<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 28, 1997
--------------------------------
HomeBase, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
1-10259 33-0109661
- ------------------------------ ------------------------------------------
(Commission File number) (I.R.S. Employer Identification No.)
Support Center Offices 3345 Michelson Drive, Irvine, California 92715
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code (714) 442-5000
------------------------------
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(Former name or former address, if changed since last report)
1
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On July 28, 1997, Waban Inc. ("Waban") consummated the spin-off (the
"Spin-Off") of its BJ's Wholesale Club business through a tax-free distribution
in the form of a special dividend to its stockholders pursuant to the terms of a
Separation and Distribution Agreement (the "Distribution Agreement"), by and
between Waban and BJ's Wholesale Club, Inc. ("BJI"), a Delaware corporation
and, as of the date of the Distribution Agreement, a wholly-owned subsidiary of
Waban. Pursuant to the Distribution Agreement, the BJ Wholesale Club business
was transferred to BJI (the "Separation"). After the Separation, all of the
outstanding shares of BJI Common Stock was distributed, on a one-for-one basis,
to the holders of Waban Common Stock.
In accordance with the transactions contemplated by the Distribution
Agreement and previously announced plans, Waban has changed its name to
HomeBase, Inc., effective 5:00 p.m. Eastern time, July 28, 1997. As of Tuesday,
July 29, 1997, HomeBase, Inc. Common Stock is traded on the New York Stock
Exchange under the symbol "HBI."
A copy of the press release dated July 28, 1997 with respect to the
Spin-Off is filed as Exhibit 99.1 hereto.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
b. Pro Forma Financial Information
<PAGE>
PRO FORMA FINANCIAL DATA OF WABAN
The following unaudited pro forma financial data for the period ended
April 26, 1997 and as of April 26, 1997 illustrates the estimated effects
on Waban of the proposed Distribution and (i) the repayment by BJI to Waban of
intercompany indebtedness and current taxes payable, (ii) the prepayment of
Waban's Senior Notes and Senior Subordinated Notes, (iii) borrowings under
a new credit agreement that Waban expects to enter into with a group of banks,
effective with the Distribution and (iv) the full or partial conversion of
Waban's Convertible Debentures (the "Related Waban Transactions"). The Company
has called the Convertible Debentures for redemption and, in connection
therewith, has entered into the Standby Purchase Agreement. See "Standby
Agreement" and "Risk Factors--Conversion or Redemption of Convertible
Debentures" in the Proxy Statement/Prospectus filed with the Commission on June
6, 1997. The pro forma financial data has been prepared to present two
alternative scenarios. Scenario A gives pro forma effect to the conversion of
all of the Convertible Debentures into Waban Common Stock. Scenario B gives pro
forma effect to the redemption of $53,474,000 of the Convertible Debentures for
cash and the conversion of the remaining Convertible Debentures.
The unaudited pro forma financial data of Waban does not purport to
represent what the financial position or results of operations of Waban would
have been if the Distribution and Related Waban Transactions had in fact been
consummated on the dates indicated or at any future date. The pro forma
adjustments are based upon available information and upon certain assumptions
that Waban's management believes are reasonable in the circumstances.
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<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
April 26, 1997
(Dollars in thousands)
Scenario A - Conversion of All Convertible Debentures into Common Stock
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $33,461 (1,100) (1) $4,161
27,500 (2)
(138,200) (3)
82,500 (6)
Accounts receivable 49,809 (22,320) (7) 27,489
Merchandise inventories 653,490 (317,056) (7) 336,434
Current deferred income taxes 16,939 (6,186) (7) 10,753
Prepaid expenses 11,371 (5,312) (7) 6,059
---------- ----------
Total current assets 765,070 384,896
Property, net of depreciation 623,901 (378,517) (7) 245,384
Intercompany debt - 9,508 (4) -
(98,797) (5)
(82,500) (6)
171,789 (7)
Other assets 32,822 (1,307) (1) 17,962
(2,093) (3)
(11,460) (7)
---------- ----------
Total assets $1,421,793 $648,242
========== ==========
LIABILITIES
-----------
Current Liabilities:
Current installments of long-term debt $12,409 (12,000) (3) $235
(174) (7)
Accounts payable 316,764 (187,158) (7) 129,606
Accrued expenses and other current liabilities 131,752 (58,736) (7) 73,016
Accrued federal and state income taxes 9,278 (529) (1) 2,150
(5,751) (3)
(848) (3)
9,508 (4)
(9,508) (7)
---------- ----------
Total current liabilities 470,203 205,007
Noncurrent liabilities 75,104 (28,269) (7) 46,835
Long-term debt 230,765 (106,949) (1) 36,763
27,500 (2)
(112,000) (3)
(2,553) (7)
STOCKHOLDERS' EQUITY
--------------------
Common stock 333 43 (1) 376
Additional paid-in capital 330,227 98,613 (1) 359,261
(69,579) (7)
Treasury stock (7,515) 7,515 (1) -
Retained earnings 322,676 (1,100) (1) -
(8,449) (3)
(1,245) (3)
(98,797) (5)
(213,085) (7)
---------- ----------
Total stockholders' equity 645,721 359,637
---------- ----------
Total liabilities and stockholders' equity $1,421,793 $648,242
========== ==========
</TABLE>
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<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
Thirteen Weeks Ended April 26, 1997
(Dollars in thousands, except per share data)
Scenario A - Conversion of All Convertible Debentures into Common Stock
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Total revenues $1,039,151 (678,947) (1) $360,204
---------- --------
Cost of sales, including buying and occupancy costs 894,458 (612,199) (1) 282,259
Selling, general and administrative expenses 121,692 (50,248) (1) 71,444
Interest on debt and capital leases, net 5,291 (4,459) (2) 832
---------- --------
Total expenses 1,021,441 354,535
---------- --------
Income from continuing operations before taxes 17,710 5,669
Provision for income taxes 6,907 (4,696) (3) 2,211
---------- --------
Income from continuing operations $10,803 $3,458
========== ========
Pro forma earnings per share from continuing operations $0.09
========
</TABLE>
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<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO A--CONVERSION OF ALL CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of the Convertible Debentures (net of
$1,307,000 unamortized debt expense and related tax benefit) into 4,321,171
shares of common stock and to record payment of $1,100,000 pursuant to the
Standby Purchase Agreement.
(2) Adjustment to record borrowings of $27,500,000 under a new credit
agreement that Waban expects to enter into with a group of banks, effective
with the Distribution. These borrowings, combined with the $82,500,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $28,200,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000) and Senior Subordinated Notes
($100,000,000) plus $14,200,000 of prepayment penalties (see Note (3) which
follows).
(3) Adjustment to record repayment of the Senior Notes and Senior
Subordinated Notes and related prepayment penalties of approximately
$14,200,000, the write-off of unamortized debt expense of $2,093,000, and
related tax benefits as of April 26, 1997, the date of the pro forma
condensed balance sheet.
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $98,797,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $82,500,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $282,664,000 excluding Waban's forgiveness of BJI's
intercompany indebtedness (see Note (5) above). $213,085,000 of this amount
is charged to Waban's retained earnings, reducing that balance to zero; the
remaining $69,579,000 is charged to additional paid-in capital.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change quarterly interest
expense by $8,594.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
37,193,415 shares of common stock outstanding (including 4,321,171 shares of
common stock issued upon conversion of the Convertible Debentures) plus
583,969 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
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<PAGE>
WABAN INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
April 26, 1997
(Dollars in thousands)
Scenario B-Partial Conversion of Convertible Debentures into Common Stock
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------- ------------- -----------
<S> <C> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $33,461 (1,100) (1) $2,230
40,868 (2)
(193,605) (3)
122,606 (6)
Accounts receivable 49,809 (22,320) (7) 27,489
Merchandise inventories 653,490 (317,056) (7) 336,434
Current deferred income taxes 16,939 (6,186) (7) 10,753
Prepaid expenses 11,371 (5,312) (7) 6,059
------------- -----------
Total current assets 765,070 382,965
Property, net of depreciation 623,901 (378,517) (7) 245,384
Intercompany debt - 9,508 (4) -
(58,691) (5)
(122,606) (6)
171,789 (7)
Other assets 32,822 (654) (1) 17,962
(2,746) (3)
(11,460) (7)
------------- -----------
Total assets $1,421,793 $646,311
============= ===========
LIABILITIES
-----------
Current Liabilities:
Current installments of long-term debt $12,409 (174) (7) $235
(12,000) (3)
Accounts payable 316,764 (187,158) (7) 129,606
Accrued expenses and other current liabilities 131,752 (58,736) (7) 73,016
Accrued federal and state income taxes 9,278 (265) (1) 1,368
(6,533) (3)
(1,112) (3)
9,508 (4)
(9,508) (7)
------------- -----------
Total current liabilities 470,203 204,225
Noncurrent liabilities 75,104 (28,269) (7) 46,835
Long-term debt 230,765 (53,475) (1) 50,131
40,868 (2)
(165,474) (3)
(2,553) (7)
STOCKHOLDERS' EQUITY
--------------------
Common stock 333 22 (1) 355
Additional paid-in capital 330,227 45,549 (1) 344,765
(31,011) (7)
Treasury stock (7,515) 7,515 (1) -
Retained earnings 322,676 (1,100) (1) -
(9,598) (3)
(1,634) (3)
(58,691) (5)
(251,653) (7)
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Total stockholders' equity 645,721 345,120
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Total liabilities and stockholders' equity $1,421,793 $646,311
============= ===========
</TABLE>
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<PAGE>
WABAN INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
Thirteen Weeks Ended April 26, 1997
(Dollars in thousands, except per share data)
Scenario B - Partial Conversion of Convertible Debentures into Common Stock
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Total revenues $ 1,039,151 (678,947)(1) $ 360,204
----------- -----------
Cost of sales, including buying and occupancy costs 894,458 (612,199)(1) 282,259
Selling, general and administrative expenses 121,692 (50,248)(1) 71,444
Interest on debt and capital leases, net 5,291 (4,209)(2) 1,082
----------- -----------
Total expenses 1,021,441 354,785
----------- -----------
Income from continuing operations before taxes 17,710 5,419
Provision for income taxes 6,907 (4,793)(3) 2,114
----------- -----------
Income from continuing operations $ 10,803 $ 3,305
=========== ===========
Pro forma earnings per share from continuing operations $ 0.09
===========
</TABLE>
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<PAGE>
WABAN INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SCENARIO B--PARTIAL CONVERSION OF CONVERTIBLE DEBENTURES INTO COMMON STOCK
NOTES TO PRO FORMA CONDENSED BALANCE SHEET
(1) Adjustment to record conversion of $53,475,000 of the Convertible
Debentures (net of the payment of $1,100,000 pursuant to the Standby
Purchase Agreement and net of $654,000 unamortized debt expense and related
tax benefit) into 2,160,606 shares of common stock.
(2) Adjustment to record borrowings of $40,868,000 under a new credit
agreement that Waban expects to enter into with a group of banks, effective
with the Distribution. These borrowings, combined with the $122,606,000
received from BJI in repayment of intercompany indebtedness (see Note (6)
which follows) and $30,131,000 of Waban's available cash, will be used to
repay the Senior Notes ($24,000,000), Senior Subordinated Notes
($100,000,000), and $53,474,000 of the Convertible Debentures plus $16,131,000
of prepayment penalties (see Note (3)).
(3) Adjustment to record repayment of the Senior Notes, Senior
Subordinated Notes and $53,474,000 of the Convertible Debentures and
related prepayment penalties of approximately $16,131,000, the write-off of
unamortized debt expense of $2,746,000, and related tax benefits as of
April 26, 1997, the date of the pro forma condensed balance sheet.
(4) Adjustment to record transfer of BJI's current taxes payable to Waban
through the intercompany balance.
(5) Adjustment to record forgiveness of $58,691,000 of BJI's intercompany
indebtedness.
(6) Adjustment to record cash received of $122,606,000 from BJI in
repayment of intercompany indebtedness.
(7) Adjustment to reflect the distribution of the remainder of BJI's net
assets, which total $282,664,000, excluding Waban's forgiveness of BJI's
intercompany indebtedness (See Note (5) above). $251,653,000 of this amount is
charged to Waban's retained earnings; the remaining $31,011,000 is charged to
additional paid-in capital.
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME
(1) Adjustment to separate the operating revenues and expenses of BJI's
discontinued operations.
(2) Adjustment to reflect interest expense on anticipated reduced
borrowings using an assumed interest rate of 7.50%. Each variance of 1/8 of
one percent from this assumed interest rate would change quarterly interest
expense by $12,771.
(3) Adjustment to income tax provision for the estimated income tax
effect of the pro forma adjustments.
Pro forma earnings per share from continuing operations is based on
35,032,850 shares of common stock outstanding (including 2,160,606 shares of
common stock issued upon conversion of the Convertible Debentures) plus
583,969 common equivalent shares, using the treasury stock method of
accounting for outstanding stock options.
-9-
<PAGE>
c. Exhibits
10.1 Separation and Distribution Agreement, dated as of July 10, 1997, by
and between Waban and BJI.
10.2 Services Agreement, dated as of July 28, 1997, by and between Waban
and BJI.
10.3 Tax Sharing Agreement, dated as of July 28, 1997, by and between
Waban and BJI.
10.4 Employee Benefits Agreement, dated as of July 28, 1997, by and
between Waban and BJI.
99.1 July 28, 1997 press release relating to the spin-off by Waban Inc.
of its BJ's Wholesale Club business, its name change to HomeBase,
Inc. and its trading on the New York Stock Exchange under the symbol
"HBI."
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf by
the undersigned hereunto duly authorized.
Date: August 5, 1997
HomeBase, Inc.
By: /s/ Allan Sherman
-----------------------
Allan Sherman
President and Chief Executive Officer
<PAGE>
EXHIBIT 10.1
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- --------------------------------------------------------------------------------
SEPARATION AND DISTRIBUTION AGREEMENT
Dated as of July 10, 1997
BETWEEN
WABAN INC.
AND
BJ'S WHOLESALE CLUB, INC.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS...................................................................................... 1
ARTICLE 2 THE SEPARATION................................................................................... 6
2.1 Adoption of BJI Charter, BJI By-Laws and BJI Rights Plan......................................... 6
2.2 Transfer of BJI Assets and Assumption of BJI Assumed Liabilities................................. 7
2.2.1 BJI Assets.............................................................................. 7
2.2.2 BJI Assumed Liabilities................................................................. 7
2.2.3 Transfers Not Consummated On or Prior to the Distribution Date.......................... 7
2.2.4 Further Assurances; Subsequent Transfers................................................ 7
2.2.5 No Representations or Warranties; Consents.............................................. 9
2.3 Intercompany Accounts............................................................................ 9
2.4 Ancillary Agreements............................................................................. 9
2.5 Issuance of BJI Common Stock..................................................................... 9
2.6 Resignations..................................................................................... 10
2.7 Insurance........................................................................................ 10
2.7.1 General................................................................................. 10
2.7.2 Certain Insured Claims.................................................................. 10
2.8 Non-Exclusive License to Name.................................................................... 11
ARTICLE 3 THE DISTRIBUTION................................................................................. 11
3.1 Action Prior to the Distribution................................................................. 11
3.1.1 BJI Form 8-A............................................................................ 11
3.1.2 S-8 Registration Statements............................................................. 12
3.1.3 Matters Pertaining to Blue Sky Laws Compliance.......................................... 12
3.1.4 New York Stock Exchange Listing......................................................... 12
3.2 Conditions Precedent to the Distribution......................................................... 12
3.3 Waban Board Action............................................................................... 13
3.4 The Distribution................................................................................. 13
ARTICLE 4 CERTAIN MATTERS RELATING TO LEASE LIABILITIES.................................................... 13
4.1 Certain Definitions.............................................................................. 13
4.2 Indemnified HomeBase Lease Liabilities........................................................... 15
4.2.1 Control of HomeBase Third Party Claims.................................................. 15
4.2.2 Reports................................................................................. 17
4.2.3 Settlements............................................................................. 17
4.2.4 Indemnification Agreement............................................................... 17
</TABLE>
Separation and Distribution Agreement
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<PAGE>
<TABLE>
<S> <C>
4.3 Lease Renewals................................................................................... 18
4.4 Reimbursement.................................................................................... 18
ARTICLE 5 INDEMNIFICATION.................................................................................. 18
5.1 Certain Definitions.............................................................................. 18
5.2 Indemnification by Waban......................................................................... 19
5.3 Indemnification by BJI........................................................................... 19
5.4 Limitations on Indemnification Obligations....................................................... 20
5.5 Procedure for Indemnification.................................................................... 21
5.5.1 Third Party Claims; Notice.............................................................. 21
5.5.2 Defense of Third Party Claims........................................................... 21
5.5.3 Cooperation by Indemnitee............................................................... 22
5.5.4 Limitation on Authority to Settle Claim................................................. 22
5.5.5 Other Claims............................................................................ 22
5.5.6 Advancement of Certain Expenses......................................................... 22
5.5.7 Subrogation to Rights of Indemnitee..................................................... 23
5.6 Insurance........................................................................................ 23
5.7 Special Provision Relating to Certain Pre-Distribution Liabilities............................... 23
5.8 Remedies Cumulative.............................................................................. 23
5.9 Nature of Indemnity Payments..................................................................... 23
ARTICLE 6 ACCESS TO INFORMATION............................................................................ 23
6.1 Provision of Corporate Records................................................................... 23
6.2 Access to Information............................................................................ 24
6.3 Production of Witnesses.......................................................................... 24
6.4 Reimbursement.................................................................................... 24
6.5 Retention of Records............................................................................. 24
6.6 Confidentiality.................................................................................. 25
ARTICLE 7 MISCELLANEOUS.................................................................................... 25
7.1 Rules of Construction............................................................................ 25
7.2 Survival of Agreements........................................................................... 25
7.3 Expenses......................................................................................... 25
7.4 Governing Law.................................................................................... 26
7.5 Notices.......................................................................................... 26
7.6 Amendments....................................................................................... 26
7.7 Successors and Assigns........................................................................... 27
7.8 Termination...................................................................................... 27
7.9 Third Party Beneficiaries........................................................................ 27
7.10 Titles and Headings.............................................................................. 27
</TABLE>
Separation and Distribution Agreement
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<PAGE>
<TABLE>
<S> <C>
7.11 Exhibits and Schedules........................................................................... 27
7.12 Counterparts..................................................................................... 27
7.13 Legal Enforceability............................................................................. 27
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
A BJ's Assets
B BJ's Assumed Liabilities
C BJ's Subsidiaries
D HomeBase Subsidiaries
E Intercompany Accounts
</TABLE>
Separation and Distribution Agreement
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<PAGE>
SEPARATION AND DISTRIBUTION AGREEMENT
This SEPARATION AND DISTRIBUTION AGREEMENT (the "Agreement"), dated as
of July 10, 1997, is between Waban Inc., a Delaware corporation ("Waban"), and
BJ's Wholesale Club, Inc., a Delaware corporation and, as of the date hereof, a
wholly owned subsidiary of Waban ("BJI").
WHEREAS, Waban currently owns and operates "BJ's Wholesale Club," a food
and general merchandise warehouse club business, and "HomeBase," a home
improvement warehouse business;
WHEREAS, the Board of Directors of Waban has determined that it is in
the best interests of Waban and its stockholders to separate the "BJ's Wholesale
Club" and "HomeBase" businesses into two distinct companies by transferring the
BJ's Wholesale Club business to BJI (the "Separation") and, then, distributing
all of the outstanding shares of BJI Common Stock on a pro rata basis to the
holders of Waban Common Stock (the "Distribution"); and
WHEREAS, Waban and BJI have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Separation and the Distribution and to set forth other agreements that will
govern certain relationships and other matters between Waban and BJI in
connection with, and following, the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Action" means any action, suit, arbitration, inquiry, proceeding or
------
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
Separation and Distribution Agreement
-1-
<PAGE>
"Affiliate" means "affiliate" as defined in Rule 12b-2 promulgated under
---------
the Exchange Act, as such Rule is in effect on the date hereof; provided,
--------
however, that BJI and the BJI Subsidiaries, on the one hand, and Waban and the
- -------
Waban Subsidiaries, on the other hand, shall not be deemed Affiliates of each
other for purposes of this Agreement.
"Ancillary Agreements" means all of the agreements, instruments,
--------------------
understandings, assignments or other arrangements entered into in connection
with the Distribution, including, without limitation, (i) the Conveyancing
Instruments, (ii) the Services Agreement, (iii) the Tax Sharing Agreement and
(iv) the Employee Benefits Agreement.
"BJI" has the meaning ascribed in the Preamble .
---
"BJI Assets" means collectively, those assets of Waban identified
---
on Schedule A hereto to be transferred to BJI in accordance with Article 2 of
----------
this Agreement.
"BJI Assumed Liabilities" means collectively, those Liabilities of Waban
-----------------------
identified on Schedule B hereto to be assumed by BJI in accordance with Article
----------
2 of this Agreement.
"BJI Board" means the Board of Directors of BJI.
---------
"BJI Business" means the business, assets and operations of the "BJ's
------------
Wholesale Club" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued prior to
the Distribution Date (provided, however, that the warehouse clubs initially
operated by the BJ's Wholesale Club division and subsequently transferred to the
HomeBase division shall be considered part of the BJI Business only for the
period operated by the BJ's Wholesale Club division).
"BJI By-Laws" means the Amended and Restated By-Laws of BJI,
-----------
substantially in the form filed as an exhibit to the BJI Form S-1, to be in
effect on the Distribution Date.
"BJI Charter" means the Amended and Restated Certificate of
-----------
Incorporation of BJI, substantially in the form filed as an exhibit to the BJI
Form S-1, to be in effect on the Distribution Date.
"BJI Common Stock" means the common stock, par value $.01 per share, of
----------------
BJI.
"BJI Default Period" has the meaning ascribed in Section 4.1.
------------------
Separation and Distribution Agreement
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<PAGE>
"BJI Form S-1" means the Registration Statement on Form S-1 filed by BJI
------------
and the Registration Statement on Form S-3 filed by Waban with the Commission to
effect, among other things, the registration of the BJI Common Stock and the BJI
Rights to be issued in the Distribution pursuant to the Securities Act.
"BJI Indemnitees" has the meaning ascribed in Section 5.1.
---------------
"BJI Lease" has the meaning ascribed in Section 4.1.
---------
"BJI Rights" means the Preferred Stock Purchase Rights of BJI issued
----------
under the BJI Rights Plan.
"BJI Rights Plan" means the BJI Preferred Stock Purchase Rights Plan, in
---------------
substantially the form filed as an exhibit to the BJI Form S-1, to be adopted by
BJI prior to the Distribution Date.
"BJI Subsidiaries" means the Subsidiaries of Waban listed on Schedule C
---------------- ----------
hereto, each of which will become Subsidiaries of BJI, or of another Subsidiary
of BJI, on or prior to the Distribution Date.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
----
include corresponding provisions of any subsequently enacted federal tax law.
"Commission" means the Securities and Exchange Commission.
----------
"Conveyancing Instruments" means collectively, the various agreements,
------------------------
instruments and other documents, in form and substance mutually satisfactory to
Waban and BJI, to be entered into to effect the transfer of the BJI Assets by
Waban to BJI and the assumption by BJI of the BJI Assumed Liabilities.
"Distribution" has the meaning ascribed in the Preamble.
------------
"Distribution Agent" means the distribution agent for the stockholders
------------------
of Waban, as appointed by Waban, to distribute shares of BJI Common Stock and
the BJI Rights pursuant to the Distribution.
"Distribution Date" means the close of business on the date to be
-----------------
determined by the Waban Board as of which the Distribution shall be effected.
"Distribution Record Date" means the close of business on the date to be
------------------------
determined by the Waban Board as the record date for the Distribution.
Separation and Distribution Agreement
-3-
<PAGE>
"Employee Benefits Agreement" means the Employee Benefits Agreement in
---------------------------
substantially the form filed as an exhibit to the BJI Form S-1, to be entered
into between Waban and BJI.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"HomeBase Control Event" has the meaning ascribed in Section 4.2.
----------------------
"HomeBase Control Period" has the meaning ascribed in Section 4.1.
-----------------------
"HomeBase Business" means the business, assets and operations of the
-----------------
"HomeBase" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued prior to
Distribution Date (provided, however, that the warehouse clubs initially
operated by the BJ's Wholesale Club division of Waban and subsequently
transferred to the HomeBase division shall not be considered part of the
HomeBase Business for the period operated by the BJ's Wholesale Club division).
"HomeBase Lease" has the meaning ascribed in Section 4.1.
--------------
"HomeBase Third Party Claim" has the meaning ascribed in Section 4.1.
--------------------------
"Indemnifiable Losses" has the meaning ascribed in Section 5.1.
--------------------
"Indemnified HomeBase Lease Liabilities" has the meaning ascribed in
--------------------------------------
Section 4.1.
"Indemnifying Party" has the meaning ascribed in Section 5.4.
------------------
"Indemnitee" has the meaning ascribed in Section 5.4.
----------
"Information" has the meaning ascribed in Section 6.2.
-----------
"Insurance Program" means the various insurance policies maintained by
-----------------
Waban pursuant to which various insurance carriers provide insurance coverage to
Waban and its subsidiaries (including, prior to the Distribution Date, BJI and
the BJI Subsidiaries).
"IRS" means the Internal Revenue Service.
---
Separation and Distribution Agreement
-4-
<PAGE>
"Liabilities" means any and all debts, liabilities and obligations,
-----------
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising (unless otherwise
specified in this Agreement), including all costs and expenses (including
reasonable attorneys' fees and disbursements) relating thereto, and including,
without limitation, 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.
"Person" means any natural person or any corporation, association,
------
partnership, limited liability company, joint venture, company, trust,
organization, business or government or any governmental agency or political
subdivision thereof.
"Prospectus/Proxy Statement" means the Prospectus/Proxy Statement
--------------------------
included in the BJ's Form S-1 and sent to the holders of Waban Common Stock in
connection with the meeting of stockholders of Waban called to approve the
Distribution.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Services Agreement" means the Services Agreement, in substantially the
------------------
form filed as an exhibit to the BJI Form S-1, pursuant to which BJI will provide
various services to Waban.
"Subsidiary" means with respect to any Person, any other Person of which
----------
such Person shall at the time own, directly or indirectly through one or more
Subsidiaries, at least a majority of the outstanding capital stock (or other
shares of beneficial interest) entitled to vote generally, or shall hold at
least a majority of partnership or similar interests, or shall be a general
partner.
"Tax Sharing Agreement" means the Tax Sharing Agreement, in
---------------------
substantially the form filed as an exhibit to the BJI Form S-1, to be entered
into between Waban and BJI.
"Third Party Claim" has the meaning ascribed in Section 5.5.1.
-----------------
"TJX" means The TJX Companies, Inc.
---
"TJX Indemnification Agreement" has the meaning ascribed in Section 4.1.
-----------------------------
"Waban" has the meaning ascribed in the Preamble.
-----
"Waban Board" means the Board of Directors of Waban.
-----------
Separation and Distribution Agreement
-5-
<PAGE>
"Waban Business" means the assets, business and operations of Waban
--------------
heretofore, currently or hereafter held or conducted, including without
limitation all businesses, assets or operations managed or operated by, or
operationally related to, any of such businesses which have been sold or
otherwise disposed of or discontinued prior to the Distribution Date, in each
case other than the BJI Business.
"Waban Common Stock" means the common stock, par value $.01 per share,
------------------
of Waban.
"Waban Indemnitees" has the meaning ascribed in Section 5.1.
-----------------
"Waban Liabilities" means all Liabilities of Waban or any Waban
-----------------
Subsidiary,including all Liabilities arising out of or in connection with or
relating principally to the Waban Business including, without limitation, any
and all liabilities arising under any lease for which Waban is or may be liable,
other than leases which are BJI Assumed Liabilities (such leases, excluding
leases which are BJI Assumed Liabilities, being referred to as the "Waban
Leases"); provided, however, that the term "Waban Liabilities" shall not include
-------- -------
any BJI Assumed Liabilities.
"Waban Rights" means the Preferred Stock Purchase Rights of Waban issued
------------
under Waban's Preferred Stock Purchase Rights Plan.
"Waban Subsidiaries" means the Subsidiaries of Waban other than BJI or
------------------
any BJI Subsidiary, including, without limitation, the entities listed on
Schedule D.
ARTICLE 2
THE SEPARATION
This Article 2 sets forth certain transactions to be consummated on or
prior to the Distribution Date in connection with the separation of Waban's BJ's
Wholesale Club and HomeBase divisions into two separate companies and the
transfer of the BJ's Wholesale Club business of Waban to BJI in contemplation of
the Distribution. Subject to the terms and conditions of this Agreement, the
parties shall consummate such transactions on or prior to the Distribution Date
at such times and in such sequence as they shall mutually agree.
2.1 Adoption of BJI Charter, BJI By-Laws and BJI Rights Plan. On or
--------------------------------------------------------
prior to the Distribution Date, BJI and Waban shall cause the Certificate of
Incorporation and By-Laws of BJI to be amended and restated, substantially in
the form of the BJI
Separation and Distribution Agreement
-6-
<PAGE>
Charter and the BJI By-Laws, respectively, and shall cause the BJI Rights Plan
to be adopted.
2.2 Transfer of BJI Assets and Assumption of BJI Assumed Liabilities.
----------------------------------------------------------------
2.2.1 BJI Assets. On or prior to the Distribution Date, Waban shall,
----------
by means of appropriate Conveyancing Instruments, convey, transfer,
assign and deliver to BJI, and BJI will accept from Waban, all of
Waban's rights, title and interest in and to all of the BJI Assets,
which transfers shall be deemed to be effective as of July 26, 1997.
2.2.2 BJI Assumed Liabilities. On or prior to the Distribution Date,
-----------------------
except as set forth in the Tax Sharing Agreement or the Employee
Benefits Agreement, BJI shall, by means of appropriate Conveyancing
Instruments, assume all of Waban's duties, obligations and
responsibilities with respect to the BJI Assumed Liabilities, which
assumption shall be deemed to be effective as of July 26, 1997.
2.2.3 Transfers Not Consummated On or Prior to the Distribution
---------------------------------------------------------
Date. Subject to Section 2.2.4 hereof, to the extent that the transfer
----
to BJI of any of the BJI Assets or the assumption by BJI of any of the
BJI Assumed Liabilities shall not have been consummated on or prior to
the Distribution Date, Waban and BJI shall cooperate to effect such
consummation as promptly thereafter as shall be practicable, it
nonetheless being understood and agreed by Waban and BJI that neither
shall be liable in any manner to any person who is not a party to this
Agreement for any failure of any of the transfers contemplated by
Section 2 to be consummated on or subsequent to the Distribution Date.
Whether or not all of the BJI Assets or the BJI Assumed Liabilities
shall have been legally transferred to BJI as of the Distribution Date,
Waban and BJI agree that, as of the Distribution Date, BJI shall have,
and shall be deemed to have acquired, complete and sole beneficial
ownership over all of the BJI Assets, together with all of Waban's
rights, powers and privileges incident thereto, and shall be deemed to
have assumed in accordance with the terms of this Agreement all of the
BJI Assumed Liabilities and all of Waban's duties, obligations and
responsibilities incident thereto.
2.2.4 Further Assurances; Subsequent Transfers.
----------------------------------------
(a) Each of Waban and BJI will execute and deliver such further
instruments of conveyance, transfer and assignment and will take such
other actions as each of them may reasonably request of the other in
order to effectuate the purposes of this Agreement and to carry out the
terms hereof. Without limiting the generality of the foregoing, at any
time and from time to
Separation and Distribution Agreement
-7-
<PAGE>
time after the Distribution Date, at the request of BJI and without
further consideration, Waban will execute and deliver to BJI such other
instruments of transfer, conveyance, assignment and confirmation
(including estoppel certificates) and take such action as BJI may
reasonably deem necessary or desirable in order to more effectively
transfer, convey and assign to BJI and to confirm BJI's title to all of
the BJI Assets, to put BJI in actual possession and operating control
thereof and to permit BJI to exercise all rights with respect thereto
(including, without limitation, rights under contracts and other
arrangements as to which the consent of any third party to the transfer
thereof shall not have previously been obtained) and BJI will execute
and deliver to Waban all instruments, undertakings or other documents
and take such other action as Waban may reasonably deem necessary or
desirable in order to have BJI properly assume and discharge the BJI
Assumed Liabilities and relieve Waban of any Liability or obligations
with respect thereto and evidence the same to third parties.
Notwithstanding the foregoing, Waban and BJI shall not be obligated, in
connection with the foregoing, to expend monies other than reasonable
out-of-pocket expenses and attorneys' fees.
(b) Waban and BJI will use their best efforts to obtain any consent
required to assign all agreements, leases, licenses and other rights of
any nature whatsoever relating to the BJI Assets to BJI and the BJI
Subsidiaries; provided, however, that Waban shall not be obligated to
-------- -------
pay any consideration therefor (except for filing fees and other
administrative charges) to the third party from whom such consents,
approvals and amendments are requested. In the event and to the extent
that Waban is unable to obtain any such required consent, (i) Waban
shall continue to be bound thereby and (ii) unless not permitted by law
or the terms thereof, BJI shall pay, perform and discharge fully all the
obligations of Waban thereunder from and after the Distribution Date and
indemnify Waban for all Indemnifiable Losses arising out of such
performance by BJI in accordance with Article 5. Waban shall, without
further consideration therefor, pay, assign and remit to BJI promptly
all monies, rights and other considerations received in respect of such
performance. Waban shall exercise or exploit its rights and options
under all such agreements, leases, licenses and other rights and
commitments referred to in this Section 2.2.4(b) only as reasonably
directed by BJI and at BJI's expense. If and when any such consent shall
be obtained or such agreement, lease, license or other right shall
otherwise become assignable or able to be novated, Waban shall promptly
assign and novate all its rights and obligations thereunder to BJI
without payment of further consideration and BJI shall, without the
payment of any further consideration therefor, assume such rights and
obligations.
Separation and Distribution Agreement
-8-
<PAGE>
2.2.5 No Representations or Warranties; Consents. BJI understands
------------------------------------------
and hereby agrees that Waban is not, in this Agreement or in any other
agreement or document contemplated by this Agreement or otherwise, nor
shall Waban be deemed or implied to be, representing or warranting in
any way (i) as to the value or freedom from encumbrance of, or any other
matter concerning, any assets to be transferred to BJI as contemplated
by this Section 2.2 or (ii) as to the legal sufficiency to convey title
to any such asset of the execution, delivery and filing of this
Agreement or any Conveyancing Instrument, IT BEING UNDERSTOOD AND HEREBY
AGREED THAT ALL SUCH ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and
that BJI shall bear the economic and legal risk that any conveyances of
such assets shall prove to be insufficient (subject to Section 2.2.4(a))
or that BJI or any of its Subsidiaries' title to any such assets shall
be other than good and marketable and free from encumbrances or third
party rights of any kind. Similarly, BJI understands and hereby agrees
that Waban is not, in this Agreement or in any other agreement or
document contemplated by this Agreement or otherwise, nor shall Waban be
deemed or implied to be, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of
any amendatory agreements and the making of any filings or applications
contemplated by this Agreement or such other agreements or documents
shall satisfy the provisions of any or all applicable agreements or the
requirements of any or all applicable laws or judgments, it being
understood and hereby agreed that BJI shall bear the economic and legal
risk that any necessary consents or approvals are not obtained or that
any requirements of laws or judgments are not complied with.
Notwithstanding the foregoing, the parties shall use reasonable efforts
to obtain all consents and approvals, to enter into all amendatory
agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement.
2.3 Intercompany Accounts. On or prior to the Distribution Date, Waban
---------------------
and BJI shall pay or otherwise settle all intercompany accounts between them all
as more specifically provided on Schedule E and shall make the other payments or
----------
dividends specifically provided on Schedule E.
----------
2.4 Ancillary Agreements. On or prior to the Distribution Date, Waban
--------------------
and BJI shall enter into each of the (i) Tax Sharing Agreement, (ii) the
Services Agreement and (iii) the Employee Benefits Agreement.
2.5 Issuance of BJI Common Stock. In consideration for the conveyance,
----------------------------
assignment, transfer and delivery of the BJI Assets pursuant to Article 2
hereof, BJI shall issue to Waban, on or prior to the Distribution Date, one
share of BJI Common Stock (each including one BJI Right) for each share of Waban
Common Stock
Separation and Distribution Agreement
-9-
<PAGE>
outstanding on the Distribution Record Date, reduced by the number of shares of
BJI Common Stock (and associated BJI Rights) theretofore held by Waban.
2.6 Resignations. Each party shall cause all of its own and all of its
------------
Subsidiaries' employees and directors to resign, effective upon the
Distribution, from all boards of directors or similar governing bodies of the
other party or any Subsidiary of the other party on which they serve, and from
all positions as officers of the other party or any Subsidiary of the other
party in which they serve, except as otherwise provided in the Prospectus/Proxy
Statement with respect to individuals continuing to hold positions with Waban
and BJI. Prior to the Distribution Date, Waban shall take all steps necessary so
that, effective immediately after the Distribution, the directors and officers
of BJI shall be those individuals named in the Prospectus/Proxy Statement.
2.7. Insurance.
---------
2.7.1. General. Waban shall keep in effect all policies under its
-------
Insurance Program in effect as of the date of this Agreement insuring
the BJI Assets and operations of the BJI Business until 12:00 midnight
on the Distribution Date, unless BJI shall have earlier obtained
appropriate coverage and notified Waban in writing to that effect. In
addition, Waban shall keep in effect all property insurance policies
under its Insurance Program in effect as of the date of this Agreement
insuring the BJI Assets and operations of the BJI Business until 12:00
midnight on October 31, 1997, unless BJI shall have earlier obtained
appropriate coverage and notified Waban in writing to that effect. BJI
agrees that, as soon as practicable and in no event later than the
expiration of each insurance policy referred to in the first two
sentences of this Section, it will purchase insurance policies which (i)
provide coverage similar to that provided by the policies maintained by
Waban under the Insurance Program with respect to the BJI Assets and the
BJI Business and (ii) allow BJI to make claims for occurrences prior to
the Distribution Date (provided, however, that clause (ii) shall not
apply to the Director and Officer liability policy to be obtained by
BJI). Waban shall, if so requested by BJI, use reasonable efforts to
assist BJI in obtaining such initial insurance coverage for BJI from and
after the Distribution Date in such amounts as are agreed upon by Waban
and BJI. Following the Distribution Date, each of Waban and BJI shall
cooperate with and assist the other party in the prevention of conflicts
or gaps in insurance coverage and/or collection of proceeds.
2.7.2 Certain Insured Claims. Notwithstanding anything to the
----------------------
contrary in this Agreement, Waban will indemnify and hold BJI harmless
from and against any and all Indemnifiable Losses resulting, directly or
indirectly, from claims made or deemed made (under the applicable
insurance policy)
Separation and Distribution Agreement
-10-
<PAGE>
prior to the Distribution Date (or with respect to property insurance
policies, prior to October 31, 1997) which relate to the BJI Assets or
the BJI Business and which arise from or relate to events or occurrences
prior to the Distribution Date (or with respect to property insurance
policies, prior to October 31, 1997), if such claims would be covered by
the Insurance Program; provided, however, that Waban shall be required
-------- -------
to indemnify and hold BJI harmless pursuant to this Section 2.7.2 only
(i) to the extent such Indemnifiable Losses exceed any applicable
deductibles under the Insurance Program (the payment of which
deductibles shall be the responsibility of BJI) and (ii) to the extent
Waban actually receives a cash payment from insurance carriers pursuant
to the Insurance Program with respect to such Indemnifiable Losses. To
the extent that BJI seeks any indemnity pursuant to this Section 2.7.2,
the provisions of Article 5 hereof shall apply thereto, and BJI shall be
treated as the Indemnitee and Waban shall be treated as the Indemnifying
Party under such provisions; provided, however, that BJI shall pay all
-------- -------
out of pocket costs (including attorneys' and accountants' fees and
disbursements) which are reasonably incurred by Waban after the
Distribution Date in defending any such claims under an insurance policy
relating to the BJI Assets or the BJI Business and BJI shall make
available to Waban such of its employees as Waban may reasonably request
as witnesses or deponents in connection with Waban's defense of claims,
at BJI's sole cost and expense.
2.8 Non-Exclusive License to Name. Waban hereby grants to BJI a non-
-----------------------------
exclusive right and license during the period commencing on the Distribution
Date and ending on the date which is twelve months after the Distribution Date
to use the trademark "Waban" in connection with the BJI Business.
ARTICLE 3
THE DISTRIBUTION
3.1 Action Prior to the Distribution.
--------------------------------
3.1.1 BJI Form 8-A. Waban and BJI shall prepare, and shall cause to
------------
be filed with the Commission, a registration statement under the
Exchange Act on Form 8-A registering the BJI Common Stock and BJI Rights
(the "BJI Form 8-A"). Waban and BJI shall use reasonable efforts to
cause the BJI Form 8-A to become effective under the Exchange Act.
Separation and Distribution Agreement
-11-
<PAGE>
3.1.2 S-8 Registration Statements. Waban and BJI shall cooperate in
---------------------------
preparing and filing with the Commission any registration statements or
amendments thereof which are necessary or appropriate to reflect the
establishment of, or amendments to, any employee benefit and other plans
contemplated by the Employee Benefits Agreement or otherwise described
in the Prospectus/Proxy Statement.
3.1.3 Matters Pertaining to Blue Sky Laws Compliance. Waban and BJI
----------------------------------------------
shall use reasonable efforts to take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or
political subdivisions of the United States in connection with the
transactions contemplated by this Agreement.
3.1.4 New York Stock Exchange Listing. Waban and BJI shall prepare,
-------------------------------
and BJI shall file and seek to make effective, an application to permit
the listing of BJI Common Stock and the BJI Rights on the New York Stock
Exchange, subject to official notice of issuance.
3.2 Conditions Precedent to the Distribution. The obligation of the
----------------------------------------
parties hereto to consummate the Distribution shall be subject to each of the
following conditions, any of which may be waived by Waban in its sole
discretion:
(a) the declaration by the Waban Board of the Distribution;
(b) the conversion into Waban Common Stock or redemption for cash of
all of Waban's 6.5% Convertible Subordinated Debentures due 2002 (the
"Convertible Debentures") and, if applicable, the consummation of the
transactions contemplated by the standby agreement entered into in connection
with the call for redemption of the Convertible Debentures;
(c) the transactions contemplated by Article 2 hereof shall have
been consummated in all material respects;
(d) the BJI Common Stock and the BJI Rights shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance;
(e) BJI and Waban having entered into agreements with lenders to
provide sufficient financing upon consummation of the Distribution (as
determined by the Board of Directors of Waban prior to the Distribution Date);
Separation and Distribution Agreement
-12-
<PAGE>
(f) the BJI Form 8-A shall have been declared or become effective
and the transactions contemplated by this Agreement shall otherwise be in
compliance with all applicable federal and state securities laws; and
(g) as of the Distribution Date, the private letter ruling
previously received by Waban from the IRS shall remain applicable with respect
to the tax-free nature of the Distribution;
provided, however, that the satisfaction of such conditions shall not create any
- -------- -------
obligation on the part of Waban to effect the Distribution or in any way limit
Waban's power of termination set forth in Section 7.8 hereof or alter the
consequences of any such termination from those specified in said Section 7.8.
3.3 Waban Board Action. Subject to the satisfaction of the conditions
------------------
set forth in Section 3.2, the Waban Board shall, in its sole discretion,
establish the Distribution Record Date and the Distribution Date and any
appropriate procedures in connection with the Distribution.
3.4 The Distribution. Prior to the Distribution Date, subject to the
----------------
terms and conditions of this Agreement, Waban shall deliver to the Distribution
Agent a certificate representing all of the then outstanding shares of BJI
Common Stock (including the associated BJI Rights) owned by Waban. Subject to
the terms and conditions of this Agreement, Waban and BJI shall instruct the
Distribution Agent to distribute, on or as soon as practicable following the
Distribution Date, one share of BJI Common Stock (including the associated BJI
Right) in respect of each share of Waban Common Stock held by holders of record
of Waban Common Stock on the Distribution Record Date. BJI agrees to provide all
certificates that the Distribution Agent shall require in order to effect the
Distribution at or prior to such time as the Distribution Agent shall reasonably
request. All of the shares of BJI Common Stock issued in the Distribution shall
be validly issued, fully paid, nonassessable and free of preemptive rights.
ARTICLE 4
CERTAIN MATTERS RELATING TO LEASE LIABILITIES
4.1 Certain Definitions.
-------------------
"BJI Default Period" shall mean a period commencing upon the occurrence
------------------
of any of the events set forth in clauses (i) through (iv) below and ending on
the first date thereafter when none of the events set forth in clauses (i)
through (iv) below are continuing:
Separation and Distribution Agreement
-13-
<PAGE>
(i) BJI is in default with respect to rent payments under at least
five BJI Leases, which such defaults have not been cured within the applicable
grace period;
(ii) (a) BJI shall fail to maintain at the end of any fiscal quarter an
actual or implied senior debt rating of at least B- by Standard & Poor's or B3
by Moody's Investors Service ("Moody's"), or, if not rated by Standard & Poor's
or Moody's, a National Association of Insurance Commissioners ("NAIC") rating of
at least 4, and (b) at the end of such quarter, BJI 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, between Waban, The First National Bank of Boston, and the other
lenders party thereto, without regard to any subsequent amendments) greater than
1.20 to 1.0;
(iii) BJI or any of its subsidiaries shall be in default in the payment
of any obligation for borrowed money exceeding $10 million in principal amount
which has been accelerated and is beyond any grace period provided with respect
thereto; or
(iv) any of the following bankruptcy events shall have occurred and be
continuing:
(a) any decree or order for relief in respect of BJI or any
Significant Subsidiary (as defined in SEC Regulation S-X) of
BJI or any other three subsidiaries of BJI 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
(b) BJI or any Significant Subsidiary of BJI or any other three
subsidiaries of BJI 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 BJI or any Significant Subsidiary of BJI
or any other three subsidiaries of BJI, or of any substantial
part of the assets of BJI or any Significant Subsidiary of
BJI or any other three subsidiaries of BJI, or commences a
voluntary case under the Bankruptcy Law of the United States
or any similar proceedings relating to BJI or any Significant
Subsidiary of BJI or any other three subsidiaries of BJI
under the Bankruptcy Law of any other jurisdiction; or
(c) any petition or application referred to in clause (b) above
is filed, or any such proceedings are commenced, against BJI,
any Significant Subsidiary of BJI or any other three
Separation and Distribution Agreement
-14-
<PAGE>
subsidiaries of BJI and BJI 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.
"BJI Lease" means any real estate lease that constitutes a BJI Assumed
---------
Liability, other than any ground lease.
"HomeBase Control Period" shall mean the period commencing on the date
-----------------------
hereof and ending upon a HomeBase Control Event (as defined in Section 4.2.1).
"HomeBase Lease" means any lease under which Waban may be liable as a
--------------
tenant, sublessee, surety or guarantor, or otherwise, other than leases that
constitute BJI Assumed Liabilities.
"HomeBase Third Party Claim" means the assertion by any Person (other
--------------------------
than Waban, BJI or any of their Affiliates) of any claim, or the commencement by
any such Person of any Action, against BJI or Waban with respect to an
Indemnified HomeBase Lease Liability.
"Indemnified HomeBase Lease Liabilities" means any liabilities of Waban
--------------------------------------
that arise under a HomeBase Lease and for which BJI may have liability,
including liability for indemnification to TJX under the TJX Indemnification
Agreement.
"TJX Indemnification Agreement" means the Indemnification Agreement
-----------------------------
dated as of April 18, 1997 between BJI and TJX.
Section 4.2 Indemnified HomeBase Lease Liabilities.
--------------------------------------
4.2.1. Control of HomeBase Third Party Claims.
--------------------------------------
(a) During the HomeBase Control Period, (i) Waban shall have the
right to control the defense and settlement of all HomeBase Third Party Claims,
(ii) BJI shall have the right to participate, at its expense, with Waban in the
defense and settlement of any such HomeBase Third Party Claims, and (iii) Waban
shall not consent to the entry of any judgment or enter into any settlement with
respect to any HomeBase Third Party Claims without the prior written consent of
BJI, which consent will not be unreasonably withheld.
Separation and Distribution Agreement
-15-
<PAGE>
(b) BJI shall have the right at any time following the occurrence
of a HomeBase Control Event (as defined below), which is not cured within 30
days following written notice thereof by BJI to Waban, to elect to control the
defense and settlement of all HomeBase Third Party Claims. A HomeBase Control
Event shall mean the occurrence of any of the following events:
(i) the first date on which Waban is in default with
respect to rent payments under at least five HomeBase Leases;
(ii) Waban shall have failed to perform in a material
respect any of its material obligations hereunder;
(iii) (a) Waban 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 & Poor's or B3 by Moody's or, if not rated by Standard & Poor's or
Moody's, a NAIC rating of at least 4, and (b) at the end of such quarter, Waban
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, between Waban, The First National Bank of
Boston, and the other lenders party thereto, without regard to any subsequent
amendments) greater than 1.20 to 1.0;
(iv) Waban or any of its subsidiaries shall have
defaulted in the payment of any obligation for borrowed money exceeding $10
million in principal amount which has been accelerated and is beyond any grace
period provided with respect thereto; or
(v) any of the following bankruptcy events shall have
occurred:
(a) any decree or order for relief in respect of Waban
or any Significant Subsidiary (as defined in SEC
Regulation S-X) of Waban or any other three
subsidiaries of Waban is entered under any
Bankruptcy Law, of any jurisdiction; or
(b) Waban or any Significant Subsidiary of Waban or
any other three subsidiaries of Waban 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 Waban or any Significant
Subsidiary of Waban or any other three
subsidiaries of Waban, or of any substantial part
of the assets of Waban or any
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<PAGE>
Significant Subsidiary of Waban or any other three
subsidiaries of Waban, or commences a voluntary
case under the Bankruptcy Law of the United States
or any similar proceedings relating to Waban or
any Significant Subsidiary of Waban or any other
three subsidiaries of Waban under the Bankruptcy
Law of any other jurisdiction; or
(c) any petition or application referred to in clause
(b) above is filed, or any such proceedings are
commenced, against Waban, any Significant
Subsidiary of Waban or any other three
subsidiaries of Waban and Waban 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.
4.2.2 Reports. Waban shall promptly report in writing to BJI any failure
-------
at any time of Waban to comply with any of the tests set forth in Section
4.2.1(b).
4.2.3 Settlements. After the exercise by BJI of the right to control
-----------
HomeBase Third Party Claims pursuant to Section 4.2.1(b), BJI shall have the
right to consent to the entry of any judgment or enter into any settlement with
respect to any HomeBase Third Party Claims in any manner it may deem
appropriate. BJI shall provide Waban with prior written notice of any settlement
agreement between BJI and the holder of any HomeBase Third Party Claim. Waban
shall have the right to participate, at its expense, in the defense and
settlement of any such HomeBase Third Party Claim.
4.2.4 Indemnification Agreement. Notwithstanding anything to the
-------------------------
contrary in this Article 4, all rights of Waban and BJI with respect to the
defense and settlement of HomeBase Third Party Claims shall be subject to the
rights of TJX under the TJX Indemnification Agreement, and to the extent of any
inconsistency between the rights of the parties under this Agreement and the
rights of BJI and TJX under the TJX Indemnification Agreement, the provisions of
the TJX Indemnification Agreement shall control.
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<PAGE>
Section 4.3 Lease Renewals.
--------------
(a) Waban hereby covenants that it shall not increase the amount
of base rents 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 or BJI and its
Affiliates, as the case may be, on such HomeBase Lease), a full and complete
release of liability of TJX and its Affiliates, or BJI and its Affiliates, as
the case may be, on any such HomeBase Lease, in a form reasonably satisfactory
to BJI. 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 4.3 (which would also condition
subsequent transfers or assignments upon an equivalent transfer restriction),
and Waban shall be liable to BJI for any breach thereof.
(b) BJI hereby covenants that it will not, during any BJI
Default Period, increase the amount of base rents scheduled to come due under,
extend the term of, or exercise any option to renew or extend any BJI Lease
without first securing from the Person holding the landlord's interest and from
any mortgagee with respect to the BJI Lease in question (if the consent of such
Person or mortgagee is required to release any liability of Waban and its
Affiliates on such BJI Lease), a full and complete release of liability of Waban
and its Affiliates on any such BJI Lease, in a form reasonably satisfactory to
Waban.
Section 4.4 Reimbursement. If BJI is required to make any payment to any
-------------
Person other than Waban with respect to any HomeBase Third Party Claim, Waban
shall promptly reimburse BJI for any such payments. To the extent of any
inconsistency between the provisions of this Article 4 and Article 5, the
provisions of this Article 4 shall control.
ARTICLE 5
INDEMNIFICATION
5.1 Certain Definitions.
-------------------
"BJI Indemnitees" means BJI and each Affiliate of BJI and each of
---------------
their respective directors, officers, employees and agents (whether before or
after the Distribution) and each of the heirs, executors, successors and assigns
of any of the foregoing.
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<PAGE>
"Indemnifiable Losses" means all losses, liabilities, claims,
--------------------
damages, obligations, payments, costs and expenses, matured or unmatured,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known
or unknown (including, without limitation, the costs and expenses of any and all
Actions, threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto and reasonable attorneys' fees and any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any such Actions or threatened Actions).
"Waban Indemnitees" means Waban and each Affiliate of Waban and
-----------------
each of their respective directors, officers, employees and agents (whether
before or after the Distribution) and each of the heirs, executors, successors
and assigns of any of the foregoing.
5.2 Indemnification by Waban. Except as set forth in the Tax Sharing
------------------------
Agreement, the Services Agreement or the Employee Benefits Agreement, Waban
shall indemnify, defend and hold harmless the BJI Indemnitees from and against:
(i) the Waban Liabilities; and
(ii) any and all Indemnifiable Losses of the BJI Indemnitees
arising out of, or due to, directly or indirectly, any failure to perform, or
violation of, any provision of this Agreement, the Ancillary Agreements or any
other agreement entered into in connection with this Agreement, which is to be
performed or complied with by Waban or the Waban Subsidiaries.
5.3 Indemnification by BJI. Except as set forth in the Tax Sharing
----------------------
Agreement, the Services Agreement or the Employee Benefits Agreement, BJI shall
indemnify, defend and hold harmless the Waban Indemnitees from and against:
(i) the BJI Assumed Liabilities; and
(ii) any and all Indemnifiable Losses of the Waban Indemnitees
arising out of, or due to, directly or indirectly, any failure to perform, or
violation of, any provision of this Agreement, the Ancillary Agreements or any
other agreements to be entered into in connection with this Agreement, which is
to be performed or complied with by BJI or the BJI Subsidiaries.
In addition, BJI shall indemnify, defend and hold harmless each Waban
Indemnitee who is an officer or director of Waban from and against any and all
Indemnifiable Losses suffered by any such officer or director arising out of, or
due to, the approval of the Separation and Distribution by the Board of
Directors of Waban; provided, however, that BJI's obligation to provide such
indemnification shall only
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<PAGE>
apply to the extent that (A) such persons have no right, as of the date hereof,
to indemnification from Waban for such Indemnifiable Losses, or (B) Waban or the
applicable insurance carrier, following written demand therefor by any such
officer or director, fails to satisfy any such indemnification obligation. In
the event that BJI provides indemnification under this paragraph pursuant to the
foregoing clause (B), the amount so paid by BJI shall be deemed to be a Waban
Liability for purposes of this Agreement.
5.4 Limitations on Indemnification Obligations.
------------------------------------------
(a) The amount which any party (an "Indemnifying Party") is or may
be required to pay to any other party (an "Indemnitee") pursuant to this Article
5 hereof shall be reduced (including, without limitation, retroactively) by any
insurance proceeds or other amounts actually recovered by or on behalf of such
Indemnitee in reduction of the related Indemnifiable Loss. If any Indemnitee
shall have received the payment required by this Agreement from an Indemnifying
Party in respect of an Indemnifiable Loss and shall subsequently actually
receive insurance proceeds or other amounts in respect of such Indemnifiable
Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal to
the amount of such insurance proceeds or other amounts actually received (net of
any expenses in obtaining the same), but not to exceed the net amount of the
payments previously received by the Indemnitee from the Indemnifying Party in
respect of such Indemnifiable Loss.
(b) If any Indemnitee realizes a tax benefit or detriment in one or
more tax periods by reason of having incurred an Indemnifiable Loss for which
such Indemnitee receives an Indemnity Payment from an Indemnifying Party, then
such Indemnitee shall pay to such Indemnifying Party an amount equal to the tax
benefit or such Indemnifying Party shall pay to such Indemnitee an additional
amount equal to the tax detriment (taking into account any tax detriment
resulting from the receipt of such additional amounts), as the case may be. The
amount of any tax benefit or any tax detriment for a tax period realized by an
Indemnitee by reason of having incurred such Indemnifiable Loss shall be deemed
to equal the product obtained by multiplying (i) the amount of any deduction or
inclusion in income for such period resulting from such Indemnifiable Loss or
the payment thereof, as the case may be, by (ii) its highest applicable marginal
tax rate for such period (provided, however, that the amount of any tax benefit
-------- -------
attributable to an amount that is creditable shall be deemed to equal the amount
of such creditable item). Any payment due under this Section 5.4(b) with respect
to a tax benefit or tax detriment realized by an Indemnitee in a tax period
shall be due and payable within 30 days from the time the return for such tax
period is due, without taking into account any extension of time granted to the
party filing such return.
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<PAGE>
5.5 Procedure for Indemnification.
-----------------------------
5.5.1 Third Party Claims; Notice. If an Indemnitee shall receive
--------------------------
notice or otherwise learn of the assertion by any other Person of any
claim or of the commencement by any such Person of any Action (a "Third
Party Claim") with respect to which an Indemnifying Party may be
obligated to provide indemnification pursuant to this Article 5, such
Indemnitee shall give the Indemnifying Party written notice thereof
within 10 business days after becoming aware of such Third Party Claim;
provided, however, that the failure of any Indemnitee to give notice as
-------- -------
provided in this Section 5.5.1 shall not relieve the related
Indemnifying Party of its obligations under this Article 5, except to
the extent that such Indemnifying Party actually is prejudiced by such
failure to give notice. Such notice shall describe the Third Party Claim
in reasonable detail, and shall indicate the amount (estimated if
necessary) of the Indemnifiable Loss that has been or may be sustained
by such Indemnitee. Thereafter, such Indemnitee shall deliver to such
Indemnifying Party, within five business days after the Indemnitee's
receipt thereof, copies of all notices and documents (including court
papers) received by the Indemnitee relating to the Third Party Claim.
5.5.2 Defense of Third Party Claims. In case any Third Party Claim
-----------------------------
is brought against an Indemnitee, the Indemnifying Party will be
entitled to participate in and to assume the defense thereof to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnitee, and after notice from an Indemnifying Party to such
Indemnitee of its election so to assume the defense thereof and for so
long as the Indemnifying Party diligently pursues such defense, such
Indemnifying Party will not be liable to such Indemnitee for any legal
or other expenses subsequently incurred by such Indemnitee in connection
with the defense thereof; provided, however, that, if the defendants in
-------- -------
any such claim include both the Indemnifying Party and one or more
Indemnitees and in any Indemnitee's reasonable judgment a conflict of
interest between one or more of such Indemnitees and such Indemnifying
Party exists in respect of such claim, such Indemnitees shall have the
right to employ separate counsel to represent such Indemnitees, and in
that event the reasonable fees and expenses of such separate counsel
(but not more than one separate counsel reasonably satisfactory to the
Indemnifying Party for all Indemnitees with respect to any single Third
Party Claim or group of consolidated related Third Party Claims) shall
be paid by such Indemnifying Party. If the Indemnifying Party undertakes
to assume the defense of a Third Party Claim, it shall promptly notify
the Indemnitee in writing of its intention to do so.
Separation and Distribution Agreement
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<PAGE>
5.5.3 Cooperation by Indemnitee. If an Indemnifying Party chooses
-------------------------
to defend or to seek to compromise or settle any Third Party Claim, each
related Indemnitee shall make available to such Indemnifying Party any
personnel or any books, records or other documents within its control or
which it otherwise has the ability to make available that are necessary
or appropriate for such defense, settlement or comprise, and shall
otherwise cooperate in the defense, settlement or compromise of such
Third Party Claim.
5.5.4 Limitation on Authority to Settle Claim. Notwithstanding
---------------------------------------
anything else in this Section 5.5 to the contrary, neither an
Indemnifying Party nor an Indemnitee shall settle or compromise any
Third Party Claim over the objection of the other; provided, however,
-------- -------
that consent to compromise or settlement shall not be unreasonably
withheld, except that consent to any compromise or settlement involving
equitable or injunctive relief against any Indemnifying Party or
Indemnitee may be withheld by such Indemnifying Party or Indemnitee for
any reason. No Indemnifying Party shall consent to any judgment or enter
into any settlement or compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
each related Indemnitee of a written release from all Liability with
respect to such Third Party Claim.
5.5.5 Other Claims. Any claim on account of any Indemnifiable Loss
------------
which does not result from a Third Party Claim shall be asserted by
written notice given by the Indemnitee to the related Indemnifying
Party. Such Indemnifying Party shall have a period of 30 days after the
receipt of such notice within which to respond thereto. If such
Indemnifying Party does not respond within such 30-day period, such
Indemnifying Party shall be deemed to have accepted responsibility to
make payment and shall have no further right to contest the validity of
such claim. If such Indemnifying Party does respond within such 30-day
period and rejects such claim in whole or in part, such Indemnitee shall
be free to pursue such remedies as may be available to such Indemnitee
under applicable law.
5.5.6 Advancement of Certain Expenses. Upon the written demand of
-------------------------------
an Indemnitee, an Indemnifying Party shall reimburse or advance funds to
such Indemnitee for all Indemnifiable Losses reasonably incurred by it
in connection with investigating or defending any Third Party Claim in
advance of its final disposition; provided, however, that such
-------- -------
reimbursement need be made only upon delivery to the Indemnifying Party
of an undertaking by such Indemnitee to repay all amounts so reimbursed
or advanced if it shall ultimately be determined that such Indemnitee is
not entitled to indemnification under this Article 5 or otherwise.
Separation and Distribution Agreement
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<PAGE>
5.5.7 Subrogation to Rights of Indemnitee. In the event of payment
-----------------------------------
by an Indemnifying Party to any Indemnitee in connection with any Third Party
Claim of the full amount payable under this Article 5 in respect thereof, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such 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. In such event, such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
5.6 Insurance. Waban shall provide each individual who served as a
---------
director or officer of Waban at any time prior to the Distribution Date with
liability insurance for a period of six years after the Distribution Date no
less favorable in coverage and amount than any applicable insurance in effect
immediately prior to the Distribution Date.
5.7 Special Provision Relating to Certain Pre-Distribution Liabilities.
------------------------------------------------------------------
Notwithstanding anything contained herein to the contrary, if a Third Party
Claim relates to a Liability referred to in Item 2(b) of Schedule B as to which
BJI is assuming 75% of the Liability, then BJI shall have the right to control
the defense and settlement of such claim.
5.8 Remedies Cumulative. The remedies provided in this Article 5 shall
-------------------
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party; provided, however, that all remedies sought or asserted by an Indemnitee
-------- -------
against an Indemnifying Party with respect to an Indemnifiable Loss shall be
limited by and be subject to the provisions of this Article 5.
5.9 Nature of Indemnity Payments. All payments under Section 5.1 or 5.2
----------------------------
hereof shall, to the extent possible, be treated as an adjustment to the BJI
Assets contributed by Waban to BJI hereunder.
ARTICLE 6
ACCESS TO INFORMATION
6.1 Provision of Corporate Records. Prior to or as soon as practicable
------------------------------
following the Distribution Date, Waban shall deliver to BJI all existing
corporate books and records in Waban's possession relating to the BJI Business,
including original corporate minute books, stock ledgers and certificates and
corporate seals of
Separation and Distribution Agreement
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<PAGE>
each of BJI and each BJI Subsidiary, and all active agreements, active
litigation files and records of filings. From and after the Distribution Date,
all such books and records shall be the property of BJI.
6.2 Access to Information. From and after the Distribution Date, each
---------------------
of Waban and BJI shall afford to the other and the other's authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to third parties possessing
information and providing reasonable access to its own employees who are in
possession of relevant information) and duplicating rights during normal
business hours to all records, books, contracts, instruments, computer data and
other data and information (collectively, "Information") within the possession
or control of Waban or BJI, as the case may be, relating to the other's pre-
Distribution business, insofar as such access is reasonably required by the
other party. Information may be requested under this Section 6.2 for, without
limitation, audit, accounting, claims, litigation, insurance and tax purposes,
as well as for purposes of fulfilling disclosure and reporting obligations and
for performing this Agreement and the transactions contemplated hereby.
6.3 Production of Witnesses. From and after the Distribution Date, each
-----------------------
of BJI and Waban shall use reasonable efforts to make available to the other
upon written request, its and its Subsidiaries' officers, directors, employees
and agents as witnesses to the extent that such persons may reasonably be
required in connection with any legal, administrative or other proceedings in
which the requesting party may from time to time be involved relating to its
pre-Distribution business.
6.4 Reimbursement. Except to the extent otherwise contemplated by the
-------------
Services Agreement or any other Ancillary Agreement, a party providing
Information or personnel to the other party under this Article 6 shall be
entitled to receive from the recipient, upon the presentation of invoices
therefor, payments for such amounts, relating to supplies, disbursements and
other out-of-pocket expenses (including, without limitation, reasonable
attorneys' and accountants' fees and disbursements), as may be reasonably
incurred in providing such Information; provided, however, that no such
-------- -------
reimbursements shall be required for the salary or cost of fringe benefits or
similar expenses pertaining to employees or directors of the providing party.
6.5 Retention of Records. Except as otherwise required by law or agreed
--------------------
to in writing, each of Waban and BJI shall retain, and shall cause each of its
Subsidiaries to retain, in accordance with such party's record retention
program, all material Information within such party's possession or under its
control relating to the other and the other's Subsidiaries. Notwithstanding the
foregoing, in lieu of retaining any specific Information, Waban or BJI may offer
in writing to deliver such Information to the other and, if such offer is not
accepted within 45 days, the offered Information may be destroyed or otherwise
disposed of at any time. If a recipient of such offer
Separation and Distribution Agreement
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<PAGE>
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the information as
was requested at the cost of the requesting party.
6.6 Confidentiality. Each of Waban and BJI shall hold, and shall use
---------------
reasonable efforts to cause its Subsidiaries, Affiliates, consultants and
advisors to hold, in strict confidence all Information concerning the other
obtained by it prior to the Distribution Date or furnished by the other or the
other's representatives pursuant to this Agreement (except to the extent that
such Information has been (i) in the public domain through no fault of such
party, or (ii) later lawfully acquired from other sources by such party), and
each party shall not release or disclose such Information to any other Person,
except its auditors, attorneys, financial advisors, bankers and other
consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law.
ARTICLE 7
MISCELLANEOUS
7.1 Rules of Construction. Notwithstanding any other provisions in this
---------------------
Agreement, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement (or any Conveyancing Instrument) and the
provisions of the Tax Sharing Agreement, the Services Agreement or the Employee
Benefits Agreement, the provisions of the Tax Sharing Agreement, the Services
Agreement or the Employee Benefits Agreement, as the case may be, shall control.
Waban and BJI have participated jointly in the negotiation and drafting of this
Agreement and the Ancillary Agreements. In the event an ambiguity or question of
intent or interpretation arises, this Agreement and the Ancillary Agreements
shall be construed as if drafted jointly by the parties and no presumption or
burden of proof shall arise favoring or disfavoring either party by virtue of
the authorship of any of the provisions of this Agreement or the Ancillary
Agreements.
7.2 Survival of Agreements. Except as otherwise contemplated by this
----------------------
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
7.3 Expenses. Except as otherwise set forth in this Agreement or any
--------
Ancillary Agreement, Waban and BJI shall bear 25% and 75%, respectively, of all
costs and expenses incurred in connection with the preparation, execution,
delivery
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<PAGE>
and implementation of this Agreement, and with the consummation of the
transactions to effect the Distribution contemplated by this Agreement,
including, without limitation, registration fees, listing fees, printing costs
and legal and accounting fees, to the extent such fees have not been paid prior
to the Distribution Date.
7.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of the State of Delaware without
regard to any choice or conflict of law rule or provision that would result in
the application of the domestic substantive laws of any other jurisdiction.
7.5 Notices. Any notice, request, demand, claim, or other communication
-------
hereunder shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, and shall be deemed duly given on the date which
is three days after the date such notice, request, demand, claim, or other
communication is sent:
to Waban:
Waban Inc.
3345 Michelson Drive
Irvine, California 92612
Attention: President
to BJI:
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: President
Notwithstanding the foregoing, 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 is actually 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.
7.6 Amendments. This Agreement may not be modified or amended except by
----------
an agreement in writing signed by the parties hereto.
Separation and Distribution Agreement
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<PAGE>
7.7 Successors and Assigns. This Agreement and all of the provisions
----------------------
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
7.8 Termination. This Agreement may be terminated and the Distribution
-----------
abandoned at any time prior to the Distribution Date by and in the sole
discretion of the Waban Board without the approval of BJI or of Waban's
stockholders. In the event of such termination, no party shall have any
liability of any kind under this Agreement to any other party.
7.9 Third Party Beneficiaries. Each Indemnitee shall be deemed a third
-------------------------
party beneficiary of the provisions of Article 5 hereof. Except for the
provisions of Article 5 hereof relating to Indemnitees, this Agreement is solely
for the benefit of the parties hereto and their respective Subsidiaries and
Affiliates and shall not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
7.10 Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
7.11 Exhibits and Schedules. The Exhibits and Schedules shall be
----------------------
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
7.12 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
7.13 Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision or remedies otherwise available to any party
hereto. Without prejudice to any rights or remedies otherwise available to any
party hereto, each party hereto acknowledges that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder shall be specifically enforceable.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be duly executed as of the day and year first above
written.
WABAN INC.
By: /s/ Herbert J. Zarkin
-------------------------------
Herbert J. Zarkin
President
BJ'S WHOLESALE CLUB, INC.
By: /s/ John J. Nugent
-------------------------------
John J. Nugent
President
Separation and Distribution Agreement
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<PAGE>
SCHEDULE A
BJI ASSETS
----------
1. All assets arising out of or in connection with or related principally
to the BJI Business, including, without limitation:
(a) all assets reflected on the pro forma condensed balance sheet of BJI
as at the fiscal month end coincident with or immediately preceding the
Distribution Date, as prepared and agreed to by Waban and BJI;
(b) all of the issued and outstanding stock of the BJI Subsidiaries
held, directly or indirectly, by Waban;
(c) the real property owned by Waban or a Waban Subsidiary and used
exclusively in the BJI Business, including all buildings, structures and
improvements thereon;
(d) all right, title and interest of Waban or any Waban Subsidiary in
and to all agreements, contracts and leases relating to the operations of the
BJI Business;
(e) all machinery, equipment and other items of tangible personal
property owned by Waban or a Waban Subsidiary which are used exclusively in the
BJI Business;
(f) all right, title and interest of Waban or any Waban Subsidiary in
and to intellectual property rights consisting of tradenames, trademarks and
similar intangible items relating exclusively to the BJI Business;
(g) all books and records of Waban or any Waban Subsidiary (including
computerized books and records) that relate principally to the BJI Business and
are necessary for BJI and its Subsidiaries to operate the BJI Business,
including without limitation, the corporate documents and records of corporate
proceedings of the BJI Business, all books and records relating to BJI
employees, the purchase of supplies and services by the BJI Business, and all
files relating to any Action being assumed by BJI as part of the BJI Assumed
Liabilities owned by Waban or any Waban Subsidiary (other than those required by
law to be maintained by Waban or any Waban Subsidiary); and
(h) cash (as calculated by Waban in accordance with past practices) in
an amount of $5,000,000.
<PAGE>
2. All of Waban's right, title and interest in and to the leases relating
to Waban's headquarters located in Natick, Massachusetts and all machinery,
equipment and other items of tangible personal property owned by Waban which are
located in Natick, Massachusetts.
<PAGE>
SCHEDULE B
BJI ASSUMED LIABILITIES
-----------------------
1. All Liabilities arising out of or in connection with or related
principally to the BJI Business, whether arising before or after the
Distribution Date, including without limitation:
(a) all Liabilities reflected on the pro forma condensed balance sheet
of BJI as at the fiscal month end coincident with or immediately preceding the
Distribution Date, as prepared and agreed to by Waban and BJI;
(b) all Liabilities of Waban under agreements, contracts and leases that
are BJI Assets; and
(c) all Liabilities relating to Actions arising out of or in connection
with the operations of the BJI Business.
2. The following liabilities of Waban:
(a) 75% of the principal amount of all bank indebtedness of Waban
existing as of the Distribution Date; and
(b) 75% of all other Liabilities of Waban not specifically allocable to
the BJI Business or the HomeBase Business relating to events occurring prior to
the Distribution and any Actions relating thereto.
<PAGE>
SCHEDULE C
BJI SUBSIDIARIES
----------------
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
<S> <C>
Natick Security Corp.............................. Massachusetts
Natick Corporation................................ Delaware
Natick First Realty Corp.......................... Connecticut
Natick Second Realty Corp......................... Massachusetts
Natick NJ Flemington Realty Corp.................. New Jersey
Natick Fourth Realty Corp......................... New Jersey
Natick Fifth Realty Corp.......................... Maryland
Natick Sixth Realty Corp.......................... Connecticut
Natick MA Realty Corp............................. Massachusetts
Natick NH Realty Corp............................. New Hampshire
Natick NY Realty Corp............................. New York
Natick NY 1992 Realty Corp........................ New York
Natick PA Realty Corp............................. Pennsylvania
Natick VA Realty Corp............................. Virginia
Natick Portsmouth Realty Corp..................... New Hampshire
Natick NJ Realty Corp............................. New Jersey
Natick NJ 1993 Realty Corp........................ New Jersey
BJ's PA Distribution Center, Inc.................. Pennsylvania
BJ's MA Distribution Center, Inc.................. Massachusetts
Natick CT Realty Corp............................. Connecticut
Natick ME 1995 Realty Corp........................ Maine
Natick NY 1995 Realty Corp........................ New York
Natick MA 1995 Realty Corp........................ Massachusetts
Natick NH 1994 Realty Corp........................ New Hampshire
Natick PA 1995 Realty Corp........................ Pennsylvania
CWC Beverages Corp................................ Connecticut
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FWC Beverages Corp................................ Florida
JWC Beverages Corp................................ New Jersey
Mormax Beverages Corp............................. Delaware
Mormax Corporation................................ Massachusetts
RWC Beverages Corp................................ Rhode Island
YWC Beverages Corp................................ New York
Natick Lancaster Realty Corp...................... Pennsylvania
Natick Yorktown Realty Corp....................... New York
Natick Waterford Realty Corp...................... Connecticut
Natick Sennett Realty Corp........................ New York
Natick Bowie Realty Corp.......................... Maryland
Natick Pembroke Realty Corp....................... Florida
Natick PA Plymouth Realty Corp.................... Pennsylvania
Natick Realty, Inc................................ Maryland
Waban Export Inc.................................. Barbados
BJ's Wholesale Club, Inc.......................... Nevada
BJ's Warehouse Club, Inc.......................... Nevada
</TABLE>
<PAGE>
SCHEDULE D
WABAN SUBSIDIARIES
------------------
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
<S> <C>
HomeClub, Inc..................................... Nevada
HomeClub, Inc. of Texas........................... Delaware
Fullerton Corporation............................. Delaware
HCI Development Corp.............................. California
HomeClub First Realty Corp........................ Colorado
HCWA Realty Corp.................................. Washington
HCCA Realty Corp.................................. California
HBNM Realty Corp.................................. New Mexico
HBCA 1993 Realty Corp............................. California
HBOR Realty Corp.................................. Oregon
HBUT Realty Corp.................................. Utah
HCWA 1993 Realty Corp............................. Washington
HBCO Realty Corp.................................. Colorado
HBNM 1994 Realty Corp............................. New Mexico
HBCO 1994 Realty Corp............................. Colorado
HBCA Pomona Realty Corp........................... California
HBCA Vacaville Realty Corp........................ California
HomeBase, Inc..................................... Nevada
</TABLE>
<PAGE>
SCHEDULE E
INTERCOMPANY ACCOUNTS
---------------------
MATTERS RELATING TO NATICK CORPORATION
- --------------------------------------
On or prior to the Distribution Date, Waban will repay to Natick
Corporation all outstanding loans made by Natick Corporation to Waban, together
with all accrued interest thereon. Immediately after such repayment, Natick
Corporation shall declare and pay to Waban a dividend equal to all of the
retained earnings and surplus of Natick Corporation.
Cash
- ----
As contemplated by Item 1(h) of Schedule A, as of the Distribution Date,
Waban shall provide for BJI to have cash (as calculated by Waban in accordance
with past practices) in an amount of $5,000,000.
General
- -------
As contemplated by Item 2(a) of Schedule B, BJI shall assume 75% of the
principal amount of all bank indebtedness of Waban existing as of the
Distribution Date. Except as otherwise contemplated by this Agreement or any
Ancillary Agreement, effective as of the Distribution Date, all loans and
advances from Waban to BJI (or any corporation which will become a BJI
Subsidiary) outstanding immediately prior to the Distribution shall be deemed to
be a contribution to capital from Waban to BJI.
<PAGE>
EXHIBIT 10.2
================================================================================
SERVICES AGREEMENT
BETWEEN
BJ'S WHOLESALE CLUB, INC.
AND
WABAN INC.
================================================================================
<PAGE>
SERVICES AGREEMENT
------------------
This SERVICES AGREEMENT (the "Agreement"), dated as July 28, 1997, is
entered into by and between Waban Inc., a Delaware corporation ("Waban"), and
BJ's Wholesale Club, Inc., a Delaware corporation and, as of the date hereof, a
wholly owned subsidiary of Waban ("BJI").
WITNESSETH:
----------
WHEREAS, Waban and BJI have entered into a Separation and Distribution
Agreement (the "Distribution Agreement") which contemplates the separation of
Waban's "BJ's Wholesale Club" and "HomeBase" businesses into two distinct
companies by transferring the BJ's Wholesale Club business to BJI (the
"Separation") and, then, distributing all of the outstanding shares of BJI
Common Stock on a pro rata basis to the holders of Waban Common Stock (the
"Distribution"); and
WHEREAS, each of BJI and Waban wishes to provide for an orderly and
efficient separation of their businesses; and
WHEREAS, the successful operation of Waban's business will require the
performance of certain administrative services which Waban has previously
provided itself and BJI is willing to provide to Waban; and
WHEREAS, the Distribution Agreement contemplates the execution and
delivery of this Agreement, the purpose of which is to set forth certain matters
regarding the provision of administrative services by BJI to Waban.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
1. SERVICES
1.1. Services to be Made Available. In accordance with the terms and
-----------------------------
provisions of this Agreement, BJI agrees to perform for Waban the services
described in the Annexes hereto (collectively, the "Services") in the amounts
and to the extent specified with respect to each such Service in the applicable
Annex as follows:
<TABLE>
<CAPTION>
Service Applicable Annex
------- ----------------
<S> <C>
Tax A
Other Professional Services B
</TABLE>
1.2. Fees for Services. Waban agrees to pay to BJI a fee for each of the
-----------------
Services as specified in the applicable Annex hereto.
<PAGE>
Not more often than once per fiscal month, BJI shall forward to Waban
invoices for the Services listing the Services provided hereunder and listing
the fees for such Services, setting forth in reasonable detail the calculation
of the amounts charged. Invoices for Services provided for partial fiscal months
and relating to Services for which the fees are to be calculated on a monthly
basis shall be based upon (a) the number of business days during which services
were provided, divided by (b) the number of business days in such fiscal month.
Within fifteen days of receiving an invoice, Waban shall pay to BJI the amount
invoiced unless it shall in good faith dispute the types and/or amounts of
Services set forth on such invoice as having been provided during the period
covered by such invoice. In the event of such good faith dispute, Waban shall
pay the fees set forth on such invoice for all Services the amounts of which are
not in dispute and the parties hereto agree to use their respective best efforts
to resolve such dispute within ten days. If such dispute is not resolved within
ten days, either party hereto may seek binding arbitration of such dispute in
accordance with the provisions of Section 3.8 hereof. With respect to any task
that BJI agrees to perform hereunder, BJI shall, at Waban's request, inform
Waban of the person(s) who are expected to perform such tasks, such persons'
hourly rates applicable thereto and an estimate of the time such tasks will
require to complete.
1.3. Term of Agreement. This Agreement shall become effective as
-----------------
of the date of the Distribution (the "Distribution Date") and shall terminate
with respect to each Service on the date specified for such Service in the
applicable Annex hereto.
1.4. Timely Performance and Cooperation. BJI shall use all reasonable
----------------------------------
efforts in the timely performance of the Services and Waban shall use all
reasonable efforts to cooperate with BJI in connection with the provision of the
Services.
2. REPRESENTATIONS AND WARRANTIES.
As an inducement to enter into this Agreement, each party represents to
and agrees with the other that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power to own, lease and operate its properties, to carry on its business as
presently conducted and to carry out the transactions contemplated by this
Agreement;
(b) it has duly and validly taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby;
-2-
<PAGE>
(c) this Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation enforceable against it in
accordance with its terms, except as such enforceability may be affected by laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies; and
(d) none of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or the compliance with any
of the provisions of this Agreement will (i) conflict with or result in a breach
of any provision of its corporate charter or by-laws, (ii) breach, violate or
result in a default under any of the terms of any agreement or other instrument
or obligation to which it is a party or by which it or any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to it or affecting any of its properties
or assets.
3. OTHER TERMS AND PROVISIONS
3.1. Independent Contractor Status. BJI shall perform all services under
-----------------------------
this Agreement as an "independent contractor" and not as an agent of Waban. BJI
is not authorized to assume or create any obligation or responsibility, express
or implied, on behalf of, or in the name of Waban or to bind Waban in any
manner.
3.2. Limitation of Liability and Reimbursement. Neither BJI, nor any of
-----------------------------------------
its officers, employees, agents or affiliates (including its attorneys and
accountants), shall in any event be liable for any damages, including but not
limited to loss of profits or revenue, which arise out of BJI's (or any such
officer's, employee's, agent's or affiliate's) performance or failure to perform
any of its obligations under this Agreement, other than those damages caused by
BJI's (or such person's) willful misconduct or gross negligence. Waban hereby
agrees to indemnify BJI and hold BJI harmless for all costs (including
attorneys' fees) and damages incurred by BJI to third parties as a result of the
provision by BJI pursuant to this Agreement of the Services, other than costs or
damages incurred by BJI as a result of its willful misconduct or gross
negligence.
3.3. Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
-3-
<PAGE>
3.4. Assignment. Except by operation of law or in connection with the
----------
sale of all or substantially all the business or assets of a party hereto, this
Agreement shall not be assignable, in whole or in part, directly or indirectly,
by either party hereto without the prior written consent of the other, and any
attempt to assign any rights or obligations arising under this Agreement without
such consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
BJI and Waban and their respective successors and permitted assigns.
3.5. Further Assurances. Subject to the provisions hereof, each of BJI
------------------
and Waban shall make, execute, acknowledge and deliver such other agreements,
documents or instruments and take or cause to be taken such other actions as may
be reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of BJI and Waban shall, in connection with entering into this
Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, or other regulatory or administrative
agency, commission or similar authority and promptly provide the other with all
such information as the other may reasonably request in order to be able to
comply with the provisions of this sentence.
3.6. Parties in Interest. Nothing in this Agreement expressed or implied
-------------------
is intended or shall be construed to confer any right or benefit upon any person
or entity other than BJI and Waban and their respective successors and permitted
assigns.
3.7. Waivers, Etc. No failure or delay on the part of BJI or Waban in
-----------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure by BJI or Waban therefrom shall in any event be
effective unless the same shall be in writing and signed by the party against
whom such modification or waiver is asserted and then such modification or
waiver shall be effective only in the specific instance and for the purpose for
which given.
3.8. Arbitration. Each party hereto may refer any dispute arising under
-----------
this Agreement or the matters contemplated hereby (including without limitation
the fees for Services provided hereunder) to binding arbitration in the
Commonwealth of Massachusetts under the commercial arbitration rules of the
American Arbitration Association before a panel of three arbitrators, one
selected by each party and the third selected by the other two arbitrators or,
if they are unable to agree, by the American Arbitration Association. Any award
made in such arbitration may be enforced in any court of competent jurisdiction.
-4-
<PAGE>
3.9. Changes of Law. If, due to any change in applicable law or
--------------
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of any provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
3.10. Confidentiality. Subject to any contrary requirement of law and
---------------
the right of each party to enforce its rights hereunder in any legal action,
each party shall keep strictly confidential and shall cause its employees and
agents to keep strictly confidential any information which it or any of its
agents or employees may acquire pursuant to, or in the course of performing its
obligations under, any provision of this Agreement; provided, however, that such
obligation to maintain confidentiality shall not apply to information which (a)
at the time of disclosure was in the public domain not as a result of acts by
the receiving party, (b) was in the possession of the receiving party at the
time of disclosure, or (c) was received by the receiving party from a third
party that does not require the receiving party to maintain the confidentiality
of such information, and that is not in violation of any contractual, legal or
fiduciary obligation to the disclosing party with respect to such information.
3.11. Entire Agreement. Except as provided in the Separation and
----------------
Distribution Agreement of even date herewith between Waban and BJI, this
Agreement contains the entire understanding of the parties with respect to the
provisions of Services from BJI to Waban.
3.12. Titles and Headings. Titles and headings to sections herein are
-------------------
inserted for the convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
3.13. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
3.14. Notices. Any notice, request, demand, claim, or other
-------
communication hereunder shall be in writing and shall be delivered by registered
or certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below, and shall be deemed duly given on the
date which is three days after the date such notice, request, demand, claim, or
other communication is sent:
BJI at: One Mercer Road
------ Natick, MA 01760
Attn: Treasurer
-5-
<PAGE>
Waban at: 3345 Michelson Drive
-------- Irvine, CA 92612
Attn: Treasurer
Notwithstanding the foregoing, 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 is actually 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.
3.15. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic substantive laws of the State of Delaware
without regard to any choice or conflict of law rule or provision that would
result in the application of the domestic substantive laws of any other
jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Services Agreement to
be duly executed as of the day and year first above written.
WABAN INC.
By: /s/ Herbert J. Zarkin
------------------------
Herbert J. Zarkin
President
BJ'S WHOLESALE CLUB, INC.
By: /s/ John J. Nugent
------------------------
John J. Nugent
President
-7-
<PAGE>
ANNEX A TO SERVICES AGREEMENT
-----------------------------
MEMORANDUM
----------
To: B. Langsdorf
From: C. Cody
Subject: SERVICES PROVIDED BY BJI TO WABAN/HOMEBASE
================================================================================
Below is a description of the services the BJI Tax Department will
provide Waban/HomeBase, if and to the extent requested by HomeBase.
Federal & State Tax Returns
---------------------------
The BJI Tax Department will prepare and file, after review by
Waban/HomeBase, all federal and state income, net worth and franchise
tax returns for all filings through the taxable year ending January 31,
1998. The BJI Tax Department will maintain or prepare all tax ledgers,
tax credit programs, service fee calculations, accounting tax
provisions and timely file all tax extensions as needed for the above
period, and prepare all estimated tax payments required to be made
through October 31, 1998.
Annual Reports to the Secretaries of State
------------------------------------------
The BJI Tax Department will prepare and file, after review by
Waban/HomeBase, all annual reports to the Secretaries of State of all
states in which Waban or any of its subsidiaries is qualified to do
business, required to be filed through October 31, 1998.
Employee Benefit Plan Filings
-----------------------------
The BJI Tax Department will prepare and file, after review by
Waban/HomeBase, all employee benefit plan filings including but not
limited to Forms 5500, Form 990 and the PBGC filing for plan years
ending on or before January 31, 1998.
<PAGE>
Audits
- ------
The BJI Tax Department will handle the federal and state income tax audits
through any post-audit conference or protest for all audits of returns related
to taxable years in which BJI was part of the Waban Inc. consolidated federal
return.
Miscellaneous
- -------------
The BJI Tax Department will prepare and file all payroll tax filings related to
the third quarter of 1997 and periods prior thereto.
The BJI Tax Department will provide tax research to Waban and its subsidiaries
through October 31, 1998.
COST TO WABAN INC.
- ------------------
The FYE 1/31/98 charge to Waban/HomeBase will be $108,000. This amount will be
charged monthly as follows:
<TABLE>
<S> <C>
August $ 18,000.00
September 18,000.00
October 18,000.00
November 18,000.00
December 18,000.00
January 18,000.00
__________
$108,000.00
</TABLE>
<PAGE>
ANNEX B TO SERVICES AGREEMENT
-----------------------------
Other Professional Services
---------------------------
The following professional advisory services, as reasonably requested by
Waban and as may be agreed to by BJI from time to time, shall be provided by BJI
to Waban for a period of up to twelve months after the Distribution Date. This
Annex describes the terms on which any such services may be provided by BJI and
does not require BJI to provide such services.
Risk Management
Legal
Investor Relations
Treasury
Such services shall be billed to Waban on an hourly basis at 2.5 times
the providing employee's hourly rate (calculated as such person's annualized
base salary divided by 2,000).
In addition, Waban shall reimburse BJI for the out-of-pocket expenses
incurred by the providing employee in the performance of such services.
<PAGE>
EXHIBIT 10.3
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (the "Agreement"), dated as of July 28, 1997, is
between Waban Inc., a Delaware corporation ("Waban") and BJ's Wholesale Club,
Inc., a Delaware corporation and, as of the date hereof, a wholly owned
subsidiary of Waban ("BJI").
WHEREAS, Waban and BJI have entered into a Separation and Distribution
Agreement (the "Distribution Agreement") which contemplates the separation of
Waban's "BJ's Wholesale Club" and "HomeBase" businesses into two distinct
companies by transferring the BJ's Wholesale Club business to BJI (the
"Separation") and, then, distributing all of the outstanding shares of BJI
Common Stock on a pro rata basis to the holders of Waban Common Stock (the
"Distribution");
WHEREAS, following the Distribution, Waban will change its name to
HomeBase, Inc. ("HomeBase");
WHEREAS, beginning with its taxable year ended January 27, 1990, Waban has
filed consolidated federal income Tax Returns (as hereinafter defined) that have
included the operations of the BJ's Wholesale Club division, the HomeBase
division, certain direct and indirect Waban subsidiaries, and certain companies
that have become direct or indirect subsidiaries of Waban;
WHEREAS, the operations of such divisions and such subsidiaries also have
been included with one or more members of the Waban Group (as hereinafter
defined) in state and local unitary or combined income tax and franchise Tax
Returns; and
WHEREAS, the Distribution Agreement contemplates the execution and delivery
of this Agreement, the purpose of which is to provide for the allocation between
the HomeBase Group (as hereinafter defined) and the BJI Group (as hereinafter
defined) of all responsibilities, liabilities and benefits relating to or
affecting Taxes (as hereinafter defined) paid or payable by either of them for
all taxable periods, beginning on or before the Distribution Date, and to
provide for certain other matters.
NOW THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Separation and Distribution Agreement. As used
in this Agreement, the following terms shall have the following meanings (such
meanings to be equally applicable both to the singular and the plural forms of
the terms defined):
"Affiliated Group" means an affiliated group of corporations within the
meaning of Code section 1504(a) for the taxable period in question.
"BJI Affiliated Group" means, for each taxable period beginning after the
Distribution Date, the Affiliated Group of which BJI is the common parent.
"BJI Assets" means all of the assets held by the members of the BJI
Affiliated Group immediately after the Distribution.
"BJI Business" means the business, assets and operations of the "BJ's
Wholesale Club" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued on or
prior to the Distribution Date (provided, however, that warehouse clubs
initially operated by the BJ's Wholesale Club division and subsequently
transferred to the HomeBase division shall be considered part of the BJI
Business only for the period operated by the BJ's Wholesale Club division).
"BJI Group" means, with respect to any taxable period, the corporations
that were members of the Waban Affiliated Group and that are members of the BJI
Affiliated Group immediately after the Distribution Date. The BJI Group shall
include BJI and the BJI Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted federal Tax laws.
"Distribution" has the meaning ascribed in the Preamble.
"Distribution Date" means the close of business on the date determined by
the Waban Board as of which the Distribution shall be effected.
Tax Sharing Agreement
-2-
<PAGE>
"Final Determination" means the final resolution of any liability for Taxes
for a taxable period. A Final Determination shall result from the first to occur
of:
(i) the expiration of 30 days after IRS acceptance of a Waiver of
Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment on IRS Form 870 or 870-AD (or any successor
comparable form or the expiration of a comparable period with respect to
any comparable agreement or form under the laws of other jurisdictions)
unless, within such period, the taxpayer gives notice to the other party of
the taxpayer's intention to attempt to recover all or part of any amount
paid pursuant to the Waiver by the filing of a timely claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial review (by
appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise
under Section 7122 of the Code, or comparable agreements under the laws of
other jurisdictions;
(iv) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund disallowed in whole or
part by the IRS;
(v) any other final disposition of the Tax liability for such period
by reason of the expiration of the applicable statute of limitations; or
(vi) any other event that the parties agree in writing is a final
and irrevocable determination of the liability at issue.
"HomeBase Business" means the business, assets and operations of the
"HomeBase" division of Waban, including without limitation all businesses,
assets or operations managed or operated by, or operationally related to, such
business which have been sold or otherwise disposed of or discontinued on or
prior to the Distribution Date (provided, however, that warehouse clubs
initially operated by the BJ's Wholesale Club division and subsequently
transferred to the HomeBase division shall be considered part of the HomeBase
Business only for the period operated by the HomeBase division).
"HomeBase Group" means, with respect to any taxable period, the
corporations that were members of the Waban Affiliated Group during such period,
exclusive of
Tax Sharing Agreement
-3-
<PAGE>
the corporations that are included in the BJI Affiliated Group immediately after
the Distribution Date.
"IRS" means the United States Internal Revenue Service or any successor
thereto, including but not limited to its agents, representatives, and
attorneys.
"Joint Tax Return" means any Tax Return that includes a member of the
HomeBase Group and a member of the BJI Group.
"Restructuring Taxes" means any Taxes, other than Transaction Taxes,
incurred by the Waban Affiliated Group as a result of (i) the Separation or (ii)
the Distribution.
"Short Period" means the period commencing on January 26, 1997 and ending
on the Distribution Date.
"Tax" means any federal, state, local or foreign income, profits,
alternative or add-on minimum, severance, sales, use, service, service use, ad
valorem, gross receipts, license, value added, franchise, transfer, recording,
real estate, withholding, payroll, employment, excise, occupation, unemployment
insurance, social security, business license, business organization, stamp,
environmental, premium or property tax, or any other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
related interest, penalties and additions to any such tax, imposed by any taxing
authority upon Waban, the HomeBase Group, the BJI Group or any of their
respective members or divisions or branches.
"Tax Deficiency" means an assessment of Tax, as a result of a Final
Determination.
"Tax Detriment" means any item of income, gain, recapture of credit or any
other Tax Item which increases Taxes paid or payable.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credit or any other item which increases
or decreases Taxes paid or payable, including an adjustment under Code Section
481 resulting from a change in accounting method.
"Tax Refund" means a refund of Tax as the result of a Final Determination.
"Tax Return" means any return, filing, questionnaire, information return or
other document required to be filed, including requests for extensions of time,
filings made with estimated tax payments, claims for refund and amended returns
that may be filed, for any period with any taxing authority (whether domestic or
foreign) in
Tax Sharing Agreement
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<PAGE>
connection with any Tax (whether or not a payment is required to be
made with respect to such filing).
"Transaction Taxes" mean any sales, use, transfer, real estate transfer,
recording or other similar Taxes payable in connection with consummation of the
transactions contemplated by the Separation and Distribution Agreement.
"Waban Affiliated Group" shall mean, for each taxable period, the
Affiliated Group of which Waban or any successor of Waban is the common parent.
ARTICLE II
FILING OF TAX RETURNS
---------------------
2.01 Manner of Filing. All Tax Returns filed after the Distribution Date shall
----------------
be prepared on a basis which is consistent with the consummation of the
transactions as set forth in the Separation and Distribution Agreement and
shall be filed on a timely basis (including extensions) by the party
responsible for such filing under this Agreement. Unless otherwise required
by applicable law, all Tax Returns filed after the date of this Agreement
shall be prepared on a basis consistent with the elections, accounting
methods, conventions, and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar Tax Items have been
filed, to the extent that a failure to do so could result in a Tax
Detriment to the other party hereto or a member of its Affiliated Group.
Subject to the provisions of this Agreement, all decisions relating to the
preparation of Tax Returns shall be made in the sole discretion of the
party responsible under this Agreement for such preparation.
2.02 Pre-Distribution Tax Returns.
----------------------------
(a) Consolidated Returns. The Waban and HomeBase consolidated federal income
--------------------
Tax Returns required to be filed for all periods beginning on or before the
Distribution Date shall be prepared and filed by HomeBase. HomeBase and BJI
will cooperate in good faith to determine the appropriate amount of Tax
Items attributable to the BJI Business to be reflected in the consolidated
federal income Tax Returns of Waban and HomeBase for periods beginning on
or before the Distribution Date.
(b) Combined, Consolidated and Unitary Returns. All state and local combined,
------------------------------------------
consolidated and unitary corporate income Joint Tax Returns which are
required to be filed for all periods beginning on or before the
Distribution Date, which have not been previously filed shall be prepared
and filed by
Tax Sharing Agreement
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<PAGE>
HomeBase. HomeBase and BJI will cooperate in good faith to
determine the appropriate amount of Tax Items attributable to the BJI
Business to be reflected in such Returns of Waban and HomeBase for periods
beginning on or before the Distribution Date.
(c) Other Returns. All other Tax Returns not described elsewhere in this
-------------
Section 2.02 that are required to be filed for periods beginning on or
before the Distribution Date, including Tax Returns in respect of
Transaction Taxes, shall be prepared and filed by the party responsible
under the appropriate law of the taxing jurisdiction.
ARTICLE III
PAYMENT OF TAXES
----------------
3.01 General. For purposes of determining a party's liability for Taxes or
-------
entitlement to Tax Refunds, Tax Items clearly attributable to the HomeBase
Business will be taken into account for the HomeBase Group, and Tax Items
clearly attributable to the BJI Business will be taken into account for the
BJI Group. Except as otherwise provided in this Agreement, Tax Items not
clearly attributable either to the HomeBase Business or the BJI Business
will be taken into account (i) for the HomeBase Group in the case of
Section 3.02 (Allocation of Tax Liabilities With Respect to Unfiled
Returns), and (ii) 25% for the HomeBase Group and 75% for the BJI Group in
the case of Section 3.03 (Redetermined Tax Liabilities).
3.02 Allocation of Tax Liabilities With Respect to Unfiled Returns.
-------------------------------------------------------------
(a) Consolidated Federal Income Tax Liabilities. Except as otherwise provided
-------------------------------------------
in this Agreement, HomeBase shall pay, on a timely basis, all Taxes due
with respect to the consolidated federal income Tax liability for all
periods beginning on or before the Distribution Date (including the Short
Period) of the Waban Affiliated Group. BJI on behalf of the BJI Group
hereby assumes and agrees to pay (to the extent not previously paid by BJI)
the BJI Group's share of those Taxes for all periods beginning on or before
the Distribution Date (including the Short Period), which payments shall be
made directly to HomeBase which shall then forward any balance due to the
IRS.
The allocable shares of the consolidated federal income Tax liability
for such periods for the BJI Group and the HomeBase Group shall be determined by
applying the effective tax rate with respect to the applicable Tax Return to the
positive taxable income, if any, determined in accordance with the principles
set forth
Tax Sharing Agreement
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<PAGE>
in Section 3.01 for each of the BJI Group and the HomeBase Group. With
respect to the taxable year of the HomeBase Group that includes the Distribution
Date and the taxable year of the BJI Group that commences immediately following
the Distribution Date, the HomeBase Group shall claim on its federal income Tax
Returns the benefit of (i) the graduated tax rates of Code Section 11, (ii) the
$25,000 bracket amount in Code Section 38, (iii) the $40,000 exemption amount
and the $150,000 bracket amount in Code Section 55, and (iv) the $2,000,000
bracket amount in Code Section 59A, and the BJI Group shall claim none of such
benefits.
If the calculations made pursuant to this Section 3.02(a) indicate
that the BJI Group has either overpaid or underpaid its share of the
consolidated federal income Tax liability for the taxable year ended January 25,
1997, or for the Short Period, respectively, then not later than 90 days after
the filing of HomeBase's consolidated federal income Tax return for the taxable
year ended January 25, 1997, and the taxable year ending January 31, 1998,
respectively, HomeBase shall pay BJI the amount of any such overpayment or BJI
shall pay HomeBase the amount of any such underpayment.
HomeBase shall notify BJI not later than 5 business days prior to the
due date of any quarterly estimated Tax payments of the amount of BJI's share of
such quarterly payments, and BJI shall make such quarterly estimated Tax
payments to HomeBase not later than 3 business days prior to the date such
quarterly payments would be due if BJI were a separate company. HomeBase shall
notify BJI not later than 5 business days prior to the last day for filing any
request for extension of time to file the HomeBase Group's federal Tax Return of
the amount of BJI's share of any additional amount due upon the filing of such
extension request, and BJI shall pay to HomeBase such amount not later than 3
business days prior to the last day for filing such extension request.
All calculations and determinations required to be made pursuant to
this Section 3.02(a) shall be made by HomeBase in good faith.
(b) Combined, Consolidated and Unitary Corporate Income Taxes. Except as
---------------------------------------------------------
otherwise provided in this Agreement, HomeBase or a member of the HomeBase
Group shall pay, on a timely basis, all Taxes due with respect to any
combined, consolidated or unitary state, local and foreign corporate income
Tax liability for all periods beginning on or before the Distribution Date
(including the Short Period) with respect to Joint Tax Returns ("Combined
Taxes"). BJI hereby assumes and agrees to pay (to the extent not previously
paid by BJI) the BJI Group's share of Combined Taxes for all periods
beginning on or before the Distribution Date (including the Short Period),
which payment shall be made by BJI to HomeBase, which shall then pay any
amount due to the appropriate taxing authority.
Tax Sharing Agreement
-7-
<PAGE>
The allocable shares of the Combined Tax liability for such periods
for the BJI Group and the HomeBase Group shall be determined by applying the
effective tax rate with respect to the applicable Tax Return to the positive
taxable income, if any, determined in accordance with the principles set forth
in Section 3.01 for each of the BJI Group and the HomeBase Group.
If the calculations made pursuant to this Section 3.02(b) indicate
that BJI has either overpaid or underpaid its share of the Combined Tax
liability, then at such time as HomeBase shall reasonably determine, but in any
event not later than 90 days after the filing of the relevant return, HomeBase
shall pay BJI the amount of any such overpayment or BJI shall pay HomeBase the
amount of any such underpayment.
HomeBase shall notify BJI not later than 5 business days prior to the due
date of any quarterly estimated Tax payments of the amount of BJI's share of
such quarterly payments, and BJI shall make quarterly estimated tax payments to
HomeBase not later than 3 business days prior to the date such quarterly
payments would be due if BJI were a separate company. HomeBase shall notify BJI
not later than 5 business days prior to the last day for filing any request for
extension of time to file the HomeBase Group's Combined Tax Return of the amount
of BJI's share of any additional amount due upon the filing of such extension
request, and BJI shall pay to HomeBase such amount not later than 3 business
days prior to the last day for filing such extension request.
All calculations and determinations required to be made pursuant to
this Section 3.02(b) shall be made by HomeBase in good faith.
(c) Other Taxes. All other Taxes for periods beginning on or before the
-----------
Distribution Date shall be paid, on a timely basis, by the party
responsible under this Agreement for filing the Tax Return pursuant to
which such Taxes are due, or, if no Tax Return is required, by the party
responsible for payment of such Tax under the laws of the taxing
jurisdiction. In the case of Transaction Taxes, HomeBase shall be liable
for 25% of such Taxes and BJI shall be liable for 75% of such Taxes. The
party not responsible under this Agreement for paying such Taxes to the
taxing authority shall pay the responsible party for its share of such
Taxes not later than 3 business days prior to the due date for such Taxes.
3.03 Redetermined Tax Liabilities.
----------------------------
(a) Joint Tax Returns. In the case of any Final Determination
-----------------
regarding a Joint Tax Return, any Tax Deficiency shall be paid to the
appropriate taxing authority by, and any Tax Refund received from the
appropriate taxing
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<PAGE>
authority shall be paid to, HomeBase; provided, however, that whether or
-------- -------
not there is a Tax Deficiency or Tax Refund or whether or not a payment is
required to or from the appropriate taxing authority, BJI shall make
payments to HomeBase or receive payments from HomeBase based upon the
following principles:
(i) BJI shall make a payment to HomeBase in an amount
equal to any increase in the BJI Group's allocable share of Tax with respect to
such Joint Tax Return resulting from any adjustments to Tax Items attributable
to the BJI Business, less any payments therefor previously made by BJI to
HomeBase (or directly to the appropriate taxing authority). For the purpose of
computing the amount of any such increase in the BJI Group's allocable share of
Tax, any offsetting adjustments to Tax Items attributable to the HomeBase
Business will not be taken into account.
(ii) HomeBase shall pay to BJI, to the extent not previously
paid to BJI by the appropriate taxing authority or by HomeBase, the amount of
any decrease in the BJI Group's allocable share of Tax with respect to such
Joint Tax Return resulting from adjustments to Tax Items attributable to the BJI
Business. For the purpose of computing the amount of any such decrease in the
BJI Group's allocable share of Tax, any offsetting adjustments to Tax Items
attributable to the HomeBase Business will not be taken into account.
Any Tax Liability or Refund with respect to (i) a Tax Item not clearly
attributable either to the HomeBase Business or the BJI Business, (ii) a Joint
Tax Return not arising from an adjustment to, or change in, a Tax Item (e.g.,
change in applicable law), or (iii) Transaction Taxes, shall be allocated 25% to
HomeBase and 75% to BJI.
(b) Separate Returns. HomeBase shall be liable for and shall indemnify, defend
----------------
and hold harmless the BJI Group from and against all Taxes for all periods
with respect to Tax Returns that include only members of the HomeBase
Group, and BJI shall be liable for and shall indemnify, defend and hold
harmless the HomeBase Group from and against all Taxes for all periods with
respect to Tax Returns that include only members of the BJI Group. HomeBase
shall be entitled to receive and retain all Tax Refunds for all periods
with respect to Tax Returns that include only members of the HomeBase
Group. BJI shall be entitled to receive and retain all Tax Refunds for all
periods with respect to Tax Returns that include only members of the BJI
Group.
(c) Calculation and Payment of Amounts. Except in the case of Tax Returns that
----------------------------------
include only members of the BJI Group, all calculations and determinations
Tax Sharing Agreement
-9-
<PAGE>
required to be made pursuant to this Section 3.03 shall be made by HomeBase
in good faith and on a basis reasonably consistent with prior years. Any
payments made by the parties hereunder to each other shall be treated by
each of the parties as satisfaction of liabilities of such paying party and
shall not be subject to any gross-up or additional payment.
(d) Certain Penalties. Notwithstanding anything in this Agreement to the
-----------------
contrary, with respect to Joint Tax Returns, HomeBase shall be responsible
for the payment of 100% of any penalties which (i) would have been waived
or not imposed but for HomeBase's failure to adequately disclose on any Tax
Return a position which, prior to the filing of such Tax Return, BJI
indicated in writing to HomeBase should be disclosed, or (ii) are solely
attributable to a position taken by HomeBase on a Joint Tax Return without
the prior written agreement of BJI, which position is inconsistent with the
information or Tax Returns provided by BJI to HomeBase.
3.04 Liability for Taxes with Respect to Post-Distribution Periods. Unless
-------------------------------------------------------------
otherwise provided in this Agreement, the HomeBase Group shall pay all
Taxes and shall be entitled to receive and retain all Tax Refunds with
respect to periods beginning after the Distribution Date which are
attributable to the HomeBase Business. Unless otherwise provided in this
Agreement, the BJI Group shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes with respect to periods beginning
after the Distribution Date which are attributable to the BJI Business.
3.05 Carrybacks. BJI agrees that it will not carry back any Tax Item arising
----------
after the Distribution Date to a taxable period with respect to a Tax
Return which includes a member of the HomeBase Group, without the consent
of HomeBase. In the event that BJI does carry back any such Tax Item with
HomeBase's consent, any Tax Refund resulting therefrom shall be paid over
to BJI. To the extent that the carryback of any Tax Item does not result in
a Tax Refund (or would not result in a refund if a claim were filed) solely
as the result of an offsetting Tax Item attributable to the HomeBase Group,
HomeBase shall remit to BJI the amount of any decrease in the BJI Group's
allocable share of Tax with respect to such return as a result of such
carryback as determined under the principles contained in Section 3.03(a).
3.06 Responsibility for Restructuring Taxes.
--------------------------------------
(a) Responsibility of BJI Group. BJI and any successor corporation shall be
---------------------------
responsible for, and shall indemnify and hold harmless HomeBase and each
member of the HomeBase Group from, all liability, loss, cost, expense or
damage in any way occasioned by any Restructuring Taxes which are directly
Tax Sharing Agreement
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<PAGE>
or indirectly attributable to one or more of the following described events
or transactions occurring after the Distribution Date with respect to BJI
or any successor corporation: a reorganization, consolidation or merger;
the sale or other disposition of BJI Assets other than in the ordinary
course of business; BJI ceasing to conduct an active trade or business; the
acquisition or disposition of shares of stock of BJI by any person or
persons; the redemption or repurchase of shares of its stock by BJI or any
successor; the recapitalization or other reclassification of the shares of
BJI or any successor; the complete or partial liquidation of BJI or any
successor; the exercisability, transferability or repurchase of rights
distributed pursuant to a stock purchase rights plan; or any other act or
omission of BJI which results in failure to comply with each representation
and statement made to the IRS in connection with the rulings received with
respect to the Distribution.
(b) Responsibility of HomeBase Group. HomeBase and any successor corporation
--------------------------------
shall be responsible for, and shall indemnify and hold harmless BJI and
each member of the BJI Group from, all liability, loss, cost, expense or
damage in any way occasioned by any Restructuring Taxes which are directly
or indirectly attributable to one or more of the following described events
or transactions occurring after the Distribution Date with respect to
HomeBase or any successor corporation: a reorganization, consolidation or
merger; the sale or other disposition of HomeBase Assets other than in the
ordinary course of business; HomeBase ceasing to conduct an active trade or
business; the acquisition or disposition of shares of stock of HomeBase by
any person or persons; the redemption or repurchase of shares of its stock
by HomeBase or any successor; the recapitalization or other
reclassification of the shares of HomeBase or any successor; the complete
or partial liquidation of HomeBase or any successor; the exercisability,
transferability or repurchase of rights distributed pursuant to a stock
purchase rights plan or any other act or omission of HomeBase which results
in failure to comply with each representation and statement made to the IRS
in connection with the rulings received with respect to the Distribution.
(c) Joint Responsibility of BJI Group and HomeBase Group. If any Restructuring
----------------------------------------------------
Taxes should arise for which neither BJI nor HomeBase is responsible under
Section 3.06(a) or Section 3.06(b), respectively, each of BJI and HomeBase
shall be responsible for 50 percent of such Restructuring Taxes, and each
party shall indemnify, defend and hold harmless the other party and each
member of their respective Groups from and against all liability, loss,
cost, expense or damage in any way occasioned by such Restructuring Taxes.
ARTICLE IV
Tax Sharing Agreement
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<PAGE>
INDEMNITY; COOPERATION AND EXCHANGE OF INFORMATION
--------------------------------------------------
4.01 Breach. HomeBase shall be liable for and shall indemnify, defend and hold
------
harmless the BJI Group and its officers and directors, from and against,
and BJI shall be liable for and shall indemnify, defend and hold harmless
the HomeBase Group and its officers and directors, from and against, any
payment required to be made as a result of the breach by a member of the
HomeBase Group or the BJI Group, as the case may be, of any obligation
under this Agreement.
4.02 Indemnity. Whenever a party hereto (hereinafter an "Indemnitee") becomes
---------
aware of the existence of an issue which could increase the liability for
any Tax of the other party hereto or any member of its Group or require a
payment hereunder (hereinafter an "Indemnity Issue"), the Indemnitee shall
promptly give notice to such other party (hereinafter the "Indemnitor") of
such Indemnity Issue. The failure of any Indemnitee to give such notice
shall not relieve any Indemnitor of its obligations under this Agreement
except to the extent such Indemnitor or its affiliate is actually
materially prejudiced by such failure to give notice. The Indemnitor and
its representatives, at the Indemnitor's expense, shall be entitled to
participate (i) in all conferences, meetings or proceedings with any taxing
authority, the subject matter of which is or includes an Indemnity Issue
and (ii) in all appearances before any court, the subject matter of which
is or includes an Indemnity Issue. The party who has responsibility for
filing the Tax Return under this Agreement (the "Responsible Party") with
respect to which there is an increase in liability for any Tax or with
respect to which a payment is required hereunder shall have the right to
decide as between the parties hereto how such matter is to be dealt with
and finally resolved with the appropriate taxing authority and shall
control all audits and similar proceedings. The Responsible Party agrees to
cooperate in the settlement of any Indemnity Issue with the other party and
to take such other party's interests into account. If the Indemnitor is not
the Responsible Party, such cooperation shall include permitting the
Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. Notwithstanding the foregoing, if the
Responsible Party is not the Indemnitor, the Responsible Party shall not
enter into a final settlement with the relevant taxing authority with
respect to any matter involving an Indemnity Issue without first presenting
the proposed settlement to the Indemnitor, who shall provide the
Responsible Party with written consent to such settlement within ten days
of receipt, whereupon (or if the Indemnitor fails to respond to such
settlement in writing within such ten day period) the Responsible Party may
enter into such settlement with the relevant taxing authority, provided,
however, that the Indemnitor may withhold its consent to the proposed
settlement by notifying the Responsible Party in writing within
Tax Sharing Agreement
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<PAGE>
such ten day period that the Indemnitor does not consent to the proposed
settlement, if the Indemnitor provides the Responsible Party with an
opinion, from tax counsel reasonably satisfactory to the Responsible Party,
to the effect that there is a reasonable possibility that the Indemnitor
will prevail on the merits with respect to one or more Indemnity Issues
with an aggregate value of not less than $100,000 (including Tax, interest
and/or penalties) in a tribunal with jurisdiction to adjudicate the
Indemnitor's defense of such Indemnity Issue. If the Indemnitor provides
the Responsible Party with written notification withholding consent in
accordance with the immediately preceding sentence, then:
(i) The Indemnitor shall fully indemnify and hold harmless
the Responsible Party from and against any and all liabilities (other than
liability for payments to the Indemnitor hereunder) for Taxes and other
costs and expenses (including, without limitation, attorneys' and
accountants' fees) over and above the payments that the Responsible Party
would have been liable for if the Responsibility Party had entered into the
proposed settlement; and
(ii) The Responsible Party shall select one of the following
alternatives:
(1) enter into a closing agreement or other final
resolution with the relevant taxing authority with respect to all
issues in accordance with the proposed settlement other than
Indemnity Issues, provided that such closing agreement shall (i)
allow the Indemnitor to continue to defend the Indemnity Issues in
proceedings with the relevant taxing authority, and (ii) permit the
Indemnitor, if successful, to obtain the full monetary benefit of a
successful defense or claim for a refund, taking into account any
payments to be made pursuant to Section 3.03; or
(2) settle all issues with the relevant taxing authority
in accordance with the proposed settlement and/or pay any additional
liability for Taxes as provided for in such proposed settlement,
provided that such settlement shall (i) permit the Indemnitor to file
a claim for refund with respect to the Indemnity Issues and (ii)
permit the Indemnitor, if successful, to obtain the full monetary
benefit of such claim for refund, taking into account any payments to
be made under Section 3.03, which payments shall be made by the
Indemnitor to the Responsible Party not later than 3 business days
prior to the date payment is required under the proposed settlement,
notwithstanding the lack of a Final Determination at such time; or
Tax Sharing Agreement
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<PAGE>
(3) pay to the Indemnitor any additional liability for
Taxes as provided for in such settlement to the extent that such
liability relates to issues other than Indemnity Issues, whereupon
the Indemnitor shall assume control over and responsibility for any
proceeding related to such matter and shall be fully liable for and
shall fully indemnify and hold the Responsible Party harmless from
and against any and all liability for Taxes with respect to such
matter. The Indemnitor shall have no obligation or duty to reimburse
or refund to the Responsible Party any portion of any refund or
settlement payment regardless of the resolution of the matter.
An Indemnitor may, at its election, pay to or deposit with the
relevant taxing authority an amount of additional Tax liability for which the
Indemnitor would be liable hereunder if such payment or deposit would have the
effect of stopping the accrual of interest with respect to such Tax liability.
The Indemnitor shall have no further responsibility hereunder for interest with
respect to any amount so deposited or paid for so long as such deposit or
payment stops the accrual of interest; provided, however, that any such payment
or deposit does not affect any right of the Responsible Party or any other
liability of the Indemnitor hereunder.
4.03 Cooperation and Exchange of Information.
---------------------------------------
(a) BJI shall, and shall cause each appropriate member of the BJI Group to,
prepare and submit to HomeBase, at BJI's expense, no later than 90 days
after the Distribution Date, all information as HomeBase shall reasonably
request to enable HomeBase to file the HomeBase consolidated federal income
Tax Return and any state and local combined or unitary corporate income Tax
Returns for the taxable year ending January 31, 1998. HomeBase shall be
entitled to require BJI to engage a certified public accounting firm
reasonably acceptable to HomeBase (it being agreed that BJI's outside
auditors as of the Distribution Date are acceptable to HomeBase) to review
the information which BJI is required to provide under this Section
4.03(a). The expenses of such accounting firm shall be borne by HomeBase.
(b) HomeBase, on behalf of itself and each member of the HomeBase Group, agrees
to provide the BJI Group, and BJI, on behalf of itself and each member of
the BJI Group, agrees to provide the HomeBase Group, with such cooperation
and information as a party shall reasonably request of the other in
connection with the preparation or filing of any Tax Return or claim for
refund not inconsistent with this Agreement or in conducting any audit or
other proceeding in respect to Taxes. Such cooperation and information
shall include without limitation promptly forwarding copies of appropriate
notices and forms or other communications received from or sent to any
taxing
Tax Sharing Agreement
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<PAGE>
authority which relate (i) to the HomeBase Group or the HomeBase
Business, to HomeBase in the case of the BJI Group, and (ii) to the BJI
Group or the BJI Business to BJI in the case of the HomeBase Group; and
providing copies of all relevant Tax Returns, together with accompanying
schedules and related workpapers, documents relating to rulings or other
determinations by taxing authorities, including without limitation, foreign
taxing authorities, and records concerning the ownership and Tax basis of
property, which either party may possess. Each party shall make its
employees and facilities available on a mutually convenient basis to
provide explanations of any documents or information provided hereunder.
(c) BJI and HomeBase agree to retain all Tax Returns, related schedules and
workpapers, and all material records and other documents as required under
Section 6001 of the Code and the regulations promulgated thereunder
relating thereto existing on the date hereof or created through the
Distribution Date, until the expiration of the statute of limitations
(including extensions) of the taxable years to which such Tax Returns and
other documents relate and until the Final Determination of any payments
which may be required in respect of such years under this Agreement.
HomeBase and BJI agree to advise each other promptly of any such Final
Determination. Any information obtained under this Section 4.03 shall be
kept confidential, except as may be otherwise necessary in connection with
the filing of Tax Returns or claims for refund or in conducting any audit
or other proceeding.
(d) If any member of the HomeBase Group or the BJI Group, as the case may be,
fails to provide any information requested pursuant to this Section 4.03 by
(i) the dates, specified in subsection (a) hereof or, (ii) with respect to
information not requested pursuant to subsection (a) hereof, within a
reasonable period, as determined in good faith by the party requesting
information, then the requesting party shall have the right to engage a
certified public accounting firm of its choice to gather such information.
BJI and HomeBase, as the case may be, agree upon 24 hours' notice, in the
case of a failure to provide information pursuant to subsection (a) hereof,
and otherwise upon 30 days' notice after the expiration of such reasonable
period, to permit any such accounting firm full access to all appropriate
records or other information in the possession of any member of the
HomeBase Group or the BJI Group, as the case may be, during reasonable
business hours, and to reimburse or pay directly all costs and expenses in
connection with the engagement of such public accountants.
(e) If any member of the HomeBase Group or the BJI Group, as the case may be,
supplies information to a member of the other Group pursuant to this
Section 4.03 and an officer of the requesting party signs a statement or
other document
Tax Sharing Agreement
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<PAGE>
under penalties of perjury in reliance upon the accuracy of such
information, then a duly authorized officer of the party supplying such
information shall certify, under penalties of perjury, the accuracy and
completeness of the information so supplied. HomeBase agrees to indemnify
and hold harmless each member of the BJI Group and its directors, officers
and employees, from and against any cost, fine, penalty or other expense of
any kind attributable to the negligence or willful misconduct of a member
of the HomeBase Group, in supplying a member of the BJI Group with
inaccurate or incomplete information. BJI agrees to indemnify and hold
harmless each member of the HomeBase Group and its directors, officers and
employees, from and against any cost, fine, penalty or other expense of any
kind attributable to the negligence or willful misconduct of a member of
the BJI Group in supplying a member of the HomeBase Group with inaccurate
or incomplete information.
4.04 Injunction. The parties hereto agree that the payment of monetary
----------
compensation would not be an adequate remedy to a breach of the obligations
contained in Section 4.03 hereof, and each party consents to the issuance
and entry of an injunction against the taking of any action by it or a
member of its Group described in the preceding section.
ARTICLE V
MISCELLANEOUS
-------------
5.01 Expenses. Unless otherwise expressly provided in this Agreement, each party
--------
shall bear any and all expenses that arise from its obligations under this
Agreement.
5.02 Entire Agreement; Termination of Prior Agreements. This Agreement
-------------------------------------------------
constitutes the entire agreement of the parties concerning the subject
matter hereof and supersedes all other agreements, whether or not written,
in respect of any Tax between or among any member or members of the
HomeBase Group, on the one hand, and any member or members of the BJI
Group, on the other hand. Except as otherwise provided herein, effective as
of the Distribution Date, all such agreements are hereby cancelled and any
rights or obligations existing thereunder are hereby fully and finally
settled without any payment by any party thereto. Anything in this
Agreement or the Separation and Distribution Agreement to the contrary
notwithstanding, in the event and to the extent that there shall be a
conflict between the provisions
Tax Sharing Agreement
-16-
<PAGE>
of this Agreement and the Separation and Distribution Agreement, the
provisions of this Agreement shall control.
5.03 Notices. Any notice, request, demand, claim, or other communication
-------
hereunder shall be in writing and shall be delivered by registered or
certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below, and shall be deemed duly given
on the date which is three days after the date such notice, request,
demand, claim, or other communication is sent:
To HomeBase or any member of the HomeBase Group:
HomeBase, Inc.
3345 Michelson Drive
Irvine, CA 92715
Attention: Treasurer
To BJI or any member of the BJI Group:
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Attention: Treasurer
Notwithstanding the foregoing, 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 is
actually 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.
5.04 Resolution of Disputes. Any disputes between the parties with respect to
----------------------
this Agreement shall be resolved by a certified public accounting firm or a
law firm satisfactory to HomeBase and BJI, whose fees and expenses shall be
shared equally by HomeBase and BJI.
5.05 Application to Present and Future Subsidiaries. This Agreement is being
----------------------------------------------
entered into by each of HomeBase and BJI on behalf of itself and each
member of the HomeBase Group and the BJI Group, respectively. This
Agreement shall
Tax Sharing Agreement
-17-
<PAGE>
constitute a direct obligation of each such member and shall be deemed to
have been readopted and affirmed on behalf of any corporation which becomes
a member of the HomeBase Group or the BJI Group in the future. HomeBase and
BJI hereby guarantee the performance of all actions, agreements and
obligations provided for under this Agreement of each member of the
HomeBase Group and the BJI Group, respectively. Each of HomeBase and BJI
shall, upon the written request of the other, cause any of its respective
group members formally to execute this Agreement.
5.06 Term. This Agreement shall commence on the date of execution indicated
----
below and shall continue in effect until otherwise agreed to in writing by
HomeBase and BJI, or their successors.
5.07 Titles and Headings Titles and headings to sections herein are inserted
-------------------
for the convenience of reference only and are not intended to be a part or
to affect the meaning or interpretation of this Agreement.
5.08 Legal Enforceability Any provision of this Agreement which is prohibited
--------------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each
party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder shall be specifically enforceable.
5.09 Successors and Assigns. This Agreement and all of the provisions hereof
----------------------
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns. Notwithstanding any other provision of
this Agreement, neither HomeBase nor BJI shall sell or otherwise transfer
all or substantially all of its business, operations or assets, whether by
merger, consolidation, stock sale, asset sale or otherwise, unless the
obligation of the transferor to pay Restructuring Taxes pursuant to the
terms hereof is assumed by or otherwise becomes the obligation of the
transferee, either by operation of law or by agreement among the parties.
5.10 Amendments. This Agreement may not be modified or amended except by an
----------
agreement in writing, signed by the parties hereto.
Tax Sharing Agreement
-18-
<PAGE>
5.11 Counterparts. This Agreement may be executed in counterparts, each of which
------------
shall be deemed to be an original and all of which together shall be deemed
to be one and the same instrument.
5.12 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic substantive laws of the Commonwealth of
Massachusetts without regard to any choice or conflict of law rule or
provision that would result in the application of the domestic substantive
laws of any other jurisdiction.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Tax Sharing Agreement
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Tax Sharing
Agreement to be duly executed as of the day and year first above written.
WABAN INC.
By: /s/ Herbert J. Zarkin
----------------------------
Herbert J. Zarkin
President
BJ'S WHOLESALE CLUB, INC.
By: /s/ John J. Nugent
----------------------------
John J. Nugent
President
Tax Sharing Agreement
-20-
<PAGE>
EXHIBIT 10.4
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT (the "Employee Benefits Agreement"), dated
as of July 28, 1997, is between Waban Inc., a Delaware corporation ("Waban"),
and BJI Wholesale Club, Inc., a Delaware corporation and, as of the date hereof,
a wholly owned subsidiary of Waban ("BJI").
WHEREAS, Waban and BJI have entered into a Separation and Distribution
Agreement (the "Distribution Agreement") which contemplates the separation of
Waban's "BJ's Wholesale Club" and "HomeBase" businesses into two distinct
companies by transferring the BJ's Wholesale Club business to BJI (the
"Separation") and, then, distributing all of the outstanding shares of BJI
Common Stock on a pro rata basis to the holders of Waban Common Stock (the
"Distribution"); and
WHEREAS, the Distribution Agreement contemplates the execution and delivery
of this Employee Benefits Agreement, the purpose of which is to set forth
certain matters regarding the treatment of employee benefit plans as a result
of, and in connection with, the Separation and the Distribution.
NOW, THEREFORE, in consideration of the mutual agreement, provisions and
covenants contained in this Employee Benefits Agreement, the parties hereby
agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Employee Benefits Agreement, terms shall have the meaning
set forth in the Distribution Agreement, unless otherwise expressly provided
herein. In addition, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural form of the
terms defined):
BJI Employee: The term "BJI Employee" shall mean (a) any individual who, on
------------
or immediately prior to the Distribution Date, is employed by Waban or any Waban
Subsidiary or is on a leave of absence approved by Waban or any Waban Subsidiary
and who, immediately after the Distribution Date, is employed by BJI or any BJI
Subsidiary or who is continuing on a leave of absence approved by BJI or any BJI
Subsidiary, and (b) any individual whose employment is transferred from Waban or
any Waban Subsidiary to BJI or any BJI Subsidiary within three months after the
Distribution Date.
BJI Common Stock Value: The term "BJI Common Stock Value" shall mean the
----------------------
average of the closing prices of BJI Common Stock on the New York Stock Exchange
during the ten trading days immediately following the Distribution Date.
<PAGE>
Former BJI Employee: The term "Former BJI Employee" shall mean any
-------------------
individual who was an employee of the BJ's Wholesale Club division of Waban but
terminated such employment prior to the Distribution Date.
Stock Value Ratio: The term "Stock Value Ratio" shall mean the number
-----------------
determined by dividing the Waban Common Stock Value by the BJI Common Stock
Value.
Transfer Date: The term "Transfer Date" shall mean (i) with respect to any
-------------
BJI Employee described in clause (a) of the definition of BJI Employee, the
Distribution Date, and (ii) with respect to any BJI Employee described in clause
(b) of the definition of BJI Employee, the date on which such BJI Employee's
employment is transferred from Waban or any Waban Subsidiary to BJI or any BJI
Subsidiary.
Waban Common Stock Value: The term "Waban Common Stock Value" shall mean
------------------------
the average of the closing prices of Waban Common Stock on the New York Stock
Exchange during the last ten trading days preceding the Distribution Date on
which Waban Common Stock is still traded with the right to receive shares of BJI
Common Stock in the Distribution.
ARTICLE 2
CERTAIN BENEFIT PLAN MATTERS
2.1 Certain BJI Plans; Assumptions of Obligations by BJI. Except as
----------------------------------------------------
provided in Section 2.5, BJI hereby agrees to establish as of the Distribution
Date employee benefit plans (the "BJI Plans") having substantially the same
terms and provisions as the employee benefit plans currently maintained by Waban
which are listed on Schedule 2.1 hereto (the "Waban Plans"). Except for
Liabilities arising under such Waban Plans with respect to each BJI Employee or
Former BJI Employee for the period ending on (a) the BJI Employee's Transfer
Date or (b) Former BJI Employee's termination of employment with Waban (the
"Termination Date") which are assumed or retained by Waban pursuant to this
Article 2, BJI hereby agrees to assume or retain under the applicable BJI Plan
with respect to each BJI Employee or Former BJI Employee all Liabilities under
the corresponding Waban Plan accrued for the period ending on (a) the BJI
Employee's Transfer Date, and (b) the Former BJI Employee's Termination Date.
BJI acknowledges and agrees that Waban is making no representations or
warranties hereunder or otherwise that the costs to BJI of providing benefits
under the BJI Plans (including without limitation costs consisting of premiums
and other charges to third party service providers) will be the same as the
corresponding costs heretofore incurred by Waban. Nothing in this Employee
Benefits Agreement shall be construed to prevent BJI from altering or
discontinuing any BJI Plans established by it pursuant to this Section 2.
-2-
<PAGE>
2.2 Certain Payments by Waban; Payments with Respect to BJI Employees Who
---------------------------------------------------------------------
Will also Be HomeBase Employees.
- -------------------------------
(a) Certain Payments by Waban. Waban hereby agrees to pay all
-------------------------
insurance premiums or similar plan payments attributable to each participant who
will become a BJI Employee for the period ending on such participant's Transfer
Date (or the end of the month thereafter if insurance premiums or third party
administration deposits are paid on a monthly basis) under each Waban Plan
listed on Schedule 2.2 hereto.
(b) Payments with Respect to BJI Employees Who Will Also Be HomeBase
----------------------------------------------------------------
Employees. After the Distribution, with respect to any person who is an employee
- ---------
of both BJI and HomeBase, whenever an employer is not providing medical benefit
coverage for such employee, it will pay the employer that is providing such
coverage one-half of the cost of that coverage at the rate used by the employer
providing such coverage for purposes of calculating the applicable premium under
Section 4980B of the Code, as amended from time to time.
2.3 Certain Medical Claims. Waban hereby agrees to retain all medical
----------------------
costs, including insurance premiums or the payment and reimbursement of claims,
of each BJI Employee and his or her covered dependents for claims which are
submitted on or prior to the BJI Employee's Transfer Date with respect to
expenses for medical services rendered to such persons during the period ending
on such Transfer Date.
2.4 Employees on Certain Leave. If any individual who becomes a BJI
--------------------------
Employee is on a leave of absence approved by Waban or any Waban Subsidiary on
his or her Transfer Date, and continues on a leave approved by BJI or any BJI
Subsidiary after the Transfer Date, then such leave shall continue under BJI's
leave policies and BJI shall assume any liability for any benefits provided by
Waban prior to the Transfer Date or any benefits required to be provided by law;
provided that the maximum amount and duration of such benefits as well as the
duration of the leave shall not exceed such limits under the applicable Waban
policy.
2.5 Retirement Plan. The Waban Retirement Plan (the "Retirement Plan") was
---------------
frozen in 1992. Waban intends to terminate the Retirement Plan in the 1997
fiscal year. Benefits accrued by BJI Employees while they were employees of
Waban will be distributed in accordance with the terms of the Retirement Plan
(including any provisions applicable to the intended termination) and consistent
with applicable law. BJI will not assume the Retirement Plan nor any liabilities
thereunder; provided that if the Plan Administrator of the Retirement Plan
initiates a standard termination of the Retirement Plan under Section 4041 of
the Employee Retirement Income Security Act of 1974, as amended, during fiscal
year 1997 and no amendments to the Retirement Plan are made which would increase
the present value of the accrued benefits, then BJI will pay to Waban 75% of any
amount contributed or to be contributed to the Retirement
-3-
<PAGE>
Plan after the Distribution Date by Waban, net of the income tax benefit to
Waban of such contribution, in order for the Retirement Plan to pay all accrued
benefits.
2.6 Savings Plan. Pursuant to Section 2.1 hereof, BJI will establish one
------------
or more savings plans for BJI Employees (the "BJI Savings Plan"), effective
immediately after the Distribution Date, with terms and provisions similar to
those of the Waban 401(k) Savings Plan for Hourly Employees and the Waban 401(k)
Savings Plan for Salaried Employees (the "Waban Savings Plans"). BJI will cause
the BJI Savings Plan to credit, for all purposes under the BJI Savings Plan,
each BJI Employee's service with Waban or any Waban Subsidiaries as if it were
service with BJI.
2.6.1. Participation. Each BJI Employee who is participating in one
-------------
of the Waban Savings Plans immediately prior to his or her Transfer Date shall
cease to participate in such Waban Savings Plan as of such Transfer Date and
shall become a participant in the BJI Savings Plan. Each BJI Employee who makes
salary reduction contributions to a Waban Savings Plan during the calendar
quarter in which his or her Transfer Date occurs, with respect to compensation
paid on or before such Transfer Date, and who continues to be employed by BJI or
a BJI Subsidiary at the end of such calendar quarter, will have matching
contributions made to the BJI Savings Plan as the successor to the Waban Savings
Plans, by Waban, with respect to those contributions, as of the end of such
calendar quarter.
2.6.2. Transfer of Accounts. Waban will cause the Trustees of the
--------------------
trust established under the Waban Savings Plans (the "Waban Savings Trust") to
transfer to one or more trusts established under the BJI Savings Plan (the "BJI
Savings Trust"), as soon as practicable after the Transfer Date, any assets
allocable to the individual accounts maintained in the Waban Savings Trust for
any individual who becomes a BJI Employee on such Transfer Date other than any
assets held in the subtrusts established for certain Executive Life Insurance
Contracts. The Trustee of the Waban Savings Trust shall comply with any
reasonable requests by the Trustee of the BJI Savings Trust concerning the
manner and the timing of such transfers.
2.6.3. Closing Agreement. To the extent that amounts held in the
-----------------
suspense account maintained in accordance with the terms of the Closing
Agreement on Final Determination Covering Specific Matters entered into by Waban
Inc. and the Trustees of the Waban Savings Trusts and the Internal Revenue
Service (the "Closing Agreement") would have been distributed to BJI or
allocated to accounts which have been transferred to the BJI Savings Plan in
accordance with the terms of this Section 2.6 if they were still maintained in
the Waban Savings Trust, then an appropriate amount agreed to by Trustees of The
Waban Savings Trust and The BJI Savings Trust will be transferred to BJI or the
BJI Savings Trusts and allocated thereunder, to the extent consistent with the
Closing Agreement. Any loan by Waban to the Waban Savings Trusts made in
accordance with the Closing Agreement shall not be affected by the Distribution
and shall not be assumed, in whole or in part, by BJI.
-4-
<PAGE>
2.7 Executive Retirement Plan and Executive Life Insurance Policies.
---------------------------------------------------------------
2.7.1. Executive Retirement Plan. BJI will establish an Executive
-------------------------
Retirement Plan (the "BJI Executive Retirement Plan") with substantially the
same terms and provisions as the Waban Inc. Executive Retirement Plan (the
"Waban Executive Retirement Plan"). Waban hereby agrees to transfer to BJI, as
of the Distribution Date, by executing instruments and taking such other action
as BJI may reasonably require, any interest Waban has in the investment or
insurance contracts or other arrangements used to provide benefits to BJI
Employees participating under the Waban Executive Retirement Plan, and which are
listed on Schedule 2.7A.
2.7.2. Executive Life Insurance. Waban hereby agrees to transfer to
------------------------
BJI as of the Distribution Date, by executing any instruments and taking such
other action BJI may reasonably require, the life insurance policies listed on
Schedule 2.7B, hereto.
2.8 Incentive Plans.
---------------
2.8.1. Replacement Stock Incentive Plan.
--------------------------------
(a) Replacement Options.
-------------------
(i) General. BJI has adopted the BJ's Wholesale Club,
-------
Inc. 1997 Replacement Stock Incentive Plan ("BJI Replacement Stock Plan")
pursuant to which BJI will grant to officers and key employees on or after the
Distribution Date options to purchase BJI Common Stock (the "BJI Replacement
Options") which have substantially the same terms and provisions as outstanding
Waban options granted under the Waban Inc. 1989 Stock Incentive Plan (the "Waban
Stock Plan"), to the extent then unexercised, (the "Waban Options") which are
surrendered by BJI Employees (the "Surrendered Waban Options").
(ii) For BJI Employees Who Will Not Be HomeBase
------------------------------------------
Employees. Each BJI Replacement Option shall provide for the purchase of a
- ---------
number of shares of BJI Common Stock equal to (a) the number of shares of Waban
Common Stock subject to the Surrendered Waban Option it replaces multiplied by
(b) the Stock Value Ratio, and then rounding down to the nearest whole share.
The per share exercise price of each BJI Replacement Option will equal (a) the
per share exercise price of the Surrendered Waban Option it replaces divided by
(b) the Stock Value Ratio; provided that the price per share of each BJI
Replacement Option will be rounded up to the next higher cent.
(iii) For BJI Employees Who Will Also Be HomeBase
-------------------------------------------
Employees. Each Waban Option which is held by a person who is an employee of
- ---------
both BJI and HomeBase after the Distribution, will be treated as follows: (i) a
new option to purchase BJI Common Stock will be granted under the BJI
Replacement Stock Plan for
-5-
<PAGE>
the same aggregate number of shares covered by the applicable Waban Option ("New
BJI Option"), with an exercise price equal to (a) the exercise price of the
applicable Waban Option divided by (b) the Stock Value Ratio, and (ii) the
applicable Waban Option will remain outstanding for the purchase of the same
number of shares but the exercise price of such Waban Option will equal (a) the
exercise price of such Waban Option, minus (b) the exercise price of the New BJI
Option granted with respect to such Waban Option.
(b) Restricted Stock.
----------------
(i) General. Holders of restricted Waban Common Stock
-------
granted under the Waban Stock Plan ("Restricted Waban Common Stock") will
receive the same dividends as those paid to holders of unrestricted shares,
including shares of BJI Common Stock to be issued in the Distribution. Shares of
BJI Common Stock received by such holders of Restricted Waban Common Stock will
be subject to the same restrictions and vesting schedule as the Restricted Waban
Common Stock on account of which the special dividend was made.
(ii) For BJI Employees Who Will Not Be HomeBase
------------------------------------------
Employees. After the Distribution, on the Transfer Date of each BJI Employee who
- ---------
is a holder of Restricted Waban Common Stock, the Restricted Waban Common Stock
and the BJI Common Stock received in the Distribution will be forfeited to
Waban. A replacement award of BJI Common Stock subject to the same restrictions
and vesting schedule as the forfeited shares will be made to such BJI Employee
under the BJI Replacement Stock Plan. The number of shares of restricted BJI
Common Stock awarded will equal (a) the number of shares of Restricted Waban
Common Stock forfeited multiplied by (b) the Stock Value Ratio (with any
fractional interest of 0.5 or more to be rounded up and any fractional interest
of less than 0.5 to be rounded down to the nearest whole number).
(iii) For BJI Employees Who Will Also Be HomeBase
-------------------------------------------
Employees. After the Distribution, any holders of Restricted Waban Common Stock
- ---------
who are employees of both BJI and HomeBase will be treated as follows: (a) their
shares of Restricted Waban Common Stock will continue to be subject to the same
restrictions and vesting schedule as they were prior to the Distribution and (b)
the shares of BJI Common Stock issued as a result of the Distribution will be
subject to the same restrictions and vesting schedule as the shares of
Restricted Waban Common Stock to which they related, provided that all
references to a requirement of continued employment in connection with the BJI
Common Stock shall be deemed to refer exclusively to employment by BJI or a BJI
Subsidiary.
2.8.2. 1997 Stock Incentive Plan. BJI has adopted the BJ's
-------------------------
Wholesale Club, Inc. 1997 Stock Incentive Plan (the "New Stock Incentive Plan")
which contains substantially the same terms and conditions as the Waban Inc.
1997 Stock Incentive Plan.
-6-
<PAGE>
Under the New Stock Incentive Plan, BJI intends to grant options and other
equity based awards to BJI employees, and others, who make, or are expected to
make, important contributions to BJI.
2.8.3. Cash Incentive Plans. BJI has adopted a Management
--------------------
Incentive Plan and a Growth Incentive Plan containing substantially the same
terms and conditions as the comparable Waban Management Incentive and Growth
Incentive Plans (the "WMIP" and "WGIP"). Persons who become BJI Employees on the
Distribution Date (whether or not such persons are also employees of HomeBase)
and who were participants in the WMIP and/or WGIP will be granted replacement
awards under the BJI Management Incentive Plan and Growth Incentive Plan on
substantially the same terms as applied to their prior unmatured awards, with
modifications necessary to reflect the changes resulting from the Distribution.
BJI will pay all amounts due to BJI Employees under the replacement awards and
Waban will have no liability to such BJI Employees with respect to the awards
under the WMIP and WGIP; provided that any BJI Employee who is also an employee
of HomeBase shall receive all payments from Waban to which such BJI Employee is
otherwise entitled under the WMIP or WGIP.
2.8.4. Director Stock Option Plan. BJI has adopted the BJ's
--------------------------
Wholesale Club, Inc. 1997 Director Stock Option Plan (the "BJI Director Plan")
with substantially the same terms and provisions as the Waban Inc. 1995 Director
Stock Option Plan (the "Waban Director Plan"). Options granted under the Waban
Director Plan to persons who will become directors of BJI following the
Distribution and cease to be directors of Waban will be replaced, to the extent
then unexercised, and upon their surrender, with options granted under the BJI
Director Plan, calculating the number and price of such replacement options in
the manner set forth under Section 2.8.1(a)(ii) with respect to the replacement
of Surrendered Waban Options for BJI Employees. Options granted under the Waban
Director Plan to directors of BJI who continue to be directors of Waban after
the Distribution Date will be retained by such directors. Directors of BJI who
also continue as directors of Waban will also be granted a new option to
purchase BJI Common Stock under the BJI Director Plan. The number of shares
which can be purchased under such new option and the exercise price for such
option, as well as the recalculated exercise price for the retained Waban
options, will be determined in the manner set forth in Section 2.8.1(a)(iii) for
any BJI Employee who is also an employee of HomeBase.
-7-
<PAGE>
ARTICLE THREE
MISCELLANEOUS
3.1 Relationship of Parties. Nothing in this Agreement shall be deemed or
-----------------------
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
3.2 No Third Party Beneficiaries. This Agreement is solely for the parties
----------------------------
hereto and their respective Subsidiaries and Affiliates and shall not be deemed
to confer upon third parties any remedy, claim, Liability, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
3.3 Governing Law. To the extent not preempted by applicable federal law,
-------------
this Employee Benefits Agreement shall be governed by, construed and interpreted
in accordance with the laws of the Commonwealth of Massachusetts, irrespective
of the choice or conflict of law rules or provisions of the Commonwealth of
Massachusetts, as to all matters, including matters of validity, construction,
effect, performance and remedies.
3.4 Incorporation of Distribution Agreement Provisions. The following
--------------------------------------------------
provisions of the Distribution Agreement are hereby incorporated herein by
reference and, unless otherwise expressly specified herein, such provisions
shall apply as if set forth herein: Article 5 (relating to Indemnification);
Article 6 (relating to Access to Information and Service); and Article 7
(relating to Miscellaneous) other than Section 7.4 (relating to Governing Law)
and Section 7.9 (relating to No Third Party Beneficiaries).
3.5 Notices. Any notice, request, demand, claim, or other communication
-------
hereunder shall be in writing and shall be delivered by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, and shall be deemed duly given on the date which
is three days after the date such notice, request, demand, claim, or other
communication is sent:
to Waban:
Waban Inc.
3345 Michelson Drive
Irvine, California 92612
Attention: President
-8-
<PAGE>
to BJI:
BJ's Wholesale Club, Inc.
One Mercer Road
Natick, Massachusetts 01760
Attn: President
Notwithstanding the foregoing, 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 is actually 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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
WABAN INC.
By: /s/ Herbert J. Zarkin
--------------------------------
Herbert J. Zarkin
President
BJ'S WHOLESALE CLUB, INC.
By: /s/ John J. Nugent
-------------------------------
John J. Nugent
President
-10-
<PAGE>
SCHEDULE 2.1 -- WABAN PLANS
Waban Inc. 401(k) Saving Plan for Salaried Employees
Waban Inc. 401(k) Saving Plan for Hourly Employees
Waban Inc. 401(k) Master Trust
Waban Inc. Healthcare Plan
BJ's Wholesale Club Educational Assistance Plan of Waban Inc.
Waban Inc. Group Insurance Plan
Waban Inc. 1989 Stock Incentive Plan
Waban Inc. 1997 Stock Incentive Plan
Waban Inc. Management Incentive Plan
Waban Inc. Growth Incentive Plan
Waban Inc. 1995 Director Stock Option Plan
Waban Inc. Executive Retirement Plan
Waban Inc. General Deferred Compensation Plan
Waban Inc. Change of Control Severance Benefit Plan for Key
Employees
Waban Inc. Change of Control Severance Benefit Plan for Key
Senior Management
<PAGE>
SCHEDULE 2.2 -- WABAN PLANS
Waban Inc. Healthcare Plan
Waban Inc. Group Insurance Plan
<PAGE>
SCHEDULE 2.7A -- WABAN INVESTMENT OR INSURANCE CONTRACTS
Split-Dollar Policies issued by Manufacturers Life:
<TABLE>
<CAPTION>
INSURED DATE OF ISSUE
<S> <C>
C. Cody July 8, 1996
E. H. Kirrane July 8. 1996
K. Rowell July 19, 1993
R. R. Sareeram March 7, 1996
M. E. Tickner October 10, 1996
L. Whelan February 20, 1995
C. Wilgus June 1, 1993
F. Zimmer November 29, 1993
</TABLE>
<PAGE>
SCHEDULE 2.7B -- WABAN LIFE INSURANCE POLICIES
Life Insurance Policies issued by Manufacturers Life:
<TABLE>
<CAPTION>
INSURED POLICY NUMBER
<S> <C>
A. J. Jandreau 3843400-7
J. A. Brent 3374978-9
G. Freeman 3375019-1
R. A. Laferriere 3375064-7
E. J. Weisberger 3375167-8
C. Whittle 3375172-8
H. Zarkin 3367296-5
K. J. Kirwin 3367302-1
</TABLE>
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF WABAN INC.]
- --------------------------------------------------------------------------------
NEWS RELEASE
For Immediate Release Contact: Eileen H. Kirrane
Assistant Vice President and
Investor Relations Director
(508) 651-6650
WABAN INC. COMPLETES SPIN-OFF OF BJ'S WHOLESALE CLUB;
CHANGES NAME TO HOMEBASE, INC.
Natick, MA, July 28, 1997--Waban Inc. announced today that it has
completed its spin-off of BJ's Wholesale Club, Inc. as a special dividend to its
stockholders.
The BJ's spin-off transaction was effected as a tax-free distribution in
the form of a special dividend to Waban's stockholders, on a one-for-one basis,
of all of the outstanding shares of common stock of BJ's Wholesale Club, Inc.
BJ's Wholesale Club, Inc. will commence "regular way" trading on the New York
Stock Exchange on Tuesday, July 29, 1997 under the symbol "BJ."
In accordance with its previously announced plans, Waban has changed its
name to HomeBase, Inc. effective 5:00 p.m., eastern time today, following the
distribution of BJ's Wholesale Club, Inc. common stock. HomeBase, Inc. common
stock will be traded on the New York Stock Exchange, beginning Tuesday, July 29,
1997, under the symbol "HBI."
BJ's Wholesale Club, Inc. is a leading membership warehouse club chain
in the eastern United States, with 82 clubs operating in 12 states. HomeBase,
Inc. is a leading merchandiser of home improvement products, with 84 warehouse
stores in ten western states.
####
