or its Subsidiaries
within six months prior to the commencement of conversations with such person
with respect to employment.
As to (i) each "protected person" to whom the foregoing applies, (ii) each
limitation on (A) employment, (B) solicitation and (C) unsolicited acceptance of
services of each "protected person" and (iii) each month of the period during
which the provisions of this Subsection (a) apply to each of the foregoing, the
provisions set forth in this Subsection (a) are deemed to be separate and
independent agreements and in the event of unenforceability of any such
agreement, such unenforceable agreement shall be deemed automatically deleted
from the provisions hereof and such deletion shall not affect the enforceability
of any other provision of this Subsection (a) or any other term of this
Agreement.
(b) During the course of his employment, Executive has learned many trade
secrets of the Company and has had access to confidential information and
business plans for the Company. Therefore, if Executive should end his
employment at any time during the Employment Period for any reason, including by
reason of retirement or disability, or if the Company should end Executive's
employment at any time during the Employment Period for any reason, and whether
with or without Cause, then for a period of two years thereafter, Executive will
not engage, either as a principal, employee, partner, consultant or investor
(other than a less-than-1% stock interest in a corporation), in a business which
is a competitor of the Company (a "Competitive Business"). A business shall be
deemed a Competitive Business if it shall operate a chain of home improvement
stores (such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware,
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional or full mark-up
department stores, general merchandise discount department stores, or apparel
stores. Executive agrees that if, at any time, pursuant to action of any court
or administrative or governmental body, the operation of any part of this
paragraph shall be determined to be unlawful or otherwise unenforceable, then
the coverage of this paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the
-6-
<PAGE>
extent, and only to the extent, necessary to make this paragraph lawful and
enforceable in the particular jurisdiction in which such determination is made.
In addition, if during a period of salary continuation under Section 5(a)(i)
following Executive's termination by the Company for any reason other than
Cause, Executive so engages in a Competitive Business (whether or not the
provisions of this paragraph (b) are otherwise then applicable to Executive),
Executive's rights to any further salary continuation or benefits continuation
under Sections 5(a)(i) and 5(a)(ii) shall terminate.
(c) If the Employment Period terminates, Executive agrees (i) to notify the
Company promptly upon his securing employment or becoming self-employed during
any period when Executive's compensation from the Company shall be subject to
reduction or his benefits provided by the Company shall be subject to
termination as provided in Section 5 and (ii) to furnish to the Company written
evidence of his compensation earned from any such employment or self-employment
as the Company shall from time to time reasonably request. In addition, upon
termination of the Employment Period for any reason other than the death of
Executive, Executive shall immediately return all written trade secrets,
confidential information and business plans of the Company and shall execute a
certificate certifying that he has returned all such items in his possession or
under his control. In the event of the death of Executive, Executive's estate
shall comply with this obligation.
7. ASSIGNMENT. The rights and obligations of the Company shall inure to
-----------
the benefit of and shall be binding upon the successors and assigns of the
Company. The rights and obligations of Executive are not assignable except only
that payments payable to him after his death shall be made by devise or descent.
8. NOTICES. All notices and other communications required hereunder
--------
shall be in writing and shall be given by mailing the same by certified or
registered mail, return receipt requested, postage prepaid. If sent to the
Company the same shall be mailed to the Company at 3345 Michelson Drive,
Irvine, California 92612, Attention: President, or such other address as the
Company may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at 8 Lands End Lane, Sudbury ,
Massachusetts 01776 or at such other address as Executive may hereafter
designate by notice to the Company.
9. WITHHOLDING. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
-7-
<PAGE>
10. GOVERNING LAW. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be governed by and construed in accordance with the
domestic substantive laws of The State of California without giving effect to
any choice or conflict of laws, rules or provisions that would cause the
application of the domestic substantive laws of any other jurisdiction.
11. LEGAL FEES. The Company will pay the reasonable fees and expenses of
----------
Executive's legal counsel in connection with Executive's entering into this
Agreement.
12. ENTIRE AGREEMENT. This Agreement, including Exhibit A, supersedes all
-----------------
prior written or oral agreements between the Company and Executive and
represents the entire agreement between the parties relating to the terms of
Executive's employment by the Company, except the Change of Control Agreement.
/s/ HERBERT J ZARKIN
-----------------------------------
Herbert J Zarkin
HOMEBASE, INC.
By: /s/ Allan P. Sherman
-----------------------
President
-8-
<PAGE>
EXHIBIT "A"
-----------
Certain Definitions.
- --------------------
In this Agreement, the following terms shall have the following meanings:
(a) "Base Salary" means, for any period, the amount described in Section
3(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Executive Compensation Committee of the Board.
(d) "Cause" means dishonesty by Executive in the performance of his
duties, conviction of a felony (other than a conviction arising solely under a
statutory provision imposing criminal liability upon Executive on a per se basis
due to the Company offices held by Executive, so long as any act or omission of
Executive with respect to such matter was not taken or omitted in contravention
of any applicable policy or directive of the Board), gross neglect of duties
(other than as a result of Incapacity, Disability, or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
(e) "Termination of Employment" means the date on which Executive's
employment is terminated.
(f) "Disability" has the meaning given it in the Company's long-term
disability plan. Executive's employment shall be deemed to be terminated for
Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(g) "Incapacity" means a disability (other than Disability within the
meaning of (f) above) or other impairment of health that renders Executive
unable to perform his duties to the reasonable satisfaction of the Board.
(h) "Stock" means the common stock, $0.01 par value, of the Company.
(i) "Subsidiary" means any corporation in which the Company owns, directly
or indirectly 50 percent or more of the total combined voting power of all
classes of stock.
-9-
<PAGE>
EXHIBIT 10.9
Edward J. Weisberger
--------------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 28, 1997 between Edward J. Weisberger, whose
address is 451 Winch Street, Framingham, Massachusetts 01701 ("Executive"), and
HomeBase, Inc., a Delaware corporation, whose principal office is in Irvine,
California ("Employer" or "Company").
The parties hereto, in consideration of the mutual agreements
hereinafter contained and intending to be legally bound hereby, agree as
follows:
1. Employment. The Executive is currently an employee of the Company.
----------
Employer will employ Executive and Executive will be an employee of Employer
under the terms and conditions hereinafter set forth. This Agreement supersedes
and replaces any prior employment agreement between Executive and Employer or
its subsidiaries or divisions, except for any Change of Control Severance
Agreement between Executive and Employer.
2. Term. Executive's employment under the terms of this Agreement shall
----
commence on the date hereof and shall continue until July 29, 2000, subject to
earlier termination as provided herein (such period of employment hereinafter
called the "Employment Period").
3. Duties. Executive shall diligently perform the duties of Senior
------
Vice President, Finance of the Company or such executive duties and
responsibilities as shall from time to time be assigned to Executive by the
President or the Chairman of the Board of Directors.
4. Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote his best efforts and such amounts of working time and
attention to the performance of Executive's duties and responsibilities under
this Employment Agreement as are consistent with those duties and
responsibilities. Employer acknowledges that Executive is simultaneously being
employed by BJ's Wholesale Club, Inc. in a similar capacity and, therefore, is
not expected or required to devote more than 50% of his working time and
attention to the business affairs of Employer; provided, however, that nothing
-------- -------
herein contained shall be deemed to prevent or limit the right of Executive (a)
to make any passive investments where Executive is not obligated or required
<PAGE>
to, and shall not in fact, devote any managerial efforts or (b) to participate
in charitable or community activities or in trade or professional organizations,
except only that Employer shall have the right to limit such participation if
the Board of Directors believes that the time spent on such activities infringes
upon the time required by Executive for the performance of Executive's duties
under this Agreement or is otherwise incompatible with those duties.
5. Base Salary. During the Employment Period, Executive shall receive
-----------
a base salary at the rate of $150,000.00 per year, or such higher amount as
Employer shall determine from time to time. Base salary shall be payable in such
manner and at such times as Employer shall pay base salary to other executive
employees.
6. Policies and Fringe Benefits. Executive shall be subject to
----------------------------
Employer's policies applicable to its executives generally, and Executive shall
be entitled to receive all such fringe benefits as Employer shall from time to
time make available to other Employer executives generally (subject to the terms
of any applicable fringe benefit plan).
7. Termination of Employment; in General.
-------------------------------------
a) Employer shall have the right to end Executive's employment at any
time and for any reason, with or without cause. Cause shall mean dishonesty by
Executive in the performance of Executive's duties, conviction of a felony
(other than a conviction arising solely under a statutory provision imposing
criminal liability upon Executive on a per se basis due to the Company offices
--- --
held by Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable policy
or directive of the Board of Directors of the Company), gross neglect of duties
(other than as a result of incapacity, disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
b) The Employment Period shall terminate when Executive becomes
entitled to receive long-term disability compensation pursuant to Employer's
long-term disability plan. In addition, if by reason of any incapacity Executive
is unable to perform Executive's duties for at least six months in any 12 month
period, the Employment Period will be terminated for incapacity upon written
notice by Employer to Executive.
c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions Executive shall hold with Employer or any
parent corporation and any subsidiaries or divisions of Employer or any such
parent.
2
<PAGE>
8. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
a) Termination by Employer Other Than for Cause, Disability or
-----------------------------------------------------------
Incapacity. If the Employment Period shall have been terminated by Employer
- ----------
prior to July 29, 2000 for any reason other than cause, disability or
incapacity, no compensation or other benefits shall be payable to or accrue to
Executive hereunder except as follows:
(i) Vested vacation pay accrued at date of termination shall be
paid upon termination.
(ii) Employer will continue to pay to Executive Executive's then
base salary for a period of 12 months from the date of termination or
through July 29, 2000, if earlier, which base salary shall be reduced
after three months for compensation earned from other employment or
self-employment; provided, however, such base salary shall not be
reduced for compensation earned from employment with BJ's Wholesale
Club, Inc.
(iii) Until the expiration of the period of base salary payments
described in (ii) immediately above or until Executive shall commence
other employment or self-employment, whichever shall first occur,
Employer will provide such medical and hospital insurance and life
insurance (but not long-term disability insurance) for Executive and
Executive's family, comparable to the insurance provided for executives
generally, as Employer shall determine, and upon the same terms and
conditions as shall be provided for Employer's executives generally.
(iv) Employer will pay to Executive, without offset for
compensation earned from other employment or self- employment, the
following amounts under Employer's Management Incentive Plan ("MIP")
applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior to
Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal
year during which the termination of employment occurs (prorated
for the period of active employment during such fiscal year). This
amount will be paid at the same time as other MIP awards for the
year of termination are paid.
3
<PAGE>
(v) Executive shall also be entitled to payments or benefits
under other plans of Employer to the extent that such plans provide
benefits following a termination of employment.
b) Termination for Death, Disability or Incapacity. If the Employment
-----------------------------------------------
Period shall terminate at any time by reason of death, disability or incapacity,
no compensation or other benefits shall be payable to or accrue to Executive
hereunder except as follows:
(i) Vested vacation pay accrued at date of termination shall be
paid upon termination.
(ii) Employer will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under MIP applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior to
Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal
year during which the termination of employment occurs (prorated
for the period of active employment during such fiscal year). This
amount will be paid at the same time as other MIP awards for the
year of termination are paid.
(iii) Executive shall also be entitled to payments or benefits
under other plans of Employer to the extent that such plans provide
benefits following a termination of employment.
c) Voluntary Termination; Termination for Cause; Violation of Certain
------------------------------------------------------------------
Covenants. If Executive should end Executive's employment voluntarily or if
- ---------
Employer should end Executive's employment for cause, or if Executive should
violate the protected persons or noncompetition provisions of Section 9, all
compensation and benefits otherwise payable pursuant to this Agreement shall
cease. Employer does not waive any rights it may have for damages or for
injunctive relief.
9. Agreement Not to Solicit or Compete.
-----------------------------------
(a) Upon the termination of the Employment Period at any time for any
reason, Executive shall not during the Prohibited Period under any circumstances
employ, solicit the employment of,
4
<PAGE>
or accept unsolicited the services of, any "protected person", or recommend the
employment of any "protected person" to any other business organization in which
Executive has any direct or indirect interest (other than a less-than-one
percent equity interest in an entity), with which Executive is affiliated or for
which Executive renders any services. "Prohibited Period" shall mean a period
coterminous with the period of base salary continuation (without regard to
reduction for income from other employment or self-employment) which is
applicable or which would have been applicable had the termination been pursuant
to Section 8(a). A "protected person" shall be a person known by Executive to be
employed by Employer or its subsidiaries at or within six months prior to the
commencement of conversations with such person with respect to employment.
As to (i) each "protected person" to whom the foregoing applies, (ii)
each limitation on (A) employment of, (B) solicitation of, and (C) unsolicited
acceptance of services from, each "protected person" and (iii) each month of the
period during which the provisions of this subsection (a) apply to each of the
foregoing, the provisions set forth in this subsection (a) are deemed to be
separate and independent agreements and in the event of unenforceability of any
such agreement, such unenforceable agreement shall be deemed automatically
deleted from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this subsection (a) or any other term
of this Agreement.
(b) During the course of Executive's employment, Executive will have
learned many trade secrets of the Company and will have access to confidential
information and business plans of the Employer. Therefore, if Executive should
end Executive's employment voluntarily at any time, including by reason of
retirement, disability or incapacity, or if Employer should end Executive's
employment at any time for cause, then during the Prohibited Period, Executive
will not engage, either as a principal, employee, partner, consultant or
investor (other than a less-than-one percent equity interest in an entity), in a
business which is a competitor of Employer. A business shall be deemed a
competitor of Employer if it shall operate a chain of home improvement stores
(such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware, or
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional
5
<PAGE>
or full mark-up department stores, general merchandise discount department
stores, or apparel stores. Executive agrees that if, at any time, pursuant to
action of any court or administrative or governmental body, the operation of any
part of this paragraph shall be determined to be unlawful or otherwise
unenforceable, then the coverage of this paragraph shall be deemed to be
restricted as to duration, geographical scope or otherwise, to the extent, and
only to the extent, necessary to make this paragraph lawful and enforceable in
the particular jurisdiction in which such determination is made.
If the Employment Period terminates, Executive agrees (i) to notify
Employer immediately upon Executive's securing employment or becoming
self-employed during any period when Executive's compensation from Employer
shall be subject to reduction or Executive's benefits provided by Employer shall
be subject to termination as provided in Section 8, and (ii) to furnish to
Employer written evidence of Executive's compensation earned from any such
employment or self-employment as Employer shall from time to time request. In
addition, upon termination of the Employment Period for any reason other than
the death of Executive, Executive shall immediately return to Employer all
written trade secrets, confidential information and business plans of Employer
and shall execute a certificate certifying that Executive has returned all such
items in Executive's possession or under Executive's control. In the event of
the death of Executive, Executive's estate shall comply with this obligation.
10. ASSIGNMENT. The rights and obligations of Employer shall inure to
----------
the benefit of and shall be binding upon the successors and assigns of Employer.
The rights and obligations of Executive are not assignable except only that
payments payable to Executive after Executive's death shall be made to
Executive's estate.
11. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given either by personal delivery or by mailing
the same by certified or registered mail, return receipt requested, postage
prepaid. If sent to Employer, the same shall be mailed to Employer at 3345
Michelson Drive, Irvine, CA 92715, Attention: Chairman of the Board, or such
other address as Employer may hereafter designate by notice to Executive; and if
sent to Executive, the same shall be mailed to Executive at his address set
forth above, or at such other address as Executive may hereafter designate by
notice to Employer. Notices shall be effective upon receipt.
6
<PAGE>
12. GOVERNING LAW. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be governed by the laws of the State of California.
WITNESS the execution hereof the day and year first above written.
/s/ E J Weisberger
----------------------------
Executive
HOMEBASE, INC.
By /s/ Herbert J. Zarkin
--------------------------
Herbert J. Zarkin
Chairman of the Board
7
<PAGE>
EXHIBIT 10.12
CHANGE OF CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS AGREEMENT between HomeBase, Inc., a Delaware corporation (the
"Company"), and ____________ ("Executive"), dated as of July 28, 1997.
Executive is a key executive of the Company or a Subsidiary and an integral
part of its management.
The Company recognizes that the possibility of a change of control of the
Company may result in the departure or distraction of management to the
detriment of the Company and its shareholders.
The Company wishes to assure Executive of fair severance should Executive's
employment terminate in specified circumstances following a change of control of
the Company and to assure Executive of certain other benefits upon a change of
control.
In consideration of Executive's continued employment with the Company or a
Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Benefits Upon Change of Control.
-------------------------------
1.1 In General. Within 30 days following a Change of Control, whether or
----------
not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
(a) an amount equal to the "Target Bonus" under the Company's
Management Incentive Plan or any other annual incentive plan which is
applicable to Executive for the fiscal year in which the Change of Control
occurs (or if the Target Bonus is reduced within 180 days before the
commencement of a Standstill Period, the "Target Bonus" applicable to
Executive for the fiscal year in which such reduction occurred); and
(b) if Executive is a participant in a performance-based long-range
incentive plan at the Change of Control, such amount as is required to be
paid to Executive upon a Change of Control pursuant to the provisions of
such plan.
1.2 Benefits Following Qualified Termination of Employment. Executive
------------------------------------------------------
shall be entitled to the following benefits upon a Qualified Termination:
<PAGE>
(a) Within 30 days following the Date of Termination, the Company
shall pay to Executive the following in a lump sum:
(i) an amount equal to two times Executive's Base Salary for
one year at the rate in effect immediately prior to the Date of
Termination or the Change of Control (or if Executive's Base
Salary was reduced within 180 days before the commencement of a
Standstill Period, the rate in effect immediately prior to such
reduction), plus the accrued and unpaid portion of Executive's
Base Salary through the Date of Termination. Any payments made
to Executive under any long term disability plan of the Company
with respect to the two years following termination of
employment shall be offset against such two times Base Salary
payment. Executive shall promptly make reimbursement payments
to the Company to the extent any such disability payments are
received after the Base Salary payment; and
(ii) an amount equal to two times Executive's automobile
allowance for one year at the rate in effect immediately prior
to the Date of Termination or the Change of Control, (or if
such automobile allowance was reduced within 180 days before
the commencement of a Standstill Period, the rate in effect
immediately prior to such reduction unless such reduction was
offset by an increase in Base Salary during such 180-day
period), whichever is highest, plus any portion of Executive's
automobile allowance payable but unpaid through the Date of
Termination; and
(iii) an amount equal to the Target Bonus amount, as defined
and determined under Section 1.1(a) above.
(b)(i) Until the second anniversary of the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and Executive's family all life insurance and medical insurance (other
than long-term disability) plans and programs in which Executive was entitled to
participate immediately prior to the Change of Control (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, all such plans and programs in
which Executive was entitled to participate immediately prior to such change, if
the benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that participation in such plans or programs is not
available to
2
<PAGE>
Executive for any reason, including termination of the plan, the Company shall
arrange upon comparable terms to provide Executive with benefits substantially
similar to those which Executive is entitled to receive under such plans and
programs. Notwithstanding the foregoing, the Company's obligations hereunder
with respect to life insurance or medical insurance plans and programs shall be
deemed satisfied to the extent (but only to the extent) of any such insurance
coverage or benefits provided by another employer.
(b)(ii) If Qualified Termination occurs by reason of Disability, the
Company shall maintain in full force and effect for the continued benefit of
Executive, disability benefits and/or disability insurance at the same level to
which Executive was entitled immediately prior to the Qualified Termination.
1.3 Coordination With Certain Tax Rules. Payments under Sections 1.1 and
-----------------------------------
1.2 shall be made without regard to whether the deductibility of such payments
(or any other payments to or for the benefit of Executive) would be limited or
precluded by Internal Revenue Code Section 280G and without regard to whether
such payments (or any other payments) would subject Executive to the federal
excise tax levied on certain "excess parachute payments" under Internal Revenue
Code Section 4999; provided, that if the total of all payments to or for the
--------
benefit of Executive, after reduction for all federal taxes (including the tax
described in Internal Revenue Code Section 4999, if applicable) with respect to
such payments ("Executive's total after-tax payments"), would be increased by
the limitation or elimination of any payment under Sections 1.1 or 1.2, amounts
payable under Sections 1.1 and 1.2 shall be reduced to the extent, and only to
the extent, necessary to maximize Executive's total after-tax payments. The
determination as to whether and to what extent payments under Sections 1.1 or
1.2 are required to be reduced in accordance with the preceding sentence shall
be made at the Company's expense by Coopers & Lybrand or by such other certified
public accounting firm as the Executive Compensation Committee of the Company's
Board of Directors may designate prior to a Change of Control. In the event of
any underpayment or overpayment under Sections 1.1 or 1.2, as determined by
Coopers & Lybrand (or such other firm as may have been designated in accordance
with the preceding sentence), the amount of such underpayment or overpayment
shall forthwith be paid to Executive or refunded to the Company, as the case may
be, with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Internal Revenue Code.
2. Noncompetition; No Mitigation of Damages; Other Severance Payments;
-------------------------------------------------------------------
Withholding.
- -----------
2.1 Noncompetition. Upon a Qualified Termination, any agreement by
--------------
Executive not to engage in competition with the
3
<PAGE>
Company subsequent to the termination of Executive's employment, whether
contained in an employment contract or other agreement, shall no longer be
effective.
2.2 No Duty to Mitigate Damages. Executive's benefits under this
---------------------------
Agreement shall be considered severance pay in consideration of Executive's past
service and Executive's continued service from the date of this Agreement, and
Executive's entitlement thereto shall neither be governed by any duty to
mitigate Executive's damages by seeking further employment nor offset by any
compensation which Executive may receive from future employment.
2.3 Other Severance Payments. In the event that Executive has an
------------------------
employment contract or any other agreement with the Company (or a Subsidiary)
which entitles Executive to severance payments upon the termination of
Executive's employment with the Company, the amount of any such severance
payments shall be deducted from the payments to be made under this Agreement.
2.4 Withholding. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
3. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled exclusively by
arbitration in Los Angeles, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
4. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in contesting or disputing that the
termination of Executive's employment during a Standstill Period is for Cause or
other than for good reason (as defined in paragraph (j) of Exhibit A) or in
obtaining any right or benefit to which Executive is entitled under this
Agreement. Any amount payable under this Agreement that is not paid when due
shall accrue interest at the prime rate as from time to time in effect at Wells
Fargo Bank, N.A., until paid in full.
5. Notice of Termination. During a Standstill Period, Executive's
---------------------
employment may be terminated by the Company (or a Subsidiary) only upon 30 days'
written notice to Executive.
4
<PAGE>
6. Notices. All notices shall be in writing and shall be deemed given
-------
five days after mailing in the continental United States by registered or
certified mail, or upon personal receipt after delivery, telex, telecopy or
telegram, to the party entitled thereto at the address stated below or to such
changed address as the addressee may have given by a similar notice:
To the Company: HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92715
Attention: Chairman of the Board
To Executive: At Executive's home address, as last
shown on the records of the Company
7. Severability. In the event that any provision of this Agreement shall
------------
be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
8. General Provisions.
------------------
8.1 Binding Agreement. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties and be enforceable by Executive's personal or legal
representatives or successors. If Executive dies while any amounts would still
be payable to Executive hereunder, benefits would still be provided to
Executive's family hereunder or rights would still be exercisable by Executive
hereunder as if Executive had continued to live, such amounts shall be paid to
Executive's estate, such benefits shall be provided to Executive's family and
such rights shall remain exercisable by Executive's estate in accordance with
the terms of this Agreement. This Agreement shall not otherwise be assignable by
Executive.
8.2 Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors, including any successor to all or substantially all of the
Company's business and/or assets. The Company will require any successor to all
or substantially all of the business and/or assets of the Company by sale,
merger (where the Company is not the surviving corporation), lease or otherwise,
by agreement in form and substance satisfactory to Executive, to assume
expressly this Agreement. If the Company shall not obtain such agreement prior
to the effective date of
5
<PAGE>
any such succession, Executive shall have all rights resulting from termination
by Executive for good reason (as defined in paragraph (j) of Exhibit A) under
this Agreement. This Agreement shall not otherwise be assignable by the Company.
8.3 Amendment or Modification; Waiver. This Agreement may not be amended
---------------------------------
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement shall be deemed a waiver of a subsequent
breach.
8.4 Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
8.5 Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's (or a
Subsidiary's) right to change the terms of or to terminate Executive's
employment, with or without Cause, at any time other than during a Standstill
Period, except as may be otherwise provided in a written employment agreement
between the Company (or a Subsidiary) and Executive.
8.6 Termination of Agreement Outside of Standstill Period. This Agreement
-----------------------------------------------------
shall be automatically terminated upon the first to occur of (i) the termination
of Executive's employment for any reason, whether voluntary or involuntary, at
any time other than during a Standstill Period or (ii) the 180th day after a
change in Executive's title to a level below that of Executive's Current Title
unless a Standstill Period was in effect on the date of such change or within
180 days thereafter or (iii) if Executive is employed by a Subsidiary of the
Company, the date on which the Subsidiary either ceases to be a Subsidiary of
the Company or sells or otherwise disposes of all or substantially all of its
assets, unless such event occurs during a Standstill Period and Executive's
employment shall have been terminated in a Qualified Termination within 90 days
of such event.
8.7 Prior Agreement. This Agreement amends and restates and shall
---------------
supersede and replace any prior change of control severance agreement between
the Company or any of its subsidiaries, or any predecessor, and Executive.
8.8 Definitions. The terms defined in Exhibits A and B hereto are used
-----------
herein as so defined.
6
<PAGE>
8.9 Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of the State of
California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
HOMEBASE, INC.
By
----------------------------------
------------------------------------
EXECUTIVE
7
<PAGE>
EXHIBIT A
---------
Definitions
-----------
The following terms as used in this Agreement shall have the following
meanings:
(a) "Base Salary" shall mean Executive's annual base salary, exclusive of
any bonus or other benefits Executive may receive.
(b) "Cause" shall mean dishonesty, conviction of a felony, gross neglect
of duties (other than as a result of Incapacity, Disability or death), or
conflict of interest which conflict shall continue for 30 days after the Company
gives written notice to Executive requesting the cessation of such conflict.
In respect of any termination during a Standstill Period, Executive shall
not be deemed to have been terminated for Cause until the later to occur of (i)
the 30th day after notice of termination is given and (ii) the delivery to
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the Company's directors at a meeting called and held for
that purpose (after reasonable notice to Executive), and at which Executive
together with his counsel was given an opportunity to be heard, finding that
Executive was guilty of conduct described in the definition of "Cause" above,
and specifying the particulars thereof in detail; provided, however, that the
-------- -------
Company may suspend Executive and withhold payment of Executive's Base Salary
from the date that notice of termination is given until the earliest to occur of
(a) termination of Executive for Cause effected in accordance with the foregoing
procedures (in which case Executive shall not be entitled to Executive's Base
Salary for such period), (b) a determination by a majority of the Company's
directors that Executive was not guilty of the conduct described in the
definition of "Cause" above (in which case Executive shall be reinstated and
paid any of Executive's previously unpaid Base Salary for such period), or (c)
the 90th day after notice of termination is given (in which case Executive shall
be reinstated and paid any of Executive's previously unpaid Base Salary for such
period).
(c) "Change of Control" shall have the meaning set forth in Exhibit B.
(d) "Company" shall mean HomeBase, Inc. or any successor.
8
<PAGE>
(e) "Current Title" shall mean Executive's title on the date 180 days
prior to the commencement of a Standstill Period.
(f) "Date of Termination" shall mean the date on which Executive's
employment is terminated.
(g) "Disability" shall have the meaning given it in the Company's long-
term disability plan. Executive's employment shall be deemed to be terminated
for Disability on the date on which Executive is entitled to receive long-term
disability compensation pursuant to such long-term disability plan.
(h) "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
(i) "Incapacity" shall mean a disability (other than Disability within
the meaning of the immediately preceding definition) or other impairment of
health that renders Executive unable to perform Executive's duties to the
reasonable satisfaction of the Board of Directors of the Company. If by reason
of Incapacity Executive is unable to perform Executive's duties for at least six
months in any 12-month period, upon written notice by the Company the employment
of Executive shall be deemed to have terminated by reason of Incapacity.
(j) "Qualified Termination" shall mean the termination of Executive's
employment during a Standstill Period (1) by the Company other than for Cause,
or (2) by Executive for good reason, or (3) by reason of death, Incapacity or
Disability.
For purposes of this definition, termination for "good reason" shall mean
the voluntary termination by Executive of Executive's employment (A) within 120
days after the occurrence without Executive's express written consent of any of
the events described in clauses (I), (II), (III), (IV), (V) or (VI) below,
provided that Executive gives notice to the Company at least 30 days in advance
requesting that the situation described in those clauses be remedied, and the
situation remains unremedied upon expiration of such 30-day period; (B) within
120 days after the occurrence without Executive's express written consent (which
must expressly refer to such consent as being given under this Agreement) of the
events described in clauses (VII) or (VIII) below, provided that Executive gives
notice to the Company at least 30 days in advance; or (C) upon occurrence of the
events described in clause(IX) below, provided that Executive gives notice to
the Company at least 30 days in advance:
9
<PAGE>
(I) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary)
immediately prior to a Change of Control, or a substantive change in
Executive's titles or offices as in effect immediately prior to a
Change of Control, or any removal of Executive from or any failure to
reelect Executive to such positions, except in connection with the
termination of Executive's employment by the Company (or a
Subsidiary) for Cause or by Executive other than for good reason; or
any other action by the Company (or a Subsidiary) which results in a
diminishment in such position, authority, duties or responsibilities,
other than an insubstantial and inadvertent action which is remedied
by the Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
(II) if Executive's rate of Base Salary for any fiscal year is less than
100 percent of the rate of Base Salary paid to Executive in the
completed fiscal year immediately preceding the Change of Control, or
if Executive's total cash compensation opportunities, including
salary and incentives, for any fiscal year are less than 100 percent
of the total cash compensation opportunities made available to
Executive in the completed fiscal year immediately preceding the
Change of Control, unless any such reduction represents an overall
reduction in the rate of Base Salary paid or cash compensation
opportunities made available, as the case may be, to executives in
the same organizational level (it being the Company's burden to
establish this fact); or
(III) the failure of the Company (or a Subsidiary) to continue in effect
any benefits or perquisites, or any pension, life insurance, medical
insurance or disability plan in which Executive was participating
immediately prior to a Change of Control unless the Company (or a
Subsidiary) provides Executive with a plan or plans that provide
substantially similar benefits, or the taking of any action by the
Company (or a Subsidiary) that would adversely affect Executive's
participation in or materially reduce Executive's benefits under any
of such plans or deprive Executive of any material fringe benefit
enjoyed by Executive immediately prior to a Change of Control, unless
the elimination or reduction of any such benefit, perquisite or plan
affects all other
10
<PAGE>
executives in the same organizational level (it being the Company's
burden to establish this fact); or
(IV) any purported termination of Executive's employment by the Company
(or a Subsidiary) for Cause during a Standstill Period which is not
effected in compliance with paragraph (b) of this Exhibit; or
(V) any relocation of Executive of more than 40 miles from the place
where Executive was located at the time of the Change of Control; or
(VI) any other breach by the Company of any provision of this Agreement;
or
(VII) the Company sells or otherwise disposes of, in one transaction or a
series of related transactions, assets or earning power aggregating
more than 30 percent of the assets (taken at asset value as stated on
the books of the Company determined in accordance with generally
accepted accounting principles consistently applied) or earning power
of the Company (on an individual basis) or the Company and its
subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit B); or
(VIII) if Executive is employed by a Subsidiary of the Company, such
Subsidiary either ceases to be a Subsidiary of the Company or sells
or otherwise disposes of, in one transaction or a series of related
transactions, assets or earning power aggregating more than 30
percent of the assets (taken at asset value as stated on the books of
the Subsidiary determined in accordance with generally accepted
accounting principles consistently applied) or earning power of such
Subsidiary (on an individual basis) or such Subsidiary and its
subsidiaries (on a consolidated basis) to any other Person or Persons
(as those terms are defined in Exhibit B); or
(IX) the voluntary termination by Executive of Executive's employment
at any time during the period commencing eight months plus one day
after the Change of Control and ending 12 months after the Change of
Control, provided, that in the event of any such voluntary
--------
termination pursuant to this clause (IX), the Executive shall be
entitled to receive only one-half (1/2) of the lump sum amount
provided for in Section 1.2(a) and the benefits provided for in
Section 1.2(b)(i) shall be provided
11
<PAGE>
for one year rather than two years from the Date of Termination.
(k) "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
(l) "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power of
all classes of stock.
12
<PAGE>
EXHIBIT B
---------
Definition of Change of Control
-------------------------------
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
13
<PAGE>
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.
14
<PAGE>
EXHIBIT 10.17
HOMEBASE INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of HomeBase,
Inc., a Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of HomeBase, Inc. as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to
<PAGE>
Awards and the maximum number of shares for any one Participant to be made by
such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). The Board shall
appoint one such Committee of not less than two members, each member of which
shall be an "outside director" within the meaning of Section 162(m) of the Code
and a "non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
----------------
be made under the Plan for up to the sum of (i) 1,000,000 shares of common
stock, $0.01 par value per share, of the Company (the "Common Stock") plus (ii)
such additional number of shares of 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 Company's 1989 Stock Incentive Plan (the "1989 Plan") upon its expiration
and (y) the number of shares subject to awards granted under the 1989 Plan which
are not actually issued pursuant to such awards because such awards expire or
are terminated, surrendered or cancelled without having been fully exercised or
are forfeited in whole or in part or otherwise result in any Common Stock not
being issued. If any Award expires or is terminated, surrendered or canceled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered by
such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 500,000 per calendar year. The per-
participant limit described in this Section 4(b) shall be construed and applied
consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the
-2-
<PAGE>
number and class of securities available under this Plan, (ii) the number and
class of security and exercise price per share subject to each outstanding
Option, (iii) the repurchase price per security subject to each outstanding
Restricted Stock Award, and (iv) the terms of each other outstanding stock-based
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If
this Section 4(c) applies and Section 8(e)(1) and/or Section 8(e)(2) also
applies to any event, then Section 8(e)(2) or Section 8(e)(1) (in that order)
shall be applicable to such event, and this Section 4(c) shall not be
applicable.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement;
provided, however, that no Option shall be granted at an exercise price of less
than 100% of fair market value on the date of grant.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided, however that no Option will be granted
for a term in excess of ten years.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
-3-
<PAGE>
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option Agreement,
by (i) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price or
(iii) delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(3) to the extent permitted by the Board and explicitly provided in an
Option Agreement (i) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board or (ii) by payment of such other lawful
consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
-4-
<PAGE>
7. Other Stock-Based Awards
------------------------
The Board shall have 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.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
----------------
of Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events; Change of Control Events
--------------------------------------------
(1) Consequences of Acquisition Events. Subject to Section 8(e)(2),
----------------------------------
upon the occurrence of an Acquisition Event (as defined below), or the execution
by the Company of any agreement with respect to an Acquisition Event, the Board
shall take any one or more of the following actions with respect to then
outstanding Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination of
the Board, the requirements of Section 424(a) of the Code; (ii) upon written
notice to the Participants, provide that all then unexercised Options will
become
-5-
<PAGE>
exercisable in full as of a specified time (the "Acceleration Time") prior to
the Acquisition Event and will terminate immediately prior to the consummation
of such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted Stock
Awards then outstanding shall become free of all restrictions prior to the
consummation of the Acquisition Event; and (v) provide that any other stock-
based Awards outstanding (A) shall become exercisable, realizable or vested in
full, or shall be free of all conditions or restrictions, as applicable to each
such Award, prior to the consummation of the Acquisition Event, or (B), if
applicable, shall be assumed, or equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
(2) Consequences of Change of Control Events. Except to the extent
----------------------------------------
otherwise provided in the instrument evidencing an Award or in any other
agreement between a Participant and the Company, (i) upon the occurrence of a
Change of Control Event, all Options and stock appreciation rights then
outstanding shall automatically become immediately exercisable in full and (ii)
the restrictions and conditions on all other Awards then outstanding shall
automatically be deemed waived only if and to the extent, if any, specified
(whether at the time of grant or otherwise) by the Board.
A "Change of Control Event" shall have the meaning set forth on Annex A
hereto.
(3) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The
-6-
<PAGE>
substitute Awards shall be granted on such terms and conditions as the Board
considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or
-7-
<PAGE>
otherwise terminate its relationship with a Participant free from any liability
or claim under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
-8-
<PAGE>
ANNEX A
DEFINITION OF CHANGE OF CONTROL EVENT
-------------------------------------
For the purpose of the Plan, a "Change of Control Event" 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
<PAGE>
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.
<PAGE>
EXHIBIT 10.18
Thomas F. Gallagher
-------------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 28, 1997 between Thomas F. Gallagher, whose
address is 18 Indian Pipe, Dove Canyon, California 92679 ("Executive"), and
HomeBase, Inc., a Delaware corporation, whose principal office is in Irvine,
California ("Employer" or "Company").
The parties hereto, in consideration of the mutual agreements
hereinafter contained and intending to be legally bound hereby, agree as
follows:
1. Employment. The Executive is currently an employee of the Company.
----------
Employer will employ Executive and Executive will be an employee of Employer
under the terms and conditions hereinafter set forth. This Agreement supersedes
and replaces any prior employment agreement between Executive and Employer or
its subsidiaries or divisions, except for any Change of Control Severance
Agreement between Executive and Employer.
2. Term. Executive's employment under the terms of this Agreement
----
shall commence on the date hereof and shall continue until July 31, 1998 and
thereafter until terminated by either Executive or Employer, subject to earlier
termination as provided herein (such period of employment hereinafter called the
"Employment Period").
3. Duties. Executive shall diligently perform the duties of Executive
------
Vice President, Store Operations of the Company or such executive duties and
responsibilities as shall from time to time be assigned to Executive by the
President.
4. Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote substantially all Executive's working time and attention
and Executive's best efforts to the performance of Executive's duties and
responsibilities under this Employment Agreement; provided, however, that
-------- -------
nothing herein contained shall be deemed to prevent or limit the right of
Executive (a) to make any passive investments where Executive is not obligated
or required to, and shall not in fact, devote any managerial efforts or (b) to
participate in charitable or community activities or in trade or professional
organizations, except only that Employer shall have the right to limit such
participation if the President believes that the time spent on such activities
infringes upon the time required by Executive for the performance of Executive's
duties under this Agreement or is otherwise incompatible with those duties.
<PAGE>
5. Base Salary. During the Employment Period, Executive shall receive
-----------
a base salary at the rate of $220,000.00 per year, or such higher amount as
Employer shall determine from time to time. Base salary shall be payable in such
manner and at such times as Employer shall pay base salary to other executive
employees.
6. Policies and Fringe Benefits. Executive shall be subject to
----------------------------
Employer's policies applicable to its executives generally, and Executive shall
be entitled to receive all such fringe benefits as Employer shall from time to
time make available to other Employer executives generally (subject to the terms
of any applicable fringe benefit plan).
7. Termination of Employment; in General.
-------------------------------------
a) Employer shall have the right to end Executive's employment at any
time and for any reason, with or without cause. Cause shall mean dishonesty by
Executive in the performance of Executive's duties, conviction of a felony
(other than a conviction arising solely under a statutory provision imposing
criminal liability upon Executive on a per se basis due to the Company offices
--- --
held by Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable policy
or directive of the Board of Directors of the Company), gross neglect of duties
(other than as a result of incapacity, disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
b) The Employment Period shall terminate when Executive becomes
entitled to receive long-term disability compensation pursuant to Employer's
long-term disability plan. In addition, if by reason of any incapacity Executive
is unable to perform Executive's duties for at least six months in any 12 month
period, the Employment Period will be terminated for incapacity upon written
notice by Employer to Executive.
c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions Executive shall hold with Employer or any
parent corporation and any subsidiaries or divisions of Employer or any such
parent.
8. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
a) Termination by Employer Other Than for Cause, Disability or
-----------------------------------------------------------
Incapacity. If the Employment Period shall have been terminated by Employer for
- ----------
any reason other than cause, disability or incapacity, no compensation or other
benefits shall be payable to or accrue to Executive hereunder except as follows:
2
<PAGE>
(i) Vested vacation pay accrued at date of termination shall be
paid upon termination.
(ii) Employer will continue to pay to Executive Executive's then
base salary for a period of 12 months from the date of termination,
which base salary shall be reduced after three months for compensation
earned from other employment or self-employment.
(iii) Until the expiration of the period of base salary payments
described in (ii) immediately above or until Executive shall commence
other employment or self-employment, whichever shall first occur,
Employer will provide such medical and hospital insurance and life
insurance (but not long-term disability insurance) for Executive and
Executive's family, comparable to the insurance provided for executives
generally, as Employer shall determine, and upon the same terms and
conditions as shall be provided for Employer's executives generally.
(iv) Employer will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under Employer's Management Incentive Plan ("MIP")
applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior to
Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal
year during which the termination of employment occurs (prorated
for the period of active employment during such fiscal year). This
amount will be paid at the same time as other MIP awards for the
year of termination are paid.
(v) Executive shall also be entitled to payments or benefits
under other plans of Employer to the extent that such plans provide
benefits following a termination of employment.
b) Termination for Death, Disability or Incapacity. If the Employment
-----------------------------------------------
Period shall terminate at any time by reason of death, disability or incapacity,
no compensation or other benefits shall be payable to or accrue to Executive
hereunder except as follows:
(i) Vested vacation pay accrued at date of termination shall be
paid upon termination.
3
<PAGE>
(ii) Employer will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under MIP applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior to
Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal
year during which the termination of employment occurs (prorated
for the period of active employment during such fiscal year). This
amount will be paid at the same time as other MIP awards for the
year of termination are paid.
(iii) Executive shall also be entitled to payments or benefits
under other plans of Employer to the extent that such plans provide
benefits following a termination of employment.
c) Voluntary Termination; Termination for Cause; Violation of Certain
------------------------------------------------------------------
Covenants. If Executive should end Executive's employment voluntarily or if
- ---------
Employer should end Executive's employment for cause, or if Executive should
violate the protected persons or noncompetition provisions of Section 9, all
compensation and benefits otherwise payable pursuant to this Agreement shall
cease. Employer does not waive any rights it may have for damages or for
injunctive relief.
9. Agreement Not to Solicit or Compete.
-----------------------------------
(a) Upon the termination of the Employment Period at any time for any
reason, Executive shall not during the Prohibited Period under any circumstances
employ, solicit the employment of, or accept unsolicited the services of, any
"protected person", or recommend the employment of any "protected person" to any
other business organization in which Executive has any direct or indirect
interest (other than a less-than-one percent equity interest in an entity), with
which Executive is affiliated or for which Executive renders any services.
"Prohibited Period" shall mean a period coterminous with the period of base
salary continuation (without regard to reduction for income from other
employment or self-employment) which is applicable or which would have been
applicable had the termination been pursuant to Section 8(a). A "protected
person" shall be a person known by Executive to be employed by Employer or its
subsidiaries at or within six months prior to the commencement of conversations
with such person with respect to employment.
4
<PAGE>
As to (i) each "protected person" to whom the foregoing applies, (ii)
each limitation on (A) employment of, (B) solicitation of, and (C) unsolicited
acceptance of services from, each "protected person" and (iii) each month of the
period during which the provisions of this subsection (a) apply to each of the
foregoing, the provisions set forth in this subsection (a) are deemed to be
separate and independent agreements and in the event of unenforceability of any
such agreement, such unenforceable agreement shall be deemed automatically
deleted from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this subsection (a) or any other term
of this Agreement.
(b) During the course of Executive's employment, Executive will have
learned many trade secrets of the Company and will have access to confidential
information and business plans of the Employer. Therefore, if Executive should
end Executive's employment voluntarily at any time, including by reason of
retirement, disability or incapacity, or if Employer should end Executive's
employment at any time for cause, then during the Prohibited Period, Executive
will not engage, either as a principal, employee, partner, consultant or
investor (other than a less-than-one percent equity interest in an entity), in a
business which is a competitor of Employer. A business shall be deemed a
competitor of Employer if it shall operate a chain of home improvement stores
(such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware, or
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional or full mark-up
department stores, general merchandise discount department stores, or apparel
stores. Executive agrees that if, at any time, pursuant to action of any court
or administrative or governmental body, the operation of any part of this
paragraph shall be determined to be unlawful or otherwise unenforceable, then
the coverage of this paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the extent, and only to the extent,
necessary to make this paragraph lawful and enforceable in the particular
jurisdiction in which such determination is made.
If the Employment Period terminates, Executive agrees (i) to notify
Employer immediately upon Executive's securing employment or becoming
self-employed during any period when Executive's compensation from Employer
shall be subject to reduction or Executive's benefits provided by Employer shall
be subject to termination as provided in Section 8, and (ii) to furnish to
5
<PAGE>
Employer written evidence of Executive's compensation earned from any such
employment or self-employment as Employer shall from time to time request. In
addition, upon termination of the Employment Period for any reason other than
the death of Executive, Executive shall immediately return to Employer all
written trade secrets, confidential information and business plans of Employer
and shall execute a certificate certifying that Executive has returned all such
items in Executive's possession or under Executive's control. In the event of
the death of Executive, Executive's estate shall comply with this obligation.
10. ASSIGNMENT. The rights and obligations of Employer shall inure to
----------
the benefit of and shall be binding upon the successors and assigns of Employer.
The rights and obligations of Executive are not assignable except only that
payments payable to Executive after Executive's death shall be made to
Executive's estate.
11. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given either by personal delivery or by mailing
the same by certified or registered mail, return receipt requested, postage
prepaid. If sent to Employer, the same shall be mailed to Employer at 3345
Michelson Drive, Irvine, CA 92715, Attention: President, or such other address
as Employer may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at his address set forth above,
or at such other address as Executive may hereafter designate by notice to
Employer. Notices shall be effective upon receipt.
12. GOVERNING LAW. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be governed by the laws of the State of California.
WITNESS the execution hereof the day and year first above written.
/s/ Thomas F. Gallagher
---------------------------
Executive
HOMEBASE, INC.
By /s/ Allan P. Sherman
-------------------------
Allan P. Sherman
President
6
<PAGE>
EXHIBIT 10.19
Scott L. Richards
-----------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 28, 1997 between Scott L. Richards, whose
address is 21572 Mid Crest Drive, Lake Forest, California 92630 ("Executive"),
and HomeBase, Inc., a Delaware corporation, whose principal office is in Irvine,
California ("Employer" or "Company").
The parties hereto, in consideration of the mutual agreements
hereinafter contained and intending to be legally bound hereby, agree as
follows:
1. Employment. The Executive is currently an employee of the Company.
----------
Employer will employ Executive and Executive will be an employee of Employer
under the terms and conditions hereinafter set forth. This Agreement supersedes
and replaces any prior employment agreement between Executive and Employer or
its subsidiaries or divisions, except for any Change of Control Severance
Agreement between Executive and Employer.
2. Term. Executive's employment under the terms of this Agreement
----
shall commence on the date hereof and shall continue until July 31, 1998 and
thereafter until terminated by either Executive or Employer, subject to earlier
termination as provided herein (such period of employment hereinafter called the
"Employment Period").
3. Duties. Executive shall diligently perform the duties of Executive
------
Vice President, Merchandising of the Company or such executive duties and
responsibilities as shall from time to time be assigned to Executive by the
President.
4. Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote substantially all Executive's working time and attention
and Executive's best efforts to the performance of Executive's duties and
responsibilities under this Employment Agreement; provided, however, that
-------- -------
nothing herein contained shall be deemed to prevent or limit the right of
Executive (a) to make any passive investments where Executive is not obligated
or required to, and shall not in fact, devote any managerial efforts or (b) to
participate in charitable or community activities or in trade or professional
organizations, except only that Employer shall have the right to limit such
participation if the President believes that the time spent on such activities
infringes upon the time required by Executive for the performance of Executive's
duties under this Agreement or is otherwise incompatible with those duties.
<PAGE>
5. Base Salary. During the Employment Period, Executive shall receive
-----------
a base salary at the rate of $220,000.00 per year, or such higher amount as
Employer shall determine from time to time. Base salary shall be payable in such
manner and at such times as Employer shall pay base salary to other executive
employees.
6. Policies and Fringe Benefits. Executive shall be subject to
----------------------------
Employer's policies applicable to its executives generally, and Executive shall
be entitled to receive all such fringe benefits as Employer shall from time to
time make available to other Employer executives generally (subject to the terms
of any applicable fringe benefit plan).
7. Termination of Employment; in General.
-------------------------------------
a) Employer shall have the right to end Executive's employment at any
time and for any reason, with or without cause. Cause shall mean dishonesty by
Executive in the performance of Executive's duties, conviction of a felony
(other than a conviction arising solely under a statutory provision imposing
criminal liability upon Executive on a per se basis due to the Company offices
--- --
held by Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable policy
or directive of the Board of Directors of the Company), gross neglect of duties
(other than as a result of incapacity, disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
b) The Employment Period shall terminate when Executive becomes
entitled to receive long-term disability compensation pursuant to Employer's
long-term disability plan. In addition, if by reason of any incapacity Executive
is unable to perform Executive's duties for at least six months in any 12 month
period, the Employment Period will be terminated for incapacity upon written
notice by Employer to Executive.
c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions Executive shall hold with Employer or any
parent corporation and any subsidiaries or divisions of Employer or any such
parent.
8. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
a) Termination by Employer Other Than for Cause, Disability or
-----------------------------------------------------------
Incapacity. If the Employment Period shall have been terminated by Employer for
- ----------
any reason other than cause, disability or incapacity, no compensation or other
benefits shall be payable to or accrue to Executive hereunder except as follows:
2
<PAGE>
(i) Vested vacation pay accrued at date of termination shall be
paid upon termination.
(ii) Employer will continue to pay to Executive Executive's then
base salary for a period of 12 months from the date of termination,
which base salary shall be reduced after three months for compensation
earned from other employment or self-employment.
(iii) Until the expiration of the period of base salary payments
described in (ii) immediately above or until Executive shall commence
other employment or self-employment, whichever shall first occur,
Employer will provide such medical and hospital insurance and life
insurance (but not long-term disability insurance) for Executive and
Executive's family, comparable to the insurance provided for executives
generally, as Employer shall determine, and upon the same terms and
conditions as shall be provided for Employer's executives generally.
(iv) Employer will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under Employer's Management Incentive Plan ("MIP")
applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior to
Executive's termination of employment. These amounts will be paid
at the same time as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal
year during which the termination of employment occurs (prorated
for the period of active employment during such fiscal year). This
amount will be paid at the same time as other MIP awards for the
year of termination are paid.
(v) Executive shall also be entitled to payments or benefits
under other plans of Employer to the extent that such plans provide
benefits following a termination of employment.
b) Termination for Death, Disability or Incapacity. If the Employment
-----------------------------------------------
Period shall terminate at any time by reason of death, disability or incapacity,
no compensation or other benefits shall be payable to or accrue to Executive
hereunder except as follows:
(i) Vested vacation pay accrued at date of termination shall
be paid upon termination.
3
<PAGE>
(ii) Employer will pay to Executive, without offset for
compensation earned from other employment or self-employment, the
following amounts under MIP applicable to Executive:
First, if not already paid, any amounts to which Executive is
entitled under MIP for the fiscal year ended immediately prior
to Executive's termination of employment. These amounts will
be paid at the same time as other awards for such prior year
are paid.
Second, such amount as Executive would have earned under MIP
if Executive's employment had continued until the end of the
fiscal year during which the termination of employment occurs
(prorated for the period of active employment during such
fiscal year). This amount will be paid at the same time as
other MIP awards for the year of termination are paid.
(iii) Executive shall also be entitled to payments or
benefits under other plans of Employer to the extent that such plans
provide benefits following a termination of employment.
c) Voluntary Termination; Termination for Cause; Violation of Certain
------------------------------------------------------------------
Covenants. If Executive should end Executive's employment voluntarily or if
- ---------
Employer should end Executive's employment for cause, or if Executive should
violate the protected persons or noncompetition provisions of Section 9, all
compensation and benefits otherwise payable pursuant to this Agreement shall
cease. Employer does not waive any rights it may have for damages or for
injunctive relief.
9. Agreement Not to Solicit or Compete.
-----------------------------------
(a) Upon the termination of the Employment Period at any time for any
reason, Executive shall not during the Prohibited Period under any circumstances
employ, solicit the employment of, or accept unsolicited the services of, any
"protected person", or recommend the employment of any "protected person" to any
other business organization in which Executive has any direct or indirect
interest (other than a less-than-one percent equity interest in an entity), with
which Executive is affiliated or for which Executive renders any services.
"Prohibited Period" shall mean a period coterminous with the period of base
salary continuation (without regard to reduction for income from other
employment or self-employment) which is applicable or which would have been
applicable had the termination been pursuant to Section 8(a). A "protected
person" shall be a person known by Executive to be employed by Employer or its
subsidiaries at or within six months prior to the commencement of conversations
with such person with respect to employment.
4
<PAGE>
As to (i) each "protected person" to whom the foregoing applies, (ii)
each limitation on (A) employment of, (B) solicitation of, and (C) unsolicited
acceptance of services from, each "protected person" and (iii) each month of the
period during which the provisions of this subsection (a) apply to each of the
foregoing, the provisions set forth in this subsection (a) are deemed to be
separate and independent agreements and in the event of unenforceability of any
such agreement, such unenforceable agreement shall be deemed automatically
deleted from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this subsection (a) or any other term
of this Agreement.
(b) During the course of Executive's employment, Executive will have
learned many trade secrets of the Company and will have access to confidential
information and business plans of the Employer. Therefore, if Executive should
end Executive's employment voluntarily at any time, including by reason of
retirement, disability or incapacity, or if Employer should end Executive's
employment at any time for cause, then during the Prohibited Period, Executive
will not engage, either as a principal, employee, partner, consultant or
investor (other than a less-than-one percent equity interest in an entity), in a
business which is a competitor of Employer. A business shall be deemed a
competitor of Employer if it shall operate a chain of home improvement stores
(such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware, or
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional or full mark-up
department stores, general merchandise discount department stores, or apparel
stores. Executive agrees that if, at any time, pursuant to action of any court
or administrative or governmental body, the operation of any part of this
paragraph shall be determined to be unlawful or otherwise unenforceable, then
the coverage of this paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the extent, and only to the extent,
necessary to make this paragraph lawful and enforceable in the particular
jurisdiction in which such determination is made.
If the Employment Period terminates, Executive agrees (i) to notify
Employer immediately upon Executive's securing employment or becoming
self-employed during any period when Executive's compensation from Employer
shall be subject to reduction or Executive's benefits provided by Employer shall
be subject to termination as provided in Section 8, and (ii) to furnish to
5
<PAGE>
Employer written evidence of Executive's compensation earned from any such
employment or self-employment as Employer shall from time to time request. In
addition, upon termination of the Employment Period for any reason other than
the death of Executive, Executive shall immediately return to Employer all
written trade secrets, confidential information and business plans of Employer
and shall execute a certificate certifying that Executive has returned all such
items in Executive's possession or under Executive's control. In the event of
the death of Executive, Executive's estate shall comply with this obligation.
10. ASSIGNMENT. The rights and obligations of Employer shall inure to
----------
the benefit of and shall be binding upon the successors and assigns of Employer.
The rights and obligations of Executive are not assignable except only that
payments payable to Executive after Executive's death shall be made to
Executive's estate.
11. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given either by personal delivery or by mailing
the same by certified or registered mail, return receipt requested, postage
prepaid. If sent to Employer, the same shall be mailed to Employer at 3345
Michelson Drive, Irvine, CA 92715, Attention: President, or such other address
as Employer may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at his address set forth above,
or at such other address as Executive may hereafter designate by notice to
Employer. Notices shall be effective upon receipt.
12. GOVERNING LAW. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be governed by the laws of the State of California.
WITNESS the execution hereof the day and year first above written.
/s/ Scott L. Richards
---------------------------
Executive
HOMEBASE, INC.
By /s/ Allan P. Sherman
-------------------------
Allan P. Sherman
President
6
<PAGE>
EXHIBIT 10.20
William B. Langsdorf
--------------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 28, 1997 between William B. Langsdorf, whose
address is 1 Mansfield Drive, Irvine, California 92620 ("Executive"), and
HomeBase, Inc., a Delaware corporation, whose principal office is in Irvine,
California ("Employer" or "Company").
The parties hereto, in consideration of the mutual agreements
hereinafter contained and intending to be legally bound hereby, agree as
follows:
1. Employment. The Executive is currently an employee of the Company.
----------
Employer will employ Executive and Executive will be an employee of Employer
under the terms and conditions hereinafter set forth. This Agreement supersedes
and replaces any prior employment agreement between Executive and Employer or
its subsidiaries or divisions, except for any Change of Control Severance
Agreement between Executive and Employer.
2. Term. Executive's employment under the terms of this Agreement shall
----
commence on the date hereof and shall continue until July 31, 1998 and
thereafter until terminated by either Executive or Employer, subject to earlier
termination as provided herein (such period of employment hereinafter called the
"Employment Period").
3. Duties. Executive shall diligently perform the duties of Executive
------
Vice President and Chief Financial Officer of the Company or such executive
duties and responsibilities as shall from time to time be assigned to Executive
by the President.
4. Extent of Services. Except for illnesses and vacation periods,
------------------
Executive shall devote substantially all Executive's working time and attention
and Executive's best efforts to the performance of Executive's duties and
responsibilities under this Employment Agreement; provided, however, that
-------- -------
nothing herein contained shall be deemed to prevent or limit the right of
Executive (a) to make any passive investments where Executive is not obligated
or required to, and shall not in fact, devote any managerial efforts or (b) to
participate in charitable or community activities or in trade or professional
organizations, except only that Employer shall have the right to limit such
participation if the President believes that the time spent on such activities
infringes upon the time required by Executive for the performance of Executive's
duties under this Agreement or is otherwise incompatible with those duties.
<PAGE>
5. Base Salary. During the Employment Period, Executive shall receive a
-----------
base salary at the rate of $190,000.00 per year, or such higher amount as
Employer shall determine from time to time. Base salary shall be payable in such
manner and at such times as Employer shall pay base salary to other executive
employees.
6. Policies and Fringe Benefits. Executive shall be subject to
----------------------------
Employer's policies applicable to its executives generally, and Executive shall
be entitled to receive all such fringe benefits as Employer shall from time to
time make available to other Employer executives generally (subject to the terms
of any applicable fringe benefit plan).
7. Termination of Employment; in General.
-------------------------------------
a) Employer shall have the right to end Executive's employment at any
time and for any reason, with or without cause. Cause shall mean dishonesty by
Executive in the performance of Executive's duties, conviction of a felony
(other than a conviction arising solely under a statutory provision imposing
criminal liability upon Executive on a per se basis due to the Company offices
--- --
held by Executive, so long as any act or omission of Executive with respect to
such matter was not taken or omitted in contravention of any applicable policy
or directive of the Board of Directors of the Company), gross neglect of duties
(other than as a result of incapacity, disability or death), or conflict of
interest which conflict shall continue for 30 days after the Company gives
written notice to Executive requesting the cessation of such conflict.
b) The Employment Period shall terminate when Executive becomes
entitled to receive long-term disability compensation pursuant to Employer's
long-term disability plan. In addition, if by reason of any incapacity Executive
is unable to perform Executive's duties for at least six months in any 12 month
period, the Employment Period will be terminated for incapacity upon written
notice by Employer to Executive.
c) Whenever the Employment Period shall terminate, Executive shall
resign all offices or other positions Executive shall hold with Employer or any
parent corporation and any subsidiaries or divisions of Employer or any such
parent.
8. BENEFITS UPON TERMINATION OF EMPLOYMENT.
---------------------------------------
a) Termination by Employer Other Than for Cause, Disability or
-----------------------------------------------------------
Incapacity. If the Employment Period shall have been terminated by Employer for
- ----------
any reason other than cause, disability or incapacity, no compensation or other
benefits shall be payable to or accrue to Executive hereunder except as follows:
2
<PAGE>
(i) Vested vacation pay accrued at date of termination shall be paid
upon termination.
(ii) Employer will continue to pay to Executive Executive's then base
salary for a period of 12 months from the date of termination, which base
salary shall be reduced after three months for compensation earned from
other employment or self-employment.
(iii) Until the expiration of the period of base salary payments
described in (ii) immediately above or until Executive shall commence other
employment or self- employment, whichever shall first occur, Employer will
provide such medical and hospital insurance and life insurance (but not
long-term disability insurance) for Executive and Executive's family,
comparable to the insurance provided for executives generally, as Employer
shall determine, and upon the same terms and conditions as shall be
provided for Employer's executives generally.
(iv) Employer will pay to Executive, without offset for compensation
earned from other employment or self- employment, the following amounts
under Employer's Management Incentive Plan ("MIP") applicable to Executive:
First, if not already paid, any amounts to which Executive is entitled
under MIP for the fiscal year ended immediately prior to Executive's
termination of employment. These amounts will be paid at the same time
as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal year
during which the termination of employment occurs (prorated for the
period of active employment during such fiscal year). This amount will
be paid at the same time as other MIP awards for the year of
termination are paid.
(v) Executive shall also be entitled to payments or benefits under
other plans of Employer to the extent that such plans provide benefits
following a termination of employment.
b) Termination for Death, Disability or Incapacity. If the Employment
-----------------------------------------------
Period shall terminate at any time by reason of death, disability or incapacity,
no compensation or other benefits shall be payable to or accrue to Executive
hereunder except as follows:
(i) Vested vacation pay accrued at date of termination shall be paid
upon termination.
3
<PAGE>
(ii) Employer will pay to Executive, without offset for compensation
earned from other employment or self-employment, the following amounts
under MIP applicable to Executive:
First, if not already paid, any amounts to which Executive is entitled
under MIP for the fiscal year ended immediately prior to Executive's
termination of employment. These amounts will be paid at the same time
as other awards for such prior year are paid.
Second, such amount as Executive would have earned under MIP if
Executive's employment had continued until the end of the fiscal year
during which the termination of employment occurs (prorated for the
period of active employment during such fiscal year). This amount will
be paid at the same time as other MIP awards for the year of
termination are paid.
(iii) Executive shall also be entitled to payments or benefits under
other plans of Employer to the extent that such plans provide benefits
following a termination of employment.
c) Voluntary Termination; Termination for Cause; Violation of Certain
------------------------------------------------------------------
Covenants. If Executive should end Executive's employment voluntarily or if
- ---------
Employer should end Executive's employment for cause, or if Executive should
violate the protected persons or noncompetition provisions of Section 9, all
compensation and benefits otherwise payable pursuant to this Agreement shall
cease. Employer does not waive any rights it may have for damages or for
injunctive relief.
9. Agreement Not to Solicit or Compete.
-----------------------------------
(a) Upon the termination of the Employment Period at any time for any
reason, Executive shall not during the Prohibited Period under any circumstances
employ, solicit the employment of, or accept unsolicited the services of, any
"protected person", or recommend the employment of any "protected person" to any
other business organization in which Executive has any direct or indirect
interest (other than a less-than-one percent equity interest in an entity), with
which Executive is affiliated or for which Executive renders any services.
"Prohibited Period" shall mean a period coterminous with the period of base
salary continuation (without regard to reduction for income from other
employment or self-employment) which is applicable or which would have been
applicable had the termination been pursuant to Section 8(a). A "protected
person" shall be a person known by Executive to be employed by Employer or its
subsidiaries at or within six months prior to the commencement of conversations
with such person with respect to employment.
4
<PAGE>
As to (i) each "protected person" to whom the foregoing applies, (ii)
each limitation on (A) employment of, (B) solicitation of, and (C) unsolicited
acceptance of services from, each "protected person" and (iii) each month of the
period during which the provisions of this subsection (a) apply to each of the
foregoing, the provisions set forth in this subsection (a) are deemed to be
separate and independent agreements and in the event of unenforceability of any
such agreement, such unenforceable agreement shall be deemed automatically
deleted from the provisions hereof and such deletion shall not affect the
enforceability of any other provision of this subsection (a) or any other term
of this Agreement.
(b) During the course of Executive's employment, Executive will have
learned many trade secrets of the Company and will have access to confidential
information and business plans of the Employer. Therefore, if Executive should
end Executive's employment voluntarily at any time, including by reason of
retirement, disability or incapacity, or if Employer should end Executive's
employment at any time for cause, then during the Prohibited Period, Executive
will not engage, either as a principal, employee, partner, consultant or
investor (other than a less-than-one percent equity interest in an entity), in a
business which is a competitor of Employer. A business shall be deemed a
competitor of Employer if it shall operate a chain of home improvement stores
(such as Home Depot, Lowe's, Eagle Hardware, Orchard Supply & Hardware, or
Builders Square) that includes a store located within 10 miles of any "then
existing" HomeBase warehouse store. The term "then existing" in the previous
sentence shall refer to any such store that is, at the time of termination of
the Employment Period, operated by the Company or any of its subsidiaries or
divisions or under lease for operation as aforesaid. Nothing herein shall
restrict the right of Executive to engage in a business that operates
exclusively a chain of membership warehouse clubs, conventional or full mark-up
department stores, general merchandise discount department stores, or apparel
stores. Executive agrees that if, at any time, pursuant to action of any court
or administrative or governmental body, the operation of any part of this
paragraph shall be determined to be unlawful or otherwise unenforceable, then
the coverage of this paragraph shall be deemed to be restricted as to duration,
geographical scope or otherwise, to the extent, and only to the extent,
necessary to make this paragraph lawful and enforceable in the particular
jurisdiction in which such determination is made.
If the Employment Period terminates, Executive agrees (i) to notify
Employer immediately upon Executive's securing employment or becoming
self-employed during any period when Executive's compensation from Employer
shall be subject to reduction or Executive's benefits provided by Employer shall
be subject to termination as provided in Section 8, and (ii) to furnish to
Employer written evidence of Executive's compensation earned from
5
<PAGE>
any such employment or self-employment as Employer shall from time to time
request. In addition, upon termination of the Employment Period for any reason
other than the death of Executive, Executive shall immediately return to
Employer all written trade secrets, confidential information and business plans
of Employer and shall execute a certificate certifying that Executive has
returned all such items in Executive's possession or under Executive's control.
In the event of the death of Executive, Executive's estate shall comply with
this obligation.
10. ASSIGNMENT. The rights and obligations of Employer shall inure to
----------
the benefit of and shall be binding upon the successors and assigns of Employer.
The rights and obligations of Executive are not assignable except only that
payments payable to Executive after Executive's death shall be made to
Executive's estate.
11. NOTICES. All notices and other communications required hereunder
-------
shall be in writing and shall be given either by personal delivery or by mailing
the same by certified or registered mail, return receipt requested, postage
prepaid. If sent to Employer, the same shall be mailed to Employer at 3345
Michelson Drive, Irvine, CA 92715, Attention: President, or such other address
as Employer may hereafter designate by notice to Executive; and if sent to
Executive, the same shall be mailed to Executive at his address set forth above,
or at such other address as Executive may hereafter designate by notice to
Employer. Notices shall be effective upon receipt.
12. GOVERNING LAW. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be governed by the laws of the State of California.
WITNESS the execution hereof the day and year first above written.
/s/ William B. Langsdorf
-----------------------------
Executive
HOMEBASE, INC.
By /s/ Allan P. Sherman
---------------------------
Allan P. Sherman
President
6
<PAGE>
Exhibit 10.21
================================================================================
$125,000,000
CREDIT AGREEMENT
AMONG
HOMEBASE, INC.,
(KNOWN ON THE DATE HEREOF AS WABAN INC.)
THE LENDERS PARTY HERETO,
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
BANKBOSTON, N.A.,
AS SYNDICATION AGENT
AND
WELLS FARGO BANK, N.A.,
AS DOCUMENTATION AGENT
DATED AS OF JULY 9, 1997
================================================================================
ARRANGED BY
FIRST CHICAGO CAPITAL MARKETS, INC.
<PAGE>
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS.................................................................. 1
-----------
ARTICLE II
THE CREDITS.................................................................. 20
-----------
2.1. Revolving Advances................................................... 20
2.2. Ratable Loans........................................................ 21
2.3. Swing Line Loans..................................................... 21
2.4. Types of Advances.................................................... 23
2.5. Facility Fee; Reductions in Aggregate Commitment..................... 23
2.6. Minimum Amount of Each Advance....................................... 24
2.7. Applicable Margin.................................................... 24
2.8. Principal Payments................................................... 26
2.9. Method of Selecting Types and Interest Periods for
New Revolving Advances............................................. 26
2.10. Conversion and Continuation of Outstanding Advances.................. 26
2.11. Changes in Interest Rate, etc........................................ 27
2.12. Rates Applicable After Default....................................... 27
2.13. Method of Payment.................................................... 28
2.14. Notes; Telephonic Notices............................................ 28
2.15. Interest Payment Dates; Interest and Fee Basis....................... 28
2.16. Notification of Advances, Interest Rates, Prepayments,
Commitment Reductions and Issuance Requests........................ 29
2.17. Lending Installations................................................ 29
2.18. Non-Receipt of Funds by the Agent.................................... 29
2.19. Taxes................................................................ 30
2.20. Change in Circumstances.............................................. 31
2.20.1. Yield Protection............................................. 31
2.20.2. Changes in Capital Adequacy Regulations...................... 31
2.20.3. Availability of Types of Advances............................ 32
2.20.4. Funding Indemnification...................................... 32
2.20.5. Mitigation of Additional Costs; Replacement of Lenders....... 32
2.20.6. Lender Statements; Survival of Indemnity..................... 33
2.21. Agent's Fees......................................................... 34
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY............................................. 34
--------------------------------
3.1. Obligation to Issue.................................................. 34
3.2. Types and Amounts.................................................... 34
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
3.3. Conditions........................................................... 35
3.4. Procedure for Issuance of Facility Letters of Credit................. 35
3.5. Reimbursement Obligations; Duties of Issuing Banks................... 36
3.6. Participation........................................................ 37
3.7. Payment of Reimbursement Obligations................................. 38
3.8. Compensation for Facility Letters of Credit.......................... 39
ARTICLE IV
CONDITIONS PRECEDENT......................................................... 40
--------------------
4.1. Initial Advance...................................................... 40
4.2. Each Advance or Issuance of a Facility Letter of Credit.............. 42
ARTICLE V
REPRESENTATIONS AND WARRANTIES............................................... 43
------------------------------
5.1. Corporate Existence and Standing..................................... 43
5.2. Authorization and Validity........................................... 43
5.3. No Conflict; Government Consent...................................... 43
5.4. Financial Statements................................................. 44
5.5. Material Adverse Change.............................................. 44
5.6. Taxes................................................................ 44
5.7. Litigation and Contingent Obligations................................ 44
5.8. Subsidiaries......................................................... 45
5.9. ERISA................................................................ 45
5.10. Accuracy of Information.............................................. 45
5.11. Federal Reserve Regulations.......................................... 45
5.12. Material Agreements.................................................. 45
5.13. Compliance With Laws................................................. 46
5.14. Ownership of Properties.............................................. 46
5.15. Investment Company Act............................................... 46
5.16. Public Utility Holding Company Act................................... 46
5.17. Security............................................................. 46
5.18. Insurance............................................................ 46
5.19. Solvency............................................................. 46
5.20. Transaction Documents................................................ 47
ARTICLE VI
COVENANTS.................................................................... 47
---------
6.1. Financial Reporting................................................... 47
6.2. Use of Proceeds....................................................... 49
6.3. Notice of Default..................................................... 50
6.4. Conduct of Business................................................... 50
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
6.5. Taxes................................................................. 50
6.6. Insurance............................................................. 50
6.7. Compliance with Laws.................................................. 50
6.8. Maintenance of Properties............................................. 50
6.9. Inspection............................................................ 50
6.10. Dividends............................................................. 51
6.11. Indebtedness.......................................................... 51
6.12. Merger................................................................ 52
6.13. Sale of Assets........................................................ 53
6.14. Letters of Credit..................................................... 53
6.15. Investments and Acquisitions.......................................... 54
6.16. Liens................................................................. 56
6.17. Affiliates............................................................ 58
6.18. Amendments............................................................ 58
6.19. Rate Hedging Obligations.............................................. 58
6.20. Financial Covenants................................................... 58
6.20.1. Funded Debt to Capital Ratio................................. 58
6.20.2. Fixed Charge Coverage Ratio.................................. 58
6.20.3. Tangible Net Worth........................................... 59
6.21. Capital Expenditures.................................................. 59
6.22. Subsidiary Guaranties; Security Documents............................. 59
6.23. Intercompany Indebtedness............................................. 59
ARTICLE VII
DEFAULTS..................................................................... 60
--------
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES............................... 62
----------------------------------------------
8.1. Acceleration.......................................................... 62
8.2. Amendments............................................................ 62
8.3. Preservation of Rights................................................ 63
ARTICLE IX
GENERAL PROVISIONS........................................................... 64
------------------
9.1. Survival of Representations............................................ 64
9.2. Governmental Regulation................................................ 64
9.3. Taxes.................................................................. 64
9.4. Headings............................................................... 64
9.5. Entire Agreement....................................................... 64
9.6. Several Obligations; Benefits of this Agreement........................ 64
9.7. Expenses; Indemnification.............................................. 65
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.8. Numbers of Documents.................................................. 65
9.9. Accounting............................................................ 65
9.10. Severability of Provisions............................................ 65
9.11. Nonliability of Lenders............................................... 65
9.12. CHOICE OF LAW......................................................... 66
9.13. CONSENT TO JURISDICTION............................................... 66
9.14. WAIVER OF JURY TRIAL.................................................. 66
9.15. Confidentiality....................................................... 66
ARTICLE X
THE AGENT.................................................................... 67
---------
10.1. Appointment.......................................................... 67
10.2. Powers............................................................... 67
10.3. General Immunity..................................................... 67
10.4. No Responsibility for Loans, Recitals, etc........................... 67
10.5. Action on Instructions of Lenders.................................... 67
10.6. Employment of Agents and Counsel..................................... 68
10.7. Reliance on Documents; Counsel....................................... 68
10.8. Agent's Reimbursement and Indemnification............................ 68
10.9. Rights as a Lender................................................... 68
10.10. Lender Credit Decision............................................... 69
10.11. Successor Agent...................................................... 69
10.12 Notice of Default.................................................... 69
10.13 Collateralization.................................................... 70
ARTICLE XI
SETOFF; RATABLE PAYMENTS..................................................... 70
------------------------
11.1. Setoff................................................................ 70
11.2. Ratable Payments...................................................... 70
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS............................ 70
-------------------------------------------------
12.1. Successors and Assigns............................................... 70
12.2. Participations....................................................... 71
12.2.1. Permitted Participants; Effect.............................. 71
12.2.2. Voting Rights............................................... 71
12.2.3. Benefit of Setoff........................................... 72
12.3. Assignments.......................................................... 72
12.3.1. Permitted Assignments....................................... 72
12.3.2. Effect; Effective Date...................................... 72
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
12.4. Dissemination of Information......................................... 73
12.5. Tax Treatment........................................................ 73
ARTICLE XIII
NOTICES...................................................................... 73
-------
13.1. Giving Notice........................................................ 73
13.2. Change of Address.................................................... 74
ARTICLE XIV
COUNTERPARTS................................................................. 74
------------
</TABLE>
EXHIBITS
- --------
EXHIBIT A-1 REVOLVING CREDIT NOTE
EXHIBIT A-2 SWING LINE NOTE
EXHIBIT B BORROWING BASE CERTIFICATE
EXHIBIT C COMPLIANCE CERTIFICATE
EXHIBIT D FORM OF OPINION
EXHIBIT E LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
EXHIBIT F SUBSIDIARY GUARANTY
EXHIBIT G ASSIGNMENT AGREEMENT
SCHEDULE "1" PERCENTAGES
SCHEDULE "2" SUBSIDIARIES AND OTHER INVESTMENTS
SCHEDULE "3" INDEBTEDNESS AND LIENS
SCHEDULE "4" FACILITY LETTERS OF CREDIT
SCHEDULE "5" DETAILED DESCRIPTION OF TRANSACTIONS
SCHEDULE "6" PRO FORMA AND PRO FORMA ACCOUNTING PRINCIPLES
-vi-
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of July 9, 1997, is among HomeBase, Inc.
(presently known as Waban Inc.), the Lenders and The First National Bank of
Chicago, as Agent. The parties hereto agree as follows:
R E C I T A L S:
A. The Borrower has requested the Lenders to make financial
accommodations to it in the aggregate principal amount of $125,000,000, the
proceeds of which the Borrower will use for the working capital and general
corporate needs of the Borrower and its Subsidiaries.
B. The Lenders are willing to extend such financial accommodations on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Lenders and the
Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Accounts" means accounts or general intangibles representing the
indebtedness of a Person to the Borrower or any Operating Subsidiary or other
right to receive payment by the Borrower or any Operating Subsidiary arising
from the sale of merchandise or services solely to the extent the foregoing are
payable pursuant to a credit card processing agreement, merchant agreement or
charge account agreement.
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the Effective Date, by which the Borrower or any of its
Subsidiaries (a) acquires any going business or all or substantially all of the
assets of any firm, corporation or division thereof, whether through purchase of
assets, merger or otherwise or (b) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions) at
least a majority (in number of votes) of the securities of a corporation which
have ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency) or a
majority (by percentage or voting power) of the outstanding partnership
interests of a partnership.
<PAGE>
"Active Subsidiary" means a Subsidiary that has total assets of at least
$500,000.
"Advance" means a borrowing hereunder consisting of the aggregate amount of
one or more Loans made on the same Borrowing Date by the Lenders to the Borrower
of the same Type and, in the case of Eurodollar Advances, for the same Interest
Period, and includes a Swing Line Loan.
"Advance Rate" means 70% with respect to Eligible Accounts and 60% with
respect to Eligible Inventory.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means The First National Bank of Chicago in its capacity as agent
for the Lenders pursuant to Article X, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Available Commitment" means, at any time, (a) the lesser of (i)
the Aggregate Commitment at such time and (ii) the Borrowing Base at such time,
less (b) the sum of (i) the outstanding Facility Letter of Credit Obligations at
- ----
such time and (ii) the aggregate principal amount of outstanding Loans at such
time.
"Aggregate Commitment" means $125,000,000, as such amount may be reduced
from time to time pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4;
provided, however, that for purposes of all computations required to be made
- -------- -------
with respect to compliance by the Borrower with Sections 6.20 and 6.21, such
term shall mean generally accepted accounting principles as in effect on the
date hereof, applied in a manner consistent with those used in preparing the
Financial Statements.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (a) the Corporate Base Rate for such day and (b) the sum
of Federal Funds Effective Rate for such day plus 1/2% per annum.
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"Applicable Margin" means, at any date of determination thereof with
respect to any Floating Rate Advance, Eurodollar Advance, the Facility Fee and
the Facility Letter of Credit Fees, the respective rate per annum or percentage,
as applicable for such Floating Rate Advance, Eurodollar Advance, Facility Fees
and Facility Letter of Credit Fees calculated in accordance with the terms of
Section 2.7.
"Arranger" means First Chicago Capital Markets, Inc. and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the Chairman, President, Chief Financial
Officer, Treasurer, Controller or any Vice President-Finance of the Borrower,
acting singly, as such Authorized Officers may be modified from time to time in
writing by the Agent and a then existing Authorized Officer of the Borrower.
"Borrower" means HomeBase, Inc., a Delaware corporation formerly known as
Waban Inc., and its successors and assigns.
"Borrower Pledge Agreement" means a Pledge Agreement dated as of the date
hereof executed and delivered by the Borrower pledging the stock of its
Subsidiaries to the Agent, on behalf of the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"Borrower Security Agreement" means a Security Agreement dated as of the
date hereof executed and delivered by the Borrower in favor of the Agent, on
behalf of the Lenders, as the same may be amended, supplemented or otherwise
modified from time to time.
"Borrower Security Documents" means the Borrower Security Agreement and the
Borrower Pledge Agreement.
"Borrowing Base" means, at any time, an amount equal to the sum of (a) the
Advance Rate applicable to Eligible Accounts multiplied times the book value of
all Eligible Accounts at such time, plus (b) the Advance Rate applicable to
----
Eligible Inventory multiplied times the amount of the Eligible Inventory at such
time.
"Borrowing Base Certificate" means a borrowing base certificate in
substantially the form of Exhibit B hereto.
---------
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.9.
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"Business Day" means (a) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (b)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"Capital" means, as of any date of determination, the sum of Net Worth plus
----
Funded Debt.
"Capital Expenditures" means, without duplication, any expenditures for any
purchase or other acquisition for value of any asset that is classified on a
consolidated balance sheet of the Borrower with the Subsidiaries prepared in
accordance with Agreement Accounting Principles as a fixed or capital asset
excluding (a) the cost of assets acquired under Capitalized Lease Obligations,
(b) expenditures of insurance proceeds to rebuild or replace any asset after a
casualty loss, and (c) leasehold improvement expenditures for which the Borrower
or a Subsidiary is reimbursed promptly by the lessor.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change" is defined in Section 2.20.2.
"Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert (a "group"), of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 40% or more of the outstanding shares of
voting stock of the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means, collectively, the Property of the Borrower and the
Subsidiaries which is pledged, assigned or mortgaged to the Agent, for the
benefit of the Lenders, pursuant to the Loan Documents.
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<PAGE>
"Collateralization Date" means, with respect to any fiscal quarter, the
first fiscal quarter end of the Borrower to occur as of which the Fixed Charge
Coverage Ratio is less than 1.4:1.0 or at such earlier time as either (i) the
Borrower and the Agent agree or (ii) the Borrower and the Required Lenders
agree, that the Borrower does not have or will not be able to report a Fixed
Charge Coverage Ratio greater than or equal to 1.4 to 1.0.
"Commercial Letter of Credit" means a trade or commercial Facility Letter
of Credit issued by an Issuing Bank pursuant to Article III.
"Commitment" means, for each Lender, the obligation of such Lender to make
Revolving Loans and participate in Facility Letters of Credit not exceeding the
amount set forth opposite its name on Schedule 1.1 below or as set forth in any
Notice of Assignment relating to any assignment which has become effective
pursuant to Section 12.3.2, as such amount may be modified from time to time
pursuant to the terms hereof.
"Condemnation" is defined in Section 7.8.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement or take-or-pay contract (but does not include any (a) application for
a Letter of Credit, (b) obligation of any Person to pay the purchase price of
real estate, subject to the satisfaction of customary conditions precedent,
contracted for in the ordinary course of business or (c) the guarantee by
Borrower of payments due under those certain real estate leases of BJ's
Wholesale Club, Inc. as described in the Distribution and Separation Agreement
by and among Waban Inc. and BJ's Wholesale Club, Inc. other than those
guarantees of which Borrower has received written notice from a Person seeking
enforcement of, or payment under, such guarantee).
-
"Conversion/Continuation Notice" is defined in Section 2.10.
"Convertible Subordinated Debt" means that certain $108,600,000 of 6.5%
Convertible Subordinated Debentures Due 2002 issued pursuant to an Indenture,
dated as of July 1, 1992, between the Borrower, as issuer and Bank of America
Illinois (f/k/a Continental Bank, National Association), as trustee.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which,
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<PAGE>
together with the Borrower or any of its Subsidiaries, are treated as a single
employer under Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes. The Corporate Base Rate is a reference
rate and does not necessarily represent the lowest or best rate of interest
actually charged to any customer. First Chicago may make commercial loans or
other loans at rates of interest at, above or below the Corporate Base Rate.
"Current Maturities" means, as of any date of determination, the sum of all
amounts which were due and payable within 12 months prior to such date with
respect to any Indebtedness with an original term in excess of one year (it
being understood that Indebtedness under this Agreement shall not be included),
all determined on a consolidated basis for the Borrower and its Subsidiaries.
"Default" means an event described in Article VII.
"Designated Obligor" means any Account obligor the Accounts of which the
Agent has determined, in its exercise of its reasonable credit judgment, are not
acceptable for eligibility hereunder.
"Distribution" means the distribution by the Borrower to its shareholders
of all the outstanding shares of common stock of BJ's Wholesale Club, Inc.
"EBITR" means, for any period, earnings before interest expense, income
taxes and Rentals, all determined on a consolidated basis for the Borrower and
its Subsidiaries.
"Effective Date" is defined in Section 4.1.
"Eligible Accounts" means, at any time of determination, any Account
meeting all of the following criteria:
(a) which is an "account" within the meaning of Section 9-106 of the
UCC;
(b) which is denominated and payable only in United States dollars in
the United States; and
(c) in which the Agent, on behalf of the Lenders, has after the
Collateralization Date, a first priority fully perfected Lien, subject to no
other Liens (other than Permitted Liens).
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<PAGE>
"Eligible Inventory" means, at any time of determination thereof, all
inventory of the Borrower and its Subsidiaries at the lower of cost or market
value in accordance with Agreement Accounting Principles, excluding any mark-up
paid by a Borrower or Subsidiary in connection with inventory purchased from the
Borrower or any Subsidiary, less the following (determined without duplication):
(a) inventory in which the Agent, on behalf of the Lenders, does not
have, subsequent to the Collateralization Date, a first priority fully perfected
Lien, subject to no other Liens (other than Permitted Liens);
(b) inventory classified by a Borrower or Subsidiary as "obsolete" or
which, in the Agent's reasonable judgment, should be so classified;
(c) supplies, nonsaleable goods, goods to be returned to suppliers,
goods on consignment, goods in transit to third persons (other than the
Borrower's agents or warehouses); and
(d) any reserves required by the Agent in its reasonable discretion
for special order goods, goods which are "slow-moving", goods whose market value
has declined and goods on lay away sales.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears interest at the
Eurodollar Rate.
"Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the
relevant Eurodollar Interest Period, the rate determined by the Agent to be the
rate at which deposits in U.S. dollars are offered by First Chicago to first-
class banks in the London interbank market at approximately 11 a.m. (London
time) two Business Days prior to the first day of such Eurodollar Interest
Period, in the approximate amount of First Chicago's relevant Eurodollar Loan
requested by the Borrower, and having a maturity approximately equal to such
Interest Period.
"Eurodollar Loan" means a Loan which bears interest at the Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (a) the quotient of (i) the Eurodollar Base
Rate applicable to such Interest Period, divided by (ii) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(b) the Applicable Margin for Eurodollar Advances for the relevant Interest
Period; provided, however, if the Applicable Margin for Eurodollar Rate Loans
adjusts during any Interest Period, the Eurodollar Rate shall change to give
effect to such adjustment when and as such
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<PAGE>
Applicable Margin adjusts. The Eurodollar Rate shall be rounded to the next
higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Execution Date" means July 9, 1997.
"Facility Fee" is defined in Section 2.5.
"Facility Letter of Credit" means an irrevocable Letter of Credit issued by
(a) an "Issuing Bank" under the Prior Agreement prior to the Effective Date and
listed on Schedule "4" hereto or (b) an Issuing Bank pursuant to Section 3.1.
"Facility Letter of Credit Fee" is defined in Section 3.8.
"Facility Letter of Credit Obligations" means, as at the time of
determination thereof, all liabilities, whether actual or contingent, of the
Borrower with respect to Facility Letters of Credit, including the sum of (a)
the Reimbursement Obligations and (b) the aggregate undrawn face amount of the
then outstanding Facility Letters of Credit.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Financial Statements" is defined in Section 5.4.
"Financials" is defined in Section 2.7.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Fixed Charge Coverage Ratio" means a ratio of (a) EBITR for such fiscal
quarter and the three immediately preceding fiscal quarters to (b) the sum of
interest expense and Rentals for such fiscal quarter and the three immediately
preceding fiscal quarters, all determined on a consolidated basis for the
Borrower and its Subsidiaries, plus Current Maturities as of the end of such
fiscal quarter, all determined on a consolidated basis.
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<PAGE>
"Floating Rate" means, for any day, a rate per annum equal to (a) the
Alternate Base Rate for such day, plus (b) the Applicable Margin, in each case
----
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"Funded Debt" means, as of any date of determination, for the Borrower and
its Subsidiaries on a consolidated basis, the sum of (a) the outstanding
principal amount of all Indebtedness plus (b) the product of eight (8) times
----
Rentals (for the twelve (12) months prior to the date of determination).
"Governmental Authority" means any government (foreign or domestic) or any
state or other political subdivision thereof or any governmental body, agency,
authority, department or commission (including without limitation any taxing
authority or political subdivision) or any instrumentality or officer thereof
(including without limitation any court or tribunal) exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any corporation, partnership or other entity directly or
indirectly owned or controlled by or subject to the control of any of the
foregoing.
"Government Claim" means any rights to payment for goods sold or leased by
the Borrower or for services rendered by the Borrower, whether or not earned by
performance, together with all security interests or other security held by or
granted to the Borrower to secure such rights to payment, which constitute a
claim against the federal government, any state government or any
instrumentality or agency of any of the foregoing.
"Indebtedness" of a Person means such Person's (a) obligations for borrowed
money, (b) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (c) obligations,
whether or not assumed, secured by Liens or payable out of the specified
proceeds or production from property now or hereafter owned or acquired by such
Person, (d) obligations which are evidenced by notes, acceptances, or other
instruments, (e) Capitalized Lease Obligations, (f) net liabilities under Rate
Hedging Obligations, (g) unreimbursed draws under Letters of Credit and (h)
Contingent Obligations.
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, or three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, or three
or six months thereafter;
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<PAGE>
provided, however, that if there is no such numerically corresponding day in
- -------- -------
such next, second, or third or sixth succeeding month, such Interest Period
shall end on the last Business Day of such next, second, or third or sixth
succeeding month. If an Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next succeeding
Business Day; provided, however, that if said next succeeding Business Day falls
-------- -------
in a new calendar month, such Interest Period shall end on the immediately
preceding Business Day.
"Inventory" means all of the personal property of the Borrower or any
Operating Subsidiary now or hereafter held for sale to customers.
"Investment" of a Person means any loan, advance (other than advances to
officers and employees made in the ordinary course of business), extension of
credit (other than accounts receivable arising in the ordinary course of
business on terms customary in the trade), deposit account or contribution of
capital by such Person to any other Person or any investment in, or purchase or
other acquisition of, the stock, partnership or membership interests, notes,
debentures or other securities of any other Person made by such Person.
"Investment Subsidiary" means a Wholly-Owned Subsidiary of the Borrower
which is a special purpose entity engaged solely in the business of investing
cash in Permitted Investments, and its successors.
"Issuance Date" is defined in Section 3.4(a)(ii)(B).
"Issuance Notice" is defined in Section 3.4(c).
"Issuing Bank" means, with respect to each Facility Letter of Credit, First
Chicago or such other Lender selected by the Borrower to issue such Facility
Letter of Credit so long as such other Lender consents to act in such capacity.
"LC Factor" is a fraction (i) the numerator of which is (y) for the initial
payment of the Facility Letter of Credit Fee for any specific Facility Letter of
Credit, the number of days subsequent to the Issuance Date of such Facility
Letter of Credit to and including the first Payment Date and (z) for subsequent
payments of the Facility Letter of Credit Fee for any specific Facility Letter
of Credit, the number of days subsequent to the Payment Date on which the
Facility Letter of Credit Fee was last paid for such Facility Letter of Credit
to and including the next Payment Date, the Termination Date or the expiration
date of such Facility Letter of Credit, as applicable, and (ii) the denominator
of which is 360.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
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"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Letter of Credit Cash Collateral Account" is defined in Section 8.1. Such
account and the related cash collateralization shall be subject to documentation
satisfactory to the Agent.
"Letter of Credit Request" is defined in Section 3.4(a).
"Level I Status" is defined in Section 2.7.
"Level II Status" is defined in Section 2.7.
"Level III Status" is defined in Section 2.7.
"Level IV Status" is defined in Section 2.7.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loans" means, collectively, the Revolving Loans and the Swing Line Loans;
and "Loan" means use of the Loans.
"Loan Documents" means this Agreement, the Notes, the Borrower Security
Documents, the Subsidiary Security Documents and the other documents and
agreements contemplated hereby and executed by the Borrower or any Subsidiary in
favor of the Agent or any Lender.
"Material Adverse Effect" means a material adverse effect on (a) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(c) the validity or enforceability of any of the Loan Documents or the rights or
remedies of the Agent or the Lenders thereunder.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the
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Controlled Group is a party to which more than one employer is obligated to make
contributions.
"Net Income" means, for any period, the net income (or loss) of the
Borrower and its Subsidiaries on a consolidated basis for such period determined
in conformity with Agreement Accounting Principles; provided, however, that to
the extent reported as a separate item on the Borrower's financial statements
delivered pursuant to Section 6.1, there shall be excluded (a) the income of any
Affiliate of the Borrower or other Person (other than a Subsidiary of the
Borrower) in which any Person (other than the Borrower or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Borrower, or any of its
Subsidiaries by such Affiliate or other Person during such period and (b) the
income of any Person accrued prior to the date such Person becomes a Subsidiary
of the Borrower or is merged into or consolidated with the Borrower or any of
its Subsidiaries or that Person's assets are acquired by the Borrower or any of
its Subsidiaries.
"Net Worth" means the aggregate amount of shareholders equity as determined
from a consolidated balance sheet of the Borrower and its Subsidiaries, prepared
in accordance with Agreement Accounting Principles.
"Non-Excluded Taxes" is defined in Section 2.19.
"Notes" means, collectively, the Revolving Credit Notes and the Swing Line
Note; and "Note" means any of the Notes.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, the Facility Letter of Credit Obligations, all accrued and unpaid
fees and all expenses, reimbursements, indemnities and other obligations of the
Borrower or any Subsidiary to the Lenders or to any Lender, the Agent or any
indemnified party hereunder or arising under the Loan Documents.
"Operating Subsidiaries" means HomeClub, Inc. of Texas, a Delaware
corporation, HomeClub, Inc., a Nevada corporation, and any other Wholly-Owned
Subsidiary of the Borrower formed after the Effective Date for the purpose of
operating retail stores in states in which the Borrower has determined that
there are advantages to operating retail stores in such state through a
Wholly-Owned Subsidiary.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last day of each March, June, September and
December.
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"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Percentage" means, for each Lender, the percentage set forth opposite its
name on Schedule "1" attached hereto, as such percentage (and such schedule) may
be modified from time to time pursuant to the terms hereof, including but not
limited to the provisions of Section 12.3.2. Ratable and ratably, as used
herein, shall have a correlative meaning.
"Permitted Investments" means Investments in any of the following:
(a) Short-term obligations of, or fully guaranteed by, the United
States of America;
(b) Commercial paper rated A-2 or better by Standard and Poor's
Corporation or P-2 or better by Moody's Investors Service, Inc. and
securities commonly known as "short-term bank notes" issued by any Lender
denominated in United States dollars which at the time of purchase have
been rated and the ratings for which are not less than P-2 if rated by
Moody's Investors Services, Inc., and not less than A-2 if rated by
Standard and Poor's Corporation;
(c) Demand deposit accounts maintained in the ordinary course of
business;
(d) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and surplus
in excess of $100,000,000;
(e) Tax-free government securities rated "A" or better as rated by
Standard and Poor's Corporation or Moody's Investors Service, Inc. and
government securities mutual funds which have a weighted average life of
less than two (2) years;
(f) Corporate debt securities rated "A" or better as rated by
Standard and Poor's Corporation or Moody's Investors Service, Inc. that
mature within two (2) years from the date the Investment is made by the
Borrower or any of its Subsidiaries;
(g) Collateralized mortgage obligations rated "A" or better as rated
by Standard and Poor's Corporation or Moody's Investors Service, Inc. with
an average life less than two (2) years; provided that after giving effect
to any such Investment, the aggregate cost of all such Investments does not
exceed $25,000,000;
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(h) Money market preferred stock investments rated "A" or better as
rated by Standard and Poor's Corporation or Moody's Investors Service,
Inc.; provided that after giving effect to any such Investment, the
aggregate cost of all such Investments does not exceed $25,000,000;
(i) Repurchase agreements relating to a security which is rated "A"
or better as rated by Standard and Poor's Corporation or Moody's Investors
Service, Inc. that mature within two (2) years from the date the Investment
is made by the Borrower or any of its Subsidiaries; provided that after
giving effect to any such Investment, the aggregate cost of all such
Investments does not exceed $25,000,000; and
(j) Tax free government securities rated "SP2" or better by Standard
and Poor's Corporation or "MIG2" or better by Moody's Investors Service,
Inc. with an average life of less than two (2) years; provided, that after
giving effect to any such Investment, the aggregate cost of all such
Investments does not exceed $25,000,000.
"Person" means any natural person, corporation, firm, joint venture,
limited liability company, partnership, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Pledge Agreement" means, collectively, the Borrower Pledge Agreement and
Subsidiary Pledge Agreement, if any.
"Prior Agreement" means the Credit Agreement dated as of April 4, 1995
among the Borrower, The First National Bank of Chicago, as agent, and the
Lenders party thereto, as amended through the Effective Date.
"Pro Forma" is defined in Section 5.4.
"Pro Forma Accounting Principles" means Agreement Accounting Principles as
modified as set forth in Schedule "6" hereto to reflect pro forma adjustments
required due to the Transactions.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
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"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Agreements" of a Person means (a) any and all agreements,
devices or arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward rates
applicable to such party's assets, liabilities or exchange transactions,
including, but not limited to, dollar-denominated or cross-currency interest
rate exchange agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options, puts and warrants, and (b) any and all cancellations, buy backs,
reversals, terminations or assignments of any of the foregoing.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under Rate Hedging
Agreements.
"Real Estate Subsidiary" means any Wholly-Owned Subsidiary of the Borrower
existing on the Effective Date or formed after the Effective Date for the
purpose of purchasing, developing and/or carrying real estate or acting as a
holding company for Subsidiaries which purchase, develop and/or carry real
estate and which conducts no business other than that which is incidental to
purchasing, developing and/or carrying real estate and owns no significant
assets other than real estate or the stock of Subsidiaries which are Real Estate
Subsidiaries.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by Persons other than banks, brokers and dealers for
the purpose of purchasing or carrying margin stocks applicable to such Persons.
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of such Board of Governors relating
to the extension of credit by securities brokers and dealers for the purpose of
purchasing or carrying margin stocks applicable to such Persons.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit
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<PAGE>
by banks for the purpose of purchasing or carrying margin stocks applicable to
member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by the specified lenders for the purpose of
purchasing or carrying margin stocks applicable to such Persons.
"Reimbursement Obligations" means, at any time, the aggregate of the
obligations of the Borrower to the Lenders, the Issuing Banks and the Agent in
respect of all unreimbursed payments or disbursements made by the Lenders, the
Issuing Banks and the Agent under or in respect of the Facility Letters of
Credit.
"Rentals" means all rental expense of the Borrower and its Subsidiaries
paid under operating leases.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Required Lenders" means Lenders whose Commitments, in the aggregate, are
equal to at least 66-2/3% of the Aggregate Commitment or, if the Aggregate
Commitment has been terminated, Lenders in the aggregate holding at least 66-
2/3% of the sum of (a) the aggregate unpaid principal amount of the outstanding
Advances plus (b) the Facility Letter of Credit Obligations.
----
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Revolving Advance" means an Advance comprised of Revolving Loans.
"Revolving Credit Note" means a promissory note in substantially the form
of Exhibit A-1 hereto, with appropriate insertions, duly executed and delivered
-----------
to the Agent by the Borrower and payable to the order of a Lender in the amount
of its Commitment, including any amendment, modification, renewal or replacement
of such promissory note.
-16-
<PAGE>
"Revolving Loan" means, with respect to a Lender, such Lender's portion of
an Advance made pursuant to its commitment set forth in Section 2.1(a) and
"Revolving Loans" means, with respect to the Lenders, the aggregate of all such
Loans.
"Risk-Based Capital Guidelines" is defined in Section 2.20.2.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Security Documents" means the Borrower Security Documents and the
Subsidiary Security Documents.
"Senior Notes" means the certain $12,000,000 9.58% unsecured senior notes
due May 31, 1998.
"Senior Subordinated Debt" means that certain $100,000,000 of 11% Senior
Subordinated Notes due May 15, 2004 issued pursuant to an Indenture, dated as of
May 11, 1994, between the Borrower, as Issuer and The First National Bank of
Boston, as Trustee.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Solvent" means, when used with respect to a Person, that (a) the fair
saleable value of the assets of such Person is in excess of the total amount of
the present value of its liabilities (including for purposes of this definition
all liabilities (including loss reserves as determined by such Person), whether
or not reflected on a balance sheet prepared in accordance with Agreement
Accounting Principles and whether direct or indirect, fixed or contingent,
secured or unsecured, disputed or undisputed), (b) such Person is able to pay
its debts or obligations in the ordinary course as they mature and (c) such
Person does not have unreasonably small capital to carry out its business as
conducted and as proposed to be conducted. "Solvency" shall have a correlative
meaning.
"Standby Letter of Credit" means a Facility Letter of Credit which is not a
Commercial Letter of Credit.
"Status" means, at any date of determination thereof, whichever of Level I
Status, Level II Status, Level III Status or Level IV status exists at such
date.
"Subordinated Indebtedness" means the Convertible Subordinated Debt and the
Senior Subordinated Debt.
-17-
<PAGE>
"Subsidiary" of a Person means (a) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(b) any partnership, association, joint venture or similar business organization
more than 50% of the ownership interests having ordinary voting power of which
shall at the time be so owned or controlled or of which such Person, directly or
indirectly, is the general partner. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Subsidiary Guaranty" means collectively, guaranty(ies) duly executed and
delivered by the Subsidiaries in favor of the Agent, on behalf of the Lenders,
as the same may be amended, supplemented or otherwise modified from time to
time.
"Subsidiary Pledge Agreement" means, collectively, Pledge Agreement(s)
substantially in the form of the Borrower Pledge Agreement executed and
delivered by any Subsidiary which after the Effective Date owns the stock of any
other Subsidiary in favor of the Agent, on behalf of the Lenders, as the same
may be amended, supplemented or otherwise modified from time to time.
"Subsidiary Security Agreement" means collectively, the Subsidiary Security
Agreement(s) executed and delivered by the Subsidiaries in favor of the Agent,
on behalf of the Lenders, as the same may be amended, supplemented or otherwise
modified from time to time.
"Subsidiary Security Documents" means the Subsidiary Security Agreement,
the Subsidiary Pledge Agreement, if any, and the Subsidiary Guaranty.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the quarter in which such
determination is made.
"Swing Line Bank" means First Chicago.
"Swing Line Loan" means a Loan made by the Swing Line Bank pursuant to
Section 2.3.
"Swing Line Note" means a promissory note substantially in the form of
Exhibit A-2 hereto, with appropriate insertions, duly executed and delivered to
- -----------
the Agent by the Borrower and payable to the order of the Swing Line Bank in the
amount of $10,000,000, including any amendment, modification, renewal or
replacement of such promissory note.
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<PAGE>
"Swing Line Option" means the ability of the Swing Line Bank to make Swing
Line Loans hereunder, if it chooses to do so in its sole discretion, in an
aggregate amount at any one time outstanding not to exceed $10,000,000, as the
same may be terminated or permanently reduced from time to time hereunder. The
Swing Line Option will automatically and permanently terminate on the
Termination Date.
"Tangible Net Worth" means Net Worth minus Intangible Assets. For purposes
of this definition "Intangible Assets" means the amount (to the extent reflected
in determining Net Worth) of (a) all write-ups (other than write-ups resulting
from foreign currency translations or from increases in the value of Permitted
Investments owned by the Borrower or the Investment Subsidiary) subsequent to
January 25, 1997 in the book value of any asset owned by the Borrower or a
consolidated Subsidiary, (b) all investments in unconsolidated Subsidiaries and
all equity investments in Persons which are not Subsidiaries and (c) all
unamortized debt discount and expense, unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, organization or
developmental expenses and other intangible items.
"Termination Date" means July 9, 2000, or such earlier date on which the
Agreement is terminated by the parties hereto.
"Trademark Subsidiaries" means Fullerton Corporation, a Delaware
corporation, and any other Wholly-Owned Subsidiary of the Borrower formed after
the Effective Date for the purpose of owning trademarks and/or other
intellectual property and whose income is primarily derived from royalties
received from the Borrower and its Subsidiaries for the use of such trademarks
and/or other intellectual property.
"Transactions" shall mean (i) the repayment of the Senior Notes, (ii) the
retirement or defeasance of the Senior Subordinated Debt, (iii) the redemption
or conversion of the Convertible Subordinated Debt into the Common Stock of
Waban Inc. and (iv) the Distribution.
"Transaction Documents" means the documents pursuant to which the
Transactions occur and includes, without limitation, the Separation and
Distribution Agreement between Waban Inc. and BJ's Wholesale Club, Inc.,
Services Agreement between Waban Inc. and BJ's Wholesale Club, Inc., Tax Sharing
Agreement between Waban Inc. and BJ's Wholesale Club, Inc., Employee Benefit
Agreement between Waban Inc. and BJ's Wholesale Club, Inc., and Proxy
Statement/Prospectus of Waban Inc. dated June 6, 1997.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as a Floating Rate
Advance, Eurodollar Advance or Swing Line Loan.
-19-
<PAGE>
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested nonforfeitable benefits under all Single Employer Plans exceeds
the fair market value of all such Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plans.
"Unfunded Swing Line Loans" is defined in Section 2.3(d).
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the
outstanding voting securities of which (other than director qualifying shares)
shall at the time be owned or controlled, directly or indirectly, by such Person
or one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership,
association, joint venture or similar business organization 100% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled. Unless otherwise expressly provided, all references to
a "Wholly-Owned Subsidiary" shall mean a Wholly-Owned Subsidiary of the
Borrower.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
-----------
2.1. Revolving Advances. (a) From and including the Effective
------------------
Date to but excluding the Termination Date, each Lender severally (and not
jointly) agrees, on the terms and subject to the conditions and relying upon the
representations and warranties of the Borrower herein set forth, to make
Revolving Loans to the Borrower from time to time in amounts not to exceed the
amount of its pro-rata share of the Aggregate Available Commitment existing at
such time (after giving effect to the use of the proceeds of any Revolving
Advance to repay any Swing Line Loan or Facility Letter of Credit Obligations).
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow Revolving Advances at any time prior to the Termination Date.
(b) The Borrower hereby agrees that, if at any time as a result of
reductions in the Aggregate Commitment pursuant to Section 2.5(b) or otherwise,
the aggregate principal amount of the Loans plus the aggregate amount of the
Facility Letter of Credit Obligations exceeds the lesser of either (i) the
Borrowing Base, or (ii) the Aggregate Commitment, the Borrower shall repay
immediately its then outstanding Loans in such amount as may be necessary to
eliminate such excess; provided, that if an excess remains after repayment of
--------
all outstanding Loans, then the Borrower shall cash
-20-
<PAGE>
collateralize the Facility Letter of Credit Obligations by depositing into the
Letter of Credit Cash Collateral Account such amount as may be necessary to
eliminate such excess.
(c) The Borrower's obligation to pay the principal of, and interest
on, the Revolving Loans shall be evidenced by the Revolving Credit Notes.
Although the Revolving Credit Notes shall be dated the Execution Date, interest
in respect thereof shall be payable only for the periods during which the
Revolving Loans evidenced thereby are outstanding and, although the stated
amount of each Revolving Credit Note shall be equal to the applicable Lender's
Commitment, each Revolving Credit Note shall be enforceable, with respect to the
Borrower's obligation to pay the principal amount thereof, only to the extent of
the unpaid principal amount of the Revolving Loan at the time evidenced thereby.
(d) All Revolving Loans shall mature, and the principal amount thereof
and the unpaid accrued interest thereon shall be due and payable, on the
Termination Date.
2.2. Ratable Loans. Each Revolving Advance hereunder shall consist of
-------------
Revolving Loans made from the several Lenders ratably in proportion to the ratio
that their respective Commitments bear to the Aggregate Commitment.
2.3. Swing Line Loans.
----------------
(a) On the terms and subject to the conditions and relying upon the
representations and warranties of the Borrower herein set forth, the Swing Line
Bank may, in its sole discretion at any time and from time to time from and
including the Effective Date to but excluding the earlier of the Termination
Date and the termination of the Commitments or the Swing Line Option, in
accordance with the terms hereof, make Swing Line Loans to the Borrower in an
aggregate principal amount at any time outstanding not to exceed the least of
(i) the amount of the Swing Line Option, (ii) an amount equal to the Aggregate
Available Commitment at such time and (iii) an amount equal to Commitment of
First Chicago as set forth on Schedule I less the sum of (a) the aggregate
outstanding principal amount of Loans made by First Chicago plus, (b) its
---------
Percentage interest in all Facility Letter of Credit Obligations ("Swing Line
Availability"). All Swing Line Loans shall be in a minimum amount of $1,000,000
and in any integral multiple of $500,000 if in excess thereof and shall bear
interest at the Floating Rate. In no event shall any Swing Line Loan be made
hereunder if (i) the Agent or the Swing Line Bank shall have received notice
from any Lender prior to any such Swing Line Loan that a condition specified in
Section 4.1 or 4.2 has not been satisfied and (ii) such condition shall not have
been subsequently waived in compliance with Section 8.2.
(b) The Borrower shall give the Swing Line Bank (with a copy to the
Agent) telephonic, written or telecopy notice (in the case of telephonic notice,
such notice
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<PAGE>
shall be promptly confirmed in writing or by telecopy) not later than 1:00 p.m.,
Chicago time, on a day of a proposed Swing Line Loan. Such notice shall be
delivered on a Business Day, shall be irrevocable and shall refer to this
Agreement and shall specify the requested Borrowing Date (which shall be a
Business Day) and amount of such Swing Line Loan. The Swing Line Bank may, in
its sole discretion by 2:00 p.m., Chicago time, on the requested Borrowing Date,
make the requested Swing Line Loan by crediting the principal amount thereof, in
immediately available funds, to the account of the Borrower maintained with the
Swing Line Bank, unless such Loan shall not occur on such date because any
condition precedent herein specified shall not have been met or unless the Swing
Line Bank elects in its sole discretion not to make such Swing Line Loan.
(c) Notwithstanding the occurrence of any Default or noncompliance
with the conditions precedent set forth in Article IV, if (i) any Swing Line
Loans aggregating $2,000,000 or more shall remain outstanding at 10:00 a.m.,
Chicago time, on the fifth Business Day following the Borrowing Date thereof and
if by such time on such fifth Business Day the Agent shall have received neither
(A) a Borrowing Notice delivered by the Borrower pursuant to Section 2.9
requesting that Revolving Loans be made pursuant to Section 2.2 on the
immediately succeeding Business Day in an amount at least equal to the aggregate
principal amount of such Swing Line Loans nor (B) any other notice satisfactory
to the Swing Line Bank indicating the Borrower's intent to repay all such Swing
Line Loans on or before the immediately succeeding Business Day with funds
obtained from other sources, or (ii) on any date the Swing Line Bank in its sole
discretion shall so request with respect to the outstanding Swing Line Loans,
the Agent shall be deemed to have received a Borrowing Notice from the Borrower
pursuant to Section 2.9 requesting that a Revolving Advance of Floating Rate
Loans be made pursuant to Section 2.1 on such immediately succeeding Business
Day in an amount equal to the aggregate principal amount of and interest on such
Swing Line Loans, and the procedures set forth in Section 2.9 shall be followed
in making such Floating Rate Loans, provided that the proceeds of such Floating
Rate Loans received by the Agent shall be immediately delivered to the Swing
Line Bank and applied to the direct repayment of the Swing Line Loans.
Effective on the day such Revolving Loans are made, the Swing Line Loans so paid
shall no longer be outstanding as Swing Line Loans and shall be outstanding as
Revolving Loans of the Lenders bearing interest at a rate determined by
reference to the Floating Rate, in accordance with the provisions of this
Article II. The Borrower authorizes the Agent and the Swing Line Bank to charge
the Borrower's account maintained with the Swing Line Bank (up to the amount
available in such account) in order to immediately pay the amount of such Swing
Line Loans to the extent amounts received from the Lenders are not sufficient to
repay in full such Swing Line Loans and interest accrued thereon. If any
portion of any such amount paid (or deemed paid) to the Swing Line Bank should
be recovered by or on behalf of the Borrower from the Swing Line Bank in the
event of the bankruptcy or reorganization of the Borrower or otherwise, the loss
of the amount so recovered shall be ratably shared among all Lenders in the
manner contemplated by Section 11.2.
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<PAGE>
(d) If, for any reason (including, without limitation, the occurrence
of a Default described in Section 7.6 or 7.7), Floating Rate Loans may not be,
or are not, made pursuant to paragraph (c) of this Section 2.3 to repay Swing
Line Loans as required by such paragraph, effective on the date such Floating
Rate Loans would otherwise have been made, (i) each Lender severally,
unconditionally and irrevocably agrees that it shall, without regard to the
occurrence of any Default, purchase a participating interest in such Swing Line
Loans ("Unrefunded Swing Line Loans") in an amount equal to the amount of
---------------------------
Floating Rate Loans which would otherwise have been made by such Lender pursuant
to paragraph (c) of this Section 2.3 and (ii) each Unrefunded Swing Line Loan
shall commence accruing interest at the Floating Rate. Each Lender will
immediately transfer to the Agent, in immediately available funds, the amount of
its participation, and the proceeds of such participation shall be distributed
by the Agent to the Swing Line Bank in such amount as will reduce the amount of
the participating interest retained by the Swing Line Bank in the Swing Line
Loans to the amount of the Floating Rate Loans which were to have been made by
the Swing Line Bank pursuant to paragraph (c) of this Section 2.3. In the event
a Lender fails to make available to the Swing Line Bank the amount of such
Lender's participation as provided in this paragraph (d), the Swing Line Bank
shall be entitled to recover such amount on demand from such Lender together
with interest at the customary rate set by the Swing Line Bank for correction of
errors among banks for three Business Days and thereafter at the Floating Rate
then in effect. All payments in respect of Unrefunded Swing Line Loans and
participations therein shall be made in accordance with Section 2.13.
(e) Each Lender's obligation to make Revolving Loans pursuant to
paragraph (c) of this Section 2.3 and to purchase participating interests
pursuant to paragraph (d) of this Section 2.3 shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other right
which such Lender or the Borrower may have against the Swing Line Bank, the
Borrower or any other Person, as the case may be, for any reason whatsoever;
(ii) the occurrence or continuance of a Default; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower or any of its Subsidiaries;
(iv) any breach of this Agreement by the Borrower, any of its Subsidiaries or
any Lender other than a funding by the Swing Line Lender in breach of the last
sentence of Section 2.3(a) or a funding by the Swing Line Lender in excess of
the Swing Line Availability (but in such event only to the extent of such
overfunding); or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
2.4. Types of Advances. The Revolving Advances may be Floating Rate
-----------------
Advances or Eurodollar Advances, or a combination thereof, selected by the
Borrower in accordance with Sections 2.9 and 2.10.
2.5. Facility Fee; Reductions in Aggregate Commitment. (a) The
------------------------------------------------
Borrower agrees to pay to the Agent for the period from the Execution Date to
and including the
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<PAGE>
Termination Date for the account of each Lender a facility fee (the "Facility
Fee") in an amount equal to the percentage indicated as the Applicable Margin
for the Facility Fee times the daily average Commitment of such Lender
(regardless of usage or availability) times (iii) a fraction (A) the numerator
of which is (y) for the initial payment of the Facility Fee, the number of days
subsequent to the Execution Date to and including the first Payment Date and (z)
for all other payments of the Facility Fee, the number of days subsequent to the
Payment Date on which the Facility Fee was last paid to and including the next
Payment Date or Termination Date, as applicable, and (B) the denominator of
which is 360, payable in arrears on each Payment Date hereafter and on the
Termination Date. All accrued facility fees shall be payable on the effective
date of any termination of the obligations of the Lenders to make Loans
hereunder.
(b) The Borrower may permanently reduce the Aggregate Commitment in
whole, or in part ratably among the Lenders in a minimum aggregate amount of
$5,000,000 or any multiple of $5,000,000 in excess thereof, upon at least three
(3) Business Days' written notice to the Agent, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
-------- -------
Aggregate Commitment may not be reduced below the sum of (i) the aggregate
principal amount of the outstanding Loans, plus (ii) the aggregate amount of the
outstanding Facility Letter of Credit Obligations.
(c) The Borrower shall repay the Advances in amounts equal to 50% of
the net proceeds of any Indebtedness incurred pursuant to Section 6.11(g) or (l)
hereof. The Borrower shall make permanent reductions in the Aggregate Commitment
in amounts equal to 50% of the net proceeds of any Indebtedness incurred
pursuant to Section 6.11(g) or (l) hereof; provided, however, in no event shall
the total reduction in the Aggregate Commitment required pursuant to this
Section 2.5(c) exceed $25,000,000. Such reductions and repayment shall occur
concurrently with the receipt of such net proceeds by the Borrower or any
Subsidiary (or in the case of prepayment of Eurodollar Advances, on the last day
of the current Interest Period for such Eurodollar Advances). Any reduction in
the Aggregate Commitment pursuant to this Section shall ratably reduce the
amounts outstanding under the Commitment of each Lender.
Proceeds required to be applied to the prepayment of Eurodollar Advances on a
deferred basis as described above shall, concurrently with the receipt thereof
and pending such prepayment, be deposited in a blocked account subject to the
exclusive control of the Agent, and so long as no Default or Unmatured Default
shall have occurred and be continuing, be invested at the direction of the
Borrower in Permitted Investments; provided, that if a Default or an Unmatured
--------
Default shall have occurred and be continuing, such proceeds shall be invested
at the direction of the Agent. Any income from such investments shall, pending
such prepayment, be held as additional security for the Obligations, and, upon
such prepayment, if no Default or Unmatured Default shall have occurred and be
continuing, the balance of such income (net of any amounts applied to the
payment of accrued interest on the amount of such prepayment,
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<PAGE>
or, with the consent of the Required Lenders after the occurrence of any Default
or Unmatured Default, applied to the payment of the Obligations then due and
payable in accordance with the terms hereof) shall be remitted to the Borrower.
2.6. Minimum Amount of Each Advance. Each Advance shall be in the
------------------------------
minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess
thereof); provided, however, that (a) any Swing Line Loan shall be in a minimum
-------- -------
amount of $1,000,000 and in multiples of $500,000 if in excess thereof, (b) any
Floating Rate Advance may be in the amount of the Aggregate Available Commitment
and (c) in no event shall more than six (6) Eurodollar Advances be permitted to
be outstanding at any time.
2.7. Applicable Margin. The Applicable Margin set forth below
-----------------
with respect to each Floating Rate Advance, Eurodollar Advance and for Facility
Fees and Facility Letter of Credit Fees payable hereunder, shall be subject to
adjustment (upwards or downwards, as appropriate) based on the Borrower's Status
as at the end of each fiscal quarter in accordance with the table set forth
below. The Borrower's Status as at the last day of each fiscal quarter shall be
determined from the then most recent annual or quarterly financial statements of
the Borrower delivered with the compliance certificate required pursuant to
Section 6.1(c) (collectively, the "Financials"). The adjustment, if any, to the
Applicable Margin shall take place on, and be effective from and after, the
fifth Business Day following the date on which the Agent has received the
Financials. In the event that the Borrower shall at any time fail to furnish to
the Lenders the Financials within the time limitations specified by Section 6.1,
then the Borrower's Status shall be Level IV Status from the date of such
failure until five Business Days after such Financials are so delivered.
Notwithstanding anything to the contrary contained herein, the Borrower's Status
from the Execution Date until the delivery of the audited annual Financials
required pursuant to Section 6.1(a) hereof, shall be Level III Status, unless
the Borrower's Status becomes Level IV Status as determined from the quarterly
Financials delivered pursuant to Section 6.1.
<TABLE>
<CAPTION>
=======================================================================================
APPLICABLE MARGIN FOR INDICATED STATUS
=======================================================================================
LEVEL I STATUS LEVEL II STATUS LEVEL III LEVEL IV
STATUS STATUS
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eurodollar Rate .85% .95% 1.20% 1.45%
- ---------------------------------------------------------------------------------------
Facility Letter of Credit .85% .95% 1.20% 1.45%
Fee
- ---------------------------------------------------------------------------------------
Facility Fee .20% .25% .30% .35%
- ---------------------------------------------------------------------------------------
Floating Rate 0% 0% 0% .20%
=======================================================================================
</TABLE>
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<PAGE>
For purposes of this Agreement, the Borrower's Status will be determined based
on the following definitions:
"Level I Status" exists at any date if, as of the last day of the most
recently ended fiscal quarter of the Borrower the Fixed Charge Coverage Ratio is
greater than or equal to 2.0 to 1.0.
"Level II Status" exists at any date if, as of the last day of the most
recently ended fiscal quarter of the Borrower (a) the requirements necessary to
achieve Level I Status shall not have been satisfied and (b) the Fixed Charge
Coverage Ratio is greater than or equal to 1.75 to 1.0.
"Level III Status" exists at any date if, as of the last day of the most
recently ended fiscal quarter of the Borrower (a) the requirements to achieve
Level I Status or Level II Status shall not have been satisfied and (b) the
Fixed Charge Coverage Ratio is greater than or equal to 1.40.
"Level IV Status" exists at any date if the requirements necessary to
achieve Level I Status, Level II Status or Level III Status shall not have been
satisfied.
2.8. Principal Payments. The Borrower may from time to time pay,
------------------
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $1,000,000 or any integral multiple of $1,000,000 in
excess thereof, any portion of the outstanding Floating Rate Advances upon one
Business Day's prior notice to the Agent. Subject to Section 2.20.4 and upon
like notice, a Eurodollar Advance may be paid prior to the last day of the
applicable Interest Period in a minimum amount of $1,000,000 or an integral
multiple thereof.
2.9. Method of Selecting Types and Interest Periods for New Revolving
----------------------------------------------------------------
Advances. The Borrower shall select the Type of Revolving Advance and, in the
- --------
case of each Eurodollar Advance, the Interest Period applicable to each
Revolving Advance from time to time; provided, however, that for a period of
-------- -------
forty-five (45) days after the Effective Date (or for such shorter period as the
Agent may agree), the Borrower will keep all of the Loans in a Eurodollar
Advance with a one month Interest Period and with the same maturity date, or in
a combination of Floating Rate Advances and one Eurodollar Advance meeting the
qualifications set forth above. The Borrower shall give the Agent irrevocable
notice (a "Borrowing Notice") not later than 10:00 a.m. (Chicago time) on the
----------------
Borrowing Date of each such Floating Rate Advance and at least three (3)
Business Days before the Borrowing Date for each such Eurodollar Advance,
specifying:
(a) the Borrowing Date of such Advance, which shall be a Business Day;
(b) the aggregate amount of such Advance (which shall not exceed the
Aggregate Available Commitment);
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<PAGE>
(c) the Type of Advance selected; and
(d) in the case of each Eurodollar Advance, the Interest Period
applicable thereto, which shall end on or prior to the Termination Date.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Revolving Loan or Revolving Loans, in funds immediately
available in Chicago, to the Agent at its address specified pursuant to Article
XIII. The Agent will make the funds so received from the Lenders available to
the Borrower at the Agent's aforesaid address.
2.10. Conversion and Continuation of Outstanding Advances. Each
---------------------------------------------------
Floating Rate Advance shall continue as a Floating Rate Advance unless and until
such Floating Rate Advance is converted into a Eurodollar Advance. Each
Eurodollar Advance shall continue as a Eurodollar Advance until the end of the
then applicable Interest Period therefor, at which time such Eurodollar Advance
shall be automatically converted into a Floating Rate Advance unless the
Borrower shall have given the Agent a Conversion/Continuation Notice requesting
that, at the end of such Interest Period, such Eurodollar Advance continue as a
Eurodollar Advance for the same or another Interest Period. Subject to the
terms of Section 2.6, the Borrower may elect from time to time to convert all or
any part of a Revolving Advance of any Type into any other Type or Types of
Revolving Advances; provided, however, that any conversion of any Eurodollar
-------- -------
Advance shall be made on, and only on, the last day of the Interest Period
applicable thereto. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
- -------------------------------
or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago time)
on the date of any requested conversion into a Floating Rate Advance, or at
least three (3) Business Days, in the case of a conversion into or continuation
of a Eurodollar Advance, prior to the date of the requested conversion or
continuation, specifying:
(a) the requested date of such conversion or continuation, which shall
be a Business Day;
(b) the aggregate amount of such Advance (which shall not exceed the
Aggregate Available Commitment);
(c) the Type of the Advance which is to be converted or continued; and
(d) the amount and Type(s) of Advance(s) into which such Advance is to
be converted or continued and, in the case of a conversion into or continuation
of a Eurodollar Advance, the duration of the Interest Period applicable thereto,
which shall end on or prior to the Termination Date.
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<PAGE>
2.11. Changes in Interest Rate, etc. Each Floating Rate Advance shall
------------------------------
bear interest at the Floating Rate from and including the date of such Advance
or the date on which such Advance was converted into a Floating Rate Advance to
(but not including) the date on which such Floating Rate Advance is paid or
converted to a Eurodollar Advance. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate. Each Eurodollar
Advance shall bear interest from and including the first day of the Interest
Period applicable thereto to, but not including, the last day of such Interest
Period at the interest rate determined as applicable to such Eurodollar Advance.
No Interest Period may end after the Termination Date.
2.12. Rates Applicable After Default. Notwithstanding anything to the
------------------------------
contrary contained in Section 2.9 or 2.10, no Advance may be made as, converted
into or continued as a Eurodollar Advance (except with the consent of the Agent
and the Required Lenders) when any Default or Unmatured Default has occurred and
is continuing. During the continuance of a Default the Required Lenders may, at
their option, by notice to the Borrower (which notice may be revoked at the
option of the Required Lenders notwithstanding any provision of Section 8.2
requiring unanimous consent of the Lenders to changes in interest rates),
declare that each Eurodollar Advance and Floating Rate Advance shall bear
interest (for the remainder of the applicable Interest Period in the case of
Eurodollar Advances) at a rate per annum equal to the Floating Rate plus 2%;
provided, however, that such increased rate shall automatically and without
- -------- -------
action of any kind by the Lenders become and remain applicable until revoked by
the Required Lenders in the event of a Default described in Section 7.6 or 7.7.
2.13. Method of Payment. All payments of the Obligations hereunder
-----------------
shall be made, without setoff, deduction or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrower, by noon (Chicago time) on the date when
due and shall be applied ratably (other than with respect to the Swing Lines) by
the Agent among the Lenders. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such Lender in
the same type of funds that the Agent received at its address specified pursuant
to Article XIII or at any Lending Installation specified in a notice received by
the Agent from such Lender. The Agent is hereby authorized to charge the
account of the Borrower maintained with First Chicago for each payment of
principal, interest and fees as it becomes due hereunder.
2.14. Notes; Telephonic Notices. Each Lender is hereby authorized to
-------------------------
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note; provided, however, that neither the failure to so
-------- -------
record nor any error in such recordation shall affect the Borrower's obligations
under such Note. The Borrower hereby authorizes the Lenders and the Agent to
extend, convert or continue Advances,
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<PAGE>
effect selections of Types of Advances and to transfer funds based on telephonic
notices made by any person or persons the Agent or any Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to deliver
promptly to the Agent a written confirmation, if such confirmation is requested
by the Agent or any Lender, of each telephonic notice signed by an Authorized
Officer. If the written confirmation differs in any material respect from the
action taken by the Agent and the Lenders, the records of the Agent and the
Lenders shall govern absent manifest error.
2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued
----------------------------------------------
on each Floating Rate Advance shall be payable on the last day of each month,
commencing with the first such date to occur after the date hereof, on any date
on which a Floating Rate Advance is repaid (including, with respect to the Swing
Line Loans, pursuant to Section 2.3(c) hereof), whether due to acceleration or
otherwise, and at maturity. Interest accrued on each Eurodollar Advance shall
be payable on the last day of its applicable Interest Period, on any date on
which the Eurodollar Advance is prepaid, whether by acceleration or otherwise,
and at maturity. Interest accrued on each Eurodollar Advance having an Interest
Period longer than three months shall also be payable on the last day of each
three-month interval during such Interest Period. Interest and Facility Fees
shall be calculated for actual days elapsed on the basis of a 360-day year.
Interest shall be payable for the day an Advance is made but not for the day of
any payment on the amount paid if payment is received prior to noon (Chicago
time) at the place of payment. If any payment of principal of or interest on an
Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.16. Notification of Advances, Interest Rates, Prepayments, Commitment
-----------------------------------------------------------------
Reductions and Issuance Requests. Promptly after receipt thereof, the Agent
- --------------------------------
will notify each Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice, Conversion/Continuation Notice, Issuance Notice and
repayment notice received by it hereunder. The Agent will notify each Lender of
the interest rate applicable to each Eurodollar Advance promptly upon
determination of such interest rate and will give each Lender prompt notice of
each change in the Alternate Base Rate.
2.17. Lending Installations. Each Lender may book its Loans at any
---------------------
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or telex
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a
---------------------------------
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make
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<PAGE>
payment to the Agent of (a) in the case of a Lender, the proceeds of a Loan, or
(b) in the case of the Borrower, a payment of principal, interest or fees to the
Agent for the account of the Lenders, that it does not intend to make such
payment, the Agent may assume that such payment has been made. The Agent may,
but shall not be obligated to, make the amount of such payment available to the
intended recipient in reliance upon such assumption. If the Borrower has not in
fact made such payment to the Agent, the Lenders shall, on demand by the Agent,
repay to the Agent the amount so made available together with interest thereon
in respect of each day during the period commencing on the date such amount was
so made available by the Agent until the date the Agent recovers such amount at
a rate per annum equal to the Federal Funds Effective Rate for such day. If any
Lender has not in fact made such payment to the Agent, such Lender or the
Borrower shall, on demand by the Agent, repay to the Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (a)
in the case of payment by a Lender, the Federal Funds Effective Rate for such
day, or (b) in the case of payment by the Borrower, the interest rate applicable
to the relevant Loan.
2.19. Taxes. (a) Any payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes or any other tax based
upon net income imposed on the Agent or any Lender by the jurisdiction in which
the Agent or such Lender is incorporated or has its principal place of business.
If any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to the Agent or any Lender hereunder, the amounts so
payable to the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in or pursuant to this Agreement; provided, however, that the
-------- -------
Borrower shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the U.S. or a state thereof if
such Lender fails to comply with the requirements of paragraph (b) of this
Section 2.19. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as practicable thereafter the Borrower shall send to the Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Agent and the Lenders for any incremental taxes, interest or penalties that
may become payable by any Agent or any Lender as a result of any such failure.
The agreements in this Section 2.19 shall survive
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<PAGE>
the termination of this Agreement and the payment of all other amounts payable
hereunder.
(b) At least five Business Days prior to the first date on which
interest or fees are payable hereunder for the account of any Lender, each
Lender that is not incorporated under the laws of the United States of America,
or a state thereof, agrees that it will deliver to each of the Borrower and the
Agent two duly completed copies of United States Internal Revenue Service Form
1001 or 4224, certifying in either case that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding of
any United States federal income taxes. Each Lender which so delivers a Form
1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent
two additional copies of such form (or a successor form) on or before the date
that such form expires (currently, three successive calendar years for Form 1001
and one calendar year for Form 4224) or becomes obsolete or after the occurrence
of any event requiring a change in the most recent forms so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Agent, in each case certifying that such Lender
is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an
event (including, without limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it and
such Lender advises the Borrower and the Agent that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax.
2.20. Change in Circumstances.
-----------------------
2.20.1. Yield Protection. If any law or any governmental or quasi-
----------------
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law), or any interpretation thereof, or the compliance of
any Lender therewith,
(a) subjects any Lender or any applicable Lending Installation to any tax,
duty, charge or withholding on or from payments due from the Borrower
(excluding federal taxation of the overall net income of any Lender or
applicable Lending Installation), or changes the basis of taxation of
payments to any Lender in respect of its Loans, its interest in the
Facility Letters of Credit or other amounts due it hereunder, or
(b) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
any Lender or any applicable Lending Installation (other than reserves
and assessments
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<PAGE>
taken into account in determining the interest rate applicable to
Eurodollar Advances), or
(c) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of making,
funding, issuing, participating in or maintaining loans or letters of
credit or reduces any amount receivable by any Lender or any
applicable Lending Installation in connection with loans or letters of
credit, or requires any Lender or any applicable Lending Installation
to make any payment calculated by reference to the amount of loans
held, letters of credit issued or participated in or interest received
by it, by an amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or reduction in an amount
received which such Lender determines is attributable to making, funding and
maintaining its Loans, its interest in the Facility Letters of Credit, and its
Commitment; provided, however, that the Borrower shall not be liable for any
such increased expense incurred or reduction in an amount received which the
applicable Lender, knew or reasonably should have known, arose with respect to
any period of time more than 120 days prior to the date that such Lender makes
demand therefor.
2.20.2. Changes in Capital Adequacy Regulations. If a Lender
---------------------------------------
determines that the amount of capital required to be maintained by such Lender,
any Lending Installation of such Lender or any corporation controlling such
Lender is increased as a result of a Change, then, within 15 days of demand by
such Lender, the Borrower shall pay such Lender the amount necessary to
compensate for any shortfall in the rate of return on the portion of such
increased capital which such Lender determines is attributable to this
Agreement, its Loans, its interest in the Facility Letters of Credit, or its
obligation to make Loans, participate in or issue Facility Letters of Credit
hereunder (after taking into account such Lender's policies as to capital
adequacy). "Change" means (a) any change after the Execution Date in the Risk-
Based Capital Guidelines or (b) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
Execution Date which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (a) the risk-
based capital guidelines in effect in the United States on the Execution Date,
and (b) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards" and
any amendments to such regulations adopted prior to the Execution Date.
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<PAGE>
2.20.3. Availability of Types of Advances. If any Lender determines
---------------------------------
that maintenance of any of its Eurodollar Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation or directive,
whether or not having the force of law, the Agent shall suspend the availability
of Eurodollar Advances and require any Eurodollar Advances to be repaid; or if
the Required Lenders determine that (a) deposits of a type or maturity
appropriate to match fund Eurodollar Advances are not available, the Agent shall
suspend the availability of the affected Type of Advance with respect to any
Eurodollar Advances made after the date of any such determination, or (b) an
interest rate applicable to a Type of Advance does not accurately reflect the
cost of making a Eurodollar Advance of such Type, then, if for any reason
whatsoever the provisions of Section 2.20.1 are inapplicable, the Agent shall
suspend the availability of the affected Type of Advance with respect to any
Eurodollar Advances made after the date of any such determination.
2.20.4. Funding Indemnification. If any payment of a Eurodollar
-----------------------
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Advance is not made on the date specified by the Borrower for any
reason other than default by the Lenders, the Borrower will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain the Eurodollar Advance.
2.20.5. Mitigation of Additional Costs; Replacement of Lenders. If,
-------------------------------------------------------
in respect of any Lender, circumstances arise which would or would upon the
giving of notice result in:
(a) an increase in the liability of the Borrower to such Lender under
Section 2.20.1 or 2.20.2,
(b) the unavailability of Eurodollar Advances under Section 2.20.3, or
(c) a Lender being incapable of receiving payments without deduction or
withholding of United States federal income tax;
then, without in any way limiting, reducing or otherwise qualifying the
Borrower's obligations under any of the Sections referred to above in this
Section 2.20.5, such Lender shall promptly upon becoming aware of such
circumstances notify the Agent thereof and such Lender shall, in consultation
with the Agent and the Borrower and to the extent that it can do so without
disadvantaging itself, take such reasonable steps as may be reasonably available
to it to mitigate the effects of such circumstances (including, without
limitation, the designation of an alternate Lending Installation or the transfer
of its Loans to another Lending Installation). If and so long as a Lender has
been unable to take, or has not taken, steps acceptable to the Borrower to
mitigate the effect of the circumstances in question, such Lender shall be
obliged, at the request of the Borrower,
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<PAGE>
to assign all its rights and obligations hereunder to another Person nominated
by the Borrower with the approval of the Agent (which shall not be unreasonably
withheld) and willing to participate in the facility in place of such Lender;
provided that such Person satisfies all of the requirements of this Agreement
including, but not limited to, providing the forms required by Sections 2.17 and
12.3.2 and except with the consent of the Selling Lender, such Person purchases
such rights and obligations for an amount not less than the par value of the
Obligations which are owed to such Lender. Notwithstanding any such assignment,
the obligations of the Borrower under Sections 2.20.1, 2.20.2 and 9.7 shall
survive any such assignment and be enforceable by such Lender.
2.20.6. Lender Statements; Survival of Indemnity. Each Lender shall
----------------------------------------
deliver a written statement of such Lender as to the amount due, if any, under
Sections 2.20.1, 2.20.2 or 2.20.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such amount
and shall be final, conclusive and binding on the Borrower in the absence of
manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Loan shall be calculated as though each Lender
funded its Eurodollar Loan through the purchase of a deposit of the type and
maturity corresponding to the deposit used as a reference in determining the
Eurodollar Rate applicable to such Loan, whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in the written
statement shall be payable on demand after receipt by the Borrower of the
written statement; provided, however, that no amount shall be payable by the
-------- -------
Borrower pursuant to Section 2.20.1, 2.20.2 or 2.20.4 with respect to any period
--------------------------------
commencing more than 120 days before the applicable Lender knew or reasonably
should have known that amounts are owed to it pursuant to such Sections. The
obligations of the Borrower under Sections 2.20.1, 2.20.2 and 2.20.4 shall
survive payment of the Obligations and termination of this Agreement.
2.21. Agent's Fees. The Borrower shall pay to the Agent and the
------------
Arranger those fees, in addition to the fees referenced in Section 2.5(a), in
the amounts and at the times separately agreed to between the Agent, the
Borrower and the Arranger.
ARTICLE III
THE LETTER OF CREDIT SUBFACILITY
--------------------------------
3.1. Obligation to Issue. On the terms and subject to the conditions
-------------------
of this Agreement and relying upon the representations and warranties of the
Borrower herein set forth, each Issuing Bank hereby agrees to issue for the
account of the Borrower through such of the Issuing Bank's branches as it and
the Borrower may jointly agree, one or more Facility Letters of Credit in
accordance with this Article III, from time to time during the period,
commencing on the Effective Date and ending on date five
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<PAGE>
Business Day prior to the Termination Date. Upon the occurrence of the
Collateralization Date, a letter of credit issued by any Lender and outstanding
under Section 6.14(b) or (c) shall become a Facility Letter of Credit provided
that on the Collateralization Date, such letter of credit could otherwise be
issued hereunder as a Facility Letter of Credit pursuant to Sections 3.2 and 3.3
hereof.
3.2. Types and Amounts. The issuance of a Facility Letter of Credit
-----------------
shall be subject to the following conditions:
(a) the aggregate maximum amount then available for drawing under
Letters of Credit issued by such Issuing Bank, after giving effect to the
Facility Letter of Credit requested hereunder, shall not exceed any limit
imposed by law or regulation upon such Issuing Bank;
(b) after giving effect thereto, the sum of (i) the aggregate unpaid
principal balance of the Revolving Loans plus (ii) the aggregate unpaid balance
----
of the Swing Line Loans plus (iii) the Facility Letter of Credit Obligations
----
does not exceed the Aggregate Available Commitment as then in effect;
(c) it does not have an expiration date later than five Business Days
prior to the Termination Date;
(d) it does not have an expiration date more than twelve (12) months
after the date of its issuance; provided, that it may provide for the renewal
thereof for additional twelve (12) month periods so long as no renewal shall
extend beyond the date provided in 3.2(c); or
(e) the Facility Letter of Credit Obligations, after giving effect to
any Facility Letter of Credit requested hereunder, do not exceed $40,000,000.
3.3. Conditions. In addition to being subject to the satisfaction of
----------
the conditions contained in Section 4.2, the obligation of an Issuing Bank to
issue any Facility Letter of Credit is subject to the satisfaction in full of
the following conditions:
(a) the Borrower shall have delivered to such Issuing Bank at such
times and in such manner as such Issuing Bank may reasonably prescribe such
documents and materials as may be required pursuant to the terms of the proposed
Facility Letter of Credit (it being understood that if any inconsistency exists
between such documents and the Loan Documents, the terms of the Loan Documents
shall control) and the proposed Facility Letter of Credit shall be reasonably
satisfactory to the Issuing Bank as to form and content;
(b) as of the date of issuance, no order, judgment or decree of any
court, arbitrator or governmental authority shall purport by its terms to enjoin
or restrain such
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<PAGE>
Issuing Bank from issuing the requested Facility Letter of Credit and no law,
rule or regulation applicable to that Issuing Bank and no request or directive
(whether or not having the force of law) from any Governmental Authority with
jurisdiction over that Issuing Bank shall prohibit or request that such Issuing
Bank refrain from the issuance of Letters of Credit generally or the issuance of
the requested Facility Letter or Credit in particular; and
(c) the Issuing Bank and the Borrower having agreed on the fee
referred to in Section 3.8(b).
3.4. Procedure for Issuance of Facility Letters of Credit.
----------------------------------------------------
(a) The Borrower shall give the Issuing Bank and the Agent at least
two (2) Business Days' prior written notice of any requested issuance of a
Facility Letter of Credit under this Agreement (a "Letter of Credit Request")
(except that, in lieu of such written notice, the Borrower may give the Issuing
Bank and the Agent telephonic notice of such request if confirmed in writing by
delivery to the Issuing Bank and the Agent (i) immediately (A) of a telecopy of
the written notice required hereunder which has been signed by an Authorized
Officer or (B) of a telex containing all information required to be contained in
such written notice and (ii) promptly (but in no event later than the requested
date of issuance) of the written notice required hereunder containing the
original signature of an Authorized Officer); such notice shall be irrevocable
and shall specify:
(A) the stated amount of the Facility Letter of Credit requested;
(B) the effective date (which day shall be a Business Day) of issuance of
such requested Facility Letter of Credit (the "Issuance Date");
(C) the date on which such requested Facility Letter of Credit is to expire
(which date shall be a Business Day and shall in no event be later than
the earlier of five Business Days prior to the Termination Date and a
date which is twelve (12) months after the Issuance Date);
(D) the name of the Issuing Bank chosen by the Borrower as the issuer of
the requested Facility Letter of Credit;
(E) the purpose for which such Facility Letter of Credit is to be issued;
and
(F) the Person for whose benefit the requested Facility Letter of Credit is
to be issued.
At the time such request is made, the Borrower shall also provide the Agent and
the Issuing Bank with a copy of the form of the Facility Letter of Credit it is
requesting be
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<PAGE>
issued. Such notice, to be effective, must be received by such Issuing Bank and
the Agent not later than 2:00 p.m. (Chicago time) on the last Business Day on
which notice can be given under this Section 3.4(a).
(b) Subject to the terms and conditions of this Article III and
provided that the applicable conditions set forth in Section 4.2 hereof have
been satisfied, such Issuing Bank shall, on the Issuance Date, issue a Facility
Letter of Credit on behalf of the Borrower in accordance with the Issuing Bank's
usual and customary business practices unless the Issuing Bank has actually
received (i) written notice from the Borrower specifically revoking the Letter
of Credit Request with respect to such Facility Letter of Credit, (ii) written
notice from a Lender, which complies with the provisions of Section 3.6(a) or
(iii) written or telephonic notice from the Agent stating that the issuance of
such Facility Letter of Credit would violate Section 3.2.
(c) Each Issuing Bank shall give the Agent and the Borrower written or
telex notice, or telephonic notice confirmed promptly thereafter in writing, of
the issuance of a Facility Letter of Credit (the "Issuance Notice").
(d) An Issuing Bank shall not extend or amend any Facility Letter of
Credit or allow any Facility Letter of Credit to be automatically extended
unless the requirements of this Agreement are met as though a new Facility
Letter of Credit was being requested and issued.
3.5. Reimbursement Obligations; Duties of Issuing Banks.
--------------------------------------------------
(a) (i) Each Issuing Bank shall promptly notify the Borrower and the
Agent of any draw under a Facility Letter of Credit and the Borrower shall
reimburse such Issuing Bank in accordance with Section 3.7; and (ii) any
Reimbursement Obligation with respect to any Facility Letter of Credit shall
bear interest from the date of the relevant drawings under the pertinent
Facility Letter of Credit until payment in full is received by the pertinent
Issuing Bank at (A) the Floating Rate until the next succeeding Business Day and
(B) the Default interest rate for Floating Rate Advances calculated in
accordance with Section 2.12 for each day thereafter.
(b) Any action taken or omitted to be taken by an Issuing Bank under
or in connection with any Facility Letter of Credit, if taken or omitted in the
absence of willful misconduct or gross negligence, shall not put that Issuing
Bank under any resulting liability to any Lender or, assuming that such Issuing
Bank has complied with the procedures specified in Section 3.4, all conditions
to the issuance of a Facility Letter of Credit have been satisfied and such
Lender has not given a notice contemplated by Section 3.6(a) that continues in
full force and effect, relieve that Lender of its obligations hereunder to that
Issuing Bank. In determining whether to pay under any Facility Letter of
Credit, an Issuing Bank shall have no obligation relative to the Lenders other
than to confirm that any documents required to be delivered under such Facility
Letter of Credit
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<PAGE>
appear to have been delivered in compliance, and that they appear to comply on
their face, with the requirements of such Facility Letter of Credit.
3.6. Participation.
-------------
(a) Immediately upon (i) the Effective Date for those Facility Letters
of Credit issued prior to such date and (ii) issuance by an Issuing Bank of any
Facility Letter of Credit in accordance with the procedures set forth in Section
3.4, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from that Issuing Bank, without recourse, representation
or warranty, an undivided interest and participation equal to its Percentage in
such Facility Letter of Credit (including, without limitation, all obligations
of the Borrower with respect thereto) and any security therefor or guaranty
pertaining thereto; provided, that a Letter of Credit issued by any Issuing Bank
shall not be deemed to be a Facility Letter of Credit for purposes of this
Section 3.6 if (A) such Letter of Credit has an expiration date which is later
than five Business Days prior to the Termination Date or (B) such Issuing Bank
shall have received written notice from any Lender on or before the Business Day
prior to the date of its issuance of such Letter of Credit that one or more of
the conditions to the issuance of a Facility Letter of Credit is not then
satisfied, and, in the event an Issuing Bank receives such a notice, it shall
have no further obligation to issue any Facility Letter of Credit until such
notice is withdrawn by that Lender or it receives a notice from the Agent that
such condition has been effectively waived in accordance with the provisions of
this Agreement.
(b) In the event that any Issuing Bank makes any payment under any
Facility Letter of Credit and the Borrower shall not have repaid such amount to
such Issuing Bank pursuant to Section 3.7 hereof, such Issuing Bank shall
promptly notify the Agent, which shall promptly notify each Lender, of such
failure, and each Lender shall promptly and unconditionally pay to the Agent for
the account of such Issuing Bank the amount of such Lender's Percentage of the
unreimbursed amount of such payment, and the Agent shall promptly pay such
amount to the Issuing Bank. The failure of any Lender to make available to the
Agent for the account of any Issuing Bank its Percentage of the unreimbursed
amount of any such payment shall not relieve any other Lender of its obligation
hereunder to make available to the Agent for the account of such Issuing Bank
its Percentage of the unreimbursed amount of any payment on the date such
payment is to be made, but no Lender shall be responsible for the failure of any
other Lender to make available to the Agent its Percentage of the unreimbursed
amount of any payment on the date such payment is to be made.
(c) Whenever an Issuing Bank receives a payment on account of a
Reimbursement Obligation, including any interest thereon, it shall promptly pay
to the Agent and the Agent shall promptly pay to each Lender which has funded
its participating interest therein, in immediately available funds, an amount
equal to such Lender's Percentage thereof.
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(d) Upon the request of the Agent or any Lender, an Issuing Bank shall
furnish to such Agent or Lender copies of any Facility Letter of Credit to which
that Issuing Bank is party and such other documentation as may reasonably be
requested by the Agent or Lender.
(e) The obligations of a Lender to make payments to the Agent for the
account of each Issuing Bank with respect to a Facility Letter of Credit shall
be absolute, unconditional and irrevocable, not subject to any counterclaim,
set-off, qualification or exception whatsoever and shall be made in accordance
with the terms and conditions of this Agreement under all circumstances.
3.7. Payment of Reimbursement Obligations.
------------------------------------
(a) The Borrower agrees to pay to each Issuing Bank the amount of all
Reimbursement Obligations, interest and other amounts payable to such Issuing
Bank under or in connection with any Facility Letter of Credit immediately when
due (and in any event shall reimburse an Issuing Bank for drawings under a
Facility Letter of Credit issued by it no later than the next succeeding
Business Day after the payment by that Issuing Bank), irrespective of any claim,
set-off, defense or other right which the Borrower or any Subsidiary may have at
any time against any Issuing Bank or any other Person, under all circumstances,
including without limitation any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of the
other Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which the
Borrower may have at any time against a beneficiary named in a
Facility Letter of Credit or any transferee of any Facility Letter of
Credit (or any Person for whom any such transferee may be acting), the
Agent, the Issuing Bank, any Lender, or any other Person, whether in
connection with this Agreement, any Facility Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transactions between the Borrower or any
Subsidiary and the beneficiary named in any Facility Letter of
Credit);
(iii) any draft, certificate or any other document presented under the
Facility Letter of Credit proving to be forged, fraudulent or invalid
in any respect or any statement therein being untrue or inaccurate in
any respect;
(iv) the surrender or impairment of any security for the performance or
observance of any of the terms of any of the Loan Documents; or
(v) the occurrence of any Default or Unmatured Default.
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<PAGE>
(b) In the event any payment by the Borrower or any Subsidiary
received by an Issuing Bank with respect to a Facility Letter of Credit and
distributed by the Agent to the Lenders on account of their participations is
thereafter set aside, avoided or recovered from that Issuing Bank in connection
with any receivership, liquidation, reorganization or bankruptcy proceeding,
each Lender which received such distribution shall, upon demand by that Issuing
Bank, contribute such Lender's Percentage of the amount set aside, avoided or
recovered together with interest at the rate required to be paid by that Issuing
Bank upon the amount required to be repaid by it.
3.8. Compensation for Facility Letters of Credit.
-------------------------------------------
(a) The Borrower shall pay to the Agent, for the ratable account of
the Lenders, based upon the Lenders' respective Percentages, a fee (the
"Facility Letter of Credit Fee") (i) with respect to each Standby Letter of
Credit, in an amount equal to the product of the average daily undrawn amount of
such Facility Letter of Credit times the percentage indicated as the Applicable
Margin for the Facility Letter of Credit Fee times the LC Factor, for the period
from the Issuance Date thereof to but including the final expiration date
thereof and (ii) with respect to each Commercial Letter of Credit, 50% of an
amount equal to the product of the average daily undrawn amount of such Facility
Letter of Credit times the percentage indicated as the Applicable Margin for the
Facility Letter of Credit Fee times the LC Factor, for the period from the
Issuance Date thereof to but including the final expiration date thereof. The
Facility Letter of Credit Fee shall be due and payable in arrears on each
Payment Date and, to the extent any such fees are then due and unpaid, on the
Termination Date. The Agent shall promptly remit such Facility Letter of Credit
Fees, when paid, to the other Lenders in accordance with their Percentages
thereof.
(b) Each Issuing Bank shall have the right to receive solely for its
own account such amounts as it and the Borrower may agree, in writing, to pay to
such Issuing Bank with respect to issuance fees for any Facility Letter of
Credit. In addition, each Issuing Bank shall be entitled to receive its usual
and customary costs and fees of issuing, fronting and servicing Facility Letters
of Credit.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Initial Advance. The Lenders shall not be required to make the
---------------
initial Advance and, if the initial Advance shall not have been made, an Issuing
Bank shall not be obligated to issue any Facility Letter of Credit hereunder
unless the Borrower has furnished to the Agent with sufficient copies for the
Lenders the following items (and
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the date upon which all such items shall have been so furnished is referred to
as the "Effective Date"):
(a) Copies of the certificate of incorporation of the Borrower, together with
all amendments, and certificates of good standing for the Borrower and
each of its Operating Subsidiaries and Real Estate Subsidiaries, all
certified by the appropriate governmental officer in its jurisdiction of
incorporation.
(b) Copies, certified by the Secretary or Assistant Secretary of the Borrower
and each of its Operating Subsidiaries and Real Estate Subsidiaries, of
its by-laws and of its Board of Directors' resolutions (and resolutions of
other bodies, if any are deemed necessary by counsel for any Lender)
authorizing the execution of the Loan Documents and, with respect to the
Operating Subsidiaries and Real Estate Subsidiaries, each of their
certificates of incorporation.
(c) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Borrower and each of its Operating Subsidiaries and Real
Estate Subsidiaries, which shall identify by name and title and bear the
signature of the officers of the Borrower and each of its Operating
Subsidiaries and Real Estate Subsidiaries authorized to sign the Loan
Documents and, with respect to the Borrower, to make borrowings and
request Facility Letters of Credit hereunder, upon which certificate the
Agent and the Lenders shall be entitled to rely until informed of any
change in writing by the Borrower.
(d) A completed compliance certificate, in substantially the form of Exhibit
"C" attached hereto, signed by the chief financial officer of the Borrower
and dated as of the Effective Date.
(e) A written opinion or opinions of the Borrower's counsel, addressed to the
Lenders covering in substance those items contained in Exhibit "D" hereto.
(f) Notes payable to the order of each of the Lenders.
(g) Fully executed originals of this Agreement and each other Loan Document.
(h) Written money transfer instructions, in substantially the form of Exhibit
"E" hereto, addressed to the Agent and signed by an Authorized Officer,
together with such other related money transfer authorizations as the
Agent may have reasonably requested.
(i) Payment of all fees described in Section 2.20, which are required to be
paid on or prior to the Effective Date.
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<PAGE>
(j) Evidence that concurrently with initial Advance hereunder, the Prior
Agreement is terminated and all amounts due and payable thereunder paid.
(k) (A) Such duly completed and executed UCC-1 financing statements as the
Agent shall have requested to perfect its security interest in the
Collateral; and (B) copies of searches of financing statements filed under
the Uniform Commercial Code, together with tax lien and judgment searches
with respect to the Property of (i) the Borrower in the States of
California and Massachusetts and (ii) each of the Operating Subsidiaries
in the applicable state of operations and the State of Massachusetts.
(l) A duly completed Borrowing Base Certificate.
(m) Evidence satisfactory to the Agent that the Distribution and the other
Transactions have occurred in accordance with Schedule 5 hereto.
(n) A written solvency certificate from American Appraisal Associates, Inc. in
form and content satisfactory to the Agent, dated July 10, 1997, with
respect to the value, Solvency and other factual information of, or
relating to, as the case may be, the Borrower on a consolidated basis,
after giving effect to the Distribution and the other Transactions.
(o) The Agent and the Lenders shall have received (i) pro forma opening
balance sheet dated as of July 26, 1997 giving effect to the Distribution
and the other Transactions, which must not be materially less favorable,
in the Agent's and Required Lenders' reasonable judgment, than the
projections previously provided to them and which must demonstrate, in
their reasonable judgment, together with all other information then
available to the Agent and the Required Lenders, that the Borrower and its
Subsidiaries can repay their debts and satisfy their respective other
obligations as and when due, and can comply with the financial covenants
set forth herein and (ii) such information as the Agent and the Required
Lenders may reasonably request to confirm the tax, legal and business
assumptions made in such pro forma financial statements.
(p) A certificate, dated the Effective Date, signed by an Authorized Officer
of the Borrower, in form and substance satisfactory to the Agent, to the
effect that: (i) on such date (both before and after giving effect to the
consummation of the Transactions contemplated hereby and the making of the
Loans hereunder) no Default or Unmatured Default has occurred and is
continuing; (ii) no injunction or temporary restraining order which would
prohibit the making of the Loans, or other litigation which could
reasonably be expected to have a Material Adverse Effect, is pending or,
to the best of such Person's knowledge, threatened; (iii) the Transaction
Documents are in full force and effect and no material term or condition
thereof has been amended, modified or waived after the execution thereof
except with the written consent of the Agent; and (v) the Transactions
have been consummated in accordance with the Transaction Documents and
Schedule 5.
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<PAGE>
(q) Such other documents as any Lender or its counsel may have reasonably
requested.
4.2. Each Advance or Issuance of a Facility Letter of Credit. The
-------------------------------------------------------
Lenders shall not be required to make any Advance (other than an Advance that,
after giving effect thereto and to the application of the proceeds thereof, does
not increase the aggregate amount of outstanding Advances) and an Issuing Bank
shall not be obligated to issue any Facility Letter of Credit, unless on the
applicable Borrowing Date or Issuance Date:
(a) There exists no Default or Unmatured Default.
(b) The representations and warranties contained in Article V are true and
correct as of such Borrowing Date or Issuance Date except to the extent
any such representation or warranty is stated to relate solely to an
earlier date, in which case such representation or warranty shall be
true and correct on and as of such earlier date (other than the
representation and warranty made under Section 5.4, which shall be
deemed to refer to the most recent annual audited financial statements
furnished to the Lenders pursuant to Section 6.1(a) hereof).
(c) All legal matters incident to the making of such Advance or issuance of
such Facility Letter of Credit shall be satisfactory to the Lenders and
their counsel.
Each Borrowing Notice with respect to each such Advance and each Letter of
Credit Request with respect to each Facility Letter of Credit shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 4.2(a) and (b) have been satisfied. Any Lender or Issuing Bank may
require a duly completed compliance certificate in substantially the form of
Exhibit "C" hereto as a condition to making an Advance or issuing a Facility
Letter of Credit.
This Agreement shall terminate on July 30, 1997 if the conditions set forth
in Sections 4.1 and 4.2 are not met on or prior to such date.
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<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence and Standing. The Borrower and each
--------------------------------
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted, except where the failure to have such requisite authority
would not have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower and each Operating
--------------------------
Subsidiary and Real Estate Subsidiary has the corporate power and authority and
legal right (a) to execute and deliver the Loan Documents and to perform its
obligations thereunder and (b) to assign, pledge and grant a pledge of and
security interest in the Collateral which it owns in the manner and for the
purpose contemplated in any of the Loan Documents to which it is a party. The
execution, delivery and performance by the Borrower and each Operating
Subsidiary and Real Estate Subsidiary of the Loan Documents has been, and by the
Borrower of the Transaction Documents will be, on the Effective Date, duly
authorized by proper corporate proceedings, and the Loan Documents constitute,
and Transaction Documents will, on the Effective Date, constitute, legal, valid
and binding obligations of the Borrower and each Operating Subsidiary and Real
Estate Subsidiary, as applicable, enforceable against the Borrower and each
Operating Subsidiary and Real Estate Subsidiary, as applicable, in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
5.3. No Conflict; Government Consent. Neither the execution and
-------------------------------
delivery by the Borrower and each Operating Subsidiary and Real Estate
Subsidiary of the Loan Documents and the Transaction Documents, as applicable,
nor the consummation of the transactions therein contemplated, nor compliance
with the provisions thereof violated or will violate any law, rule, regulation
(including Regulations G,T,U and X), order, writ, judgment, injunction, decree
or award binding on the Borrower or any of the Operating Subsidiaries or Real
Estate Subsidiaries or the Borrower's or any Operating Subsidiary's or Real
Estate Subsidiary's articles of incorporation or by-laws or the provisions of
any indenture, instrument or agreement to which the Borrower or any of its
Operating Subsidiaries or Real Estate Subsidiaries is a party or is subject, or
by which it, or its Property, is bound, or conflict with or constitute a default
thereunder, or result in the creation or imposition of any Lien in, of or on the
Property of the Borrower or such Operating Subsidiary or Real Estate Subsidiary
pursuant to the terms of any such indenture, instrument or agreement. No order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any governmental or public body
or authority, or any subdivision thereof, is required to
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<PAGE>
authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability of,
any of the Loan Documents or Transaction Documents which have not previously
obtained or obtained by the Effective Date.
5.4. Financial Statements. The Borrower has heretofore furnished to
--------------------
each of the Lenders (a) the January 25, 1997 audited consolidated financial
statements of the Borrower and its Subsidiaries, (b) the unaudited consolidated
financial statements of the Borrower and its Subsidiaries through April 26,
1997, and (c) the pro forma consolidated financial statements of HomeBase Inc.
and its Subsidiaries as of January 25, 1997 (collectively, the "Financial
---------
Statements"). The Financial Statements were prepared in accordance with
- ----------
generally accepted accounting principles in effect on the date such statements
were prepared and fairly present the consolidated financial condition and
operations of Waban Inc. and its Subsidiaries or HomeBase Inc., and its
Subsidiaries as applicable, at such date and the consolidated results of their
operations for the period then ended. The estimated pro forma balance sheet of
the Borrower and its Subsidiaries on a consolidated basis as of July 26, 1997 is
attached hereto as Schedule 6. Schedule 6 will be updated by August 31, 1997 by
the actual pro forma balance sheet (the "Pro Forma") of the Borrower and its
Subsidiaries on a consolidated basis as of July 26, 1997. As of the Execution
Date, the estimated pro forma is, and the Pro Forma upon delivery will be,
complete and accurate and fairly represent the Borrower's and the Subsidiaries'
assets, liabilities, financial condition and results of operations on a
consolidated basis in accordance with Agreement Accounting Principles,
consistently applied, and taking into account the Distribution and the other
Transactions and actions contemplated by the Loan Documents and Transaction
Documents. The Pro Forma will not differ from the estimated pro forma in such a
manner as to constitute a Material Adverse Effect.
5.5. Material Adverse Change. Other than the Distribution, since
-----------------------
January 25, 1997, there has been no change in the business, Property, prospects,
condition (financial or otherwise) or results of operations of the Borrower and
its Subsidiaries which could reasonably be expected to have a Material Adverse
Effect. No Default or Unmatured Default exists.
5.6. Taxes. The Borrower and its Subsidiaries have filed all United
-----
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided. The United States income tax returns of the
Borrower and its Subsidiaries have been audited by the Internal Revenue Service
through the fiscal year ended January 1992, for which no tax liens have been
filed and no claims are being asserted. The charges, accruals and reserves on
the books of the Borrower and its Subsidiaries in respect of any taxes or other
governmental charges are adequate.
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<PAGE>
5.7. Litigation and Contingent Obligations. Except as disclosed to
-------------------------------------
the Lenders in a letter dated Execution Date, there is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect. The Borrower has no material contingent obligations
not provided for or disclosed in the Financial Statements.
5.8. Subsidiaries. As of the Effective Date, Schedule "2" hereto
------------
contains an accurate list of all of the Subsidiaries of the Borrower after
giving effect to the Distribution, setting forth their respective jurisdictions
of incorporation and the percentage of their respective capital stock owned by
the Borrower or other Subsidiaries. All of the issued and outstanding shares of
capital stock of such Subsidiaries have been duly authorized and issued and are
fully paid and non-assessable.
5.9. ERISA. There are no Unfunded Liabilities for any Single Employer
-----
Plans in excess of $250,000. Neither the Borrower nor any other member of the
Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans. Each Plan complies in all material
respects with all applicable requirements of law and regulations, no Reportable
Event has occurred with respect to any Plan, neither the Borrower nor any other
members of the Controlled Group has withdrawn from any Plan or initiated steps
to do so, and no steps have been taken to reorganize or terminate any Plan for
which the Borrower or other member of the Controlled Group has any Unfunded
Liability.
5.10. Accuracy of Information. No information, exhibit or report
-----------------------
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Loan
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
5.11. Federal Reserve Regulations. Neither the Borrower nor any
---------------------------
Subsidiary is engaged, directly or indirectly, principally, or as one of its
important activities, in the business of extending, or arranging for the
extension of, credit for the purpose of purchasing or carrying Margin Stock. No
part of the proceeds of any Loan will be used in a manner which would violate,
or result in a violation of, Regulation T, Regulation U or Regulation X.
Neither the making of any Advance hereunder nor the use of the proceeds thereof
will violate or be inconsistent with the provisions of Regulation G, Regulation
T, Regulation U or Regulation X. Margin Stock (as defined in Regulation U)
constitutes less than 25% of those assets of the Borrower and its Subsidiaries
which are subject to any limitation on sale, pledge, or other restriction
hereunder.
5.12. Material Agreements. Other than as contemplated in the
-------------------
Transaction Documents, neither the Borrower nor any Subsidiary is a party to any
agreement or instrument or subject to any charter or other corporate restriction
which could
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reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any Subsidiary is in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in (i) any
agreement to which it is a party, which default could reasonably be expected to
have a Material Adverse Effect or (ii) any agreement or instrument evidencing or
governing Indebtedness.
5.13. Compliance With Laws. The Borrower and its Subsidiaries have
--------------------
complied in all material respects with all applicable material statutes, rules,
regulations, orders and restrictions of any Governmental Authority, having
jurisdiction over the conduct of their respective businesses or the ownership of
their respective Property. Neither the Borrower nor any Subsidiary has received
any notice to the effect that its operations are not in material compliance with
any of the requirements of applicable federal, state and local environmental,
health and safety statutes and regulations or the subject of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release of any toxic or hazardous waste or substance into the environment,
which non-compliance or remedial action could reasonably be expected to have a
Material Adverse Effect.
5.14. Ownership of Properties. On the Effective Date and thereafter,
-----------------------
the Borrower and its Subsidiaries will have good title or a valid leasehold
interest in, free of all Liens other than those permitted by Section 6.16, to
all of the Property and assets reflected in the financial statements as owned by
it.
5.15. Investment Company Act. Neither the Borrower nor any Subsidiary
----------------------
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
5.16. Public Utility Holding Company Act. Neither the Borrower nor any
----------------------------------
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.17. Security. The provisions of the Security Documents upon the
--------
Collateralization Date are effective to create and give the Agent, for the
benefit of the Lenders, as security for the repayment of the obligations secured
thereby, a legal, valid, perfected and enforceable Lien (which priority is
subject only to prior Liens permitted by such agreements) as of the
Collateralization Date upon all right, title and interest of the Borrower and
its Subsidiaries in any and all of the Collateral described therein. The Pledge
Agreement upon the Collateralization Date is effective to create and give the
Agent, for the benefit of the Lenders, as security for the repayment of the
obligations secured thereby, a legal, valid, perfected and enforceable first
priority Lien as of the Collateralization Date upon and security interest in the
capital stock pledged thereby.
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5.18. Insurance. The property and casualty insurance program carried
---------
by the Borrower is adequate for its business needs.
5.19. Solvency. As of the Effective Date, after giving effect to the
--------
consummation of the transactions contemplated by the Loan Documents and the
Transaction Documents and the payment of all fees, costs and expenses payable by
the Borrower with respect to the transactions contemplated by the Loan Documents
and the Transaction Documents, each of the Borrower or its Subsidiaries and each
Subsidiary is Solvent.
5.20. Transaction Documents. The Borrower has delivered to each of the
---------------------
Lenders true, complete and correct copies of the Transaction Documents as in
existence on the Execution Date (including all schedules, exhibits, annexes,
amendments, supplements, modifications, and all other documents delivered
pursuant thereto or in connection therewith). Such Transaction Documents shall
not be amended, waived, supplemented or modified in a manner which would result
in Material Adverse Effect. Neither the Borrower nor any other party thereto is
in default in the performance of or compliance with any provisions thereof the
result of which would have a Material Adverse Effect.
ARTICLE VI
COVENANTS
---------
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and
-------------------
each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lenders:
(a) Within 90 days after the close of each of its fiscal years, an
unqualified audit report certified by Coopers & Lybrand, L.L.P. or
such other independent certified public accountants, acceptable to the
Lenders, prepared in accordance with Agreement Accounting Principles
on a consolidated basis for itself and the Subsidiaries, including
balance sheets as of the end of such period, related profit and loss
and reconciliation of surplus statements, and a statement of cash
flows, accompanied by any management letter prepared by said
accountants.
(b) Within 50 days after the close of (i) the first three quarterly
periods of each of its fiscal years, for itself and the Subsidiaries,
a consolidated unaudited balance sheet as at the close of each such
period and consolidated profit and loss and reconciliation of surplus
statements and a statement of cash
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flows for the period from the beginning of such fiscal year to the end
of such quarter, all certified by its chief financial officer and (ii)
the fourth fiscal quarter of each of its fiscal years, for itself and
its Subsidiaries, a consolidated unaudited balance sheet as of the
close of each such period and consolidated profit and loss statement
for such fiscal year, all certified by its chief financial officer.
(c) Together with the financial statements required under each of clause
(a) and (b) hereof, a compliance certificate in substantially the form
of Exhibit "C" hereto signed by its chief financial officer showing the
calculations necessary to determine compliance with this Agreement and
stating that no Default or Unmatured Default exists, or if any Default
or Unmatured Default exists, stating the nature and status thereof.
(d) Within 17 days after the end of each month, a fully completed Borrowing
Base Certificate.
(e) Within 270 days after the close of each fiscal year, a statement of the
Unfunded Liabilities of each Single Employer Plan, if any, certified as
correct by an actuary enrolled under ERISA.
(f) As soon as possible and in any event within 10 days after the Borrower
knows that any Reportable Event has occurred with respect to any Plan,
a statement, signed by the chief financial officer of the Borrower,
describing said Reportable Event and the action which the Borrower
proposes to take with respect thereto.
(g) As soon as possible and in any event within 10 days after receipt by
the Borrower, a copy of (i) any notice or claim to the effect that the
Borrower or any of its Subsidiaries is or may be liable to any Person
as a result of the release by the Borrower, any of its Subsidiaries, or
any other Person of any toxic or hazardous waste or substance into the
environment, and (ii) any notice alleging any violation of any federal,
state or local environmental, health or safety law or regulation by the
Borrower or any of its Subsidiaries, which, in the case of clause (i)
or (ii), could reasonably be expected to have a Material Adverse
Effect.
(h) As soon as possible and in any event within 10 days after the Borrower
learns thereof, notice of the assertion or commencement of any claims,
action, suit or proceeding against or affecting the Company or any
Subsidiary which may reasonably be expected to have a Material Adverse
Effect.
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(i) As soon as available, but in any event on or before the last day of the
first fiscal quarter of each fiscal year of the Borrower, a copy of the
plan and forecast (including a one year projected consolidated balance
sheet, income statement and funds flow statement) of the Borrower and
its Subsidiaries for such fiscal year.
(j) For any fiscal quarter during which the Borrower has created a new
Subsidiary or terminated the existence of any existing Subsidiary as
may be permitted hereunder, together with the financial statements
required hereunder covering such period, a certificate signed by an
Authorized Officer attaching a revised Schedule "2" which modifies the
list of Subsidiaries contained therein to show any such additions and
deletions (which revised Schedule shall replace the old Schedule and
shall be deemed to have become part of the Agreement), the delivery of
which shall be deemed to be a representation and warranty of the
Borrower as to the accuracy of such revised Schedule.
(k) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(l) Promptly upon the filing thereof, copies (excluding exhibits) of all
registration statements and annual, quarterly, monthly or other regular
reports which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission.
(m) Together with each delivery of financial statements required by
subsection 6.1(a) above, the Borrower shall deliver to the Lenders a
certificate of the accountants who performed the audit in connection
with such statements (i) stating that in making the audit necessary to
the issuance of a report on such financial statements, they have
obtained no knowledge of any Default or Unmatured Default, or, if such
accountants have obtained knowledge of a Default or Unmatured Default,
specifying the nature and period of extension thereof, (ii) setting
forth the calculation of the covenants set forth in Sections 6.20 and
6.21 hereof and (iii) certifying whether the Collateralization Date
has or has not occurred. Such accountants shall not be liable by
reason of any failure to obtain knowledge of any Default or Unmatured
Default which would not be disclosed in the ordinary course of an
audit.
(n) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
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<PAGE>
6.2. Use of Proceeds. The Borrower will use the Facility Letters of
---------------
Credit and the proceeds of the Advances for working capital and general
corporate purposes and to repay outstanding Advances and Reimbursement
Obligations. The Borrower will not, nor will it permit any Subsidiary to, use
any of the Facility Letters of Credit or the proceeds of the Advances to
purchase or carry any "margin stock" (as defined in Regulation U).
6.3. Notice of Default. The Borrower will, and will cause each
-----------------
Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of
any Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
-------------------
Active Subsidiary to, carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise as it is
presently conducted and to do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted, except
where the failure to conduct business, remain incorporated or have such
requisite authority would not have a Material Adverse Effect.
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, pay
-----
when due all taxes, assessments and governmental charges and levies upon it or
its income, profits or Property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
---------
maintain with financially sound and reputable insurance companies (and/or
through a self insurance program) insurance on all their Property in such
amounts (and/or with such reserves) and covering such risks as is consistent
with sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
--------------------
Subsidiary to, comply in all material respects with all material laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject.
6.8. Maintenance of Properties. The Borrower will, and will cause
-------------------------
each Subsidiary to, do all things necessary to maintain, preserve, protect and
keep its Property which is used or useful in the business of the Borrower or any
of its Subsidiaries in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times.
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<PAGE>
6.9. Inspection. The Borrower will, and will cause each Subsidiary
----------
to, permit the Lenders, by their respective representatives and agents, to
inspect any of the Property, corporate books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective officers at such
reasonable times and intervals as the Lenders may designate.
6.10. Dividends. The Borrower will not, nor will it permit any
---------
Subsidiary to, declare or pay any dividends on its capital stock (other than
dividends payable in its own capital stock) or redeem, repurchase or otherwise
acquire or retire any of its capital stock at any time outstanding, except that
(a) any Subsidiary may declare and pay dividends to the Borrower or to a Wholly-
Owned Subsidiary and (b) the Borrower may (i) purchase or otherwise acquire
shares of its capital stock with the proceeds received from the issue of new
shares of its capital stock, and (ii) repurchase for cash shares of common
stock issued under the Borrower's 1989 Stock Incentive Plan, the 1995 Director
Stock Option Plan or the 1997 Stock Incentive Plan, as from time to time in
effect, provided that the aggregate amount of repurchases permitted by this
clause shall not exceed $2,000,000 in the aggregate during the term of this
Agreement.
6.11. Indebtedness. The Borrower will not, nor will it permit any
------------
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) The Loans and the Reimbursement Obligations.
(b) Indebtedness existing on the Effective Date and described in Schedule
"3" hereto.
(c) Contingent Obligations (i) by endorsement of instruments for deposit or
collection in the ordinary course of business, (ii) to purchase real
property from another Person or guaranties incurred in the ordinary
course of business in connection with the purchase or lease of stores
or distribution centers, provided that (A) not less than eighty percent
(80%) of the total square footage of each such store or distribution
center so purchased or leased shall be utilized by the Borrower and its
Subsidiaries and (B) the aggregate amount of such Contingent
Obligations pursuant to this clause (ii) at any time outstanding shall
not exceed $25,000,000 and (iii) consisting of guaranties incurred by
the Borrower to support operating leases and/or Indebtedness incurred
by any Subsidiary permitted by Section 6.11 (f) or (g).
(d) Bankers' acceptances utilized in the ordinary course of business to
purchase inventory.
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<PAGE>
(e) Indebtedness of one or more special purpose Wholly-Owned Subsidiaries
in connection with a transfer by the Borrower or a Wholly-Owned
Subsidiary of interests in accounts or notes receivable on a limited
recourse basis, provided that (i) such transfer qualifies as a sale
under generally accepted accounting principles and (ii) any such
Indebtedness, at any time outstanding, does not exceed $10,000,000 in
the aggregate.
(f) Capitalized Lease Obligations due from the Borrower or any Real Estate
Subsidiary not to exceed, at any time outstanding, $30,000,000 in the
aggregate.
(g) Indebtedness, at any time outstanding, of the Borrower or any Real
Estate Subsidiary incurred in the ordinary course of business in
connection with the financing of real property not to exceed
$50,000,000 in the aggregate; provided if any Indebtedness is incurred
pursuant to this clause (g) then the Borrower shall, or shall cause
such Real Estate Subsidiary to, use such proceeds as set forth in
Sections 2.5 and 2.8 hereof.
(h) Indebtedness of the Operating Subsidiaries to the Borrower in an
aggregate amount not to exceed ten percent (10%) of the Borrower's
consolidated assets.
(i) So long as the aggregate unpaid principal balance of the Advances is
less than $5,000,000, Indebtedness of the Investment Subsidiary owed to
the Borrower.
(j) Indebtedness of the Borrower owed to any Subsidiary (other than a
Trademark Subsidiary).
(k) Indebtedness owed to the Trademark Subsidiaries; provided, that the
aggregate amount of such Indebtedness does not exceed the cumulative
royalties earned by the Trademark Subsidiaries.
(l) Additional Indebtedness, at any time outstanding, not to exceed
$50,000,000 in the aggregate less the aggregate amount of Indebtedness
----
outstanding pursuant to Section 6.11(g) hereof; provided that no more
than $10,000,000 of such Indebtedness may be incurred by or exist at
the Borrower's Subsidiaries; and provided further that if any
Indebtedness is incurred pursuant to this clause (l), then the Borrower
shall, or shall cause such Subsidiary to, use such proceeds as set
forth in Sections 2.5 and 2.8.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary
------
to, merge or consolidate with or into any other Person, except that:
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<PAGE>
(a) a Subsidiary may merge with and into the Borrower or a Wholly-Owned
Subsidiary;
(b) the Borrower may merge or consolidate with any Person which is in a
business related to the Borrower's business; and
(c) any Subsidiary of the Borrower may merge or consolidate with or into
another Person in a transaction constituting (i) a disposition of
assets by the Borrower so long as such disposition is permitted by
Section 6.13 hereof or (ii) an Acquisition so long as such Acquisition
is permitted by Section 6.15,
provided that in each such case, (1) immediately after giving effect thereto, no
event shall occur and be continuing that constitutes a Default or Unmatured
Default and, (2) in the case of any such merger or consolidation to which the
Borrower is a party, the Borrower is the surviving corporation.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
--------------
Subsidiary to, lease, sell or otherwise dispose of its Property, to any other
Person except:
(a) for sales of Inventory in the ordinary course of business and obsolete,
worn out or no longer useful equipment in the ordinary course of
business;
(b) that any Subsidiary may sell, lease or otherwise dispose of assets to
any other Subsidiary or to the Borrower and the Borrower may transfer
or sell operating assets to an Operating Subsidiary in the ordinary
course of business consistent with past practices;
(c) for any transfer of an interest in accounts or notes receivable on a
limited recourse basis, provided that such transfer qualifies as a sale
under generally accepted accounting principles and such transfer occurs
prior to the Collateralization Date;
(d) for leases, sales or other dispositions of its Property that, together
with all other Property of the Borrower and its Subsidiaries previously
leased, sold or disposed of (other than dispositions permitted under
clauses (a), (b) and (c) above) as permitted by this Section during the
twelve-month period ending with the month in which any such lease, sale
or other disposition occurs, (i) do not constitute a Substantial
Portion of the Property of the Borrower and its Subsidiaries and (ii)
subsequent to the Collateralization Date, does not include Inventory
having a book value in excess of $5,000,000 in the aggregate or any
Accounts;
-54-
<PAGE>
provided that in each such case, immediately after giving effect thereto, no
event shall have occurred and be continuing that constitutes a Default or an
Unmatured Default.
6.14. Letters of Credit. The Borrower will not, nor will it permit any
-----------------
Subsidiary to, apply for or become liable upon any Letter of Credit, except for:
(a) Facility Letters of Credit; (b) other standby Letters of Credit, provided
that the aggregate amount of issued but undrawn standby Letters of Credit (which
are not Facility Letters of Credit) and all unreimbursed drawings thereunder
shall not at any time exceed $10,000,000; and (c) commercial Letters of Credit
utilized in the ordinary course of business to purchase inventory, provided that
the aggregate amount of issued but undrawn commercial Letters of Credit shall
not at any time exceed ten percent (10%) of the value of the Borrower's
consolidated merchandise inventory.
6.15. Investments and Acquisitions. The Borrower will not, nor will it
----------------------------
permit any Subsidiary to,
(a) make or suffer to exist any Investments (including without limitation,
loans and advances to, and other Investments in, Subsidiaries), or commitments
therefor, or to create any Subsidiary or to become or remain a partner in any
partnership or joint venture, or to become or remain a member of a limited
liability company except:
(i) Investments in Subsidiaries made prior to the Effective Date and
described in Schedule "2" hereto;
(ii) Permitted Investments;
(iii) Investments consisting of stock or other securities acquired in
connection with the satisfaction or enforcement of Indebtedness or
other claims due or owing to the Borrower or any Subsidiary or as
security for any such Indebtedness or claim;
(iv) Loans made by the Borrower in connection with the development of new
retail establishments or distribution centers for the Borrower;
provided that the aggregate outstanding amount of all such loans, as
and when any such loan is made, shall not exceed five percent (5%) of
the Borrower's consolidated assets as of the last day of the most
recently ended fiscal quarter of the Borrower;
(v) Investments made by the Borrower in the Operating Subsidiaries;
provided that the aggregate amount of all such Investments, as and when
any such Investment is made, shall not exceed ten percent (10%) of the
Borrower's consolidated assets as of the last day of the most recently
ended fiscal quarter of the Borrower;
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<PAGE>
(vi) So long as the aggregate unpaid principal balance of the Advances is
less than $5,000,000, Investments made by the Borrower in the
Investment Subsidiary for the purpose of making Permitted Investments;
(vii) Investments made by any Subsidiary (other than a Trademark
Subsidiary) in the Borrower;
(viii) Investments made by the Trademark Subsidiaries in the Borrower
and/or its Subsidiaries; provided, that the aggregate amount of such
loans does not exceed the cumulative royalties earned by the
Trademark Subsidiaries;
(ix) Investments made by the Borrower or any Trademark Subsidiary in any
Real Estate Subsidiary, so long as, for any such Real Estate
Subsidiary, the sum of such Investments plus any other Indebtedness of
such Real Estate Subsidiary does not exceed 105% of the acquisition
and development cost of the real estate owned by such Real Estate
Subsidiary;
(x) Investments made by means of a merger or consolidation permitted by
Section 6.12 hereof;
(xi) For the Borrower only: any Investment consisting of (A) the
acquisition of stock or other equity interests which constitutes an
Acquisition permitted pursuant to the terms of Section 6.15(b); (B)
the creation of any new Subsidiary to act as the purchaser in an
Acquisition permitted pursuant to the terms of Section 6.15(b); and
(C) an Investment in a Subsidiary for the purpose of facilitating an
Acquisition permitted pursuant to the terms of Section 6.15(b),
provided, however, that the aggregate amount of such Investments made
since the Effective Date is less than ten percent (10%) of Net Worth;
(xii) The creation of any new Wholly-Owned Subsidiary;
(xiii) Investments in one or more special purpose entities made in
connection with a transfer by the Borrower or a Wholly-Owned
Subsidiary of interests in accounts or notes receivable on a limited
recourse basis, provided that (A) such transfer qualifies as a sale
under generally accepted accounting principles and (B) any such
Investments, at any time outstanding, do not exceed $10,000,000 in
the aggregate; and
(xiv) Additional Investments, at any time outstanding, not to exceed
$5,000,000 in the aggregate.
(b) make any Acquisition of any Person, except for an Acquisition: (i) for
which the board of directors of the Person being acquired has approved the terms
of the
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<PAGE>
Acquisition, (ii) the purchase price of which (including the aggregate
amount of (i) assumed liabilities for borrowed money, (ii) deferred compensation
and (iii) non-compete and earn-out payments), when added to the purchase price
of all other Acquisitions made during the same fiscal year, is less than five
percent (5%) of the Borrower's consolidated assets as of the beginning of such
fiscal year, (iii) the giving effect to which will not cause a Default or an
Unmatured Default and (iv) for which the Borrower has previously provided the
Lenders with (A) financial information with respect to the entity to be acquired
(including historical financial statements, pro-forma statements after giving
effect to the Acquisition and projections) and (B) to the extent available, a
detailed description of the entity to be acquired, its products, markets served
and customer concentrations.
6.16. Liens. The Borrower will not, nor will it permit any Subsidiary
-----
to, create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(a) Liens for taxes, assessments or governmental charges or levies on its
Property if the same shall not at the time be delinquent or thereafter
can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves in
accordance with generally accepted principles of accounting shall have
been set aside on its books.
(b) Liens imposed by law, such as carriers', warehousemen's and mechanics'
liens and other similar liens arising in the ordinary course of
business.
(c) Liens arising out of pledges or deposits under worker's compensation
laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(d) Utility easements, building restrictions and such other encumbrances or
charges against real property as are of a nature generally existing
with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with
the use thereof in the business of the Borrower or the Subsidiaries.
(e) Liens existing on the Effective Date and described in Schedule "3"
hereto and Liens in favor of the Agent for the benefit of the Lenders
granted pursuant to any Security Documents.
(f) Liens incurred in connection with purchase money financing of Property
in the ordinary course of business, provided that such Liens shall
attach solely to the Property acquired and any improvement thereon and
shall not attach to any other Property.
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<PAGE>
(g) Liens existing on Property acquired by the Borrower or any of its
Subsidiaries at the time of its Acquisition, so long as such Lien was
not created in contemplation of such Acquisition.
(h) The following Liens arising in the course of merchandising operations:
(i) trust receipt or floor plan or other title retention or security
agreements or arrangements entered into in connection with the purchase
of inventory, the aggregate principal amount of the Indebtedness
secured by which does not exceed two percent (2%) of the value of the
inventory of the Borrower and its Subsidiaries, (ii) sales on layaway
plans whereby the customer acquires the merchandise only upon full
payment therefor.
(i) Liens resulting from commitments of the Borrower and its Subsidiaries
under Capitalized Leases.
(j) Liens incurred in connection with any transfer of an interest in
accounts or notes receivable, that at the time of such transfer,
qualified as a sale under generally accepted accounting principles.
(k) Liens under leases of personalty or real estate to which the Borrower
and any of its Subsidiaries is a party, provided that such Liens (i) do
not attach to inventory held for sale in leased stores or warehouses
except only after bankruptcy, insolvency or similar events to the
extent of any landlord's lien, (ii) are not incurred in connection with
the borrowing of money or the obtaining of advances or credit by the
Borrower or any of its Subsidiaries, and (iii) do not in the aggregate
materially detract from the value of the Property of the Borrower and
its Subsidiaries or materially impair the use thereof in the operation
of their respective businesses.
(l) Liens incidental to the conduct of the business of the Borrower or any
of its Subsidiaries which do not cover accounts receivable, cover only
de minimis amounts of inventory sold to the Borrower and its
-- -------
Subsidiaries by certain suppliers to secure the amounts owing such
suppliers for the same, are not incurred in connection with the
borrowing of money or the obtaining of advances or credits or in
connection with the acquisition of real property or machinery or
equipment except incidental to the acquisition of business properties
as a whole or as a going concern, and which do not in the aggregate
materially detract from the value of the Property of the Borrower or
any of its Subsidiaries or materially impair the use thereof in the
operation of their respective businesses.
(m) Liens granted by any Subsidiary to the Borrower or a Wholly-Owned
Subsidiary to secure loans from the Borrower or such Wholly-Owned
Subsidiary, which loans were permitted by Section 6.15(a).
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<PAGE>
(n) Liens on real property, which real property has a fair market value of
$100,000,000 or less, which secure Indebtedness permitted by Section
6.11(g).
(o) In addition to Liens otherwise permitted by this Section 6.16, Liens on
assets of the Borrower and its Subsidiaries securing obligations not
exceeding $5,000,000 in the aggregate at any time outstanding.
The Borrower will not, and will not permit any Subsidiary to, enter into
any agreement prohibiting or restricting the Borrower or any Subsidiary from
granting a Lien on any of its Property to the Agent for the benefit of the
Lenders.
6.17. Affiliates. The Borrower will not, and will not permit any
----------
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate (other than the Borrower or a Wholly-Owned Subsidiary
with respect to transactions other than the sale, transfer or other disposition
of assets) or BJ's Wholesale Club, Inc. and/or its Affiliates except (i) in the
ordinary course of business and pursuant to the reasonable requirements of the
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Borrower or such Subsidiary than the Borrower or such
Subsidiary would obtain in a comparable arms-length transaction or (ii) as set
forth in the Transaction Documents.
6.18. Amendments. The Borrower will not, and will not permit any
----------
Subsidiary to, make any material amendment, waiver, termination or modification
to any of the Transaction Documents.
6.19. Rate Hedging Obligations. The Borrower will not, and will not
------------------------
permit any Subsidiary to, enter into or remain liable upon any Rate Hedging
Obligations, except for Rate Hedging Obligations in a notional amount not to
exceed $25,000,000.
6.20. Financial Covenants. On and subsequent to the Effective Date,
-------------------
the Borrower shall maintain, for itself and its Subsidiaries on a consolidated
basis, each of the following financial covenants, each calculated in accordance
with (i) Pro Forma Accounting Principles from the Effective Date until the end
of the fiscal quarter ending April 25, 1998 and (ii) Agreement Accounting
Principles thereafter.
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<PAGE>
6.20.1. Funded Debt to Capital Ratio. The Borrower shall maintain,
----------------------------
on a consolidated basis, as of the end of each fiscal quarter during the
indicated fiscal year a ratio of Funded Debt to Capital not exceeding:
<TABLE>
<CAPTION>
Fiscal Year Ending Ratio
------------------ -----
<S> <C>
01/31/1998 66%
01/30/1999 65%
01/29/2000 63%
01/27/2001 62%
</TABLE>
6.20.2. Fixed Charge Coverage Ratio. The Borrower shall maintain,
---------------------------
on a consolidated basis, as of the end of each fiscal quarter a Fixed Charge
Coverage Ratio greater than 1.25 to 1.0.
6.20.3. Tangible Net Worth. The Borrower shall maintain, on a
------------------
consolidated basis, at all times a Tangible Net Worth that is greater than or
equal to the sum of (a) $340,000,000 plus (b) 50% of the Borrower's quarterly
----
Net Income, if positive, for each fiscal quarter ending after the Effective Date
plus (c) 50% of the aggregate net proceeds of any equity offering received by
- ----
the Borrower after the Effective Date.
6.21. Capital Expenditures. The Borrower will not, nor will it permit
--------------------
any Subsidiary to, expend, or be committed to expend for Capital Expenditures
(including, without limitation, for the acquisition of fixed assets) during any
fiscal year of the Borrower on a non-cumulative basis in the aggregate for the
Borrower and its Subsidiaries more than $45,000,000:
6.22. Subsidiary Guaranties; Security Documents. The Borrower shall
-----------------------------------------
cause each Real Estate Subsidiary and Operating Subsidiary to deliver to the
Agent, on behalf of the Lenders, on the Effective Date for Subsidiaries existing
on the Effective Date or within 30 days after the end of any such fiscal quarter
for such Subsidiaries created after the Effective Date, (a) an executed guaranty
in substantially the form attached hereto as Exhibit "F" or, subsequent to the
initial execution of such a guaranty an executed joinder agreement in
substantially the form attached to such guaranty, and (b) an opinion of counsel
to such Subsidiary that such guaranty has been duly executed and delivered and
is a legal, valid and binding obligation of such Subsidiary enforceable in
accordance with its terms (subject to customary exceptions). Such Subsidiary
Guaranty shall provide that any Real Estate Subsidiary incurring Indebtedness
pursuant to Section 6.11(g) hereof shall be released, so long as the prepayment
of Loans and reduction of Commitments set forth in Section 2.5 occurs
simultaneously therewith and so long as the Indebtedness incurred is not less
than 50% of the fair market value of the real estate owned by such Real Estate
Subsidiary. The Borrower shall cause any (i) Subsidiary which after the
Effective Date owns the stock of any other Subsidiary to execute a Subsidiary
Pledge
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<PAGE>
Agreement and (ii) Operating Subsidiary formed after the Effective Date
to execute a Subsidiary Security Agreement. The Borrower shall allow only
Operating Subsidiaries to own Accounts or Inventory other than the ownership by
Subsidiaries which are not Operating Subsidiaries of a de minimis amount of
-- -------
Accounts or Inventory incidental to their business. Upon the request of the
Agent, the Borrower shall provide an opinion of counsel as to the legality,
validity, effectiveness and/or perfection of the grant of the security interests
provided in any of the Security Documents from counsel in California or in any
other state in which Collateral with a book value in excess of 10% of the book
value of all Collateral is located.
6.23. Intercompany Indebtedness. After the occurrence and during the
-------------------------
continuance of a Default or an Unmatured Default, the Borrower will not prepay,
defease or in substance defease, purchase, redeem, retire or otherwise acquire,
any Indebtedness owed to any Subsidiary.
ARTICLE VII
DEFAULTS
--------
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent
under or in connection with this Agreement, any Loan, any Facility Letter of
Credit, or any certificate or information delivered in connection with this
Agreement or any other Loan Document shall be materially false on the date when
made.
7.2. Nonpayment of principal of any Note when due, nonpayment of any
Reimbursement Obligation when due, or nonpayment of interest upon any Note or of
any fee or other obligations under any of the Loan Documents within five days
after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Section 6.2, 6.3, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.18, 6.19, 6.20,
6.21 or 6.22.
7.4. The breach by the Borrower (other than a breach which constitutes
a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of
this Agreement which is not remedied within 20 days after written notice from
the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay any
Indebtedness with a principal amount in excess of $5,000,000 when due; or the
default by the Borrower or any of its Subsidiaries in the performance of any
material term, provision
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or condition contained in any agreement under which any Indebtedness with a
principal amount in excess of $5,000,000 was created or is governed, or any
other material event shall occur or material condition shall exist (and in each
case shall be continuing), the effect of which is to cause, or to permit the
holder or holders of such Indebtedness to cause, such Indebtedness to become due
prior to its stated maturity; or any Indebtedness with a principal amount in
excess of $5,000,000 of the Borrower or any of its Subsidiaries shall be
declared to be due and payable or required to be prepaid (other than by a
regularly scheduled payment) prior to the stated maturity thereof; or the
Borrower or any of its Subsidiaries shall not pay, or admit in writing its
inability to pay, its debts generally as they become due.
7.6. The Borrower or any of its Active Subsidiaries shall (a) have an
order for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (b) make an assignment for the benefit of creditors,
(c) apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any of
its Property which constitutes a Substantial Portion, (d) institute any
proceeding seeking an order for relief under the Federal bankruptcy laws as now
or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or
seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such proceeding
filed against it, (e) take any corporate action to authorize or effect any of
the foregoing actions set forth in this Section 7.6 or (f) fail to contest in
good faith any appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or
any of its Active Subsidiaries, a receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Borrower or any of its Active
Subsidiaries or any of its Property which constitutes a Substantial Portion, or
a proceeding described in Section 7.6(d) shall be instituted against the
Borrower or any of its Active Subsidiaries and such appointment continues
undischarged or such proceeding continues undismissed or unstayed for a period
of 60 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize
or otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such Condemnation occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days
to pay, bond or otherwise discharge any judgment or order for the payment of
money, which is not stayed on appeal or otherwise being appropriately contested
in good faith and
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which, when added to all other similar judgments or orders for the payment of
money, exceeds $10,000,000.
7.10. Any Change in Control shall occur.
7.11 The Subsidiary Guaranty shall fail to remain in full force or effect
or any action shall be taken to discontinue or to assert the invalidity or
unenforceability of the Subsidiary Guaranty, or any Subsidiary shall fail to
comply with any of the terms or provisions of the Subsidiary Guaranty or any
Subsidiary denies that it has any further liability under the Subsidiary
Guaranty or gives notice to such effect.
7.12. At any time after the Collateralization Date, any Security
Document shall for any reason fail to create a valid and perfected, first
priority security interest in any collateral purported to be covered thereby,
except as permitted by the terms of such Security Document, or any Security
Document shall fail to remain in full force or effect or any action shall be
taken to discontinue or to assert the invalidity or unenforceability of any
Security Document or a default shall have occurred thereunder after giving
effect to any applicable grace periods.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
8.1. Acceleration. If any Default described in Section 7.6 or 7.7
------------
occurs with respect to the Borrower, the obligations of the Lenders to make
Loans and of an Issuing Bank to issue Facility Letters of Credit hereunder shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent or any Lender.
If any other Default occurs, the Required Lenders may terminate or suspend the
obligations of the Lenders to make Loans and of an Issuing Bank to issue
Facility Letters of Credit hereunder, or declare the Obligations to be due and
payable, or both, whereupon the Obligations shall become immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which the Borrower hereby expressly waives. In addition to the foregoing,
following the occurrence and during the continuance of a Default, so long as any
Facility Letter of Credit has not been fully drawn and has not been cancelled or
expired by its terms, upon demand by the Agent, the Borrower shall deposit in an
account (the "Letter of Credit Cash Collateral Account") maintained with First
----------------------------------------
Chicago in the name of the Agent, for the ratable benefit of the Lenders and the
Agent, cash in an amount equal to the aggregate undrawn face amount of all
outstanding Facility Letters of Credit and all fees and other amounts due or
which may become due with respect thereto.
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If, within 30 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans and of an Issuing
Bank to issue Facility Letters of Credit hereunder as a result of any Default
(other than any Default as described in Section 7.6 or 7.7 with respect to the
Borrower) and before any judgment or decree for the payment of the Obligations
due shall have been obtained or entered, all Lenders (in their sole discretion)
shall so direct, the Agent shall, by notice to the Borrower, rescind and annul
such acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
----------
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving any
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Lender directly or indirectly affected thereby:
(a) Extend the maturity of any Loan or Note or forgive all or any portion
of the principal amount thereof, or reduce the rate or extend the time
of payment of interest or fees thereon.
(b) Reduce the percentage specified in the definition of Required Lenders.
(c) Extend the Termination Date, or reduce the amount or extend the payment
date for mandatory payments required under Section 2.5(c), increase the
amount of the Commitment of any Lender hereunder, or permit the
Borrower to assign its rights under this Agreement.
(d) Amend (i) this Section 8.2 or (ii) Section 3.2, 3.4(b), 3.6(a), 7.6 7.7
or 10.13.
(e) Increase the maximum drawable amount or extend the expiration date of
any outstanding Facility Letter of Credit (other than in accordance
with Article III) or reduce the principal amount of or extend the time
of payment of any Reimbursement Obligation or fee associated with any
Facility Letter of Credit.
(f) Other than as permitted under the Loan Documents, release any guarantor
of any Obligations release Collateral with a book value in excess of
$5,000,000 in the aggregate during the term hereof or amend the
definition of Collateralization Date.
(g) Amend (i) the percentages in the definition of Advance Rate or (ii) the
definitions of "Borrowing Base," "Accounts," "Inventory," "Eligible
Inventory" and "Eligible Accounts."
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(h) Increase the amount of Swing Line Loan Option or extend the date in
Section 2.3(c) on which the Agent shall be deemed to have received a
Borrowing Notice to refund the Swing Line Loans.
No amendment of any provision of this Agreement relating to the Swing Line Loans
shall be effective without the consent of the Swing Line Bank. No amendment of
any provision of this Agreement relating to the Agent shall be effective without
the written consent of the Agent. The Agent may waive payment of the fee
required under Section 12.3.2 without obtaining the consent of any other party
to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or
----------------------
the Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or an acquiescence therein, and
the making of a Loan or the issuance of a Facility Letter of Credit
notwithstanding the existence of a Default or the inability of the Borrower to
satisfy the conditions precedent to such Loan or Facility Letter of Credit shall
not constitute any waiver or acquiescence. Any single or partial exercise of
any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Loan Documents whatsoever shall be valid
unless in writing signed by the Lenders required pursuant to Section 8.2, and
then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to the Agent and the Lenders until the Obligations have been
paid in full.
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1. Survival of Representations. All representations and warranties
---------------------------
of the Borrower contained in this Agreement shall survive delivery of the Notes
and the making of the Loans and the issuance of the Facility Letters of Credit
herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to
-----------------------
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any taxes (excluding federal income taxes or state income
-----
taxes on the overall net income of any Lender) or other similar assessments or
charges made by any governmental or revenue authority in respect of the Loan
Documents shall be paid by the Borrower, together with interest and penalties,
if any.
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9.4. Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
9.5. Entire Agreement. The Loan Documents embody the entire agreement
----------------
and understanding among the Borrower, the Subsidiaries, the Agent and the
Lenders and supersede all prior agreements and understandings among the
Borrower, the Subsidiaries, the Agent and the Lenders relating to the subject
matter thereof.
9.6. Several Obligations; Benefits of this Agreement. The respective
-----------------------------------------------
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder, but no Lender shall be responsible for the failure of any
other Lender to perform its obligations hereunder. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the
-------------------------
Agent and the Arranger for any reasonable costs, internal charges and out-of-
pocket expenses (including attorneys' fees and time charges of attorneys for the
Agent or the Arranger, which attorneys may be employees of the Agent or the
Arranger) paid or incurred by the Agent or the Arranger in connection with the
preparation, negotiation, execution, delivery, review, syndication amendment,
modification, and administration of the Loan Documents and the monitoring of the
Collateral. The Borrower also agrees to reimburse the Agent, the Arranger and
the Lenders for any reasonable costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of attorneys for the Agent,
the Arranger and the Lenders, which attorneys may be employees of the Agent or
the Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any
Lender in connection with the collection and enforcement of the Loan Documents.
The Borrower further agrees to indemnify the Agent, the Arranger and each
Lender, its directors, officers and employees (each, an "indemnified party")
against all losses, claims, damages, penalties, judgments, liabilities and
expenses (including, without limitation, all expenses of litigation or
preparation therefor whether or not the Agent, the Arranger or any Lender is a
party thereto, collectively, the "losses") which any of them may pay or incur
arising out of or relating to this Agreement, the other Loan Documents, the
Transaction Documents, the transactions contemplated hereby or thereby, the
direct or indirect application or proposed application of the proceeds of any
Loan or the use or intended use of any Facility Letter of Credit hereunder or
the issuance or performance under or the participation in any Facility Letter of
Credit, except that the Borrower shall not be liable for any portion of the
losses resulting from the gross negligence or wilful misconduct of any
indemnified party as determined in a final judgment by a court of competent
jurisdiction. The obligations of the Borrower under this Section shall survive
the termination of this Agreement.
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9.8. Numbers of Documents. All statements, notices, closing
--------------------
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
9.9. Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.10. Severability of Provisions. Any provision in any Loan Document
--------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
9.11. Nonliability of Lenders. The relationship between the Borrower
-----------------------
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agent nor any Lender undertakes any responsibility to
the Borrower to review or inform the Borrower of any matter in connection with
any phase of the Borrower's business or operations.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
-------------
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS
-----------------------
TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
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CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
--------------------
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Confidentiality. Each Lender agrees to hold any confidential
---------------
information which it may receive from the Borrower or any Subsidiary pursuant to
this Agreement in confidence, except for disclosure (a) to its Affiliates and
other Lenders and their respective Affiliates, (b) to legal counsel,
accountants, and other professional advisors to that Lender or to a Transferee,
(c) to regulatory officials, (d) to any Person as requested pursuant to or as
required by law, regulation, or legal process, (e) to any Person in connection
with any legal proceeding to which that Lender is a party, and (f) permitted by
Section 12.4; provided that in connection with any disclosure pursuant to
clauses (a), (b) or (f), such Lender shall instruct such Persons to treat the
information in a confidential manner.
ARTICLE X
THE AGENT
---------
10.1. Appointment. The First National Bank of Chicago is hereby
-----------
appointed Agent hereunder and under each other Loan Document, and each of the
Lenders irrevocably authorizes the Agent to act as the agent of such Lender.
The Agent agrees to act as such upon the express conditions contained in this
Article X. The Agent shall not have a fiduciary relationship in respect of the
Borrower or any Lender by reason of this Agreement.
10.2. Powers. The Agent shall have and may exercise such powers under
------
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
----------------
officers, agents or employees shall be liable to the Borrower, any Subsidiary,
the Lenders or any Lender for any action taken or omitted to be taken by it or
them hereunder or under any
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other Loan Document or in connection herewith or therewith except for its or
their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent
-------------------------------------------
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing hereunder; (b) the performance or observance of any of the covenants
or agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Agent; (d) the validity,
effectiveness or genuineness of any Loan Document or any other instrument or
writing furnished in connection therewith; or (e) the value, sufficiency,
creation, perfection or priority of any interest in any collateral security.
The Agent shall have no duty to disclose to the Lenders information that is not
required to be furnished by the Borrower to the Agent at such time, but is
voluntarily furnished by the Borrower to the Agent (either in its capacity as
Agent or in its individual capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases
---------------------------------
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of
--------------------------------
its duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to
------------------------------
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
-----------------------------------------
reimburse and indemnify the Agent ratably in proportion to their respective
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Commitments (a) for any amounts not reimbursed by the Borrower for which the
Agent is entitled to reimbursement by the Borrower under the Loan Documents, (b)
for any other reasonable expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Loan Documents and (c) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the Agent. The obligations of the Lenders under this
Section 10.8 shall survive payment of the Obligations and termination of this
Agreement.
10.9. Rights as a Lender. In the event the Agent is a Lender
------------------
(including its capacity as an Issuing Bank), the Agent shall have the same
rights and powers hereunder and under any other Loan Document as any Lender and
may exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent
may accept deposits from, lend money to, and generally engage in any kind of
trust, debt, equity or other transaction, in addition to those contemplated by
this Agreement or any other Loan Document, with the Borrower or any of its
Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby
from engaging with any other Person. The Agent, in its individual capacity, is
not obligated to remain a Lender; provided that at any time that the Agent is
not a Lender, the Agent agrees to resign in accordance with Section 10.11 upon
the request of the Borrower or the Required Lenders.
10.10. Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.11. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Borrower and the Lenders, a successor
Agent. If no successor Agent shall have been so
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appointed by the Required Lenders within thirty days after the resigning Agent's
giving notice of its intention to resign, then the resigning Agent may appoint,
on behalf of the Borrower and the Lenders, a successor Agent. If the Agent has
resigned and no successor Agent has been appointed, the Lenders may perform all
the duties of the Agent hereunder and the Borrower shall make all payments in
respect of the Obligations to the applicable Lender and for all other purposes
shall deal directly with the Lenders. No successor Agent shall be deemed to be
appointed hereunder until such successor Agent has accepted the appointment. Any
such successor Agent shall be a commercial bank having capital and retained
earnings of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Agent. Upon the effectiveness of the resignation of the Agent,
the resigning Agent shall be discharged from its duties and obligations
hereunder and under the Loan Documents. After the effectiveness of the
resignation of an Agent, the provisions of this Article X shall continue in
effect for the benefit of such Agent in respect of any actions taken or omitted
to be taken by it while it was acting as the Agent hereunder and under the other
Loan Documents.
10.12 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default hereunder unless the Agent
has received written notice from a Lender or the Borrower referring to this
Agreement describing such Default or Unmatured Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give prompt notice thereof to the Lenders.
10.13 Collateralization. The Agent shall file the UCC financing
-----------------
statements delivered to it hereunder promptly upon receipt of a Compliance
Certificate certifying that the Collateralization Date has occurred or at such
earlier time, as either (i) the Borrower and the Agent agree or (ii) the
Borrower and the Required Lenders agree, that the Borrower does not have or will
not be able to report a Fixed Charge Coverage Ratio greater than or equal to 1.4
to 1.0.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
------------------------
11.1. Setoff. In addition to, and without limitation of, any rights of
------
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default or Unmatured Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Indebtedness at any time held or owing by
any Lender to or for the credit or account of the Borrower may be offset and
applied toward the payment of the
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Obligations owing to such Lender, whether or not the Obligations, or any part
hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
----------------
has payment made to it upon its share of any Advance or Reimbursement Obligation
(other than payments received pursuant to Sections 2.20.1, 2.20.2 or 2.20.4) in
a greater proportion than that received by any other Lender (other than with
respect to Swing Line Loans), such Lender agrees, promptly upon demand, to
purchase a portion of that Advance or Reimbursement Obligation held by the other
Lenders so that after such purchase each Lender will hold its ratable proportion
of that Advance or Reimbursement Obligation. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Lender agrees, promptly upon demand, to
take such action necessary such that all Lenders share in the benefits of such
collateral or other protection ratably in proportion to their Commitments. In
case any such payment is disturbed by legal process, or otherwise, appropriate
further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
12.1. Successors and Assigns. The terms and provisions of the Loan
----------------------
Documents shall be binding upon and inure to the benefit of the Borrower, the
Subsidiaries and the Lenders and their respective successors and assigns, except
that (a) neither Borrower nor any Subsidiary shall have the right to assign its
rights or obligations under the Loan Documents and (b) any assignment by any
Lender must be made in compliance with Section 12.3. Notwithstanding clause (b)
of this Section, any Lender may at any time, without the consent of the Borrower
or the Agent, assign all or any portion of its rights under this Agreement and
its Notes to a Federal Reserve Bank; provided, however, that no such assignment
shall release the transferor Lender from its obligations hereunder. The Agent
may treat the payee of any Note as the owner thereof for all purposes hereof
unless and until such payee complies with Section 12.3 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of a Note
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. Any request, authority or consent of any Person, who at the
time of making such request or giving such authority or consent is the holder of
any Note, shall be conclusive and binding on any subsequent holder, transferee
or assignee of such Note or of any Note or Notes issued in exchange therefor.
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12.2. Participations.
--------------
12.2.1. Permitted Participants; Effect. Any Lender may, in the
------------------------------
ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by
such Lender, any interest in Facility Letters of Credit, any Commitment of
such Lender or any other interest of such Lender under the Loan Documents.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall
remain the holder of any such Note for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall
be determined as if such Lender had not sold such participating interests,
and the Borrower and the Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations
under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
-------------
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other than
any amendment, modification or waiver with respect to any Loan, Facility
Letter of Credit or Commitment in which such Participant has an interest
which forgives principal, interest or fees or reduces the interest rate or
fees payable with respect to any such Loan, Facility Letter of Credit or
Commitment, postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees on, any such Loan, Facility Letter of
Credit or Commitment, releases any guarantor of any such Loan or Facility
Letter of Credit or releases any substantial portion of Collateral, if any,
securing any such Loan or Facility Letter of Credit.
12.2.3. Benefit of Setoff. The Borrower agrees that each
-----------------
Participant shall be deemed to have the right of setoff provided in Section
11.1 in respect of its participating interest in amounts owing under the
Loan Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that each Lender shall retain the right of setoff provided in
Section 11.1 with respect to the amount of participating interests sold to
each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of setoff provided in Section
11.1, agrees to share with each Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance
with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
-----------
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
---------------------
course of its business and in accordance with applicable law, at any time
assign to one
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<PAGE>
or more banks or other entities (excluding entities registered under the
Investment Company Act of 1940) with a net worth and/or capital and surplus
of at least $500,000,000 ("Purchasers") all or any part of its rights and
obligations under the Loan Documents; provided, however, that (a) any such
assignment shall be in a minimum amount of at least $5,000,000 or, if less,
the total amount of such Lender's Commitment hereunder and (b) if a Default
has occurred and is continuing, the restriction against assignments to
entities registered under the Investment Company Act of 1940 shall not
apply. Such assignment shall be substantially in the form of Exhibit "G"
hereto or in such other form as may be agreed to by the parties thereto.
The consent of the Borrower and the Agent shall be required prior to an
assignment becoming effective with respect to a Purchaser which is not a
Lender or an Affiliate thereof; provided, however, that if a Default has
occurred and is continuing, the consent of the Borrower shall not be
required. Such consent shall not be unreasonably withheld.
12.3.2. Effect; Effective Date. Upon (a) delivery to the Agent of a
----------------------
notice of assignment, substantially in the form attached as Annex "I" to
Exhibit "G" hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (b) payment of a $3,500 fee to the Agent
for processing such assignment, such assignment shall become effective on
the effective date specified in such Notice of Assignment. The Notice of
Assignment shall contain a representation by the Purchaser to the effect
that none of the consideration used to make the purchase of the Commitment,
Facility Letters of Credit and Loans under the applicable assignment
agreement are "plan assets" as defined under ERISA and that the rights and
interests of the Purchaser in and under the Loan Documents will not be
"plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by the Lenders and shall
have all the rights and obligations of a Lender under the Loan Documents,
to the same extent as if it were an original party hereto, and no further
consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the Percentage of
the Aggregate Commitment, Facility Letters of Credit and Loans assigned to
such Purchaser. Upon the consummation of any assignment to a Purchaser
pursuant to this Section 12.3.2, the transferor Lender, the Agent and the
Borrower shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in principal
amounts reflecting their Commitment, as adjusted pursuant to such
assignment. In addition, within a reasonable time after the effective date
of any assignment, the Agent shall, and is hereby authorized and directed
to, revise Schedule "1" reflecting the revised Percentages of each of the
Lenders and shall distribute such revised Schedule "1" to each of the
Lenders and the Borrower and such revised Schedule "1" shall replace the
old Schedule "1" and become part of this Agreement.
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<PAGE>
12.4. Dissemination of Information. The Borrower authorizes each
----------------------------
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees in writing, prior to such
disclosure, to be bound by Section 9.15 of this Agreement.
12.5. Tax Treatment. If any interest in any Loan Document is
-------------
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 2.19(b).
ARTICLE XIII
NOTICES
-------
13.1. Giving Notice. Except as otherwise permitted by Section 2.3(b)
-------------
with respect to requests for Swing Line Loans, Section 2.14 with respect to
Borrowing Notices and Section 3.4(a) with respect to a Letter of Credit Request,
all notices and other communications provided to any party hereto under this
Agreement or any other Loan Document shall be in writing or by telex or by
facsimile and addressed or delivered to such party at its address set forth
below its signature hereto or at such other address as may be designated by such
party in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid, shall be deemed given when received; any notice,
if transmitted by telex or facsimile, shall be deemed given when transmitted
(answerback confirmed in the case of telexes).
13.2. Change of Address. The Borrower, the Agent and any Lender may
-----------------
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
ARTICLE XIV
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective
-75-
<PAGE>
when it has been executed by the Borrower, the Agent and the Lenders and each
party has notified the Agent by telex or telephone, that it has taken such
action.
REST OF PAGE INTENTIONALLY LEFT BLANK
-76-
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
WABAN INC. (TO BE KNOWN ON THE EFFECTIVE
DATE AS HOMEBASE, INC.)
By: /s/ Edward J. Weisberger
------------------------
Print Name: Edward J. Weisberger
--------------------
Title: Chief Financial Officer
-----------------------
One Mercer Road
P.O. Box 9600
Natick, MA 01760
Phone: (508) 651-6500
Fax: (508) 651-6623
Attention: Edward J. Weisberger,
Chief Financial
Officer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ John D. Runger
--------------------------------
Print Name: John D. Runger
------------------------------
Title: Managing Director
----------------------
One First National Plaza
Chicago, Illinois 60670
Phone: (312) 732-7101
Fax: (312) 732-1117
Attention: John D. Runger, Vice President
-77-
<PAGE>
BANKBOSTON, N.A.,
Individually and as Syndication Agent
By: /s/ Linda Thomas
---------------------------
Print Name: Linda Thomas
Title: Director
100 Federal Street
Mail Stop 01-09-04
Boston, Massachusetts 0210
Phone: (617) 434-7000
Fax: (617) 434-7980
WELLS FARGO BANK, N.A.
Individually and as Documentation Agent
By: /s/ Kathleen Barnes
------------------------------------
Print Name: Kathleen Barnes
Title: Vice President
707 Wilshire Boulevard, 16th Floor
MAC 2818-163
Los Angeles, California 90017
Phone: (213) 614-7782
Fax: (213) 614-2569
FLEET NATIONAL BANK
By: /s/ Gerry Sheehan
----------------------------------------
Print Name: Gerry Sheehan
Title: Assistant Vice President
------------------------
One Federal Street
Mail Code MAOF-0320
Boston, Massachusetts 02211
Phone: (617) 346-0609
Fax: (617) 346-0580
-78-
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement (this "Security Agreement") is made as of July 9,
------------------
1997 by and between HOMEBASE, INC. (presently known as Waban Inc.), a Delaware
corporation (the "Grantor"), and THE FIRST NATIONAL BANK OF CHICAGO, as Agent
-------
(as hereinafter defined) for the Lenders (as hereinafter defined), and is
executed pursuant to the Credit Agreement.
R E C I T A L S:
---------------
A. Grantor, Agent and Lenders are parties to that certain Credit
Agreement dated as of the date hereof (the same, as it may be amended, restated,
supplement or otherwise modified and in effect from time to time, the "Credit
------
Agreement") providing for loans and extensions of credit to be made to the
- ---------
Grantor by the Lenders.
B. As a condition to entering into and extending credit pursuant to the
Credit Agreement, the Agent and the Lenders have required that the Grantor grant
to the Agent, on behalf of the Agent and the Lenders, a security interest in the
Collateral (as hereinafter defined) as described herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
-----------
As used in this Security Agreement:
"Accounts" means presently existing or hereafter acquired accounts or
general intangibles representing the indebtedness of a Person to the Grantor or
other right to receive payment by the Grantor arising from the sale of
merchandise or services solely to the extent the foregoing are payable pursuant
to a credit card processing agreement, merchant agreement or charge account
agreement, including the right to payment of any interest or finance charges
with respect thereto, together with all of the Grantor's rights as an unpaid
vendor, all pledged assets and letters of credit, guaranty claims, liens and
security interests held by or granted to the Grantor to secure payment of any
Accounts and all books, customer lists, ledgers, records and files (whether
written or stored electronically) relating to any of the foregoing.
"Agent" means The First National Bank of Chicago, a national banking
association, as agent for the Lenders pursuant to Article X of the Credit
Agreement, and the successors and assigns thereof as agent for the Lenders.
<PAGE>
"Collateral" means all Accounts and Inventory, wherever located, in which
the Grantor now has or hereafter acquires any right or interest, and the
proceeds, insurance proceeds, unearned insurance premiums and products thereof
and documents of title evidencing or issued with respect thereto, including,
without limitation, all books and records, customer lists, credit files,
computer files, programs, printouts and other computer materials and records
related to any of the foregoing.
"Credit Agreement" means that certain Credit Agreement dated as of July 9,
1997, among the Grantor, the Agent and the Lenders, as heretofore or hereafter
amended, renewed, modified or supplemented from time to time.
"Default" means any one or more of the events described in Section 5.1
-----------
hereof.
"Default Rate" means the rate of interest which may be due and owing from
time to time on any Loan and payable by the Grantor under the Credit Agreement
pursuant to Section 2.12 of such agreement.
"Documents" means all documents of title and goods evidenced thereby,
including, without limitation, all bills of lading, dock warrants, dock
receipts, warehouse receipts and orders for the delivery of goods, and also any
other document which in the regular course of business or financing is treated
as adequately evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
"Grantor" means HomeBase, Inc., a Delaware corporation, and its successors.
"Indemnitee" means any Person entitled to be indemnified by the Grantor
pursuant to Section 8 hereof.
---------
"Instruments" means all negotiable instruments (as defined in (S)3-104 of
the Uniform Commercial Code), certificated and uncertificated securities and any
replacements therefor and other writings which evidence a right to the payment
of money and which are not themselves security agreements or leases and are of a
type which in the ordinary course of business are transferred by delivery with
any necessary endorsement or assignment, including, without limitation, all
checks, drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stock, options and warrants in
which the Grantor now has or hereafter acquires any rights.
"Inventory" means all personal property of the Grantor now or hereafter
held for sale to customers.
"Lenders" means the financial institutions signatory to the Credit
Agreement and their respective successors and permitted assigns.
-2-
<PAGE>
"Pledged Deposits" means, collectively, the following and all proceeds
thereof: (a) the cash collateral accounts referred to herein, and (b) all time
deposits of money, whether or not evidenced by certificates, which the Grantor
may from time to time designate as pledged to the Agent, on behalf of the
Lenders, as security for any Obligation, and all rights to receive interest on
said deposits.
"Section" means a numbered section of this Security Agreement, unless
another document is specifically referenced.
"Security Agreement" means this Security Agreement, as it may be amended,
modified or supplemented from time to time.
"Uniform Commercial Code" means, unless a specific jurisdiction is referred
to, the Uniform Commercial Code as in effect from time to time in the applicable
jurisdiction.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Credit Agreement.
2. GRANT OF SECURITY INTEREST.
--------------------------
To secure the payment, performance and observance of the Obligations, the
Grantor hereby pledges, grants, assigns and transfers to the Agent, for the
ratable benefit of the Agent and the Lenders, a continuing security interest in,
a right of setoff against, and an assignment to the Agent of, the Collateral;
provided, however, the pledge, grant, assignment and transfer of a continuing
security interest in, right of set off against and assignment of the Collateral
and all the rights and remedies appurtenant or relating thereto, shall not be
effective until the Collateralization Date has occurred.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Grantor represents and warrants, on the date hereof and on the
Collateralization Date, to the Agent, on behalf of the Lenders, which
representations and warranties shall survive the execution and delivery of this
Security Agreement and any investigation by or on behalf of the Agent or any
Lender, as follows:
3.1 Corporate Existence, Standing, Authorization and Validity. The
---------------------------------------------------------
Grantor is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business
-3-
<PAGE>
in each jurisdiction in which its business is conducted, except where the
failure to have such requisite authority would not have a Material Adverse
Effect. The Grantor has the corporate power and authority and legal right to
execute and deliver this Security Agreement and to perform its obligations
hereunder. The execution and delivery by the Grantor of this Security Agreement
and the performance of its obligations hereunder have been duly authorized by
proper corporate proceedings, and this Security Agreement constitutes the legal,
valid and binding obligation of the Grantor enforceable against the Grantor in
accordance with its terms and, following the occurrence of the Collateralization
Date, creates a first priority perfected security interest, except to the extent
of liens permitted by the Credit Agreement, which will be enforceable against
the Grantor in all now owned Collateral and in all hereafter acquired Collateral
at the time the Grantor hereafter acquires such rights, in each such case except
as enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
3.2 No Conflict; Government Consent. Neither the execution and delivery
-------------------------------
by the Grantor of this Security Agreement, the creation and perfection of a
security interest in the Collateral as and when contemplated hereby, nor
compliance with the provisions hereof, will violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Grantor or the
Grantor's articles of incorporation or by-laws or the provisions of any
indenture, instrument or agreement to which the Grantor is a party or is
subject, or by which it, or its property, is bound, or conflict with or
constitute a default thereunder, or result in the creation or imposition of any
Lien (except to the extent created by this Security Agreement) in, of or on the
property of the Grantor pursuant to the terms of any such indenture, instrument
or agreement. No authorization, approval or other action by, and no notice to
or filing with, any Governmental Authority is required either for the execution
and delivery by the Grantor of this Security Agreement or for the performance by
the Grantor of its obligations under this Security Agreement except for filings
expressly contemplated hereby.
3.3 Principal Location. On the date hereof, the Grantor's mailing
------------------
address, and the location of its chief executive office and the books and
records relating to the Accounts is disclosed in Exhibit A hereto. The Grantor
---------
has no other places of business and maintains no Collateral at any location
except as separately set forth in Exhibit A hereto. None of said places of
---------
business are leased by the Grantor as lessee except those designated as such in
Exhibit A hereto.
- ---------
3.4 No Other Names. On the date hereof, except as set forth in Exhibit B
-------------- ---------
hereto, the Grantor has not conducted business under any name except the name in
which it has executed this Security Agreement.
3.5 No Financing Statements. No financing statement describing all or any
-----------------------
portion of the Collateral which has not lapsed or been terminated naming the
Grantor
-4-
<PAGE>
as Grantor has been filed in any jurisdiction except financing statements in
respect of Liens permitted by Section 6.16 of the Credit Agreement.
3.6 Necessary Filings. All filings, registrations and recordings
-----------------
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by the Grantor to the Agent, on behalf of the Lenders, hereby
in respect of the Collateral have been delivered to the Agent and the security
interest granted to the Agent, on behalf of the Lenders, pursuant to this
Security Agreement in and to the Collateral, effective upon the
Collateralization Date and after the filing of the financing statements
delivered to the Agent, will constitute a first priority perfected security
interest, superior and prior to the rights of all other Persons therein and
subject to no other Liens (except Liens permitted by Section 6.16 of the Credit
Agreement) and will be entitled to all the rights, priorities and benefits
afforded by the Uniform Commercial Code or other relevant law as enacted in any
relevant jurisdiction which relates to perfected security interests.
3.7 Title to Collateral. The Grantor has good title, free of all Liens
-------------------
other than those permitted by Section 6.16 of the Credit Agreement, to all of
the Collateral reflected in the balance sheet of the Grantor delivered pursuant
to Section 5.4 of the Credit Agreement as being owned by it.
3.8 Accounts. Upon the occurrence of the Collateralization Date, the
---------
names of the obligors, amounts owing, due dates and other information with
respect to the Accounts are and will be correctly stated in all material
respects in all records of the Grantor relating thereto and in all invoices and
reports with respect thereto furnished to the Agent by the Grantor from time to
time.
4. COVENANTS.
---------
From the occurrence of the Collateralization Date, and thereafter until
this Security Agreement is terminated pursuant to Section 9.13 hereof:
------------
4.1 Inspection. Upon reasonable notice, the Grantor will permit the Agent
----------
and the Lenders, by their representatives and agents, to inspect the Collateral,
to examine and make copies of the records of the Grantor relating thereto, and
to discuss the Collateral and the records of the Grantor with respect thereto
with, and to be advised as to the same by, the Grantor's officers and employees,
all upon reasonable prior notice from the Agent and at such reasonable times and
intervals as the Agent may determine, all at the Grantor's expense with the same
rights to expense reimbursement as provided in accordance with Section 9.7 of
the Credit Agreement.
4.2 Taxes. The Grantor will pay when due all taxes, assessments and
-----
governmental charges and levies upon the Collateral, except those which are
being
-5-
<PAGE>
contested in good faith by appropriate proceedings and with respect to which
adequate reserves under Agreement Accounting Principles have been established.
4.3 Records and Reports. The Grantor will maintain satisfactory and
-------------------
appropriate books and records with respect to the Collateral and furnish to the
Agent, with sufficient copies for each of the Lenders, such reports relating to
the Collateral as the Agent shall from time to time reasonably request.
4.4 Financing Statements and Other Actions. The Grantor will promptly
--------------------------------------
execute and deliver to the Agent all financing statements and other documents
from time to time requested by the Agent or any Lender in order to perfect a
security interest or to maintain a perfected security interest in the
Collateral.
4.5 Disposition of Collateral. The Grantor will not sell, lease or
-------------------------
otherwise dispose of the Collateral except as permitted by the Credit Agreement.
If any Account becomes evidenced by an instrument, upon the occurrence of
unmatured Default, the Grantor will promptly deliver such instrument to the
Agent appropriately endorsed to the Agent as further security herewith.
4.6 Liens. The Grantor will not create, incur, or suffer to exist any
-----
Lien upon the Collateral except the security interests created by this Security
Agreement and Liens permitted pursuant to Section 6.16 of the Credit Agreement.
4.7 Change in Location or Name. On the Collateralization Date, the
--------------------------
Grantor will update the information provided on Exhibit A and Exhibit B so that
--------- ---------
the representations set forth in Section 3.3 and Section 3.4 are correct on the
Collateralization Date. The Grantor will not (a) maintain a place of business,
hold Collateral or maintain records with respect to any Account at a location
other than a location specified on Exhibit A hereto, (b) change its name, or (c)
---------
change its mailing address, unless the Grantor shall have given the Agent not
less than thirty (30) days' prior written notice thereof, and the Agent shall
have determined that after giving effect to any such change of name, address or
location, and the making of any additional filings, registrations or recordings
as the Agent shall determine necessary, the Agent, for the benefit of the
Lenders, shall have a valid and continuing, first perfected security interest in
the Collateral.
4.8 Other Financing Statements. The Grantor will not sign or authorize
--------------------------
the signing on its behalf of any financing statement naming it as Grantor
covering all or any portion of the Collateral, except financing statements
naming the Agent, on behalf of the Lenders, as secured party and those financing
statements evidencing Liens permitted pursuant to Section 6.16 of the Credit
Agreement and covering only Property expressly permitted to be pledged in such
transactions.
-6-
<PAGE>
4.9 Protection of the Lenders' Security. The Grantor will do nothing to
-----------------------------------
impair the rights of the Agent or the Lenders in the Collateral. The Grantor
will at all times keep the Collateral insured in favor of the Agent and the
Lenders in compliance with the requirements of Section 6.6 of the Credit
Agreement. The Grantor assumes all liability and responsibility in connection
with the Collateral acquired by it, and the liability of the Grantor to pay its
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, stolen, damaged or for any reason whatsoever
unavailable to the Grantor.
4.1 Federal Claims. The Grantor will notify the Agent of any Collateral
--------------
which, to its knowledge, constitutes a claim against the United States
government or any instrumentality or agency thereof (except for claims against
any state government, unless requested by the Agent), the assignment of which
claim is restricted by federal law. Promptly upon the request of the Agent, the
Grantor will take such steps as may be necessary to comply with any applicable
federal assignment of claims laws.
4.1 Maintenance of Records. The Grantor will keep and maintain at its own
----------------------
cost and expense satisfactory and appropriate records of each Account for at
least one (1) years from the date on which such Account comes into existence,
including, without limitation, records of all payments received, all credits
granted thereon and all other documentation relating thereto, and the Grantor
will make the same available to the Agent for inspection, at the Grantor's own
cost and expense, at any and all reasonable times. Upon the occurrence and
during the continuance of a Default, the Grantor shall, at its own cost and
expense, upon request of the Agent deliver all evidence of its Accounts
(including, without limitation, all documents evidencing the Accounts) and such
books and records to the Agent or to its representatives (copies of which
evidence, books and records may be retained by the Agent) at any time upon its
demand. At the request of the Agent, the Grantor shall legend, in form and
manner reasonably satisfactory to the Agent, the Accounts and other books,
records and documents of the Grantor evidencing or pertaining to the Accounts
with an appropriate reference to the fact that the Accounts have been pledged to
the Agent for the benefit of the Lenders and that the Agent has a security
interest therein. The Grantor expressly agrees that, upon the occurrence and
during the continuance of a Default, the Agent may transfer a full and complete
copy of the Grantor's books, records, credit information, reports, memoranda and
all other writings relating to the Accounts to and for the use by any Person
that has acquired or is contemplating acquisition of an interest in the Accounts
or the Agent's security interest therein without the consent of the Grantor.
4.1 Certain Agreements on Accounts. The Grantor will not make or agree to
------------------------------
make any discount, credit, rebate or other reduction in the original amount
owing on a Account or accept in satisfaction of a Account less than the original
amount thereof other than, prior to the occurrence of a Default, in the ordinary
course of business including, without limitation, in payment of processing fees
or discounts from the principal amount
-7-
<PAGE>
of such Accounts to compensate credit card companies for processing such
Accounts, and in amounts which are not material to the Grantor.
4.1 Collection of Accounts. Except as otherwise provided in this Security
----------------------
Agreement, the Grantor will collect and enforce, at the Grantor's sole expense,
all amounts due or hereafter due to the Grantor under the Accounts.
4.1 Further Actions. The Grantor will, at its own expense, make, execute,
---------------
endorse, acknowledge, file and/or deliver to the Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to the
Accounts and other property or rights covered by the security interest hereby
granted, as the Agent may reasonably require.
4.1 Maintenance of Goods. The Grantor will do all things necessary to
--------------------
maintain, preserve, protect and keep the Inventory in saleable condition as
shall be consistent with past practice.
4.1 Insurance. The Grantor will (a) maintain insurance on the Inventory
---------
as required by Section 6.6 of the Credit Agreement, (b) maintain such other
insurance on the Inventory for the benefit of the Agent and the Lenders as the
Agent shall from time to time request, and (c) furnish to the Agent, upon the
request of the Agent, from time to time duplicates of all policies of insurance
on the Inventory and certificates with respect to such insurance.
5. DEFAULT.
-------
5.1 The occurrence of any one or more of the following events shall
constitute a Default:
5.1.1 Any representation or warranty made by or on behalf of the
Grantor to the Agent or the Lenders in or pursuant to this Security Agreement
shall be false in any material respect as of the date on which made.
5.1.2 The breach by the Grantor of any of the terms or provisions of
Sections 4.5, 4.6, 4.7, 4.8, 4.9, 7 or 8.1 hereof.
- -------- --- --- --- --- --- - ---
5.1.3 The breach by the Grantor (other than a breach which constitutes
a Default under Section 5.1.1 or 5.1.2 hereof) of any of the terms or provisions
------------- -----
of this Security Agreement which is not remedied within ten (10) days after the
giving of written notice by the Agent.
-8-
<PAGE>
5.1.4 Any Collateral shall be transferred or otherwise disposed of,
either voluntarily or involuntarily, in any manner not permitted by Section 4.5
or 9.7 hereof or shall be lost, stolen, damaged or destroyed.
5.1.5 The occurrence of any "Default" under, and as defined in, the
Credit Agreement.
5.2 Acceleration and Remedies. If any Default described in Sections 7.6
------------------------- ------------
or 7.7 of the Credit Agreement occurs, the Obligations shall immediately become
---
due and payable without any election or action on the part of the Agent or any
Lender. If any other Default occurs, the Obligations may be declared to be due
and payable in accordance with the Credit Agreement, whereupon the Obligations
shall become immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which the Grantor hereby expressly waives.
5.3 Remedies; Obtaining the Collateral Upon Default. The Grantor agrees
-----------------------------------------------
that, if any Default shall have occurred and be continuing, then and in every
such case, subject to any mandatory requirements of applicable law then in
effect, the Agent may:
(a) personally, or by agents or attorneys, immediately take possession
of the Collateral or any part thereof, from the Grantor or any other Person
who then has possession of any part thereof with or without notice or
process of law (unless the same shall be required by applicable law), and
for that purpose may enter in an orderly and lawful manner upon the
Grantor's premises where any of the Collateral is located and remove the
same and use in connection with such removal any and all services,
supplies, aids and other facilities of the Grantor;
(b) instruct the obligor or obligors on any Account constituting the
Collateral to make any payment required by the terms of such Account
directly to the Agent, on behalf of the Lenders;
(c) sell or otherwise liquidate, or direct the Grantor to sell or
otherwise liquidate, any or all investments made in whole or in part with
the Collateral or any part thereof, and take possession of the proceeds of
any such sale or liquidation;
(d) with respect to Obligations which are contingent and cannot be
accelerated by their nature, require the Grantor to deposit cash or other
acceptable collateral in an amount sufficient to cover principal, interest
and fees which will have accrued by the maturity date on said Obligations
to be held as security for said Obligations in the special collateral
account referred to in Section 7.2 hereof; and
-9-
<PAGE>
(e) take possession of the Collateral or any part thereof, by
directing the Grantor in writing to deliver the same to the Agent, on
behalf of the Lenders, at any reasonable place or places designated by the
Agent, in which event the Grantor shall at its own expense:
(i) forthwith cause the same to be moved to the place or places
so designated by the Agent and there delivered to the Agent, on behalf
of the Lenders;
(ii) store and keep any Collateral so delivered to the Agent, on
behalf of the Lenders, at such place or places pending further action
by the Agent; and
(iii) while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain them in good condition;
it being understood that the Grantor's obligation so to deliver the
Collateral is of the essence of this Security Agreement and that,
accordingly, upon application to a court of equity having jurisdiction, the
Agent, on behalf of the Lenders, shall be entitled to a decree requiring
specific performance by the Grantor of said obligation.
5.4 Disposition of the Collateral.
-----------------------------
(a) Any Collateral repossessed by the Agent, on behalf of the Lenders,
under or pursuant to Section 5.3 hereof and any other Collateral whether or
-----------
not so repossessed by the Agent, on behalf of the Lenders, upon the
occurrence of a Default may be sold, leased or otherwise disposed of under
one or more contracts or as an entirety and without the necessity of
gathering at the place of sale the property to be sold, and in general in
such manner, at such time or times, at such place or places and on such
terms and for such prices as the Agent may, in compliance with any
mandatory requirements of applicable law, determine to be commercially
reasonable. Upon the occurrence and during the continuance of any Default,
the Agent, on behalf of the Lenders, shall have the power to foreclose the
Grantor's right of redemption in the Collateral by sale, lease or other
disposition of the Collateral in accordance with the Uniform Commercial
Code as enacted in each state where the Collateral is located. Any of the
Collateral may be sold, leased or otherwise disposed of in the condition in
which the same existed when taken by the Agent, on behalf of the Lenders.
Any such disposition which shall be a private sale or other private
proceeding permitted by the requirements of applicable law shall be made
after written notice to the Grantor specifying the time at which such
disposition is to be made and the intended sale price or other
consideration therefor. Any such disposition which shall be a public sale
-10-
<PAGE>
permitted by such requirements of applicable law shall be made after
written notice to the Grantor specifying the time and place of such sale
and, in the absence of applicable requirements of law, shall be by public
auction. To the extent permitted by any such requirement of law, the
Agent, on behalf of the Lenders, may itself bid for and become the
purchaser of the Collateral or any item thereof, offered for sale in
accordance with this Section 5.4 without accountability to the Grantor. In
-----------
the payment of the purchase price of the Collateral the purchaser shall be
entitled to have credit on account of the purchase price thereof of amounts
owing to such purchaser on account of any of the Obligations held by such
purchaser and any such purchaser may deliver notes, claims for interest, or
claims for other payment with respect to such Obligations in lieu of cash
up to the amount which would, upon distribution of the net proceeds of such
sale, be payable thereon. Such notes, if the amount payable hereunder
shall be less than the amount due thereon, shall be returned to the holder
thereof after being appropriately stamped to show partial payment. If,
under mandatory requirements of applicable law, the Agent, on behalf of the
Lenders, shall be required to make disposition of the Collateral within a
period of time which does not permit the giving of notice to the Grantor as
hereinabove specified, the Agent need give the Grantor only such notice of
disposition as shall be reasonably practicable in view of such mandatory
requirements of applicable law.
(b) No notification need be given to the Grantor if it has signed,
after an Unmatured Default or Default, a statement renouncing or modifying
any right to notification of sale or other intended disposition (other than
as may be set forth in any such modification). In addition to the rights
and remedies granted to it in this Security Agreement and in the Credit
Agreement, the Agent, on behalf of the Lenders, shall have all the rights
and remedies of a secured party under the Uniform Commercial Code of the
state in which the Collateral is located.
6. WAIVERS, AMENDMENTS AND REMEDIES.
--------------------------------
No delay or omission of the Agent or any Lender to exercise any right or
remedy granted under this Security Agreement shall impair such right or remedy
or be construed to be a waiver of any Default or Unmatured Default or an
acquiescence therein, and any single or partial exercise of any such right or
remedy shall not preclude other or further exercise thereof or the exercise of
any other right or remedy, and no waiver, amendment or other variation of the
terms, conditions or provisions of this Security Agreement whatsoever shall be
valid unless in writing signed by the Agent and the Required Lenders (if so
required by the Credit Agreement), and then only to the extent specifically set
forth in such writing; provided, however, that any amendment purporting to
-------- -------
release all or substantially all of the Collateral shall be valid only if
consented to by each of the Lenders. All rights and remedies contained in this
Security Agreement or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
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<PAGE>
7. PROCEEDS; COLLECTION OF ACCOUNTS.
--------------------------------
7.1 Collection of Accounts. The Agent may at any time when a Default has
----------------------
occurred and is continuing in its sole discretion by giving the Grantor written
notice, elect to require that the Accounts be paid directly to the Agent, on
behalf of the Lenders. In such event, the Grantor shall, and shall permit the
Agent to, promptly notify the account Grantors or obligors under the Accounts
and the Lenders' interest therein and direct such account Grantors or obligors
to make payment of all amounts then or thereafter due under the Accounts. Upon
receipt of any such notice from the Agent, the Grantor shall thereafter hold in
trust for the Agent and the Lenders all amounts and proceeds received by it with
respect to the Accounts and other Collateral and immediately and at all times
thereafter deliver to the Agent, on behalf of the Lenders, all such amounts and
proceeds in the same form as so received, whether by cash, check, draft or
otherwise, with any necessary endorsements. The Agent shall hold and apply
funds so received as provided by the terms of Sections 7.3 hereof.
------------
7.2 Special Collateral Account. The Agent may require all cash proceeds
--------------------------
of the Collateral received by the Agent, on behalf of the Lenders, to be
deposited in a special interest bearing cash collateral account with the Agent
and held there as security for the Obligations. The Agent shall from time to
time, in its sole discretion, either deposit the collected balances in said cash
collateral account into the Grantor's general operating account with the Agent
or apply the collected balances in said cash collateral account to the payment
of the Obligations whether or not the Obligations shall then be due.
7.3 Application of Proceeds. The proceeds of the Collateral shall be
-----------------------
applied by the Agent to payment of the Obligations in the following order unless
a court of competent jurisdiction shall otherwise direct:
(a) FIRST, to payment of all reasonable costs and expenses of the
Agent incurred in connection with the collection and enforcement of the
Obligations or of the security interest granted to the Agent pursuant to
this Security Agreement, including all costs and expenses of any sale
pursuant to Sections 5.3 and 5.4 hereof, and of any judicial or private
------------ ---
proceedings in which such sale may be made, and of all other expenses,
liabilities and advances made or incurred by the Agent and its attorneys,
together with interest at the Default Rate on such costs, expenses and
liabilities and on all Advances made by the Agent or any Lender from the
date any such cost, expense or liability is due, owing or unpaid or any
such advance is made, in each case until paid in full;
(b) SECOND, to payment of that portion of the Obligations constituting
accrued and unpaid interest and fees, pro rata amongst the Agent and the
Lenders in accordance with the proportion which the accrued interest and
fees constituting Obligations owing to the Agent and the Lenders bears to
the
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<PAGE>
aggregate amount of accrued interest and fees constituting Obligations
owing to all of the Lenders and the Agent;
(c) THIRD, to payment of the outstanding principal amount of the
Obligations owing to the Lenders or any Lender pro rata amongst the Lenders
in accordance with the proportion which the outstanding principal amount of
Obligations owing to each such Lender bears to the aggregate principal
amount of Obligations owing to all of the Lenders;
(d) FOURTH, to payment of any other Obligations due, owing or unpaid
until paid in full including, without limitation, any Obligations incurred
pursuant to Section 9.3 hereof; and
-----------
(e) FIFTH, the balance, if any, after all of the Obligations have been
satisfied, shall be remitted as required by law.
7.4 Grant of License to Use Intellectual Property. Effective upon the
---------------------------------------------
Collateralization Date, for the purpose of enabling the Agent to exercise rights
and remedies under this Article at such time as the Agent shall be lawfully
entitled to exercise such rights and remedies after the occurrence and during
the continuance of a Default, the Borrower hereby grants to the Agent an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to the Borrower) to use, license or sub-license any
intellectual property now owned or hereafter acquired by the Borrower, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof. The use of such license by the Agent shall be exercised, at the option
of the Agent, upon the occurrence and during the continuation of a Default;
provided that any license, sub-license or other transaction entered into by the
Agent in accordance herewith shall be binding upon the Borrower notwithstanding
any subsequent cure of a Default (except as any such license, sub-license or
transaction may thereafter be terminated by the parties thereto).
7.5 Remedies Cumulative. Each and every right, power and remedy hereby
-------------------
specifically given to the Agent, for the benefit of the Lenders, shall be in
addition to every other right, power and remedy specifically given under this
Security Agreement, the Credit Agreement or any other Loan Document or now or
hereafter existing at law or in equity, or by statute and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time or simultaneously and as often and in such order as
may be deemed expedient by the Agent. All such rights, powers and remedies
shall be cumulative and the exercise or the beginning of exercise of one shall
not be deemed a waiver of the right to exercise any of the others. No delay or
omission of the Agent in the exercise of any such right, power or remedy and no
renewal or extension of any of the Obligations shall impair any
-13-
<PAGE>
such right, power or remedy or shall be construed to be a waiver of any Default
or an acquiescence therein. In the event that the Agent shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Agent may recover reasonable expenses, including attorneys' fees,
which attorneys may be employees of the Agent, and the amounts thereof shall be
included in such judgment.
7.6 Discontinuance of Proceedings. In case the Agent shall have
-----------------------------
instituted any proceeding to enforce any right, power or remedy under this
Security Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Agent, then and in every such case the Grantor and
the Agent or such Lender shall be restored to their respective former positions
and rights hereunder with respect to the Collateral, and all rights, remedies
and powers of the Agent or such Lender shall continue as if no such proceeding
had been instituted.
8. INDEMNITY.
---------
8.1 Indemnity. (a) The Grantor agrees to indemnify the Agent, the Lenders
---------
and their respective successors, assigns, employees, agents and servants (each
an "Indemnitee") as provided by Section 9.7 of the Credit Agreement as if such
Section 9.7 were fully set forth herein.
(b) Without limiting the application of Section 9.7 of the Credit
Agreement, the Grantor agrees to pay, or reimburse the Agent for any and all
reasonable fees (including, without limitation, reasonable attorneys' fees,
which attorneys may be employees of the Agent), costs and expenses of whatever
kind or nature incurred in connection with the creation, preservation or
protection of the Agent's security interest in the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payment or discharge of
any taxes (excluding income, franchise taxes or other taxes levied on gross
earnings, profits or the like) or Liens upon or in respect of the Collateral,
premiums for insurance with respect to the Collateral (except to the extent that
the Grantor has already paid any such premiums in compliance with the Credit
Agreement) and all other reasonable fees, costs and expenses in connection with
preparing, executing, delivering or administering this Security Agreement and in
connection with protecting, maintaining or preserving the Collateral and the
Agent's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or (b) hereof,
the Grantor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any losses, costs, damages and expenses which such Indemnitee may
suffer, expend or incur as a consequence or growing out of any misrepresentation
by the Grantor in this Security Agreement or the Credit Agreement or in any
statement or writing
-14-
<PAGE>
contemplated by, made or delivered pursuant to or in connection with this
Security Agreement or the Credit Agreement, except to the extent that any such
loss arises out of the gross negligence or willful misconduct of such
Indemnitee.
(d) If and to the extent that the Obligations of the Grantor under
this Section are unenforceable for any reason, the Grantor hereby agrees to make
the maximum contribution to the payment and satisfaction of such Obligations
which is permissible under applicable law.
The Grantor shall reimburse the Agent for any and all reasonable out-of-
pocket expenses and internal charges (including reasonable attorneys', auditors'
and accountants' fees and reasonable time charges of attorneys, auditors and
accountants who may be employees of the Agent) paid or incurred by the Agent in
connection with the enforcement of this Security Agreement. The Obligations of
the Grantor contained in this Section 8.1 shall survive the termination of this
-----------
Security Agreement and the discharge of the Grantor's other Obligations
hereunder.
8.2 Indemnity Obligation Secured by Collateral; Survival. Any amounts
----------------------------------------------------
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Grantor contained in this Security Agreement shall
continue in full force and effect notwithstanding the full payment of all
amounts owing under the Credit Agreement and all of the other Obligations and
notwithstanding the discharge thereof and the termination of this Security
Agreement.
9. GENERAL PROVISIONS.
------------------
9.1 Notice of Disposition of Collateral. The Grantor hereby agrees that
-----------------------------------
any notice of the time and place of any public sale or the time after which any
private sale or other disposition of all or any part of the Collateral shall be
deemed reasonable if sent to the Grantor, addressed to the mailing address set
forth in Exhibit A attached hereto in the form set forth in Section 10 hereof,
--------- ----------
at least ten (10) days prior to any such public sale or the time after which any
such private sale or other disposition may be made.
9.2 Compromises and Collection of Collateral. The Grantor and the Agent
----------------------------------------
recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to certain of the Accounts, that certain of the
Accounts may be or become uncollectible in whole or in part and that the expense
and probability of success in litigating a disputed Account may exceed the
amount that reasonably may be expected to be recovered with respect to a
Account. In view of the foregoing, the Grantor agrees that the Agent, on behalf
of the Lenders, may at any time and from time to time, if a Default has occurred
and is continuing, compromise with the obligor on any Account, accept in full
payment of any Account such amount as the Agent in its sole discretion shall
determine or abandon any Account, and any such action by the Agent
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<PAGE>
shall be commercially reasonable so long as the Agent acts in good faith based
on information known to it at the time it takes any such action.
9.3 Secured Party Performance of Grantor Obligations. Without having any
------------------------------------------------
obligation to do so, upon either (a) notice to the Grantor or (b) the occurrence
of an Unmatured Default or a Default, the Agent may perform or pay any
obligation which the Grantor has agreed to perform or pay in this Security
Agreement and the Grantor shall reimburse the Agent for any amounts paid by the
Agent pursuant to this Section 9.3. The Grantor's obligation to reimburse the
-----------
Agent pursuant to the preceding sentence shall be an Obligation payable on
demand.
9.4 Authorization for Secured Party to Take Certain Action. The Grantor
------------------------------------------------------
irrevocably authorizes the Agent, at any time and from time to time, in the sole
discretion of the Agent, and appoints the Agent as its attorney-in-fact to act
on behalf of the Grantor, (a) to execute on behalf of the Grantor as Grantor and
to file financing statements necessary or desirable in the Agent's sole
discretion to perfect and to maintain the perfection and priority of the Agent's
security interest in the Collateral, on behalf of the Lenders, (b) following the
occurrence of a Default to endorse and collect any cash proceeds of the
Collateral, (c) to file a carbon, photographic or other reproduction of this
Security Agreement or any financing statement with respect to the Collateral as
a financing statement in such offices as the Agent in its sole discretion deems
necessary or desirable to perfect and to maintain the perfection and priority of
the Agent's and the Lenders' security interest in the Collateral, (d) following
the occurrence of a Default to enforce payment of the Accounts in the name of
the Agent, any Lender or the Grantor, and (e) to apply the proceeds of any
Collateral received by the Agent to the Obligations as provided in Section 7
---------
hereof. This appointment as attorney-in-fact is coupled with an interest and
shall be irrevocable for so long as any Obligations are outstanding.
9.5 Specific Performance of Certain Covenants. The Grantor acknowledges
-----------------------------------------
and agrees that a breach of any of the covenants contained in Sections 4.1, 4.4,
------------ ---
4.5, 5.3, 7.1 and 9.7 hereof will cause irreparable injury to the Agent and the
- --- --- --- ---
Lenders and that the Agent and the Lenders have no adequate remedy at law in
respect of such breaches and therefore agrees, without limiting the right of the
Agent and the Lenders to seek and obtain specific performance of other
obligations of the Grantor contained in this Security Agreement, that the
covenants of the Grantor contained in the Sections referred to in this Section
-------
9.5 shall be specifically enforceable against the Grantor.
- ---
9.6 Use and Possession of Certain Premises. Upon the occurrence of a
--------------------------------------
Default or Unmatured Default, the Agent or any Lender shall be entitled to
occupy and use any offices owned or leased by the Grantor where records relating
to the Collateral are located until the Obligations are paid, without any
obligation to pay the Grantor or any other Person for such use and occupancy
and, with respect to leased property, so long as the applicable lease is in
effect.
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<PAGE>
9.7 Dispositions Not Authorized. The Grantor is not authorized to sell or
---------------------------
otherwise dispose of the Collateral except as permitted in the Credit Agreement
and notwithstanding any course of dealing between the Grantor and the Agent or
any Lender or other conduct of the Agent or any Lender, no authorization to sell
or otherwise dispose of the Collateral (except as set forth in the Credit
Agreement) shall be binding upon the Agent or any Lender unless such
authorization is in writing signed as required by Section 6 hereof.
---------
9.8 Definition of Certain Terms. Terms defined in the Illinois Uniform
---------------------------
Commercial Code which are not otherwise defined in this Security Agreement are
used in this Security Agreement as defined in the Illinois Uniform Commercial
Code as in effect on the date hereof.
9.9 Benefit of Agreement. The terms and provisions of this Security
--------------------
Agreement shall be binding upon and inure to the benefit of the Grantor, the
Agent and the Lenders and each such Person's successors and assigns, except that
the Grantor shall not have the right to assign its rights under this Security
Agreement or any interest herein without the prior written consent of the
Required Lenders.
9.10. Survival of Representations. All representations and warranties of
---------------------------
the Grantor contained in this Security Agreement shall survive the execution and
delivery of this Security Agreement.
9.11. Taxes. Any taxes (excluding income taxes, franchise taxes or other
-----
taxes levied on gross earnings, profits or the like) payable or ruled payable by
any Federal or State authority in respect of this Security Agreement shall be
paid by the Grantor, together with interest and penalties, if any. The Grantor
shall reimburse the Agent for any and all reasonable out-of-pocket expenses and
internal charges (including reasonable attorneys', auditors' and accountants'
fees and reasonable time charges of attorneys, auditors and accountants who may
be employees of the Agent or the Lenders) paid or incurred by the Agent in
connection with the preparation, execution, delivery, administration, collection
and enforcement of this Security Agreement and in the audit, analysis,
administration, collection, preservation or sale of the Collateral (including
the expenses and charges associated with any periodic or special audit of the
Collateral). The Grantor shall reimburse the other Lenders for any and all
reasonable out-of-pocket expenses and internal charges (including reasonable
attorneys', auditors' and accountants' fees and reasonable time charges of
attorneys, auditors and accountants who may be employees of the Agent or the
Lenders) paid or incurred by any Lender in connection with the enforcement of
this Security Agreement.
9.12. Headings. The title of and section headings in this Security
--------
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Security Agreement.
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<PAGE>
9.13. Termination. This Security Agreement shall continue in effect
-----------
(notwithstanding the fact that from time to time there may be no Obligations or
commitments therefor outstanding) until the payment in full of the Obligations
and the termination of the Credit Agreement in accordance with its terms and all
commitments of the Lenders thereunder, at which time any security interests
granted hereby shall terminate and any and all rights to the Collateral shall
revert to the Grantor. Upon such termination, the Agent shall promptly return
to the Grantor, at the Grantor's expense, such of the Collateral held by the
Agent as shall not have been sold or otherwise applied pursuant to the terms
hereof. The Agent will promptly execute and deliver to the Grantor such other
documents as the Grantor shall reasonably request to evidence such termination.
9.14. Entire Agreement. This Security Agreement, the Credit Agreement and
----------------
the other Loan Documents embody the entire agreement and understanding among the
Grantor, the Agent and the Lenders relating to the Collateral and supersede all
prior written and oral agreements and understandings among the Grantor, the
Agent and the Lenders relating to the subject matter hereof.
9.15. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS
PROVISIONS, OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
9.16. Distribution of Reports. The Grantor authorizes the Agent and each
-----------------------
Lender, as the Agent or such Lender may elect in its sole discretion, to discuss
with and furnish to any other Person having an interest in the Obligations
(whether as a Grantor, pledgor of collateral, participant or otherwise) all
financial statements, audit reports and other information pertaining to the
Grantor or the Collateral whether such information was provided by the Grantor
or prepared or obtained by the Agent or such Lender provided that such Persons
shall be instructed to treat the information in a confidential matter. Neither
the Agent nor any Lender, nor any of such Person's employees, officers,
directors or agents makes any representation or warranty regarding any audit
reports or other analyses of the Grantor's condition which the Agent or such
Lender may in its sole discretion prepare and elect to distribute, nor shall the
Agent or any Lender, nor any such Person's employees, officers, directors or
agents be liable to any person or entity receiving a copy of such reports or
analyses for any inaccuracy or omission contained in or relating thereto.
9.17. Further Assurances. The Grantor agrees, at its own expense, to
------------------
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such other actions as the Agent may from
time to time reasonably request to assure, preserve, protect and perfect the
security interest granted hereby and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Security
-18-
<PAGE>
Agreement, the granting of such security interest and the filing of any
financing statements (including fixture filings) or other documents in
connection herewith.
10. NOTICES.
-------
10. Sending Notices. Any notice required or permitted to be given under
---------------
this Security Agreement shall be given in accordance with Section 13.1 of the
Credit Agreement and addressed to the Agent at the address set forth in the
Credit Agreement and addressed to the Grantor at the following address:
HomeBase, Inc.
3345 Michelson Drive
Irvine, California 92715
10.2. Change in Address for Notices. Each of the Grantor and the Agent
-----------------------------
may change the address for service of notice upon it by a notice in writing to
the other party hereto.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the Grantor has executed this Security Agreement as of the
date first above written.
HOMEBASE, INC. (presently known as Waban Inc.)
By: /s/ Edward J. Weisberger
-------------------------
Title: Chief Financial Officer
-----------------------
Accepted and Agreed to:
- ----------------------
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent for the Lenders
By: /s/ John Runger
---------------
Title: Managing Director
--------------------------------------------
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
This Stock Pledge Agreement (this "Pledge Agreement"), dated as of July 9,
1997, is by and between HOMEBASE, INC. (presently known as Waban Inc.), a
Delaware corporation (the "Pledgor"), and THE FIRST NATIONAL BANK OF CHICAGO, as
-------
Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement (as this and each other
capitalized term appearing herein is defined below) the Lenders have agreed to
make certain financial accommodations to the Pledgor;
WHEREAS, the Pledgor legally and beneficially owns all of the issued and
outstanding shares of capital stock of each now or hereafter existing Subsidiary
all of which shares of stock are described on Schedule A hereto; and
----------
WHEREAS, as a condition to entering into the Credit Agreement, the Agent
and the Lenders have requested that the Pledgor grant to the Agent, on behalf of
the Agent and the Lenders, a security interest in the Collateral which will be
effective on the Collateralization Date.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
-----------
As used in this Pledge Agreement:
"Agent" means The First National Bank of Chicago in its capacity as Agent
-----
for the Lenders and not in its individual capacity, and any successor Agent
appointed pursuant to Article X of the Credit Agreement.
"Collateral" means the Pledged Stock, the Stock Rights and all proceeds of
----------
the foregoing.
"Credit Agreement" means that certain Credit Agreement dated as of the date
----------------
hereof among the Pledgor, the Lenders and the Agent, as it may be amended,
supplemented, restated or otherwise modified from time to time.
"Default" means any one or more of the events described in Section 6.1
------- -----------
hereof.
"Indemnitee" means any person entitled to be indemnified by the Pledgor
----------
pursuant to Section 8 hereof.
---------
"Lien" means any security interest, mortgage, pledge, hypothecation,
----
assignment, lien, claim, charge, encumbrance, title retention agreement, or
lessor's interest, in, of or on the Collateral or any portion thereof.
<PAGE>
"Pledge Agreement" means this Stock Pledge Agreement, as it may be amended,
----------------
supplemented, restated or otherwise modified from time to time.
"Pledged Stock" means to the extent owned by the Pledgor, all of the
-------------
outstanding shares of capital stock of each now or hereafter existing Subsidiary
of the Pledgor. The Pledged Stock shall include, but shall not be limited to,
the shares of capital stock described on Schedule A hereto.
----------
"Section" means a numbered section of this Pledge Agreement, unless another
-------
document is specifically referenced.
"Stock Rights" means any stock, any dividend or other distribution and any
------------
other right or property which the Pledgor shall receive or shall become entitled
to receive for any reason whatsoever with respect to, in substitution for or in
exchange for any shares of Pledged Stock and any stock, any right to receive
stock and any right to receive earnings, in which the Pledgor now has or
hereafter acquires any right, issued by an issuer of the Pledged Stock.
"Unmatured Default" means an event which but for the lapse of time or the
-----------------
giving of notice, or both, would constitute a Default.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to such terms in the
Credit Agreement.
2. PLEDGE AND SECURITY INTEREST. In order to secure the full and
----------------------------
complete payment and performance by the Pledgor of the Obligations when due, the
Pledgor hereby pledges and grants to the Agent for the benefit of the Agent and
the Lenders, equally and ratably in proportion to the total Obligations owing at
any time to the Agent and the Lenders, a first priority lien on, and security
interest in, all of the Pledgor's right, title and interest in and to the
Collateral; provided, however, this pledge and grant of a lien on and security
interest in the Collateral and all of the rights and remedies appurtenant or
relating thereto shall not be effective until the Collateralization Date.
3. DEPOSIT OF CERTIFICATES FOR PLEDGED STOCK. The certificates
-----------------------------------------
representing the Pledged Stock listed on Schedule A attached hereto shall be
----------
delivered to the Agent by or on behalf of the Pledgor contemporaneously herewith
together with appropriate undated stock powers duly executed in blank. Neither
the Agent nor the Lenders shall be obligated to preserve or protect any rights
with respect to the Pledged Stock or to receive or give any notice with respect
thereto whether or not the Agent or any Lender are deemed to have knowledge of
such matters.
-2-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Pledgor represents and warrants, on the date hereof and on the
Collateralization Date, to the Agent, on behalf of the Lenders, which
representations and warranties shall survive the execution and delivery of this
Pledge Agreement and any investigation by or on behalf of the Agent or any
Lender, as follows:
4.1 Existence and Standing. The Pledgor is a corporation duly
----------------------
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and the Pledgor has all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
except where the failure to have such requisite authority would not have a
Material Adverse Effect.
4.2 Authorization, Validity and Enforceability. The Pledgor has the
------------------------------------------
requisite corporate power and authority and legal right to execute and deliver
this Pledge Agreement and to perform its obligations hereunder. The execution,
delivery and performance by the Pledgor of this Pledge Agreement has been duly
authorized by proper corporate proceedings, and this Pledge Agreement
constitutes the legal, valid and binding obligation of the Pledgor, enforceable
against the Pledgor in accordance with its terms and, effective upon the
Collateralization Date, will create a security interest which is enforceable
against the Pledgor in all now owned and hereafter acquired Collateral.
4.3 Conflicting Laws and Contracts. Neither the execution and delivery by
------------------------------
the Pledgor of this Pledge Agreement, nor the creation and perfection, upon the
occurrence of the Collateralization Date, of the security interest in the
Collateral to be granted hereunder, nor compliance by the Pledgor with the
provisions hereof will violate any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Pledgor or the Pledgor's article of
incorporation or by-laws, the provisions of any indenture, instrument or
agreement to which the Pledgor is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default thereunder (except
with respect to those agreements the consents of which have been obtained), or
result in the creation or imposition of any Lien (except to the extent created
by this Pledge Agreement) in, of or on the property of Pledgor pursuant to the
terms of any such indenture, instrument or agreement. No consent, authorization
or approval of, or any notice to or filing with, any Governmental Authority
which has not been obtained is required in connection with the execution,
delivery and performance by the Pledgor of this Pledge Agreement.
4.4 No Default. No Default or Unmatured Default exists.
----------
4.5 Pledged Stock. The Pledgor is the direct and beneficial owner of each
-------------
share of the Pledged Stock and the Pledged Stock represents the percentage (on a
fully diluted basis) of the issued and outstanding capital stock of its issuer
as set forth on Schedule A hereto as such Schedule has been amended or modified
----------
prior to the Collateralization Date. All of the shares of the Pledged Stock are
duly authorized, validly issued, fully paid and non-assessable. The Pledgor
-3-
<PAGE>
has good and marketable title to the Pledged Stock and has all requisite rights,
power, and authority to execute, deliver and comply with the terms of this
Pledge Agreement and, upon the occurrence of the Collateralization Date, to
pledge and deliver the Collateral to the Agent pursuant hereto. The Pledged
Stock is free and clear of all liens, options, warrants, puts, calls, or other
rights of third persons, and restrictions, other than (i) those Liens which may
arise under this Pledge Agreement and (ii) restrictions on transferability
imposed by applicable state and Federal securities laws, rules and regulations.
Assuming the Agent has possession of the Pledged Stock, the pledge, assignment
and delivery of the Pledged Stock pursuant to this Pledge Agreement will create,
upon the occurrence of the Collateralization Date, a valid, continuing, first
perfected Lien on the Pledged Stock in favor of the Agent, for the benefit of
the Agent and the Lenders, subject to no prior Lien of any other Person.
5. COVENANTS.
---------
From the Collateralization Date and continuing thereafter until this Pledge
Agreement is terminated pursuant to Section 8.11 hereof, the Pledgor covenants
------------
and agrees with the Agent and the Lenders as follows:
5.1 Pledge of Additional Stock. If the Pledgor shall at any time acquire
--------------------------
any additional shares of the capital stock of any class of the Pledged Stock,
whether such acquisition shall be by purchase, exchange, reclassification,
dividend, or otherwise, or acquire any new shares of capital stock of any newly
formed or acquired Subsidiary, the Pledgor shall deliver within 20 days
thereafter (and without the necessity for any request or demand by the Agent or
any Lender) the certificates representing such shares to the Agent, in the same
manner as described in Section 3 hereof. The Pledgor will hold in trust for the
---------
Agent and the Lenders upon receipt and immediately thereafter deliver to the
Agent any other instrument evidencing or constituting Collateral (except, prior
to the occurrence of an Unmatured Default or a Default, ordinary cash dividends,
if any, paid with respect to the Pledged Stock and the Stock Rights and
permitted by the Credit Agreement).
5.2 Title; Security Interest and Lien. The Pledgor (a) will preserve,
---------------------------------
warrant, and defend title to and ownership of the Pledged Stock and the Lien in
the Collateral created hereby against the claims of all Persons whomsoever; (b)
except as permitted by the Credit Agreement will not at any time assign,
transfer, or otherwise dispose of its right, title and interest in and to any of
the Collateral; (c) will not do or suffer any matter or thing whereby the Lien
created by this Pledge Agreement in and to the Collateral might or could be
impaired; and (d) will not at any time, directly or indirectly, create, assume,
or suffer to exist any Lien, warrant, put, option, or other rights of third
Persons and restrictions in and to the Collateral or any part thereof other than
(i) those Liens arising under this Pledge Agreement and (ii) restrictions on
transferability imposed by applicable state and Federal securities laws, rules
and regulations.
5.3 Further Assurances. The Pledgor, at its expense, shall from time to
------------------
time execute, acknowledge, and deliver to the Agent and caused to be duly filed
all such other assignments, certificates, supplemental documents and financing
statements, and do all other acts or things as
-4-
<PAGE>
the Agent may reasonably request in order to more fully create, evidence,
perfect, continue and preserve the priority of the Lien created hereby.
5.4 Pledged Stock.
-------------
5.4.1 Changes in Capital Structure of Issuers. Except as permitted by
---------------------------------------
the Credit Agreement, the Pledgor will not (i) permit or suffer any issuer
of Pledged Stock to dissolve, liquidate, retire any of its capital stock,
reduce its capital or merge or consolidate with any other entity, except as
expressly permitted by the Credit Agreement, or (ii) vote any of the
Pledged Stock in favor of any of the foregoing.
5.4.2 Issuance of Additional Stock. Except as permitted by the Credit
----------------------------
Agreement, the Pledgor will not permit or suffer the issuer of any of the
Pledged Stock to issue any stock, any right to receive stock or any right
to receive earnings, except to the Pledgor.
5.4.3 Disposition of Collateral. Except as permitted by the Credit
-------------------------
Agreement, the Pledgor will not sell or otherwise dispose of all or any
part of the Collateral.
5.4.4 Registration of Pledged Stock. After the occurrence of a
-----------------------------
Default, the Pledgor will, to the extent permitted by applicable law,
permit any registerable Collateral to be registered in the name of the
Agent or its nominee at any time at the option of the Required Lenders.
5.4.5 Exercise of Rights in Pledged Stock. The Pledgor will permit
-----------------------------------
the Agent or its nominee at any time after the occurrence of a Default,
without notice, to exercise all voting and corporate rights relating to the
Collateral, including, without limitation, exchange, subscription or any
other rights, privileges, or options pertaining to any shares of the
Pledged Stock and the Stock Rights as if it were the absolute owner
thereof.
5.5 Notice of Default. The Pledgor will give prompt notice in writing to
-----------------
the Agent and the Lenders of the occurrence of any Default or Unmatured Default.
6. RIGHTS OF PLEDGOR, AGENT AND THE LENDERS.
----------------------------------------
6.1 Default; Exercise of Stockholder Rights.
---------------------------------------
(a) Unless and until an Unmatured Default or a Default shall occur and
be continuing, the Collateralization Date shall have occurred and subject
to the proviso to the second sentence of Section 5.1 above, the Pledgor
-----------
shall be entitled to receive all cash dividends or other distributions on
the Pledged Stock except distributions made in capital stock on the Pledged
Stock resulting from stock dividends on or subdivision, combination, or
reclassification of the outstanding capital stock of any issuer of Pledged
Stock or as a result of any merger, consolidation, acquisition or other
exchange of assets of any
-5-
<PAGE>
corporation. All such sums, dividends, distributions, proceeds or property
described in the immediately preceding sentence shall, if received by any
Person other than the Agent, be held in trust for the benefit of the Agent
and the Lenders and shall forthwith be delivered to the Agent for the
benefit of the Agent and the Lenders (accompanied by proper instruments of
assignment and/or stock powers executed by the Pledgor in accordance with
the Agent's instructions) to be held subject to the terms of this Pledge
Agreement. Upon the occurrence of the Collateralization Date and a Default
and for so long as such Default is continuing, the Agent, for the benefit
of the Agent and the Lenders, shall be entitled to receive all payments of
whatever kind made upon or with respect to any Collateral and to hold such
payments as Collateral or apply such payments pursuant to the terms of this
Pledge Agreement and the Credit Agreement. The relative rights of the Agent
and the Lenders to receive such payments shall be in proportion to the
relative amounts of all Obligations owing to the Agent and the Lenders and
the aggregate amount of all Obligations then outstanding. As used herein,
the term "Default" shall mean the occurrence of any one or more of the
following events:
(A) Any representation or warranty made by or on behalf of the
Pledgor to the Agent or the Lenders under or in connection with this
Pledge Agreement shall be materially false on the date as of which
made.
(B) The breach by the Pledgor of any of the terms or provisions
of Sections 5.1, 5.2, 5.4.1, 5.4.2, 5.4.3, 5.4.5 or 5.5 hereof.
------------ --- ----- ----- ----- ----- ---
(C) The breach by the Pledgor (other than a breach which
constitutes a Default under Sections 6.1(a)(A) or 6.1(a)(B) above) of
------------------ ---------
any of the terms or provisions of this Pledge Agreement which is not
remedied within ten (10) days after the giving of written notice by
the Agent.
(D) Upon the occurrence of the Collateralization Date, the Agent
shall not have a first perfected security interest in the Collateral,
other than cash dividends and other distributions which the Pledgor is
entitled to retain pursuant to Section 6.1 hereof.
-----------
(E) The occurrence of any "Default" under, and as defined in, the
Credit Agreement.
(b) Prior to the occurrence of a Default, the Pledgor shall have the
sole and exclusive right to vote and give consents with respect to all of
the Collateral and to consent to, ratify, or waive notice of any and all
meetings. Upon the occurrence of a Default and for so long as such Default
is continuing, the Agent, on behalf of the Lenders, shall have the right,
but shall not be obligated, (A) to vote and give consents with respect to
any merger, consolidation, liquidation or reorganization of the issuer of
any Pledged Stock (but in no event with respect to any election of
directors) and, in connection therewith, to join in and become a party to
any plan of recapitalization,
-6-
<PAGE>
reorganization, or readjustment (whether voluntary or involuntary) as shall
seem desirable to the Agent, on behalf of the Lenders, to protect or
further their interests in respect of the Collateral, (B) to deposit the
Collateral under any such plan, and (C) to make any exchange, substitution,
cancellation, or surrender of the Collateral required by any such plan and
to take such action with respect to the Collateral as may be required by
any such plan or for the accomplishment thereof, and no such disposition,
exchange, substitution, cancellation, or surrender shall be deemed to
constitute a release of the Collateral from the Lien of this Pledge
Agreement.
6.2 Right of Sale after Default. Upon the occurrence and during the
---------------------------
continuance of a Default, the Agent on behalf of the Lenders may exercise any or
all of the rights and remedies provided (i) in this Pledge Agreement, (ii) to a
secured party when a Pledgor is in default under a security agreement by the
Illinois Uniform Commercial Code and (iii) by any other applicable law
including, without limitation, any law governing the exercise of a bank's right
of setoff or bankers' lien. Without limiting the generality of the foregoing,
upon the occurrence and continuance of a Default, the Agent may sell, without
recourse to judicial proceedings, with the right to bid (to the extent
permitted by the Uniform Commercial Code as in effect in the State of Illinois
from time to time) for and buy, free from any right of redemption, the
Collateral or any part thereof, upon ten (10) days' notice (which notice is
agreed to be reasonable notice for the purposes hereof) to the Pledgor of the
time and place of sale, for cash, upon credit or for future delivery, at the
Lenders' option and in the Lenders' complete discretion:
(a) At public sale, including a sale at any broker's board or
exchange; and
(b) At private sale in any commercially reasonable manner which will
not require the Collateral, or any part thereof, to be registered in
accordance with the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder (collectively, the "Act"), or any other
---
law or regulation. The Agent and the Lenders are also hereby authorized,
but not obligated, to take such actions, give such notices, obtain such
consents, and do such other things as they may deem required or appropriate
in the event of sale or disposition of any of the Collateral. The Pledgor
understands that the Agent, on behalf of the Lenders, may in its discretion
approach a restricted number of potential purchasers and that a sale under
such circumstances may yield a lower price for the Collateral, or any
portion thereof, than would otherwise be obtainable if the same were
registered and sold in the open market. The Pledgor agrees that (i) in the
event the Agent shall so sell the Collateral, or any portion thereof, at
such private sale or sales, the Agent and the Lenders shall have the right
to rely upon the advice and opinion of any Person who regularly deals in or
evaluates stock of the type constituting the Collateral as to the price
obtainable in a commercially reasonable manner upon such a private sale
thereof, and (ii) such reliance shall be conclusive evidence that the Agent
and the Lenders handled such matter in a commercially reasonable manner.
In the case of any sale by the Agent on behalf of the Lenders of the
Collateral on credit or for future delivery, the Collateral sold may be retained
by the Agent until the selling price is
-7-
<PAGE>
paid by the purchaser, but neither the Agent nor any Lender shall incur
liability in case of failure of the purchaser to take up and pay for the
Collateral so sold.
6.3 Application of Proceeds. The Agent shall apply the proceeds of the
-----------------------
Collateral, including the proceeds of any sales or other disposition of the
Collateral, or any part thereof, under Section 6 hereof, in the following order
---------
unless a court of competent jurisdiction shall otherwise direct:
(a) FIRST, to payment of all reasonable costs and expenses of the
Agent and the Lenders incurred in connection with the collection and
enforcement of the Obligations or of any security interest granted to the
Agent and the Lenders pursuant to this Pledge Agreement, including all
costs and expenses of any sale pursuant hereto, and of any judicial or
private proceedings in which such sale may be made, and of all other
expenses, liabilities and advances made or incurred by the Agent, the
Lenders and the agents and attorneys of each of them, together with
interest at the rate applicable pursuant to the Credit Agreement during the
continuance of a Default on such costs, expenses and liabilities and on all
advances made by the Agent or any Lender from the date any such costs,
expense or liability is due, owing or unpaid or any such advance is made,
in each case until paid in full;
(b) SECOND, to payment of that portion of the Obligations constituting
accrued and unpaid interest and fees, pro rata amongst the Agent and the
Lenders in accordance with the proportion which the accrued interest and
fees constituting Obligations owing to the Agent and the Lenders bears to
the aggregate amount of accrued interest and fees constituting Obligations
owing to all of the Lenders and the Agent;
(c) THIRD, to payment of the outstanding principal amount of the
Obligations owing to the Lenders or any Lender, pro rata amongst the
Lenders in accordance with the proportion which the outstanding principal
amount of Obligations owing to each such Lender bears to the aggregate
outstanding principal amount of Obligations owing to all of the Lenders;
(d) FOURTH, to payment of any other Obligations due, owing or unpaid
in full including, without limitation, any Obligations incurred pursuant
hereto; and
(e) FIFTH, the balance, if any, after all of the Obligations have been
satisfied, shall be remitted as required by law.
6.4 Governance. All rights and remedies available to the Lenders with
----------
respect to the grant, foreclosure and enforcement of any security interest and
Lien granted hereby and with respect to any action permitted hereunder may,
subject to Section 7 hereof, be exercised solely by the Agent acting with the
---------
concurrence of the Required Lenders.
-8-
<PAGE>
7. WAIVERS, AMENDMENTS AND REMEDIES.
--------------------------------
7.1. No delay or omission of the Agent to exercise any right or remedy
granted under this Pledge Agreement shall impair such right or remedy or be
construed to be a waiver of any Default or an acquiescence therein, and any
single or partial exercise of any such right or remedy shall not preclude any
other or further exercise thereof or the exercise of any other right or remedy,
and no waiver, amendment or other variation of the terms, conditions or
provisions of this Pledge Agreement whatsoever shall be valid unless in writing
signed by the Agent with the concurrence of the Required Lenders (if so required
by the Credit Agreement), and then only to the extent in such writing
specifically set forth; provided, however, that any amendment purporting to (a)
-------- -------
release all or any portion of the Collateral or (b) assign any of the Pledgor's
rights or obligations hereunder shall, subject to Section 8.12 hereof, be valid
------------
only if signed by the Agent with the concurrence of all of the Lenders; and
provided, further, that any amendment of Schedule A hereto which adds Collateral
- -------- ------- --------
(or deletes Collateral released in accordance with the terms hereof) shall be
valid if signed by the Agent and the applicable Pledgor.
7.2 Remedies Cumulative. Each and every right, power and remedy hereby
-------------------
specifically given to the Agent, for the benefit of the Lenders, shall be in
addition to every other right, power and remedy specifically given under this
Agreement, the Credit Agreement or any other Loan Document or now or hereafter
existing at law or in equity, or by statute and each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time or simultaneously and as often and in such order as may be
deemed expedient by the Agent. All such rights, powers and remedies shall be
cumulative and the exercise or the beginning of exercise of one shall not be
deemed a waiver of the right to exercise any of the others.
8. GENERAL PROVISIONS.
------------------
8.1 Indemnity.
---------
(a) The Pledgor agrees to indemnify the Agent, the Lenders and their
respective successors, assigns, employees, agents and servants (each an
"Indemnitee") as provided by Section 9.7 of the Credit Agreement as if such
-----------
Section 9.7 were fully set forth herein.
(b) Without limiting the application of Section 8.1(a) hereof, the
Pledgor agrees to pay, or reimburse the Agent for any and all reasonable
fees (including, without limitation, reasonable attorneys' fees, which
attorneys may be employees of the Agent), costs and expenses of whatever
kind or nature incurred in connection with the creation, preservation or
protection of the Agent's security interest in the Collateral, including,
without limitation, all fees and taxes in connection with the recording or
filing of instruments and documents in public offices, payment or discharge
of any taxes (excluding income, franchise taxes or other taxes levied on
gross earnings, profits or the like) or Liens upon or in respect of the
Collateral, and all other reasonable fees, costs and expenses in connection
with preparing, executing, delivering or administering this Pledge
Agreement, in connection with protecting, maintaining or preserving the
pledge and the
-9-
<PAGE>
Agent's interest therein and in connection with the enforcement of this
Pledge Agreement or the sale of the Collateral, whether through judicial
proceedings or otherwise, or in defending or prosecuting any actions, suits
or proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of Section 8.1(a) or (b) hereof,
the Pledgor agrees to pay, indemnify and hold each Indemnitee harmless from
and against any losses, costs, damages and expenses which such Indemnitee
may suffer, expend or incur as a consequence or growing out of any
misrepresentation by the Pledgor in this Pledge Agreement or the Credit
Agreement or in any statement or writing contemplated by, made or delivered
pursuant to or in connection with this Pledge Agreement or the Credit
Agreement or arising out of or relating to any action taken or failure to
act by the Pledgor under or in respect of this Pledge Agreement, except to
the extent that any such loss arises out of the gross negligence or willful
misconduct of such Indemnitee.
(d) If and to the extent that the Obligations of the Pledgor under
this Section are unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
Obligations which is permissible under applicable law.
(e) The Obligations of the Pledgor contained in this Section 8.1 shall
survive the termination of this Pledge Agreement and the discharge of the
Pledgor's other Obligations hereunder.
8.2 Indemnity Obligation Secured by Collateral; Survival. Any amounts paid
----------------------------------------------------
by any Indemnitee as to which such Indemnitee has the right to reimbursement
shall constitute Obligations which, upon the Collateralization Date, shall be
secured by the Collateral. The indemnity obligations of the Pledgor contained in
this Pledge Agreement shall continue in full force and effect notwithstanding
the full payment of all amounts owing under the Credit Agreement and all of the
other Obligations and notwithstanding the discharge thereof and the termination
of this Pledge Agreement.
8.3 Secured Party Performance of Pledgor Obligations. Without having any
------------------------------------------------
obligation to do so, if a Default has occurred and is continuing the Agent may
perform or pay any obligation which the Pledgor has agreed to perform or pay in
this Pledge Agreement and the Pledgor shall reimburse the Agent for any amounts
paid by the Agent pursuant to this Section 8.3. The Pledgor's obligation to
-----------
reimburse the Agent pursuant to the preceding sentence shall constitute an
Obligation payable on demand.
8.4 Authorization for Secured Party to Take Certain Action. The Pledgor
------------------------------------------------------
irrevocably authorizes the Agent at any time and from time to time in the sole
discretion of the Agent and appoints the Agent as its attorney in fact to act on
behalf of the Pledgor (i) to execute on behalf of the Pledgor as Pledgor and to
file financing statements necessary or desirable in the Agent's sole discretion
to perfect and to maintain the perfection and priority of the Agent's security
-10-
<PAGE>
interest in the Collateral, (ii) upon the occurrence of a Default and for so
long as such Default is continuing, to indorse and collect any cash proceeds of
the Collateral, (iii) to file a carbon, photographic or other reproduction of
this Pledge Agreement or any financing statement with respect to the Collateral
as a financing statement in such offices as the Agent in its sole discretion
deems necessary or desirable to perfect and to maintain the perfection and
priority of the Agent's and the Lenders' security interest in the Collateral,
and (iv) to apply the proceeds of any Collateral received by the Agent to the
Obligations as provided in Section 6.3 hereof if a Default has occurred and is
-----------
continuing. In the event that the Agent or any Lender shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Agent or such Lender may recover reasonable expenses, including
attorneys' fees, which attorneys may be employees of the Agent, and the amounts
thereof shall be included in such judgment.
In case the Agent or any Lender shall have instituted any proceeding
to enforce any right, power or remedy under this Security Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Agent or such Lender, then and in every such case the Pledgor and the
Agent or such Lender shall be restored to their respective former positions and
rights hereunder with respect to the Collateral, and all rights, remedies and
powers of the Agent or such Lender shall continue as if no such proceeding had
been instituted.
8.5 Specific Performance of Certain Covenants. The Pledgor acknowledges
-----------------------------------------
and agrees that a breach of any of the covenants contained in Sections 5.1, 5.2
------------ ---
and 5.4 will cause irreparable injury to the Agent and the Lenders, that the
---
Agent and Lenders have no adequate remedy at law in respect of such breaches and
therefore agrees, without limiting the right of the Agent or the Lenders to seek
and obtain specific performance of other obligations of the Pledgor contained in
this Pledge Agreement, that the covenants of the Pledgor contained in the
Sections referred to in this Section 8.5 shall be specifically enforceable
-----------
against the Pledgor.
8.6 Definition of Certain Terms. Terms defined in the Illinois Uniform
---------------------------
Commercial Code which are not otherwise defined in this Pledge Agreement are
used in this Pledge Agreement as defined in the Illinois Uniform Commercial Code
as in effect on the date hereof.
8.7 Benefit of Agreement. The terms and provisions of this Pledge
--------------------
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Agent and the Lenders and their respective successors and assigns, except that
the Pledgor shall not have the right to assign its rights or obligations under
this Pledge Agreement or any interest herein, without the prior written consent
of the Agent and the Lenders.
8.8 Survival of Representations. All representations and warranties of
---------------------------
the Pledgor contained in this Pledge Agreement shall survive the execution and
delivery of this Pledge Agreement.
-11-
<PAGE>
8.9 Taxes. Any taxes (including income taxes other than taxes on the
-----
overall net income of the Lenders) payable or ruled payable by any Federal or
State authority in respect of this Pledge Agreement shall be paid by the
Pledgor, together with interest and penalties, if any.
8.10. Headings. The title of and section headings in this Pledge Agreement
--------
are for convenience of reference only, and shall not govern the interpretation
of any of the terms and provisions of this Pledge Agreement.
8.11. Termination. This Pledge Agreement and upon the occurrence of the
-----------
Collateralization Date, the Lien arising hereunder shall (i) become effective as
of the date hereof upon the execution hereof or, as to the Lien, upon the
occurrence of the Collateralization Date and (ii) continue in effect
(notwithstanding the fact that from time to time there may be no Obligations or
commitments therefor outstanding) until no Obligations or commitments of the
Agent or the Lenders which could give rise to any Obligations shall be
outstanding and the Credit Agreement shall have terminated in accordance with
its terms. Upon the termination of this Pledge Agreement, the Agent will
promptly deliver to the Pledgor (or to such other Person as the Pledgor or a
court of competent jurisdiction shall direct), any Pledged Stock then still held
by the Agent and not theretofore disposed of in foreclosure or otherwise. Such
delivery shall be without warranty of, or recourse to, the Agent or any Lender.
8.12. Releases; Partial Releases. Any cash dividends received by the
--------------------------
Pledgor in accordance with the terms of Section 6.1(a) hereof shall be deemed
--------------
released from any Lien arising under this Pledge Agreement and shall be held by
the Pledgor (or any transferee of Pledgor) free and clear of the Lien created
under this Pledge Agreement. Upon termination of this Pledge Agreement in
accordance with the provisions of Section 8.11 hereof or, so long as no Default
------------
or Unmatured Default has occurred and is continuing, upon any sale of Collateral
permitted by Section 6.13 hereof of the Credit Agreement, the Agent shall, at
------------
the Pledgor's request and expense, execute such release as the Pledgor may
reasonably request, in form and upon terms acceptable to the Agent in all
respects, and, to the extent permitted in accordance with Section 8.11 hereof,
------------
shall deliver all certificates representing the Pledged Stock and other property
held in respect thereof hereunder which is in the Agent's possession, together
with all stock powers or other instruments of transfer reasonably required to
effect delivery to Pledgor.
8.13. Entire Agreement. This Pledge Agreement embodies the entire
----------------
agreement and understanding among the Pledgor, the Lenders and the Agent
relating to the Collateral and supersedes all prior written or oral agreements
and understandings among the Pledgor, the Lenders and the Agent relating to the
Collateral.
8.14. CHOICE OF LAW; CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THIS
-------------------------------------------------------------
PLEDGE AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE AT CHICAGO, ILLINOIS, AND
SHALL BE CONSTRUED AND THE RIGHTS AND LIABILITIES OF THE AGENT, THE LENDERS AND
THE PLEDGOR DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS, WITHOUT REGARD TO
CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS,
-12-
<PAGE>
BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE PLEDGOR
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK
COUNTY, ILLINOIS, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MESSENGER OR BY REGISTERED
MAIL DIRECTED TO THE PLEDGOR AT THE ADDRESS INDICATED ON SCHEDULE B ATTACHED
----------
HERETO, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE (3) DAYS AFTER
THE SAME SHALL HAVE BEEN POSTED AS AFORESAID. THE PLEDGOR WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION
----- --- ----------
INSTITUTED HEREUNDER. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE
AGENT OR THE LENDERS TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO BRING ANY ACTION OR
PROCEEDING AGAINST THE PLEDGOR OR ITS RESPECTIVE PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION.
8.15. WAIVER OF JURY TRIAL. THE PLEDGOR AND, BY THEIR ACCEPTANCE HEREOF,
--------------------
THE AGENT AND EACH LENDER, WAIVE TRIAL BY JURY WITH RESPECT TO DISPUTES ARISING
HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS.
8.16. Waivers. Except to the extent expressly otherwise provided herein or
-------
in any Loan Document, the Pledgor waives, to the extent permitted by applicable
law, (i) any right to require the Agent or any Lender to proceed against any
other Person, to exhaust their rights in any other collateral, or to pursue any
other right which the Agent or any Lender may have, (ii) with respect to the
Obligations, presentment and demand for payment, protest, notice of protest and
non-payment, and notice of the intention to accelerate, and (iii) all rights of
marshalling in respect of any and all of the Collateral.
8.17. Agent Appointed Attorney-In-Fact. The Pledgor hereby irrevocably
--------------------------------
appoints the Agent as Pledgor's attorney-in-fact, with full authority in the
place and stead of the Pledgor and in the name of the Pledgor or otherwise, from
time to time in the Agent's discretion reasonably exercised, to take any action
and to execute any instrument that the Agent deems reasonably necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, upon the occurrence of a Default and for so long as such
Default is continuing, to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
8.18. Severability. The provisions of this Pledge Agreement are severable
------------
and if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part, then such invalidity or unenforceability shall attach only to
such clause or provision, or part thereof, and shall not in any manner affect
such clause or provision in any other jurisdiction or any other clause or
provision in this Pledge Agreement or any jurisdiction.
-13-
<PAGE>
9. NOTICES.
-------
9.1 Sending Notices. Any notice required or permitted to be given under
---------------
this Agreement may be, and shall be deemed, given and sent in accordance with
the provisions of Section 13.1 of the Credit Agreement, addressed to the
Pledgor, at its address set forth on Schedule B hereto, and to the Agent, at its
----------
address set forth in the Credit Agreement.
9.2 Change in Address for Notices. Each of the Pledgor and the Agent may
-----------------------------
change the address for service of notice upon it by a notice in writing to the
other party.
10. THE AGENT.
---------
The First National Bank of Chicago has been appointed Agent hereunder
pursuant to Article X of the Credit Agreement, and the Agent has agreed to act
(and any successor Agent shall act) as such only upon the express conditions
contained in such Article X. Any successor Agent appointed pursuant to Article
X of the Credit Agreement shall be entitled to all the rights, interests and
benefits of the Agent hereunder.
[signature page follows]
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Stock Pledge Agreement
as of the date first above written.
HOMEBASE, INC. (PRESENTLY KNOWN AS WABAN INC.)
By:/s/ Edward J. Weisberger
------------------------
Name:Edward J. Weisberger
--------------------
Title:Chief Financial Officer
-----------------------
THE FIRST NATIONAL BANK OF CHICAGO, AS AGENT
By:/s/ John Runger
---------------
Name:John Runger
-----------
Title:Managing Director
-----------------
<PAGE>
SUBSIDIARIES GUARANTY
---------------------
This Subsidiaries Guaranty (this "Guaranty") is made as of July 9, 1997 by
--------
each of the corporations that is a signatory hereto (individually, a
"Guarantor"; collectively, the "Guarantors"), in favor of the Agent and the
--------- ----------
Lenders (as hereinafter defined).
R E C I T A L S:
---------------
A. HomeBase, Inc. (presently known as Waban Inc.), a Delaware
corporation, (the "Borrower"), the financial institutions named therein (the
--------
"Lenders") and The First National Bank of Chicago, as Agent (the "Agent"), have
- -------- -----
entered into a certain Credit Agreement dated as of the date hereof (as from
time to time amended, restated, supplemented or otherwise modified, the "Credit
------
Agreement"). Each term used but not otherwise defined herein shall have the
- ---------
meaning ascribed to such term by the Credit Agreement;
B. Each of the Guarantors is a direct or indirect Subsidiary of the
Borrower and will receive substantial and direct benefits from the extensions of
credit contemplated by the Credit Agreement and is entering into this Guaranty
to induce the Agent and the Lenders to enter into the Credit Agreement and
extend credit to the Borrower thereunder; and
C. The execution and delivery of this Guaranty is a condition precedent
to the obligation of the Lenders to extend credit to the Borrower pursuant to
the Credit Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration and as an inducement to the Lenders to enter into the
Credit Agreement and extend credit to the Borrower, each Guarantor hereby agrees
as follows:
1. Each Guarantor, jointly and severally, hereby absolutely,
irrevocably and unconditionally guarantees prompt, full and complete payment
when due, whether at stated maturity, upon acceleration or otherwise, and at all
times thereafter, of (a) the principal of and interest on the Loans made by the
Lenders to, and the Note(s) held by each Lender of, the Borrower and (b) all
other amounts constituting Obligations under Credit Agreement (collectively, the
"Guaranteed Debt"). This is a guaranty of payment, not a guaranty of
---------------
collection.
2. Each Guarantor waives notice of the acceptance of this Guaranty
and of the extension or incurrence of the Guaranteed Debt or any part thereof.
Each Guarantor further waives all setoffs and counterclaims and presentment,
protest, notice, filing of claims with a court in the event of receivership,
bankruptcy or reorganization of the Borrower, demand or action on delinquency in
respect of the Guaranteed Debt or any part thereof, including any right to
require the Agent or the Lenders to sue the Borrower, any other Guarantor or
any other Person obligated with respect to the Guaranteed Debt or any part
thereof, or otherwise to enforce payment thereof against any collateral securing
the Guaranteed Debt or any part thereof.
<PAGE>
3. Each Guarantor hereby agrees that, to the fullest extent
permitted by law, its obligations hereunder shall be continuing, absolute and
unconditional under any and all circumstances and not subject to any reduction,
limitation, impairment, termination, defense (other than indefeasible payment in
full), setoff, counterclaim or recoupment whatsoever (all of which are hereby
expressly waived by it to the fullest extent permitted by law), whether by
reason of any claim of any character whatsoever, including, without limitation,
any claim of waiver, release, surrender, alteration or compromise. The validity
and enforceability of this Guaranty shall not be impaired or affected by any of
the following: (a) any extension, modification or renewal of, or indulgence with
respect to, or substitution for, the Guaranteed Debt or any part thereof or any
agreement relating thereto at any time; (b) any failure or omission to perfect
or maintain any lien on, or preserve rights to, any security or collateral or to
enforce any right, power or remedy with respect to the Guaranteed Debt or any
part thereof or any agreement relating thereto, or any collateral securing the
Guaranteed Debt or any part thereof; (c) any waiver of any right, power or
remedy or of any default with respect to the Guaranteed Debt or any part thereof
or any agreement relating thereto or with respect to any collateral securing the
Guaranteed Debt or any part thereof; (d) any release, surrender, compromise,
settlement, waiver, subordination or modification, with or without
consideration, of any collateral securing the Guaranteed Debt or any part
thereof, any other guaranties with respect to the Guaranteed Debt or any part
thereof, or any other obligations of any person or entity with respect to the
Guaranteed Debt or any part thereof; (e) the enforceability or validity of the
Guaranteed Debt or any part thereof or the genuineness, enforceability or
validity of any agreement relating thereto or with respect to any collateral
securing the Guaranteed Debt or any part thereof; (f) the application of
payments received from any source to the payment of indebtedness other than the
Guaranteed Debt, any part thereof or amounts which are not covered by this
Guaranty even though the Lenders might lawfully have elected to apply such
payments to any part or all of the Guaranteed Debt or to amounts which are not
covered by this Guaranty; (g) any change of ownership of the Borrower or the
insolvency, bankruptcy or any other change in the legal status of the Borrower;
(h) any change in, or the imposition of, any law, decree, regulation or other
governmental act which does or might impair, delay or in any way affect the
validity, enforceability or the payment when due of the Guaranteed Debt; (i) the
failure of the Borrower to maintain in full force, validity or effect or to
obtain or renew when required all governmental and other approvals, licenses or
consents required in connection with the Guaranteed Debt or this Guaranty, or to
take any other action required in connection with the performance of all
obligations pursuant to the Guaranteed Debt or this Guaranty; (j) the existence
of any claim, setoff or other rights which any Guarantor may have at any time
against the Borrower or any other Guarantor or any other Person in connection
herewith or with any unrelated transaction; (k) the Lenders' election, in any
case or proceeding instituted under chapter 11 of the United States Bankruptcy
Code, of the application of Section 1111(b)(2) of the United States Bankruptcy
Code; (l) any borrowing, use of cash collateral, or grant of a security interest
by the Borrower, as debtor in possession, under Section 363 or 364 of the United
States Bankruptcy Code; (m) the disallowance of all or any portion of any of the
Lenders' claims for repayment of the Guaranteed Debt under Section 502 or 506 of
the United States Bankruptcy Code; or (n) any other fact or circumstance which
might otherwise constitute grounds at law or equity for the discharge or release
of any Guarantor from its obligations hereunder, all whether or not such
Guarantor shall
-2-
<PAGE>
have had notice or knowledge of any act or omission referred to in the foregoing
clauses (a) through (n) of this paragraph. It is agreed that each Guarantor's
liability hereunder is independent of each other Guarantor's liability hereunder
with respect to the Guaranteed Debt and any other guaranties or other
obligations at any time in effect with respect to the Guaranteed Debt or any
part thereof, and that each Guarantor's liability hereunder may be enforced
regardless of the existence, validity, enforcement or non-enforcement of any
such other guaranties or other obligations or any provision of any applicable
law or regulation purporting to prohibit payment by the Borrower of the
Guaranteed Debt in the manner agreed upon among the Agent, the Lenders and the
Borrower.
4. Credit may be granted or continued from time to time by the
Lenders to the Borrower without notice to or authorization from any Guarantor
regardless of the Borrower's financial or other condition at the time of any
such grant or continuation. Neither the Agent nor any Lender shall have an
obligation to disclose or discuss with any Guarantor its assessment of the
financial condition of the Borrower.
5. Until the irrevocable payment in full of the Obligations and
termination of all commitments which could give rise to any Obligation, the
Guarantors shall not assert any right of subrogation with respect to the
Guaranteed Debt and shall suspend any right to enforce any remedy which the
Agent or the Lenders now have or may hereafter have against the Borrower, any
endorser, any other Guarantor or any other guarantor of all or any part of the
Guaranteed Debt, and the Guarantors hereby shall suspend any benefit of, and any
right to participate in, any security or collateral given to the Agent or the
Lenders to secure payment of the Guaranteed Debt or any part thereof or any
other liability of the Borrower to the Agent or the Lenders. Upon such
irrevocable payment and termination, (i) the Borrower shall indemnify such
Guarantor for the full amount of any payment made by such Guarantor under this
Guaranty, (ii) Guarantor shall have all common law rights of contribution and
reimbursement against any other Guarantor or any other guarantor of all or any
part of the Guaranteed Debt and (iii) such Guarantor shall be subrogated to the
rights of the Person to whom such payment shall have been made to the extent of
such payment including any rights of such Person to collateral securing
Borrower's obligations to such Person.
6. Each Guarantor authorizes the Lenders to take any action or
exercise any remedy with respect to any collateral from time to time securing
the Guaranteed Debt, which the Lenders in their sole discretion shall determine,
without notice to any Guarantor. Notwithstanding any reference herein to any
collateral securing any of the Guaranteed Debt, it is acknowledged that, on the
date hereof, the Borrower and certain Guarantors have entered into an agreement
pursuant to which the Lenders will be granted a security interest in certain of
its property as security for the Guaranteed Debt.
7. In the event the Lenders in their sole discretion elect to give
notice of any action with respect to any collateral securing the Guaranteed Debt
or any part thereof, ten (10) days' written notice mailed to the Guarantors by
ordinary mail at the address shown hereon shall be deemed reasonable notice of
any matters contained in such notice. Each Guarantor consents
-3-
<PAGE>
and agrees that neither the Agent nor the Lenders shall be under any obligation
to marshall any assets in favor of any Guarantor or against or in payment of any
or all of the Guaranteed Debt.
8. In the event that acceleration of the time for payment of any of
the Guaranteed Debt is stayed upon the insolvency, bankruptcy or reorganization
of the Borrower, or otherwise, all such amounts shall nonetheless be payable by
each Guarantor forthwith upon demand by the Agent or the Lenders. Each
Guarantor further agrees that, to the extent that the Borrower makes a payment
or payments to any of the Lenders on the Guaranteed Debt, or the Agent or the
Lenders receive any proceeds of collateral securing the Guaranteed Debt, which
payment or receipt of proceeds or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be returned
or repaid to such Borrower, its estate, trustee, receiver, debtor in possession
or any other party, including, without limitation, each Guarantor, under any
insolvency or bankruptcy law, state or federal law, common law or equitable
cause, then to the extent of such payment, return or repayment, the obligation
or part thereof which has been paid, reduced or satisfied by such amount shall
be reinstated and continued in full force and effect as of the date when such
initial payment, reduction or satisfaction occurred.
9. No delay on the part of the Agent or the Lenders in the exercise
of any right, power or remedy shall operate as a waiver thereof, and no single
or partial exercise by the Agent or the Lenders of any right, power or remedy
shall preclude any further exercise thereof; nor shall any amendment,
supplement, modification or waiver of any of the terms or provisions of this
Guaranty be binding upon the Agent or the Lenders, except as expressly set forth
in a writing duly signed and delivered on the Lenders' behalf by the Agent. The
failure by the Agent or the Lenders at any time or times hereafter to require
strict performance by the Borrower or any Guarantor of any of the provisions,
warranties, terms and conditions contained in any promissory note, security
agreement, agreement, guaranty, Loan Document or any other instrument or
document now or at any time or times hereafter executed pursuant to the terms
of, or in connection with, the Credit Agreement by the Borrower or any Guarantor
and delivered to the Agent or the Lenders shall not waive, affect or diminish
any right of the Agent or the Lenders at any time or times hereafter to demand
strict performance thereof, and such right shall not be deemed to have been
waived by any act or knowledge of the Agent or the Lenders, their agents,
officers or employees, unless such waiver is contained in an instrument in
writing duly signed and delivered on the Lenders' behalf by the Agent. No
waiver by the Agent or the Lenders of any default shall operate as a waiver of
any other default or the same default on a future occasion, and no action by the
Agent or the Lenders permitted hereunder shall in any way affect or impair the
Agent's or the Lenders' rights or powers, or the obligations of any Guarantor
under this Guaranty. Any determination by a court of competent jurisdiction of
the amount of any Guaranteed Debt owing by the Borrower to the Lenders shall be
conclusive and binding on each Guarantor irrespective of whether such Guarantor
was a party to the suit or action in which such determination was made.
10. Each Guarantor hereby represents and warrants to the Agent and
the Lenders that:
-4-
<PAGE>
(a) such Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to
own its assets and carry on its business as now being or as proposed to be
conducted, and is duly qualified and in good standing as a foreign
corporation and is duly authorized to conduct its business in each
jurisdiction in which its business is conducted or proposed to be
conducted;
(b) such Guarantor has all requisite power and authority
(corporate and otherwise) and legal right to execute and deliver this
Guaranty and to perform its obligations hereunder;
(c) the execution and delivery by such Guarantor of this Guaranty
and the performance of its obligations hereunder have been duly authorized
by proper corporate proceedings and this Guaranty has been duly and validly
executed and delivered by such Guarantor and this Guaranty constitutes the
legal, valid and binding obligations of such Guarantor, enforceable against
such Guarantor, in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally; and
(d) neither the execution and delivery by such Guarantor of this
Guaranty nor compliance with the provisions of this Guaranty will, or at
the relevant time did, (i) violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Guarantor or such
Guarantor's charter, articles or certificate of incorporation or by-laws,
(ii) violate the provisions of or require the approval or consent of any
party to any indenture, instrument or agreement to which such Guarantor is
a party or is subject, or by which it, or its property, is bound, or
conflict with or constitute a default thereunder, or result in the creation
or imposition of any Lien (other than Liens permitted by, and created
under, the Loan Documents) in, of or on the property of such Guarantor
pursuant to the terms of any such indenture, instrument or agreement, or
(iii) require any consent of the stockholders of any Person or any
Governmental Authority.
Each Guarantor agrees that the foregoing representations and warranties shall be
deemed to have been made by such Guarantor on the date of this Guaranty and on
the date of each Borrowing Notice with respect to each Advance and each Issuance
Notice with respect to each Facility Letter of Credit under the Credit Agreement
on and as of such Borrowing Date.
11. Each Guarantor (a "Contributing Guarantor") agrees (subject to
----------------------
the last sentence of this Section) that, in the event a payment shall be made by
any other Guarantor under this Guaranty or assets of any other Guarantor shall
be sold pursuant to any Subsidiary Security Document to satisfy any of the
Guaranteed Debt and such other Guarantor (the "Claiming Guarantor") shall not
------------------
have been fully indemnified by the Borrower as provided in Section 5 hereof the
Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal
to the amount of such payment or the greater of the book value or the fair
market value of such
-5-
<PAGE>
assets, as the case may be, in each case multiplied by a fraction of which the
numerator shall be the net worth of the Contributing Guarantor on the date
hereof and the denominator shall be the aggregate net worth of all the
Guarantors on the date hereof (or, in the case of any Guarantor becoming a party
hereto pursuant to Section 12 hereof the date of the Supplement hereto executed
and delivered by such Guarantor). Any Contributing Guarantor making any payment
to a Claiming Guarantor pursuant to this Section 11 shall be subrogated to the
rights of such Claiming Guarantor under Section 5 hereof to the extent of such
payment. Notwithstanding any provision of this Agreement to the contrary, all
rights of the Guarantors under Section 5 hereof and this Section 11 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise relating to or arising out of performance of this Guaranty, shall be
fully subordinated to the indefeasible payment in full in cash of the Guaranteed
Debt. No failure on the part of the Borrower or any Guarantor to make the
payments required by Section 5 hereof or this Section 11 (or any other payments
required under applicable law or otherwise) shall in any respect limit the
obligations and liabilities of any Guarantor with respect to this Guaranty, and
each Guarantor shall remain liable for the full amount of the obligations of
such Guarantor under this Guaranty.
12. Pursuant to Section 6.22 of the Credit Agreement, certain
Subsidiaries are from time to time required to enter into this Guaranty as a
Guarantor. Upon execution and delivery after the date hereof by the Agent and a
Subsidiary of a supplement in the form of Exhibit A hereto, such Subsidiary
---------
shall become a Guarantor hereunder with the same force and effect as if
originally named as a Guarantor herein. The execution and delivery of any
instrument adding an additional Guarantor as a party to this Agreement shall not
require the consent of any Guarantor hereunder, of the Borrower or of any
Lender. The rights and obligations of each Guarantor hereunder shall remain in
full force and effect notwithstanding the addition of any new Guarantor as a
party hereto.
Notwithstanding anything herein to the contrary any Real Estate Subsidiary
incurring Indebtedness pursuant to Section 6.11(g) of the Credit Agreement shall
be released from this Guaranty upon the written consent of the Agent, so long as
the prepayment of Loans and reduction of Commitments set forth in Section 2.5 of
the Credit Agreement occurs simultaneously therewith and so long as the
Indebtedness incurred is not less than 50% of the fair market value of the real
estate owned by such Real Estate Subsidiary. The rights and obligations of each
Guarantor hereunder (other than a Real Estate Subsidiary released pursuant to
this Section 12) shall remain in full force and effect notwithstanding the
release of any Real Estate Subsidiary as a party hereto.
13. Subject to the provisions of Section 8 hereof this Guaranty shall
continue in effect until the Credit Agreement has terminated, the Guaranteed
Debt has been irrevocably paid in full and the other conditions of this Guaranty
have been satisfied.
14. In addition to and without limitation of any rights, powers or
remedies of the Agent or the Lenders under applicable law, any time after
maturity of the Guaranteed Debt, whether by acceleration or otherwise, the Agent
or the Lenders may, in their sole discretion, with
-6-
<PAGE>
notice after the fact to the Guarantors and regardless of the acceptance of any
security or collateral for the payment hereof, appropriate and apply toward the
payment of the Guaranteed Debt (a) any indebtedness due or to become due from
any of the Lenders to any Guarantor, and (b) any moneys, credits or other
property belonging to any Guarantor (including all account balances, whether
provisional or final and whether or not collected or available) at any time held
by or coming into the possession of any of the Agent or any Lender whether for
deposit or otherwise.
15. Each Guarantor agrees to pay all reasonable costs, fees and
expenses (including attorneys' fees and time charges, which attorneys may be
employees of the Agent or a Lender) incurred by the Agent or any Lender in
collecting or enforcing the obligations of such Guarantor under this Guaranty.
16. This Guaranty shall bind each Guarantor and its successors and
assigns and shall inure to the benefit of the Agent, the Lenders and their
successors and assigns. All references herein to the Lenders shall for all
purposes also include all Purchasers and Participants (as such terms are defined
in the Credit Agreement). All references herein to the Borrower shall be deemed
to include its successors and assigns including, without limitation, a receiver,
trustee or debtor in possession of or for the Borrower.
17. THIS GUARANTY SHALL BE DEEMED TO HAVE BEEN MADE AT CHICAGO,
ILLINOIS, AND SHALL BE CONSTRUED AND THE RIGHTS AND LIABILITIES OF THE AGENT,
THE LENDERS AND THE GUARANTORS DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAWS,
WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. EACH GUARANTOR
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK
COUNTY, ILLINOIS, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MESSENGER OR BY REGISTERED
MAIL DIRECTED TO SUCH GUARANTOR AT THE ADDRESS INDICATED BELOW, AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED SEVEN (7) DAYS AFTER THE SAME SHALL HAVE
BEEN POSTED AS AFORESAID. EACH GUARANTOR WAIVES ANY OBJECTION BASED ON FORUM
-----
NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER.
- --------------
NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
THE AGENT OR THE LENDERS TO BRING ANY ACTION OR PROCEEDING AGAINST ANY GUARANTOR
OR ITS RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
18. EACH GUARANTOR AND, BY THEIR ACCEPTANCE HEREOF, THE AGENT AND
EACH LENDER, WAIVE TRIAL BY JURY WITH RESPECT TO DISPUTES ARISING HEREUNDER.
-7-
<PAGE>
19. Wherever possible, each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
20. It is understood that while the amount of the Guaranteed Debt
guaranteed hereby is not limited, if in any action or proceeding involving any
state, federal or foreign bankruptcy, insolvency or other law affecting the
rights of creditors generally, this Guaranty would be held or determined to be
void, invalid or unenforceable on account of the amount of the aggregate
liability under this Guaranty with respect to one or more of the Guarantors,
then, notwithstanding any other provision of this Guaranty to the contrary, the
aggregate amount of such liability shall, with respect to any such Guarantor,
without any further action of the Agent, the Lenders or any other Person, be
automatically limited and reduced with respect to any such Guarantor to the
highest amount which is valid and enforceable as determined in such action or
proceeding.
21. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered to any party hereto under
this Guaranty shall be in writing by telex, facsimile, U.S. mail or overnight
courier and addressed or delivered to such party (a) if to the Agent or the
Lenders, at their respective addresses set forth in the Credit Agreement, or (b)
if to any Guarantor, at their address indicated on Exhibit B hereto, or to such
---------
other address as the Agent or the Lenders or any Guarantor designates to the
Agent in writing. All notices by United States mail shall be sent certified
mail, return receipt requested. All notices hereunder shall be effective upon
delivery or refusal of receipt; provided, however, that any notice transmitted
-------- -------
by telex or facsimile shall be deemed given when transmitted (answerback
confirmed in the case of telexes).
22. All payments required to be made by the Guarantor hereunder shall
be made without setoff or counterclaim and free and clear of and without
deduction or withholding for or on account of, any present or future taxes,
levies, imposts, duties or other charges of whatsoever nature imposed by any
government or any political or taxing authority thereof, provided, however, that
if the Guarantor is required by law to make such deduction or withholding, the
Guarantor shall forthwith pay to the Agent or any Lender, as applicable, such
additional amount as results in the net amount received by the Agent or any
Lender, as applicable, equaling the full amount which would have been received
by Agent or any Lender, as applicable, had no such deduction or withholding been
made.
[signature page to follow]
-8-
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the date
first above written.
HOMECLUB, INC. OF TEXAS
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HOMECLUB, INC.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HCI DEVELOPMENT CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HOMECLUB FIRST REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HCWA REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
-9-
<PAGE>
HBNM REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HCCA REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HBCA 1993 REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HBOR REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HBUT REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
HCWA 1993 REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Senior Vice President
---------------------
-10-
<PAGE>
HBCO REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
HBCO 1994 REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
HBNM 1994 REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
HB VACAVILLE REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
HB POMONA REALTY CORP.
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
-11-
<PAGE>
The undersigned hereby acknowledges the
foregoing Guaranty and agrees to Section 6
thereof as of the date first written above
HOMEBASE, INC. (presently known as Waban Inc.)
By: /s/ Edward J. Weisberger
-------------------------
Its: Chief Financial Officer
-----------------------
-1-
<PAGE>
Exhibit 11
HOMEBASE INC. AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------- ---------------------------
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income as reported $ 14,598,000 $ 25,612,000 $ 25,401,000 $ 35,127,000
============ ============ ============ ============
Net income used for primary
computation $ 14,598,000 $ 25,612,000 $ 25,401,000 $ 35,127,000
Add (where dilutive):
Tax effected interest and
amortization of debt expense
on convertible debt - 1,086,000 1,071,000 2,171,000
------------ ------------ ------------ ------------
Net income used for fully
diluted computation $ 14,598,000 $ 26,698,000 $ 26,472,000 $ 37,298,000
============ ============ ============ ============
Weighted average number of
common shares outstanding 35,134,957 33,000,625 33,964,021 32,958,451
Add (where dilutive):
Assumed exercise of those
options that are common stock
equivalents net of treasury
shares deemed to have been
repurchased 525,101 358,925 512,689 381,386
------------ ------------ ------------ ------------
Weighted average number of
common and common equivalent
shares outstanding, used for
primary computation 35,660,058 33,359,550 34,476,710 33,339,837
Add (where dilutive):
Shares applicable to stock
options in addition to
those used in primary
computation due to the use
of period-end market price
when higher than average
price 111,444 - 154,709 -
Assumed exercise of convertible
securities 2,156,066 4,387,879 3,260,640 4,387,879
------------ ------------ ------------ ------------
Adjusted shares outstanding used
for fully diluted computation 37,927,568 37,747,429 37,892,059 37,727,716
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOMEBASE
INC. CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS FILED
WITH THE FORM 10-Q FOR THE QUARTER ENDED JULY 26, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-26-1997
<CASH> 13,070
<SECURITIES> 0
<RECEIVABLES> 34,050
<ALLOWANCES> 0
<INVENTORY> 305,295
<CURRENT-ASSETS> 368,968
<PP&E> 358,467
<DEPRECIATION> 108,483
<TOTAL-ASSETS> 637,974
<CURRENT-LIABILITIES> 177,883
<BONDS> 39,830
0
0
<COMMON> 375
<OTHER-SE> 373,172
<TOTAL-LIABILITY-AND-EQUITY> 637,974
<SALES> 780,608
<TOTAL-REVENUES> 780,608
<CGS> 609,308
<TOTAL-COSTS> 609,308
<OTHER-EXPENSES> 144,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,173
<INCOME-PRETAX> 22,407
<INCOME-TAX> 8,918
<INCOME-CONTINUING> 13,489
<DISCONTINUED> 20,575
<EXTRAORDINARY> (8,663)
<CHANGES> 0
<NET-INCOME> 25,401
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.70
</TABLE>
